<PAGE> 1
As Filed with the Securities and Exchange Commission on February 8, 2000
Registration No. 333-94505
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM F-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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DELANO TECHNOLOGY CORPORATION
(Exact name of Registrant as specified in its charter)
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ONTARIO 7372 98-0206122
(Province or other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification No.)
Incorporation or Organization)
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40 WEST WILMOT STREET, RICHMOND HILL, ONTARIO, CANADA L4B 1H8
(905) 764-5499
(Address and telephone number of Registrant's principal executive offices)
CT CORPORATION SYSTEM
111 8TH AVENUE, NEW YORK, NEW YORK 10011
(212) 894-8940
(Name, address and telephone number of agent for service)
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COPIES TO:
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Christopher W. Morgan, Esq. Mark L. Johnson, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP Foley, Hoag & Eliot LLP
Suite 1820, North Tower One Post Office Square
P.O. Box 189, Royal Bank Plaza Boston, Massachusetts 02109
Toronto, Ontario M5J 2J4 (617) 832-1000
(416) 777-4700
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF
SECURITIES TO BE AMOUNT TO PROPOSED MAXIMUM OFFERING PRICE PROPOSED MAXIMUM AGGREGATE AMOUNT OF
REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE(3)
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Common Shares........ 5,750,000 SHARES $16.00 $92,000,000 $24,288
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</TABLE>
(1) Includes offering price of shares that the Underwriters have the option to
purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) and based on a bona fide estimate
of the maximum offering price.
(3) Of such amount, $16,698 has been previously paid and $7,590 is being paid
herewith.
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
PART I
INFORMATION REQUIRED TO BE
DELIVERED TO OFFEREES OR PURCHASERS
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: (a) one
prospectus to be used in connection with an offering in the United States and
certain provinces of Canada and (b) one prospectus to be used in connection with
a concurrent offering outside of the United States and Canada. The U.S./Canadian
prospectus and the international prospectus are identical in all respects except
for the front cover page and the "Underwriting" section. The front cover page
and the "Underwriting" section of the international prospectus are included
immediately before Part II of this registration statement.
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 8, 2000
[DELANO LOGO]
5,000,000 SHARES
COMMON SHARES
Delano Technology Corporation is offering 5,000,000 of its common shares.
This is our initial public offering and no public market currently exists for
our shares. The shares have been approved for quotation on the Nasdaq National
Market under the symbol "DTEC." We anticipate that the initial public offering
price will be between $14.00 and $16.00 per share.
------------------------------
INVESTING IN THE COMMON SHARES INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------------------
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PER SHARE TOTAL
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Public Offering Price....................................... $ $
Underwriting Commissions.................................... $ $
Proceeds to Delano.......................................... $ $
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THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS
HAVE NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We have granted the underwriters a 30-day option to purchase up to
750,000 additional common shares to cover over-allotments.
------------------------------
ROBERTSON STEPHENS U.S. BANCORP PIPER JAFFRAY
THE DATE OF THIS PROSPECTUS IS , 2000
<PAGE> 4
[DESCRIPTION OF INSIDE FRONT COVER ARTWORK]
[The Delano logo appears in the upper left corner.
To its right appear pictures of
(1) a globe floating above two hands,
(2) a computer screen and
(3) a man and a woman shaking hands.
Underneath the logo and pictures appear the following:]
DELANO TECHNOLOGY CORPORATION is a provider of
e-business communications software
DELANO E-BUSINESS INTERACTION SUITE
SALES
- order confirmation
- order fulfillment
- e-coupons...
MARKETING
- lead tracking/management
- customer registration
- customer surveys
- marketing campaigns
- winback programs...
SERVICE
- customer support
- personalized newsletters
- event notification
- personal page...
OPERATIONS
- destination reports
- equipment dispatch reports
- advanced shipping notices...
HR
- T&E reporting
- resume tracking
- suggestion box...
FINANCE
- aged A/R notification
- credit management
- invoice notification
- investor relations...
DELANO'S products and services enable e-businesses to use e-mail and the
web to interact with their customers, partners, suppliers and
employees. Our e-business communications software can be used by most
operational areas within an organization, including finance, marketing,
sales, service, operations and human resources.
<PAGE> 5
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, COMMON SHARES ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF
THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY
SALE OF OUR COMMON SHARES. IN THIS PROSPECTUS, "DELANO," "WE," "US" AND "OUR"
REFER TO DELANO TECHNOLOGY CORPORATION, AN ONTARIO CORPORATION, AND ITS WHOLLY
OWNED SUBSIDIARIES, UNLESS THE CONTEXT REQUIRES OTHERWISE.
EXCEPT PURSUANT TO A CANADIAN PROSPECTUS OR PROSPECTUS EXEMPTION UNDER
APPLICABLE SECURITIES LEGISLATION, THE COMMON SHARES MAY NOT BE OFFERED OR SOLD
IN CANADA, AND THIS PROSPECTUS IS NOT AN OFFER TO SELL, AND WE ARE NOT BY THIS
PROSPECTUS SOLICITING OFFERS TO BUY THESE SECURITIES, IN CANADA.
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON SHARES, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------
TABLE OF CONTENTS
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PAGE
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Summary..................................................... 1
Risk Factors................................................ 5
Special Note Regarding Forward-Looking Statements; Market
Data...................................................... 18
Exchange Rate Information................................... 19
Enforceability of Civil Liabilities......................... 19
Use of Proceeds............................................. 20
Dividend Policy............................................. 20
Capitalization.............................................. 21
Dilution.................................................... 22
Selected Consolidated Financial Data........................ 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
Business.................................................... 34
Management.................................................. 43
Transactions with Related Parties........................... 49
Principal Shareholders...................................... 50
Description of Share Capital................................ 52
Shares Eligible for Future Sale............................. 54
Tax Considerations.......................................... 55
Underwriting................................................ 59
Legal Matters............................................... 62
Experts..................................................... 62
Where You Can Find More Information......................... 62
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------------
Delano, Delano Campaign Server, Delano Component Development Kit, Delano
Component Pack for Back Office, Delano e-Business Interaction Application
Builder, Delano e-Business Interaction Server, Delano e-Business Interaction
Server Administrator, Delano e-Business Interaction Suite and the Delano logo
are trademarks of Delano. This prospectus also makes reference to trademarks of
other companies.
(i)
<PAGE> 6
SUMMARY
You should read the following summary together with the more detailed
information about Delano and the common shares being sold in this offering,
including our consolidated financial statements and the related notes appearing
elsewhere in this prospectus.
DELANO TECHNOLOGY CORPORATION
We provide communications software that enables companies to rapidly
develop and deploy applications that automate business processes and personalize
and manage interactions over the internet with their existing and prospective
customers, partners, suppliers and employees. These interactions, or e-business
communications, consist of inbound and outbound communications through e-mail as
well as communications through companies' web sites. Companies can use
applications developed with our software to initiate, route, track, analyze,
respond to and manage inbound and outbound e-business communications. These
applications can include marketing campaigns, tracking and management of
business leads, electronic surveys, personalized newsletters, inbound e-mail
support, automated customer support, and procurement and inventory management.
We are focusing our sales efforts on businesses in the financial services,
technology, telecommunications, transportation, retail and marketing services
industries, as well as other organizations engaged in, or focused on,
business-to-business or business-to-consumer commercial opportunities using the
internet. Where desirable, our professional services group can assist our
clients' internal information technology, or IT, personnel to implement our
products. To date, we have derived substantially all of our revenues from the
sale of software product licenses.
As the internet becomes an accepted channel for business-to-business and
business-to-consumer interactions, businesses increasingly need an effective and
reliable solution that enables them to manage the growing volume of inbound and
outbound traffic associated with the increased use of the internet. For example,
Jupiter Communications conducted a survey among 125 companies with content,
consumer brands, travel, retail and financial services web sites and discovered
that 51% of those sites either took longer than five days to reply to e-mail
inquiries or failed to respond at all. International Data Corporation estimates
that the worldwide customer relationship management application market will grow
from $1.9 billion in 1998 to $11.0 billion by 2003, and the Direct Marketing
Association estimates that interactive direct-marketing expenditures for the
business market will increase from $379.7 million in 1998 to $3.2 billion by
2003.
We believe our products provide the following principal benefits to our
clients:
- Enhanced Communications. Our products help a client develop and deploy
e-business communications applications across many operational areas,
enabling the client to respond rapidly and effectively to large volumes
of e-mail and other communications over the internet.
- Rapid Deployment. Our products are designed to enable our clients to
develop a wide range of e-business communications applications in a
matter of days or weeks.
- Scalability. We have designed our products to reliably support multiple
business processes and thousands of simultaneous e-business
interactions.
- Increased Revenue Opportunities and Reduced Operating Costs. Clients
can generate revenues through our applications for marketing campaigns
and for lead tracking and management. Our products enable clients to
process large volumes of e-business communications automatically, using
a reduced number of support and administrative personnel.
Our objective is to establish our products as the leading e-business
communications software. The following are the key elements of our strategy for
achieving this objective:
- extend our technology leadership by developing new and enhanced
products, including products designed to manage higher volumes of
communications, improve integration with our clients' existing IT
infrastructures and further reduce the time required to develop and
deploy e-business communications applications;
1
<PAGE> 7
- increase our penetration of our target markets by, for example,
introducing new products for particular application areas relevant to
our target industries;
- increase our presence worldwide beyond our historical focus on North
America to take advantage of the growing worldwide demand for
e-business communications applications; and
- increase our distribution capabilities to enhance our market presence
and leverage our sales and service resources by continuing to develop
relationships with established third-party distribution companies,
consulting organizations and software vendors.
Potential investors should consider the following additional
considerations before deciding to invest in our common shares. We first recorded
revenues in the quarter ended June 30, 1999 and have a limited operating
history, making it difficult to evaluate our business and prospects. Since our
inception, we have incurred substantial operating losses in every quarter,
resulting in an accumulated deficit of $6.2 million at December 31, 1999. We
expect to continue to incur losses for the foreseeable future. To date, a
significant portion of our total revenues has been derived from licenses of our
Delano e-Business Interaction Suite and related services to a small number of
clients. We expect that we will continue to be dependent upon a limited number
of clients for a significant portion of our revenues in future periods. Broad
and timely market acceptance of our products is critical to our future success.
Because our market is rapidly changing and highly competitive, we may not be
able to compete successfully against current or potential competitors. For a
discussion of these and other risks relating to an investment in our common
shares, see "Risk Factors."
Delano was incorporated under the laws of the Province of Ontario on May
7, 1998. Our principal executive offices are located at 40 West Wilmot Street,
Richmond Hill, Ontario, Canada L4B 1H8. Our telephone number at that location is
(905) 764-5499. Our web site address is www.delanotech.com. The information
contained on our web site is not part of this prospectus.
CONCURRENT CANADIAN PRIVATE PLACEMENT
On February 7, 2000, we entered into an agreement with Nortel Networks for
the purchase by Nortel Networks of 500,000 common shares in a private placement
in Canada. The common shares will be purchased at the initial public offering
price. The closing of the private placement will occur at the same time as the
closing of this offering. Nortel Networks has agreed not to dispose of or hedge
any of its common shares for 180 days following the date of this prospectus
without the consent of FleetBoston Robertson Stephens Inc. We will not pay any
placement fees or commissions for the common shares sold in the private
placement. The private placement is conditional upon the closing of this
offering.
2
<PAGE> 8
THE OFFERING
Common shares offered by Delano......... 5,000,000 shares
Common shares to be outstanding after
the offering............................ 29,174,598 shares
Use of proceeds......................... To fund sales and marketing
activities, research and
development, and working capital
and other general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol.................................. DTEC
The number of common shares to be outstanding after the offering is based
on common shares outstanding as of January 31, 2000. This number includes
18,174,598 common shares to be issued upon completion of this offering as the
result of the conversion of our outstanding redeemable convertible special
shares and exercises of our outstanding special warrants, as well as 500,000
common shares to be issued to Nortel Networks in a private placement in Canada.
This number excludes (1) 3,749,850 common shares issuable upon exercise of
options outstanding at January 31, 2000 under our stock option plan, which have
a weighted average exercise price of $1.94 per share, and (2) 394,737 common
shares issuable upon the exercise of a warrant outstanding at January 31, 2000,
which has an exercise price of $0.44 per share.
The underwriters have reserved up to 400,000 common shares for sale to
Canada Life Assurance at the initial public offering price. Canada Life
Assurance has not committed to purchasing these common shares.
------------------------------
Unless otherwise indicated, the information in this prospectus assumes:
- the underwriters have not exercised the option granted by us to
purchase additional shares in this offering;
- the conversion of all outstanding redeemable convertible special shares
into an aggregate of 11,684,212 common shares, which will occur
automatically upon the completion of this offering;
- the exercise of all outstanding special warrants to purchase an
aggregate of 6,490,386 common shares in connection with the completion
of this offering;
- the issuance of 500,000 common shares to Nortel Networks in a private
placement in Canada at the initial public offering price, which will
close concurrently with this offering; and
- the completion of a 3-for-2 split of our common shares, which was made
effective by articles of amendment filed on February 7, 2000.
See "Underwriting" and "Description of Share Capital."
------------------------------
Our financial statements are reported in United States dollars and have
been prepared in accordance with accounting principles generally accepted in the
United States.
We express all dollar amounts in this prospectus in United States dollars,
except where otherwise indicated. References to "$" are to United States dollars
and references to "Cdn$" are to Canadian dollars. This prospectus contains a
translation of some Canadian dollar amounts into U.S. dollars at specified
exchange rates solely for your convenience. Unless otherwise indicated, these
Canadian dollar amounts were translated into U.S. dollars based on Cdn$1.00 per
US$0.6925, which was the inverse of the noon buying rate in The City of New York
for cable transfers in Canadian dollars as certified for customs purposes by the
Federal Reserve Bank of New York on December 31, 1999. See "Exchange Rate
Information."
3
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables summarize the financial data of our business. The pro
forma share information included in the consolidated statements of operations
data has been computed as described in note 2 of the notes to consolidated
financial statements included elsewhere in this prospectus. The pro forma column
in the consolidated balance sheet data reflects the conversion of our
outstanding redeemable convertible special shares into common shares and the
exercise of our outstanding special warrants to acquire common shares, all in
connection with the completion of this offering. The pro forma as adjusted
column in the consolidated balance sheet data also reflects our sale of the
5,000,000 common shares offered by us at an assumed public offering price of
$15.00 per share after deducting estimated underwriting commissions and
estimated offering expenses, the private placement in Canada of 500,000 shares
to Nortel Networks at an assumed price of $15.00 per share and the application
of the estimated net proceeds as described under "Use of Proceeds."
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PERIOD FROM MAY 7, PERIOD FROM MAY 7, NINE MONTHS
1998 (INCEPTION) TO 1998 (INCEPTION) TO ENDED
MARCH 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999
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CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues:
Products................................ -- -- $ 5,061
Services................................ -- -- 296
Total revenues....................... -- -- 5,357
Gross profit.............................. -- -- 4,636
Loss from operations...................... $(1,702) $ (677) (4,600)
Loss for the period applicable to common
shares.................................. (1,790) (677) (4,458)
Basic and diluted loss per common share... $ (2.40) $ (1.35) $ (1.85)
======= ======= =======
Shares used in computing basic and diluted
loss per common share................... 746 503 2,415
======= ======= =======
Pro forma basic and diluted loss per
common share............................ $ (0.30) $ (0.24)
======= =======
Shares used in computing pro forma basic
and diluted loss per common share....... 6,010 18,584
======= =======
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DECEMBER 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................ $11,940 $11,940 $88,390
Working capital.......................................... 12,187 12,187 88,637
Total assets............................................. 16,590 16,590 93,040
Long-term obligations, net of current portion............ 267 267 267
Redeemable convertible special shares.................... 3,851 -- --
Special warrants......................................... 14,703 -- --
Shareholders' equity (deficiency)........................ (5,458) 13,096 89,546
</TABLE>
4
<PAGE> 10
RISK FACTORS
Investing in our common shares will subject you to risks inherent in our
business. You should carefully consider the following factors as well as other
information contained in this prospectus before deciding to invest in our common
shares. If any of the risks described below occurs, our business, results of
operations and financial condition could be adversely affected. In such cases,
the price of our common shares could decline, and you may lose part or all of
your investment.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS AND
FORECAST OUR FUTURE OPERATING RESULTS.
We were incorporated on May 7, 1998, and we first recorded revenues in the
quarter ended June 30, 1999. We are still in the early stages of our development
and have a limited operating history, making it difficult to evaluate our
business and prospects. As a result of our limited operating history, it is
difficult or impossible for us to predict future operating results. For example,
we cannot forecast operating expenses based on our historical results because
our historical results are limited and we, to some extent, forecast expenses
based on future revenue projections. Moreover, due to our limited operating
history, any evaluation of our business and prospects must be made in light of
the risks and uncertainties often encountered by early-stage companies in
internet-related markets. Many of these risks are discussed in the subheadings
below, and include our ability to execute our product development activities,
implement our sales and marketing initiatives, both domestically and
internationally, and attract more clients. We may not successfully address any
of these risks.
FACTORS RELATING TO OUR BUSINESS MAKE OUR FUTURE OPERATING RESULTS UNCERTAIN,
AND MAY CAUSE THEM TO FLUCTUATE FROM PERIOD TO PERIOD.
Our quarterly revenues and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter, particularly because our
products and services are relatively new and our prospects are uncertain. If our
quarterly revenues or operating results fall below the expectations of
investors, the price of our common shares could decline substantially. Factors
that might cause quarterly fluctuations in our operating results include the
risk factors described in the subheadings below as well as the following:
- the timing of new releases of our products;
- changes in our pricing policies or those of our competitors, including
the extent to which we may need to offer discounts to match
competitors' pricing;
- the mix of sales channels through which our products and services are
sold;
- the mix of our domestic and international sales;
- costs related to the customization of our products;
- our ability to expand our operations, and the amount and timing of
expenditures related to this expansion; and
- any costs or expenses related to our anticipated move to new corporate
offices.
Our operating results may also be affected by the following factors over
which we have little or no control:
- the evolving and varying demand for interaction-based software products
and services for e-businesses, particularly our products and services;
- the discretionary nature of our clients' purchasing and budgetary
cycles;
- the timing of execution of large contracts that materially affect our
operating results; and
- global economic conditions, as well as those specific to large
enterprises with high e-mail volume.
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<PAGE> 11
OUR OPERATING EXPENSES ARE RELATIVELY FIXED, WHICH WOULD CAUSE OUR OPERATING
RESULTS TO VARY FROM PERIOD TO PERIOD.
Most of our expenses, such as employee compensation and rent, are
relatively fixed in the short term. Moreover, our expense levels are based, in
part, on our expectations regarding future revenue levels. As a result, if total
revenues for a particular quarter are below our expectations, we can not
proportionately reduce operating expenses for that quarter. Therefore, this
revenue shortfall would have a disproportionate effect on our operating results
for that quarter.
WE HAVE A HISTORY OF LOSSES, WE MAY INCUR LOSSES IN THE FUTURE AND OUR LOSSES
MAY INCREASE BECAUSE OF OUR PLAN TO INCREASE OPERATING EXPENSES.
Since we began operations in May 1998, we have incurred substantial
operating losses in every quarter. As a result of accumulated operating losses,
as of December 31, 1999, we had an accumulated deficit of $6.2 million. For the
nine months ended December 31, 1999, we had a net loss of $4.2 million, or 79.3%
of total revenues for that period. Our growth in recent periods has been from a
limited base of clients, and we may not be able to sustain our growth rate. We
expect to continue to increase our operating expenses. As a result, we expect to
continue to experience losses and negative cash flow, even if sales of our
products and services continue to grow, and we may not generate sufficient
revenues to achieve profitability in the future.
In addition, as a result of our rapid growth, we expect that our losses
will increase even more significantly because of additional costs and expenses
related to an increase in:
- the number of our employees;
- research and development activities; and
- sales and marketing activities.
OUR SALES CYCLE IS LONG AND SALES DELAYS COULD CAUSE OUR OPERATING RESULTS TO
VARY WIDELY.
The long sales cycle for our products may cause license revenues and
operating results to vary significantly from period to period. To date, the
sales cycle for our products has been three to six months in the United States
and Canada and may be longer in foreign countries. Our sales cycle is subject to
a number of significant risks, including customers' budgetary constraints and
internal acceptance reviews, over which we have little or no control. We invest
significant amounts of time and resources educating and providing information to
our prospective clients regarding the use and benefits of our products. Many of
our clients evaluate our software relatively slowly and deliberately, depending
on the specific technical capabilities of the client, the size of the
deployment, the complexity of the client's existing IT infrastructure, and the
quantity of hardware and the degree of hardware configuration necessary to
deploy our products. Consequently, if sales expected from a specific customer in
a particular quarter are not realized in that quarter, we are unlikely to be
able to generate revenues from alternate sources in time to compensate for the
shortfall. As a result, and due to the relatively large size of a typical order,
a lost or delayed sale could result in revenues that are lower than expected.
WE ARE DEPENDENT UPON A LIMITED NUMBER OF CLIENTS, AND A LOSS OF ANY OF THESE
CLIENTS OR A REDUCTION, DELAY OR CANCELLATION IN ORDERS FROM THESE CLIENTS COULD
HARM OUR BUSINESS.
To date, a significant portion of the our total revenues has been derived
from sales to a small number of clients. In the nine months ended December 31,
1999, one customer accounted for 26% of our total revenues. We expect that we
will continue to be dependent upon a limited number of clients for a significant
portion of our revenue in future periods. There can be no assurance that our
existing clients or any future clients will continue to use our products. A
reduction, delay or cancellation in orders from our clients, including
reductions or delays due to market, economic or competitive conditions, could
have a material adverse effect on our business, operating results and financial
condition.
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DIFFICULTIES IN IMPLEMENTING OUR PRODUCTS COULD HARM OUR BUSINESS.
Our success depends upon the ability of our staff and our clients to
implement our products. This implementation typically involves working with
sophisticated software, computing and communications systems. If we experience
implementation difficulties or do not meet project milestones in a timely
manner, we could be obligated to devote more customer support, engineering and
other resources to a particular project than anticipated. Some clients may also
require us to develop customized features or capabilities. If new or existing
clients require more time to deploy our products than is originally anticipated,
or require significant amounts of our professional services support or
customized features, our revenue recognition could be further delayed and our
costs could increase, causing increased variability in our operating results.
OUR PRODUCTS AND SERVICES MAY NOT BE ACCEPTED BY THE MARKETPLACE.
Of our total revenues of $5.4 million for the nine months ended December
31, 1999, $5.1 million were derived from licenses of our products and $296,000
were from related services. We are not certain that our target clients will
widely adopt and deploy our products and services. Our future financial
performance will depend on the successful development, introduction and client
acceptance of new and enhanced versions of our products. In the future, we may
not be successful in marketing our products and services or any new or enhanced
products.
WE EXPECT TO DEPEND ON SALES OF OUR DELANO E-BUSINESS INTERACTION SUITE FOR A
SUBSTANTIAL MAJORITY OF OUR REVENUES FOR THE FORESEEABLE FUTURE.
In the nine months ended December 31, 1999, we derived substantially all
of our revenues from licenses of our Delano e-Business Interaction Suite.
Although we expect to add new product offerings, we expect to continue to derive
a substantial majority of our revenues from sales of the Delano e-Business
Interaction Suite for the foreseeable future. Implementation of our strategy
depends on the Delano e-Business Interaction Suite being able to solve the
communication needs of businesses engaging in commercial transactions over the
internet or having an internet presence. If current or future clients are not
satisfied with the Delano e-Business Interaction Suite, our business and
operating results could be seriously harmed.
WE MUST CONTINUE TO DEVELOP ENHANCEMENTS TO OUR PRODUCTS AND NEW APPLICATIONS
AND FEATURES THAT RESPOND TO THE EVOLVING NEEDS OF OUR CLIENTS, RAPID
TECHNOLOGICAL CHANGE AND ADVANCES INTRODUCED BY OUR COMPETITORS.
Future versions of hardware and software platforms embodying new
technologies and the emergence of new industry standards could render our
products obsolete. The market for e-business communications software is
characterized by:
- rapid technological change;
- frequent new product introductions;
- changes in customer requirements; and
- evolving industry standards.
Our products are designed to work on, or interoperate with, a variety of
operating systems used by our clients. However, our software may not operate
correctly on evolving versions of operating systems, or the hardware upon which,
or with which, they are intended to run or interoperate, programming languages,
databases and other systems that our clients use. For example, because the
server component of the current versions of our products run only on the Windows
NT operating system from Microsoft, we must develop products and services that
are compatible with UNIX and other operating systems to meet the demands of our
clients. If we cannot successfully develop these products in response to client
demands or improve our existing products to keep pace with technological
changes, our business could suffer.
We must continually improve the performance, features and reliability of
our products, particularly in response to competitive offerings. Our success
depends, in part, on our ability to enhance our existing software
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and to develop new services, functionality and technologies that address the
increasingly sophisticated and varied needs of our prospective clients. If we do
not properly identify the feature preferences of prospective clients, or if we
fail to deliver features that meet the requirements of these clients on a timely
basis, our ability to market our products successfully and to increase our
revenues will be impaired.
DELAYS IN INTRODUCING NEW AND ENHANCED PRODUCTS COULD HARM OUR BUSINESS.
The development of proprietary technologies and necessary service
enhancements entails significant technical and business risks and requires
substantial expenditures and lead time. If we experience product delays in the
future we may face:
- customer dissatisfaction;
- cancellation of orders and license agreements;
- negative publicity;
- loss of revenues;
- slower market acceptance; and
- legal action by clients against us.
In the future, our efforts to remedy product delays may not be successful and we
may lose clients as a result. Delays in bringing to market new products or
product enhancements could be exploited by our competitors. If we were to lose
market share as a result of lapses in our product development, our business
would suffer.
INTENSE COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL
PERFORMANCE.
The market for our products and services is intensely competitive,
evolving and subject to rapid technological change. We expect the intensity of
competition to increase in the future. Increased competition may result in price
reductions, reduced gross margins and loss of market share. The market for
e-business communications software is new and intensely competitive. There are
no substantial barriers to entry in this emerging market segment, and we expect
established or new entities to enter this market segment in the near future.
We currently face competition for our products principally from systems
designed by in-house and third-party development efforts. In addition, some of
our competitors who currently offer licensed software products are now beginning
to offer online offerings, which involve providing software on a rental basis
hosted on the hardware of an application service provider, or ASP. We currently
do not offer online offerings in any material way.
Our competitors include companies providing software that is focused on a
few operational or functional areas, such as eGain Communications and Kana
Communications. We also compete with companies that provide customer management
and communications solutions, such as Siebel Systems, Silknet Software and
Vantive. Furthermore, established enterprise software companies, including
Hewlett-Packard, IBM and Microsoft, may leverage their existing relationships
and capabilities to offer e-business communications software that competes with
our products. We believe competition will increase as our current competitors
increase the sophistication of their offerings and as new participants enter the
market. We may also face competition from web application servers, messaging
server platform solutions, e-mail application vendors and e-mail service
bureaus.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources, significantly
greater name recognition and a larger installed base of customers than we do. In
addition, many of our competitors have well-established relationships with our
current and potential clients and have extensive knowledge of our industry. We
may lose potential clients to competitors for various reasons, including the
ability or willingness of our competitors to offer lower prices and other
incentives that we cannot match. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. We also expect that competition may
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increase as a result of industry consolidations. We may not be able to compete
successfully against current and future competitors, and competitive pressures
may seriously harm our business.
THE DELANO E-BUSINESS INTERACTION SUITE ENABLES THIRD PARTIES TO DEVELOP
APPLICATIONS THAT COMPETE WITH OUR APPLICATIONS.
Third parties have the ability to develop their own applications on top of
the Delano e-Business Interaction Suite. The applications of these third parties
could compete with products developed by us or services which we offer now or
will offer in the future. If our target clients do not widely adopt and purchase
our products, or if third parties compete with applications developed by us, our
business would suffer.
FAILURE TO ATTRACT AND RETAIN ADDITIONAL QUALIFIED PERSONNEL COULD ADVERSELY
AFFECT OUR EXPANSION PLANS.
We intend to increase the number of our sales and marketing, engineering,
professional services and product management personnel significantly over the
next 12 months. Competition for these individuals is intense in our industry,
particularly in the Toronto area where we are headquartered, and there is a
limited number of experienced people available with the necessary technical
skills. Our ability to increase revenues in the future depends considerably upon
our success in recruiting, training and retaining additional direct sales
personnel and the success of the direct sales force. Our business will be harmed
if we fail to hire or retain qualified sales personnel, or if newly hired
salespeople fail to develop the necessary sales skills or develop these skills
more slowly than we anticipate. We also are substantially dependent upon our
ability to develop new products and enhance existing products, and we may not be
able to hire and retain highly qualified research and development personnel.
Similarly, our failure to attract and retain the highly trained personnel that
are integral to our professional services group, which is responsible for the
implementation and customization of, and technical support for, our products and
services, may limit the rate at which we can develop and install new products or
product enhancements, which would harm our business.
THE LOSS OF ANY OF OUR EXECUTIVE OFFICERS COULD ADVERSELY AFFECT OUR BUSINESS.
Our future success depends to a significant degree on the skills,
experience and efforts of our executive officers. In particular, we depend upon
the continued services of John Foresi, our President and Chief Executive
Officer, and Bahman Koohestani, our Executive Vice-President, Products and Chief
Technology Officer and a founder of Delano. Although we have purchased
Cdn$500,000 (approximately $346,000) life insurance benefitting Delano on these
two individuals, the loss of the services of either of these individuals could
significantly harm our business and operations.
We have not entered into employment agreements with our executive officers
which would require them to work solely for us on a long-term basis. If any of
our executive officers left or was seriously injured and unable to work and we
were unable to find a qualified replacement, our business could be harmed.
FAILURE TO INTEGRATE OUR EXECUTIVE TEAM MAY INTERFERE WITH OPERATIONS.
Our executive team has largely been hired in the past year. To integrate
into our company, these individuals must spend a significant amount of time
developing interpersonal relationships and learning our business model and
management system, in addition to performing their regular duties. Accordingly,
the integration of new personnel has resulted, and may continue to result, in
some disruption of our ongoing operations.
WE HAVE EXPERIENCED RAPID GROWTH WHICH HAS PLACED A STRAIN ON OUR RESOURCES, AND
ANY FAILURE TO MANAGE OUR GROWTH EFFECTIVELY MAY CAUSE OUR BUSINESS TO SUFFER.
Our ability to offer our products and services successfully in a rapidly
evolving market requires an effective planning and management process. We have
limited experience in managing rapid growth. We are experiencing a period of
growth that is placing a significant strain on our managerial, financial and
personnel resources. On January 31, 2000, we had a total of 210 full-time
employees compared to 33 on January 31, 1999. We expect to continue to hire new
employees at a rapid pace. Our business will suffer if this growth
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continues and we fail to manage this growth. Any additional growth will further
strain our management, financial, personnel and other resources. To manage any
future growth effectively, we must improve our financial and accounting systems,
controls, reporting systems and procedures, integrate new personnel and manage
expanded operations. Any failure to do so could negatively affect the quality of
our products, our ability to respond to our clients and retain key personnel,
and our business in general.
OUR FUTURE REVENUE GROWTH COULD BE IMPAIRED IF WE ARE UNABLE TO DEVELOP
ADDITIONAL DISTRIBUTION CHANNELS FOR OUR PRODUCTS.
We believe that our success in penetrating our target markets depends in
part on our ability to enter into agreements with established third-party
distribution companies, consulting organizations and software vendors relating
to the distribution of our products. We have recently entered into non-exclusive
distribution agreements with various parties, including Clarify,
Hewlett-Packard, Janna Systems, Macromedia and PricewaterhouseCoopers. Since
these agreements are non-exclusive and normally terminable without penalty on
short notice, some third parties may choose to discontinue working with us or
may decide to work with our competitors. We derive revenues from these
agreements through the sale of licenses. For the nine months ended December 31,
1999, we derived 26% of our total revenues from a single sale through one of
these agreements. We may not be able to derive significant revenues in the
future from these agreements.
WE MAY SEEK TO GROW BY MAKING ACQUISITIONS, BUT WE HAVE NEVER ACQUIRED ANOTHER
BUSINESS AND WE MAY NOT BE ABLE TO SUCCESSFULLY COMPLETE ANY ACQUISITIONS WE
UNDERTAKE OR INTEGRATE ANY ACQUIRED BUSINESS WITH OUR OWN.
We intend to consider investments in complementary companies, products or
technologies. If we undertake an acquisition or investment, we may not realize
the anticipated benefits. If we buy a company, we may not be able to
successfully assimilate the acquired personnel, operations, technology and
products into our business. In particular, we will need to assimilate and retain
key technical, professional services, sales and marketing personnel. In
addition, acquired products or technology will have to be integrated into our
products and technology, and it is uncertain whether we may accomplish this.
These difficulties could disrupt our ongoing business, distract our management
and employees or increase our expenses. In connection with a merger, or
acquisition for shares, the issuance of these securities may be dilutive to our
existing shareholders or affect profitability. Furthermore, we may have to issue
equity or incur debt to pay for future acquisitions or investments, the issuance
of which could be dilutive to us or our existing shareholders or affect our
profitability. In addition, our profitability may suffer because of
acquisition-related costs or amortization costs for acquired goodwill and other
acquired intangible assets.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL TO GROW OUR BUSINESS, WHICH WE MAY NOT
BE ABLE TO DO.
Our future liquidity and capital requirements are difficult to predict
because they depend on numerous factors, including the success of our existing
and new service offerings as well as competing technological and market
developments. As a result, we may not be able to generate sufficient cash from
our operations to meet additional working capital requirements, support
additional capital expenditures or take advantage of acquisition opportunities.
Accordingly, we may need to raise additional capital in the future. Our ability
to obtain additional financing will be subject to a number of factors, including
market conditions and our operating performance. These factors may make the
timing, amount, terms and conditions of additional financing unattractive for
us. If we raise additional funds by selling equity securities, the relative
equity ownership of our existing investors could be diluted or the new investors
could obtain terms more favorable than previous investors. If we raise
additional funds through debt financing, we could incur significant borrowing
costs. If we are unable to raise additional funds when needed, our ability to
operate and grow our business could be impeded.
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TECHNICAL PROBLEMS WITH INTERNAL OR OUTSOURCED COMPUTER AND COMMUNICATIONS
SYSTEMS COULD RESULT IN REDUCED REVENUES AND HARM TO OUR REPUTATION.
The success of our online support services depends on the efficient and
uninterrupted operation of our own and outsourced computer and communications
hardware and software systems. These systems and operations are vulnerable to
damage or interruption from human error, natural disasters, telecommunications
failures, break-ins, sabotage, computer viruses and similar adverse events. Our
operations depend on our ability to protect our systems against damage or
interruption. We cannot guarantee that our internet access will be
uninterrupted, error-free or secure. We have no formal disaster recovery plan in
the event of damage or interruption, and our insurance policies may not
adequately compensate us for losses that we may incur. Any system failure that
causes an interruption in our service or a decrease in responsiveness could harm
our relationships with our clients and result in reduced revenues.
FAILURE TO SELL ONLINE SERVICES MAY IMPAIR OUR FUTURE REVENUE GROWTH.
We currently focus primarily on software sales rather than online
offerings. Our competitors may move to a heavier emphasis on online offerings,
and our failure to focus on it at an early stage may make it difficult to
compete if online offerings become a dominant means of generating revenues
within the industry. In addition, although our sales force sells both our
software products and online offerings, the skills necessary to market and sell
online offerings are different than those relating to our software products. As
a result, our sales and marketing groups may not be able to maintain or increase
the level of sales of our online offerings.
A DECLINE IN OUR LICENSE REVENUES COULD CAUSE A DECLINE IN OUR SERVICE REVENUES.
Our products are designed to enable customers to rapidly develop and
deploy e-business communication applications. Where desirable, our professional
services group can assist our clients internal IT personnel to implement our
products. Because the revenues associated with these services are largely
correlated with the licensing of our products, a decline in license revenues
could also cause a decline in our service revenues.
CONFLICTS BETWEEN OUR PRODUCTS AND OTHER VENDORS' PRODUCTS COULD HARM OUR
BUSINESS AND REPUTATION.
Our clients generally use our products together with products from other
companies. As a result, when problems occur in the network, it may be difficult
to identify the source of the problem. Even when these problems are not caused
by our products, they may cause us to incur significant warranty and repair
costs, divert the attention of our engineering personnel from our product
development efforts and cause significant customer relations problems.
OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY RIGHTS.
We rely on contractual restrictions, such as confidentiality agreements
and licenses, to establish and protect our proprietary rights. None of our
trademarks is registered, nor do we have any trademark applications pending. We
currently have no patent applications pending relating to our software. Despite
any precautions that we take to protect our intellectual property:
- laws and contractual restrictions may be insufficient to prevent
misappropriation of our technology or deter others from developing
similar technologies;
- current laws that prohibit software copying provide only limited
protection from software "pirates", and effective trademark, copyright
and trade secret protection may be unavailable or limited in foreign
countries;
- other companies may claim common law trademark rights based upon state,
provincial or foreign laws that precede any registrations we may
receive for our trademarks; and
- policing unauthorized use of our products and trademarks is difficult,
expensive and time-consuming, and we may be unable to determine the
extent of this unauthorized use.
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It is possible that our intellectual property rights could be successfully
challenged by one or more third parties, which could result in our inability to
exploit, or our loss of the right to prevent others from exploiting, certain
intellectual property. We are aware that certain of our competitors have filed
patent applications.
Also, the laws of other countries in which we market our products may
offer little or no effective protection of our technology. Reverse engineering,
unauthorized copying or other misappropriation of our technology could enable
third parties to benefit from our technology without paying us for it, which
would significantly harm our business.
WE RELY ON SOFTWARE LICENSED TO US BY THIRD PARTIES FOR FEATURES WE INCLUDE IN
OUR PRODUCTS.
We use and in the future will use certain software technologies and other
information that we license or otherwise acquire from third parties, usually on
a non-exclusive basis, including software that is integrated with our internally
developed software and used in our products to perform what may be important
functions. If we are not able to continue to use the third-party software and
technologies, or if they fail to adequately update and support their products,
we could suffer delays or reductions in shipments of our products until
alternative software and technologies could be identified, which could adversely
affect our business and financial condition.
CLAIMS BY OTHER COMPANIES THAT OUR PRODUCTS INFRINGE THEIR PROPRIETARY RIGHTS
COULD ADVERSELY AFFECT OUR ABILITY TO SELL OUR PRODUCTS AND INCREASE OUR COSTS.
Substantial litigation over intellectual property rights exists in our
industry. We expect that software in our industry may be increasingly subject to
third-party infringement claims as the number of competitors grows and the
functionality of products in different industry segments overlaps. Third parties
may currently have, or may eventually be issued, patents that our products or
technology infringe.
Any of these third parties might make a claim of infringement against us.
Many of our software license agreements require us to indemnify our clients and
suppliers from any claim or finding of intellectual property infringement. Any
litigation, brought by us or others, could result in the expenditure of
significant financial resources and the diversion of management's time and
efforts. In addition, litigation in which we are accused of infringement might
cause negative publicity, have an impact on prospective clients, cause product
shipment delays, require us to develop non-infringing technology or require us
to enter into royalty or license agreements, which might not be available on
acceptable terms, or at all. If a successful claim of infringement were made
against us and we could not develop non-infringing technology or license the
infringed or similar technology on a timely and cost-effective basis, our
business could be significantly harmed.
OUR INSURANCE MAY NOT BE SUFFICIENT TO COVER ALL POTENTIAL PRODUCT LIABILITY AND
WARRANTY CLAIMS.
Our products are integrated into our clients' networks. The sale and
support of our products results in the risk of product liability or warranty
claims based on damage to these networks. In addition, the failure of our
products to perform to client expectations could give rise to warranty claims.
Although we carry general liability insurance, our insurance would likely not
cover potential claims of this type or may not be adequate to protect us from
all liability that may be imposed.
OUR PRODUCTS COULD CONTAIN UNDETECTED DEFECTS OR ERRORS.
We face the possibility of higher costs as a result of the complexity of
our products and the potential for undetected errors. Due to the
mission-critical nature of our products and services, undetected errors are of
particular concern. We have only a limited number of clients that test new
features and the functionality of our software before we make these features and
functionalities generally available. If our software contains undetected errors
or we fail to meet our clients' expectations in a timely manner, we could
experience:
- loss of or delay in revenues expected from the new product and an
immediate and significant loss of market share;
- loss of existing clients that upgrade to the new product and of new
clients;
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- failure to achieve market acceptance;
- diversion of development resources;
- injury to our reputation;
- increased service and warranty costs;
- legal actions by clients against us; and
- increased insurance costs.
A product liability claim could harm our business by increasing our costs,
damaging our reputation and distracting our management.
OUR INTERNATIONAL EXPANSION EFFORTS MAY NOT BE SUCCESSFUL.
Our operations outside the United States and Canada are located in the
United Kingdom and, to date, have been limited. We plan to expand our existing
international operations and establish additional facilities in other parts of
the world, including continental Europe and Asia. However, we have not yet
determined which cities or countries will be the locations for our international
expansion. The expansion of our existing international operations and entry into
additional international markets are key parts of our growth strategy and will
require significant management attention and financial resources. In addition,
to expand our international sales operations, we will need to, among other
things:
- expand our international sales channel management and support
organizations;
- develop relationships with international service providers and
additional distributors and systems integrators; and
- customize our products for local markets.
Our investments in facilities in other countries may not produce desired
levels of revenues. Even if we are able to expand our international operations
successfully, we may not be able to maintain or increase international market
demand for our products.
OUR BUSINESS MAY SUFFER IF WE FAIL TO ADAPT APPROPRIATELY TO THE CHALLENGES
ASSOCIATED WITH OPERATING INTERNATIONALLY.
Expanding our operations outside the United States and Canada subjects us
to numerous inherent potential risks associated with international operations.
These risks include greater difficulty in accounts receivable collection, the
burden of complying with multiple and conflicting regulatory requirements,
foreign exchange controls, longer payment cycles, import and export restrictions
and tariffs, potentially adverse tax consequences, and political and economic
instability, any of which could impair our sales and results of operations. In
addition, our ability to expand our business in certain countries will require
modification of our products, particularly domestic language support.
Our international operations will increase our exposure to international
laws and regulations. If we cannot comply with foreign laws and regulations,
which are often complex and subject to variation and unexpected changes, we
could incur unexpected costs and potential litigation. For example, the
governments of foreign countries might attempt to regulate our products and
services or levy sales or other taxes relating to our activities. In addition,
foreign countries may impose tariffs, duties, price controls or other
restrictions on foreign currencies or trade barriers, any of which could make it
more difficult to conduct our business. The European Union, in which we have a
sales office, recently enacted its own privacy regulations that may result in
limits on the collection and use of certain user information which, if applied
to the sale of our products and services, could negatively impact our results of
operations.
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FLUCTUATIONS IN EXCHANGE RATES MAY AFFECT OUR OPERATING RESULTS.
A substantial portion of our revenues are now, and are expected to
continue to be, realized in currencies other than Canadian dollars. Our
operating expenses are primarily paid in Canadian dollars. Fluctuations in the
exchange rate between the Canadian dollar and these other currencies may have a
material effect on our results of operations. In particular, we may be adversely
affected by a significant strengthening of the Canadian dollar against the U.S.
dollar. We do not currently engage in currency hedging activities. We have not
yet, but may in the future, experience significant foreign exchange rate losses,
especially to the extent that we do not engage in hedging.
IF WE ARE OR BECOME A PASSIVE FOREIGN INVESTMENT COMPANY WE MAY NOT BE ABLE TO
SATISFY RECORD-KEEPING REQUIREMENTS, WHICH COULD HAVE ADVERSE U.S. TAX
CONSEQUENCES TO YOU.
The rules governing passive foreign investment companies can have
significant effects on U.S. investors. We could be classified as a passive
foreign investment company if, for any taxable year, either:
- 75% or more of our gross income is passive income, which includes
interest, dividends and some types of rents and royalties; or
- the average percentage, by fair market value, or, in some cases, by
adjusted tax basis, of our assets that produce or are held for the
production of passive income is 50% or more.
Distributions which constitute "excess distributions," as defined in
Section 1291 of the Internal Revenue Code, from a passive foreign investment
company and dispositions of shares of a passive foreign investment company are
subject to the highest rate of tax on ordinary income in effect and to an
interest charge based on the value of the tax deferred during the period during
which the shares are owned. However, these rules generally will not apply if the
U.S. investor elects to treat the passive foreign investment company as a
qualified electing fund under Section 1295 of the Internal Revenue Code.
If we are or become a passive foreign investment company we may not be
able to satisfy record-keeping requirements that would permit you to make a
qualified electing fund election. For a discussion of these and other tax
considerations relating to an investment in our common shares, see "Tax
Considerations."
RISKS RELATED TO OUR INDUSTRY
OUR FUTURE REVENUES AND PROFITS DEPEND ON THE CONTINUED GROWTH IN USE AND
EFFICIENT OPERATION OF THE INTERNET AND E-MAIL.
We sell our products and services primarily to organizations that receive
large volumes of e-mail and communications over the web. Consequently, our
future revenues and profits, if any, substantially depend upon the continued
acceptance and use of the web and e-mail, which are evolving as communications
media. Rapid growth in the use of e-mail is a recent phenomenon and may not
continue. As a result, a broad base of enterprises that use e-mail as a primary
means of communication may not develop or be maintained. Moreover, companies
that have already invested significant resources in other methods of
communications with customers, such as call centers, may be reluctant to adopt a
new strategy that may limit or compete with their existing investments. If
businesses do not continue to accept the web and e-mail as communications media,
our business would suffer.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATING TO THE INTERNET COULD
DISCOURAGE COMMUNICATION BY E-MAIL OR OTHER INTERNET-BASED COMMUNICATIONS
FACILITATED BY OUR PRODUCTS.
Due to the increasing popularity and use of the internet, it is possible
that Canadian and U.S. federal, Canadian provincial, U.S. state, and other
foreign regulators could adopt laws and regulations that impose additional
burdens on those companies that conduct business online. These laws and
regulations could discourage communication by e-mail or other internet-based
communications facilitated by our products, which could reduce demand for our
products and services.
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The growth and development of the market for online services may prompt
calls for more stringent consumer protection laws or laws that may inhibit the
use of internet-based communications or the information contained in these
communications. The adoption of any additional laws or regulations may slow the
growth of the internet. A decline in the growth of the internet, particularly as
it relates to online communication, could decrease demand for our products and
services and increase our costs of doing business, or otherwise harm our
business.
YEAR 2000 COMPLICATIONS MAY DISRUPT OUR OPERATIONS AND HARM OUR BUSINESS.
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates.
We continue to monitor our software, the software we license for our
internal use, the systems that operate in conjunction with our software and our
internal and external systems for Year 2000 failures. We still may discover Year
2000 compliance problems in our systems that will require substantial revision.
In addition, third-party software, hardware or services incorporated into our
products and services may need to be revised or replaced, all of which could be
time-consuming and expensive and result in the following, any of which could
have a material adverse effect on our business including:
- delay or loss of revenue;
- cancellation of client contracts;
- diversion of development resources;
- damage to our reputation;
- increased service and warranty costs; and
- litigation costs.
RISKS RELATED TO THIS OFFERING
OUR MANAGEMENT HAS BROAD DISCRETION AS TO USE OF PROCEEDS FROM THIS OFFERING,
WHICH WE MAY NOT USE EFFECTIVELY.
We do not have specific uses for a significant portion of our proceeds
from this offering. As a result, our management will have broad discretion in
how we use the net proceeds from this offering. You will not have the
opportunity to evaluate the economic, financial or other information on which we
base our decisions regarding how to use the net proceeds from this offering, and
we may spend these proceeds in ways that do not increase our operating results
or market value.
INVESTORS WILL INCUR IMMEDIATE DILUTION AND MAY EXPERIENCE FURTHER DILUTION.
If you purchase common shares in this offering, you will incur immediate
dilution of $11.90 in the pro forma net tangible book value per share of the
common shares from the price you pay for the common shares. We also have a large
number of outstanding stock options and a warrant to purchase common shares with
exercise prices significantly below the estimated public offering price for the
common shares. To the extent these securities are exercised, there will be
further dilution. See "Dilution."
WE EXPECT APPROXIMATELY 24 MILLION COMMON SHARES TO BECOME AVAILABLE FOR SALE
180 DAYS FROM THE DATE OF THIS PROSPECTUS, AND SALES OF THESE SHARES MAY DEPRESS
OUR SHARE PRICE.
After this offering, we will have outstanding 29,174,598 common shares.
Sales of a substantial number of our common shares in the public market
following this offering could cause the market price of our common shares to
drop. All the shares sold in this offering will be freely tradeable. Of the
remaining 24,174,598 common shares outstanding after this offering, a total of
23,937,755 common shares will be
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available for sale in the public market 180 days after the date of this
prospectus. See "Shares Eligible for Future Sale."
OUR SHARE PRICE MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL AT OR ABOVE
THE OFFERING PRICE.
There has previously not been a public market for our common shares. We
cannot predict the extent to which investor interest in us will lead to the
development of a trading market or how liquid that market might become. The
initial public offering price for our common shares will be determined by
negotiations between us and the representatives of the underwriters. Among the
factors to be considered in these negotiations are prevailing market conditions,
our financial information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential and the present state of our development. The initial public offering
price for our common shares may not be indicative of the prices that will
prevail in the trading market. In addition, the stock market in general, and the
Nasdaq National Market and software and internet-based companies like ours in
particular, have experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating performance of such
companies. The trading prices of many technology companies are at or near
historical highs and these trading prices and these trading prices may not be
sustained. These broad market and industry factors may materially adversely
affect the market price of our common shares, regardless of our actual
performance. You may not be able to resell your shares at or above the initial
public offering price.
AFTER THIS OFFERING, OUR OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS WILL
BENEFICIALLY OWN MORE THAN 30% OF OUR COMMON SHARES, AND MAY BE ABLE TO CONTROL
MATTERS SUBMITTED TO SHAREHOLDERS FOR APPROVAL.
Following this offering and completion of the amalgamation described under
"Principal Shareholders," our executive officers, directors and other principal
shareholders, in the aggregate, will beneficially own approximately 30.27% of
our outstanding common shares. As a result, these shareholders, if acting
together, may be able to control matters requiring shareholder approval,
including the election of directors, thereby permitting these shareholders to
obtain control of our management and affairs. The voting power of these
shareholders under certain circumstances could have the effect of delaying or
preventing a change in control of Delano, the effect of which may be to deprive
our shareholders of a control premium that might otherwise be realized in
connection with our acquisition.
BECAUSE WE ARE A CANADIAN COMPANY, IT MAY BE DIFFICULT FOR YOU TO ENFORCE
AGAINST US LIABILITIES BASED SOLELY UPON THE FEDERAL SECURITIES LAWS OF THE
UNITED STATES.
We have been incorporated under the laws of the Province of Ontario, and
our executive offices are located in Ontario. Many of our directors, controlling
persons and officers, and representatives of the experts named in this
prospectus, are residents of Canada and a substantial portion of their assets
and a majority of our assets are located outside the United States.
Consequently, it may be difficult for you to enforce against us or any of our
directors, controlling persons, officers or experts who are not resident in the
United States, liabilities based solely upon the federal securities laws of the
United States. See "Enforceability of Civil Liabilities."
OUR BOARD OF DIRECTORS MAY ISSUE, WITHOUT SHAREHOLDER APPROVAL, PREFERENCE
SHARES THAT HAVE RIGHTS AND PREFERENCES SUPERIOR TO THOSE OF COMMON SHARES AND
THAT MAY DELAY OR PREVENT A CHANGE OF CONTROL.
Our articles of incorporation allow the issuance an unlimited number of
preference shares in one or more series. After the offering, there will be no
preference shares outstanding. However, our board of directors may set the
rights and preferences of any class of preference shares in its sole discretion
without the approval of the holders of common shares. The rights and preferences
of these preference shares may be superior to those of the common shares.
Accordingly, the issuance of preference shares may adversely affect the rights
of holders of common shares. The issuance of preference shares also could have
the effect of delaying or preventing a change of control of our company. See
"Description of Share Capital."
16
<PAGE> 22
WE DO NOT INTEND TO PAY ANY DIVIDENDS ON OUR COMMON SHARES.
We have not paid any cash dividends on our shares and we currently do not
have any plans to pay dividends on our shares. In addition, our lease line of
credit specifically prohibits the payment of dividends on our shares. See
"Dividend Policy" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
17
<PAGE> 23
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS; MARKET DATA
This prospectus contains so-called forward-looking statements under
"Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere. These include
statements about our expectations, beliefs, intentions or strategies for the
future, which we indicate by words or phrases such as "anticipate," "expect,"
"intend," "plan," "will," "we believe," and similar language. We base all
forward-looking statements on our current expectations and these statements are
subject to risks and uncertainties and to assumptions we have made. Important
factors that could cause our actual results to differ materially from those
expressed or implied by these forward-looking statements include those listed
under "Risk Factors" or described elsewhere in this prospectus.
This prospectus contains market data related to the internet and us. These
data have been included in studies published by the market research firms of
Direct Marketing Association, International Data Corporation, and Jupiter
Communications.
Direct Marketing Association's estimate that interactive direct-market
expenditures for the business market will increase from $379.7 million in 1998
to $3.2 billion by 2003 is based on several assumptions, including that:
- employment growth rates will continue to increase; and
- direct marketing sales will continue to grow.
International Data Corporation's estimate that the worldwide customer
relationship management application market will grow from $1.9 billion in 1998
to $11.0 billion by 2003, is based on several assumptions, including that:
- the market encompasses applications designed for marketing automation,
sales force automation, customer service, and field service, as well as
internet customer relationship management;
- businesses will continue to try and establish closer ties to their
customers; and
- the demand from electronic commerce sites will outstrip that of
traditional customer calls to call centers.
International Data Corporation's estimates, that electronic commerce will
increase from $50.4 billion in 1998 to $1.3 trillion by 2003 and that the number
of web users will increase from 142.2 million in 1998 to 502.4 million in 2003,
are based on several assumptions, including that:
- the number of devices used to access the world wide web will continue
to increase;
- virtually all devices using the internet for e-mail will also use the
web for other purposes; and
- the number of web buyers and the average transaction value per buyer
will increase.
18
<PAGE> 24
EXCHANGE RATE INFORMATION
The following table sets forth, for each period indicated, the high and
low exchange rates for Canadian dollars expressed in U.S. dollars, the average
of such exchange rates on the last day of each month during such period, and the
exchange rate at the end of such period, based on the inverse of the noon buying
rate.
<TABLE>
<CAPTION>
PERIOD FROM MAY 7, 1998 PERIOD FROM MAY 7, 1998 NINE MONTHS
(INCEPTION TO) (INCEPTION TO) ENDED
MARCH 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999
----------------------- ----------------------- -----------------
<S> <C> <C> <C>
High............................... $0.6982 $0.6982 $0.6925
Low................................ 0.6341 0.6341 0.6607
End................................ 0.6626 0.6504 0.6925
Average............................ 0.6598 0.6587 0.6784
</TABLE>
On February 4, 2000, the inverse of the noon buying rate was Cdn$1.00 per
$0.6912.
ENFORCEABILITY OF CIVIL LIABILITIES
We have been incorporated under the laws of the Province of Ontario, and
our executive offices are located in Ontario. Many of our directors, controlling
persons and officers, and representatives of the experts named in this
prospectus, are residents of Canada, and a substantial portion of their assets
and a majority of our assets are located outside the United States. As a result,
it may be difficult for investors to effect service of process within the United
States upon the directors, controlling persons, officers and representatives of
experts who are not residents of the United States or to enforce against them
judgments of courts of the United States based upon civil liability under the
federal securities laws of the United States. There is doubt as to the
enforceability in Canada against us or against any of our directors, controlling
persons, officers or experts who are not residents of the United States, in
original actions or in actions for enforcement of judgments of United States
courts, of liabilities based solely upon the federal securities laws of the
United States.
19
<PAGE> 25
USE OF PROCEEDS
We expect to receive approximately $76,450,000 in net proceeds from the
sale of 5,000,000 common shares in this offering and the private placement in
Canada of 500,000 common shares to Nortel Networks, assuming an initial public
offering price of $15.00 per common share. We estimate the net proceeds will be
approximately $86,912,500 if the underwriters' over-allotment option is
exercised in full. The principal purposes of this offering are to obtain
additional capital, create a public market for our common shares and facilitate
our future access to the public capital markets.
We intend to use our net proceeds for working capital and other general
corporate purposes, including sales and marketing expenses and research and
development expenditures. We have not yet determined with any certainty the
manner in which we will allocate the net proceeds, but we currently intend to
use approximately $8 million of the net proceeds to expand our sales and
marketing capabilities and approximately $3 million for research and development
expenditures. The amounts and timing of these expenditures will vary depending
on a number of factors, including future revenue growth, if any, the amount of
cash we generate from operations, the progress of our product development
efforts and developments in Internet commerce. We may also use a portion of the
net proceeds of this offering to fund acquisitions of, or investments in,
businesses, products or technologies that expand, complement or are otherwise
related to our current business and products. However, we have no present plans,
agreements or commitments, and are not currently engaged in any negotiations,
with respect to any such acquisition or investment. Pending the uses described
above, we intend to invest the net proceeds in short-term, interest-bearing,
investment-grade securities.
DIVIDEND POLICY
We have not paid any cash dividends on our shares and we currently do not
have any plans to pay dividends on our shares. In addition, our lease line of
credit specifically prohibits the payment of dividends on our shares. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." We intend to retain all of our
available funds for use in the operation of our business. Any future
determination by us to pay dividends will be at the discretion of our board of
directors and in accordance with the terms and conditions of any outstanding
indebtedness and will depend upon our financial condition, results of
operations, capital requirements and such other factors as our board of
directors considers relevant.
20
<PAGE> 26
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis, giving effect to a 3-for-2 split of our common
shares, which was made effective by articles of amendment filed on
February 7, 2000;
- on a pro forma basis to reflect the exercise of all of our outstanding
special warrants to purchase 6,490,386 common shares and the conversion
of all of our outstanding redeemable convertible special shares into
11,684,212 common shares in connection with the completion of this
offering as described in "Description of Share Capital;" and
- on a pro forma as adjusted basis to give effect to the sale of the
5,000,000 common shares offered by this prospectus at an assumed
initial public offering price of $15.00 per share and after deducting
estimated underwriting commissions and estimated offering expenses and
to the private placement in Canada of 500,000 common shares to Nortel
Networks at an assumed price of $15.00 per share.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Obligations under capital leases, net of current portion.... $ 267 $ 267 $ 267
------- ------- --------
Redeemable convertible special shares; unlimited shares
authorized, 7,789,476 shares issued and outstanding,
actual; no shares authorized, issued or outstanding, pro
forma and pro forma as adjusted........................... 3,851 -- --
------- ------- --------
Special warrants; 4,326,924 special warrants issued and
outstanding, actual; no special warrants issued and
outstanding, pro forma and pro forma as adjusted.......... 14,703 -- --
------- ------- --------
Shareholders' equity (deficiency):
Common shares; unlimited shares authorized; 5,250,000
shares issued and outstanding, actual; 23,424,598
shares issued and outstanding, pro forma; 28,924,598
shares issued and outstanding, pro forma as adjusted... 6,318 24,872 101,322
Preference shares (undesignated); no shares authorized,
issued or outstanding actual; unlimited shares
authorized, no shares issued or outstanding, pro forma
and pro forma as adjusted.............................. -- -- --
Warrant................................................... 126 126 126
Deferred stock-based compensation......................... (5,502) (5,502) (5,502)
Accumulated other comprehensive losses.................... (152) (152) (152)
Accumulated deficit....................................... (6,248) (6,248) (6,248)
------- ------- --------
Total shareholders' equity (deficiency)................ (5,458) 13,096 89,546
------- ------- --------
Total capitalization................................. $13,363 $13,363 $ 89,813
======= ======= ========
</TABLE>
The table above excludes options outstanding at December 31, 1999 to
purchase up to 3,594,675 common shares under our stock option plan.
21
<PAGE> 27
DILUTION
If you invest in our common shares, your interest will be diluted by the
amount of the difference between the public offering price per common share and
the pro forma adjusted net tangible book value per common share after this
offering.
Our pro forma net tangible book value as of December 31, 1999 was $13.1
million, or $0.56 per common share. Pro forma net tangible book value per share
is equal to our total tangible assets less total liabilities, divided by the
number of outstanding common shares after giving effect to the conversion of all
our outstanding redeemable convertible special shares and the exercise of all
our outstanding special warrants.
After giving effect to our sale of 5,000,000 common shares in this
offering at an assumed public offering price of $15.00 per common share and
after deducting the estimated underwriting commissions and estimated offering
expenses and to the private placement in Canada of 500,000 common shares to
Nortel Networks, which will occur concurrently with the completion of this
offering, our adjusted pro forma net tangible book value as of December 31, 1999
would have been $89.5 million, or $3.10 per common share. This amount represents
an immediate increase in pro forma net tangible book value of $2.54 per common
share to existing shareholders and an immediate dilution of $11.90 per common
share to new investors. The following table illustrates this dilution to new
investors:
<TABLE>
<S> <C> <C>
Assumed public offering price per common share.............. $15.00
Pro forma net tangible book value per common share as of
December 31, 1999...................................... $0.56
Increase per common share attributable to this offering
and the private placement in Canada.................... 2.54
-----
Adjusted pro forma net tangible book value per common share
after this offering and the private placement in Canada... 3.10
------
Dilution per common share to new investors in this offering
and the private placement in Canada....................... $11.90
======
</TABLE>
If the underwriters exercise their option to purchase additional common
shares in this offering, our adjusted pro forma net tangible book value at
December 31, 1999 would be $100.0 million, or $3.37 per common share,
representing an immediate increase in pro forma net tangible book value to our
existing stockholders of $2.81 per share and an immediate dilution to new
investors of $11.63 per common share.
The table below shows on a pro forma basis as of December 31, 1999, after
giving effect to the conversion of all our outstanding redeemable convertible
special shares and the exercise of our outstanding special warrants, the
difference between our existing shareholders and our new investors (including
Nortel Networks which will acquire common shares in our private placement in
Canada) with respect to the number of common shares purchased, the total
consideration paid and the average price per share paid, before deducting
estimated underwriting commissions and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders................ 23,424,598 81.0% $ 24,872,000 23.2% $ 1.06
New investors........................ 5,500,000 19.0 82,500,000 76.8 15.00
----------- ------ ------------ ------
Total.............................. 28,924,598 100.0% $107,372,000 100.0%
=========== ====== ============ ======
</TABLE>
If the underwriters' over-allotment option is exercised in full, the
number of common shares held by new investors will increase to 6,250,000, or
21.1%, of the total common shares outstanding after this offering.
22
<PAGE> 28
As of December 31, 1999, we had outstanding options to purchase 3,594,675
common shares at a weighted average exercise price of $0.88 per share and an
outstanding warrant to purchase 394,737 common shares at an exercise price of
$0.44 per share. In addition, there were 905,325 options available for future
grant under our stock option plan. If the option holders or warrant holder
exercise these outstanding securities, there will be further dilution to new
investors.
23
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the selected consolidated financial data set forth below
in conjunction with our consolidated financial statements and the related notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The selected consolidated
financial data are derived from our consolidated financial statements that have
been audited by KPMG LLP, independent auditors, and are included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM MAY 7, PERIOD FROM MAY 7,
1998 (INCEPTION) TO 1998 (INCEPTION) TO NINE MONTHS ENDED
MARCH 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999
------------------- ------------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues:
Products................................ -- -- $ 5,061
Services................................ -- -- 296
------- ------- -------
Total revenues....................... -- -- 5,357
------- ------- -------
Cost of revenues:
Products................................ -- -- 20
Services................................ -- -- 701
------- ------- -------
Total cost of revenues............... -- -- 721
------- ------- -------
Gross profit.............................. -- -- 4,636
------- ------- -------
Operating expenses:
Sales and marketing..................... $ 554 $ 144 5,456
Research and development................ 797 486 2,244
General and administrative.............. 180 45 767
Amortization of deferred stock-based
compensation......................... 171 2 769
------- ------- -------
Total operating expenses................ 1,702 677 9,236
------- ------- -------
Loss from operations...................... (1,702) (677) (4,600)
Interest income, net...................... 13 -- 354
------- ------- -------
Loss before provision for income taxes.... (1,689) (677) (4,246)
Provision for income taxes................ -- -- --
------- ------- -------
Loss for the period....................... (1,689) (677) (4,246)
Less: accretion of dividends on redeemable
convertible special shares.............. (101) -- (212)
Loss applicable to common shares.......... $(1,790) $ (677) $(4,458)
======= ======= =======
Basic and diluted loss per common share... $ (2.40) $ (1.35) $ (1.85)
======= ======= =======
Shares used in computing basic and diluted
loss per common share................... 746 503 2,415
======= ======= =======
Pro forma basic and diluted loss per
common share............................ $ (0.30) $ (0.24)
======= =======
Shares used in computing pro forma basic
and diluted loss per common share....... 6,010 18,584
======= =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1999
-------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 1,989 $11,940
Working capital............................................ 1,607 12,187
Total assets............................................... 2,573 16,590
Long-term obligations, net of current portion.............. 66 267
Redeemable convertible special shares...................... 3,481 3,851
Special warrants........................................... -- 14,703
Shareholders' deficiency................................... (1,622) (5,458)
</TABLE>
24
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and the related notes appearing elsewhere in
this prospectus.
OVERVIEW
From the date of our incorporation on May 7, 1998 until April 1999 we were
a development stage company and had no revenues. Our operating activities during
this period consisted primarily of conducting research and developing our
initial products. In May 1999, we released and sold the first commercially
available version of the Delano e-Business Interaction Suite.
To date, we have derived substantially all of our revenues from the sale
of software product licenses and from the provision of professional services,
including implementation, training and maintenance services. Our products have
been sold primarily through our direct sales force.
Our products are offered on a licensed basis. We license our products
based on:
- a fee for each client, which depends on the specific and individual
needs of the client;
- an additional fee, which covers installation, configuration, training
and professional services; and
- a variable component, which depends on, among other things, the number
of servers and the number of optional applications and add-ons
purchased.
We recognize our software license revenues in accordance with the American
Institute of Certified Public Accountants, or AICPA, Statement of Position 97-2,
"Software Revenue Recognition," and related amendments and interpretations
contained in the AICPA's Statement of Position 98-9. We generally recognize
revenues allocated to software licenses upon delivery of the software products,
when all of the following conditions have been met:
- persuasive evidence of an arrangement exists;
- the license fee is fixed or determinable; and
- the license fee is collectible.
Because substantially all of our software license agreements include
related maintenance services, these agreements are multiple-element
arrangements. We allocate the fees in multiple-element arrangements based on the
respective value for each element, with maintenance being allocated as at least
18% of license revenue in all sales. Delivery of the software generally is
deemed to occur upon shipment of the software unless customers are provided the
opportunity to return the products. Revenues are recognized only when all refund
obligations have expired. In situations where we provide online offerings,
delivery of the software occurs upon initiation of the online offerings.
Revenues from maintenance and support services and online offerings are
recognized ratably over the related contractual period.
Our cost of revenues includes the cost of product documentation, the cost
of compact disks used to deliver our products, personnel-related expenses,
travel costs, equipment costs and overhead costs.
Our operating expenses are classified into four categories: sales and
marketing, research and development, general and administrative, and
amortization of deferred stock-based compensation.
- Sales and marketing expenses consist primarily of compensation and
related costs for sales and marketing personnel and promotional
expenditures, including public relations, advertising, trade shows and
marketing materials.
- Research and development expenses consist primarily of compensation and
related costs for research and development employees and contractors
and in connection with the enhancement of existing products and quality
assurance activities.
25
<PAGE> 31
- General and administrative expenses consist primarily of compensation
and related costs for administrative personnel, legal, accounting and
other general corporate expenses.
- Amortization of deferred stock-based compensation includes the
amortization, over the vesting period of a stock option, of the
difference between the exercise price of options granted to employees
and the deemed fair market value of the options for financial reporting
purposes. In addition, deferred stock-based compensation includes
compensation expenses arising on the issuance of a warrant to an
employee, calculated as the difference between the exercise price of
the warrant and the fair market value at the date of issuance.
We allocate common costs based on relative headcount or other relevant measures.
These allocated costs include rent and other facility-related costs for the
corporate head office, communication expenses and depreciation expenses for
furniture and equipment.
In connection with the granting of stock options and the issuance of a
warrant to our employees, we recorded deferred stock-based compensation totaling
$6.3 million through December 31, 1999. This amount represents the total
difference between the exercise prices of stock options and the warrant and the
deemed fair value of the underlying common stock for accounting purposes on the
date these stock options were granted and the warrant issued. This amount is
included as a component of stockholders' equity and is being amortized by
charges to operations over the vesting period of the options, consistent with
the method described in Financial Accounting Standards Board, or FASB,
Interpretation No. 28. We recorded $171,000 of stock-based compensation
amortization expense during the period from May 7, 1998 to March 31, 1999, and
$769,000 of stock-based compensation amortization expense during the nine months
ended December 31, 1999. As of December 31, 1999, we had a total of $5.5 million
of deferred stock-based compensation that had not been amortized. We expect to
record additional deferred stock-based compensation of at least $500,000 for
stock option grants made after December 31, 1999. The amortization of the
remaining deferred stock-based compensation will result in additional charges to
operations through December 2003 of approximately $475,000 per quarter. The
amortization of deferred stock-based compensation is classified as a separate
component of operation expenses in our consolidated statement of operations.
In our development of new products and enhancements of existing products,
the technological feasibility of the software is not established until
substantially all product development is complete. Historically, our software
development costs eligible for capitalization have been insignificant and all
costs related to internal product development have been expensed as incurred.
We believe that period-to-period comparisons of our historical operating
results are not necessarily meaningful and should not be relied upon as being a
good indication of our future performance. Our prospects must be considered in
light of the risks, expenses and difficulties frequently experienced by
companies in early stages of development, particularly companies in new and
rapidly evolving markets like ours. Although we have experienced significant
revenue growth recently, this trend may not be sustainable. Furthermore, we may
not achieve or maintain profitability in the future.
RESULTS OF OPERATIONS
Nine Months Ended December 31, 1999 Compared to Period from May 7, 1998
(Inception) to December 31, 1998.
Revenues. For the eight months included in the period from our inception
to December 31, 1998, we were a development stage company and had no revenues.
Total revenues for the nine months ended December 31, 1999 were $5.4 million.
License revenues accounted for $5.1 million, or 94.5% of total revenues.
Services revenues, including maintenance and services fees, accounted for the
remaining $296,000 or 5.5% of total revenues. Approximately 69.5% of our total
revenues were generated in the United States, 30.1% were generated in Canada and
0.4% were generated elsewhere in the nine months ended December 31, 1999.
Cost of revenues. Cost of product revenues was $20,000 for the nine
months ended December 31, 1999 or 0.4% of total revenues. Cost of service
revenues was $701,000 for the nine months ended
26
<PAGE> 32
December 31, 1999, or 13.1% of total revenues. We anticipate that cost of
service revenues will increase in absolute dollars as we continue to hire
additional services personnel. We anticipate that the cost of product revenues
will increase proportionately with increases in product revenues.
Sales and marketing. Sales and marketing expenses increased from $144,000
for the eight months ended December 31, 1998 to $5.5 million for the nine months
ended December 31, 1999. This increase was attributable primarily to the
addition of 46 sales and marketing personnel and higher marketing costs due to
expanded promotional activities. We anticipate that sales and marketing expenses
will increase in absolute dollars as we continue to hire additional sales and
marketing personnel and expand discretionary marketing programs.
Research and development. Research and development expenses increased
from $486,000 for the eight months ended December 31, 1998 to $2.2 million for
the nine months ended December 31, 1999. This increase was attributable
primarily to the addition of 39 product development and related services
personnel and to increased consulting and recruiting costs. The expenses were
reduced by investment tax credits of $142,000 for the nine months ended December
31, 1999. We anticipate that research and development expenses will increase in
absolute dollars, but will vary as a percentage of total revenues from period to
period as we continue to hire additional research and development personnel.
As a Canadian Controlled Private Corporation or CCPC, we qualified for
certain investment tax credits under the Income Tax Act (Canada) on eligible
research and development expenditures. Prior to this offering, refundable
investment tax credits, which result in cash payments to us, have been recorded
at a rate of 35% of eligible current and capital research and development
expenditures. Prior to this offering, we were entitled to an investment tax
credit at these rates for the first Cdn$2.0 million (approximately $1.4 million)
of eligible research and development expenditures and a further investment tax
credit at the rate of 20% of eligible research and development expenditures in
excess of Cdn$2.0 million. Investment tax credits on current expenditures earned
at the 35% rate are fully refundable to CCPCs. Investment tax credits earned by
a CCPC on capital expenditures at the 35% rate are refundable at a rate of 40%
of the amount of the credit. We will earn investment tax credits at a rate of
20% of eligible current and capital research and development expenditures made
after we complete our initial public offering. While a portion of investment tax
credits earned as a CCPC are refundable, investment tax credits earned after we
complete this offering may only be used to offset income taxes otherwise
payable.
General and administrative. General and administrative expenses increased
from $45,000 for the eight months ended December 31, 1998 to $767,000 for the
nine months ended December 31, 1999, due primarily to the addition of 11
administrative personnel, increased consulting costs and to higher facilities-
related expenses necessary to support our growth. We expect that general and
administrative expenses will increase in absolute dollars as we add personnel
and incur related costs to facilitate the growth of our business.
Amortization of deferred stock-based compensation. We incurred a charge
of $2,000 in the eight months ended December 31, 1998 and a charge of $769,000
for the nine months ended December 31, 1999 related to the issuance of stock
options with exercise prices less than the deemed fair market value for
financial reporting purposes on the date of grant.
Interest income, net. Interest income, net for the nine months ended
December 31, 1999 was $354,000, reflecting the interest earned on the cash and
cash equivalents balance arising from our special warrant offering in June 1999.
Interest income, net for the eight months ended December 31, 1998 was nil.
Provision for income taxes. A deferred tax asset of $2.7 million existed
as of December 31, 1999. A valuation allowance is recorded against a deferred
tax asset if it is more likely than not that the asset will not be realized. The
valuation allowance reflects the lack of profitability in the past, the
significant risk that taxable income would not be generated in the future and
the nontransferable nature of the deferred tax asset under certain conditions.
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Period from May 7, 1998 (Inception) to March 31, 1999
Sales and marketing. Sales and marketing expenses were $554,000 for the
eleven months included in the period from our inception to March 31, 1999. These
expenses consisted primarily of compensation and related costs for sales and
marketing personnel and promotional expenditures, including public relations,
advertising, trade shows and marketing materials.
Research and development. Research and development expenses were $797,000
for the eleven months ended March 31, 1999. These expenses consisted primarily
of compensation and related costs for research and development employees and
contractors. The expenses were reduced by investment tax credits of $201,000.
General and administrative. General and administrative expenses were
$180,000 for the eleven months ended March 31, 1999. These expenses consisted
primarily of compensation and related costs for administrative personnel, legal,
accounting and other general corporate expenses.
Amortization of deferred stock-based compensation. We incurred a charge
of $171,000 for the eleven months ended March 31, 1999 related to the issuance
of stock options with exercise prices less than the deemed fair market value for
financial reporting purposes on the date of grant.
Interest income, net. Interest income, net consisted of $13,000 earned on
cash and cash equivalents for the eleven months ended March 31, 1999.
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QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated statements
of operations data for our seven quarters of operation. In our management's
opinion, this unaudited information has been prepared on the same basis as our
annual consolidated financial statements appearing elsewhere in this prospectus
and includes all adjustments necessary to fairly present the unaudited quarterly
results. These adjustments consist only of normal recurring adjustments. This
information should be read in conjunction with our consolidated financial
statements and related notes appearing elsewhere in this prospectus. The
operating results for any quarter are not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1999 1999 1999 1999
-------- ------------- ------------ --------- -------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Products................ -- -- -- -- $ 752 $ 1,561 $ 2,748
Services................ -- -- -- -- 59 54 183
---- ----- ----- ------- ------ ------- -------
Total revenues........ -- -- -- -- 811 1,615 2,931
---- ----- ----- ------- ------ ------- -------
Cost of revenues
Products................ -- -- -- -- -- 6 14
Services................ -- -- -- -- 149 231 321
---- ----- ----- ------- ------ ------- -------
Total cost of
revenues............ -- -- -- -- 149 237 335
---- ----- ----- ------- ------ ------- -------
Gross profit.............. -- -- -- -- 662 1,378 2,596
---- ----- ----- ------- ------ ------- -------
Operating expenses:
Sales and marketing..... -- $ 31 $ 113 $ 410 818 1,198 3,440
Research and
development........... $ 95 179 212 311 389 801 1,054
General and
administrative........ 4 11 30 135 157 255 355
Amortization of deferred
stock-based
compensation.......... -- -- 2 169 107 211 451
---- ----- ----- ------- ------ ------- -------
Total operating
expenses............ 99 221 357 1,025 1,471 2,465 5,300
---- ----- ----- ------- ------ ------- -------
Loss from operations...... (99) (221) (357) (1,025) (809) (1,087) (2,704)
Interest income, net...... -- -- -- 13 11 165 178
---- ----- ----- ------- ------ ------- -------
Loss before provision for
income taxes............ (99) (221) (357) (1,012) (798) (922) (2,526)
Provision for income
taxes................... -- -- -- -- -- -- --
---- ----- ----- ------- ------ ------- -------
Loss for the period....... $(99) $(221) $(357) $(1,012) $ (798) $ (922) $(2,526)
==== ===== ===== ======= ====== ======= =======
</TABLE>
Our revenues have increased in our three most recent quarters due to the
initial introduction of our products in May 1999 and our addition of
distribution channels. Each of our expense categories has increased on a
quarterly basis due to the growth of our business and the hiring of new
personnel.
Our quarterly operating results have varied widely in the past, and we
expect that they will continue to fluctuate in the future as a result of a
number of factors, many of which are outside our control. Our limited operating
history and the undeveloped nature of the market for interaction-based
e-business communications products make predicting future revenues difficult.
Our expense levels are based, in part, on expectations regarding future revenue
increases, and to a large extent, such expenses are fixed, particularly in the
short term. There can be no assurance that our expectations regarding future
revenues are accurate. Moreover, we may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. Accordingly, any
significant shortfall in revenues in relation to our expectations would likely
cause significant increases in our net losses for that period.
Due to the foregoing factors, our operating results are difficult to
forecast. We believe that period-to-period comparisons of our operating results
are not meaningful, and you should not rely on them as indicative
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<PAGE> 35
of our future performance. You should also evaluate our prospects in light of
the risks, expenses and difficulties commonly encountered by comparable
early-stage companies in new and rapidly emerging markets. We cannot assure you
that we will successfully address the risks and challenges that face us. In
addition, although we have experienced significant revenue growth recently, we
cannot assure you that our revenues will continue to grow or that we will become
or remain profitable in the future.
LIQUIDITY AND CAPITAL RESOURCES
Since the date of incorporation, we have raised an aggregate of $3.4
million through private placements of special shares. We have also raised $14.4
million, net of the agents' commission and offering expenses, through a private
placement of special warrants.
Our operating activities used cash of $1.1 million during the eleven
months ended March 31, 1999 and cash of $4.2 million for the nine months ended
December 31, 1999. Our negative operating cash flow resulted principally from
the net losses that we incurred during these periods as we invested in the
development of our products, expanded our sales force and expanded our
infrastructure to support our growth.
Our financing activities generated $3.4 million in cash during the eleven
months ended March 31, 1999 and $14.3 million in the nine months ended December
31, 1999. Of these financing activities, the issuance of redeemable convertible
special shares generated net proceeds of $3.4 million in the eleven months ended
March 31, 1999, and the issuance of special warrants generated net proceeds of
$14.4 million in the nine months ended December 31, 1999.
Our investing activities, consisting of the purchase of computer
equipment, software, furniture and equipment to support our growing number of
employees, used cash of $251,000 during the period ended March 31, 1999 and cash
of $464,000 during the nine months ended December 31, 1999.
In March 1999, we obtained a lease line of credit from a Canadian
chartered bank to purchase equipment and furniture. Approximately $96,000 was
outstanding on the lease line of credit as of March 31, 1999 and approximately
$476,000 was outstanding as of December 31, 1999. The ceiling on the lease line
of credit is Cdn$1,000,000 (approximately $693,000). The lease line of credit is
collateralized with cash for the amount of the line that is used for leasing
equipment.
Our capital requirements depend on a number of factors. We expect to
devote substantial resources to continue our research and development efforts,
expand our sales, support, marketing and product development organizations,
establish additional facilities worldwide and build the infrastructure necessary
to support our growth. Our expenditures have increased substantially since the
date of incorporation, and we anticipate that capital expenditures will continue
to increase in absolute dollars in the foreseeable future.
At December 31, 1999, we had cash and cash equivalents aggregating $11.9
million. We believe that our current cash and cash equivalents are sufficient to
fund our operations for at least the next 12 months even if we do not complete
this offering or the private placement in Canada to Nortel Networks. We expect
that the proceeds of this offering and the private placement will enable us to
facilitate more rapid expansion, including increases in personnel and office
facilities, to develop new or enhance existing products or services, to respond
to competitive pressures, or to acquire or invest in complementary businesses,
technologies, services or products. If cash generated from operations is
insufficient to meet our long-term liquidity needs, we may need to raise
additional funds or seek other financing arrangements. Additional funding may
not be available on favorable terms or at all. In addition, although there are
no present understandings, commitments or agreements with respect to any
acquisition of other businesses, products or technologies, we may, from time to
time, evaluate potential acquisitions of other businesses, products and
technologies. In order to consummate potential acquisitions, we may issue
additional securities or need additional equity or debt financing and any such
financing may be dilutive to existing investors.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit
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<PAGE> 36
entries to distinguish 21st century dates from 20th century dates. As a result,
computer systems and/or software used by many companies and governmental
agencies may need to be upgraded to comply with Year 2000 requirements or risk
system failure or miscalculations, causing disruptions of normal business
activities.
Scope of Our Year 2000 Assessment. Our IT group directed our Year 2000
compliance program and was charged with identifying issues of potential risk
within each department and making the appropriate evaluations, modifications,
upgrades or replacements. Members of our IT group worked with members of each of
our principal internal divisions in the course of assessing our Year 2000
compliance.
The scope of our Year 2000 compliance program included testing the Delano
e-Business Interaction Suite and the IT and non-IT systems used at our office in
Toronto, Ontario. Our other sales offices use the same third-party hardware and
software systems as those in our Toronto office. Accordingly, our IT group
determined that it would not conduct an independent review of those offices. The
operational areas under investigation included:
- products;
- software applications;
- facilities;
- suppliers and vendors; and
- computer systems.
We do not currently have any information concerning the Year 2000
compliance status of our clients. If our current or future clients failed to
achieve Year 2000 compliance or if they divert technology expenditures,
especially technology expenditures that were budgeted for our products, to
address Year 2000 compliance problems, our business could suffer.
Budget. We funded our Year 2000 plan from available cash and have not
separately accounted for these expenses in the past. Expenditures for Year 2000
compliance totalled less than $20,000. Because our products were designed to be
Year 2000 compliant, most of our expenses related to the operating costs
incurred by employees involved in the evaluation process and Year 2000
compliance matters generally.
Products. We have completed testing the products that we have shipped to
date. Our testing has determined that these products are capable of properly
distinguishing between 20th and 21st century dates when configured and used in
accordance with the related documentation, and provided that the underlying
operating system of the host machine and any other software used with these
products are also capable of properly distinguishing between 20th and 21st
century dates.
Third-party Hardware and Software Systems and Services. We have evaluated
all of the material third-party systems and software that we use in our
business. We have received written statements of Year 2000 compliance from
substantially all of the providers of hardware used in our business, and have
installed Year 2000 "patch kits" where appropriate. We have identified twelve
different software vendors that provide software products in our business. If
any of the compliance statements that we have received from our third-party
software or hardware providers are false, our internal systems and our ability
to ship our product would be materially harmed.
We also have obtained written compliance statements as to Year 2000
compliance from our other third-party service providers, including our Internet
service providers, cellular telephone providers and all of our utilities.
While we have not experienced any business disruptions, or other adverse
effects from Year 2000 problems to date, we continue to monitor our software,
the software we license for our internal use, the systems that operate in
conjunction with our software and our internal and external systems for Year
2000 failures. We do not expect that the Year 2000 issue will have a material
adverse effect on our business. However, it is not possible to be certain that
all aspects of the Year 2000 issues affecting us, including those
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<PAGE> 37
related to the efforts of third parties, have been fully resolved. For
information concerning risks to us relating to the Year 2000 issue and its
potential impact on our business, see "Risk Factors -- Year 2000 complications
may disrupt our operations and harm our business."
Contingency Plan. We have developed a contingency plan to ensure that our
customers continue to receive service in the event of failure due to unforeseen
or unanticipated problems with internal or external systems, vendors or
suppliers. Our key systems are backed up with the data stored both on and off
premises. Key servers and systems have replacement systems containing all
applicable data. Key technical personnel will be monitoring all systems during
the critical period of the date change and much of our other personnel will be
on call. If our main Internet connection becomes inoperative, we have individual
dial facilities that can enable internal users to connect to our system. Our
product downloads are located offsite and we are satisfied that the hosting
company's Year 2000 compliance program and contingency plans are adequate. All
sales and support personnel are equipped with notebook computers with internal
modems allowing them to be self-sufficient outside of our main office.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," or SFAS No. 131, which we adopted in
1998. SFAS No. 131 establishes standards for disclosures about operating
segments, product and services, geographic areas and major customers. We operate
in a single reportable operating segment, that is the developing and marketing
of interaction-based e-business communications applications.
In March 1998, the AICPA issued SOP No. 98-1, "Accounting for the Costs of
Computer Software Development or Obtained for Internal Use," or SOP No. 98-1.
SOP No. 98-1 requires entities to capitalize certain costs related to internal
use software once certain criteria have been met. We adopted SOP 98-1 in 1998.
The adoption of SOP No. 98-1 did not have a material impact on our financial
position or results of operations.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities" which provides guidance on the financial reporting of
start-up costs. SOP 98-5 requires costs of start-up activities and organization
costs to be expensed as incurred. We adopted SOP 98-5 in 1998. As we had not
capitalized these costs, adopting SOP 98-5 did not have an impact on our
consolidated financial statements.
In December 1998, the AICPA issued SOP No. 98-9, "Modification of SOP No.
97-2, Software Revenue Recognition with respect to Certain Transactions." SOP
No. 98-9 amends SOP No. 97-2 to require the entity to recognize revenue for
multiple element arrangements by means of the "residual method" when:
- there is vendor-specific evidence of the fair values of all of the
undelivered elements that are not accounted for by means of long-term
contract accounting;
- vendor-specific evidence of fair value does not exist for one or more
of the delivered elements; and
- all revenue recognition criteria of SOP No. 97-2, other than the
requirement for vendor-specific evidence of the fair value of each
delivered element, are satisfied.
We adopted SOP No. 98-9 commencing April 1, 1999. Adopting SOP 98-9 did
not have a material effect on our results of operations, financial position or
cash flows.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" or SFAS
No. 133. SFAS No. 133 establishes accounting and reporting standards requiring
that every derivative instrument be recorded on the balance sheet as either an
asset or liability measured at its fair value. SFAS No. 133, as recently
amended, is effective for the fiscal year ending March 31, 2002. We do not
believe that adopting SFAS No. 133 will have a material effect on our financial
position or results of operations.
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QUALITATIVE AND QUANTITATIVE MARKET RISK
We develop products in Canada and sell these products in North America and
Europe. Generally, our sales are made in local currency, which to date has been
mostly United States dollars. As a result, our financial results could be
affected by factors such as changes in foreign currency exchange rates or weak
economic conditions in foreign markets. We do not currently use derivative
instruments to hedge our foreign exchange risk. Our interest income is sensitive
to changes in the general level of U.S. interest rates, particularly since the
majority of our investments are in short-term instruments. Due to the nature of
our short-term investments, we have concluded that there is no material market
risk exposure.
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BUSINESS
OVERVIEW
We provide communications software that enables companies to rapidly
develop and deploy applications that automate business processes and personalize
and manage interactions over the internet with their existing and prospective
customers, partners, suppliers and employees. These interactions, or e-business
communications, consist of inbound and outbound communications through e-mail as
well as communications through companies' web sites. Companies can use
applications developed with our software to initiate, route, track, analyze,
respond to and manage inbound and outbound e-business communications. We are
focusing our sales efforts on businesses in the financial services, technology,
telecommunications, transportation, retail and marketing services industries, as
well as other organizations engaged in, or focused on, business-to-business or
business-to-customer commercial opportunities using the internet. Where
desirable, our professional services group can assist our clients' internal IT
personnel to implement our products.
INDUSTRY BACKGROUND
The internet is growing dramatically as a means of conducting business.
According to International Data Corporation, electronic commerce will increase
from $50.4 billion in 1998 to $1.3 trillion by 2003, as more consumers shop
online and the internet becomes an accepted channel for business-to-consumer and
business-to-business interactions. International Data Corporation estimates that
the number of web users will increase from 142.2 million in 1998 to 502.4
million in 2003. Businesses are using e-mail and the web to interact more
effectively with existing and prospective customers, partners, suppliers and
employees. For example, companies in industries such as financial services,
telecommunications, transportation, retail and marketing services increasingly
rely on e-mail and communications through web sites instead of traditional means
of communication such as telephone calls, letters, facsimiles and face-to-face
meetings. E-mail and the web, which once were used primarily within the
technical community, have become mainstream methods of communication.
In order to take advantage of the internet to communicate, businesses need
solutions that can manage both inbound and outbound traffic. For example,
Jupiter Communications conducted a survey of 125 companies with content,
consumer brands, travel, retail and financial services web sites and discovered
that 51% of those sites either took longer than five days to reply to e-mail
inquiries or failed to respond at all. Clients need solutions to manage the
growing volume of traffic associated with the increased use of the internet. For
example, International Data Corporation estimates that the worldwide customer
relationship management application market will grow from $1.9 billion in 1998
to $11.0 billion by 2003, and the Direct Marketing Association estimates that
interactive direct-marketing expenditures will increase from $379.7 million in
1998 to $3.2 billion by 2003.
To date, organizational and operational constraints have made it difficult
and expensive to automate interactions and business processes between a company
and its customers, partners, suppliers and employees. Companies seeking to
implement e-business communications must either develop their own custom
applications or purchase prepackaged software. Customized applications for
specific business requirements are often expensive and complex. In addition,
since applications typically are developed for internal business processes, they
may not be easily adapted to communicate with customers, partners, suppliers and
employees over the internet. Although prepackaged software can eliminate a
portion of the time and expense required to develop a customized application,
the implementation and subsequent upgrades of a prepackaged solution may require
business process changes or software customization that strains internal IT
resources. Since prepackaged software often is designed to address a single
operational area, an organization may encounter difficulties using prepackaged
software to address the needs of other operational areas or to communicate with
customers, partners, suppliers and employees over the internet. In addition,
prepackaged software may not leverage an organization's existing IT
infrastructure, resulting in redundancies in software and data.
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Businesses increasingly require a solution that enables them to rapidly
develop and deploy applications that automate, personalize and manage their
interactions over the internet. The solution must leverage businesses' existing
IT infrastructures to provide a broad range of applications across many
operational areas. It must be able to handle large volumes of communications
reliably and cost-effectively to meet businesses' growing dependence on
communications over the internet. Finally, the solution must extend beyond the
walls of the enterprise to reach and connect customers, suppliers and partners.
THE DELANO SOLUTION
Our solution is based on the Delano e-Business Interaction Suite, which
enables businesses to rapidly develop and deploy applications that automate
business processes and personalize and manage interactions over the internet
with their customers, partners, suppliers and employees. We believe that our
solution offers the following specific benefits to our clients:
Enhanced Communications. Our e-business communications software enables
an organization to develop and deploy e-business communications applications
across many operational areas, including finance, marketing, sales, service,
operations and human resources. Our products permit our clients to respond
rapidly and effectively to large volumes of e-mail and web-based communications.
For example, our products allow companies to automatically respond to large
numbers of inbound communications received by e-mail or through websites and
route inquiries to the appropriate departments for action. Our products also
enable organizations to capture and analyze information by communicating with a
client's existing corporate databases and directories. Our clients can use this
information to design better marketing programs, products and services and to
improve business processes to meet the needs of their customers, partners,
suppliers and employees.
Rapid Deployment. Our products use a "drag and drop" style interface that
allows our clients to define and outline a business process by arranging
application components in a flowchart-style environment. The application
components serve as the building blocks of the e-business communications
application. This component-based architecture enables our clients to develop a
wide range of e-business communications applications in a matter of days or
weeks.The flexible and open nature of our component-based architecture enables
the Delano e-Business Interaction Suite to be integrated with our clients'
existing systems, applications and databases, extending the capabilities of our
clients' existing IT infrastructure.
Scalability. We have designed our products to reliably support multiple
business processes and thousands of simultaneous e-business interactions. Our
component-based architecture supports incremental additions to hardware capacity
to address increased communication volumes.
Increased Revenue Opportunities and Reduced Operating Costs. We believe
our products can help our clients increase their revenues and reduce their
operating costs. For example, clients can generate revenue through applications
for marketing campaigns and for lead tracking and management. Our service
improvement applications, which include electronic surveys, personalized
newsletters and inbound e-mail support, can lead to increased revenues by
increasing customer loyalty. Using our solution enables clients to process large
volumes of e-business communications automatically, using a reduced number of
support and administrative personnel, which results in lower costs than can be
achieved using traditional methods such as call centers. Clients also can reduce
costs by using our applications for processes such as overdue accounts
receivable notification, automated customer support, inventory management and
self-service.
BUSINESS STRATEGY
Our objective is to establish our products as the leading e-business
communications software. The following are the key elements of our strategy for
achieving this objective:
Extend Technology Leadership. We intend to continue to develop and
improve our products to extend our technological leadership. We believe we are
the first to market a component-based architecture designed to rapidly develop
and deploy e-business communications applications that can connect most of a
business's operational areas to its customers, partners, suppliers and
employees. We intend to continue to
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develop new and enhanced products, including products designed to manage higher
volumes of communications and improve integration with our clients' existing IT
infrastructures. In addition, we are continuing to develop e-business
applications such as the Delano Velocity application suites, which are being
designed as prepackaged applications for specific business areas to further
reduce the time required to develop and deploy e-business communications
applications.
Increase Penetration of Target Markets. We are focusing our sales efforts
on industries that we believe are early adopters of e-business communications
applications. We use our in-house industry expertise to supply our products to
organizations in the financial services, technology, telecommunications,
transportation, retail and marketing services industries as well as to other
organizations that are engaged in, or focused on, business-to-business or
business-to-consumer commercial opportunities over the internet. We intend to
develop new products for particular application areas that are relevant to our
target industries.
Increase Presence Worldwide. We plan to extend our commitment to
international sales and support to take advantage of the growing worldwide
demand for e-business communications applications. We have recently opened an
office in the United Kingdom, which oversees and processes all orders for our
products and services in Europe and parts of Africa. We intend to increase our
international presence by opening additional offices and intensifying marketing
activities in Europe, and allying ourselves with selected international
third-party distribution companies, consulting organizations and software
vendors.
Increase Distribution Capabilities. We have entered into agreements with
established third-party distribution companies, consulting organizations and
software vendors, including Clarify, Macromedia and PricewaterhouseCoopers, to
enhance our market presence and extend our sales and services resources. We
intend to enter into additional agreements to further expand the distribution
channels for our products.
Pursue Strategic Acquisitions. We intend to pursue acquisitions of
complementary technologies and expertise. Acquisitions will be made only if we
believe that they are financially attractive and present opportunities for
expanding growth. For example, we will seek to identify opportunities to acquire
technologies and personnel that will help us to expand the breadth of our
applications and provide us with additional domain expertise.
PRODUCTS
Our solution is based on the Delano e-Business Interaction Suite, which
automates business processes that utilize e-mail or the web to interact with a
client's customers, partners, suppliers and employees. We also offer other
products that complement the Interaction Suite and focus on specific
technologies or business areas, including products that manage higher volumes of
communications, improve integration with our clients' existing IT infrastructure
and further reduce the time required to develop and deploy e-business
communications applications.
Delano e-Business Interaction Suite
The Delano e-Business Interaction Suite enables companies to rapidly
develop and deploy e-business communications applications. The Interaction Suite
consists of the following:
- The Delano e-Business Interaction Server is an application server
designed to manage thousands of e-business communications applications
simultaneously. The Interaction Server is Microsoft Windows NT-based
and includes an application repository to manage the storage and
version control of e-business communications applications. The
Interaction Server also manages and controls the quantity of
applications or interactions covered by the client's license. The
Interaction Server communicates directly with e-mail, web, database and
directory servers. Multiple Interaction Servers can operate effectively
within a client's enterprise.
- The Delano e-Business Application Builder is a graphical application
builder environment, designed to enable our clients to develop
e-business communications applications simply and quickly. The
Application Builder uses a "drag-and-drop" style interface that allows
our clients to define and outline a business process by arranging
application components in a flowchart-style environment.
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The application components serve as the building blocks of the
e-business communications application. The Application Builder enables a
client to develop e-business communications applications, that, among
other things:
- interface with existing corporate databases;
- connect to corporate directories;
- gather information from, and post information to, a web server;
- send and receive e-mail using popular e-mail protocols, such as Post
Office Protocol 3 or POP3, Internet Message Access Protocol 4 or
IMAP4, and Simple Mail Transfer Protocol or SMTP; and
- parse and personalize various document types, including documents in
text, HyperText Markup Language or HTML, and eXtensible Markup
Language or XML formats.
- The Delano e-Business Interaction Server Administrator is a program
that enables our clients to configure, administer and manage e-business
applications created with the Application Builder and executed on the
Interaction Server. The Server Administrator is available as a Windows
NT application or as a web application to enable remote administration.
Delano Component Pack for BackOffice
Our component packs are being designed as groupings of components to
improve integration of the Interaction Suite with our clients' existing IT
infrastructures. In October 1999, we introduced the Delano Component Pack for
BackOffice, which delivers enhanced integration with, and access to, Microsoft
SQL Servers, Microsoft Exchange Servers, Microsoft Message Queues and Microsoft
Active Directories.
Delano Component Development Kit
The Delano Component Development Kit enables software developers to create
customized components for use within the Interaction Suite. Our clients can
create customized components that integrate with their legacy or other
specialized IT systems, such as enterprise resource planning or customer
relationship management systems.
Delano Application Templates
The Delano Application Templates are designed to act as a starting point
for our clients to develop their own e-business communications applications. We
currently offer eleven application templates, including templates that act as
starting points for developing outbound marketing campaigns, customer surveys,
credit management applications and customer support applications.
Delano Campaign Server
The Campaign Server reliably manages the processing of high volumes of
outbound e-mail initiated from the Interaction Suite. The Campaign Server
significantly enhances the scalability of the Interaction Server by distributing
the outbound communications across a company's multiple e-mail servers to
achieve a higher number of e-mail deliveries in a shorter period of time.
SERVICES
If desired, our professional services group will work with clients to
learn about their specific requirements and implement integrated solutions based
on the Interaction Suite. This process is based on a four-step methodology, with
key client checkpoints at the completion of each step:
- Initial needs assessment. Our professional services group works with
our clients to define their requirements. Once a sale has been
completed, the professional services group works with the client
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to prioritize applications, identify key data structures that are
required, and develop a detailed design overview document.
- Application building. The group will construct the required
applications using the Application Builder, develop web forms and
e-mail messages, and install and configure the Interaction Server in
the client's environment.
- Testing and training. The applications are volume- and user-tested.
The group also tests the interfaces between our applications and
existing legacy systems. The group will conduct training and develop
technical documentation for the specific applications.
- Deployment. The applications are published and integrated with
clients' systems. The group monitors production to ensure that the
application is functioning properly and that any modifications are
documented.
We typically provide professional services on a time-and-materials basis,
acting either alone or with third-party distribution companies, consulting
organizations and software vendors. After our solution has been implemented, our
client services and support organization handles ongoing account management and
monitors client satisfaction.
PRODUCTS UNDER DEVELOPMENT
We continue to invest in research and development to develop new products
and enhance the functionality of our existing products. For example, we
currently are developing:
- additional Component Packs, which are intended to extend the
capabilities of the Interaction Suite and facilitate integration
between the Interaction Suite and our clients' IT systems; and
- Delano Velocity application suites, which will complement the
Interaction Suite and will permit our clients to enhance specific areas
of operation through the use of prepackaged e-business communications
applications. In addition, the Velocity application suites are intended
to enable the rapid deployment of applications while still providing
our clients with flexibility to update the applications as their
businesses evolve. Because the application suites utilize the
Interaction Suite, they can be easily customized to fit our clients'
business processes and to leverage our clients' existing customer
databases and infrastructures.
CLIENT SERVICE AND SUPPORT
Our technical services group provides maintenance and technical support to
our clients, including software upgrades and updates and emergency response. To
date, almost all our clients have entered into maintenance agreements that
entitle them to technical services. Annual maintenance fees are typically equal
to 18% of the product license fee. We provide support to our clients through our
support center located in Toronto.
SALES AND MARKETING
As of January 31, 2000, we had 88 sales, business development and
marketing professionals, including sales personnel, sales engineers, major
account representatives and marketing managers. We maintain four direct sales
representatives in Ontario as well as a total of 12 sales representatives in
California, Georgia, Illinois, Massachusetts, New York and two in the United
Kingdom, who oversees and processes all orders for our products and services in
Europe and parts of Africa. Our direct sales force is organized into regional
teams, which include both sales representatives and systems engineers.
Our direct sales force is complemented by telemarketing from our
headquarters in Toronto, Ontario, which generates, follows up and qualifies
leads, and by third-party distribution companies, consulting organizations and
software vendors with which we have agreements, such as Clarify, Macromedia and
PricewaterhouseCoopers. These third-parties further expand the distribution
channels for our products. We intend to increase our direct sales force,
establish additional sales offices and enter into additional agreements
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<PAGE> 44
with established third-party distribution companies, consulting organizations
and software vendors. We expect a substantial portion of our sales in the
foreseeable future to be derived from our direct sales force.
We also pursue original equipment manufacturer sales opportunities with
vendors of complementary technology, including developers of enterprise resource
planning systems, customer relationship management systems, and messaging,
internet and e-commerce solutions. These vendors may seek to enhance and extend
their solutions by integrating our products into theirs.
We plan to offer an online hosted application service in the first half of
2000. This service will provide an online offering of our products to businesses
that want to deploy an online customer communication system while limiting their
initial investments in hardware, software and services. We expect to be able to
manage customer information and provide our clients with real-time access to
this information. We believe this service will enable us to address markets that
are complementary to our direct sales and reseller markets.
To support our sales efforts, we conduct seminars for prospective clients
and ongoing public relations campaigns, participate in conferences and trade
shows and distribute direct mailings, newsletters and web site communications.
We typically market our products and services independently, but we also
selectively conduct joint marketing activities with third-party distribution
companies, consulting organizations and software vendors.
CLIENTS
We focus our sales efforts on organizations in five major market sectors:
financial services, technology, telecommunications, retail and transportation.
We have also identified demand in marketing services organizations and companies
focused on business-to-business or business-to-consumer commercial opportunities
over the internet. These industries have been selected because we believe them
to be early adopters of e-business communications applications. Although we
initially are primarily targeting clients in these market sectors, we believe
that increasing use of the internet and the benefits offered by our products
will provide opportunities in other market sectors. The following is a
representative list of our clients by market segment.
- Financial Services -- Charles Schwab Canada Co., Talvest Fund
Management Inc. and Trimark Investment Management Inc.;
- Technology -- Clarify, Inc. and Macromedia, Inc.;
- Telecommunications -- Ericsson Inc. and BCE Emergis Inc.;
- Transportation -- Mark VII, Inc. and Cardinal Logistics;
- Retail -- Vision Corporation, a subsidiary of TLC Laser Eye Centers
Inc.;
- Marketing Services -- Mosaic Group Inc. and Transparent Languages Inc.;
- E-commerce (business-to-consumer) -- Chapters Online Inc., e-centives
inc., Harborfreight.com, a web service operated by Central Purchasing
Inc., Marketrend Communications Inc., Vitamins.com Internet LLC and We
Media Inc.; and
- E-commerce (business-to-business) -- Cowboy Corporation and
PlasticsNet.com, a web service operated by Commerx Inc.
In the nine months ended December 31, 1999, Clarify accounted for 26% of
our total revenues. No other customer accounted for more than 10% of our total
revenues in the nine months ended December 31, 1999. We expect a substantial
portion of our license and service revenues in any given quarter to be generated
from a limited number of clients. However, we do not believe that we will be
dependent on any ongoing commitments from any particular client.
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<PAGE> 45
CLIENT CASE STUDIES
The following case studies provide illustrations of how selected clients
have used our products and services to address their requirements. The case
studies represent the diversity of the various applications that can be deployed
with our products. We believe other customer deployments of our products do not
differ significantly from those presented in the case studies below.
Harborfreight.com. Central Purchasing owns and operates Harbor Freight
Tools, which sells tools through its 70 retail store locations, a mail-order
catalog business, and an e-commerce site, Harborfreight.com. Harborfreight.com
has improved customer service and has generated revenue by using our products
for outbound e-mail marketing campaigns.
Mark VII. Mark VII provides a complete range of transportation and
logistics capabilities to support supply chain operations around the world.
Using our technology, Mark VII has implemented several e-business communications
applications to automate, personalize and manage customer and supplier
interactions. Initial applications now automate the customer credit approval
process, accounts receivable aging, credit balance and customer statement
retrieval requests, vendor notifications, and destination and dispatch reports.
These applications have allowed Mark VII to reallocate personnel to
revenue-generating areas of its business.
Vision Corporation. Vision Corporation is a subsidiary of TLC Laser Eye
Centers, which operates more than 50 centers across North America and has a
network of more than 10,000 affiliated eye doctors. Vision Corporation
co-ordinates with the various TLC centers to provide centralized buying services
for business supplies such as letterhead, business cards, and other TLC branded
materials. Vision Corporation uses the Interaction Suite to manage and track its
central buying process from initial ordering through fulfillment. Since
implementing our solution, Vision Corporation has improved its order accuracy
and delivery rates by 20% and has reduced labor costs associated with its supply
procurement by more than 20%.
COMPETITION
The market for our products and services is highly competitive and we
believe that it will become increasingly competitive in the foreseeable future.
The market is evolving rapidly from both a commercial and a technological
perspective. We believe that the principal competitive factors affecting our
market include the breadth of the offered solution, the speed of deployment,
distribution breadth, product quality and reliability, customer and professional
services quality, a significant base of high-profile customers and industry
influencers, and demonstrable value for the customer. Although we believe that
our products compare favorably with respect to these factors, our market is
relatively new and is developing rapidly.
We currently, and will for the foreseeable future, face competition from
many sources, including systems designed in-house and by third-party development
efforts. E-business communications applications are frequently developed
internally by organizations for their own use. In addition, a number of
companies offer one or more products in the market for e-business communications
software, some of which compete directly with at least part of our products. For
example, our competitors include companies that provide software that is focused
on a few operational or functional areas, such as Annuncio, Brightware, eGain,
Kana, Mustang Software and Responsys.com. We may also compete with companies
that provide customer management and communications solutions, such as Genesys
Telecommunications Laboratories, Lucent Technologies, MessageMedia, Oracle,
Pivotal, Siebel Systems, Silknet Software and Vantive.
Furthermore, established enterprise software companies, including
Hewlett-Packard, IBM, Microsoft and similar companies may leverage their
existing relationships and capabilities to offer e-business communications
software that competes with our products. We also may face competition from web
application servers, messaging server platform solutions, e-mail application
vendors and e-mail service bureaus. We believe competition will increase as our
current competitors increase the sophistication of their offerings and as new
participants enter the market.
We intend to position at least part of our solution as complementary to
our competitors' solutions, thereby helping these vendors meet their clients'
needs. For example, we will participate in the customer
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<PAGE> 46
relationship management market by acting as the interaction technology for a
variety of front office solutions, such as Clarify, and in the web application
server market as a natural fit for vendors, such as Microsoft Site Server,
looking to provide their customers with enhanced e-mail capabilities. This will,
in turn, help us to preserve our distribution channel opportunities.
RESEARCH AND DEVELOPMENT
We believe that our future success depends in large part on our ability to
maintain and enhance our technology, to develop a large library of software
products, and to enhance our market positioning through the deployment of
emerging technologies. In fiscal 1999, we invested $659,000 in product
development. For the nine months ended December 31, 1999, we invested $2.4
million in product development.
In order to maintain our focus on developing new products and
enhancements, it is important that we recruit highly skilled, experienced
engineers and software developers. Our senior managers are generally experienced
in enterprise application development. We have designed a process for product
development which defines and addresses the activities required to successfully
bring product concepts and development projects to market, ensures that feedback
from our sales, marketing, and business development efforts is appropriately
integrated into the development cycle, and ensures that products and programs
are available within appropriate timeframes.
As of January 31, 2000, we had 73 personnel engaged in research and
development activities.
INTELLECTUAL PROPERTY
We rely on a combination of copyright, trade secret and trademark laws,
confidentiality procedures, contractual provisions and other similar measures to
protect our proprietary information and technology. We do not currently hold any
patents, registered trademarks or copyrights. However, we will assess
appropriate occasions for seeking additional intellectual property protections
for those aspects of our technology that we believe constitute innovations
providing significant competitive advantages. Such future applications may or
may not result in the registration of trademarks or copyrights.
As part of our confidentiality procedures, we generally require our
employees, clients and potential business partners to enter into confidentiality
and non-disclosure agreements before we will disclose any sensitive aspects of
our products, technology or business plans. In addition, we generally require
employees to agree to surrender to us any proprietary information, inventions or
other intellectual property they generate or come to possess while employed by
us. These efforts afford only limited protection.
Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or to obtain and use
information that we regard as proprietary and third parties may attempt to
develop similar technology independently. These precautions may not prevent
misappropriation or infringement of our intellectual property. In addition, laws
of some countries do not protect our proprietary rights to the same extent as do
the United States or Canada. We cannot assure you that protection of our
proprietary rights will be adequate or that our competitors will not
independently develop similar technology.
There has been a substantial amount of litigation in the software and
internet industries regarding intellectual property rights. It is possible that
in the future third parties may claim that we or our current or potential future
products infringe their intellectual property. We expect that software product
developers and providers of internet-related solutions will increasingly be
subject to infringement claims as the number of products and competitors in our
industry grows and the functionality of products in different industries
increasingly overlaps. Furthermore, former employers of our current and future
employees may assert that our employees have improperly disclosed confidential
or proprietary information to us. Any such claims, with or without merit, could
be time-consuming to defend, divert management's attention and resources, result
in costly litigation, cause product shipment delays or require us to enter into
royalty or licensing agreements which may not be available on terms acceptable
to us or at all. In addition, parties making these claims may be able to obtain
an injunction, which could prevent us from selling our products in the United
States or abroad. A successful infringement claim against us and our failure or
inability to license the infringed rights or
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<PAGE> 47
develop or license technology with comparable functionality could have a
material adverse effect on our business, operating results and financial
condition.
EMPLOYEES
As of January 31, 2000, we had 210 full-time employees, including 73 in
research and development, 28 in professional services, 88 in sales, business
development and marketing and 21 in general and administrative. We added 147
employees between July 1, 1999 and January 31, 2000, and we expect to continue
hiring employees at a rapid pace. None of our employees are covered by
collective bargaining agreements and we have never experienced a strike or work
stoppage. We believe our relations with our employees are good.
LEGAL PROCEEDINGS
We are not currently party to any material legal proceedings, nor are we
aware of any proceedings that are contemplated.
FACILITIES
Our corporate headquarters are located in Toronto, Ontario, where we lease
approximately 21,000 square feet. The lease for the principal portion of our
space expires on December 31, 2000. In November 1999, we entered into a 10-year
lease for approximately 34,400 square feet for a new corporate headquarters.
This new lease takes effect on March 1, 2000, and includes an option to lease an
additional 7,000 square feet. We believe that our facilities are adequate to
meet our requirements for the foreseeable future. We also lease office space in
California, Illinois, New York and Texas. We do not own any real property.
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<PAGE> 48
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the name, age and positions with Delano for
each of our directors and officers as of December 31, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C> <C>
Dennis Bennie(1)(2)............................ 46 Chairman
John Foresi(2)................................. 38 Director, President and Chief Executive
Officer
Bahman Koohestani(2)........................... 37 Director, Executive Vice-President, Products
and Chief Technology Officer
Thomas Hearne.................................. 35 Chief Financial Officer
Robert Lalonde................................. 36 Vice-President, Marketing
Barry Yates.................................... 34 Vice-President, North American Sales
Michael Hughes................................. 31 Vice-President, Eastern Sales and Marketing
Andrew Dennis.................................. 32 Vice-President, Business Development
David Lewis.................................... 37 General Counsel and Secretary
Albert Amato(1)(2)............................. 41 Director
J. (Ian) Giffen(1)............................. 42 Director
Donald Woodley................................. 54 Director
</TABLE>
- ------------
(1) Member of the audit committee
(2) Member of the compensation committee
Dennis Bennie has been our Chairman since our inception in May 1998.
Currently, Mr. Bennie is the Chief Executive Officer and President of XDL
Capital Corp., a private venture capital firm that he established in January
1997 to focus on investing in and working with emerging Internet companies and
related technologies. Mr. Bennie is a director of MGI Software Corp., a company
that produces digital imaging software. In 1988, Mr. Bennie co-founded Delrina
Corporation, a designer of fax, data and voice communications software, where he
was the Chairman and Chief Executive Officer until the November 1995 sale of
Delrina to Symantec Corporation. He remained employed with Symantec as Executive
Vice President and was a director until mid-1996. Mr. Bennie has an accounting
degree from the University of Witwatersrand.
John Foresi has been our President and Chief Executive Officer and has
served as one of our directors since January 1999. From May 1998 to December
1998, he was the President, Transportation of i2 Technologies, a global supply
chain software company. In May 1998, i2 Technologies acquired InterTrans
Logistics Solutions, of which Mr. Foresi was President and Chief Executive
Officer from August 1994 to April 1998. Mr. Foresi has an MBA from the Harvard
Business School and a BBA from Wilfrid Laurier University.
Bahman Koohestani founded Delano in May 1998, has served as one of our
directors since our inception and was our President and Chief Executive Officer
from our inception until January 1999. Mr. Koohestani has been our Executive
Vice-President, Products and Chief Technology Officer since January 1999. Prior
to founding Delano, Mr. Koohestani was Director of Products, Messaging for
Netscape Communications from October 1996 to May 1998. From February 1991 to
September 1996, Mr. Koohestani served as Chief Architect of Electronic Forms and
Products e-Commerce at Delrina. Mr. Koohestani has a Bachelor of Science
(Honors) degree from York University.
Thomas Hearne has served as our Chief Financial Officer since November
1999. From October 1997 to November 1999, Mr. Hearne was Chief Financial Officer
of Open Text Corporation, a provider of intranet, extranet and e-community
platform solutions. From September 1996 to October 1997, Mr. Hearne served as
Vice President, Finance and Administration of Algorithmics Incorporated, a
developer of risk management software. From April 1996 to September 1996, Mr.
Hearne was the Controller of Algorithmics. From
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<PAGE> 49
September 1992 to April 1996, Mr. Hearne was European Controller and Manager,
Financial Reporting at Alias Research Inc., a developer of 3D graphics software
which was sold to Silicon Graphics, Inc. in June 1995. Mr. Hearne is a chartered
accountant and has an MBA from York University and a Bachelor of Economics
degree from Trent University.
Robert Lalonde has served as our Vice-President, Marketing since January
1999. From July 1993 to January 1999, Mr. Lalonde was the Vice-President,
Marketing of the Business Intelligence Division at Hummingbird Communications, a
provider of network connectivity, business intelligence, document and knowledge
management software. Mr. Lalonde has a Bachelor of Science from Laurentian
University.
Barry Yates has served as our Vice-President, North American Sales since
January 2000. Between September 1998 and January 2000, Mr. Yates served as our
Vice-President, Professional Services. Prior to joining us, Mr. Yates was
Manager at Bain & Company from December 1995 to September 1998. From April 1992
to November 1995, Mr. Yates was Principal at KPMG Management Consulting Company.
Mr. Yates has a Bachelor of Commerce (Honors) degree from Queen's University.
Michael Hughes has served as our Vice-President, Eastern Sales and
Marketing since July 1999. From January 1998 to July 1999, Mr. Hughes was
employed as a branch manager at Oracle. From January 1995 to October 1997, Mr.
Hughes was a sales representative at Watermark Software Inc., which was
subsequently purchased by FileNet Corporation in January 1997. From June 1994 to
January 1995, Mr. Hughes worked as a Regional Professional Services Manager for
Information Advantage, Inc., a software development company. Mr. Hughes received
his Bachelor of Science in Computer Engineering from Clemson University and he
has an MBA from the University of North Carolina.
Andrew Dennis has served as our Vice-President, Business Development since
June 1999. From January 1997 to June 1999, Mr. Dennis was a Vice President at
GartnerGroup, an independent provider of advisory and market research services
to information technology vendors and users. From June 1996 to February 1997,
Mr. Dennis was an independent consultant who provided strategic business
planning, sales and marketing, and information technology consulting advice.
From January 1995 to June 1996, Mr. Dennis was the Vice President at Hill Arts &
Entertainment Systems, a client-server application software vendor. From
November 1993 to January 1995 Mr. Dennis served as Director of Sales of Data
Lease International. Mr. Dennis has a BBA in Marketing from the Detroit College
of Business.
David Lewis has served as our General Counsel and Secretary since January
2000. From February 1999 to January 2000, Mr. Lewis was the Vice President,
Legal at Open Text. From November 1994 to February 1999, Mr. Lewis was the
General Counsel at Alias Wavefront (formerly Alias Research) prior to its
acquisition by Silicon Graphics in June 1995. Between June 1994 and November
1994, Mr. Lewis was an independent consultant and prior to June 1994, Mr. Lewis
was General Counsel at SoftKey Software Products Inc., a consumer software
publisher.
Albert Amato has served as one of our directors since May 1998. Since
November 1995, Mr. Amato has been a technology consultant and advisor to
software companies and technology investment funds. Mr. Amato was a founder and
was Chief Technical Officer of Delrina from 1989 to November 1995. After Delrina
was sold to Symantec, he served as a Vice President with Symantec from November
1995 to May 1996. Mr. Amato has a Bachelor of Applied Science and Engineering
(Honors) degree from the University of Toronto.
J. (Ian) Giffen has served as one of our directors since June 1998. Since
September 1996, Mr. Giffen has been a technology consultant and advisor to
software companies and technology investment funds. From February 1996 to
September 1996, Mr. Giffen was Chief Financial Officer of Algorithmics. From
January 1992 until February 1996, Mr. Giffen served as Chief Financial Officer
of Alias Research, which was sold to Silicon Graphics in June 1995. Mr. Giffen
is a director of and advisor to Macromedia Inc., a developer of software for web
publishing, multimedia and graphics and a director of MGI Software. Mr. Giffen
is also a consultant to XDL Capital. Mr. Giffen has a Bachelor of Arts in
Business Administration from the University of Strathclyde.
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<PAGE> 50
Donald Woodley has served as one of our directors since November 1999.
From February 1997 to October 1999, Mr. Woodley was President of Oracle
Corporation Canada Inc. From September 1987 to January 1997, he was President of
Compaq Canada Inc. Mr. Woodley serves on the board of directors of BCT.Telus, a
telecommunications company, and Star Data Systems Inc., a supplier of financial
and transaction processing services. Mr. Woodley has a Bachelor of
Communications from the University of Saskatchewan and an MBA from the
University of Western Ontario.
There are no family relationships among any of our directors and executive
officers.
BOARD OF DIRECTORS
Our board of directors is comprised of six persons. In accordance with the
provisions of the Business Corporations Act (Ontario), our directors are
authorized from time to time to increase the size of the board of directors, and
to fix the number of directors, up to a maximum of eight persons, without the
prior consent of our shareholders. Each director is elected at the annual
meeting of shareholders to serve until the next annual meeting or until a
successor is elected or appointed. The board of directors has established an
audit committee and a compensation committee.
Our audit committee's mandate is to assist the board of directors in
fulfilling its functions relating to corporate accounting and reporting
practices as well as financial and accounting controls, to provide effective
oversight of the financial reporting process, and to review financial statements
as well as proposals for the issue of securities. Messrs. Bennie, Amato and
Giffen are members of the audit committee.
Our compensation committee reviews and approves the compensation and
benefits for our executive officers, administers our stock option plan and
performs other duties as may from time to time be determined by our board of
directors. Messrs. Bennie, Amato, Foresi and Koohestani are members of the
compensation committee.
EXECUTIVE COMPENSATION
The following table sets forth the actual compensation paid or awarded to
our named executive officers, who consist of John Foresi, our current chief
executive officer, and Bahman Koohestani, who preceded Mr. Foresi as our chief
executive officer during the fiscal year ended March 31, 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
----------------------- ------------
OTHER ANNUAL SECURITIES
SALARY COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITION ($) ($) OPTIONS
- --------------------------- ------- ------------ ------------
<S> <C> <C> <C>
John Foresi, President and Chief Executive Officer.... $24,764 $1,188 1,144,737
Bahman Koohestani, Executive Vice President, Products
and Chief Technology Officer........................ 82,488 3,563 --
</TABLE>
Each named executive officer has a base salary of Cdn$150,000
(approximately $104,000) per year and receives a car allowance of Cdn$7,200
(approximately $5,000) per year. However, each was employed for less than one
full year as of the fiscal year ended March 31, 1999 and, accordingly, the
information in the table above reflects only the portion of the fiscal year that
they were employed. The amounts specified under "Other Annual Compensation"
consist of car allowances received by the named executive officers in the fiscal
year ended March 31, 1999.
In accordance with the terms of a subscription agreement between Delano
and Mr. Koohestani, in fiscal 1999 a total of 1,350,000 common shares were
released from escrow to a corporation owned by Mr. Koohestani. Under the terms
of the subscription agreement, Mr. Koohestani would not have been entitled to
receive these shares if he had resigned or had been dismissed for cause. See
"Transactions with Related
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<PAGE> 51
Parties -- Escrow Arrangement." Mr. Foresi has 500,000 options at $0.11 per
share and has a warrant to purchase an additional 394,737 common shares at $0.44
per share. The warrant expires when he ceases to be employed by us or on January
5, 2002, whichever occurs earlier.
During the fiscal year ended March 31, 1999, the aggregate compensation
paid to all of our officers and directors as a group, for services in all
capacities, was $191,025, based on currency exchange rates during the fiscal
year.
STOCK OPTIONS
The following table sets forth (1) the number of common shares underlying
the options granted to each of the named executive officers during the fiscal
year ended March 31, 1999, (2) the percentage that these options represent in
comparison to the total number of options granted to our employees during the
same period, (3) the exercise price of such options and (4) their expiration
date.
OPTION GRANTS IN FISCAL 1999
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
NUMBER OF SHARES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED TO EXERCISE OPTION TERM
OPTIONS GRANTED EMPLOYEES IN PRICE PER SHARE EXPIRATION -----------------
NAME (#) FISCAL YEAR ($/SECURITY) DATE 5%($) 10%($)
- ---- ---------------- ------------------ --------------- --------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
John Foresi.......... 750,000 48% $0.11 January 4, 2004 $23,178 $51,218
Bahman Koohestani.... -- -- -- -- -- --
</TABLE>
There were no options exercised by the named executive officers during the
fiscal year ended March 31, 1999.
COMPENSATION OF DIRECTORS
We do not currently compensate our directors, but they are reimbursed for
out-of-pocket expenses incurred in connection with meetings of the Board of
Directors or its committees. Directors are eligible to participate in the Stock
Option Plan. See "Stock Option Plan."
EMPLOYMENT AGREEMENTS
We have entered into an agreement with Mr. Foresi pursuant to which he was
hired as our President and Chief Executive Officer effective January 4, 1999.
Pursuant to this agreement, Mr. Foresi receives a salary of Cdn$150,000
(approximately $104,000) per annum, exclusive of bonuses, benefits and other
compensation. Mr. Foresi was also granted options to purchase 750,000 common
shares at a price of $0.11 per share, which options expire on January 4, 2004,
and a warrant to purchase an additional 394,737 common shares at a price of
$0.44 per share, which warrant expires when Mr. Foresi ceases to be employed by
us or January 5, 2002, whichever is earlier. On January 11, 2000, Mr. Foresi
exercised options to purchase 250,000 common shares at a price of $0.11 per
share. Mr. Foresi also receives a yearly car allowance and compensation for all
expenses incurred from time to time in connection with the carrying out of his
duties. Our agreement with Mr. Foresi may be terminated by us without cause
within 12 months of the effective date of the agreement, provided that Mr.
Foresi receives either three months' notice or payment of three months'
severance. If dismissed without cause more than 12 months after the effective
date of the agreement, Mr. Foresi will be entitled to receive either six months'
notice or payment of six months' severance. Options that have not vested and
warrants that have not been exercised prior to notice of termination (other than
for cause) or during the three- or six-month notice or severance period
thereafter will be null and void. The agreement further provides that in the
event of a change of control of Delano resulting in the termination of
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<PAGE> 52
Mr. Foresi's employment without cause, all of Mr. Foresi's options will vest
within three months of the change of control.
We have also entered into an agreement with Mr. Koohestani pursuant to
which he was hired as our Executive Vice President, Products and Chief
Technology Officer effective January 4, 1999. Pursuant to this agreement, Mr.
Koohestani receives a salary of Cdn$150,000 (approximately $104,000) per annum,
exclusive of bonuses, benefits and other compensation. Mr. Koohestani also
receives a yearly car allowance and compensation for all expenses incurred from
time to time in connection with the carrying out of his duties.
STOCK OPTION PLAN
We established our Stock Option Plan to provide incentives to our
directors, officers, employees and consultants through participation in our
growth and success. Options to purchase common shares may be granted from time
to time by our board of directors at an exercise price determined by them. The
maximum number of common shares that currently may be issued under the plan is
4,500,000 common shares. Options granted under the plan must be exercised no
later than five years after the date of the grant, except where our board of
directors specifically states otherwise, in which case the expiry date can be no
later than 10 years after the date of grant. The option price per common share
shall be determined by the board of directors at the time an option is granted.
The board of directors may accelerate the vesting of any or all outstanding
options of any or all optionees upon the occurrence of a change of control.
As at January 31, 2000, options to purchase a total of 3,749,850 common
shares are outstanding under the plan, as follows:
<TABLE>
<CAPTION>
COMMON
SHARES UNDER EXERCISE PRICE
HOLDERS OF OPTIONS OPTIONS ($) EXPIRY DATE
- ------------------ ------------ -------------- ---------------------------
<S> <C> <C> <C>
Executive Officers (seven in
total)........................ 225,000 0.11 September 1, 2003
500,000 0.11 January 4, 2004
135,000 0.11 January 20, 2004
172,500 0.44 May 3, 2004
150,000 0.44 June 2, 2004
140,000 0.44 July 26, 2004
157,500 3.08 October 18, 2004
Directors who are not Executive
Officers (three in total)..... 105,000 0.11 August 26, 2003
15,000 3.08 October 18, 2004
30,000 4.51 November 26, 2004
Employees (182 in total)........ 593,750 0.11 May 1, 2003 to May 10, 2004
374,000 0.44 March 17, 2004 to November
1, 2004
1,054,600 2.35 to 10.00 October 1, 2004 to January
31, 2005
Others (seven persons).......... 97,500 0.11 to 2.35 June 14, 2004 to November
2, 2004
</TABLE>
As at January 31, 2000, 250,000 common shares had been issued to one
employee pursuant to the exercise of options granted under the plan.
EMPLOYEE STOCK PURCHASE PLAN
On January 10, 2000, our board of directors and shareholders approved the
Delano Technology Corporation Employee Stock Purchase Plan, which enables our
employees to acquire common shares through payroll deductions. The plan is
intended to qualify as an employee stock purchase plan under Section 423 of the
Internal Revenue Code of 1986. The initial offering period will start on
February 1, 2000. Purchase
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<PAGE> 53
periods within each offering period will run for six months, commencing on
February 1 and August 1 of each year and ending on January 31 and July 31. Each
offering period will last for 24 months, with the purchase price throughout the
offering period being 85% of the fair market value of the common shares on the
first day of the period or 85% of the fair market value of the common shares on
the last day of any six month purchase period, whichever is lower. Eligible
employees may select a rate of payroll deduction up to 15% of their compensation
up to an aggregate of $25,000 in each calendar year. An aggregate of 1,000,000
common shares has been reserved for issuance under the plan.
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<PAGE> 54
TRANSACTIONS WITH RELATED PARTIES
RELATIONSHIP WITH PROTEGE
Dennis Bennie, our Chairman, is a trustee of the Bennie Childrens' Trust,
which owns 11.25% of Protege Software Limited, a company with which we have
entered into a services agreement dated as of June 1, 1999. Pursuant to this
agreement, Protege Software Limited has agreed to provide administrative
assistance and office space to facilitate the opening of our European offices in
return for a management fee of L125,000 (approximately $200,000) per year, as
well as between L5,500 and L6,000 (approximately $8,800 to $9,600) per month in
respect of its costs and a bonus of up to 15% of sales generated by our European
offices. Within the first 12 months of the 18 month term of the agreement, the
bonus may be converted into common shares at a price of $2.37 per share. In the
final six months of the agreement, one-half of the bonus may be converted into
common shares based on the average trading price for the 10 days preceding the
conversion date.
ESCROW ARRANGEMENTS
Pursuant to subscription agreements dated July 17, 1998, an aggregate of
4,500,000 common shares purchased by Bahman Koohestani, Sean Maurik, John Mah
and Robert Gayle were deposited with us in escrow.
The escrow arrangements were entered into with Bahman Koohestani, Sean
Maurik, John Mah and Robert Gayle in order to provide restrictions on the free
disposition by these individuals of the shares held by them and limiting the
ability of these shareholders to immediately divest themselves of all equity
participation in Delano, resulting in a reduced personal economic interest in
our future economic success. Upon completion of this offering, the passage of
time is the only restriction on the release of the escrowed shares. In the event
of termination without cause of an individual's employment resulting from a
change of control of Delano, all of the individual's common shares will be
released from escrow.
In accordance with the terms of the subscription agreement between Delano
and Mr. Koohestani, one-twelfth of the 4,050,000 common shares acquired by him
were released from escrow on July 17, 1998 and an additional one-twelfth of the
common shares are to be released on the last day of each successive calendar
quarter. On June 24, 1999, all the securities of Delano owned by Mr. Koohestani
were transferred to 1329347 Ontario Inc. in its capacity as the general partner
of GHI Limited Partnership. As of December 31, 1999, 2,362,500 of the 4,050,000
common shares of Mr. Koohestani which were originally subject to escrow had been
released from escrow and 1,687,500 of the common shares held by 1329347 Ontario
Inc. remained in escrow.
In accordance with the terms of the subscription agreements between Delano
and each of Mr. Maurik, Mr. Mah and Mr. Gayle, 37,500 of their respective
150,000 common shares were released from escrow on June 30, 1999 and an
additional 9,375 of their respective common shares are to be released on the
last day of each successive calendar quarter. As of January 31, 2000, 56,250
common shares had been released to each of Mr. Maurik, Mr. Mah and Mr. Gayle and
93,750 of their respective common shares remained in escrow.
SPECIAL WARRANT FINANCING
On June 24, 1999, we raised $14.4 million, net of the agents' commission
and offering expenses, through a private placement of special warrants. Each
special warrant entitles the holder to acquire at any time, without additional
payment, one Class C special share or, if our issued and outstanding shares have
been converted to common shares, one common share, subject to adjustment. In
connection with this offering, all of the special warrants will be exercised to
acquire common shares on the basis of 1.5 common shares for each special
warrant. See "Description of Capital Stock -- Special Warrants." Pursuant to the
special warrant offering, Mr. Amato purchased 42,000 special warrants, XDL
Delano Holdings Inc., one of our principal shareholders, purchased 124,308
special warrants, and the June H. Yates Trust under the Estate of Pearl B.
Walker, a trust affiliated with Mr. Yates, one of our officers, purchased 29,000
special warrants.
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<PAGE> 55
PRINCIPAL SHAREHOLDERS
The following table sets forth information about the beneficial ownership
of our outstanding common shares on January 31, 2000, by:
- each person or entity who is known by us to own beneficially more than
five percent of our common shares;
- each of the named executive officers;
- each of our directors; and
- all of our directors and executive officers as a group.
In accordance with SEC rules, beneficial ownership includes any shares as
to which a person or entity has sole or shared voting power or investment power
and any shares as to which the person or entity has the right to acquire
beneficial ownership within 60 days after January 31, 2000 through the exercise
of options, conversion of securities or otherwise. Except as noted below, we
believe that the persons named in the table have sole voting and investment
power with respect to the shares of common stock set forth opposite their names.
Percentage of beneficial ownership before the offering is based on 23,424,598
common shares outstanding as of January 31, 2000, including common shares into
which our outstanding redeemable convertible special shares will convert upon
completion of this offering, common shares issuable upon exercise of our
outstanding special warrants in connection with the completion of this offering,
and 5,500,000 common shares outstanding at January 31, 2000. Percentage of
beneficial ownership after the offering is based on 29,174,598 common shares
outstanding immediately after the offering and the completion of the private
placement in Canada of 500,000 common shares to Nortel Networks. All shares
included below under "Outstanding Shares" represent shares and shares subject to
outstanding special shares or special warrants. All shares included below under
"Right to Acquire" represent outstanding shares subject to outstanding stock
options or warrants. The address of our executive officers and directors is in
care of Delano Technology Corporation, 40 West Wilmot Street, Richmond Hill,
Ontario L4B 1H8, Canada.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------------------------ -------------------
OUTSTANDING RIGHT TO TOTAL BEFORE AFTER
SHARES ACQUIRE NUMBER OFFERING OFFERING
----------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
XDL Delano Holdings Inc................. 10,133,832 -- 10,133,832 43.26% 34.74%
Dennis Bennie........................... 10,133,832 -- 10,133,832 43.26 34.74
Bahman Koohestani....................... 3,900,000 -- 3,900,000 16.65 13.37
John Foresi............................. 1,039,474 394,737 1,434,211 5.96 4.92
Albert Amato............................ 213,000 37,500 250,500 1.07 *
J. (Ian) Giffen......................... -- 15,000 15,000 * *
Donald Woodley.......................... -- -- -- -- --
All current directors and executive
officers as a group (13 persons)...... 15,286,306 659,106 15,945,412 65.51 54.66
</TABLE>
- ------------
* Less than 1%.
The shares reflected as beneficially owned by XDL Delano Holdings and Mr.
Bennie consist of shares held of record by XDL Delano Holdings, of which Mr.
Bennie is the President, a director and a beneficial shareholder. XDL Delano
Holdings was formed as an investment vehicle to hold Delano securities. Pursuant
to an existing contractual arrangement, we will amalgamate with XDL Delano
Holdings in connection with the completion of this offering, with the result
that the Delano shares currently held by XDL Delano Holdings will be cancelled
and the persons and entities that currently hold shares of XDL Delano Holdings
will acquire shares in the amalgamated company on the amalgamation. Common
shares in the amalgamated company will be identical to common shares of Delano
in all material respects. The following table provides supplemental information
with respect to the distribution of the shares currently held by XDL Delano
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Holdings on a pro forma basis, as if the amalgamation had occurred on January
31, 2000 and based upon an assumed offering price of $15.00.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
----------------------------------- -------------------
OUTSTANDING RIGHT TO TOTAL BEFORE AFTER
SHARES ACQUIRE NUMBER OFFERING OFFERING
----------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Dennis Bennie............................ 970,197 -- 970,197 4.14% 3.41%
Albert Amato............................. 277,673 37,500 315,173 1.35 1.11
Strategic Investment Holdings Inc. ...... 1,984,091 -- 1,984,091 8.47 6.98
Canadian Imperial Bank of Commerce....... 1,293,603 -- 1,293,603 5.52 4.55
All current directors and executive
officers as a group (12 persons)....... 6,187,344 659,106 6,846,450 29.23 24.09
</TABLE>
The shares reflected as beneficially owned by Mr. Koohestani consist of
shares held of record by 1329347 Ontario Inc., in its capacity as general
partner of GHI Limited Partnership. Mr. Koohestani is the sole shareholder of
1329347 Ontario Inc. A total of 1,687,500 of these shares are subject to escrow.
See "Transactions with Related Parties -- Escrow arrangements."
The shares reflected as beneficially owned by Mr. Foresi include 789,474
common shares held of record by Tofino Venture Capital Inc., of which Mr. Foresi
is the voting trustee.
To our knowledge, we are not directly or indirectly owned or controlled by
another corporation or by any foreign government.
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DESCRIPTION OF SHARE CAPITAL
GENERAL
Our authorized share capital consists of an unlimited number of common
shares, an unlimited number of Class A special shares, an unlimited number of
Class B special shares, an unlimited number of Class C special shares and an
unlimited number of preference shares issuable in series. As of January 31,
2000, there were 5,500,000 common shares issued and outstanding, as well as a
warrant issued to John Foresi, expiring on the date which Mr. Foresi ceases to
be employed by us or January 5, 2002, whichever is earlier, exercisable into
394,737 common shares at an exercise price of $0.44 per share. In addition,
there were 4,000,000 Class A special shares and 3,789,476 Class B special shares
issued and outstanding as well as special warrants to acquire 4,326,924 Class C
special shares. As at January 31, 2000, there were no Class C special shares or
preference shares issued and outstanding.
Upon completion of this offering, all of our then-outstanding Class A
special shares, Class B special shares and Class C special shares will be
converted into common shares, and these classes of special shares will be
cancelled. In addition, in connection with the completion of this offering, our
outstanding special warrants will be exercised to purchase common shares. Based
on shares outstanding as of January 31, 2000, after giving effect to the
exercise of outstanding special warrants and the conversion of all special
shares into common shares, but prior to giving effect to this offering or the
private placement in Canada of 500,000 common shares to Nortel Networks and
assuming no exercise of currently outstanding options or the warrant held by Mr.
Foresi, there will be 23,674,598 common shares outstanding held of record by 42
shareholders. After giving effect to this offering and the private placement in
Canada of 500,000 common shares to Nortel Networks but assuming no exercise of
the underwriters' over-allotment option and no exercise of outstanding options
or the outstanding warrant, there will be 29,174,598 common shares outstanding.
COMMON SHARES
Holders of common shares are entitled to receive notice of and to attend
all meetings of shareholders and to vote at all such meeting together as a
single class, except in respect of matters where only the holders of shares of a
specified class or specified series of shares are entitled to vote separately.
The common shares carry one vote per share. Holders of common shares are
entitled, subject to the rights, privileges, restrictions and conditions
attaching to any other class of our shares, to receive any dividend declared by
our board of directors. In the event of any liquidation, dissolution or
winding-up of Delano or other distribution of assets of Delano among our
shareholders for the purpose of winding-up our affairs, subject to the rights,
privileges, restrictions and conditions attaching to any other class of our
shares, the assets and funds of Delano shall be distributed among the holders of
common shares and the holders of any other class of our shares. This
distribution shall be made pro rata based on the number of common shares held by
each holder, assuming conversion into common shares of all other classes of our
shares, and any other participating outstanding series or class of our shares
convertible into common shares. All outstanding common shares are fully paid and
nonassessable, and the common shares to be issued following this offering will
be fully paid and nonassessable.
PREFERENCE SHARES
Our articles of incorporation provide that the board of directors has the
authority, without further action by the shareholders, to issue up to an
unlimited number of preference shares in one or more series. The preference
shares are entitled to dividend and liquidation preferences over the common
shares. The board may also fix the designations, rights, powers, preferences,
privileges and relative, participating, optional or special rights of any
preference shares issued, including any qualifications, limitations or
restrictions. Special rights which may be granted to a series of preference
shares may include dividend rights, conversion rights, voting rights, terms of
redemption and liquidations preferences, any of which may be superior to the
rights of the common shares. Preference share issuances could decrease the
market price of the common shares and may adversely affect the voting and other
rights of the holders of common shares. The issuance of preference
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<PAGE> 58
shares also could have the effect of delaying or preventing a change of control
of our company. We currently do not have any plans to issue preference shares.
REGISTRATION RIGHTS
On January 27, 1999, we entered into a registration rights agreement with
our then-existing shareholders under which, at any time after 120 days from the
completion of this offering, either XDL Delano Holdings Inc. individually or a
group of the other shareholders holding more than 50% of our outstanding common
shares, may make up to three requests to have us register all or any portion of
their shares under the Securities Act or under Canadian securities laws.
In addition, these share holders have "piggyback" registration rights. If
we propose to register any common shares under the Securities Act or qualify any
common shares under a Canadian prospectus, other than in connection with this
offering or in connection with the registration of securities issued under an
employee benefits plan or in consideration of an acquisition, each of these
shareholders may require us to include all or a portion of the common shares
held by them in the registration or qualification, as the case may be.
We are responsible for paying the expenses of any such registrations. Each
participating shareholder would bear its proportionate share of all underwriting
commissions. These registrations rights are subject to conditions and
limitations, including the right of the underwriters of an offering to limit the
number of shares.
SPECIAL WARRANTS
Pursuant to an agency agreement dated June 24, 1999 between Delano and
Griffiths McBurney & Partners, National Bank Financial Corp. and Charles Schwab
Canada Co., we issued and sold by way of private placement, special warrants for
proceeds of $14.4 million, net of the agents' commission and offering expenses.
Each special warrant entitles the holder to acquire at any time, without payment
of any additional compensation, one Class C special share or, if our outstanding
special shares have been converted to common shares, one common share, subject
to adjustment. Our outstanding special warrants will be exercised to purchase an
aggregate of 6,490,386 common shares in connection with the completion of this
offering.
OWNERSHIP RESTRICTIONS
There is no law or governmental decree or regulation in Canada that
restricts the export or import of capital, or affects the remittance of
dividends, interest or other payments to non-resident holders of common shares,
other than withholding tax requirements. See "Tax Considerations."
There is no limitation imposed by Canadian law or by the Articles of
Incorporation or other charter documents of the Company on the right of a
non-resident to hold or vote Common Shares, other than as provided by the
Investment Canada Act, the North American Free Trade Agreement Implementation
Act (Canada) and the World Trade Organization Agreement Implementation Act. The
Investment Canada Act requires notification and, in certain cases, advance
review and approval by the Government of Canada of the acquisition by a
"non-Canadian" of "control" of a "Canadian business," all as defined in the
Investment Canada Act. Generally speaking, the threshold for review will be
higher in monetary terms for a member of the World Trade Organization or North
American Free Trade Agreement.
TRANSFER AGENT AND REGISTRAR
The registrar and transfer agent for our common shares is Montreal Trust
Company of Canada. Its address is 151 Front Street, 8th Floor, Toronto, Ontario
M5J 2N1, and its telephone number at this location is (416) 981-9500. American
Securities Transfer and Trust Incorporated will act as co-transfer agent. Its
address is 1 Liberty Plaza, New York, New York 10006, and its telephone number
at this location is (800) 663-9097.
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<PAGE> 59
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering and the private placement in Canada of
500,000 common shares to Nortel Networks, which will occur concurrently with the
completion of this offering, a total of 29,174,598 of our common shares will be
outstanding, assuming no exercise of the underwriters' over-allotment option or
of any outstanding options. The sale of substantial numbers of common shares in
the public market, or the possibility of such a sale, could adversely affect
prevailing market prices for our common shares.
All of the common shares sold in the offering will be freely tradable
without restriction under the U.S. Securities Act, except by "affiliates" as
defined in Rule 144 under the U.S. Securities Act, or applicable Canadian
securities laws, except by "control persons" as defined under those laws.
For the reasons set forth below, we believe that the following presently
outstanding common shares will be eligible for resale in the public market in
the United States at the following times and by the following persons:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
----------
<S> <C>
At the date of this prospectus.............................. --
180 days after the date of this prospectus.................. 23,937,755
Later than 180 days after the date of this prospectus....... 236,843
</TABLE>
Holders of 24,174,598 common shares, including Nortel Networks, have
entered into lock-up agreements pursuant to which they have agreed not to
dispose of or hedge any of their common shares for 180 days following the date
of the prospectus without the consent of FleetBoston Robertson Stephens Inc. on
behalf of the underwriters. See "Underwriting."
We intend to file with the SEC a registration statement on Form S-8 90
days after the date of this prospectus. The S-8 registration statement will
allow holders of common shares that are issued under equity incentive
arrangements, in connection with option exercises or under our share purchase
plan to resell those shares in the public market, subject to the lock-up
agreements and any restrictions imposed by Canadian law.
U.S. RESALE RESTRICTIONS
Upon completion of this offering, 236,843 common shares will be held by
U.S. residents or others. As a result of the lock-up agreements and the
provisions of Rule 144 under the U.S. Securities Act, such shares will be
available for sale in the public market in the United States as set forth in the
table above, subject in some cases to Rule 144 limitations.
In general, under Rule 144, as in effect on the date of this prospectus,
any person, including any of our affiliates, who has beneficially owned common
shares for at least one year will be entitled to sell, in any three-month
period, a number of shares that, together with sales of any common shares with
which such person's sales must be aggregated, does not exceed the greater of:
- 1% of the then outstanding common shares; and
- the average weekly trading volume of the common shares on the Nasdaq
National Market during the four calendar weeks immediately preceding
the date on which such sale is made.
Sales of restricted securities pursuant to Rule 144 are subject to
requirements relating to manner of sale, notice and availability of current
public information about Delano. Persons who are our affiliates must also comply
with the restrictions and requirements of Rule 144, other than the one-year
holding period requirement, in order to sell common shares in the public market
which are not restricted securities.
For a description of the rights of some of our holders to require us to
register their common shares under the U.S. Securities Act, see "Description of
Share Capital -- Registration Rights."
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<PAGE> 60
TAX CONSIDERATIONS
In this section we describe the material anticipated United States and
Canadian federal income tax considerations relevant to a purchase of common
shares in this offering by individuals and corporations which:
- for purposes of the United States Internal Revenue Code, the Income Tax
Act (Canada) and the Canada-United States Income Tax Convention (1980),
are resident in the United States, or are otherwise subject to United
States federal income taxation without regard to source, and not in
Canada;
- hold the common shares as capital assets for purposes of the Internal
Revenue Code and capital property for purposes of the Income Tax Act
(Canada);
- deal at arm's length with us for purposes of the Income Tax Act
(Canada);
- do not use or hold the common shares in carrying on a business in
Canada and are not an insurer which carries on business in Canada and
elsewhere; and
- in the case of individual holders, are also U.S. citizens.
We will refer to persons who satisfy the above conditions as "Unconnected U.S.
Shareholders."
We will assume, for purposes of this discussion, that you are an
Unconnected U.S. Shareholder. The tax consequences of a purchase of common
shares by persons who are not Unconnected U.S. Shareholders may differ
substantially from the tax consequences discussed in this section. The Income
Tax Act (Canada) contains rules relating to securities held by some financial
institutions. We do not discuss these rules and holders that are financial
institutions should consult their own tax advisors.
This discussion is based upon:
- the current provisions of the Income Tax Act (Canada) and regulations
under the Income Tax Act (Canada);
- the current provisions of the Internal Revenue Code and regulations
under the Internal Revenue Code;
- the current provisions of the Canada-United States Income Tax
Convention (1980);
- our understanding of the current administrative policies and practices
published by the Canada Customs and Revenue Agency;
- all specific proposals to amend the Income Tax Act (Canada) and the
regulations under the Income Tax Act (Canada) that have been publicly
announced by or on behalf of the Minister of Finance (Canada) prior to
the date of this prospectus;
- the administrative policies published by the U.S. Internal Revenue
Service; and
- judicial decisions,
all of which are subject to change either prospectively or retroactively. We do
not discuss the potential effects of any recently proposed legislation in the
United States and do not take into account the tax laws of the various provinces
or territories of Canada or the tax laws of the various state and local
jurisdictions of the United States or foreign jurisdictions.
WE INTEND THIS DISCUSSION TO BE A GENERAL DESCRIPTION OF THE U.S. FEDERAL
AND CANADIAN FEDERAL INCOME TAX CONSIDERATIONS MATERIAL TO A PURCHASE OF COMMON
SHARES. THIS DISCUSSION DOES NOT DEAL WITH ALL POSSIBLE TAX CONSEQUENCES
RELATING TO AN INVESTMENT IN OUR COMMON SHARES. WE HAVE NOT TAKEN INTO ACCOUNT
YOUR PARTICULAR CIRCUMSTANCES AND DO NOT ADDRESS CONSEQUENCES PECULIAR TO YOU
UNDER PROVISIONS OF U.S. OR CANADIAN INCOME TAX LAW. THEREFORE, YOU SHOULD
CONSULT YOUR OWN TAX ADVISOR REGARDING THE PARTICULAR CONSEQUENCES TO YOU OF
PURCHASING COMMON SHARES IN THIS OFFERING.
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<PAGE> 61
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following sets forth the opinion of Skadden, Arps, Slate, Meagher &
Flom LLP, U.S. counsel to Delano, as to the material United States federal
income tax consequences of an investment in the common shares applicable to
Unconnected U.S. Shareholders who purchase shares in this offering.
As an Unconnected U.S. Shareholder, you will include in income dividend
distributions paid by us to the extent of our current or accumulated earnings
and profits. You must include in income an amount equal to the U.S. dollar value
of such dividends on the date of receipt based on the exchange rate on such
date, without reduction for the Canadian withholding tax. You will be entitled
to a foreign tax credit, or deduction for U.S. federal income tax purposes, in
an amount equal to the Canadian tax withheld. To the extent dividend
distributions paid by us exceed our current or accumulated earnings and profits,
they will be treated first as a return of capital up to your adjusted tax basis
in the shares, and then as a gain from the sale or exchange of the shares.
Dividends paid by us will constitute "passive income" for purposes of the
foreign tax credit, which could reduce the amount of foreign tax credit
available to you. The Internal Revenue Code applies various limitations on the
amount of foreign tax credit that may be available to a U.S. taxpayer. Because
of the complexity of those limitations, you should consult your own tax advisor
with respect to the potential consequences of those limitations.
Dividends paid by us on the shares will not be eligible for the "dividends
received" deductions. An Unconnected U.S. Shareholder which is a corporation
may, under some circumstances, be entitled to a 70% deduction of the U.S. source
portion of dividends received from us if such Unconnected U.S. Shareholder owns
shares representing at least 10% of our voting power and value.
If you sell the shares, you will recognize gain or loss in an amount equal
to the difference, if any between the amount realized on the sale and your
adjusted tax basis in the shares. Any gain or loss you recognize upon the sale
of shares held as capital assets will be long-term or short-term capital gain or
loss, depending on whether the shares have been held by you for more than one
year.
A U.S. Shareholder should not recognize any gain or loss with respect to
the amalgamation with XDL Delano Holdings and the U.S. Shareholder's holding
period and basis in Delano shares should be the same as the holding period and
basis in the shares held prior to the amalgamation.
Under current U.S. tax regulations, dividends paid by us on the shares
will not be subject to U.S. information reporting or the 31% backup withholding
tax unless they are paid in the United States through a U.S. or U.S.-related
paying agent, including a broker. If you furnish the paying agent with a duly
completed and signed Form W-9 such dividends will not be subject to the backup
withholding tax. You will be allowed a refund or a credit equal to any amounts
withheld under the U.S. backup withholding tax rules against your U.S. federal
income tax liability, provided you furnish the required information to the
Internal Revenue Service.
PERSONAL HOLDING COMPANIES
We could be classified as a personal holding company for U.S. federal
income tax purposes if both of the following tests are satisfied:
- if at any time during the last half of our taxable year, five or fewer
individuals own or are deemed to own more than 50% of the total value
of our shares; and
- we receive 60% or more of our U.S. related gross income from specified
passive sources, such as royalty payments.
A personal holding company is taxed on a portion of its undistributed U.S.
source income, including specific types of foreign source income which are
connected with the conduct of a U.S. trade or business, to the extent this
income is not distributed to shareholders. We do not believe we are a personal
holding
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<PAGE> 62
company presently, and we do not expect to become one. However, we can not
assure you that we will not qualify as a personal holding company in the future.
FOREIGN PERSONAL HOLDING COMPANIES
We could be classified as a foreign personal holding company if in any
taxable year both of the following tests are satisfied:
- five or fewer individuals who are United States citizens or residents
own or are deemed to own more than 50% of the total voting power of all
classes of our shares entitled to vote or the total value of our
shares; and
- at least 60%, 50% in some cases, of our gross income consists of
"foreign personal holding company income," which includes passive
income such as dividends, interests, gains from the sale or exchange of
shares or securities, rent and royalties.
If we are classified as a foreign personal holding company and if you hold
shares on the last day of our taxable year, you must include in your gross
income as a dividend your pro rata portion of our undistributed foreign personal
holding company income. If you dispose of your shares prior to such date, you
will not be subject to tax under these rules. We do not believe we are a foreign
personal holding company presently, and we do not expect to become one. However,
we can not assure you that we will not qualify as a foreign personal holding
company in the future.
PASSIVE FOREIGN INVESTMENT COMPANIES
The rules governing "passive foreign investment companies" can have
significant tax effects on Unconnected U.S. Shareholders. We could be classified
as a passive foreign investment company if, for any taxable year, either:
- 75% or more of our gross income is "passive income," which includes
interest, dividends and some types of rents and royalties, or
- the average percentage, by fair market value, or, in some cases, by
adjusted tax basis, of our assets that produce or are held for the
production of "passive income" is 50% or more.
Distributions which constitute "excess distributions," as defined in
Section 1291 of the Internal Revenue Code, from a passive foreign investment
company and dispositions of shares of a passive foreign investment company are
subject to the highest rate of tax on ordinary income in effect and to an
interest charge based on the value of the tax deferred during the period during
which the shares are owned. However, if an Unconnected U.S. Shareholder makes a
timely election to treat us as a qualified electing fund under section 1295, the
above-described rules will not apply. Instead, the Unconnected U.S. Shareholder
would include annually in his gross income his pro rata share of our ordinary
earnings and net capital gain, regardless of whether such income or gain was
actually distributed. Tax on this income, however, may be deferred.
In addition, subject to specific limitations, Unconnected U.S.
Shareholders owning actually or constructively marketable shares in a passive
foreign investment company may make an election to mark that stock to market
annually, rather than being subject to the above-described rules. Amounts
included in or deducted from income under this mark to market election and
actual gains and losses realized upon disposition, subject to specific
limitations, will be treated as ordinary gains or losses.
In addition, special rules apply if we qualify as both a passive foreign
investment company and a "controlled foreign corporation," as defined below, and
an Unconnected U.S. Shareholder owns, actually or constructively, 10% or more of
the total combined voting power of all classes of our shares entitled to vote.
We believe that we will not be a passive foreign investment company for
the current fiscal year and we do not expect to become a passive foreign
investment company in future years. You should be aware, however, that if we are
or become a passive foreign investment company we may not be able to satisfy
57
<PAGE> 63
record-keeping requirements that would permit you to make a qualified electing
fund election. You should consult your tax advisor with respect to how the
passive foreign investment company rules affect your tax situation, including
the advisability of making an election to treat us as a qualified electing fund
or making a mark to market election.
CONTROLLED FOREIGN CORPORATION
If more than 50% of the voting power of all classes of our shares or the
total value of our shares is owned, directly or indirectly, by citizens of the
United States, U.S. domestic partnerships and corporations or estates or trusts
other than foreign estates or trusts, each of which owns 10% or more of the
total combined voting power of all classes of our shares, we could be treated as
a "controlled foreign corporation" under Subpart F of the Internal Revenue Code.
This classification would effect many complex results, including requiring such
shareholders to include in income their pro rata shares of our "Subpart F
Income," as defined by the Internal Revenue Code. In addition, gain from the
sale or exchange of shares by an Unconnected U.S. Shareholder who is or was a
10% or greater shareholder at any time during the five-year period ending with
the sale or exchange will be ordinary dividend income to the extent of our
earnings and profits attributable to the shares sold or exchanged.
We do not believe that we are a controlled foreign corporation and we do
not anticipate that we will become a controlled foreign corporation as a result
of the offering. However, we can not assure you that we will not qualify as a
controlled foreign corporation in the future.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following sets forth the opinion of Osler, Hoskin & Harcourt LLP,
Canadian counsel to Delano, as to the material Canadian federal income tax
considerations generally applicable to Unconnected U.S. Shareholders who
purchase shares in this offering.
You will be considered to have disposed of your common shares and to have
acquired new common shares as a result of the amalgamation of Delano with XDL
Delano Holdings Inc. but will not realize a gain or loss under the Income Tax
Act (Canada) as a result of this disposition.
Under the Income Tax Act (Canada), assuming you are an Unconnected U.S.
Shareholder and provided the common shares are listed on a prescribed stock
exchange, which includes Nasdaq, you will be exempt from Canadian tax on a
capital gain realized on an actual or deemed disposition of the common shares
unless you alone or together with persons with whom you did not deal at arm's
length for the purposes of the Income Tax Act (Canada) owned or had interests in
or rights to acquire 25% or more of our issued shares of any class or series at
any time during the five year period before the disposition.
Dividends paid, credited or deemed to have been paid or credited on the
common shares to Unconnected U.S. Shareholders will be subject to a Canadian
withholding tax at a rate of 25% under the Income Tax Act (Canada) on the gross
amount of the dividend. Under the Canada-United States Income Tax Convention
(1980), the rate of withholding tax applicable to Unconnected U.S. Shareholders
who beneficially own the dividends is reduced to 15%. In the case of Unconnected
U.S. Shareholders that are companies that beneficially own at least 10% of our
voting shares, the rate of withholding tax on dividends is reduced to 5% and in
the case of Unconnected U.S. Shareholders that are certain religious,
scientific, charitable and similar tax exempt organizations and certain pension
organizations exempt from tax in the United States, the rate of withholding tax
is reduced to nil, provided certain administrative procedures are followed.
Canada does not currently impose any estate taxes or succession duties,
however, if you die, there is a deemed disposition of the common shares held at
that time for proceeds of disposition equal to the fair market value of the
shares immediately before the death. Capital gains realized on the deemed
disposition, if any, will generally have the income tax consequences described
above.
58
<PAGE> 64
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc. and U.S. Bancorp Piper Jaffray Inc., have
severally agreed with us, subject to the terms and conditions of the
underwriting agreement, to purchase from us the number of common shares set
forth opposite their names below. The underwriters are committed to purchase and
pay for all of the shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc. ........................
U.S. Bancorp Piper Jaffray Inc. ............................
---------
Total.................................................. 5,000,000
=========
</TABLE>
We have been advised that the underwriters propose to offer our common
shares to the public at the public offering price located on the cover page of
this prospectus and to dealers at that price less a concession of not in excess
of $ per share, of which $ may be reallowed to other dealers. After
the initial public offering, the public offering price, concession and
reallowance to dealers may be reduced by the representatives. No reduction in
this price will change the amount of proceeds to be received by us as indicated
on the cover page of this prospectus.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 750,000 additional common shares to cover over-allotments, if
any, at the same price per share as we will receive for the 5,000,000 shares
that the underwriters have agreed to purchase. To the extent that the
underwriters exercise this option, each of the underwriters will have a firm
commitment to purchase approximately the same percentage of such additional
shares that the number of common shares to be purchased by it shown in the above
table represents as a percentage of the 5,000,000 shares offered by this
prospectus. If purchased, the additional shares will be sold by the underwriters
on the same terms as those on which the 5,000,000 shares are being sold. We will
be obligated, under this option, to sell shares to the extent the option is
exercised. The underwriters may exercise the option only to cover
over-allotments made in connection with the sale of the 5,000,000 common shares
offered by this prospectus.
Underwriting commissions. The underwriting commissions will be an amount
equal to the public offering price per share, less the amount paid per share by
the underwriters to us. We currently expect that the underwriting commissions
will equal 7% of the public offering price. The following table shows the per
share and total underwriting commissions to be paid by us to the underwriters.
This information is presented assuming either no exercise or full exercise by
the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT
PER SHARE OPTION OPTION
--------- -------------- --------------
<S> <C> <C> <C>
Assumed public offering price....................... $15.00 $75,000,000 $86,250,000
Estimated underwriting commissions.................. 1.05 5,250,000 6,037,500
------ ----------- -----------
Estimated proceeds, before expenses, to us.......... $13.95 $69,750,000 $80,212,500
====== =========== ===========
</TABLE>
59
<PAGE> 65
The expenses of the offering, other than underwriting commissions, payable
by us are estimated at $800,000. FleetBoston Robertson Stephens Inc. expects to
deliver the common shares to purchasers on , 2000.
Griffiths McBurney & Partners, which will act as one of the underwriters
of this offering, served as a placement agent in connection with the Company's
private placement of special warrants in June 1999. See "Description of Share
Capital -- Special Warrants." Griffiths McBurney & Partners received a fee of
Cdn$725,950 (approximately US$502,720) for its services in connection with this
private placement. Under the rules of the National Association of Securities
Dealers, Inc., the placement fee paid to Griffiths McBurney & Partners may be
deemed to be underwriting compensation in connection with this offering.
Directed Share Program. The underwriters have reserved up to five percent
of the common shares to be issued by us and offered for sale in this offering,
at the initial public offering price, to directors, officers, employees,
business associates and persons otherwise connected to Delano. The number of
common shares available for sale to the general public will be reduced to the
extent these individuals purchase reserved shares. Any reserved shares which are
not purchased will be offered by the underwriters to the general public on the
same basis as the other shares offered in this offering.
In addition, the underwriters have reserved up to 400,000 common shares
for sale to Canada Life Assurance at the initial public offering price. Canada
Life Assurance has not committed to purchasing these common shares.
Indemnity. The underwriting agreement contains covenants of indemnity
among the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act, and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Agreements Not to Sell Shares. Holders of a total of 24,174,598 common
shares, including all of our executive officers and directors, have agreed that,
during the period ending 180 days after the date of this prospectus, subject to
limited exceptions, not to offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to any common shares
or any options or warrants to purchase any common shares, or any securities
convertible into or exchangeable for common shares owned as of the date of this
prospectus or later acquired directly by such holders or with respect to which
they have the power of disposition, without the prior written consent of
FleetBoston Robertson Stephens Inc. However, FleetBoston Robertson Stephens Inc.
may, in its sole discretion and at any time without notice, release all or any
portion of securities subject to these agreements not to sell shares. There are
no existing agreements between the representatives of the underwriters and any
of our shareholder providing consent to the sale of shares prior to the
expiration of the respective periods.
Future Sales by Us. In addition, we have agreed that during the 180 days
after the date of this prospectus, we will not, without the prior written
consent of FleetBoston Robertson Stephens Inc., subject to certain exceptions,
(a) consent to the disposition of any shares held by shareholders subject to
agreements not to sell shares prior to the expiration of the respective periods,
(b) issue, sell, contract to sell, or otherwise dispose of, any common shares,
any options to purchase any common shares or any securities convertible into,
exercisable for or exchangeable for common shares other than our sale of shares
in this offering, the issuance of common shares upon the exercise of outstanding
options, and the issuance of options under existing stock option and incentive
plans, provided such options do not vest prior to the expiration of the 180-day
period or (c) issue up to 1,000,000 common shares in connection with
acquisitions of businesses or assets of businesses or in connection with
strategic alliances; provided that
- each person receiving common shares enters into a lock-up agreement
pursuant to which they agree not to dispose of or hedge any of their
common shares for 180 days following the date of this prospectus
without the consent of FleetBoston Robertson Stephens Inc. on behalf of
the underwriters; and
- we do not grant any rights that are exercisable for a period of six
months from the date we sign the purchase agreement with the
underwriters entitling the persons receiving common shares to require
us to register their shares under the U.S. Securities Act.
60
<PAGE> 66
See "Shares Eligible for Future Sale."
Listing. Our common shares have been approved for quotation on the Nasdaq
National Market under the symbol "DTEC."
No Distribution in Canada. The common shares may be offered in Canada by
the underwriters or their Canadian affiliates pursuant to a prospectus
qualifying the common shares for distribution in certain provinces of Canada or
pursuant to prospectus exemptions under applicable securities legislation. Each
of the underwriters has agreed that it will only distribute common shares in
Canada in accordance with prospectus and registration requirements of applicable
securities legislation or exemptions from these requirements.
No Prior Public Market. Prior to this offering, there has been no public
market for our common shares. Consequently, the initial public offering price
for the common stock offered by this prospectus will be determined through
negotiations among us and the representatives. Among the factors to be
considered in these negotiations are prevailing market conditions, our financial
information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
Stabilization. The representatives have advised us that, under Regulation
M under the U.S. Securities Exchange Act, some participants in this offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of our common shares at a level
above that which might otherwise prevail in the open market. A "stabilizing bid"
is a bid for or the purchase of the common shares on behalf of the underwriters
for the purpose of fixing or maintaining the price of the common shares. A
"syndicate covering transaction" is the bid for or the purchase of the common
shares on behalf of the underwriters to reduce a short position incurred by the
underwriters in connection with this offering. A "penalty bid" is an arrangement
permitting the representatives to reclaim the selling concession otherwise
accruing to an underwriter or syndicate member in connection with this offering
if the common shares originally sold by the underwriter or syndicate member is
purchased by the representatives in a syndicate covering transaction and has
therefore not been effectively placed by such underwriter or syndicate member.
The representatives have advised us that such transactions may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.
61
<PAGE> 67
LEGAL MATTERS
Osler, Hoskin & Harcourt LLP, Toronto, Ontario, will pass upon the
legality of the common shares offered by this prospectus. Skadden, Arps, Slate,
Meagher & Flom LLP, Toronto, Ontario and New York, New York, is acting as our
United States counsel with respect to the offering. Foley, Hoag & Eliot LLP,
Boston, Massachusetts, is acting as United States counsel to the underwriters.
EXPERTS
The consolidated financial statements of Delano as of March 31, 1999 and
December 31, 1999 and for the period from May 7, 1998 (inception) to March 31,
1999, the period from May 7, 1998 to December 31, 1998 and the nine months ended
December 31, 1999 included in this prospectus have been audited by KPMG LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included in this prospectus in reliance upon the authority of
KPMG LLP as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC, 450 Fifth Street N.W., Washington, D.C. 20549,
a registration statement on Form F-1 covering the common shares being sold in
this offering. We have not included in this prospectus all the information
contained in the registration statement, and you should refer to the
registration statement and its exhibits for further information.
Any statement in this prospectus about any of our contracts or other
documents is not necessarily complete. If the contract or document is filed as
an exhibit to the registration statement, the contract or document is deemed to
modify the description contained in this prospectus. You must review the
exhibits themselves for a complete description of the contract or document.
You may review a copy of the registration statement, including exhibits
and schedules filed with it, at the SEC's public reference facilities in Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the SEC located at 7 World Trade Center, 13th Floor, New
York, New York 10048 and at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. You may also obtain copies of such
materials from the Public Reference Section of the SEC, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. You
may call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. The SEC maintains a web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants, such as Delano, that file electronically with the SEC.
You may read and copy any reports, statements or other information that we
file with the Commission at the addresses indicated above, and you may also
access them electronically at the web site set forth above. These SEC filings
are also available to the public from commercial document retrieval services.
Prior to this offering, we have not been required to file reports with the
SEC. Following consummation of the offering, we will be required to file reports
and other information with the SEC under the U.S. Securities Exchange Act. As a
foreign private issuer, we are exempt from the rules under the U.S. Securities
Exchange Act prescribing the furnishing and content of proxy statements, and our
officers, directors and principal shareholders are exempt from the reporting and
short-swing profit recovery provisions contained in Section 16 of the U.S.
Securities Exchange Act. Under the U.S. Securities Exchange Act, we are not
required to publish financial statements as frequently or as promptly as United
States companies.
62
<PAGE> 68
DELANO TECHNOLOGY CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Form of Independent Auditors' Report........................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Shareholders' Deficiency......... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 69
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Delano Technology Corporation
We have audited the accompanying consolidated balance sheets of Delano
Technology Corporation as of March 31, 1999 and December 31, 1999 and the
related consolidated statements of operations, shareholders' deficiency and cash
flows for the period from May 7, 1998 (date of inception) to March 31, 1999, the
period from May 7, 1998 (date of inception) to December 31, 1998 and the nine
months ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of March 31, 1999 and December 31, 1999 and the results of its operations and
its cash flows for the period from May 7, 1998 (date of inception) to March 31,
1999, the period from May 7, 1998 (date of inception) to December 31, 1998 and
the nine months ended December 31, 1999 in conformity with generally accepted
accounting principles in the United States.
Chartered Accountants
Toronto, Canada /s/ KPMG LLP
January 12, 2000 (except for note 16
which is as of February 7, 2000)
F-2
<PAGE> 70
DELANO TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
1999
PRO FORMA
MARCH 31, DECEMBER 31, SHAREHOLDERS'
1999 1999 EQUITY (NOTE 7)
--------- ------------ ----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 1,989 $ 11,940
Accounts receivable trade, net of allowance for doubtful
accounts of $200 at December 31, 1999.................. -- 2,662
Investment tax credits receivable........................ 201 155
Prepaid expenses and other............................... 65 657
-------- --------
Total current assets................................... 2,255 15,414
Property and equipment..................................... 318 1,176
-------- --------
Total assets............................................... $ 2,573 $ 16,590
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued liabilities................. $ 518 $ 2,591
Deferred revenue......................................... 100 427
Current portion of obligations under capital leases...... 30 209
-------- --------
Total current liabilities.............................. 648 3,227
Long-term liabilities:
Obligations under capital leases......................... 66 267
-------- --------
Total liabilities.......................................... 714 3,494
Class A redeemable convertible special shares:
Authorized:
Unlimited
Issued and outstanding:
4,000,000 shares at March 31, 1999 and December 31,
1999
Redemption amount -- $1,000 plus 8% cumulative
dividends......................................... 1,047 1,158 --
Class B redeemable convertible special shares:
Authorized:
Unlimited
Issued and outstanding:
3,789,476 shares at March 31, 1999 and December 31,
1999
Redemption amount -- $2,400 plus 8% cumulative
dividends......................................... 2,434 2,693 --
Special warrants:
Issued and outstanding:
4,326,924 warrants at December 31, 1999
Redemption amount -- $2,740 plus 8% cumulative
dividends......................................... -- 14,703 --
Shareholders' deficiency:
Capital stock:
Common shares:
Authorized:
Unlimited number of shares
Issued and outstanding:
6,000,000 shares at March 31, 1999 and 5,250,000
shares at December 31, 1999..................... 433 6,318 $ 24,872
Warrant.................................................. 126 126 126
Deferred stock-based compensation........................ (386) (5,502) (5,502)
Accumulated other comprehensive losses................... (5) (152) (152)
Deficit.................................................. (1,790) (6,248) (6,248)
-------- -------- --------
Total shareholders' deficiency......................... (1,622) (5,458) $ 13,096
-------- -------- ========
Total liabilities and shareholders' deficiency............. $ 2,573 $ 16,590
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 71
DELANO TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MAY 7, 1998 MAY 7, 1998 NINE MONTHS
(INCEPTION) TO (INCEPTION) TO ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
-------------- -------------- ------------
<S> <C> <C> <C>
Revenues:
Products......................................... -- -- $ 5,061
Services......................................... -- -- 296
-------- -------- --------
Total revenues................................ -- -- 5,357
Cost of revenues:
Products......................................... -- -- 20
Services......................................... -- -- 701
-------- -------- --------
Total cost of revenues........................ -- -- 721
-------- -------- --------
Gross profit....................................... -- -- 4,636
-------- -------- --------
Operating expenses:
Sales and marketing.............................. $ 554 $ 144 5,456
Research and development......................... 797 486 2,244
General and administrative....................... 180 45 767
Amortization of deferred stock-based
compensation.................................. 171 2 769
-------- -------- --------
Total operating expenses...................... 1,702 677 9,236
-------- -------- --------
Loss from operations............................... (1,702) (677) (4,600)
Interest income, net............................... 13 -- 354
-------- -------- --------
Loss before provision for income taxes............. (1,689) (677) (4,246)
Provision for income taxes......................... -- -- --
-------- -------- --------
Loss for the period................................ (1,689) (677) (4,246)
Less: accretion of dividends on redeemable
convertible special shares.................... (101) -- (212)
-------- -------- --------
Loss applicable to common shares................. $ (1,790) $ (677) $ (4,458)
======== ======== ========
Basic and diluted loss per common share............ $ (2.40) $ (1.35) $ (1.85)
======== ======== ========
Shares used in computing basic and diluted loss per
common share (in thousands)...................... 746 503 2,415
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 72
DELANO TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON SHARES DEFERRED OTHER TOTAL
------------------- STOCK-BASED COMPREHENSIVE SHAREHOLDERS'
NUMBER AMOUNT WARRANT COMPENSATION LOSSES DEFICIT DEFICIENCY
--------- ------- ------- ------------ ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, May 7, 1998......... -- -- -- -- -- -- --
Issuance of common shares..... 6,000,000 $ 2 -- -- -- -- $ 2
Deferred stock-based
compensation................ -- 431 $ 126 $ (557) -- -- --
Amortization of deferred
stock-based compensation.... -- -- -- 171 -- -- 171
Accretion of dividends on
redeemable convertible
special shares.............. -- -- -- -- -- $ (101) (101)
Currency translation
adjustment.................. -- -- -- -- $ (5) -- (5)
Loss for the period........... -- -- -- -- -- (1,689) (1,689)
--------- ------- ------- ------- ------- ------- -------
Balances, March 31, 1999...... 6,000,000 433 126 (386) (5) (1,790) (1,622)
Deferred stock-based
compensation................ -- 5,885 -- (5,885) -- -- --
Amortization of deferred
stock-based compensation.... -- -- -- 769 -- -- 769
Repurchase of common shares... (750,000) -- -- -- -- -- --
Accretion of dividends on
redeemable convertible
special shares.............. -- -- -- -- -- (212) (212)
Currency translation
adjustment.................. -- -- -- -- (147) -- (147)
Loss for the period........... -- -- -- -- -- (4,246) (4,246)
--------- ------- ------- ------- ------- ------- -------
Balances, December 31, 1999... 5,250,000 $6,318 $ 126 $(5,502) $ (152) $(6,248) $(5,458)
========= ======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 73
DELANO TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MAY 7, 1998 MAY 7, 1998 NINE MONTHS
(INCEPTION) TO (INCEPTION) TO ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
-------------- -------------- ------------
<S> <C> <C> <C>
Cash provided by (used in):
Operating activities:
Loss for the period.............................. $(1,689) $ (677) $(4,246)
Depreciation and amortization which does not
involve cash.................................. 33 20 125
Amortization of deferred stock-based
compensation.................................. 171 2 769
Changes in non-cash operating working capital:
Accounts receivable trade..................... -- -- (2,601)
Investment tax credits receivable............. (200) -- 54
Prepaid expenses and other.................... (65) (68) (576)
Accounts payable and accrued liabilities...... 516 48 2,003
Deferred revenue.............................. 99 -- 315
------- ------- -------
Net cash used in operating activities............ (1,135) (676) (4,157)
Financing activities:
Issuance of redeemable convertible special
shares........................................ 3,375 992 --
Issuance of common shares........................ 2 2 --
Issuance of special warrants..................... -- -- 14,436
Proceeds from bank loan.......................... -- -- 156
Repayment of bank loan........................... -- -- (156)
Repayment of obligations under capital leases.... (2) -- (182)
------- ------- -------
Net cash provided by financing activities........ 3,375 994 14,254
Investing activities:
Additions to property and equipment.............. (251) (140) (464)
------- ------- -------
Cash used in investing activities................ (251) (140) (464)
Effect of currency translation of cash balances.... -- 61 318
------- ------- -------
Increase in cash and cash equivalents.............. 1,989 116 9,951
Cash and cash equivalents, beginning of period..... -- -- 1,989
------- ------- -------
Cash and cash equivalents, end of period........... $ 1,989 $ 116 $11,940
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 74
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION OF THE COMPANY
Delano Technology Corporation (the "Company") was incorporated on May 7,
1998 and commenced commercial operations during the quarter ended June 30, 1999.
The Company develops and markets communications software that enables companies
to use e-mail and the internet for business interactions.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements are stated in U.S. dollars, except where
otherwise noted. They have been prepared in accordance with accounting
principles generally accepted in the United States.
These consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany
transactions and balances have been eliminated.
(a) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the period.
Actual results could differ from those estimates.
(b) Cash and Cash Equivalents
All highly liquid investments, with an original maturity of three months
or less at the date of acquisition, are classified as cash equivalents.
(c) Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation
and amortization, and are amortized over their estimated useful lives.
Expenditures for maintenance and repairs have been charged to the statement of
operations as incurred. Depreciation and amortization are computed using the
straight-line method as follows:
<TABLE>
<S> <C>
Furniture and office equipment.............................. 30%
Computer hardware........................................... 33%
Computer software........................................... 50%
</TABLE>
The Company regularly reviews the carrying values of its property and
equipment by comparing the carrying amount of the asset to the expected future
cash flows to be generated by the asset. If the carrying value exceeds the
amount recoverable a writedown is charged to the statement of operations.
(d) Revenue Recognition
The Company recognizes revenue in accordance with the provisions of the
American Institute of Certified Public Accountants' ("AICPA") Statement of
Position No. 97-2, "Software Revenue Recognition" ("SOP No. 97-2") and related
provisions. The Company's revenues are derived from product elements, comprised
primarily of license fees and upgrades, and service elements, which include
postcontract customer support ("PCS"), installation, training, consulting and
other services. Fees for services are generally billed separately from licenses
of the Company's products. In cases where the Company sells a multi-element
arrangement, the fees are allocated to the elements based on Company-specific
objective evidence of each element's fair value.
Revenue from product elements, consisting primarily of license fees and
upgrades, is recognized pursuant to a contract or purchase order, when each
element is delivered to the customer and collection of the
F-7
<PAGE> 75
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
related receivable is deemed probable by management. Reserves for product
returns and sales allowances are estimated and provided for at the time of sale.
Such reserves are based upon management's evaluation of historical experience
and current industry trends.
Revenue from service elements includes PCS which is recognized ratably
over the term of the agreement, which is typically twelve months. Revenues from
installation, training, consulting and other services are recognized when the
services are performed. Losses on professional services contracts, if any, are
recognized at the time such losses are identified.
Product and service elements that have been prepaid but do not yet qualify
for recognition as revenue under the Company's revenue recognition policy are
reflected as deferred revenue on the Company's balance sheet.
(e) Currency Translation
Monetary assets and liabilities of the Company and of its wholly owned
subsidiaries, which are integrated foreign operations, that are denominated in
foreign currencies are translated into Canadian dollars (which is considered to
be the measurement currency) at the exchange rate prevailing at the balance
sheet date. Non-monetary assets and liabilities are translated at the historical
exchange rate. Transactions included in operations are translated at the average
rate for the period. Exchange gains and losses resulting from the translation of
these foreign denominated amounts are reflected in the consolidated statement of
operations in the period in which they occur. As the Company's reporting
currency is the U.S. dollar, the Company translates consolidated assets and
liabilities denominated in Canadian dollars into U.S. dollars at the exchange
rate prevailing at the balance sheet date, and the consolidated results of
operations at the average rate for the period. Cumulative translation
adjustments are included as a separate component of shareholders' deficiency.
(f) Research and Development Expenses
Costs related to research, design and development of products are charged
to research and development expense as incurred. Software development costs are
capitalized beginning when a product's technological feasibility has been
established and ending when a product is available for general release to
customers. To date, completing a working model of the Company's products and
general release have substantially coincided. As a result, the Company has not
capitalized any software development costs since such costs have not been
significant.
(g) Investment Tax Credits
The Company is entitled to Canadian federal and provincial investment tax
credits which are earned as a percentage of eligible current and capital
research and development expenditures incurred in each taxation year. Certain
investment tax credits are fully refundable to the Company until such time as
the Company loses its status as a Canadian controlled private corporation. All
other investment tax credits are available to be applied against future income
tax liabilities, subject to a 10-year carryforward period. Investment tax
credits are accounted for as a reduction of the related expenditure for items of
a current nature and a reduction of the related asset cost for items of a
long-term nature, provided that the Company has reasonable assurance that the
tax credits will be realized.
(h) Income Taxes
Under the asset and liability method of Statement of Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109"), deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
F-8
<PAGE> 76
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which those temporary differences are expected to be recovered or settled. Under
SFAS 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the consolidated statement of operations in the period
that includes the enactment date.
(i) Stock-based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25 ("APB 25"), "Accounting for Stock Issued to Employees" and related
interpretations, in accounting for its employee stock options because the
alternative fair value accounting provided for under Financial Accounting
Standards Board, Statement No. 123 ("SFAS 123") "Accounting for Stock-Based
Compensation", requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, deferred stock-based
compensation is recorded at the option grant date in an amount equal to the
difference between the fair market value of a common share and the exercise
price of the option. Deferred stock-based compensation for options which are
contingently issuable based upon the achievement of performance criteria is
recorded based upon the current fair market value of the shares at the end of
each period. Deferred stock-based compensation resulting from employee option
grants is amortized over the vesting period of the individual options, generally
three or four years, in accordance with Financial Accounting Standards Board
Interpretation No. 28.
(j) Loss Per Common Share
Loss per common share has been calculated on the basis of earnings divided
by the weighted average number of common shares outstanding during each period.
The calculation of weighted average number of shares outstanding during each
period excludes common shares held in escrow. Diluted loss per common share has
been calculated assuming that the common shares held in escrow pursuant to
escrow arrangements with certain employee/shareholders, redeemable convertible
special shares, special warrants, warrant and stock options outstanding at the
end of the period had been issued, converted or exercised at the later of the
beginning of the period or their date of issuance, where such conversion or
exercise would not be anti-dilutive. Pro forma basic and diluted loss per common
share has been calculated to give effect to the conversion, at the later of the
beginning of the period or their date of issuance, of all outstanding redeemable
convertible special shares and the exercise of all outstanding special warrants
upon the completion of the share offering.
(k) Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents and accounts
receivable trade. Cash equivalents consist of deposits with, or guaranteed by,
major commercial banks, the maturities of which are three months or less from
the date of purchase. With respect to accounts receivable trade, the Company
performs periodic credit evaluations of the financial condition of its customers
and typically does not require collateral from them. Management assesses the
need for allowances for potential credit losses by considering the credit risk
of specific customers, historical trends and other information.
(l) Fair Values of Financial Assets and Financial Liabilities
The carrying values of cash and cash equivalents, accounts receivable
trade, accounts payable and accrued liabilities approximate their fair values
due to the relatively short periods to maturity of the instruments. In addition,
the carrying values of obligations under capital leases, redeemable convertible
special shares and special warrants approximate their fair values. The following
methods and assumptions were used to estimate the fair value of the following
financial instruments:
F-9
<PAGE> 77
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(i) Redeemable convertible special shares and special warrants -- at the
present value of contractual future payments of dividends and capital,
discounted at the current market rates of interest available to the
Company for the same or similar instrument.
(ii) Obligations under capital leases -- at the present value of the
contractual future payments of principal and interest, discounted at
the current market rates of interest available to the Company for the
same or similar debt instrument.
(m) Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting and presentation of comprehensive income. This standard defines
comprehensive income as the changes in equity of an enterprise except those
resulting from shareholder transactions. Comprehensive loss for the period from
May 7, 1998 (inception) to March 31, 1999, the period from May 7, 1998
(inception) to December 31, 1998 and the nine months ended December 31, 1999,
was not materially different from net loss for the periods.
(n) Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 was
adopted by the Company in 1998. SFAS No. 131 establishes standards for
disclosures about operating segments, product and services, geographic areas and
major customers. The Company operates in a single reportable operating segment,
that is the developing and marketing of interaction-based e-business
communications applications.
In March 1998, the AICPA issued Statement of Position No. 98-1,
"Accounting for the Costs of Computer Software Development or Obtained for
Internal Use," ("SOP No. 98-1"). SOP No. 98-1 requires entities to capitalize
certain costs related to internal use software once certain criteria have been
met. SOP 98-1 was adopted by the Company in 1998. The adoption of SOP No. 98-1
did not have a material impact on the Company's financial position or results of
operations.
In April 1998, the AICPA issued Statement of Position No. 98-5, "Reporting
on the Costs of Start-Up Activities" ("SOP No. 98-5") which provides guidance on
the financial reporting of start-up costs. SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. SOP 98-5 was
adopted by the Company in 1998. As the Company had not capitalized such costs,
the adoption of SOP 98-5 did not have an impact on the Company's financial
position or results of operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). SFAS No. 133 establishes accounting and reporting standards requiring
that every derivative instrument be recorded in the balance sheet as either an
asset or liability measured at its fair value. SFAS No. 133, as recently
amended, is effective for the fiscal year ending March 31, 2002. Management
believes the adoption of SFAS No. 133 will not have a material effect on the
Company's financial position or results of operations.
In December 1998, the AICPA issued Statement of Position No. 98-9,
"Modification of SOP No. 97-2, Software Revenue Recognition with respect to
Certain Transactions" ("SOP No. 98-9"). SOP No. 98-9 amends SOP No. 97-2 to
require the entity to recognize revenue for multiple element arrangements by
means of the "residual method" when:
(a) there is vendor-specific evidence of the fair values of all of the
undelivered elements that are not accounted for by means of long-term
contract accounting;
(b) vendor-specific evidence of fair value does not exist for one or more
of the delivered elements; and
F-10
<PAGE> 78
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) all revenue recognition criteria of SOP No. 97-2, other than the
requirement for vendor-specific evidence of the fair value of each
delivered element, are satisfied.
SOP No. 98-9 was adopted by the Company commencing April 1, 1999. The
adoption of SOP 98-9 did not have a material effect on the Company's financial
position or results of operations.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1999
--------- ------------
<S> <C> <C>
Furniture and office equipment.............................. $ 33 $ 36
Computer hardware........................................... 96 106
Computer software........................................... 15 15
Assets under capital leases:
Furniture and office equipment............................ 6 332
Computer hardware......................................... 198 799
Computer software......................................... 3 46
--------- -------
351 1,334
Less accumulated depreciation and amortization.............. 33 158
--------- -------
$ 318 $ 1,176
========= =======
</TABLE>
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1999
--------- ------------
<S> <C> <C>
Accounts payable............................................ $ 304 $ 936
Accrued bonuses............................................. -- 743
Accrued financing costs..................................... -- 196
Other accrued liabilities................................... 214 716
--------- -------
$ 518 $ 2,591
========= =======
</TABLE>
5. BANK LOAN
The bank loan bears interest at bank prime plus 2.5% per annum and was
repaid in December 1999 upon the Company's receipt of its investment tax
credits.
The Company also has a lease line of credit available to a maximum of
$679,000 (Cdn$1,000,000). Refer to note 6 for details as to the amounts utilized
under this line of credit as at December 31, 1999. The lease line of credit is
collateralized with cash for the amount of the line that is used for leasing
equipment.
F-11
<PAGE> 79
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. OBLIGATIONS UNDER CAPITAL LEASES
The following is an analysis by year of the future minimum lease payments
for capital leases (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
March 31, 2000.............................................. $ 59
March 31, 2001.............................................. 209
March 31, 2002.............................................. 205
March 31, 2003.............................................. 52
-------
525
Less amount representing interest (at rates ranging from
7.7% to 8.5%)............................................. 49
-------
Balance of obligation....................................... 476
Less current portion........................................ 209
-------
$ 267
=======
</TABLE>
7. REDEEMABLE CONVERTIBLE SPECIAL SHARES AND SPECIAL WARRANTS
Redeemable Convertible Special Shares
The Company is authorized to issue an unlimited number of Class A, Class B
and Class C special shares. In July 1998, the Company issued 4,000,000 Class A
special shares for proceeds of $992,129. During January 1999, the Company issued
3,789,476 Class B special shares for proceeds of $2,382,528. To date, no Class C
special shares have been issued.
The holders of the special shares are entitled to receive dividends, when
declared by the Board of Directors, that will provide the holder with an 8%
cumulative compounding rate of return. To date, there have been no dividends
paid or declared by the Company. The holders of the Class A special shares rank
in preference to the Class B and Class C special shareholders in the event of
liquidation, dissolution or winding-up of the Company. The special shares rank
in preference to the common shares in the event of liquidation, dissolution or
winding-up of the Company.
Each holder of special shares is entitled to that number of votes equal to
the number of common shares into which the special shares are convertible.
The special shares are convertible into common shares at the option of the
holder, initially on a one-for-one basis and, thereafter based on a formula and
subject to adjustments for future dilution. Special shares automatically convert
into common shares at the then applicable conversion rate, upon a public
offering of the Company's common shares at a per share price of not less than a
specified amount, subject to adjustments for future dilution, with aggregate
proceeds in excess of $13,600,000.
In addition, the special shares may not be redeemed by the Company at any
time; however, they may be redeemed by the holder as follows:
(i) After July 31, 2002, up to 50% of the outstanding Class A special
shares may be redeemed at the option of the holder. All of the
outstanding Class A special shares may be redeemed after July 31,
2003. The redemption price for the Class A special shares is $0.255,
plus all accrued but unpaid dividends.
(ii) After December 31, 2002, up to 50% of the outstanding Class B
special shares may be redeemed at the option of the holder. All of the
outstanding Class B special shares may be redeemed after
F-12
<PAGE> 80
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2003. The redemption price for the Class B special shares
is $0.65 per share, plus all accrued but unpaid dividends.
(iii) After June 22, 2003, up to 50% of the outstanding Class C special
shares may be redeemed at the option of the holder. All of the
outstanding Class C special shares may be redeemed after June 22,
2004. The redemption price for the Class C special shares is $0.65 per
share, plus all accrued but unpaid dividends.
The increase in the balance of redeemable convertible special shares for
the periods ended March 31, 1999 and December 31, 1999 is attributable to the
accretion of dividends, as well as the impact of the movement in the Canadian to
U.S. dollar exchange rate at the end of each period.
Special Warrants
On June 24, 1999, the Company closed a private placement of 4,326,924
special warrants at a price of $3.55 per special warrant for proceeds of
$14,486,978, net of issue costs of $873,602. Each special warrant entitles the
holder, upon exercise and without payment of further consideration, to acquire
one Class C special share of the Company, unless all of the issued and
outstanding Class A and Class B special shares of the Company have been
converted into common shares, in which case each special warrant shall be
exercisable for that number of common shares which is equal to the number of
common shares each Class C special share is then convertible into in accordance
with the articles of the Company.
As part of the special warrant transaction, the Company is required to
file a final prospectus in each jurisdiction in which special warrant holders
are resident, qualifying the shares of the Company to be issued upon exercise of
the special warrants, on or before May 15, 2000. If the final prospectus is not
filed by May 15, 2000, the holder of a special warrant shall be entitled to
acquire, upon exercise of the special warrant, 1.1 Class C special shares,
subject to the same conditions noted above.
On December 7, 1999, the Company's Board of Directors authorized the
initial filing of a registration statement with the Securities and Exchange
Commission that would permit the Company to sell shares of the Company's common
stock in connection with a proposed initial public offering ("IPO"). If the IPO
is consummated under the terms presently anticipated, in connection with the
closing of the proposed IPO, all of the then outstanding shares of the Company's
redeemable convertible special shares and special warrants will automatically
convert into common shares based on their respective conversion ratios. The
effect of the conversion has been reflected as unaudited pro forma shareholders'
equity in the accompanying consolidated balance sheet as at December 31, 1999.
The pro forma basic and diluted loss per common share after giving effect to the
conversion, at the later of the beginning of the period or their date of
issuance, of the redeemable convertible special shares and the special warrants
is as follows (in thousands, except per share amounts):
F-13
<PAGE> 81
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM
MAY 7, 1998 NINE MONTHS
(INCEPTION) TO ENDED
MARCH 31, DECEMBER 31,
1999 1999
-------------- ------------
<S> <C> <C>
Pro forma basic and diluted loss per common share........... $ (0.30) $ (0.24)
======= =======
Numerator for pro forma basic and diluted
loss per common share:
Loss for the period.................................... $(1,689) $(4,246)
======= =======
Denominator for pro forma basic and diluted loss per common
share:
Weighted average number of common shares.................. 746 2,415
Add:
Weighted average number of common shares on conversion
of redeemable convertible special shares and special
warrants............................................. 5,264 16,169
------- -------
6,010 18,584
======= =======
</TABLE>
8. SHAREHOLDERS' DEFICIENCY
The Company's share capital and loss per common share information has been
restated to reflect a 3-for-2 split of the Company's common shares, which was
approved by the Company's shareholders on January 11, 2000.
Stock Option Plan
The Company's stock option plan (the "Plan") was established for the
benefit of the employees, officers, directors and certain consultants of the
Company. The maximum number of common shares which may be set aside for issuance
under the Plan is 4,500,000 shares, provided that the Board of Directors of the
Company has the right, from time to time, to increase such number subject to the
approval of the shareholders of the Company when required by law or regulatory
authority. Generally, options issued subsequent to March 4, 1999 under the Plan
vest annually over a four-year period. Options issued prior to March 5, 1999
vest annually over a three-year period.
F-14
<PAGE> 82
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Details of stock option transactions are as follows:
<TABLE>
<CAPTION>
PERIOD FROM MAY 7, 1998 NINE MONTHS ENDED
(INCEPTION) TO MARCH 31, 1999 DECEMBER 31, 1999
----------------------------- ---------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE PRICE EXERCISE PRICE
SHARES PER SHARE SHARES PER SHARE
---------- --------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period......... -- -- 1,779,000 $0.13
Granted.................................. 1,779,000 $0.13 1,815,675 $1.58
---------
Outstanding, end of period............... 1,779,000 $0.13 3,594,675 $0.88
========= =========
Options exercisable at end of period..... -- -- 319,376 $0.14
Weighted average fair value of options
granted during the period with exercise
prices equal to fair value at date of
grant.................................. $0.02 --
Weighted average fair value of options
granted during the period with exercise
prices less than fair value at date of
grant.................................. $0.29 $3.31
Weighted average fair value of options
granted during the period with exercise
prices greater than fair value at date
of grant............................... -- --
</TABLE>
The stock options expire at various dates between May 2003 and December
2004.
As of December 31, 1999, the range of exercise prices and weighted average
remaining contractual life of outstanding options were as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE -------------------------------
REMAINING WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER CONTRACTUAL LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
RANGE OF EXERCISE PRICES OUTSTANDING (YEARS) PER SHARE EXERCISABLE PER SHARE
- ------------------------ ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.11................. 1,848,750 3.84 $0.11 319,376 $0.11
0.44................. 1,102,500 4.54 0.44 -- n/a
2.35-3.08............ 288,300 4.81 2.79 -- n/a
3.97-4.52............ 218,625 4.94 4.32 -- n/a
5.23-5.95............ 136,500 4.96 5.39 -- n/a
</TABLE>
The Company recorded deferred stock-based compensation amounting to
$557,000 for the period from May 7, 1998 (inception) to March 31, 1999 and $5.9
million for the nine months ended December 31, 1999. Amortization of deferred
stock-based compensation amounted to $171,000 for the period from May 7, 1998
(inception) to March 31, 1999, $2,000 for the period from May 7, 1998
(inception) to December 31, 1998 and $769,000 for the nine months ended December
31, 1999.
Compensation amounting to $39,660 arising on the issuance of 32,000 stock
options to consultants has been recorded. The compensation was determined based
on the fair value at the grant date of the stock options consistent with the
method under SFAS 123 "Accounting for Stock-based Compensation". To determine
the fair value of each option, the following assumptions were used: dividend
yield of 0.0%, 100% volatility, a weighted average risk free interest rate of
5.5% and a weighted average expected life of options of 3.5 years.
F-15
<PAGE> 83
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortization of deferred stock-based compensation relates to the
following cost of service revenues and operating expense categories (in
thousands):
<TABLE>
<CAPTION>
PERIOD FROM
MAY 7, 1998 NINE MONTHS
(INCEPTION) TO ENDED
MARCH 31, DECEMBER 31,
1999 1999
-------------- -------------
<S> <C> <C>
Cost of service revenues.................................... $ 18 $144
Sales and marketing......................................... 11 465
Research and development.................................... 1 73
General and administrative.................................. 141 87
---- ----
$171 $769
==== ====
</TABLE>
Had compensation expense for the Company's stock option plans been
determined based on the fair value at the grant dates for the awards under the
plan consistent with the method under SFAS 123 "Accounting for Stock-Based
Compensation", the Company's loss and loss per common share would have been
reported as the pro forma amounts indicated in the table below. To determine the
fair value of each option on the grant date the following assumptions were used:
dividend yield of 0.0%, zero volatility, a weighted average risk free interest
rate of 5.5% and a weighted average expected life of options of 3.5 years. Pro
forma information for the period indicated is as follows (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
PERIOD FROM
MAY 7, 1998 NINE MONTHS
(INCEPTION) TO ENDED
MARCH 31, DECEMBER 31,
1999 1999
-------------- -------------
<S> <C> <C>
Loss -- as reported....................................... $(1,689) $(4,246)
Loss -- pro forma......................................... (1,678) (3,942)
Loss per common share -- as reported...................... (2.40) (1.85)
Loss per common share -- pro forma........................ (2.25) (1.63)
Weighted average grant date fair value of options granted
during the period......................................... 0.24 3.31
</TABLE>
Warrant
During January 1999, the Company issued a warrant for no consideration to
an executive of the Company to purchase 394,737 common shares at a price of
$0.44 per share. The warrant expires when the executive ceases to be employed by
the Company or January 5, 2002 whichever is earlier.
Repurchase of Common Shares
During August 1999, the Company acquired 750,000 common shares of the
Company from a former executive of the Company for nominal cash consideration.
Escrow Shares
At December 31, 1999, 1,968,750 common shares of the Company are held in
escrow pursuant to escrow arrangements entered into with certain
employee/shareholders. Under the terms of the arrangements 365,625 common shares
will be released from escrow on the last day of each successive calendar quarter
subsequent to December 31, 1999. The Company may acquire for nominal
consideration any shares that are held in escrow on the date the
employee/shareholder ceases their employment with the Company. This right
expires at the time the Company's shares become publicly traded.
F-16
<PAGE> 84
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The provision for income taxes differs from the amount computed by
applying the combined federal and provincial income tax rate of 44.6% to the
loss before provision for income taxes as a result of the following (in
thousands):
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM MAY 7, 1998
MAY 7, 1998 (INCEPTION) NINE MONTHS
(INCEPTION) TO TO ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
-------------- ------------ ------------
<S> <C> <C> <C>
Loss for the period................................ $ 1,689 $ 677 $ 4,246
======= ======= =======
Computed expected tax recovery..................... $ 753 $ 302 $ 1,894
Increase (reduction) in income tax recovery
resulting from:
Permanent differences............................ (79) (10) 52
Change in beginning of the year balance of the
valuation allowance allocated to income tax
expense....................................... (718) (326) (1,975)
Additional loss carry forward due to Ontario
Superallowance................................ 44 34 29
------- ------- -------
$ -- $ -- $ --
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the future tax assets and future tax liabilities at March 31, 1999
and December 31, 1999 are presented below (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1999
--------- -------------
<S> <C> <C>
Future tax assets:
Non-capital loss carried forward.......................... $ 650 $ 2,154
Research and development expenses deferred for income tax
purposes............................................... 166 160
Share issue costs......................................... -- 428
------- -------
Total gross future tax assets............................. 816 2,742
Less valuation allowance.................................. 718 2,693
------- -------
Net future tax assets..................................... 98 49
Future tax liabilities:
Depreciation and amortization............................. 30 19
Investment tax credits receivable......................... 68 30
------- -------
Total gross future tax liabilities........................ 98 49
------- -------
Net future tax assets (liabilities)....................... $ -- $ --
======= =======
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers projected future taxable income, uncertainties related to the industry
in which the Company operates, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projections
for future taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not the Company will
realize the benefits of these deductible differences, net of the existing
valuation allowances.
F-17
<PAGE> 85
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As at March 31, 1999, the Company had $1.8 million of losses and
deductions available to reduce future years' taxable income in Canada, of which
$1.5 million expire in 2006 and the remainder has no expiry date.
10. RELATED PARTY TRANSACTIONS
On June 1, 1999, the Company entered into a professional services
agreement with a company related to a director of the Company in connection with
the management of the Company's European subsidiary. Under the terms of the
agreement, the Company is required to pay certain annual fees, a portion of
which is calculated based on net revenues, as defined, of the European
subsidiary, with the option of converting all or part of this portion into
common shares of the Company subject to certain terms. As at December 31, 1999,
the Company has accrued fees aggregating $101,800 in respect of this agreement.
The Company has accrued consulting fees payable to a shareholder of the
Company amounting to nil for the periods ended March 31, 1999 and December 31,
1998 and $60,900 for the nine months ended December 31, 1999.
11. SEGMENTED INFORMATION
The Company reviewed its operations and determined that it operates in a
single reportable operating segment, being the development and marketing of
interaction-based e-business communications applications. All long-lived assets
relating to the Company's operations are located in Canada. Revenue per
geographic location, which is attributable to geographic location based on the
location of the external customer, is as follows (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MAY 7, 1998 MAY 7, 1998 NINE MONTHS
(INCEPTION) TO (INCEPTION) TO ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
-------------- -------------- ------------
<S> <C> <C> <C>
Revenue by geographic locations:
United States.................................... $ -- $ -- $3,723
Canada........................................... -- -- 1,613
Europe........................................... -- -- 21
------- ------- ------
$ -- $ -- $5,357
======= ======= ======
</TABLE>
For the nine months ended December 31, 1999, one customer accounted for
26% of total revenues. As at December 31, 1999, the Company had a receivable
from two significant customers amounting to 18% and 15% of total accounts
receivable trade, respectively.
F-18
<PAGE> 86
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUPPLEMENTARY CASH DISCLOSURES:
Supplementary cash disclosures are as follows (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM MAY 7, 1998
MAY 7, 1998 (INCEPTION) NINE MONTHS
(INCEPTION) TO TO ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
-------------- ------------ ------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest........................... $ 1 $ -- $ 39
======= ======= =======
Supplemental disclosure of non-cash investing and
financing activities:
Capital lease obligations incurred for purchase
of capital assets............................. $ 99 $ -- $ 656
======= ======= =======
Deferred compensation on the grant of options to
purchase common shares with an exercise price
below fair value.............................. $ 557 $ -- $ 5,885
======= ======= =======
</TABLE>
13. LOSS PER COMMON SHARE
The following table reconciles the numerators and denominators of the
basic and diluted loss per common share computation (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM MAY 7, 1998
MAY 7, 1998 (INCEPTION) NINE MONTHS
(INCEPTION) TO TO ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
-------------- ------------ ------------
<S> <C> <C> <C>
Numerator for basic and diluted loss per common
share:
Loss for the period.............................. $ (1,689) $ (677) $ (4,246)
Less: accretion of dividends on redeemable
convertible special shares.................... (101) -- (212)
-------- -------- --------
Loss applicable to common shares................. $ (1,790) $ (677) $ (4,458)
======== ======== ========
Denominator for basic and diluted loss per common
share:
Weighted average common shares................... 746 503 2,415
======== ======== ========
Basic and diluted loss per common share............ $ (2.40) $ (1.35) $ (1.85)
======== ======== ========
</TABLE>
Due to the loss for all periods presented, all potential common shares
outstanding are considered anti-dilutive and are excluded from the calculation
of diluted loss per common share.
F-19
<PAGE> 87
DELANO TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. LEASE COMMITMENTS
The Company is required to make minimum payments under the terms of
operating leases for premises, property and equipment expiring on various dates
to December 31, 2005. Future minimum lease payments by fiscal year are as
follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $ 167
2001........................................................ 614
2002........................................................ 423
2003........................................................ 419
2004........................................................ 413
thereafter.................................................. 413
------
$2,449
======
</TABLE>
Rent expense was $62,274, $37,042 and $207,180 for the period from May 7,
1998 (inception) to March 31, 1999, for the period from May 7, 1998 (inception)
to December 31, 1998 and for the nine months ended December 31, 1999,
respectively.
15. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problems may arise in
some systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
16. SUBSEQUENT EVENTS
(a) On February 6, 2000, the Company's board of directors approved for
filing the registration statement relating to the sale and issue of
5,000,000 common shares of the Company and the prospectus in Canada
relating to the distribution of 5,000,000 common shares and 6,490,386
common shares issuable upon the exercise of the special warrants.
(b) On February 7, 2000, the Company entered into agreements with Nortel
Networks for the purchase by Nortel Networks of 500,000 common shares
in a private placement in Canada. The common shares will be purchased
at the initial public offering price. The closing of the private
placement will occur at the same time as the closing of the initial
public offering. The private placement is conditional upon the closing
of the initial public offering.
F-20
<PAGE> 88
[DESCRIPTION OF INSIDE BACK COVER ARTWORK]
[The Delano logo appears in the upper right corner. To its left appear pictures
of (1) a man and a woman shaking hands, (2) a computer screen and (3) a globe
floating above two hands.
Underneath the pictures and logo appear the following:]
DELANO TECHNOLOGY CORPORATION is a provider of
e-business communications software
DIRECTORIES --
DELANO E-BUSINESS -- IT SYSTEMS
INTERACTION SERVER AND ENTERPRISE
APPLICATIONS
DATABASES --
| |
| |
MAIL SERVER WEB SERVER
| |
- -------------------------------------------------------------------------------
| |
E-MAIL CLIENT WEB BROWSER CUSTOMERS
SUPPLIERS
PARTNERS
EMPLOYEES
Our e-business communications software integrates with and leverages
existing databases, directories and other enterprise IT systems to
permit our clients to interact over the internet and enhance their
existing e-business strategy.
<PAGE> 89
[DELANO LOGO]
<PAGE> 90
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY
THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 8, 2000
[DELANO LOGO]
5,000,000 SHARES
COMMON SHARES
Delano Technology Corporation is offering 5,000,000 of its common shares.
This is our initial public offering and no public market currently exists for
our shares. The shares have been approved for quotation on the Nasdaq National
Market under the symbol "DTEC." We anticipate that the initial public offering
price will be between $14.00 and $16.00 per share.
------------------------------
INVESTING IN THE COMMON SHARES INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ----------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Commissions.................................... $ $
Proceeds to Delano.......................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS
HAVE NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We have granted the underwriters a 30-day option to purchase up to
750,000 additional common shares to cover over-allotments.
------------------------------
ROBERTSON STEPHENS INTERNATIONAL
U.S. BANCORP PIPER JAFFRAY
THE DATE OF THIS PROSPECTUS IS , 2000
<PAGE> 91
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc. and U.S. Bancorp Piper Jaffray Inc., have
severally agreed with us, subject to the terms and conditions of the
underwriting agreement, to purchase from us the number of common shares set
forth opposite their names below. The underwriters are committed to purchase and
pay for all of the shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
- ----------------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc. ........................
U.S. Bancorp Piper Jaffray Inc. ............................
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL UNDERWRITERS
- --------------------------
<S> <C>
FleetBoston Robertson Stephens International Limited........
U.S. Bancorp Piper Jaffray Inc. ............................
---------
Total.................................................. 5,000,000
=========
</TABLE>
We have been advised that the underwriters propose to offer our common
shares to the public at the public offering price located on the cover page of
this prospectus and to dealers at that price less a concession of not in excess
of $ per share, of which $ may be reallowed to other dealers. After
the initial public offering, the public offering price, concession and
reallowance to dealers may be reduced by the representatives. No reduction in
this price will change the amount of proceeds to be received by us as indicated
on the cover page of this prospectus.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 750,000 additional common shares to cover over-allotments, if
any, at the same price per share as we will receive for the 5,000,000 shares
that the underwriters have agreed to purchase. To the extent that the
underwriters exercise this option, each of the underwriters will have a firm
commitment to purchase approximately the same percentage of such additional
shares that the number of common shares to be purchased by it shown in the above
table represents as a percentage of the 5,000,000 shares offered by this
prospectus. If purchased, the additional shares will be sold by the underwriters
on the same terms as those on which the 5,000,000 shares are being sold. We will
be obligated, under this option, to sell shares to the extent the option is
exercised. The underwriters may exercise the option only to cover
over-allotments made in connection with the sale of the 5,000,000 common shares
offered by this prospectus.
59
<PAGE> 92
Underwriting commissions. The underwriting commissions will be an amount
equal to the public offering price per share, less the amount paid per share by
the underwriters to us. We currently expect that the underwriting commissions
will equal 7% of the public offering price. The following table shows the per
share and total underwriting commissions to be paid by us to the underwriters.
This information is presented assuming either no exercise or full exercise by
the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT
PER SHARE OPTION OPTION
--------- -------------- --------------
<S> <C> <C> <C>
Assumed public offering price....................... $15.00 $75,000,000 $86,250,000
Estimated underwriting commissions.................. 1.05 5,250,000 6,037,500
------ ----------- -----------
Estimated proceeds, before expenses, to us.......... $13.95 $69,750,000 $80,212,500
====== =========== ===========
</TABLE>
The expenses of the offering, other than underwriting commissions, payable
by us are estimated at $800,000. FleetBoston Robertson Stephens Inc. expects to
deliver the common shares to purchasers on , 2000.
Griffiths McBurney & Partners, which will act as one of the underwriters
of this offering, served as a placement agent in connection with the Company's
private placement of special warrants in June 1999. See "Description of Share
Capital -- Special Warrants." Griffiths McBurney & Partners received a fee of
Cdn$725,950 (approximately US$502,720) for its services in connection with this
private placement. Under the rules of the National Association of Securities
Dealers, Inc., the placement fee paid to Griffiths McBurney & Partners may be
deemed to be underwriting compensation in connection with this offering.
Directed Share Program. The underwriters have reserved up to five percent
of the common shares to be issued by us and offered for sale in this offering,
at the initial public offering price, to directors, officers, employees,
business associates and persons otherwise connected to Delano. The number of
common shares available for sale to the general public will be reduced to the
extent these individuals purchase reserved shares. Any reserved shares which are
not purchased will be offered by the underwriters to the general public on the
same basis as the other shares offered in this offering.
In addition, the underwriters have reserved up to 400,000 common shares
for sale to Canada Life Assurance at the initial public offering price. Canada
Life Assurance has not committed to purchasing these common shares.
Indemnity. The underwriting agreement contains covenants of indemnity
among the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act, and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Agreements Not to Sell Shares. Holders of a total of 24,174,598 common
shares, including all of our executive officers and directors, have agreed that,
during the period ending 180 days after the date of this prospectus, subject to
limited exceptions, not to offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to any common shares
or any options or warrants to purchase any common shares, or any securities
convertible into or exchangeable for common shares owned as of the date of this
prospectus or later acquired directly by such holders or with respect to which
they have the power of disposition, without the prior written consent of
FleetBoston Robertson Stephens Inc. However, FleetBoston Robertson Stephens Inc.
may, in its sole discretion and at any time without notice, release all or any
portion of securities subject to these agreements not to sell shares. There are
no existing agreements between the representatives of the underwriters and any
of our shareholder providing consent to the sale of shares prior to the
expiration of the respective periods.
60
<PAGE> 93
Future Sales by Us. In addition, we have agreed that during the 180 days
after the date of this prospectus, we will not, without the prior written
consent of FleetBoston Robertson Stephens Inc., subject to certain exceptions,
(a) consent to the disposition of any shares held by shareholders subject to
agreements not to sell shares prior to the expiration of the respective periods,
(b) issue, sell, contract to sell, or otherwise dispose of, any common shares,
any options to purchase any common shares or any securities convertible into,
exercisable for or exchangeable for common shares other than our sale of shares
in this offering, the issuance of common shares upon the exercise of outstanding
options, and the issuance of options under existing stock option and incentive
plans, provided such options do not vest prior to the expiration of the 180-day
period or (c) issue up to 1,000,000 common shares in connection with
acquisitions of businesses or assets of businesses or in connection with
strategic alliances; provided that
- each person receiving common shares enters into a lock-up agreement
pursuant to which they agree not to dispose of or hedge any of their
common shares for 180 days following the date of this prospectus
without the consent of FleetBoston Robertson Stephens Inc. on behalf of
the underwriters; and
- we do not grant any rights that are exercisable for a period of six
months from the date we sign the purchase agreement with the
underwriters entitling the persons receiving common shares to require
us to register their shares under the U.S. Securities Act.
See "Shares Eligible for Future Sale."
Listing. Our common shares have been approved for quotation on the Nasdaq
National Market under the symbol "DTEC."
No Distribution in Canada. The common shares may be offered in Canada by
the underwriters or their Canadian affiliates pursuant to a prospectus
qualifying the common shares for distribution in certain provinces of Canada or
pursuant to prospectus exemptions under applicable securities legislation. Each
of the underwriters has agreed that it will only distribute common shares in
Canada in accordance with prospectus and registration requirements of applicable
securities legislation or exemptions from these requirements.
No Prior Public Market. Prior to this offering, there has been no public
market for our common shares. Consequently, the initial public offering price
for the common stock offered by this prospectus will be determined through
negotiations among us and the representatives. Among the factors to be
considered in these negotiations are prevailing market conditions, our financial
information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
Stabilization. The representatives have advised us that, under Regulation
M under the U.S. Securities Exchange Act, some participants in this offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of our common shares at a level
above that which might otherwise prevail in the open market. A "stabilizing bid"
is a bid for or the purchase of the common shares on behalf of the underwriters
for the purpose of fixing or maintaining the price of the common shares. A
"syndicate covering transaction" is the bid for or the purchase of the common
shares on behalf of the underwriters to reduce a short position incurred by the
underwriters in connection with this offering. A "penalty bid" is an arrangement
permitting the representatives to reclaim the selling concession otherwise
accruing to an underwriter or syndicate member in connection with this offering
if the common shares originally sold by the underwriter or syndicate member is
purchased by the representatives in a syndicate covering transaction and has
therefore not been effectively placed by such underwriter or syndicate member.
The representatives have advised us that such transactions may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.
61
<PAGE> 94
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTIONS
The following table sets forth the expenses payable by us in connection
with the sale of the common stock being registered, other than the underwriting
discounts and commissions. All amounts are estimates except the SEC registration
fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 24,288
NASD filing fee............................................. 9,700
Nasdaq National Market Fee.................................. 95,000
Blue Sky fees and expenses.................................. 10,000
Printing and engraving expenses............................. 125,000
Legal fees and expenses..................................... 325,000
Transfer Agent and Registrar fees........................... 10,000
Accounting fees and expenses................................ 150,000
Miscellaneous............................................... 51,012
--------
Total....................................................... $800,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with the Business Corporations Act (Ontario), the By-laws of
the Registrant provide that the Registrant shall indemnify a present or former
director or officer or a person who acts or acted at the Registrant's request as
a director or officer of another company of which the Registrant is or was a
stockholder or creditor, and his heirs and legal representatives, against all
costs, charges and expenses, including an amount paid to settle an action or
satisfy a judgment, reasonably incurred by him in respect of any civil, criminal
or administrative action or proceeding to which he is made a party by reason of
such position, provided that the director or officer acted honestly and in good
faith with a view to the best interests of the Registrant and, in the case of a
criminal or administrative action or proceeding that is enforced by a monetary
penalty, had reasonable grounds for believing that his conduct was lawful. Such
indemnification may, with the approval of the court, be made in connection with
the procuring of a judgment in favor of the Registrant or such other company if
the conditions set forth above have been fulfilled. Notwithstanding the
foregoing, a director or officer is entitled to indemnification from the
Registrant as a matter of right if he was substantially successful on the merits
in defense of the action or proceeding and fulfilled the conditions set forth
above.
A policy of directors' and officers' liability insurance is maintained by
the Registrant which insures directors and officers of the Registrant and its
subsidiaries against liability incurred by, arising from or against them for
certain of their acts, errors or omissions.
The form of Underwriting Agreement filed herewith as Exhibit 1.1 contains
provisions by which the Underwriters agree to indemnify the Registrant, each
person who controls the Registrant within the meaning of the Securities Act, as
amended, and each officer and director of the Registrant, with respect to
information furnished by the Underwriters for use in this Registration
Statement.
Reference is made to Item 17 for the undertakings of the Registrant with
respect to indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act").
II-1
<PAGE> 95
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Securities sold:
1. On May 7, 1998, the Registrant issued one common share at a price of
Cdn$1.00 for an aggregate consideration of Cdn$1.00. The common share
was issued to an employee in Canada in trust for a corporation in
Canada. The transaction was exempt under Regulation S under the
Securities Act. This share was repurchased by the Registrant on July
16, 1998.
2. On July 17, 1998, the Registrant issued 6,000,000 common shares at a
price of Cdn$0.0007 per share for an aggregate consideration of
Cdn$4,000. All of the common shares were issued to employees in
Canada. The transaction was exempt under Regulation S under the
Securities Act.
3. On July 17, 1998, the Registrant issued 2,400,000 Class A special
shares at a price of Cdn$0.375 per share for an aggregate
consideration of Cdn$900,000. All of the Class A preferred shares were
issued to a person in Canada. The transaction was exempt under
Regulation S under the Securities Act.
4. On September 30, 1998, the Registrant issued 1,600,000 Class A
special shares at a price of Cdn$0.375 per share for an aggregate
consideration of Cdn$600,000. All of the Class A special shares were
issued to a person in Canada. The transaction was exempt under
Regulation S under the Securities Act.
5. On January 4, 1999, the Registrant issued a warrant to an employee
in Canada. This warrant is exercisable into 394,737 common shares at
an exercise price of Cdn$0.95 per share. The transaction was exempt
under Regulation S under the Securities Act.
6. On January 25, 1999, the Registrant issued 3,473,686 Class B special
shares at a price of Cdn$0.95 per share for an aggregate consideration
of Cdn$3,300,001.70. Of the 3,473,686 Class B special shares issued,
3,157,896 were sold to persons in Canada and were exempt under
Regulation S under the Securities Act, and 315,790 were sold to
accredited investors in the United States pursuant to Section 4(2) of
the Securities Act.
7. On February 4, 1999, the Registrant issued 315,790 Class B special
shares at a price of Cdn$0.95 per share for an aggregate consideration
of Cdn$300,000.50. All of the shares were issued to persons in Canada.
The transaction was exempt under Regulation S under the Securities
Act.
8. On June 24, 1999, the Registrant issued 4,326,924 special warrants.
Each special warrant is exercisable into one Class C preferred share.
The special warrants were issued at Cdn$5.20 per special warrant for
an aggregate consideration of Cdn$22,500,004.80. Griffiths McBurney &
Partners, First Marathon Securities and Charles Schwab Canada acted as
agents in connection with such sales and were paid an aggregate
commission of Cdn$1,037,072. Of the 4,326,924 special warrants issued,
3,889,924 were sold to persons in Canada and were exempt under
Regulation S under the Securities Act, and 437,000 were sold to
accredited investors in the United States pursuant to Section 4(2) of
the Securities Act.
(b) Underwriters and Other Purchasers.
See (a) above.
(c) Consideration.
See (a) above.
(d) Exemption from Registration Claimed.
See (a) above.
II-2
<PAGE> 96
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. EXHIBITS
The following exhibits are attached hereto:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ------- -----
<S> <C>
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
1.1 Form of Underwriting Agreement
3.1 Articles of Incorporation of the Registrant
3.2 By-laws of the Registrant
4.1+ Specimen Common Share certificate
5.1 Opinion of Osler, Hoskin & Harcourt LLP as to the legality
of the securities offered hereby
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to
certain U.S. Federal tax matters
8.2 Opinion of Osler, Hoskin & Harcourt LLP as to certain
Canadian Federal tax matters (included in Exhibit 5.1)
10.1* Registration Rights Agreement, dated as of January 27, 1999,
between the Registrant and certain shareholders of the
Registrant
10.2* Agency Agreement, dated as of June 24, 1999, between the
Registrant and the Agents named therein
10.3* Professional Services Agreement, dated June 1, 1999, between
the Registrant and Protege Software Limited
10.4* Form of Subscription Agreement, dated July 17, 1998 between
the Registrant and each of Robert Gayle, Bahman Koohestani,
John Mah and Sean Maurik
10.5* Form of Subscription Agreement, dated July 17, 1998, between
the Registrant and Bahman Koohestani
10.6* Credit Facility, dated July 5, 1998 between the Registrant
and Royal Bank of Canada
10.7* Sub-lease Agreement, dated December 16, 1998 between the
Registrant and MGI Software Corp.
10.8* Lease Agreement, dated November 17, 1999 between the
Registrant and 302 Town Centre Limited.
10.9* Stock Option Plan
10.10 * Employment Agreement, dated November 23, 1998, between John
Foresi and the Registrant
10.11 * Employment Agreement, dated February 26, 1998, between
Bahman Koohestani and the Registrant
10.12 * Employment Agreement and Form of Confidentiality Agreement
between the Registrant and its executive officers
10.13 * Employee Stock Purchase Plan
10.14 Amalgamation Agreement, dated November 30, 1999, between the
Registrant and XDL Delano Holdings Inc.
10.15 Amendment No. 1 to the Amalgamation Agreement, dated
February 7, 2000, between the Registrant and XDL Delano
Holdings Inc.
10.16 Subscription Agreement, dated February 7, 2000, between the
Registrant and Nortel Networks Corporation
23.1 Consent of Osler, Hoskin & Harcourt LLP (included in Exhibit
5.1)
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 8.1)
23.3 Consent of KPMG LLP
24.1* Powers of Attorney
</TABLE>
- ------------
* Filed previously.
+ Incorporated by reference from the Registrant's Registration Statement on Form
8-A dated January 27, 2000.
B. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or the required
information is shown in our consolidated financial statements and related notes.
II-3
<PAGE> 97
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(4) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
II-4
<PAGE> 98
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-1 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Toronto, Province of Ontario, Canada, on
February 8, 2000.
DELANO TECHNOLOGY CORPORATION
/s/ JOHN FORESI
By:
--------------------------------------
John Foresi
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by or on behalf of the
following persons in the capacities indicated and on February 8, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* President and Chief
- --------------------------------------------- Executive Officer, Director
John Foresi (Principal Executive Officer)
/s/ THOMAS HEARNE Chief Financial Officer
- --------------------------------------------- (Principal Financial Officer
Thomas Hearne and Principal Accounting Officer)
* Chairman of the Board of Directors
- ---------------------------------------------
Dennis Bennie
* Director
- ---------------------------------------------
Albert Amato
* Director
- ---------------------------------------------
Ian Giffen
* Director
- ---------------------------------------------
Bahman Koohestani
* Director
- ---------------------------------------------
Donald Woodley
/s/ THOMAS HEARNE
*
- ---------------------------------------------
Thomas Hearne, Attorney-in-fact
</TABLE>
II-5
<PAGE> 99
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, the
undersigned certifies that it is the duly authorized United States
representative of Delano Technology Corporation and has duly caused this
Amendment to the Registration Statement to be signed on behalf of each of them
by the undersigned, thereunto duly authorized, in the City of Toronto, Province
of Ontario, on February 8, 2000.
DELANO TECHNOLOGY INC.
(Authorized United States
Representative)
By: /s/ THOMAS HEARNE
-------------------------------------
Thomas Hearne
Chief Financial Officer and Secretary
II-6
<PAGE> 100
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<C> <S> <C>
1.1 Form of Underwriting Agreement..............................
3.1 Articles of Incorporation of the Registrant.................
3.2 By-laws of the Registrant...................................
4.1+ Specimen Common Share certificate...........................
5.1 Opinion of Osler, Hoskin & Harcourt LLP as to the legality
of the securities offered hereby............................
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to
certain U.S. Federal tax matters............................
8.2 Opinion of Osler, Hoskin & Harcourt LLP as to certain
Canadian Federal tax matters (included in Exhibit 5.1)......
10.1* Registration Rights Agreement, dated as of January 27, 1999,
between the Registrant and certain shareholders of the
Registrant..................................................
10.2* Agency Agreement, dated as of June 24, 1999, between the
Registrant and the Agents named therein.....................
10.3* Professional Services Agreement, dated June 1, 1999, between
the Registrant and Protege Software Limited ................
10.4* Form of Subscription Agreement, dated July 17, 1998 between
the Registrant and each of Robert Gayle, Bahman Koohestani,
John Mah and Sean Maurik....................................
10.5* Form of Subscription Agreement, dated July 17, 1998, between
the Registrant and Bahman Koohestani........................
10.6* Credit Facility, dated July 5, 1998 between the Registrant
and Royal Bank of Canada....................................
10.7* Sub-lease Agreement, dated as of December 16, 1998 between
the Registrant and MGI Software Corp. ......................
10.8* Lease Agreement, dated November 17, 1999 between the
Registrant and 302 Town Centre Limited......................
10.9* Stock Option Plan...........................................
10.10* Employment Agreement, dated November 23, 1998, between John
Foresi and the Registrant...................................
10.11* Employment Agreement, dated February 26, 1998, between
Bahman Koohestani and the Registrant........................
10.12* Employment Agreement and Form of Confidentiality Agreement
between the Registrant and its executive officers...........
10.13* Employee Stock Purchase Plan................................
10.14 Amalgamation Agreement, dated November 30, 1999, between the
Registrant and XDL Delano Holdings Inc......................
10.15 Amendment No. 1 to the Amalgamation Agreement, dated
February 7, 2000, between the Registrant and XDL Delano
Holdings Inc................................................
10.16 Subscription Agreement, dated February 7, 2000, between the
Registrant and Nortel Networks Corporation..................
23.1 Consent of Osler, Hoskin & Harcourt LLP (included in Exhibit
5.1)........................................................
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 8.1)...................................
23.3 Consent of KPMG LLP.........................................
24.1* Powers of Attorney..........................................
</TABLE>
- ------------
* Filed previously.
+ Incorporated by reference from the Registrant's Registration Statement on
Form 8-A dated January 27, 2000.
<PAGE> 1
UNDERWRITING AGREEMENT
Exhibit 1.1
February __, 2000
FLEETBOSTON ROBERTSON STEPHENS INC.
U.S. BANCORP PIPER JAFFREY INC.
As Representatives of the several Underwriters
c/o FleetBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104
Ladies and Gentlemen:
INTRODUCTORY. Delano Technology Corporation, an Ontario corporation (the
"Company), proposes to issue and sell to the several underwriters named in
SCHEDULE A (the "Underwriters") an aggregate of 5,000,000 shares (the "Firm
Shares") of its common shares ("Common Shares"). In addition, the Company has
granted to the Underwriters an option to purchase up to an additional 750,000
Common Shares (the "Option Shares") as provided in Section 2. The Firm Shares
and, if and to the extent such option is exercised, the Option Shares are
collectively called the "Shares." FleetBoston Robertson Stephens Inc. and U.S.
Bancorp Piper Jaffrey Inc. have agreed to act as representatives of the several
Underwriters (in such capacity, the "Representatives") in connection with the
offering and sale of the Shares.
The Company has prepared and filed with the United States Securities and
Exchange Commission (the "Commission") a registration statement on Form F-1
(File No. 333-94505) that contains a form of prospectus to be used in connection
with the public offering and sale of the Shares. Such registration statement, as
amended, including the financial statements, exhibits and schedules thereto, in
the form in which it was declared effective by the Commission under the United
States Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder (collectively, the "Securities Act"), including any
information deemed to be a part thereof at the time of effectiveness pursuant to
Rule 430A or Rule 434 under the Securities Act, is called the "Registration
Statement." Any registration statement filed by the Company pursuant to Rule
462(b) under the Securities Act is called the "Rule 462(b) Registration
Statement," and from and after the date and time of filing of the Rule 462(b)
Registration Statement the term "Registration Statement" shall include the Rule
462(b) Registration Statement. Such prospectus, in the form first used by the
Underwriters to confirm sales of the Shares, is called the "U.S. Prospectus."
All references in this Agreement to the Registration Statement, the Rule 462(b)
Registration Statement, a preliminary prospectus or the U.S. Prospectus, or any
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR").
The Company has prepared and filed with the Alberta Securities Commission
and the Ontario Securities Commission in accordance with the securities laws
applicable in the Provinces of Alberta and Ontario as interpreted and applied by
the Alberta Securities Commission and the Ontario Securities Commission,
respectively (collectively, the "Canadian Securities Laws"), a prospectus dated
February 7, 2000 to be used in connection with the public offering and sale of
the Shares in
1
<PAGE> 2
Canada, as well as with additional Common Shares issuable upon exercise of
special warrants issued previously by the Company. Such prospectus, in the form
so filed, including the financial statements included therein, is called the
"Canadian Prospectus." The Canadian Prospectus and the U.S. Prospectus together
are called the "Prospectuses," and each of them is called a "Prospectus."
The Company hereby confirms its agreements with the Underwriters as
follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements.
(i) The Registration Statement and any Rule 462(b) Registration
Statement have been declared effective by the Commission under the Securities
Act. The Company has complied to the Commission's satisfaction with all requests
of the Commission for additional or supplemental information. No stop order
suspending the effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement is in effect and no proceedings for such purpose have
been instituted or are pending or, to the best knowledge of the Company, are
contemplated or threatened by the Commission. Each preliminary prospectus and
the U.S. Prospectus when filed complied in all material respects with the
Securities Act and was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Shares, except
as may be permitted by Regulation S-T under the Securities Act if filed by
electronic transmission pursuant to EDGAR. Each of the Registration Statement,
any Rule 462(b) Registration Statement and any post-effective amendment thereto,
at the time it became effective and at all subsequent times, complied and will
comply in all material respects with the Securities Act and did not and will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading. Each Prospectus, as amended or supplemented, as of its date and at
all subsequent times, did not and will not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The representations and warranties set forth in the two
immediately preceding sentences do not apply to statements in or omissions from
the Registration Statement, any Rule 462(b) Registration Statement, or any post-
effective amendment thereto, or either Prospectus, or any amendments or
supplements thereto, made in reliance upon and in conformity with information
relating to any Underwriter furnished to the Company in writing by the
Representatives expressly for use therein. There are no contracts or other
documents required to be described in either Prospectus or to be filed as
exhibits to the Registration Statement that have not been described or filed as
required.
(ii) A receipt has been obtained in respect of the Canadian
Prospectus from the Alberta Securities Commission and the Ontario Securities
Commission. No other authorization, permit, approval, order or consent of or
filing with any government, governmental agency or body or court of Canada or
the Provinces of Alberta or Ontario is required for the execution and
performance of this Agreement by the Company, including its valid authorization,
issuance, sale and delivery of the Shares as contemplated hereby. The Canadian
Prospectus complies in all material respects with the applicable requirements of
the Canadian Securities Laws.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Representatives three complete conformed copies of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits), and preliminary prospectuses and each Prospectus, as amended or
2
<PAGE> 3
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company has not
distributed and will not distribute, prior to the later of the Second Closing
Date (as defined below) and the completion of the Underwriters' distribution of
the Shares, any offering material in connection with the offering and sale of
the Shares other than a preliminary prospectus, the Prospectuses and the
Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or by
general equitable principles.
(e) Authorization of the Shares. The Shares to be purchased by the
Underwriters from the Company have been duly authorized for issuance and sale
pursuant to this Agreement and, when issued and delivered by the Company
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have been
duly waived.
(g) No Material Adverse Change. Subsequent to the respective dates as of
which information is given in each Prospectus, and except as set forth or
contemplated in each Prospectus: (i) there has been no material adverse change,
or any development that could reasonably be expected to result in a material
adverse change, in the condition, financial or otherwise, or in the earnings,
business, operations or prospects, whether or not arising from transactions in
the ordinary course of business, of the Company and its subsidiaries Delano
Technology Europe Limited and Delano Technology Inc. (the "Subsidiaries"),
considered as one entity (any such change or effect, where the context so
requires, is called a "Material Adverse Change" or a "Material Adverse Effect");
(ii) the Company and the Subsidiaries, considered as one entity, have not
incurred any material liability or obligation, indirect, direct or contingent,
not in the ordinary course of business nor entered into any material transaction
or agreement not in the ordinary course of business; (iii) there has been no
dividend or distribution of any kind declared, paid or made by the Company or
either Subsidiary, except for dividends paid to the Company, on any class of
capital stock; and (iv) there has been no repurchase or redemption by the
Company or either Subsidiary of any class of capital stock.
(h) Independent Accountants. KPMG LLP, who have expressed their opinion
with respect to the consolidated financial statements (which term as used in
this Agreement includes the related notes thereto) filed with the Commission as
a part of the Registration Statement and included in the
U.S. Prospectus, are independent public or certified public accountants as
required by the Securities Act.
(i) Preparation of the Financial Statements. The consolidated financial
statements included in each Prospectus present fairly the consolidated financial
position of the Company and the Subsidiaries as of and at the dates indicated
and the results of their operations and cash flows for the periods specified.
Such consolidated financial statements included in the U.S. Prospectus have been
prepared in conformity with generally accepted accounting principles as applied
in the United
3
<PAGE> 4
States ("U.S. GAAP"), which principles have been applied on a consistent basis
throughout the periods involved except as may be expressly stated in the related
notes thereto. No other financial statements or supporting schedules are
required to be included in the Registration Statement. The financial data set
forth in the U.S. Prospectus under the captions "Summary--Summary Consolidated
Financial Data," "Selected Consolidated Financial Data" and "Capitalization"
fairly present the information set forth therein on a basis consistent with that
of the audited financial statements contained in the Registration Statement. The
consolidated financial statements included in the Canadian Prospectus have been
prepared in conformity with generally accepted accounting principles as applied
in Canadian ("Canadian GAAP"), which principles have been applied on a
consistent basis throughout the periods involved except as may be expressly
stated in the related notes thereto. No other financial statements are required
to be included in the Canadian Prospectus. The financial data set forth in the
Canadian Prospectus under the captions "Prospectus Summary--Summary Consolidated
Financial Data," "Selected Consolidated Financial Data" and "Capitalization"
fairly present the information set forth therein on a basis consistent with that
of the audited financial statements contained in the Canadian Prospectus.
(j) Company's Accounting System. The Company and the Subsidiaries maintain
a system of accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with Canadian GAAP and U.S.
GAAP and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(k) Subsidiaries of the Company. The Company does not own or control,
directly or indirectly, any corporation, association or other entity other than
the Subsidiaries.
(l) Incorporation and Good Standing of the Company and the Subsidiaries.
Each of the Company and the Subsidiaries has been duly organized and is validly
existing as a corporation in good standing under the laws of the jurisdiction in
which it is organized with full corporate power and authority to own its
properties and conduct its business as described in each Prospectus, and is duly
qualified to do business as a foreign corporation, and is in good standing,
under the laws of each jurisdiction that requires such qualification.
(m) Capitalization of the Subsidiaries. All the outstanding shares of
capital stock of the Subsidiaries have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as otherwise set forth
in each Prospectus, all outstanding shares of capital stock of the Subsidiaries
are owned by the Company, except such as would not have a Material Adverse
Effect, free and clear of any security interests, claims, liens or encumbrances.
(n) No Prohibition on Subsidiaries from Paying Dividends or Making Other
Distributions. Neither Subsidiary is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such Subsidiary's capital stock, from repaying to the Company
any loans or advances to such Subsidiary from the Company or from transferring
any of such Subsidiary's property or assets to the Company, except as described
in or contemplated by each Prospectus.
(o) Capitalization and Other Capital Stock Matters. The authorized, issued
and outstanding capital stock of the Company is as set forth in the each
Prospectus under the caption "Capitalization" on the basis set forth therein,
other than for subsequent issuances, if any, pursuant to employee benefit plans
described in each Prospectus or upon exercise of outstanding options,
4
<PAGE> 5
warrants or special warrants described in each Prospectus. The Common Shares,
including the Shares, conform in all material respects to the description
thereof contained in each Prospectus. All of the issued and outstanding Common
Shares have been duly authorized and validly issued, are fully paid and
nonassessable, and have been issued in compliance with federal and state
securities laws. None of the outstanding Common Shares were issued in violation
of any preemptive rights, rights of first refusal or other similar rights to
subscribe for or purchase securities of the Company. There are no authorized or
outstanding options, warrants, preemptive rights, rights of first refusal or
other rights to purchase, or equity or debt securities convertible into or
exchangeable or exercisable for, any capital stock of the Company or either
Subsidiary other than those accurately described in each Prospectus. The
description of the Company's stock option and stock purchase plans, and the
options or other rights granted thereunder, set forth in each Prospectus
accurately and fairly presents the information required by the Securities Act or
the Canadian Securities Laws, as applicable, to be shown with respect to such
plans, options and rights.
(p) Stock Exchange Listing. The Shares have been approved for inclusion on
the Nasdaq National Market, subject only to official notice of issuance.
(q) No Consents, Approvals or Authorizations Required. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made under the
Securities Act and the Canadian Securities Laws and such as may be required (i)
under the blue sky laws of any jurisdiction in connection with the purchase and
distribution of the Shares by the Underwriters in the manner contemplated here
and in each Prospectus and (ii) by the National Association of Securities
Dealers, Inc. (the "NASD").
(r) Non-Contravention of Existing Instruments Agreements. Neither the
issue and sale of the Shares nor the consummation of any other of the
transactions herein contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or either Subsidiary
pursuant to, (i) the articles or by-laws of the Company or either Subsidiary,
(ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition, covenant or
instrument to which the Company or either Subsidiary is a party or bound or to
which its or their property is subject or (iii) any statute, law, rule,
regulation, judgment, order or decree applicable to the Company or either
Subsidiary of any court, regulatory body, administrative agency, governmental
body, arbitrator or other authority having jurisdiction over the Company, either
Subsidiary or any of their respective properties.
(s) No Defaults or Violations. Neither the Company nor either Subsidiary
is in violation or default of (i) any provision of its articles or by-laws, (ii)
the terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition, covenant or
instrument to which it is a party or bound or to which its property is subject
or (iii) any statute, law, rule, regulation, judgment, order or decree of any
court, regulatory body, administrative agency, governmental body, arbitrator or
other authority having jurisdiction over the Company or either Subsidiary or any
of their respective properties, as applicable, except any such violation or
default that would not, singly or in the aggregate, result in a Material Adverse
Change or except as otherwise disclosed in each Prospectus.
(t) No Actions, Suits or Proceedings. Except as otherwise disclosed in
each Prospectus, no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Company,
either Subsidiary or their respective properties is pending or, to the best
knowledge of the Company, threatened that (i) could reasonably be expected to
have a
5
<PAGE> 6
Material Adverse Effect on the performance of this Agreement or the consummation
of any of the transactions contemplated hereby or (ii) could reasonably be
expected to result in a Material Adverse Effect.
(u) All Necessary Permits, Etc. Except as otherwise disclosed in each
Prospectus, the Company and the Subsidiaries possess such valid and current
certificates, authorizations or permits issued by the appropriate state, federal
or foreign regulatory agencies or bodies necessary to conduct their respective
businesses, and neither the Company nor either Subsidiary has received any
notice of proceedings relating to the revocation or modification of, or
non-compliance with, any such certificate, authorization or permit that, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, could reasonably be expected to result in a Material Adverse Change.
(v) Title to Properties. Except as otherwise disclosed in each Prospectus,
each of the Company and the Subsidiaries has good and marketable title to all
the properties and assets reflected as owned in the consolidated financial
statements referred to in Section 1(i) above, in each case free and clear of any
security interests, mortgages, liens, encumbrances, equities, claims and other
defects, except such as do not materially and adversely affect the value of such
property and do not materially interfere with the use made or proposed to be
made of such property by the Company and the Subsidiaries. The real property,
improvements, equipment and personal property held under lease by the Company
and the Subsidiaries are held under valid and enforceable leases, with such
exceptions as are not material and do not materially interfere with the use made
or proposed to be made of such real property, improvements, equipment or
personal property by the Company and the Subsidiaries.
(w) Tax Law Compliance. The Company and the Subsidiaries have filed all
necessary federal, provincial and foreign income and franchise tax returns (in
Canada, the United States and otherwise) and have paid all taxes required to be
paid by either of them and, if due and payable, any related or similar
assessment, fine or penalty levied against either of them, except where the
failure to file such returns or pay such taxes has not had and will not have a
Material Adverse Effect. The Company has made adequate charges, accruals and
reserves in the applicable financial statements referred to in Section 1(i)
above in respect of all federal, provincial and foreign income and franchise
taxes for all periods as to which the tax liability of the Company or either
Subsidiary has not been finally determined. The Company is not aware of any tax
deficiency that has been or might be asserted or threatened against the Company
that could result in a Material Adverse Change.
(x) Intellectual Property Rights. Each of the Company and the Subsidiaries
owns or possesses adequate rights to use all patents, patent rights or licenses,
inventions, collaborative research agreements, trade secrets, know-how,
trademarks, service marks, trade names and copyrights that are necessary to
conduct its businesses as described in the Registration Statement and each
Prospectus. The expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not result in a
Material Adverse Change that is not otherwise disclosed in each Prospectus. The
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of the Company by others with
respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights. The Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names or
copyrights that, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, might have a Material Adverse Change. To the
Company's knowledge, there is no claim being made against the Company regarding
patents, patent rights or licenses, inventions, collaborative research, trade
secrets, know-how, trademarks, service marks, trade names or copyrights. The
Company and the
6
<PAGE> 7
Subsidiaries do not in the conduct of their businesses as now or proposed to be
conducted as described in the Prospectuses infringe or conflict with any right
or patent of any third party, or any discovery, invention, product or process
that is the subject of a patent application filed by any third party, known to
the Company or either Subsidiary, which such infringement or conflict is
reasonably likely to result in a Material Adverse Change.
(y) Year 2000 Preparedness. There are no issues related to the
preparedness of the Company and the Subsidiaries for the Year 2000 that are of a
character required to be described or referred to in the Registration Statement
or the U.S. Prospectus by the Securities Act that have not been accurately
described in the Registration Statement or the U.S. Prospectus or that are of a
character required to be described or referred to in the Canadian Prospectus by
the Canadian Securities Laws that have not been accurately described in the
Canadian Prospectus. The Company has inquired of material vendors as to their
preparedness for the Year 2000 and has disclosed in the Registration Statement
and each Prospectus any issues that might reasonably be expected to result in
any Material Adverse Change.
(z) No Transfer Taxes or Other Fees. There are no transfer taxes or other
similar fees or charges under federal law or the laws of any province, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale of the Shares
as contemplated by this Agreement.
(aa) Company Not an "Investment Company." The Company has been advised of
the requirements under the United States Investment Company Act of 1940, as
amended, and the rules and regulations promulgated thereunder (the "Investment
Company Act"). The Company is not, and after receipt of payment for the Shares
will not be, an "investment company" or an entity "controlled" by an "investment
company" within the meaning of the Investment Company Act and will conduct its
business in a manner so that it will not become subject to the Investment
Company Act.
(bb) Insurance. The Company and the Subsidiaries are insured by
recognized, financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks as are generally
deemed adequate and customary for their businesses, including policies covering
real and personal property owned or leased by the Company and the Subsidiaries
against theft, damage, destruction, acts of vandalism and earthquakes, general
liability and directors' and officers' liability. The Company has no reason to
believe that it or either Subsidiary will not be able (i) to renew its existing
insurance coverage as and when such policies expire or (ii) to obtain comparable
coverage from similar institutions as may be necessary or appropriate to conduct
its business as now conducted and at a cost that would not result in a Material
Adverse Change. Neither the Company nor either Subsidiary has been denied any
insurance coverage that it has sought or for which it has applied.
(cc) Labor Matters. To the best of Company's knowledge, no labor
disturbance by the employees of the Company or either Subsidiary exists or is
imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal customers that might be
expected to result in a Material Adverse Change.
(dd) No Price Stabilization or Manipulation. The Company has not taken and
will not take, directly or indirectly, any action designed to or that might be
reasonably expected to cause or result in stabilization or manipulation of the
price of the Common Shares to facilitate the sale or resale of the Shares.
(ee) Lock-Up Agreements. Each officer and director of the Company and each
holder of record of Common Shares has agreed to sign an agreement substantially
in the form of EXHIBIT A
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hereto (the "Lock-up Agreements"). The Company has provided to counsel for the
Underwriters a complete and accurate list of all securityholders of the Company
and the number and type of securities held by each securityholder. The Company
has provided to counsel for the Underwriters true, accurate and complete copies
of all of the Lock-up Agreements presently in effect or effected hereby. The
Company hereby represents and warrants that it will not release any of its
officers, directors or other shareholders from any Lock-up Agreements currently
existing or hereafter effected without the prior written consent of FleetBoston
Robertson Stephens Inc.
(ff) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company, either Subsidiary or any other
person (i) required by the Securities Act to be described in the U.S. Prospectus
that have not been described as required or (ii) required by the Canadian
Securities Laws to be described in the Canadian Prospectus that have not been
described as required.
(gg) No Unlawful Contributions or Other Payments. Neither the Company nor
either Subsidiary, nor to the knowledge of the Company any employee or agent of
the Company or either Subsidiary, has made any contribution or other payment to
any official of, or candidate for, any federal, state or foreign office in
violation of any law or of the character required to be disclosed in either
Prospectus.
(hh) ERISA Compliance. Neither the Company nor either Subsidiary has
established or maintains any "employee benefit plan" (as defined under the
United States Employee Retirement Income Security Act of 1974, as amended, and
the regulations and published interpretations thereunder (collectively,
"ERISA")) (as defined below) that is required to be qualified under, or is
otherwise subject to the requirements of, ERISA.
Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) The Firm Shares. The Company agrees to issue and sell to the several
Underwriters the Firm Shares upon the terms herein set forth. On the basis of
the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company the respective numbers
of Firm Shares set forth opposite their names on SCHEDULE A. The purchase price
per Firm Share to be paid by the several Underwriters to the Company shall be
US$___ per share. As compensation to the Underwriters for their commitments
hereunder, the Company at the Closing Date (as defined below) will pay to
FleetBoston Robertson Stephens Inc., for the accounts of the Underwriters, a
commission equal to US$____ per Firm Share.
(b) The First Closing Date. Delivery of the Firm Shares to be purchased by
the Underwriters and payment therefor shall be made by the Company and the
Representatives at 9 A.M., Toronto time, at the offices of Osler, Hoskin &
Harcourt (or at such other place as may be agreed upon between the
Representatives and the Company), (i) on the third full business day following
the first day that Shares are traded, (ii) if this Agreement is executed and
delivered after 4:30 P.M., Toronto time, the fourth full business day following
the day that this Agreement is executed and delivered or (iii) at such other
time and date not later that seven full business days following the first day
that Shares are traded as the Representatives and the Company may determine (or
at such time and date to which payment and delivery shall have been postponed
pursuant to Section 8 hereof), such time and date of payment and delivery being
herein called the "Closing Date"; provided, however,
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<PAGE> 9
that if the Company has not made available to the Representatives copies of each
Prospectus within the time provided in Section 4(d) hereof, the Representatives
may, in their sole discretion, postpone the Closing Date until no later that two
full business days following delivery of copies of each Prospectus to the
Representatives.
(c) The Option Shares; the Second Closing Date. In addition, on the basis
of the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Company hereby grants
an option to the several Underwriters to purchase, severally and not jointly, up
to an aggregate of 750,000 Option Shares from the Company at the purchase price
per share to be paid by the Underwriters for the Firm Shares. The option granted
hereunder is for use by the Underwriters solely in covering any over-allotments
in connection with the sale and distribution of the Firm Shares. The option
granted hereunder may be exercised once and only once at any time upon written
notice by the Representatives to the Company, which notice may be given at any
time within 30 days from the date of this Agreement. Such notice shall set forth
the aggregate number of Option Shares as to which the option is being exercised
and the date and time when the Option Shares are to be delivered. The time and
date of delivery of the Option Shares, if subsequent to the First Closing Date,
is called the "Second Closing Date" and shall be determined by the
Representatives and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If any Option Shares
are to be purchased, each Underwriter agrees, severally and not jointly, to
purchase the number of Option Shares (subject to such adjustments to eliminate
fractional shares as the Representatives may determine) that bears the same
proportion to the total number of Option Shares to be purchased as the number of
Firm Shares set forth on SCHEDULE A opposite the name of such Underwriter bears
to the total number of Firm Shares. The Representatives may cancel the option at
any time prior to its expiration by giving written notice of such cancellation
to the Company. As compensation to the Underwriters for their commitments
hereunder, the Company at the Second Closing Date will pay to FleetBoston
Robertson Stephens Inc., for the accounts of the Underwriters, a commission
equal to US$____ per Option Share.
(d) Public Offering of the Shares. The Representatives hereby advise the
Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectuses, their respective portions of the Shares as soon
after this Agreement has been executed and the Registration Statement has been
declared effective as the Representatives, in their sole judgment, have
determined is advisable and practicable.
(e) Payment for the Shares. Payment for the Shares shall be made at the
First Closing Date (and, if applicable, at the Second Closing Date) by wire
transfer in immediately available funds to the order of the Company.
It is understood that the Representatives have been authorized, for
their own account and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Shares and any Option Shares the Underwriters have agreed to purchase.
FleetBoston Robertson Stephens Inc., individually and not as a Representative of
the Underwriters, may (but shall not be obligated to) make payment for any
Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations under
this Agreement.
(f) Delivery of the Shares. The Company shall deliver, or cause to be
delivered, a credit representing the Firm Shares to an account or accounts at
The Depository Trust Company, as designated by the Representatives for the
accounts of the Representatives and the several
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<PAGE> 10
Underwriters at the First Closing Date, against the irrevocable release of a
wire transfer of immediately available funds for the amount of the purchase
price therefor. The Company shall also deliver, or cause to be delivered a
credit representing the Option Shares the Underwriters have agreed to purchase
at the First Closing Date (or the Second Closing Date, as the case may be), to
an account or accounts at The Depository Trust Company as designated by the
Representatives for the accounts of the Representatives and the several
Underwriters, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. Time shall be of
the essence, and delivery at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 3 P.M.,
Toronto time, on the second business day following the date the Shares are
released by the Underwriters for sale to the public, the Company shall deliver
or cause to be delivered copies of each Prospectus in such quantities and at
such places as the Representatives shall request.
SECTION 3. COVENANTS OF THE COMPANY. The Company further covenants and
agrees with each Underwriter as follows:
(a) Registration Statement Matters. The Company will (i) use its best
efforts to cause a registration statement on Form 8-A (the "Form 8-A
Registration Statement") as required by the United States Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder
(collectively, the "Exchange Act") to become effective simultaneously with the
Registration Statement, (ii) use its best efforts to cause the Registration
Statement to become effective or, if the procedure in Rule 430A of the
Securities Act is followed, to prepare and timely file with the Commission under
Rule 424(b) under the Securities Act a U.S. Prospectus in a form approved by the
Representatives containing information previously omitted at the time of
effectiveness of the Registration Statement in reliance on Rule 430A of the
Securities Act and (iii) not file any amendment to the Registration Statement or
supplement to the U.S. Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Securities Act. If the Company elects to rely on Rule 462(b)
under the Securities Act, the Company shall file a Rule 462(b) Registration
Statement with the Commission in compliance with Rule 462(b) under the
Securities Act prior to the time confirmations are sent or given, as specified
by Rule 462(b)(2) under the Securities Act, and shall pay the applicable fees in
accordance with Rule 111 under the Securities Act.
(b) Securities Act Compliance. The Company will advise the Representatives
promptly (i) when the Registration Statement or any post-effective amendment
thereto shall have become effective, (ii) of receipt of any comments from the
Commission, (iii) of any request of the Commission for amendment of the
Registration Statement or for supplement to the U.S. Prospectus or for any
additional information and (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the use of
the U.S. Prospectus or of the institution of any proceedings for that purpose.
The Company will use its best efforts to prevent the issuance of any such stop
order preventing or suspending the use of the U.S. Prospectus and to obtain as
soon as possible the lifting thereof, if issued.
(c) Blue Sky Compliance. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Shares for sale under the securities laws of such jurisdictions (both national
and foreign) as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is
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not now so qualified or required to file such a consent or where it would become
subject to taxation as a foreign corporation. The Company will, from time to
time, prepare and file such statements, reports and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) Amendments and Supplements to the Prospectuses and Other Securities
Act Matters. The Company will comply with the Securities Act and the Exchange
Act so as to permit the completion of the distribution of the Shares as
contemplated in this Agreement and each Prospectus. If during the period in
which a prospectus is required by law to be delivered by an Underwriter or
dealer, any event shall occur as a result of which, in the judgment of the
Company or in the reasonable opinion of the Representatives or counsel for the
Underwriters, it becomes necessary to amend or supplement either Prospectus in
order to make the statements therein, in the light of the circumstances existing
at the time such Prospectus is delivered to a purchaser, not misleading, or, if
it is necessary at any time to amend or supplement such Prospectus to comply
with any law, the Company promptly will prepare and file with the Commission,
and furnish at its own expense to the Underwriters and to dealers, an
appropriate amendment to the Registration Statement or supplement to such
Prospectus so that such Prospectus as so amended or supplemented will not, in
the light of the circumstances when it is so delivered, be misleading, or so
that such Prospectus will comply with the law.
(e) Canadian Securities Laws Compliance. The Company will not file any
amendment or supplement to the Canadian Prospectus of which the Representatives
shall not previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Canadian Securities Laws. The Company will advise the
Representatives promptly of any request of the Alberta Securities Commission or
the Ontario Securities Commission for an amendment of or supplement to the
Canadian Prospectus or for any additional information or the issuance by the
Alberta Securities Commission or the Ontario Securities Commission of any order
suspending the use of the Canadian Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such order preventing or suspending the use of the Canadian
Prospectus and to obtain as soon as possible the lifting thereof, if issued. The
Company will comply with the Canadian Securities Laws so as to permit the
completion of the distribution of the Shares as contemplated in this Agreement
and each Prospectus.
(f) Copies of any Amendments and Supplements to the Prospectuses. The
Company agrees to furnish the Representatives, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such date, as in the opinion of counsel for the Underwriters, neither
Prospectus is required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), as many copies of each
Prospectus and any amendments and supplements thereto as the Representatives may
reasonably request.
(g) Insurance. The Company shall (i) obtain directors' and officers'
liability insurance in the minimum amount of $10,000,000 that shall apply to the
offering contemplated hereby and (ii) cause FleetBoston Robertson Stephens Inc.
to be added as an additional insured to such policy in respect of the offering
contemplated hereby.
(h) Notice of Subsequent Events. If at any time during the ninety-day
period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Company Shares has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of either
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult
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<PAGE> 12
with you concerning the substance of and disseminate a press release or other
public statement, reasonably satisfactory to you, responding to or commenting on
such rumor, publication or event.
(i) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Shares sold by it in the manner described under the caption "Use of
Proceeds" in each Prospectus.
(j) Transfer Agent. The Company shall engage and maintain, at its expense,
a registrar and transfer agent for the Common Shares.
(k) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending March 31, 2001 that satisfies the provisions of Section 11(a) of the
Securities Act.
(l) Periodic Reporting Obligations. During the Prospectus Delivery Period
the Company shall file, on a timely basis, with the Commission and the Nasdaq
National Market all reports and documents required to be filed under the
Exchange Act.
(m) Agreement Not to Offer or Sell Additional Securities. The Company will
not, without the prior written consent of FleetBoston Robertson Stephens Inc.,
for a period of 180 days following the date of the U.S. Prospectus, offer, sell
or contract to sell, or otherwise dispose of or enter into any transaction that
is designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company) directly or
indirectly, or announce the offering of, any other Common Shares or any
securities convertible into, or exchangeable for, Common Shares; provided,
however, that the Company may (i) issue and sell the Firm Shares and the Option
Shares to the Underwriters, (ii) issue and sell Common Shares pursuant to any
director or employee stock option or purchase plan of the Company in effect at
the date of the U.S. Prospectus and described in the U.S. Prospectus, (iii)
issue options under its existing stock option and incentive plans, provided such
options do not vest prior to the expiration of the 180-day period commencing on
the date of the U.S. Prospectus (the "Lock-Up Period") and (iv) the Company may
issue Common Shares issuable upon the conversion of securities or the exercise
of warrants or special warrants outstanding at the date of the U.S. Prospectus
and described in the U.S. Prospectus.
(n) Future Reports to the Representatives. During the period of three
years hereafter the Company will furnish to the Representatives: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, shareholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Annual
Report on Form 20-F, Annual Report on Form 40-F, Quarterly Report on Form 10-Q,
or Current Report on Form 8-K or Form 6-K, as applicable, or other report filed
by the Company with the Commission, the NASD or any securities exchange; and
(iii) as soon as available, copies of any report or communication of the Company
mailed generally to holders of its capital stock.
(o) Concurrent Canadian Private Placements. Concurrently with the Closing,
the Company will sell 900,000 Common Shares (the "Private Shares") to two
entities in Canada. The offering and sale of the Private Shares has been and
will be effected in accordance with Regulation S under the Securities Act and
therefore are exempt from registration under the Securities Act. The offering
and sale of the Private Shares has been and will be effected in accordance with
[Part ___] of the
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Securities Act (Ontario) and therefore will be exempt from the [prospectus
filing requirements] of the Securities Act (Ontario). No filing with any
government or governmental agency or body is required to be made under the
Securities Act, the Canadian Securities Laws or any other United States or
Canadian federal, provincial or state laws or regulations in connection with the
offering and sale of the Private Shares, except such as have been duly made.
SECTION 4. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date and, with respect to the Option
Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company set forth in Section 1
hereof as of the date hereof and as of the First Closing Date as though then
made and, with respect to the Option Shares, as of the Second Closing Date as
though then made, to the timely performance by the Company of its covenants and
other obligations hereunder, and to each of the following additional conditions:
(a) Compliance with Registration Requirements; No Stop Order; No Objection
from the NASD. The Registration Statement shall have become effective prior to
the execution of this Agreement, or at such later date as shall be consented to
in writing by you; no stop order suspending the effectiveness thereof shall have
been issued and no proceedings for that purpose shall have been initiated or, to
the knowledge of the Company or any Underwriter, threatened by the Commission,
and any request of the Commission for additional information (to be included in
the Registration Statement or the U.S. Prospectus or otherwise) shall have been
complied with to the satisfaction of Underwriters' counsel; no order suspending
the effectiveness of the Canadian Prospectus shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company or any Underwriter, threatened by the Alberta Securities Commission
or the Ontario Securities Commission, and any request of the Alberta Securities
Commission or the Ontario Securities Commission for additional information (to
be included in the Canadian Prospectus or otherwise) shall have been complied
with to the satisfaction of Underwriters' counsel; and the NASD shall have
raised no objection to the fairness and reasonableness of the underwriting terms
and arrangements.
(b) Corporate Proceedings. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and each Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to Underwriters'
counsel, and such counsel shall have been furnished with such papers and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this Section.
(c) No Material Adverse Change. Subsequent to the execution and delivery
of this Agreement and prior to the First Closing Date, or the Second Closing
Date, as the case may be, there shall not have been any Material Adverse Change
in the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and the Subsidiaries considered as one
enterprise from that set forth in the Registration Statement and each Prospectus
that, in your sole judgment, is material and adverse and makes it, in your sole
judgment, impracticable or inadvisable to proceed with the public offering of
the Shares as contemplated by the Prospectuses.
(d) Opinions of Counsel for the Company. You shall have received on the
First Closing Date, or the Second Closing Date, as the case may be, opinion of
Osler, Hoskin & Harcourt LLP, counsel for the Company, and Skadden, Arps, Slate,
Meagher & Flom LLP, special U.S. counsel for the Company, substantially in the
form of EXHIBIT B and EXHIBIT C hereto, respectively, each dated the First
Closing Date, or the Second Closing Date, and addressed to the Underwriters,
with reproduced
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copies or signed counterparts thereof for each of the Underwriters. Counsel
rendering the opinion contained in EXHIBIT B may rely as to questions of law not
involving the federal laws of Canada or the laws of the Province of Ontario upon
opinions of local counsel. Both counsel may rely as to questions of fact upon
representations or certificates of officers of the Company, and of government
officials, in which case their opinion is to state that they are so relying and
that they have no knowledge of any material misstatement or inaccuracy in any
such opinion, representation or certificate. Copies of any opinion,
representation or certificate so relied upon by either counsel shall be
delivered to you, as Representatives of the Underwriters, and to Underwriters'
counsel.
(e) Opinion of Counsel for the Underwriters. You shall have received on
the First Closing Date or the Second Closing Date, as the case may be, an
opinion of Foley, Hoag & Eliot LLP, substantially in the form of EXHIBIT D
hereto. The Company shall have furnished to such counsel such documents as they
may have requested for the purpose of enabling them to pass upon such matters.
(f) Accountants' Comfort Letter. You shall have received on the First
Closing Date and on the Second Closing Date, as the case may be, a letter from
KPMG LLP addressed to the Underwriters, dated the First Closing Date or the
Second Closing Date, as the case may be, confirming that they are independent
certified public accountants with respect to the Company within the meaning of
the Securities Act and the applicable published Rules and Regulations and based
upon the procedures described in such letter delivered to you concurrently with
the execution of this Agreement (herein called the "Original Letter"), but
carried out to a date not more than four business days prior to the First
Closing Date or the Second Closing Date, as the case may be, (i) confirming, to
the extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the First Closing Date or the Second Closing Date, as
the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter that are necessary
to reflect any changes in the facts described in the Original Letter since the
date of such letter, or to reflect the availability of more recent financial
statements, data or information. The letter shall not disclose any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and the Subsidiaries considered as one enterprise from
that set forth in the Registration Statement and each Prospectus, that, in your
sole judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectuses. The Original Letter from KPMG LLP shall be
addressed to or for the use of the Underwriters in form and substance
satisfactory to the Underwriters and shall (i) represent, to the extent true,
that they are independent certified public accountants with respect to the
Company within the meaning of the Securities Act, (ii) set forth their opinion
with respect to their examination of the consolidated balance sheets of the
Company as of March 31, 1999 and December 31, 1999 and related consolidated
statements of operations, shareholders' equity and cash flows for the period
from May 7, 1998 (inception) to March 31, 1999 and the nine-months ended
December 31, 1999, and (iii) address other matters agreed upon by KPMG LLP and
you. In addition, you shall have received from KPMG LLP a letter addressed to
the Company and made available to you for the use of the Underwriters stating
that their review of the Company's system of internal accounting controls, to
the extent they deemed necessary in establishing the scope of their examination
of the Company's consolidated financial statements as of December 31, 1999, did
not disclose any weaknesses in internal controls that they considered to be
material weaknesses.
(g) Officers' Certificate. You shall have received on the First Closing
Date and the Second Closing Date, as the case may be, a certificate of the
Company, dated the First Closing Date or the Second Closing Date, as the case
may be, signed by the Chief Executive Officer and Chief Financial Officer of the
Company, to the effect that, and you shall be satisfied that:
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<PAGE> 15
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the First Closing
Date or the Second Closing Date, as the case may be, and the Company has
complied with all the agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to the First Closing Date or
the Second Closing Date, as the case may be.
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Securities Act. No order
suspending the use of the Canadian Prospectus has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Canadian Securities Laws.
(iii) When the Registration Statement became effective and at all
times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the U.S. Prospectus, and any amendments or
supplements thereto, contained all material information required to be
included therein by the Securities Act and in all material respects
conformed to the requirements of the Securities Act. When the receipt was
received for the Canadian Prospectus and at all times subsequent thereto
up to the delivery of such certificate, the Canadian Prospectus, and any
amendments or supplements thereto, contained all material information
required to be included therein by the Canadian Securities Laws and in all
material respects conformed to the requirements of the Canadian Securities
Laws. The Registration Statement and each Prospectus, and any amendments
or supplements thereto, did not and do not include any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. Since
the effective date of the Registration Statement, there has occurred no
event required to be set forth in an amended or supplemented U.S.
Prospectus or Canadian Prospectus that has not been so set forth.
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectuses, and except as set
forth as contemplated in each Prospectus, there has not been (a) any
material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and
the Subsidiaries considered as one enterprise, (b) any transaction that is
material to the Company and the Subsidiaries considered as one enterprise,
except transactions entered into in the ordinary course of business, (c)
any obligation, direct or contingent, that is material to the Company and
the Subsidiaries considered as one enterprise, incurred by the Company or
either Subsidiary, except obligations incurred in the ordinary course of
business, (d) any change in the capital stock or outstanding indebtedness
of the Company or either Subsidiary that is material to the Company and
the Subsidiaries considered as one enterprise, (e) any dividend or
distribution of any kind declared, paid or made on the capital stock of
the Company or either Subsidiary, or (f) any loss or damage (whether or
not insured) to the property of the Company or either Subsidiary that has
been sustained or will have been sustained that has a material adverse
effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and the Subsidiaries
considered as one enterprise.
(h) Lock-up Agreement from Certain Shareholders of the Company. The
Company shall have obtained and delivered to you an agreement substantially in
the form of EXHIBIT A hereto from each officer and director of the Company and
each holder of record of Common Shares.
(i) Stock Exchange Listing. The Shares shall have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
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<PAGE> 16
(j) Compliance with Prospectus Delivery Requirements. The Company shall
have complied with the provisions of Sections 2(g) and 3(e) hereof with respect
to the furnishing of copies of each Prospectus.
(k) Additional Documents. On or before each of the First Closing Date and
the Second Closing Date, as the case may be, the Representatives and counsel for
the Underwriters shall have received such information, documents and opinions as
they may reasonably require for the purposes of enabling them to pass upon the
issuance and sale of the Shares as contemplated herein, or in order to evidence
the accuracy of any of the representations and warranties, or the satisfaction
of any of the conditions or agreements, herein contained.
If any condition specified in this Section 4 is not satisfied when
and as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Option Shares, at any time prior to the
Second Closing Date, which termination shall be without liability on the part of
any party to any other party, except that Section 5 (Payment of Expenses),
Section 6 (Reimbursement of Underwriters' Expenses), Section 7 (Indemnification
and Contribution) and Section 10 (Representations and Indemnities to Survive
Delivery) shall at all times be effective and shall survive such termination.
SECTION 5. PAYMENT OF EXPENSES. The Company agrees to pay all costs, fees
and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
(i) all expenses incident to the issuance and delivery of the Common Shares
(including all printing and engraving costs), (ii) all fees and expenses of the
registrar and transfer agent of the Common Shares, (iii) all necessary issue,
transfer and other stamp taxes in connection with the issuance and sale of the
Shares to the Underwriters, (iv) all fees and expenses of the Company's counsel,
independent public or certified public accountants and other advisors, (v) all
costs and expenses incurred in connection with the preparation, printing,
filing, shipping and distribution of the Registration Statement (including
financial statements, exhibits, schedules, consents and certificates of
experts), each preliminary prospectus and each Prospectus, and all amendments
and supplements thereto, and this Agreement, (vi) all filing fees, attorneys'
fees and expenses incurred by the Company or the Underwriters in connection with
qualifying or registering (or obtaining exemptions from the qualification or
registration of) all or any part of the Shares for offer and sale under the
state securities or blue sky laws of any jurisdiction of the United States or
the provincial securities laws of Canada or any other country, and, if requested
by the Representatives, preparing and printing a "Blue Sky Survey", an
"International Blue Sky Survey" or other memorandum, and any supplements
thereto, advising the Underwriters of such qualifications, registrations and
exemptions, (vii) the filing fees incident to, and the reasonable fees and
expenses of counsel for the Underwriters in connection with, the NASD review and
approval of the Underwriters' participation in the offering and distribution of
the Common Shares, (viii) the fees and expenses associated with including the
Common Shares on the Nasdaq National Market, (ix) all costs and expenses
incident to the preparation and undertaking of "road show" preparations
to be made to prospective investors, and (x) all other fees, costs and expenses
referred to in Item 13 of Part II of the Registration Statement; provided, that
in no event shall the Company be required to pay in excess of US$[25,000] in
respect of the fees and expenses of Underwriters' counsel. It is understood
that, except as provided in this Section and Section 6 and 7 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees
and disbursements of their counsel and any stock transfer taxes on resale of any
of the shares by them.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is
terminated by the Representatives pursuant to Section 4, 7, 8 or 9, or if the
sale to the Underwriters of the Shares on the First Closing Date is not
consummated because of any refusal, inability or failure on the part
16
<PAGE> 17
of the Company to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse the Representatives and the other
Underwriters (or such Underwriters as have terminated this Agreement with
respect to themselves), severally, upon demand for all out-of-pocket expenses
that shall have been reasonably incurred by the Representatives and the
Underwriters in connection with the proposed purchase and the offering and sale
of the Shares, including fees and disbursements of counsel, printing expenses,
travel expenses, postage, facsimile and telephone charges.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification of the Underwriters. The Company agrees to indemnify
and hold harmless each Underwriter, its officers and employees, and each person,
if any, who controls any Underwriter within the meaning of the Securities Act
and the Exchange Act against any loss, claim, damage, liability or expense, as
incurred, to which such Underwriter or such controlling person may become
subject, under the Securities Act, the Exchange Act, any Canadian Securities
Laws or any other United States or Canadian federal, state or provincial
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company, which consent shall not be unreasonably withheld),
insofar as such loss, claim, damage, liability or expense (or actions in respect
thereof as contemplated below) arises out of or is based (i) upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereto, including any information
deemed to be a part thereof pursuant to Rule 430A or Rule 434 under the
Securities Act, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading; or (ii) upon any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or either Prospectus (or
any amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading; or
(iii) in whole or in part upon any inaccuracy in the representations and
warranties of the Company contained herein; or (iv) in whole or in part upon any
failure of the Company to perform its obligations hereunder or under applicable
law; or (v) any act or failure to act or any alleged act or failure to act by
any Underwriter in connection with, or relating in any manner to, the Shares or
the offering contemplated hereby, and that is included as part of or referred to
in any loss, claim, damage, liability or action arising out of or based upon any
matter covered by clause (i), (ii), (iii) or (iv) above, provided that the
Company shall not be liable under this clause (v) to the extent that a court of
competent jurisdiction shall have determined by a final judgment that such loss,
claim, damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter through
its bad faith or willful misconduct; and to reimburse each Underwriter and each
such controlling person for any and all expenses (including the fees and
disbursements of one counsel chosen by FleetBoston Robertson Stephens Inc.) as
such expenses are reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; provided,
however, that the foregoing indemnity agreement shall not apply to any loss,
claim, damage, liability or expense to the extent, but only to the extent,
arising out of or based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by the Representatives expressly
for use in the Registration Statement, any preliminary prospectus or the
Prospectuses (or any amendment or supplement thereto); and provided, further,
that with respect to any preliminary prospectus, the foregoing indemnity
agreement shall not inure to the benefit of any Underwriter from whom the person
asserting any loss, claim, damage, liability or expense purchased Shares, or any
person controlling such Underwriter, if copies of the appropriate Prospectus
were timely delivered to the Underwriter pursuant to Section 2 and a copy of
such Prospectus (as then amended or supplemented if the Company shall have
furnished
18
<PAGE> 18
any amendments or supplements thereto) was not sent or given by or on behalf of
such Underwriter to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Shares to such
person, and if such Prospectus (as so amended or supplemented) would have cured
the defect giving rise to such loss, claim, damage, liability or expense. The
indemnity agreement set forth in this Section 7(a) shall be in addition to any
liabilities that the Company may otherwise have.
(b) Indemnification of the Company and its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, any Canadian Securities Laws or any other United States
or Canadian federal, state or provincial statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or either Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any preliminary
prospectus, either Prospectus (or any amendment or supplement thereto), in
reliance upon and in conformity with written information furnished to the
Company by the Representatives expressly for use therein; and to reimburse the
Company, or any such director, officer or controlling person for any legal and
other expense reasonably incurred by the Company, or any such director, officer
or controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action. The indemnity agreement set forth in this Section 7(b) shall be in
addition to any liabilities that each Underwriter may otherwise have.
(c) Information Provided by the Underwriters. The Company hereby
acknowledges that the only information that the Underwriters have furnished to
the Company expressly for use in the Registration Statement, any preliminary
prospectus or either Prospectus (or any amendment or supplement thereto) are the
statements set forth in the table in the second, third and last paragraphs under
the caption "Underwriting" in each Prospectus; and the Underwriters confirm that
such statements are correct.
(d) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability that
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 7 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably
18
<PAGE> 19
concluded that a conflict may arise between the positions of the indemnifying
party and the indemnified party in conducting the defense of any such action or
that there may be legal defenses available to it and/or other indemnified
parties that are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of such indemnifying party's election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 7 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (together with local
counsel), approved by the indemnifying party (FleetBoston Robertson Stephens
Inc. in the case of Section 7(b) and Section 8), representing the indemnified
parties who are parties to such action), (ii) the indemnifying party shall not
have employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action, or (iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party, in each of
which cases the fees and expenses of counsel shall be at the expense of the
indemnifying party.
(e) Settlements. The indemnifying party under this Section 7 shall not be
liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
such consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party against any loss, claim, damage,
liability or expense by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 7(d) hereof, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes (i) an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(f) Contribution. If the indemnification provided for in this Section 7 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law then each indemnifying party shall contribute to such amount paid or payable
by such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company on the
one hand and the Underwriters on the other in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, (or
actions or
19
<PAGE> 20
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriter on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses) received by
the Company bears to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page of
the U.S. Prospectus. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 7(f) were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to above in this Section 7(f). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to above in this Section
7(f) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (f), (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter and (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 7(f) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(g) Timing of Any Payments of Indemnification. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims,
damages, liabilities or expenses are incurred, but in all cases, no later than
thirty days of invoice to the indemnifying party.
(h) Survival. The indemnity and contribution agreements contained in this
Section 7 and the representation and warranties of the Company set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
(i) Acknowledgments of Parties. The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including the
provisions of this Section 7, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 7 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and U.S. Prospectus as required by the Securities Act and
in the Canadian Prospectus as required by the Canadian Securities Laws.
SECTION 8. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the several Underwriters shall fail or refuse to purchase Shares that it
or they have agreed to purchase hereunder on such
20
<PAGE> 21
date, and the aggregate number of Common Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase does not
exceed ten percent of the aggregate number of the Shares to be purchased on such
date, the other Underwriters shall be obligated, severally, in the proportions
that the number of Firm Common Shares set forth opposite their respective names
on SCHEDULE A bears to the aggregate number of Firm Shares set forth opposite
the names of all such non-defaulting Underwriters, or in such other proportions
as may be specified by the Representatives with the consent of the
non-defaulting Underwriters, to purchase the Shares that such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date. If, on the First Closing Date or the Second Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
and the aggregate number of Shares with respect to which such default occurs
exceeds ten percent of the aggregate number of Shares to be purchased on such
date, and arrangements satisfactory to the Representatives and the Company for
the purchase of such Shares are not made within 48 hours after such default,
this Agreement shall terminate without liability of any party to any other party
except that the provisions of Section 4, and Section 7 shall at all times be
effective and shall survive such termination. In any such case either the
Representatives or the Company shall have the right to postpone the First
Closing Date or the Second Closing Date, as the case may be, but in no event for
longer than seven days in order that the required changes, if any, to the
Registration Statement and the Prospectuses or any other documents or
arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
8. Any action taken under this Section 8 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
Each of the Underwriters, severally and not jointly, hereby represents and
warrants to, and agrees with, the other parties hereto that such Underwriter (a)
will not distribute the Shares in such a manner as to require the registration
of the Shares, or the filing of a prospectus with respect to the Shares, under
the laws of any jurisdiction outside of the United States, Alberta or Ontario,
(b) will only offer and sell the Shares in accordance with all applicable
Canadian and the United States laws and only in those jurisdictions where they
may lawfully be offered and sold, and (c) without limiting the foregoing, will
only distribute Shares in Canada in accordance with prospectus and registration
requirements of the Canadian Securities Laws or exemptions from these
requirements.
SECTION 9. TERMINATION OF THIS AGREEMENT. Prior to the First Closing Date,
this Agreement may be terminated by the Representatives by written notice given
to the Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the NASD; (ii) a general
banking moratorium shall have been declared by any of federal, New York,
Delaware or California or Canadian authorities; (iii) there shall have occurred
any outbreak or escalation of national or international hostilities or any
crisis or calamity, or any change in the United States or international
financial markets, or any substantial change or development involving a
prospective change in United States' or international political, financial or
economic conditions, as in the judgment of the Representatives is material and
adverse and makes it impracticable or inadvisable to market the Common Shares in
the manner and on the terms described in the Prospectuses or to enforce
contracts for the sale of securities; (iv) in the judgment of the
Representatives there shall have occurred any Material Adverse Change; or (v)
the Company shall have sustained a loss by strike, fire, flood, earthquake,
accident or other calamity of such character as in the judgment of the
Representatives may interfere materially with the conduct of the business and
operations of the Company regardless of whether or not such loss shall have been
21
<PAGE> 22
insured. Any termination pursuant to this Section 9 shall be without liability
on the part of (a) the Company to any Underwriter, except that the Company shall
be obligated to reimburse the expenses of the Representatives and the
Underwriters pursuant to Sections 5 and 6 hereof, (b) any Underwriter to the
Company, or (c) of any party hereto to any other party except that the
provisions of Section 7 shall at all times be effective and shall survive such
termination.
SECTION 10. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Shares sold hereunder and any termination of this Agreement.
SECTION 11. NOTICES. All communications hereunder shall be in writing and
shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives: FLEETBOSTON ROBERTSON STEPHENS INC.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2696
Attention: General Counsel
If to the Company: DELANO TECHNOLOGY CORPORATION
40 West Wilmot Street
Richmond Hill, Ontario
L4B 1H8 Canada
Facsimile: (905) 764-7445
Attention: General Counsel
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 12. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 9 hereof, and to the benefit of the employees, officers and directors
and controlling persons referred to in Section 7, and to their respective
successors, and no other person will have any right or obligation hereunder. The
term "successors" shall not include any purchaser of the Shares as such from any
of the Underwriters merely by reason of such purchase.
SECTION 13. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
SECTION 14. GOVERNING LAW PROVISIONS.
(a) Governing Law. This agreement shall be governed by and construed in
accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.
22
<PAGE> 23
(b) Consent to Jurisdiction. Any legal suit, action or proceeding arising
out of or based upon this Agreement or the transactions contemplated hereby may
be instituted in the federal courts of the United States of America located in
the City and County of San Francisco or the courts of the State of California in
each case located in the City and County of San Francisco (collectively, the
"Specified Courts"), and each party irrevocably submits to the jurisdiction of
such courts in any such suit, action or proceeding. Service of any process,
summons, notice or document by mail to such party's address set forth above
shall be effective service of process for any suit, action or other proceeding
brought in any such court. The parties irrevocably and unconditionally waive any
objection to the laying of venue of any suit, action or other proceeding in the
Specified Courts and irrevocably and unconditionally waive and agree not to
plead or claim in any such court that any such suit, action or other proceeding
brought in any such court has been brought in an inconvenient forum. Each party
not located in the United States irrevocably appoints CT Corporation System,
which currently maintains a San Francisco office at 49 Stevenson Street, San
Francisco, California 94105, United States of America, as its agent to receive
service of process or other legal summons for purposes of any such suit, action
or proceeding that may be instituted in any state or federal court in the City
and County of San Francisco.
SECTION 15. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Section headings herein are for the convenience of the parties only and
shall not affect the construction or interpretation of this Agreement. The word
"including" as used herein shall not be construed so as to exclude any other
thing not referred to or described.
* * *
23
<PAGE> 24
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
DELANO TECHNOLOGY CORPORATION
By: _____________________________________
President and Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Representatives as of the date first above written.
FLEETBOSTON ROBERTSON STEPHENS INC.
U.S. BANCORP PIPER JAFFREY INC.
On their behalf and on behalf of each of the
several Underwriters named in SCHEDULE A hereto.
By: FLEETBOSTON ROBERTSON STEPHENS INC.
By:_________________________________
Authorized Signatory
24
<PAGE> 25
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
FIRM SHARES
TO BE
UNDERWRITERS PURCHASED
- -------------- -------------
<S> <C>
FleetBoston Robertson Stephens Inc. and
FleetBoston Robertson Stephens International Limited..........
U.S. Bancorp Piper Jaffrey Inc...................................
---------
Total ..................................................... 5,000,000
=========
</TABLE>
<PAGE> 26
EXHIBIT A
LOCK-UP AGREEMENT
FLEETBOSTON ROBERTSON STEPHENS INC.
As Lead Representative of the Several Underwriters
555 California Street, Suite 2600
San Francisco, California 94104
Re: Delano Technology Corporation (the "Company")
Ladies and Gentlemen:
The undersigned owns of record or beneficially certain common shares of
the Company ("Common Shares") or securities convertible into, or exchangeable or
exercisable for, Common Shares. The Company proposes to carry out a public
offering of Common Shares (the "Offering") for which FleetBoston Robertson
Stephens Inc. will act as the lead representative of the underwriters. The
undersigned recognizes that the Offering will be of benefit to the undersigned
and will benefit the Company by, among other things, raising additional capital
for its operations. The undersigned acknowledges that FleetBoston Robertson
Stephens Inc. and the other underwriters are relying on the representations and
agreements of the undersigned contained in this letter in carrying out the
Offering and in entering into underwriting arrangements with the Company with
respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to (collectively, a
"Disposition") any Common Shares, any options or warrants to purchase any Common
Shares, or any securities convertible into or exchangeable for Common Shares
(collectively, "Securities") now owned or hereafter acquired directly by such
person or with respect to which such person has or hereafter acquires the power
of disposition, otherwise than (a) as a bona fide gift or gifts, provided that
the donee or donees thereof agree in writing to be bound by this restriction,
(b) as a distribution to partners or shareholders of such person, provided that
the distributees thereof agree in writing to be bound by the terms of this
restriction, (c) with respect to Dispositions of Common Shares acquired on the
open market, or (d) with the prior written consent of FleetBoston Robertson
Stephens Inc., for a period commencing on the date hereof and continuing to a
date 180 days after the date on which the Registration Statement is declared
effective by the Securities and Exchange Commission (the "Lock-up Period"). The
foregoing restriction has been expressly agreed to preclude the holder of the
Securities from engaging in any hedging or other transaction that is designed to
or reasonably expected to lead to or result in a Disposition of Securities
during the Lock-up Period, even if such Securities would be disposed of by
someone other than such holder. Such prohibited hedging or other transactions
include, without limitation, any short sale (whether or not against the box) or
any purchase, sale or grant of any right (including, without limitation, any put
or call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that included, relates to or
derives any significant part of its value from Securities. The undersigned also
agrees and consents to the entry of stop transfer instructions with the
Company's transfer agent and registrar against the transfer of Securities held
by the undersigned except in compliance with the foregoing restrictions.
This agreement is irrevocable and will be binding on the undersigned and
the respective successors, heirs, personal representatives, and assigns of the
undersigned. This letter agreement shall terminate and be of no further force
and effect upon a decision by FleetBoston Robertson Stephens Inc. or the
Company not to proceed with the Offering.
Dated:________________________
A-1
<PAGE> 27
______________________________________
[Printed Name of Holder]
By:___________________________________
Printed Name of Person Signing
(and indicate capacity of person
signing if signing as custodian,
trustee, or on behalf of an entity)
A-2
<PAGE> 28
EXHIBIT B
MATTERS TO BE COVERED IN THE OPINION OF COMPANY COUNSEL
(i) The Company is a corporation incorporated and existing under the
laws of Ontario.
(ii) There are no restrictions on the corporate power and capacity of the
Company to own and lease property and assets and to carry on business.
(iii) The Company is qualified or registered as an extra-provincial
corporation in the jurisdictions named therein, which are the only jurisdictions
in which the Company owns or leases any material property or conducts any
material businesses. To such counsel's knowledge, the Company does not own or
control, directly or indirectly, any corporation, association or other entity
other than the Subsidiaries.
(iv) The authorized share capital of the Company as at December 31, 1999
consisted of, and as of the First Closing Date or the Second Closing Date, as
the case may be, consists of, an unlimited number of Class A special shares, and
unlimited number of Class B special shares, an unlimited number of Class C
special shares and an unlimited number of common shares. As at December 31,
1999, there were _____ Class A special shares, _____ Class B special shares,
_____ Common Shares and no Class C special shares issued and outstanding, and
all such issued shares have been validly issued and are outstanding as fully
paid and nonassessable shares of the Company.
(v) The Firm Shares or the Option Shares, as the case may be, have been
duly authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be validly issued and fully paid and
nonassessable.
(vi) There are no restrictions on the corporate power and capacity of the
Company to enter into this Agreement and to issue, sell and deliver to the
Underwriters the Shares to be issued and sold by it hereunder.
(vii) The execution and delivery of this Agreement have been duly
authorized by all necessary corporate action on the part of the Company and has
been duly executed and delivered by the Company.
(viii)A receipt has been obtained in respect of the Canadian Prospectus
from the Alberta Securities Commission and the Ontario Securities Commission,
and no other authorization, permit, approval, order or consent of or filing with
any government, governmental agency or body or court of Canada or the Provinces
of Alberta and Ontario is required (A) the valid authorization, issuance, sale
and delivery of the Shares, (B) the execution of this agreement, or (C) the
consummation by the Company of the transactions contemplated herein.
(ix) The Canadian Prospectus (other than the financial statements and
notes thereto and other financial and statistical data included therein or
excluded therefrom, as to which such counsel need express no opinion) appears on
its face to have been appropriately responsive in all material respects to the
requirements. of the Canadian Securities Laws.
(x) The information in each Prospectus under the captions "Description of
Share Capital--Common Shares," "--Preferred Shares" and "Enforceability of Civil
Liabilities" and in the Canadian Prospectus under the captions "Eligibility for
Investment," "Purchasers' Statutory Rights" and "Contractual Right of Action for
Rescission," in each case to the extent it constitutes matters of Ontario or
federal Canadian law or legal conclusions under Ontario or federal Canadian law,
has been reviewed by such counsel and is a fair summary of such matters and
conclusions. The
B-1
<PAGE> 29
statements in the U.S. Prospectus under the caption "Tax Considerations--
Canadian Federal Income Tax Considerations" and in the Canadian Prospectus under
the caption "Canadian Federal Income Tax Considerations" fairly describe the
principal Canadian federal income tax considerations applicable to a holder of
Shares who, within the meaning of the Income Tax Act (Canada), is a non-resident
of Canada and deals at arm's length with the Company. The form of certificates
evidencing the Common Shares and filed as an exhibit to the Registration
Statement complies with the provisions of the articles and bylaws of the Company
and the Business Corporations Act (Ontario).
(xi) To such counsel's knowledge, the description in the Registration
Statement and each Prospectus of the articles and bylaws of the Company and of
statutes are correct in all material respects.
(xii) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no opinion need be
expressed) will not (a) result in any violation of the Company's articles or
bylaws or (b) to such counsel's knowledge, result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
any agreement or instrument filed as an exhibit to the Registration Statement or
any applicable Ontario or federal Canadian statute, rule or regulation known to
such counsel or, to such counsel's knowledge, any order, writ or decree of any
Ontario or federal Canadian court, government or governmental agency or body
having jurisdiction over the Company or either Subsidiary, or over any of their
properties or operations.
(xiii)No consent, approval, authorization or order of or qualification
with any Ontario or federal Canadian court or governmental agency or body having
jurisdiction over the Company or either Subsidiary, or over any of their
properties or operations, is necessary under the laws of Ontario or the federal
laws of Canada applicable therein in connection with the consummation by the
Company of the transactions herein contemplated.
(xiv) To such counsel's knowledge, there are no material legal or
governmental proceedings pending or threatened against the Company or either
Subsidiary.
(xv) To such counsel's knowledge, the Company is not presently (a) in
material violation of its articles or bylaws or (b) in material breach of any
applicable Ontario or federal Canadian statute, rule or regulation known to such
counsel or, to such counsel's knowledge, any order, writ or decree of any
Ontario or federal Canadian court or governmental agency or body having
jurisdiction over the Company or over any of its properties or operations.
(xvi) To such counsel's knowledge, except as set forth in the Registration
Statement and each Prospectus, no holders of Company Shares or other securities
of the Company have registration rights with respect to securities of the
Company and, except as set forth in the Registration Statement and each
Prospectus, all holders of securities of the Company having rights known to such
counsel to registration of such shares of Company Shares or other securities,
because of the filing of the Registration Statement by the Company, have, with
respect to the offering contemplated thereby, waived such rights.
(xvii) To such counsel's knowledge, the Company has not received any
notice of infringement or conflict with asserted trademarks, trade names, patent
rights, copyrights, licenses, approvals, trade secrets and other intellectual
property rights of others, which infringement or conflict, if the subject of an
unfavorable decision, would result in a Material Adverse Effect.
(xviii) A court of competent jurisdiction in the Province of Ontario (an
"Ontario Court") would recognize the choice of the law of the State of New York
as a valid choice of law and would apply
B-2
<PAGE> 30
such law in any action seeking to enforce this Agreement; provided that,
(a) such choice of law is bona fide (in the sense that it was not made with a
view to avoiding the consequences of the laws of any other jurisdiction, (b)
such law is not contrary to public policy as that term is applied by the Ontario
Court ("Public Policy"), (c) in matters of procedure the laws of the Province of
Ontario will be applied, (d) the provisions of the law of the State of New York
or this Agreement relating to prescription or of a fiscal, expropriatory or
penal nature will not be applied and (e) provisions of the law of the State of
New York or this Agreement will not be applied if the application would be
contrary to Public Policy. However, we have no reason to believe that the choice
of the laws of New York in this context is contrary to Public Policy under the
laws of the Province of Ontario or the laws of federal Canada applicable
therein. An Ontario Court will retain discretion to decline to hear such action
if it is contrary to Public Policy for it to do so, or if it is not the proper
forum to hear such an action, or if concurrent proceedings are properly being
brought elsewhere.
(xix) An Ontario Court would give effect to the appointment by the Company
of CT Corporation System as its agent to receive service of process in the
United States of America under this Agreement and to the provisions in this
Agreement whereby the Company has submitted to the non- exclusive jurisdiction
of the Specified Courts. An Ontario Court may, however, reserve to itself an
inherent power to decline to hear such an action if it is contrary to Public
Policy for it to do so or it is not the proper forum to hear such action or
concurrent proceedings are being brought elsewhere.
(xx) A final and conclusive judgment for a sum certain obtained in a
Specified Court against the Company in connection with any action arising out of
or relating to this Agreement, which judgment is not impeachable as void or
voidable under the laws properly applied by the Specified Court would be
recognized and could be sued upon in an Ontario Court and such court would grant
a judgment which would be enforceable against the Company in the Province of
Ontario, provided that:
(A) the court rendering such judgment had jurisdiction over the
Company, as recognized by the Ontario Court (and submission by the Company
in this Agreement to the jurisdiction of the Specified Courts pursuant to
Section 14 will be sufficient for that purpose);
(B) such judgment was not obtained by fraud or in any manner
contrary to natural justice and the enforcement thereof would not be
inconsistent with Public Policy;
(C) such judgment was not rendered in contravention of any order
made by the Attorney General of Canada under the Foreign Extraterritorial
Measures Act (Canada);
(D) enforcement of such judgment does not constitute, directly or
indirectly, the enforcement of foreign revenue expropriatory or penal
laws; and
(E) there has been compliance with the Limitations Act (Ontario).
Where a foreign decision orders a debtor to pay a sum of money
expressed in foreign currency, the sum of money will be converted by an
Ontario Court into Canadian currency at the rate of exchange prevailing on
the date the judgment became enforceable at the place where it was
rendered. The determination of interest payable under a foreign judgment
is governed by the laws of the authority that rendered the decision until
its conversion. To the knowledge of Osler, Hoskin & Harcourt LLP, there is
no Public Policy reason under the laws of the Province of Ontario or the
federal laws of Canada applicable therein for avoiding the recognition of
judgments of a Specified Court enforcing the performance of this Agreement
pursuant to its terms in the case of a judgment awarding a sum of money as
compensatory damages.
B-3
<PAGE> 31
(xxi) No stamp or other issuance or transfer taxes or duties are payable
by or on behalf of the Underwriters to the Canadian government or to the
provincial government of Ontario in connection with (A) the issuance, sale and
delivery by the Company to or for the respective accounts of the Underwriters of
the Shares or (B) the sale and delivery outside Canada by the Underwriters of
the Shares in the manner contemplated in this Agreement.
B-4
<PAGE> 32
EXHIBIT C
MATTERS TO BE COVERED IN THE OPINION OF SPECIAL U.S. COUNSEL TO THE COMPANY
(i) To such counsel's knowledge, the Company does not own or control,
directly or indirectly, any corporation, association or other entity other than
the Subsidiaries.
(ii) To such counsel's knowledge, the Registration Statement has become
effective under the Securities Act, and the Form 8-A Registration Statement has
become effective under the Exchange Act. To such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or are pending or
threatened under the Securities Act. The Firm Shares or the Option Shares, as
the case may be, have been validly registered under the Securities Act and the
Exchange Act.
(iii) The Registration Statement, as of its effective date, and the U.S.
Prospectus, as of its date (other than the financial statements and notes
thereto and other financial and statistical data included therein or excluded
therefrom, as to which such counsel need express no opinion), appear on their
face to be appropriately responsive in all material respects with the
requirements of the Securities Act applicable to registration statements on Form
F-1, except that such counsel need not assume any responsibility in this
paragraph for the accuracy, completeness or fairness of the statements contained
in the Registration Statement or the U.S. Prospectus. The Form 8-A Registration
Statement appears on its face to be appropriately responsive in all material
respects with the requirements of the Exchange Act.
(iv) Such counsel does not know of any legal or governmental proceedings
pending, threatened or contemplated to which the Company or either of the
Subsidiaries is a party or of which any property of the Company or either of the
Subsidiaries is subject, which are material to the Company and the Subsidiaries
taken as a whole, that are required to be described in the Registration
Statement or the U.S. Prospectus and that are not described as required, and
such counsel does not know of any amendment to the Registration Statement
required to be filed or of any contracts or other documents of a character
required to be described in the Registration Statement or the U.S. Prospectus,
or to be filed as an exhibit thereto, which are not described or filed as
required.
(v) Based upon such counsel's review of those laws, rules and regulations
of the State of New York and the United States of America which, in such
counsel's experience, are normally applicable to transactions of the type
provided for in this Agreement (including transactions such as the issuance and
sale by the Company of the Shares) (collectively, "Requirements of Law"), but
without having made any special investigation concerning any other laws, rules
or regulations, no consent, approval, authorization, filing with or order of any
court or governmental agency or body under the laws of the State of New York or
the federal laws of the United States of America is required on the part of the
Company in connection with the transactions contemplated by this Agreement,
other than as have been obtained under the Securities Act and the Exchange Act
(and other than such actions as may be required by the rules and regulations of
the NASD or state securities or Blue Sky laws, as to which such counsel need not
express any opinion) in connection with the purchase and distribution of the
Shares by the Underwriters in the manner contemplated by this Agreement and in
the U.S. Prospectus, and, so far as is known to such counsel, neither the issue
and sale of the Shares, nor the consummation of any other transactions
contemplated by this Agreement, nor the fulfillment of the terms of this
Agreement will conflict with, or result in a breach or violation of or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or the Subsidiaries pursuant to any Requirements of Law (assuming
compliance with applicable state securities and blue Sky laws) or any material
judgment, order or decree of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority located in the United States
having jurisdiction over the Company or the Subsidiaries, or any of their
C-1
<PAGE> 33
respective properties or assets (collectively, "Orders") specifically
identified to such counsel by the Company pursuant to the certificate attached
to such opinion letter as being material Orders to which it is subject; except
that such counsel need not express any opinion in this paragraph with respect to
the disclosure requirements of the United States federal securities laws or the
securities laws of the State of New York.
(vi) The Company is not, nor upon the consummation of the transactions
contemplated by this Agreement will be, subject to registration or regulation as
an "investment company," as such term is defined in the Investment Company Act
or required to seek an exemptive order under the Investment Company Act
permitting such registration pursuant to Section 7(d) thereunder.
(vii) The statements made in the U.S. Prospectus under "Tax
Considerations--United States Federal Income Tax Considerations," insofar as
such statements purport to describe the provisions of the laws referred to
therein, fairly summarize the information disclosed therein in all material
respects.
In addition, such counsel shall state that such counsel has participated
in conferences with officials and other representatives of the Company, the
Representatives, Underwriters' counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and the U.S. Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the U.S. Prospectus,
nothing has come to the attention of such counsel that leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the First Closing Date or Second Closing Date,
as the case may be, the Registration Statement and any amendment or supplement
thereto (other than the financial statements and financial and statistical
information derived therefrom, as to which such counsel need express no comment)
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or at the First Closing Date or the Second Closing Date, as the
case may be, the Registration Statement, the U.S. Prospectus and any amendment
or supplement thereto (except as aforesaid) contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
C-2
<PAGE> 34
EXHIBIT D
MATTERS TO BE COVERED IN THE OPINION OF UNDERWRITERS' COUNSEL
(i) To our knowledge, the Registration Statement has become effective
under the Securities Act, no order suspending the effectiveness of the
Registration Statement has been issued by the Commission and no proceeding for
that purpose has been instituted or threatened by the Commission.
(ii) To our knowledge, the Form 8-A Registration Statement has become
effective under the Exchange Act, no order suspending the effectiveness of the
Form 8-A Registration Statement has been issued by the Commission and no
proceeding for that purpose has been instituted or threatened by the Commission.
Such counsel shall state that such counsel has reviewed the opinions
addressed to the Representatives from Osler, Hoskin & Harcourt and Skadden,
Arps, Slate, Meagher & Flom LLP, each dated the date hereof, and furnished to
you in accordance with the provisions of the Underwriting Agreement. Each such
opinion appears on its face to be appropriately responsive to the requirements
of the Underwriting Agreement.
In addition, such counsel shall state that such counsel has participated
in conferences with officials and other representatives of the Company, the
Company's counsel, the Representatives and the independent certified public
accountants of the Company, at which conferences the contents of the
Registration Statement and the U.S. Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the U.S. Prospectus:
(a) The Registration Statement (except the financial statements and
other financial and statistical data included therein, as to which such
counsel need express no view), at the time it became effective, and the
U.S. Prospectus (except as aforesaid), as of its date, appeared on their
face to be appropriately responsive in all material respects to the
requirements of the Securities Act.
(b) No information has come to the attention of such counsel that
causes such counsel to believe that the Registration Statement (except the
financial statements and other financial and statistical data included
therein, as to which such counsel need express no view), at the time it
became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(c) No information has come to the attention of such counsel that
causes such counsel to believe that the U.S. Prospectus (except the
financial statements and other financial and statistical data included
therein, as to which such counsel need express no view), as of its date or
the date of such opinion, contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(d) The Form 8-A Registration Statement, at the time it became
effective, appeared on its face to be appropriately responsive in all
material respects to the requirements of the Exchange Act.
D-1
<PAGE> 1
Exhibit 3.1
For Ministry Use Only Ontario Corporation Number
A l'usage exclusif du ministere Numero de la societe en Ontario
1294608
Ministry of Ministere de
[LOGO] Consumer and la Consommation
Commercial Relations et du Commerce
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que les presents
articles are effective on status entrant en vigueur le
MAY 7 MAI, 1998
- -------------------------------------------------------------
(Signed)
Director / Directeur
Business Corporations Act / Loi sur les societes par actions
<TABLE>
<S> <C> <C> <C> <C> <C>
TRANS Line Corp Method
CODE No. Stat Type Incorp.
A 0 0 A 3
18 20 28 29 30
Notice
Share Req'd Jurisdiction
S N ONTARIO
31 32 33 47
</TABLE>
ARTICLES OF INCORPORATION
STATUTS CONSTITUTIFS
Form 1 Business Corporations Act
Formule 1 Loi sur les societes par actions
1. The name of the corporation is:
Denomination sociale de la societe:
DELANO TECHNOLOGY CORPORATION
2. The address of the registered office is:
Adresse du siege social:
40 Sheppard Avenue West, Suite 206
---------------------------------------------------------------------------
(Street & Number or R.R. Number & if Multi-Office Building give Room No.)
(Rue et numero ou numero de la R.R. et, s'il s'agit
d'un edifice a bureaux, numero de bureau)
Toronto, Ontario M2N 6K9
---------------------------------------------------------------------------
(Name of Municipality or Post Office) (Postal Code)
(Nom de la municipalite ou du bureau de poste) (Code postal)
3. Number (or minimum and maximum number) of directors is:
Nombre (ou nombres minimal et maximal) d'adminstrateurs:
A minimum of one (1) and a maximum of ten (10).
4. The first director(s) is/are:
Premier(s) administrateur(s):
<TABLE>
<S> <C> <C>
First name, initials and surname Residence address giving Street & Resident Canadian State
No. or R.R. No., Municipality and Yes or No
Postal Code
Prenom, initials et nom de famille Adresse personnelle, y compris la Resident canadien
rue et le numero, le numero de la Oui/Non
R.R., le nom de la municipalite et
le code postal
Bahman Koohestani 16 Portsmith Road Yes
Toronto, ON M2L 2W8
Dennis Bennie 52 Owen Blvd. Yes
Toronto, ON M2P 1E9
</TABLE>
<PAGE> 2
2
5. Restrictions, if any, on business the corporation may carry on or on powers
the corporation may exercise.
Limites, s'il y a lieu, imposees aux activites commerciales ou aux
pouvoirs de la societe:
None
6. The classes and any maximum number of shares that the corporation is
authorized to issue.
Categories et nombre maximal, s'il y a lieu, d'actions que la societe est
autorisee a emettre:
An unlimited number of Common Shares.
<PAGE> 3
7. Rights, privileges, restrictions and conditions (if any) attaching to each
class of shares and directors authority with respect to any class of shares
which may be issued in series:
Droits, privileges, restrictions et conditions, s'il y a lieu, rattaches a
chaque categorie d'actions et pouvoirs des administrateurs relatifs a
chaque categorie d'actions qui peut etre emise en serie:
N/A
<PAGE> 4
8. The issue, transfer or ownership of shares is/is not restricted and the
restrictions (if any) are as follows:
L'emission, le transfert ou la propriete d'actions est/n'est pas restreint.
Les restrictions, s'il y a lieu, sont les suivantes:
The shares of the Corporation shall not be transferred without the approval
of the board of directors of the Corporation to be evidenced by a
resolution of the board.
<PAGE> 5
9. Other provisions (if any) are:
Autres dispositions, s'il y a lieu:
1. The number of shareholders of the Corporation exclusive of persons who are
in its employment and exclusive of persons who, having been formerly in the
employment of the Corporation, were, while in that employment, and have
continued after termination of that employment to be, shareholders of the
Corporation, is limited to not more than fifty, two or more persons who are the
joint registered owners of one or more shares being counted as one shareholder.
2. Any invitation to the public to subscribe for shares or other securities
of the Corporation shall be prohibited.
<PAGE> 6
6
10. The names and addresses of the incorporators are:
Nom et adresse des fondateurs:
<TABLE>
<S> <C>
First name, initials and surname or Full residence address or address
corporate name of registered office or of principal
place of business giving street &
No. or R.R. No., municipality and
postal code
Prenom, initiale et nom de famile ou Adresse personnelle au complet,
denomination sociale adresse du siege social ou adresse
de l'etablissement principal, y
compris la rue et le numero ou le
numero de la R.R., le nom de la
municipalite et le code postal
Bahman Koohestani 16 Portsmith Road
Toronto, ON M2L 2W8
Dennis Bennie 52 Owen Blvd.
Toronto, ON M2P 1E9
</TABLE>
These articles are signed in duplicate.
Les presents status sont signes en double exemplaire.
---------------------------------------------------------------------------
Signatures of incorporators
(Signatures des fondateurs)
(Signed) (Signed)
---------------------------------- ------------------------------------
Bahman Koohestani Dennis Bennie
<PAGE> 7
For Ministry Use Only Ontario Corporation Number
A l'usage exclusif du ministere Numero de la societe en Ontario
1294608
Ministry of Ministere de
[LOGO] Consumer and la Consommation
Commercial Relations et du Commerce
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que las presents
articles are effective on status entrant en vigueur le
JULY 15 JUILLET, 1998
- -------------------------------------------------------------
(Signed)
Director / Directeur
Business Corporations Act / Loi sur les societes par actions
TRANS
CODE
C
18
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
Form 3 Business Corporations Act
Formule numero 3 Loi sur les compagnies
1. The present name of the corporation is:
Denomination sociale actuelle de la compagnie:
DELANO TECHNOLOGY CORPORATION
2. The name of the corporation is changed to (if applicable):
Nouvelle denomination sociale de la compagnie (s'il y a lieu):
N/A
3. Date of incorporation/amalgamation:
Date de la constitution ou de la fusion:
7 May 1998
---------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
4. The articles of the corporation are amended as follows:
Les statuts de la compagnie sont modifies de la facon suivante:
(a) to create an unlimited number of Class A Preferred Shares;
(b) to provide that the existing Common Shares and the Class A Preferred
Shares shall have attached thereto the following rights, privileges,
restrictions and conditions as set out in the attached Schedule A.
<PAGE> 8
1A
DELANO TECHNOLOGY CORPORATION
ARTICLES OF AMENDMENT
SCHEDULE A
COMMON SHARES
1. VOTING RIGHTS
Each holder of Common Shares shall be entitled to receive notice of and to
attend all meetings of shareholders of the Corporation and to vote thereat,
except meetings at which only holders of a specified class of shares (other than
Common Shares) or specified series of shares are entitled to vote. At all
meetings of holders of Common Shares, each holder of Common Shares shall be
entitled to one vote in respect of each Common Share held by such holder.
2. DIVIDENDS
The Common Shares shall be entitled, subject to the rights, privileges,
restrictions and conditions attaching to any other class of shares of the
Corporation, to receive any dividend declared by the Board of Directors of the
Corporation.
3. LIQUIDATION, DISSOLUTION OR WINDING-UP
In the event of any liquidation, dissolution on winding-up of the Corporation or
other distribution of assets of the Corporation among its shareholders for the
purpose of winding-up its affairs, subject to the rights, privileges,
restrictions and conditions attaching to any other class of shares of the
Corporation, the assets and funds of the Corporation available for distribution
to shareholders shall be distributed among the holders of the Common Shares and
the Class A Preferred Shares and any other class or series of shares entitled to
participate in a liquidation distribution with the holders of Common Shares, pro
rata based on the number of Common Shares held by each holder (assuming
conversion into Common Shares of all Class A Preferred Shares) and any other
participating outstanding series or class of shares convertible into Common
Shares.
CLASS A PREFERRED SHARES
1. DIVIDENDS
The holders of outstanding Class A Preferred Shares shall be entitled to
receive, in any fiscal year, annually or when otherwise as declared by the Board
of Directors and to the extent permitted under the Business Corporations Act
(Ontario), dividends in cash at the rate of $0.03 per share per annum plus an
amount per share equal to 8% per annum of the accrued and unpaid dividends
thereon (providing for an 8% cumulative compounding return), which shall accrue
as provided herein, before
<PAGE> 9
1B
any dividend is paid on the Common Shares. Such dividends shall accrue on
outstanding Class A Preferred Shares cumulatively, commencing on the date of the
original issuance thereof, on a daily basis. Except to the extent otherwise
permitted by these Articles, dividends or distributions may be declared and paid
upon Common Shares in any fiscal year of the Corporation only if all accrued
dividends shall have been paid on all Class A Preferred Shares in accordance
with this section. If, after payment of such dividends to holders of the Class A
Preferred Shares, dividends are paid to holders of Common Shares, the holders of
outstanding Class A Preferred Shares shall be entitled to receive, out of any
assets at the time legally available therefor, additional dividends per share
equal to the per share dividends paid to holders of Common Shares (treating each
Class A Preferred Share as being equal to the number of Common Shares into which
each such Class A Preferred Share could be converted pursuant to Section 4
(Conversion) hereof, with such number determined as of the record date for the
determination of holders of Common Shares entitled to receive such dividend).
2. LIQUIDATION, DISSOLUTION OR WINDING-UP
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of Class A
Preferred Shares shall be entitled to receive, prior and in preference
to any distribution of any of the assets of the Corporation to the
holders of the Common Shares, by reason of their ownership thereof,
the Class A Redemption Price (as defined in paragraph 5(c) below) for
each Class A Preferred Share then held by such holders. If the amount
available for such distribution is insufficient to pay the Class A
Redemption Price on all outstanding Class A Preferred Shares, the
assets available for distribution shall be distributed among the
holders of the Class A Preferred Shares pro rata in accordance with
the total number of Class A Preferred Shares held by such holders.
(b) After the payment of all preferential amounts required to be paid to
the holders of the Class A Preferred Shares and any other class or
series of shares of the Corporation ranking on liquidation on a parity
with the Class A Preferred Shares, upon the liquidation, dissolution
or winding up of the Corporation, the remaining assets and funds of
the Corporation available for distribution to its shareholders shall
be distributed among the holders of the Class A Preferred Shares and
the Common Shares and any other class or series of shares entitled to
participate in liquidation distributions with the holders of Common
Shares, pro rata based on the number of Common Shares held by each
holder (assuming conversion into Common Shares of all Class A
Preferred Shares) and any other participating outstanding series or
class of shares convertible into Common Shares.
(c) The amalgamation, merger or consolidation of the Corporation into or
with another corporation (where the shareholders of the Corporation
are not the majority shareholders of the merged entity), or the sale
of all or substantially all the assets of the Corporation, shall be
deemed a liquidation, dissolution or winding up of the Corporation for
purposes of this Section 2 unless the prior written consent to such
<PAGE> 10
1C
transaction is obtained from the holders of at least two-thirds of the
outstanding Class A Preferred Shares.
(d) In the event of a liquidation, dissolution or winding up of the
Corporation resulting in the availability of assets other than cash
for distribution to the holders of Class A Preferred Shares, the cash
amount deemed distributed to such holders shall be the cash value of
the property, rights or securities distributed to such holders by the
Corporation or the acquiring corporation. If the non-cash
consideration is publicly traded shares, then the cash value for such
consideration shall be the simple average of the closing price (or
closing bid price during) in the ten trading days preceding
announcement of the distribution. The Board of Directors shall first
determine the value of such property, rights or other securities for
such purpose, and shall notify all holders of Class A Preferred Shares
of such determination. The value of such property, rights or other
securities for purposes of the distribution under this paragraph 2(d)
shall be the value as determined by the Board of Directors in good
faith, unless the holders of a majority of the outstanding Class A
Preferred Shares shall object thereto in writing within 15 days after
receiving written notice of such value. In the event of such
objection, the valuation of such property, rights or other securities
for purposes of such distribution shall be determined by an arbitrator
selected by the objecting shareholders and the Board of Directors, or
in the event a single arbitrator cannot be agreed upon within 10 days
after the written objection sent by the objecting shareholders in
accordance with the previous sentence, the valuation of such property,
rights or other securities shall be determined by arbitration in which
(i) the objecting shareholders shall name one arbitrator, (ii) the
Board of Directors shall name a second arbitrator, (iii) the two
arbitrators thus selected shall select a third arbitrator, and (iv)
the three arbitrators thus selected shall determine the valuation of
such property, rights or other securities within 15 days for purposes
of such distribution or as soon as practicable thereafter by majority
vote. The costs of such arbitration shall be borne by the Corporation
or by the holders of the Class A Preferred Shares (on a pro rata basis
out of the property, rights or other securities otherwise
distributable to them) as follows: (A) if the valuation as determined
by the arbitrators is equal to or exceeds the valuation as determined
by the Board of Directors, the holders of the Class A Preferred Shares
shall pay the costs of the arbitration, and (B) otherwise, the
Corporation shall bear the costs of the arbitration.
3. VOTING RIGHTS
Except as otherwise provided herein and except as otherwise required by law, on
all matters submitted to a vote of holders of Common Shares, a holder of Class A
Preferred Shares shall be entitled to the number of votes which is equal to the
number of Common Shares into which such Class A Preferred Shares are then
convertible pursuant to Section 4 (Conversion) hereof, and in all ways shall
have voting rights and powers equal to the voting rights and powers of the
Common Shares, including the right to notice of any shareholders' meeting in
accordance given to the holders of Common Shares. Except as otherwise required
by law, the Class A Preferred Shares and Common
<PAGE> 11
1D
Shares vote together as a single class. Fractional votes shall not, however, be
permitted and any fractional voting rights resulting from the above formula
(after aggregating all Common Shares into which Class A Preferred Shares held by
each holder could then be converted) shall be rounded to the nearest whole
number (with one-half being rounded upward).
4. CONVERSION
The holders of Class A Preferred Shares shall have the following conversion
rights (the "Conversion Rights"):
(a) RIGHT TO CONVERT.
(i) OPTIONAL CONVERSION. Each Class A Preferred Share shall be
convertible, at the option of the holder thereof, at the office
of the Corporation, into such number of fully paid and
non-assessable Common Shares as determined by dividing $0.375 by
the Conversion Price (as defined below), in effect at the time of
conversion. The price at which Common Shares shall be deliverable
upon conversion (the "Conversion Price") shall initially be
$0.375. Such Conversion Price shall be subject to adjustment as
hereinafter provided.
(ii) AUTOMATIC CONVERSION. Each Class A Preferred Share shall be
converted automatically into Common Shares at the then effective
Conversion Price immediately prior to (A) the completion of a
Canadian public offering of Common Shares pursuant to a
prospectus or a sale of Common Shares in a public offering
registered under the U.S. Securities Act of 1933, as amended, (or
the applicable law of such other jurisdiction in which the
Corporation goes public) that results in aggregate net proceeds
to the Corporation (defined as aggregate sales price to the
public, less expenses and underwriters' discounts) of at least
twenty million dollars ($20,000,000) at a price per share which
is based on a pre-offering valuation of the Corporation of not
less than thirty million dollars ($30,000,000) (a "Qualified
Public Offering"); or (B) the Corporation acquiring all or
substantially all of the assets of any other person or business
entity or entering into any consolidation, merger, or other
business combination, or transferring all or substantially all of
the Corporation's business or assets to any partnership, joint
venture or other similar jointly owned business venture, with any
other corporation or business entity, or effecting a liquidation,
winding up, reorganization or sale or other disposition of the
Corporation or of all or substantially all of the assets of the
Corporation in a transaction that in any such event either (x)
provides the holders of the Class A Preferred Shares with cash
proceeds, or securities of a class of shares that is traded on
the Toronto Stock Exchange, NASDAQ National Market system or the
NYSE or AMEX exchanges (or any other recognized exchange or
trading system of approximately equivalent stature) or some
combination thereof equal to at least $2.25 per Class A Preferred
Share, less the amount
<PAGE> 12
1E
of any dividends actually paid by the Corporation per share to
the holder of Class A Preferred Shares (if such transaction
closes on or prior to July 31, 2002), or $2.625 per Class A
Preferred Shares less the amount of any dividends actually paid
by the Corporation per share to the holder of Class A Preferred
Shares (if such transaction closes after July 31, 2002 but on or
prior to July 31, 2003) or (y) the holders of at least 50% of the
aggregate number of outstanding Class A Preferred Shares approve
in writing both the proposed transaction and the conversion of
Class A Preferred Shares to Common Shares. The Corporation shall
not pay dividends (regardless of whether such dividends have been
accrued or declared) on any Class A Preferred Shares that are
automatically converted pursuant to this subsection (ii) above in
addition to any dividends that were actually paid to holders of
Class A Preferred Shares prior to the automatic conversion.
(b) MECHANICS OF CONVERSION. Except on an automatic conversion under
subparagraph 4(a)(ii) above, before any holder of Class A Preferred
Shares shall be entitled to convert the same into Common Shares, such
holder shall surrender the certificate or certificates thereof, duly
endorsed, at the office of the Corporation and shall give written
notice to the Corporation at such office that such holder elects to
convert the same and shall state therein the name or names in which
such holder wishes the certificate or certificates for Common Shares
to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder, or to
such holder's nominee or nominees, a certificate or certificates for
the number of Common Shares to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of surrender of
the Class A Preferred Shares to be converted, and the person or
persons entitled to receive the Common Shares issuable upon such
conversion shall be treated for all purposes as the record holder or
holders of such Common Shares on such date. If a holder tenders Class
A Preferred Shares for conversion in connection with any automatic
conversion event described in subparagraph 4(a)(ii) above the
conversion may, at the option of the holder tendering Class A
Preferred Shares for conversion, be conditioned upon the closing of
the relevant transaction, in which event the person(s) entitled to
receive the Common Shares issuable upon such conversion of the Class A
Preferred Shares shall not be deemed to have converted such Class A
Preferred Shares until immediately prior to the closing of such
transaction.
(c) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of this paragraph 4(c), the
following definitions shall apply:
(A) "Additional Common Shares" shall mean all Common Shares
issued (or, pursuant to subparagraph 4(c)(iii), deemed to be
issued) by the
<PAGE> 13
1F
Corporation after the Original Issue Date, other than Common
Shares issued or issuable:
(1) upon conversion of Class A Preferred Shares;
(2) to officers, directors or employees of, or consultants
to, the Corporation, in accordance with a plan approved
by the Board of Directors ("Permitted Employee
Shares"), subject to adjustment for all
reclassifications, subdivisions, combinations or
similar recapitalizations of Common Shares;
(3) as a dividend or distribution on Class A Preferred
Shares; and
(4) by way of dividend or other distribution on Common
Shares which were, when issued, excluded from the
definition of Additional Common Shares by the foregoing
clauses (1), (2) and (3) or this clause (4).
(B) "Convertible Securities" shall mean any evidence of
indebtedness, and shares (other than Common Shares) or other
securities convertible into or exchangeable for Common
Shares, including the Class A Preferred Shares.
(C) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common
Shares or Convertible Securities.
(D) "Original Issue Date" shall mean the date on which a Class A
Preferred Share was first issued.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the
Conversion Price of Class A Preferred Shares shall be made in
respect of the issuance of Additional Common Shares unless the
Net Cash Consideration (as defined below) per share for an
Additional Common Share issued or deemed to be issued by the
Corporation is less than the Conversion Price in effect on the
date of, and immediately prior to such issue for such Class A
Preferred Shares. The "Net Cash Consideration" shall mean the
cash value of the consideration received by the Corporation
(determined pursuant to subparagraph 4(c)(v)) less any
commissions payable to third parties with respect to the
transaction in which the cash consideration is received.
(iii) DEEMED ISSUE OF ADDITIONAL COMMON SHARES.
<PAGE> 14
1G
(A) OPTIONS AND CONVERTIBLE SECURITIES. If the Corporation at
any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall
fix a record date for the determination of holders of any
class of securities entitled to receive any such Options or
Convertible Securities, then the maximum aggregate number
(as set forth in the instrument relating thereto without
regard to any provision contained therein for a subsequent
adjustment of such number) of Common Shares issuable upon
the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be
Additional Common Shares issued as of the time of such issue
or, in case such a record date shall have been fixed, as of
the close of business on such record date. Notwithstanding
the foregoing, Additional Common Shares shall not be deemed
to have been issued unless the Net Cash Consideration (as
defined in subparagraph 4(c)(ii)) per share (determined
pursuant to subparagraph 4(c)(v) hereof) of such Additional
Common Shares would be less than the Conversion Price in
effect on the date of and immediately prior to such issue,
or such record date, as the case may be, and provided
further that in any such case in which Additional Common
Shares are deemed to be issued:
(1) no further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible
Securities or Common Shares pursuant to the exercise of
such Options or conversion or exchange of such
Convertible Securities;
(2) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise,
for any increase in the consideration payable to the
Corporation, or decrease in the number of Common Shares
issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the
original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed
to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or
exchange under such Convertible Securities;
(3) upon the expiration or termination of any such Options
or any rights of conversion or exchange under such
Convertible Securities which shall not have been
exercised, the Conversion Price computed upon the
original issue thereof (or upon the
<PAGE> 15
1H
occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such
expiration or termination, be recomputed as if:
A. in the case of Convertible Securities or Options for
Common Shares, the only Additional Common Shares issued
were the Common Shares, if any, actually issued upon
the exercise of such Options or the conversion or
exchange of such Convertible Securities and the
consideration received therefor was the consideration
actually received by the Corporation for the issue of
all such Options, whether or not exercised, plus the
consideration actually received by the Corporation upon
such exercise, or for the issue of all such Convertible
Securities, whether or not actually converted or
exchanged, plus the additional consideration, if any,
actually received by the Corporation upon such
conversion or exchange, and
B. in the case of Options for Convertible Securities, only
Convertible Securities, if any, actually issued upon
the exercise thereof were issued at the time of issue
of such options, and the consideration received by the
Corporation for the Additional Common Shares deemed to
have been then issued was the consideration actually
received by the Corporation for the issue of all such
Options, whether or not exercised, plus the
consideration deemed to have been received by the
Corporation upon the issue of the Convertible
Securities with respect to which such Options were
actually exercised; and
(4) for greater certainty, no adjustment pursuant to either
clause B. or C. above shall have the effect of increasing
the Conversion Price which shall continue to be, for the
purposes of any recalculation of the number of Additional
Common Shares deemed to be issued, the Conversion Price in
effect immediately prior to the initial deemed issuance of
such Additional Common Shares.
(B) SHARE DIVIDENDS AND SUBDIVISIONS. If the Corporation at any time
or from time to time after the Original Issue Date shall declare
or pay any dividend on the Common Shares payable in Common
Shares, or effect a subdivision of the outstanding shares of
Common Shares into
<PAGE> 16
1I
a greater number of shares of Common Shares (by reclassification
or otherwise than by payment of a dividend in Common Shares),
then, and in any such event, Additional Common Shares shall be
deemed to have been issued:
(1) in the case of any such dividend, immediately after the
close of business on the record date for the determination
of holders of any class of securities entitled to receive
such dividend, or
(2) in the case of any such subdivision, at the close of
business on the date immediately prior to the date upon
which such corporate action becomes effective.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL COMMON SHARES.
If the Corporation shall issue Additional Common Shares (including Additional
Common Shares deemed to be issued pursuant to subparagraph 4(c)(iii)) for a Net
Cash Consideration (as defined in subparagraph 4(c)(ii)) per share less than the
Conversion Price on the date of and immediately prior to such issuance, then,
and in such event, the Conversion Price shall be reduced, concurrently with such
issue, to a price (calculated to the nearest hundredth of a cent) determined by
multiplying the Conversion Price by a fraction, the numerator of which shall be
the sum of (1) the number of Common Shares outstanding immediately prior to such
issue, (2) any Permitted Employee Shares which have not been issued immediately
prior to such issue, but are then issuable pursuant to options which have been
granted, and which have an exercise price below the price of such issue and (3)
the number of Common Shares which the aggregate consideration received by the
Corporation for the total number of Additional Common Shares so issued would
purchase at the Conversion Price; and the denominator of which shall be the sum
of (1) the number of Common Shares outstanding immediately prior to such issue,
(2) any Permitted Employee Shares which have not been issued immediately prior
to such issue but are then issuable pursuant to options which have been granted,
and which have an exercise price below the price of such issue, and (3) the
number of such Additional Common Shares so issued; provided that, for the
purposes of this subparagraph 4(c)(iv), all Common Shares issuable upon
conversion of outstanding Class A Preferred Shares and Convertible Securities
and upon the exercise of Options (including the conversion into Common Shares of
Convertible Securities issuable upon the exercise of such Options) and all
Additional Shares previously deemed issued pursuant to subparagraph 4(c)(iii)
(adjusted pursuant to subparagraph 4(c)(iii)(3), if applicable) shall be deemed
to be outstanding.
<PAGE> 17
1J
(v) DETERMINATION OF CONSIDERATION. For purposes of this paragraph 4(c), the
consideration received by the Corporation for the issue of any Additional
Common Shares shall be computed as follows:
(A) CASH AND PROPERTY: Such consideration shall:
(1) insofar as it consists of cash, be computed at the aggregate
amount of cash received by the Corporation excluding amounts paid
or payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than cash, be computed
at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors (and if the
non-cash consideration is public traded company shares, then the
price shall be the simple average of the closing price (or
closing bid price) in the ten trading days preceding the issue or
deemed issue of the Additional Common Shares); and
(3) if Additional Common Shares are issued together with other shares
or securities or other assets of the Corporation for
consideration which covers both, be the proportion of such
consideration so received in respect of the Additional Common
Shares, computed as provided in clauses (1) and (2) above, as
determined in good faith by the Board of Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per share
received by the Corporation for Additional Common Shares deemed to
have been issued pursuant to subparagraph 4(c)(iii)(A), relating to
Options and Convertible Securities, shall be determined by dividing:
(1) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments
relating thereto, without regard to any provisions contained
therein for a subsequent adjustment of such consideration)
payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in
the case of Options for Convertible Securities and the conversion
or exchange of such Convertible Securities, by
(2) the maximum number of shares of Common Shares (as set forth in
the instruments relating thereto, without regard to any
<PAGE> 18
1K
provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
(C) SHARE DIVIDENDS AND SHARE SUBDIVISIONS. Any Additional Common
Shares deemed to have been issued pursuant to subparagraph
4(c)(iii)(B), relating to share dividends and share subdivisions,
shall be deemed to have been issued for no consideration.
(vi) ADJUSTMENTS FOR COMBINATIONS OR CONSOLIDATION OF COMMON SHARES. If the
outstanding Common Shares shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of Common Shares,
the Conversion Price in effect immediately prior to such combination
or consolidation shall, concurrently with the effectiveness of such
combination or consolidation, be proportionately increased.
(vii) ADJUSTMENT FOR MERGERS OR REORGANIZATION, ETC. In case of any
amalgamation, consolidation or merger of the Corporation with or into
another corporation or the conveyance of all or substantially all of
the assets of the Corporation to another corporation (which is not, in
any such case, deemed to be a liquidation, dissolution or winding up
of the Corporation pursuant to paragraph 2(c)) , each Class A
Preferred Share shall thereafter, at the option of the holder, be
convertible into the number of shares or other securities or property
to which a holder of Common Shares deliverable upon conversion of such
Class A Preferred Shares would have been entitled upon such
consolidation, merger or conveyance; and, in any such case,
appropriate adjustment (as determined by the Board of Directors) shall
be made in the application of the provisions herein set forth with
respect to the rights and interest thereafter of the holders of the
Class A Preferred Shares, to the end that the provisions set forth
herein (including provisions with respect to changes in and other
adjustments of the Conversion Price) shall hereafter be applicable, as
nearly as reasonably may be, in relation to any shares or other
property thereafter deliverable upon the conversion of the Class A
Preferred Shares.
(d) NO IMPAIRMENT. The Board of Directors of the Corporation will at all times
in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Class A Preferred Shares against impairment.
(e) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Section 4, the
Corporation, at its expense, promptly shall compute such adjustment or
readjustment in accordance
<PAGE> 19
1L
with the terms hereof and, upon written request of any holder of Class A
Preferred Shares, shall cause independent public accountants selected by
the Corporation to verify such computation and prepare and furnish to each
holder of Class A Preferred Shares a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of Class A Preferred Shares,
furnish or cause to be furnished to such holder a like certificate setting
forth (i) such adjustments and readjustments, (ii) the Conversion Price in
effect at the time, and (iii) the number of Common Shares and the amount,
if any, of other property which at the time would be received upon the
conversion of Class A Preferred Shares.
(f) TAXES. The Corporation shall pay any and all issue taxes that may be
payable solely in respect of any issue or delivery of shares of Common
Shares on conversion of Class A Preferred Shares pursuant hereto; provided,
however, that the Corporation shall not be obligated to pay any transfer
taxes resulting from any transfer requested by any holder in connection
with any such conversion.
(g) RESERVATION OF SHARES ISSUABLE UPON CONVERSION. The Corporation shall at
all times reserve and keep available out of its authorized but unissued
Common Shares, solely for the purpose of effecting the conversion of the
shares of the Class A Preferred Shares, such number of its Common Shares as
shall from time to time be sufficient to effect the conversion of all
outstanding Class A Preferred Shares; and if at any time the number of
authorized but unissued Common Shares shall not be sufficient to effect the
conversion of all then outstanding Class A Preferred Shares, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued Common Shares
to such number of shares as shall be sufficient for such purpose.
(h) FRACTIONAL SHARES. No fractional share shall be issued upon the conversion
of any Class A Preferred Shares. All Common Shares (including fractions
thereof ) issuable upon conversion of more than one Class A Preferred Share
by a holder thereof shall be aggregated for purposes of determining whether
the conversion would result in the issuance of any fractional share. If,
after the aforementioned aggregation, the conversion would result in the
issuance of a fraction of a Common Share, the Corporation shall, in lieu of
issuing any fractional share, pay the holder otherwise entitled to such
fraction a sum in cash equal to the fair market value of such fraction on
the date of conversion (as determined in good faith by the Board of
Directors).
5. REDEMPTION
The Class A Preferred Shares may not be redeemed by the Corporation at any time,
but the holders may require the Corporation to redeem the Class A Preferred
Shares in the following circumstances:
<PAGE> 20
1M
(a) OPTIONAL REDEMPTION AFTER JULY 31, 2002. Each holder of Class A Preferred
Shares may require the Corporation to redeem, (i) after July 31, 2002, up
to fifty percent (50%) of the outstanding Class A Preferred Shares then
held by such holder, and (ii) after July 31, 2003, all or any portion of
the outstanding Class A Preferred Shares then held by such holder. At least
60 days prior to any redemption of Class A Preferred Shares, each holder of
Class A Preferred Shares electing to redeem its Class A Preferred Shares in
accordance with this paragraph 5(a) shall give written notice to the
Corporation specifying the number of Class A Preferred Shares such holder
desires the Corporation to redeem and the date of such redemption
(hereinafter referred to as a "Class A Redemption Date").
(b) OPTIONAL REDEMPTION UPON CHANGE OF CONTROL. Each holder of Class A
Preferred Shares may require the Corporation to redeem all, but not less
than all, of the outstanding Class A Preferred Shares then held by such
holder, upon a Change in Control. A "Change in Control" for purposes of
this paragraph 5(b) shall mean any issuance of voting securities by the
Corporation or transfer of voting securities by the holder(s) thereof (or
combination thereof) to any person or persons acting in concert or a group
of affiliated persons, which issuance and/or transfer results in such
person or persons or group holding in the aggregate voting securities
having the power to cast 50% or more of the votes on any matters submitted
from time to time to holders of voting securities of the Corporation or
which otherwise provides such persons with the ability to elect a majority
of the Board of Directors. Notice of such issuance and/or transfer (the
"Control Notice") shall be given to the holders of Class A Preferred Shares
by the Corporation within 10 days of the earlier of the Corporation's
making such issuance and/or being informed of such transfer. Within 60 days
of receiving the Control Notice, each holder of Class A Preferred Shares
electing to redeem all of such holder's Class A Preferred Shares in
accordance with this paragraph 5(b) shall give written notice to the
Corporation specifying the number of Class A Preferred Shares held by such
holder and the date of such redemption (also, a "Class A Redemption Date").
(c) REDEMPTION PRICE AND PAYMENT. The Class A Preferred Shares to be redeemed
on any Class A Redemption Date pursuant to paragraphs 5(a) or 5(b) above
shall be redeemed by paying for each share in cash an amount) equal to
$0.375 plus all accrued but unpaid dividends thereon up to and including
the date the redemption price is received by the holder (the "Class A
Redemption Price").
(d) REDEMPTION MECHANICS. Upon receipt of payment by each holder of Class A
Preferred Shares electing to redeem pursuant to paragraphs 5(a) or 5(b)
above of the Class A Redemption Price, all rights of holders of such
redeemed shares shall cease with respect to such shares, and such shares
shall not thereafter be transferred on the books of the Corporation or be
deemed to be outstanding for any purpose whatsoever. If the funds of the
Corporation legally available for redemption of Class A Preferred Shares on
any Class A Redemption Date are insufficient to redeem the
<PAGE> 21
1N
total number of outstanding Class A Preferred Shares as to which redemption
is requested, the holders of Class A Preferred Shares requesting redemption
shall share rateably in any funds legally available for redemption of such
shares according to the respective amounts which would be payable with
respect to the full number of shares owned by such holders as to which
redemption is requested if all such outstanding shares were redeemed in
full. The Class A Preferred Shares not redeemed shall remain outstanding
and entitled to all rights and preferences provided herein. At any time
thereafter when additional funds of the Corporation are legally available
for the redemption of such Class A Preferred Shares, such funds will be
used, at the end of the next succeeding fiscal quarter, to redeem the
balance of such shares as to which redemption had been requested, or such
portion thereof for which funds are then legally available, on the basis
set forth above, regardless of whether any last date for giving notice
pursuant to paragraphs 5(a) or 5(b), as the case may be, has passed.
(e) REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED. Any Class A Preferred
Shares redeemed pursuant to this Section 5 or otherwise acquired by the
Corporation in any manner whatsoever shall be cancelled.
6. CURRENCY
All references herein to dollar amounts are references to Canadian dollars.
<PAGE> 22
5. The amendment has been duly authorized as required by Sections 168 & 170
(as applicable) of the Business Corporations Act.
La modification a ete dument autorisee conformement a l'article 168 et,
s'il y a lieu, a article 170 de la Loi sur les compagnies.
6. The resolution authorizing the amendment was approved by the
shareholders/directors (as applicable) of the corporation on
Les actionnaires ou les administrateurs (le cas echeant) de la compagnie
ont approuve la reesolution autorisant la modification
15 July 1998
---------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
These articles are signed in duplicate.
Les presents status sont signes en double exemplaire.
DELANO TECHNOLOGY CORPORATION
---------------------------------------------------------------------------
(Name of Corporation)
(Denomination social de la compagnie)
By/Par: (Signed) Secretary
---------------------------------------------------------------------------
(Signature) (Description of Office)
(Signature) (Fonction)
<PAGE> 23
For Ministry Use Only Ontario Corporation Number
A l'usage exclusif du ministere Numero de la societe en Ontario
1294608
Ministry of Ministere de
[LOGO] Consumer and la Consommation
Commercial Relations et du Commerce
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que las presents
articles are effective on status entrant en vigueur le
JANUARY 27 JANVIER, 1999
- -------------------------------------------------------------
(Signed)
Director / Directeur
Business Corporations Act / Loi sur les societes par actions
TRANS
CODE
C
18
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
Form 3 Business Corporations Act
Formule numero 3 Loi sur les compagnies
1. The present name of the corporation is:
Denomination sociale actuelle de la compagnie:
DELANO TECHNOLOGY CORPORATION
2. The name of the corporation is changed to (if applicable):
Nouvelle denomination sociale de la compagnie (s'il y a lieu):
N/A
3. Date of incorporation/amalgamation:
Date de la constitution ou de la fusion:
7 May 1998
---------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
4. The articles of the corporation are amended as follows:
Les statuts de la compagnie sont modifies de la facon suivante:
(a) to create an unlimited number of Class B Preferred Shares;
(b) to provide that the rights, privileges, restrictions and conditions
attaching to the Class B Preferred Shares shall be as set out in
Schedule A attached hereto.
<PAGE> 24
1A
DELANO TECHNOLOGY CORPORATION
SCHEDULE A
COMMON SHARES
1. VOTING RIGHTS
Each holder of Common Shares shall be entitled to receive notice of and to
attend all meetings of shareholders of the Corporation and to vote thereat,
except meetings at which only holders of a specified class of shares (other than
Common Shares) or specified series of shares are entitled to vote. At all
meetings of holders of Common Shares, each holder of Common Shares shall be
entitled to one vote in respect of each Common Share held by such holder.
2. DIVIDENDS
The Common Shares shall be entitled, subject to the rights, privileges,
restrictions and conditions attaching to any other class of shares of the
Corporation, to receive any dividend declared by the Board of Directors of the
Corporation.
3. LIQUIDATION, DISSOLUTION OR WINDING-UP
In the event of any liquidation, dissolution or winding-up of the Corporation or
other distribution of assets of the Corporation among its shareholders for the
purpose of winding-up its affairs, subject to the rights, privileges,
restrictions and conditions attaching to any other class of shares of the
Corporation, the assets and funds of the Corporation available for distribution
to shareholders shall be distributed among the holders of the Common Shares, the
holders of the Class A Preferred Shares and the holders of the Class B Preferred
Shares, and any other class or series of shares entitled to participate in a
liquidation distribution with the holders of Common Shares, pro rata based on
the number of Common Shares held by each holder (assuming conversion into Common
Shares of all Class A Preferred Shares and Class B Preferred Shares) and any
other participating outstanding series or class of shares convertible into
Common Shares.
PREFERRED SHARES
1. DIVIDENDS ON PREFERRED SHARES
The Class A Preferred Shares and the Class B Preferred Shares (collectively, the
"Preferred Shares") shall participate equally with respect to dividends and for
greater certainty, all dividends which the directors may declare in any fiscal
year of the Corporation on the Class A Preferred Shares and the Class B
Preferred Shares shall be declared and paid in equal or equivalent amounts per
share on the
<PAGE> 25
1B
Class A Preferred Shares and the Class B Preferred Shares at the time
outstanding without preference or priority.
Holders of outstanding Class A Preferred Shares shall be entitled to receive, in
any fiscal year, annually or when otherwise as declared by the Board of
Directors of the Corporation and to the extent permitted under the Business
Corporations Act (Ontario), dividends in cash at the rate of $0.03 per share per
annum plus an amount per share equal to 8% per annum of the accrued and unpaid
dividends thereon (providing for an 8% cumulative compounding return), which
shall accrue as provided herein, before any dividend is paid on the Common
Shares. Such dividends shall accrue on outstanding Class A Preferred Shares
cumulatively, commencing on the date of the original issuance thereof, on a
daily basis. Except to the extent otherwise permitted by these Articles,
dividends or distributions may be declared and paid upon Common Shares in any
fiscal year of the Corporation only if all accrued dividends shall have been
paid on all Class A Preferred Shares in accordance with this section. If, after
payment of such dividends to holders of the Preferred Shares, dividends are paid
to holders of Common Shares, the holders of outstanding Preferred Shares shall
be entitled to receive, out of any assets at the time legally available
therefor, additional dividends per share equal to the per share dividends paid
to holders of Common Shares (treating each Preferred Share as being equal to the
number of Common Shares into which each such Preferred Share could be converted
pursuant to Section 4 (Conversion) hereof, with such number determined as of the
record date for the determination of holders of Common Shares entitled to
receive such dividend).
2. LIQUIDATION, DISSOLUTION OR WINDING-UP
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of Class A
Preferred Shares shall be entitled to receive, prior and in preference
to any distribution of any of the assets of the Corporation to the
holders of the Common Shares or to the holders of the Class B
Preferred Shares, by reason of their ownership thereof, the Class A
Redemption Price (as defined in paragraph 5(c) below) for each Class A
Preferred Share then held by such holders. If the amount available for
such distribution is insufficient to pay the Class A Redemption Price
on all outstanding Class A Preferred Shares, the assets available for
distribution shall be distributed among the holders of the Class A
Preferred Shares pro rata in accordance with the total number of Class
A Preferred Shares held by such holders.
(b) After the payment of all preferential amounts required to be paid to
the holders of the Class A Preferred Shares and any other class or
series of shares of the Corporation ranking on liquidation on a parity
with or senior to the Class A Preferred Shares, the holders of Class B
Preferred Shares shall be entitled to receive, prior and in preference
to any distribution of any of the assets of the Corporation to the
holders of the Common Shares, by reason of their ownership thereof,
for each Class B Preferred Share then held by a holder, a sum equal
to:
(i) the Class B Redemption Price (as defined in paragraph 5(c)
below); and
<PAGE> 26
1C
(ii) an additional amount equal to the following:
A. 8% of the holder's subscription price for the Class B
Preferred Share, per annum since the date of issuance
(non-compounded), if the aggregate value of all assets
available for distribution to the holders of the Corporation
(prior to making any payments pursuant to this Section 2) is
less than or equal to $9,999,999; or
B. 16% of the holder's subscription price for the Class B
Preferred Share, per annum since the date of issuance
(non-compounded), if the aggregate value of all assets
available for distribution to the holders of the Corporation
(prior to making any payments pursuant to this Section 2) is
greater than $9,999,999 but less than or equal to
$19,999,999; or
C. 24% of the holder's subscription price for the Class B
Preferred Share, per annum since the date of issuance
(non-compounded) if the aggregate value of all assets
available for distribution to the holders of the Corporation
(prior to making any payments pursuant to this Section 2) is
greater than $19,999,999.
If the amount available for such distribution is insufficient to pay the
Class B Redemption Price (plus any additional amount applicable pursuant to
this Section 2) on all outstanding Class B Preferred Shares, the assets
available for distribution shall be distributed among the holders of the
Class B Preferred Shares pro rata in accordance with the total number of
Class B Preferred Shares held by such holders.
(c) After the payment of all preferential amounts required to be paid to the
holders of the Class A Preferred Shares and the holders of the Class B
Preferred Shares and any other class or series of shares of the Corporation
ranking on liquidation senior to the Common Shares, upon the liquidation,
dissolution or winding up of the Corporation, the remaining assets and
funds of the Corporation available for distribution to its shareholders
shall be distributed among the holders of the Class A Preferred Shares and
the holders of the Class B Preferred Shares and the holders of the Common
Shares and any other class or series of shares entitled to participate in
liquidation distributions with the holders of Common Shares, pro rata based
on the number of Common Shares held by each holder (assuming conversion
into Common Shares of all Preferred Shares) and any other participating
outstanding series or class of shares convertible into Common Shares.
(d) The amalgamation, merger or consolidation of the Corporation into or with
another corporation (where the shareholders of the Corporation are not the
majority shareholders of the merged entity), or the sale of all or
substantially all the assets of
<PAGE> 27
1D
the Corporation, shall be deemed a liquidation, dissolution or winding up
of the Corporation for purposes of this Section 2 unless the prior written
consent to such transaction is obtained from the holders of at least
two-thirds of the outstanding Class A Preferred Shares and from the holders
of at least two-thirds of the outstanding Class B Preferred Shares, voting
separately.
(e) In the event of a liquidation, dissolution or winding up of the Corporation
resulting in the availability of assets other than cash for distribution to
the holders of Preferred Shares, the cash amount deemed distributed to such
holders shall be the cash value of the property, rights or securities
distributed to such holders by the Corporation or the acquiring
corporation. If the non-cash consideration is publicly traded shares, then
the cash value for such consideration shall be the simple average of the
closing price (or closing bid price during) in the ten trading days
preceding announcement of the distribution. The Board of Directors of the
Corporation shall first determine the value of such property, rights or
other securities for such purpose, and shall notify all holders of
Preferred Shares of such determination. The value of such property, rights
or other securities for purposes of the distribution under this paragraph
2(e) shall be the value as determined by the Board of Directors of the
Corporation in good faith, unless the holders of a majority of the
outstanding Preferred Shares shall object thereto in writing within 15 days
after receiving written notice of such value. In the event of such
objection, the valuation of such property, rights or other securities for
purposes of such distribution shall be determined by an arbitrator selected
by the objecting shareholders and the Board of Directors of the
Corporation, or in the event a single arbitrator cannot be agreed upon
within 10 days after the written objection sent by the objecting
shareholders in accordance with the previous sentence, the valuation of
such property, rights or other securities shall be determined by
arbitration in which (i) the objecting shareholders shall name one
arbitrator, (ii) the Board of Directors of the Corporation shall name a
second arbitrator, (iii) the two arbitrators thus selected shall select a
third arbitrator, and (iv) the three arbitrators thus selected shall
determine the valuation of such property, rights or other securities within
15 days for purposes of such distribution or as soon as practicable
thereafter by majority vote. The costs of such arbitration shall be borne
by the Corporation or by the holders of the Preferred Shares (on a pro rata
basis out of the property, rights or other securities otherwise
distributable to them) as follows: (A) if the valuation as determined by
the arbitrators is equal to or exceeds the valuation as determined by the
Board of Directors of the Corporation, the holders of the Preferred Shares
shall pay the costs of the arbitration, and (B) otherwise, the Corporation
shall bear the costs of the arbitration.
<PAGE> 28
1E
3. VOTING RIGHTS
Except as otherwise provided herein and except as otherwise required by law, on
all matters submitted to a vote of holders of Common Shares, a holder of
Preferred Shares shall be entitled to the number of votes which is equal to the
number of Common Shares into which such Preferred Shares are then convertible
pursuant to Section 4 (Conversion) hereof, and in all ways shall have voting
rights and powers equal to the voting rights and powers of the Common Shares,
including the right to notice of any shareholders' meeting in accordance given
to the holders of Common Shares. Except as otherwise required by law, the
Preferred Shares and Common Shares vote together as a single class. Fractional
votes shall not, however, be permitted and any fractional voting rights
resulting from the above formula (after aggregating all Common Shares into which
Preferred Shares held by each holder could then be converted) shall be rounded
to the nearest whole number (with one-half being rounded upward).
4. CONVERSION
The holders of Preferred Shares shall have the following conversion rights (the
"Conversion Rights"):
(a) RIGHT TO CONVERT.
(i) OPTIONAL CONVERSION. Each Class A Preferred Share shall be
convertible, at the option of the holder thereof, at the office
of the Corporation, into such number of fully paid and
non-assessable Common Shares as determined by dividing $0.375 by
the Class A Conversion Price (as defined below), in effect at the
time of conversion. The price at which Common Shares shall be
deliverable upon conversion (the "Class A Conversion Price")
shall initially be $0.375. Such Class A Conversion Price shall be
subject to adjustment as hereinafter provided. Each Class B
Preferred Share shall be convertible, at the option of the holder
thereof, at the office of the Corporation, into such number of
fully paid and non-assessable Common Shares as determined by
dividing $0.95 by the Class B Conversion Price (as defined
below), in effect at the time of conversion. The price at which
Common Shares shall be deliverable upon conversion (the "Class B
Conversion Price") shall initially be $0.95. Such Class B
Conversion Price shall be subject to adjustment as hereinafter
provided.
(ii) AUTOMATIC CONVERSION. Each Preferred Share shall be converted
automatically into Common Shares at the then effective Class A
Conversion Price or Class B Conversion Price, as the case may be,
immediately prior to (A) the completion of a Canadian public
offering of Common Shares pursuant to a prospectus or a sale of
Common Shares in a public offering registered under the U.S.
Securities Act of 1933, as amended, (or the applicable law of
such other jurisdiction in which the Corporation goes
<PAGE> 29
1F
public) that results in aggregate net proceeds to the Corporation
(defined as aggregate sales price to the public, less expenses
and underwriters' discounts) of at least twenty million dollars
($20,000,000) at a price per share which is based on a
pre-offering valuation of the Corporation of not less than thirty
million dollars ($30,000,000) (a "Qualified Public Offering"); or
(B) the Corporation acquiring all or substantially all of the
assets of any other person or business entity or entering into
any consolidation, merger, or other business combination, or
transferring all or substantially all of the Corporation's
business or assets to any partnership, joint venture or other
similar jointly owned business venture, with any other
corporation or business entity, or effecting a liquidation,
winding up, reorganization or sale or other disposition of the
Corporation or of all or substantially all of the assets of the
Corporation in a transaction that in any such event either (x)
provides the holders of the Preferred Shares with cash proceeds,
or securities of a class of shares that is traded on the Toronto
Stock Exchange, NASDAQ National Market system or the NYSE or AMEX
exchanges (or any other recognized exchange or trading system of
approximately equivalent stature) or some combination thereof
equal to at least $2.25 per Preferred Share, less the amount of
any dividends actually paid by the Corporation per share to the
holder of Preferred Shares (if such transaction closes on or
prior to July 31, 2002), or $2.625 per Preferred Share less the
amount of any dividends actually paid by the Corporation per
share to the holder of Preferred Shares (if such transaction
closes after July 31, 2002 but on or prior to July 31, 2003) or
(y) the holders of at least 50% of the aggregate number of
outstanding Class A Preferred Shares and the holders of at least
50% of the aggregate number of outstanding Class B Preferred
Shares, voting separately, approve at a meeting of shareholders
or otherwise in writing both the proposed transaction and the
conversion of Preferred Shares to Common Shares. The Corporation
shall not pay dividends (regardless of whether such dividends
have been accrued or declared) on any Preferred Shares that are
automatically converted pursuant to this subsection (ii) above in
addition to any dividends that were actually paid to holders of
Preferred Shares prior to the automatic conversion.
(b) MECHANICS OF CONVERSION. Except on an automatic conversion under
subparagraph 4(a)(ii) above, before any holder of Preferred Shares shall be
entitled to convert Preferred Shares into Common Shares, such holder shall
surrender the certificate or certificates thereof, duly endorsed, at the
office of the Corporation and shall give written notice to the Corporation
at such office that such holder elects to convert the Preferred Shares and
shall state therein the name or names in which such holder wishes the
certificate or certificates for Common Shares to be issued. The Corporation
shall, as soon as practicable thereafter, issue and deliver at such office
to such holder, or to such holder's nominee or nominees, a certificate or
certificates for the number of Common Shares to which such holder shall be
entitled as
<PAGE> 30
1G
aforesaid. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of surrender of the Preferred
Shares to be converted, and the person or persons entitled to receive the
Common Shares issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such Common Shares on such
date. If a holder tenders Preferred Shares for conversion in connection
with any automatic conversion event described in subparagraph 4(a)(ii)
above the conversion may, at the option of the holder tendering Preferred
Shares for conversion, be conditioned upon the closing of the relevant
transaction, in which event the person(s) entitled to receive the Common
Shares issuable upon such conversion of the Preferred Shares shall not be
deemed to have converted such Preferred Shares until immediately prior to
the closing of such transaction.
(c) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of this paragraph 4(c), the
following definitions shall apply:
(A) "Additional Common Shares" shall mean all Common Shares issued
(or, pursuant to subparagraph 4(c)(iii), deemed to be issued) by
the Corporation after the Original Issue Date, other than Common
Shares issued or issuable:
(1) upon conversion of Preferred Shares;
(2) to officers, directors or employees of, or consultants to,
the Corporation, in accordance with a plan approved by the
Board of Directors of the Corporation or pursuant to a
compensation package for new senior officers of the
Corporation which the holders of a majority of the Preferred
Shares have agreed to in writing ("Permitted Employee
Shares"), subject to adjustment for all reclassifications,
subdivisions, combinations or similar recapitalizations of
Common Shares;
(3) as a dividend or distribution on Preferred Shares; and
(4) by way of dividend or other distribution on Common Shares
which were, when issued, excluded from the definition of
Additional Common Shares by the foregoing clauses (1), (2)
and (3) or this clause (4).
(B) "Convertible Securities" shall mean any evidence of indebtedness,
and shares (other than Common Shares) or other securities
convertible
<PAGE> 31
1H
into or exchangeable for Common Shares, including the Preferred
Shares.
(C) "Options" shall mean rights, options or warrants to subscribe
for, purchase or otherwise acquire either Common Shares or
Convertible Securities.
(D) "Original Issue Date" shall mean the date on which a Preferred
Share was first issued.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in either the Class A
Conversion Price or the Class B Conversion Price shall be made in
respect of the issuance of Additional Common Shares unless the Net
Cash Consideration (as defined below) per share for an Additional
Common Share issued or deemed to be issued by the Corporation is less
than the Class A Conversion Price or Class B Conversion Price, as the
case may be, in effect on the date of, and immediately prior to such
issue for such Preferred Shares. The "Net Cash Consideration" shall
mean the cash value of the consideration received by the Corporation
(determined pursuant to subparagraph 4(c)(v)) less any commissions
payable to third parties with respect to the transaction in which the
cash consideration is received.
(iii) DEEMED ISSUE OF ADDITIONAL COMMON SHARES.
(A) OPTIONS AND CONVERTIBLE SECURITIES. If the Corporation at any
time or from time to time after the Original Issue Date shall
issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities,
then the maximum aggregate number (as set forth in the instrument
relating thereto without regard to any provision contained
therein for a subsequent adjustment of such number) of Common
Shares issuable upon the exercise of such Options or, in the case
of Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be
Additional Common Shares issued as of the time of such issue or,
in case such a record date shall have been fixed, as of the close
of business on such record date.
<PAGE> 32
1I
Notwithstanding the foregoing, in respect of Preferred Shares
Additional Common Shares shall not be deemed to have been issued
unless the Net Cash Consideration (as defined in subparagraph
4(c)(ii)) per share (determined pursuant to subparagraph 4(c)(v)
hereof) of such Additional Common Shares would be less than the
Class A Conversion Price or the Class B Conversion Price, as the
case may be, in effect on the date of and immediately prior to
such issue, or such record date, as the case may be, and provided
further that in any such case in which Additional Common Shares
are deemed to be issued:
(1) no further adjustment in the Class A Conversion Price or the
Class B Conversion Price shall be made upon the subsequent
issue of Convertible Securities or Common Shares pursuant to
the exercise of such Options or conversion or exchange of
such Convertible Securities;
(2) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any
increase in the consideration payable to the Corporation, or
decrease in the number of Common Shares issuable, upon the
exercise, conversion or exchange thereof, the Class A
Conversion Price and the Class B Conversion Price computed
upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such
increase or decrease insofar as it affects such Options or
the rights of conversion or exchange under such Convertible
Securities;
(3) upon the expiration or termination of any such Options or
any rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the Class A
Conversion Price and the Class B Conversion Price computed
upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration or
termination, be recomputed as if:
A. in the case of Convertible Securities or Options for
Common Shares, the only Additional Common Shares issued
were the Common Shares, if any, actually issued upon
the exercise of such Options or the conversion or
exchange of such Convertible Securities
<PAGE> 33
1J
and the consideration received therefor was the
consideration actually received by the Corporation for
the issue of all such Options, whether or not
exercised, plus the consideration actually received by
the Corporation upon such exercise, or for the issue
of all such Convertible Securities, whether or not
actually converted or exchanged, plus the additional
consideration, if any, actually received by the
Corporation upon such conversion or exchange, and
B. in the case of Options for Convertible Securities, only
Convertible Securities, if any, actually issued upon
the exercise thereof were issued at the time of issue
of such options, and the consideration received by the
Corporation for the Additional Common Shares deemed to
have been then issued was the consideration actually
received by the Corporation for the issue of all such
Options, whether or not exercised, plus the
consideration deemed to have been received by the
Corporation upon the issue of the Convertible
Securities with respect to which such Options were
actually exercised; and
(4) for greater certainty, no adjustment pursuant to either
clause B. or C. above shall have the effect of increasing
the Class A Conversion Price or the Class B Conversion Price
which shall continue to be, for the purposes of any
recalculation of the number of Additional Common Shares
deemed to be issued, the Class A Conversion Price or the
Class B Conversion Price, as the case may be, in effect
immediately prior to the initial deemed issuance of such
Additional Common Shares.
(B) SHARE DIVIDENDS AND SUBDIVISIONS. If the Corporation at any time
or from time to time after the Original Issue Date shall declare
or pay any dividend on the Common Shares payable in Common
Shares, or effect a subdivision of the outstanding shares of
Common Shares into a greater number of shares of Common Shares
(by reclassification or otherwise than by payment of a dividend
in Common Shares), then, and in any such event, Additional Common
Shares shall be deemed to have been issued:
(1) in the case of any such dividend, immediately after the
close of business on the record date for the determination
of holders of any class of securities entitled to receive
such dividend, or
<PAGE> 34
1K
(2) in the case of any such subdivision, at the close of
business on the date immediately prior to the date upon
which such corporate action becomes effective.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL COMMON SHARES.
If the Corporation shall issue Additional Common Shares (including Additional
Common Shares deemed to be issued pursuant to subparagraph 4(c)(iii)) for a Net
Cash Consideration (as defined in subparagraph 4(c)(ii)) per share less than the
Class A Conversion Price or the Class B Conversion Price on the date of and
immediately prior to such issuance, then, and in such event, the Class A
Conversion Price and/or the Class B Conversion Price, as the case may be, shall
be reduced, concurrently with such issue, to a price (calculated to the nearest
hundredth of a cent) determined by multiplying such conversion price by a
fraction, the numerator of which shall be the sum of (1) the number of Common
Shares outstanding immediately prior to such issue, (2) any Permitted Employee
Shares which have not been issued immediately prior to such issue, but are then
issuable pursuant to options which have been granted, and which have an exercise
price below the price of such issue and (3) the number of Common Shares which
the aggregate consideration received by the Corporation for the total number of
Additional Common Shares so issued would purchase at such conversion price; and
the denominator of which shall be the sum of (1) the number of Common Shares
outstanding immediately prior to such issue, (2) any Permitted Employee Shares
which have not been issued immediately prior to such issue but are then issuable
pursuant to options which have been granted, and which have an exercise price
below the price of such issue, and (3) the number of such Additional Common
Shares so issued; provided that, for the purposes of this subparagraph 4(c)(iv),
all Common Shares issuable upon conversion of outstanding Preferred Shares and
Convertible Securities and upon the exercise of Options (including the
conversion into Common Shares of Convertible Securities issuable upon the
exercise of such Options) and all Additional Shares previously deemed issued
pursuant to subparagraph 4(c)(iii) (adjusted pursuant to subparagraph
4(c)(iii)(3), if applicable) shall be deemed to be outstanding.
(v) DETERMINATION OF CONSIDERATION. For purposes of this paragraph 4(c), the
consideration received by the Corporation for the issue of any Additional
Common Shares shall be computed as follows:
(A) CASH AND PROPERTY: Such consideration shall:
(1) insofar as it consists of cash, be computed at the aggregate
amount of cash received by the Corporation excluding
<PAGE> 35
1L
amounts paid or payable for accrued interest or accrued
dividends;
(2) insofar as it consists of property other than cash, be computed
at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors of the
Corporation (and if the non-cash consideration is public traded
company shares, then the price shall be the simple average of the
closing price (or closing bid price) in the ten trading days
preceding the issue or deemed issue of the Additional Common
Shares); and
(3) if Additional Common Shares are issued together with other shares
or securities or other assets of the Corporation for
consideration which covers both, be the proportion of such
consideration so received in respect of the Additional Common
Shares, computed as provided in clauses (1) and (2) above, as
determined in good faith by the Board of Directors of the
Corporation.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per share
received by the Corporation for Additional Common Shares deemed to
have been issued pursuant to subparagraph 4(c)(iii)(A), relating to
Options and Convertible Securities, shall be determined by dividing:
(1) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments
relating thereto, without regard to any provisions contained
therein for a subsequent adjustment of such consideration)
payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in
the case of Options for Convertible Securities and the conversion
or exchange of such Convertible Securities, by
(2) the maximum number of shares of Common Shares (as set forth in
the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
(C) SHARE DIVIDENDS AND SHARE SUBDIVISIONS. Any Additional Common Shares
deemed to have been issued pursuant to
<PAGE> 36
1M
subparagraph 4(c)(iii)(B), relating to share dividends and share
subdivisions, shall be deemed to have been issued for no
consideration.
(vi) ADJUSTMENTS FOR COMBINATIONS OR CONSOLIDATION OF COMMON SHARES. If the
outstanding Common Shares shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of Common Shares,
the Class A Conversion Price and the Class B Conversion Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(vii) ADJUSTMENT FOR MERGERS OR REORGANIZATION, ETC. In case of any
amalgamation, consolidation or merger of the Corporation with or into
another corporation or the conveyance of all or substantially all of
the assets of the Corporation to another corporation (which is not, in
any such case, deemed to be a liquidation, dissolution or winding up
of the Corporation pursuant to paragraph 2(c)), each Preferred Share
shall thereafter, at the option of the holder, be convertible into the
number of shares or other securities or property to which a holder of
Common Shares deliverable upon conversion of such Preferred Shares
would have been entitled upon such consolidation, merger or
conveyance; and, in any such case, appropriate adjustment (as
determined by the Board of Directors of the Corporation and approved
in writing or at a meeting of all shareholders of the Corporation)
shall be made in the application of the provisions herein set forth
with respect to the rights and interest thereafter of the holders of
the Preferred Shares, to the end that the provisions set forth herein
(including provisions with respect to changes in and other adjustments
of the Class A Conversion Price and the Class B Conversion Price)
shall hereafter be applicable, as nearly as reasonably may be, in
relation to any shares or other property thereafter deliverable upon
the conversion of the Preferred Shares.
(d) NO IMPAIRMENT. The Board of Directors of the Corporation will at all times
in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Preferred Shares against impairment.
(e) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Class A Conversion Price or the Class B Conversion
Price pursuant to this Section 4, the Corporation, at its expense, promptly
shall compute such adjustment or readjustment in accordance with the terms
hereof and, upon written request of any holder of Class A Preferred Shares
or Class B Preferred Shares, as the case may be, shall cause independent
public accountants selected by the Corporation to verify such computation
and prepare and furnish to each holder
<PAGE> 37
1N
of Class A Preferred Shares or Class B Preferred Shares, as the case may
be, a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder
of Preferred Shares, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
conversion price applicable to such Preferred Shares in effect at the time,
and (iii) the number of Common Shares and the amount, if any, of other
property which at the time would be received upon the conversion of such
Preferred Shares.
(f) TAXES. The Corporation shall pay any and all issue taxes that may be
payable solely in respect of any issue or delivery of shares of Common
Shares on conversion of Preferred Shares pursuant hereto; provided,
however, that the Corporation shall not be obligated to pay any transfer
taxes resulting from any transfer requested by any holder in connection
with any such conversion or, for greater certainty, any income tax payable
by holders of Preferred Shares.
(g) RESERVATION OF SHARES ISSUABLE UPON CONVERSION. The Corporation shall at
all times reserve and keep available out of its authorized but unissued
Common Shares, solely for the purpose of effecting the conversion of the
shares of the Preferred Shares, such number of its Common Shares as shall
from time to time be sufficient to effect the conversion of all outstanding
Preferred Shares; and if at any time the number of authorized but unissued
Common Shares shall not be sufficient to effect the conversion of all then
outstanding Preferred Shares, the Corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued Common Shares to such number of shares as shall be
sufficient for such purpose.
(h) FRACTIONAL SHARES. No fractional share shall be issued upon the conversion
of any Preferred Shares. All Common Shares (including fractions thereof )
issuable upon conversion of more than one Preferred Share by a holder
thereof shall be aggregated for purposes of determining whether the
conversion would result in the issuance of any fractional share. If, after
the aforementioned aggregation, the conversion would result in the issuance
of a fraction of a Common Share, the Corporation shall, in lieu of issuing
any fractional share, pay the holder otherwise entitled to such fraction a
sum in cash equal to the fair market value of such fraction on the date of
conversion (as determined in good faith by the Board of Directors of the
Corporation).
5. REDEMPTION
The Preferred Shares may not be redeemed by the Corporation at any time, but the
holders may require the Corporation to redeem the Preferred Shares in the
following circumstances:
<PAGE> 38
1O
(a) OPTIONAL REDEMPTION. Each holder of Class A Preferred Shares may require
the Corporation to redeem, (i) after July 31, 2002, up to fifty percent
(50%) of the outstanding Class A Preferred Shares then held by such holder,
and (ii) after July 31, 2003, all or any portion of the outstanding Class A
Preferred Shares then held by such holder. Each holder of Class B Preferred
Shares may require the Corporation to redeem, (i) after December 31, 2002,
up to fifty percent (50%) of the outstanding Class B Preferred Shares then
held by such holder, and (ii) after December 31, 2003, all or any portion
of the outstanding Class B Preferred Shares then held by such holder. At
least 60 days prior to any redemption of Preferred Shares, each holder of
Preferred Shares electing to redeem its Preferred Shares in accordance with
this paragraph 5(a) shall give written notice to the Corporation specifying
the number of Preferred Shares such holder desires the Corporation to
redeem and the date of such redemption (hereinafter referred to as a
"Redemption Date").
(b) OPTIONAL REDEMPTION UPON CHANGE OF CONTROL. Each holder of Class A
Preferred Shares may require the Corporation to redeem all, but not less
than all, of the outstanding Class A Preferred Shares then held by such
holder, upon a Change in Control. Similarly, each holder of Class B
Preferred Shares may require the Corporation to redeem all, but not less
than all, of the outstanding Class B Preferred Shares then held by such
holder, upon a Change in Control. A "Change in Control" for purposes of
this paragraph 5(b) shall mean any issuance of voting securities by the
Corporation or transfer of voting securities by the holder(s) thereof (or
combination thereof) to any person or persons acting in concert or a group
of affiliated persons, which issuance and/or transfer results in such
person or persons or group holding in the aggregate voting securities
having the power to cast 50% or more of the votes on any matters submitted
from time to time to holders of voting securities of the Corporation or
which otherwise provides such persons with the ability to elect a majority
of the Board of Directors of the Corporation. Notice of such issuance
and/or transfer (the "Control Notice") shall be given to the holders of
Preferred Shares by the Corporation within 10 days of the earlier of the
Corporation's making such issuance and/or being informed of such transfer.
Within 60 days of receiving the Control Notice, each holder of Preferred
Shares electing to redeem all of such holder's Class A Preferred Shares
and/or Class B Preferred Shares, as the case may be, in accordance with
this paragraph 5(b) shall give written notice to the Corporation specifying
the number of Preferred Shares held by such holder and the date of such
redemption (also, a "Redemption Date").
(c) REDEMPTION PRICE AND PAYMENT. The Class A Preferred Shares to be redeemed
on any Redemption Date pursuant to paragraphs 5(a) or 5(b) above shall be
redeemed by paying for each share in cash an amount) equal to $0.375 plus
all accrued but unpaid dividends thereon up to and including the date the
redemption price is received by the holder (the "Class A Redemption
Price"). The Class B Preferred Shares to be redeemed on any Redemption Date
pursuant to paragraphs 5(a) or 5(b) above shall be redeemed by paying for
each share in cash an amount) equal to $0.95
<PAGE> 39
1P
plus all accrued but unpaid dividends thereon up to and including the date
the redemption price is received by the holder (the Class B Redemption
Price").
(d) REDEMPTION MECHANICS. Upon receipt of payment by each holder of Preferred
Shares electing to redeem pursuant to paragraphs 5(a) or 5(b) above of the
redemption price applicable to such Preferred Shares (the Class A
Redemption Price or the Class B Redemption Price, as the case may be), all
rights of holders of such redeemed shares shall cease with respect to such
shares, and such shares shall not thereafter be transferred on the books of
the Corporation or be deemed to be outstanding for any purpose whatsoever.
If the funds of the Corporation legally available for redemption of
Preferred Shares on any Redemption Date are insufficient to redeem the
total number of outstanding Preferred Shares as to which redemption is
requested, the holders of Preferred Shares requesting redemption shall
share rateably in any funds legally available for redemption of such shares
according to the respective amounts which would be payable with respect to
the full number of shares owned by such holders as to which redemption is
requested if all such outstanding shares were redeemed in full. The
Preferred Shares not redeemed shall remain outstanding and entitled to all
rights and preferences provided herein. At any time thereafter when
additional funds of the Corporation are legally available for the
redemption of such Preferred Shares, such funds will be used, at the end of
the next succeeding fiscal quarter, to redeem the balance of such shares as
to which redemption had been requested, or such portion thereof for which
funds are then legally available, on the basis set forth above, regardless
of whether any last date for giving notice pursuant to paragraphs 5(a) or
5(b), as the case may be, has passed.
(e) REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED. Any Preferred Shares
redeemed pursuant to this Section 5 or otherwise acquired by the
Corporation in any manner whatsoever shall be cancelled.
6. CURRENCY
All references herein to dollar amounts are references to Canadian dollars.
<PAGE> 40
5. The amendment has been duly authorized as required by Sections 168 & 170
(as applicable) of the Business Corporations Act.
La modification a ete dument autorisee conformement a l'article 168 et,
s'il y a lieu, a article 170 de la Loi sur les compagnies.
6. The resolution authorizing the amendment was approved by the
shareholders/directors (as applicable) of the corporation on
Les actionnaires ou les administrateurs (le cas echeant) de la compagnie
ont approuve la reesolution autorisant la modification
25 January 1999
---------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
These articles are signed in duplicate.
Les presents status sont signes en double exemplaire.
DELANO TECHNOLOGY CORPORATION
---------------------------------------------------------------------------
(Name of Corporation)
(Denomination social de la compagnie)
By/Par: (Signed) Secretary
---------------------------------------------------------------------------
(Signature) (Description of Office)
(Signature) (Fonction)
<PAGE> 41
For Ministry Use Only Ontario Corporation Number
A l'usage exclusif du ministere Numero de la societe en Ontario
1294608
Ministry of Ministere de
[LOGO] Consumer and la Consommation
Commercial Relations et du Commerce
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que las presents
articles are effective on status entrant en vigueur le
JUNE 24 JUIN, 1999
- -------------------------------------------------------------
(Signed)
Director / Directeur
Business Corporations Act / Loi sur les societes par actions
TRANS
CODE
C
18
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
Form 3 Business Corporations Act
Formule numero 3 Loi sur les compagnies
1. The present name of the corporation is:
Denomination sociale actuelle de la compagnie:
DELANO TECHNOLOGY CORPORATION
2. The name of the corporation is changed to (if applicable):
Nouvelle denomination sociale de la compagnie (s'il y a lieu):
N/A
3. Date of incorporation/amalgamation:
Date de la constitution ou de la fusion:
7 May 1998
---------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
4. The articles of the corporation are amended as follows:
Les statuts de la compagnie sont modifies de la facon suivante:
(a) to create an unlimited number of Class C Preferred Shares;
(b) to delete the rights, privileges, restrictions and conditions
attaching to the Common Shares and Preferred Shares of the Corporation
and substitute therefor the rights, privileges, restrictions and
conditions as set out in Exhibit A attached hereto;
(c) to remove the following from paragraph 8 of the Articles of the
Corporation;
"The shares of the Corporation shall not be transferred without the
approval of the board of directors of the Corporation to be evidenced
by a resolution of the board."
(d) to remove the following from paragraph 9 of the Articles of the
Corporation;
"1. The number of shareholders of the Corporation exclusive of
persons who are in its employment and exclusive of persons who,
having been formerly in the employment of the Corporation, were,
while in that employment, and have continued after termination of
that employment to be shareholders of the Corporation, is limited
to not more than fifty, two or more persons who are the joint
registered owners of one or more shares being counted as one
shareholder.
2. Any invitation to the public to subscribe for shares or other
securities of the Corporation shall be prohibited."
<PAGE> 42
1A
DELANO TECHNOLOGY CORPORATION
ARTICLES OF AMENDMENT
EXHIBIT A
COMMON SHARES
1. VOTING RIGHTS
Each holder of Common Shares shall be entitled to receive notice of and to
attend all meetings of shareholders of the Corporation and to vote thereat,
except meetings at which only holders of a specified class of shares (other than
Common Shares) or specified series of shares are entitled to vote. At all
meetings of holders of Common Shares, each holder of Common Shares shall be
entitled to one vote in respect of each Common Share held by such holder.
2. DIVIDENDS
The Common Shares shall be entitled, subject to the rights, privileges,
restrictions and conditions attaching to any other class of shares of the
Corporation, to receive any dividend declared by the Board of Directors of the
Corporation.
3. LIQUIDATION, DISSOLUTION OR WINDING-UP
In the event of any liquidation, dissolution or winding-up of the Corporation or
other distribution of assets of the Corporation among its shareholders for the
purpose of winding-up its affairs, subject to the rights, privileges,
restrictions and conditions attaching to any other class of shares of the
Corporation, the assets and funds of the Corporation available for distribution
to shareholders shall be distributed among the holders of the Common Shares, the
holders of the Class A Preferred Shares the holders of the Class B Preferred
Shares, the holders of the Class C Preferred Shares and any other class or
series of shares entitled to participate in a liquidation distribution with the
holders of Common Shares, pro rata based on the number of Common Shares held by
each holder (assuming conversion into Common Shares of all Class A Preferred
Shares, Class B Preferred Shares and Class C Preferred Shares) and any other
participating outstanding series or class of shares convertible into Common
Shares.
PREFERRED SHARES
1. DIVIDENDS ON PREFERRED SHARES
The Class A Preferred Shares, the Class B Preferred Shares and the Class C
Preferred Shares (collectively, the "Preferred Shares") shall participate
equally with respect to dividends and for greater certainty, all dividends which
the directors may declare in any fiscal year of the Corporation on the Class A
Preferred Shares, the Class B Preferred Shares and the Class C Preferred Shares
shall be
<PAGE> 43
1B
declared and paid in equal or equivalent amounts per share on the Class A
Preferred Shares, the Class B Preferred Shares and the Class C Preferred Shares
at the time outstanding without preference or priority.
Holders of outstanding Class A Preferred Shares shall be entitled to receive, in
any fiscal year, annually or when otherwise as declared by the Board of
Directors of the Corporation and to the extent permitted under the Business
Corporations Act (Ontario), dividends in cash at the rate of $0.03 per share per
annum plus an amount per share equal to 8% per annum of the accrued and unpaid
dividends thereon (providing for an 8% cumulative compounding return), which
shall accrue as provided herein, before any dividend is paid on the Common
Shares. Such dividends shall accrue on outstanding Class A Preferred Shares
cumulatively, commencing on the date of the original issuance thereof, on a
daily basis. Except to the extent otherwise permitted by these Articles,
dividends or distributions may be declared and paid upon Common Shares in any
fiscal year of the Corporation only if all accrued dividends shall have been
paid on all Class A Preferred Shares in accordance with this section. If, after
payment of such dividends to holders of the Preferred Shares, dividends are paid
to holders of Common Shares, the holders of outstanding Preferred Shares shall
be entitled to receive, out of any assets at the time legally available
therefor, additional dividends per share equal to the per share dividends paid
to holders of Common Shares (treating each Preferred Share as being equal to the
number of Common Shares into which each such Preferred Share could be converted
pursuant to Section 4 (Conversion) hereof, with such number determined as of the
record date for the determination of holders of Common Shares entitled to
receive such dividend).
2. LIQUIDATION, DISSOLUTION OR WINDING-UP
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of Class A
Preferred Shares shall be entitled to receive, prior and in preference
to any distribution of any of the assets of the Corporation to the
holders of the Common Shares or to the holders of the Class B
Preferred Shares or the Class C Preferred Shares, by reason of their
ownership thereof, the Class A Redemption Price (as defined in
paragraph 5(c) below) for each Class A Preferred Share then held by
such holders. If the amount available for such distribution is
insufficient to pay the Class A Redemption Price on all outstanding
Class A Preferred Shares, the assets available for distribution shall
be distributed among the holders of the Class A Preferred Shares pro
rata in accordance with the total number of Class A Preferred Shares
held by such holders.
(b) After the payment of all preferential amounts required to be paid to
the holders of the Class A Preferred Shares and any other class or
series of shares of the Corporation ranking on liquidation on a parity
with or senior to the Class A Preferred Shares, the holders of Class B
Preferred Shares and the holders of Class C Preferred Shares shall be
entitled to receive, prior and in preference to any distribution of
any of the assets of the Corporation to the holders of the Common
Shares, by reason of their ownership thereof, for each Class B
Preferred Share and Class C Preferred Share then held by a holder, a
sum equal to:
<PAGE> 44
1C
FOR HOLDERS OF CLASS B PREFERRED SHARES:
(i) the Class B Redemption Price (as defined in paragraph 5(c) below); and
(ii) an additional amount equal to the following:
(A) 8% of the holders subscription price for the Class B Preferred
Share, per annum since the date of issuance (non-compounded), if
the aggregate value of all assets available for distribution to
the holders of the Corporation (prior to making any payments
pursuant to this Section 2) is less than or equal to $9,999,999;
or
(B) 16% of the holders subscription price for the Class B Preferred
Share, per annum since the date of issuance (non-compounded), if
the aggregate value of all assets available for distribution to
the holders of the Corporation (prior to making any payments
pursuant to this Section 2) is greater than $9,999,999 but less
than or equal to $19,999,999; or
(C) 24% of the holders subscription price for the Class B Preferred
Share, per annum since the date of issuance (non-compounded) if
the aggregate value of all assets available for distribution to
the holders of the Corporation (prior to making any payments
pursuant to this Section 2) is greater than $19,999,999.
FOR HOLDERS OF CLASS C PREFERRED SHARES:
(i) the Class C Redemption Price (as defined in paragraph 5(c) below); and
(ii) an additional amount equal to the following:
(A) 8% of the holders subscription price for the Class C Preferred
Share, per annum since the date of issuance (non-compounded), if
the aggregate value of all assets available for distribution to
the holders of the Corporation (prior to making any payments
pursuant to this Section 2) is less than or equal to $9,999,999;
or
(B) 16% of the holders subscription price for the Class C Preferred
Share, per annum since the date of issuance (non-compounded), if
the aggregate value of all assets available for distribution to
the holders of the Corporation (prior to making any payments
pursuant to this Section 2) is greater than $9,999,999 but less
than or equal to $19,999,999; or
<PAGE> 45
1D
(C) 24% of the holders subscription price for the Class C Preferred
Share, per annum since the date of issuance (non-compounded) if
the aggregate value of all assets available for distribution to
the holders of the Corporation (prior to making any payments
pursuant to this Section 2) is greater than $19,999,999.
If the amount available for such distribution is insufficient to pay the
Class B Redemption Price and the Class C Redemption Price (plus any
additional amount applicable pursuant to this Section 2) on all outstanding
Class B Preferred Shares and Class C Preferred Shares, the assets available
for distribution shall be distributed among the holders of the Class B
Preferred Shares and the holders of the Class C Preferred Shares pro rata
based on the number of Common Shares into which each Class B Preferred
Share and Class C Preferred Share could be converted pursuant to Section 4
(conversion) hereof.
(c) After the payment of all preferential amounts required to be paid to the
holders of the Class A Preferred Shares, the holders of the Class B
Preferred Shares and the holders of the Class C Preferred Shares and any
other class or series of shares of the Corporation ranking on liquidation
senior to the Common Shares, upon the liquidation, dissolution or winding
up of the Corporation, the remaining assets and funds of the Corporation
available for distribution to its shareholders shall be distributed among
the holders of the Class A Preferred Shares, the holders of the Class B
Preferred Shares, the holders of the Class C Preferred Shares and the
holders of the Common Shares and any other class or series of shares
entitled to participate in liquidation distributions with the holders of
Common Shares, pro rata based on the number of Common Shares held by each
holder (assuming conversion into Common Shares of all Preferred Shares) and
any other participating outstanding series or class of shares convertible
into Common Shares.
(d) The amalgamation, merger or consolidation of the Corporation into or with
another corporation (where the shareholders of the Corporation are not the
majority shareholders of the merged entity), or the sale of all or
substantially all the assets of the Corporation, shall be deemed a
liquidation, dissolution or winding up of the Corporation for purposes of
this Section 2 unless the prior written consent to such transaction is
obtained from the holders of at least two-thirds of the outstanding Class A
Preferred Shares, from the holders of at least two-thirds of the
outstanding Class B Preferred Shares and from the holders of at least two
thirds of the outstanding Class C Preferred Shares, voting separately.
(e) In the event of a liquidation, dissolution or winding up of the Corporation
resulting in the availability of assets other than cash for distribution to
the holders of Preferred Shares, the cash amount deemed distributed to such
holders shall be the cash value of the property, rights or securities
distributed to such holders by the Corporation or
<PAGE> 46
1E
the acquiring corporation. If the non-cash consideration is publicly traded
shares, then the cash value for such consideration shall be the simple
average of the closing price (or closing bid price during) in the ten
trading days preceding announcement of the distribution. The Board of
Directors of the Corporation shall first determine the value of such
property, rights or other securities for such purpose, and shall notify all
holders of Preferred Shares of such determination. The value of such
property, rights or other securities for purposes of the distribution under
this paragraph 2(e) shall be the value as determined by the Board of
Directors of the Corporation in good faith, unless the holders of a
majority of the outstanding Preferred Shares shall object thereto in
writing within 15 days after receiving written notice of such value. In the
event of such objection, the valuation of such property, rights or other
securities for purposes of such distribution shall be determined by an
arbitrator selected by the objecting shareholders and the Board of
Directors of the Corporation, or in the event a single arbitrator cannot be
agreed upon within 10 days after the written objection sent by the
objecting shareholders in accordance with the previous sentence, the
valuation of such property, rights or other securities shall be determined
by arbitration in which (i) the objecting shareholders shall name one
arbitrator, (ii) the Board of Directors of the Corporation shall name a
second arbitrator, (iii) the two arbitrators thus selected shall select a
third arbitrator, and (iv) the three arbitrators thus selected shall
determine the valuation of such property, rights or other securities within
15 days for purposes of such distribution or as soon as practicable
thereafter by majority vote. The costs of such arbitration shall be borne
by the Corporation or by the holders of the Preferred Shares (on a pro rata
basis out of the property, rights or other securities otherwise
distributable to them) as follows: (A) if the valuation as determined by
the arbitrators is equal to or exceeds the valuation as determined by the
Board of Directors of the Corporation, the holders of the Preferred Shares
shall pay the costs of the arbitration, and (B) otherwise, the Corporation
shall bear the costs of the arbitration.
3. VOTING RIGHTS
Except as otherwise provided herein and except as otherwise required by law, on
all matters submitted to a vote of holders of Common Shares, a holder of
Preferred Shares shall be entitled to the number of votes which is equal to the
number of Common Shares into which such Preferred Shares are then convertible
pursuant to Section 4 (Conversion) hereof, and in all ways shall have voting
rights and powers equal to the voting rights and powers of the Common Shares,
including the right to notice of any shareholders' meeting in accordance given
to the holders of Common Shares. Except as otherwise required by law, the
Preferred Shares and Common Shares vote together as a single class. Fractional
votes shall not, however, be permitted and any fractional voting rights
resulting from the above formula (after aggregating all Common Shares into which
Preferred Shares
<PAGE> 47
1F
held by each holder could then be converted) shall be rounded to the nearest
whole number (with one-half being rounded upward).
4. CONVERSION
The holders of Preferred Shares shall have the following conversion rights (the
"Conversion Rights"):
(a) RIGHT TO CONVERT.
(i) OPTIONAL CONVERSION. Each Class A Preferred Share shall be
convertible, at the option of the holder thereof, at the office
of the Corporation, into such number of fully paid and
non-assessable Common Shares as determined by dividing $0.375 by
the Class A Conversion Price (as defined below), in effect at the
time of conversion. The price at which Common Shares shall be
deliverable upon conversion (the "Class A Conversion Price")
shall initially be $0.375. Such Class A Conversion Price shall be
subject to adjustment as hereinafter provided. Each Class B
Preferred Share shall be convertible, at the option of the holder
thereof, at the office of the Corporation, into such number of
fully paid and non-assessable Common Shares as determined by
dividing $0.95 by the Class B Conversion Price (as defined
below), in effect at the time of conversion. The price at which
Common Shares shall be deliverable upon conversion (the "Class B
Conversion Price") shall initially be $0.95. Such Class B
Conversion Price shall be subject to adjustment as hereinafter
provided. Each Class C Preferred Share shall be convertible, at
the option of the holder thereof, at the office of the
Corporation, into one Common Share and the number of Common
Shares received upon the conversion of Class C Preferred Shares
shall not be subject to adjustment at any time including, without
limitation, pursuant to the provisions of paragraph 4(c).
(ii) AUTOMATIC CONVERSION. Each Preferred Share shall be converted
automatically into Common Shares (for the Class A Preferred
Shares and the Class B Preferred Shares, at the then effective
Class A Conversion Price or Class B Conversion Price, as the case
may be) immediately prior to (A) the completion of a Canadian
public offering of Common Shares pursuant to a prospectus or a
sale of Common Shares in a public offering registered under the
U.S. Securities Act of 1933, as amended, (or the applicable law
of such other jurisdiction in which the Corporation goes public)
that results in aggregate net proceeds to the Corporation
(defined as aggregate sales price to the public, less expenses
and underwriters' discounts) of at least twenty million dollars
($20,000,000) at a price per share which is based on a
pre-offering valuation of the Corporation of not less than thirty
million dollars ($30,000,000) (a "Qualified Public Offering"); or
(B) the Corporation acquiring all or substantially all of the
assets of any other person or business
<PAGE> 48
1G
entity or entering into any consolidation, merger, or other
business combination, or transferring all or substantially all of
the Corporation's business or assets to any partnership, joint
venture or other similar jointly owned business venture, with any
other corporation or business entity, or effecting a liquidation,
winding up, reorganization or sale or other disposition of the
Corporation or of all or substantially all of the assets of the
Corporation in a transaction that in any such event either (x)
provides the holders of the Preferred Shares with cash proceeds,
or securities of a class of shares that is traded on the Toronto
Stock Exchange, NASDAQ National Market system or the NYSE or AMEX
exchanges (or any other recognized exchange or trading system of
approximately equivalent stature) or some combination thereof
equal to at least $2.25 per Preferred Share, less the amount of
any dividends actually paid by the Corporation per share to the
holder of Preferred Shares (if such transaction closes on or
prior to July 31, 2002), or $2.625 per Preferred Share less the
amount of any dividends actually paid by the Corporation per
share to the holder of Preferred Shares (if such transaction
closes after July 31, 2002 but on or prior to July 31, 2003) or
(y) the holders of at least 50% of the aggregate number of
outstanding Class A Preferred Shares, the holders of at least 50%
of the aggregate number of outstanding Class B Preferred Shares
and the holders of at least 50% of the aggregate number of
outstanding Class C Preferred Shares, voting separately, approve
at a meeting of shareholders or otherwise in writing both the
proposed transaction and the conversion of Preferred Shares to
Common Shares. The Corporation shall not pay dividends
(regardless of whether such dividends have been accrued or
declared) on any Preferred Shares that are automatically
converted pursuant to this subsection (ii) above in addition to
any dividends that were actually paid to holders of Preferred
Shares prior to the automatic conversion.
(b) MECHANICS OF CONVERSION. Except on an automatic conversion under
subparagraph 4(a)(ii) above, before any holder of Preferred Shares shall be
entitled to convert Preferred Shares into Common Shares, such holder shall
surrender the certificate or certificates thereof, duly endorsed, at the
office of the Corporation and shall give written notice to the Corporation
at such office that such holder elects to convert the Preferred Shares and
shall state therein the name or names in which such holder wishes the
certificate or certificates for Common Shares to be issued. The Corporation
shall, as soon as practicable thereafter, issue and deliver at such office
to such holder, or to such holder's nominee or nominees, a certificate or
certificates for the number of Common Shares to which such holder shall be
entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of surrender of the
Preferred Shares to be converted, and the person or persons entitled to
receive the Common Shares issuable upon such conversion shall be treated
for all purposes as the record holder or holders of such Common Shares on
such date. If a holder tenders Preferred Shares for conversion in
<PAGE> 49
1H
connection with any automatic conversion event described in subparagraph
4(a)(ii) above the conversion may, at the option of the holder tendering
Preferred Shares for conversion, be conditioned upon the closing of the
relevant transaction, in which event the person(s) entitled to receive the
Common Shares issuable upon such conversion of the Preferred Shares shall
not be deemed to have converted such Preferred Shares until immediately
prior to the closing of such transaction.
(c) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of this paragraph 4(c), the
following definitions shall apply:
(A) "Additional Common Shares" shall mean all Common Shares issued
(or, pursuant to subparagraph 4(c)(iii), deemed to be issued) by
the Corporation after the Original Issue Date, other than Common
Shares issued or issuable:
(1) upon conversion of Preferred Shares;
(2) to officers, directors or employees of, or consultants to,
the Corporation, in accordance with a plan approved by the
Board of Directors of the Corporation or pursuant to a
compensation package for new senior officers of the
Corporation which the holders of a majority of the Preferred
Shares have agreed to in writing ("Permitted Employee
Shares"), subject to adjustment for all reclassifications,
subdivisions, combinations or similar recapitalizations of
Common Shares;
(3) as a dividend or distribution on Preferred Shares; and
(4) by way of dividend or other distribution on Common Shares
which were, when issued, excluded from the definition of
Additional Common Shares by the foregoing clauses (1), (2)
and (3) or this clause (4).
(B) "Convertible Securities" shall mean any evidence of indebtedness,
and shares (other than Common Shares) or other securities
convertible into or exchangeable for Common Shares, including the
Preferred Shares.
(C) "Options" shall mean rights, options or warrants to subscribe
for, purchase or otherwise acquire either Common Shares or
Convertible Securities.
<PAGE> 50
1I
(D) "Original Issue Date" shall mean the date on which a Preferred
Share was first issued.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in either the Class A
Conversion Price or the Class B Conversion Price shall be made in
respect of the issuance of Additional Common Shares unless the Net
Cash Consideration (as defined below) per share for an Additional
Common Share issued or deemed to be issued by the Corporation is less
than the Class A Conversion Price or Class B Conversion Price, as the
case may be, in effect on the date of, and immediately prior to such
issue for such Preferred Shares. The "Net Cash Consideration" shall
mean the cash value of the consideration received by the Corporation
(determined pursuant to subparagraph 4(c)(v)) less any commissions
payable to third parties with respect to the transaction in which the
cash consideration is received.
(iii) DEEMED ISSUE OF ADDITIONAL COMMON SHARES.
(A) OPTIONS AND CONVERTIBLE SECURITIES. If the Corporation at any
time or from time to time after the Original Issue Date shall
issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities,
then the maximum aggregate number (as set forth in the instrument
relating thereto without regard to any provision contained
therein for a subsequent adjustment of such number) of Common
Shares issuable upon the exercise of such Options or, in the case
of Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be
Additional Common Shares issued as of the time of such issue or,
in case such a record date shall have been fixed, as of the close
of business on such record date.
Notwithstanding the foregoing, in respect of Preferred Shares
Additional Common Shares shall not be deemed to have been issued
unless the Net Cash Consideration (as defined in subparagraph
4(c)(ii)) per share (determined pursuant to subparagraph 4(c)(v)
hereof) of such Additional Common Shares would be less than the
Class A Conversion Price or the Class B Conversion Price, as the
case may be, in effect on the date of and immediately prior to
such issue, or such record date, as the case may be, and provided
further that in any such case in which Additional Common Shares
are deemed to be issued:
(1) no further adjustment in the Class A Conversion Price or the
Class B Conversion Price shall be made upon the subsequent
<PAGE> 51
1J
issue of Convertible Securities or Common Shares pursuant to
the exercise of such Options or conversion or exchange of
such Convertible Securities;
(2) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any
increase in the consideration payable to the Corporation, or
decrease in the number of Common Shares issuable, upon the
exercise, conversion or exchange thereof, the Class A
Conversion Price and the Class B Conversion Price computed
upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such
increase or decrease insofar as it affects such Options or
the rights of conversion or exchange under such Convertible
Securities;
(3) upon the expiration or termination of any such Options or
any rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the Class A
Conversion Price and the Class B Conversion Price computed
upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration or
termination, be recomputed as if:
A. in the case of Convertible Securities or Options for
Common Shares, the only Additional Common Shares issued
were the Common Shares, if any, actually issued upon
the exercise of such Options or the conversion or
exchange of such Convertible Securities and the
consideration received therefor was the consideration
actually received by the Corporation for the issue of
all such Options, whether or not exercised, plus the
consideration actually received by the Corporation upon
such exercise, or for the issue of all such Convertible
Securities, whether or not actually converted or
exchanged, plus the additional consideration, if any,
actually received by the Corporation upon such
conversion or exchange, and
B. in the case of Options for Convertible Securities, only
Convertible Securities, if any, actually issued upon
the
<PAGE> 52
1K
exercise thereof were issued at the time of issue of
such options, and the consideration received by the
Corporation for the Additional Common Shares deemed to
have been then issued was the consideration actually
received by the Corporation for the issue of all such
Options, whether or not exercised, plus the
consideration deemed to have been received by the
Corporation upon the issue of the Convertible
Securities with respect to which such Options were
actually exercised; and
(4) for greater certainty, no adjustment pursuant to either
clause B. or C. above shall have the effect of increasing
the Class A Conversion Price or the Class B Conversion Price
which shall continue to be, for the purposes of any
recalculation of the number of Additional Common Shares
deemed to be issued, the Class A Conversion Price or the
Class B Conversion Price, as the case may be, in effect
immediately prior to the initial deemed issuance of such
Additional Common Shares.
(B) SHARE DIVIDENDS AND SUBDIVISIONS. If the Corporation at any time
or from time to time after the Original Issue Date shall declare
or pay any dividend on the Common Shares payable in Common
Shares, or effect a subdivision of the outstanding shares of
Common Shares into a greater number of shares of Common Shares
(by reclassification or otherwise than by payment of a dividend
in Common Shares), then, and in any such event, Additional Common
Shares shall be deemed to have been issued:
(1) in the case of any such dividend, immediately after the
close of business on the record date for the determination
of holders of any class of securities entitled to receive
such dividend, or
(2) in the case of any such subdivision, at the close of
business on the date immediately prior to the date upon
which such corporate action becomes effective.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL COMMON
SHARES.
If the Corporation shall issue Additional Common Shares (including
Additional Common Shares deemed to be issued pursuant to subparagraph
4(c)(iii)) for a Net Cash Consideration (as defined in subparagraph
4(c)(ii)) per share less than the Class A Conversion Price or the Class B
Conversion Price on the date of and immediately
<PAGE> 53
1L
prior to such issuance, then, and in such event, the Class A Conversion
Price and/or the Class B Conversion Price, as the case may be, shall be
reduced, concurrently with such issue, to a price (calculated to the
nearest hundredth of a cent) determined by multiplying such conversion
price by a fraction, the numerator of which shall be the sum of (1) the
number of Common Shares outstanding immediately prior to such issue, (2)
any Permitted Employee Shares which have not been issued immediately prior
to such issue, but are then issuable pursuant to options which have been
granted, and which have an exercise price below the price of such issue and
(3) the number of Common Shares which the aggregate consideration received
by the Corporation for the total number of Additional Common Shares so
issued would purchase at such conversion price; and the denominator of
which shall be the sum of (1) the number of Common Shares outstanding
immediately prior to such issue, (2) any Permitted Employee Shares which
have not been issued immediately prior to such issue but are then issuable
pursuant to options which have been granted, and which have an exercise
price below the price of such issue, and (3) the number of such Additional
Common Shares so issued; provided that, for the purposes of this
subparagraph 4(c)(iv), all Common Shares issuable upon conversion of
outstanding Preferred Shares and Convertible Securities and upon the
exercise of Options (including the conversion into Common Shares of
Convertible Securities issuable upon the exercise of such Options) and all
Additional Shares previously deemed issued pursuant to subparagraph
4(c)(iii) (adjusted pursuant to subparagraph 4(c)(iii)(3), if applicable)
shall be deemed to be outstanding.
(v) DETERMINATION OF CONSIDERATION. For purposes of this paragraph 4(c),
the consideration received by the Corporation for the issue of any
Additional Common Shares shall be computed as follows:
(A) CASH AND PROPERTY: Such consideration shall:
(1) insofar as it consists of cash, be computed at the aggregate
amount of cash received by the Corporation excluding amounts
paid or payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such
issue, as determined in good faith by the Board of Directors
of the Corporation (and if the non-cash consideration is
public traded company shares, then the price shall be the
simple average of the closing price (or closing bid price)
in the ten trading days preceding the issue or deemed issue
of the Additional Common Shares); and
<PAGE> 54
1M
(3) if Additional Common Shares are issued together with other
shares or securities or other assets of the Corporation for
consideration which covers both, be the proportion of such
consideration so received in respect of the Additional
Common Shares, computed as provided in clauses (1) and (2)
above, as determined in good faith by the Board of Directors
of the Corporation.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per share
received by the Corporation for Additional Common Shares deemed
to have been issued pursuant to subparagraph 4(c)(iii)(A),
relating to Options and Convertible Securities, shall be
determined by dividing:
(1) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options
or Convertible Securities, plus the minimum aggregate amount
of additional consideration (as set forth in the instruments
relating thereto, without regard to any provisions contained
therein for a subsequent adjustment of such consideration)
payable to the Corporation upon the exercise of such Options
or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible
Securities and the conversion or exchange of such
Convertible Securities, by
(2) the maximum number of shares of Common Shares (as set forth
in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or
the conversion or exchange of such Convertible Securities.
(C) SHARE DIVIDENDS AND SHARE SUBDIVISIONS. Any Additional Common
Shares deemed to have been issued pursuant to subparagraph
4(c)(iii)(B), relating to share dividends and share subdivisions,
shall be deemed to have been issued for no consideration.
(vi) ADJUSTMENTS FOR COMBINATIONS OR CONSOLIDATION OF COMMON SHARES. If the
outstanding Common Shares shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of Common Shares,
the Class A Conversion Price and the Class B Conversion Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
<PAGE> 55
1N
(vii) ADJUSTMENT FOR MERGERS OR REORGANIZATION, ETC. In case of any
amalgamation, consolidation or merger of the Corporation with or into
another corporation or the conveyance of all or substantially all of
the assets of the Corporation to another corporation (which is not, in
any such case, deemed to be a liquidation, dissolution or winding up
of the Corporation pursuant to paragraph 2(c)), each Preferred Share
shall thereafter, at the option of the holder, be convertible into the
number of shares or other securities or property to which a holder of
Common Shares deliverable upon conversion of such Preferred Shares
would have been entitled upon such consolidation, merger or
conveyance; and, in any such case, appropriate adjustment (as
determined by the Board of Directors of the Corporation) shall be made
in the application of the provisions herein set forth with respect to
the rights and interest thereafter of the holders of the Preferred
Shares, to the end that the provisions set forth herein (including
provisions with respect to changes in and other adjustments of the
Class A Conversion Price and the Class B Conversion Price) shall
hereafter be applicable, as nearly as reasonably may be, in relation
to any shares or other property thereafter deliverable upon the
conversion of the Preferred Shares.
(d) NO IMPAIRMENT. The Board of Directors of the Corporation will at all times
in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Preferred Shares against impairment.
(e) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Class A Conversion Price or the Class B Conversion
Price pursuant to this Section 4, the Corporation, at its expense, promptly
shall compute such adjustment or readjustment in accordance with the terms
hereof and, upon written request of any holder of Class A Preferred Shares
or Class B Preferred Shares, as the case may be, shall cause independent
public accountants selected by the Corporation to verify such computation
and prepare and furnish to each holder of Class A Preferred Shares or Class
B Preferred Shares, as the case may be, a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of Class B Preferred Shares or
Class C Preferred Shares, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments, (ii)
the conversion price applicable to such Class B Preferred Shares and Class
C Preferred Shares in effect at the time, and (iii) the number of Common
Shares and the amount, if any, of other property which at the time would be
received upon the conversion of such Class B Preferred Shares and Class C
Preferred Shares.
(f) TAXES. The Corporation shall pay any and all issue taxes that may be
payable solely in respect of any issue or delivery of shares of Common
Shares on conversion of
<PAGE> 56
1O
Preferred Shares pursuant hereto; provided, however, that the Corporation
shall not be obligated to pay any transfer taxes resulting from any
transfer requested by any holder in connection with any such conversion or,
for greater certainty, any income tax payable by holders of Preferred
Shares.
(g) RESERVATION OF SHARES ISSUABLE UPON CONVERSION. The Corporation shall at
all times reserve and keep available out of its authorized but unissued
Common Shares, solely for the purpose of effecting the conversion of the
shares of the Preferred Shares, such number of its Common Shares as shall
from time to time be sufficient to effect the conversion of all outstanding
Preferred Shares; and if at any time the number of authorized but unissued
Common Shares shall not be sufficient to effect the conversion of all then
outstanding Preferred Shares, the Corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued Common Shares to such number of shares as shall be
sufficient for such purpose.
(h) FRACTIONAL SHARES. No fractional share shall be issued upon the conversion
of any Preferred Shares. All Common Shares (including fractions thereof)
issuable upon conversion of more than one Preferred Share by a holder
thereof shall be aggregated for purposes of determining whether the
conversion would result in the issuance of any fractional share. If, after
the aforementioned aggregation, the conversion would result in the issuance
of a fraction of a Common Share, the Corporation shall, in lieu of issuing
any fractional share, pay the holder otherwise entitled to such fraction a
sum in cash equal to the fair market value of such fraction on the date of
conversion (as determined in good faith by the Board of Directors of the
Corporation).
5. REDEMPTION
The Preferred Shares may not be redeemed by the Corporation at any time, but the
holders may require the Corporation to redeem the Preferred Shares in the
following circumstances:
(a) OPTIONAL REDEMPTION. Each holder of Class A Preferred Shares may require
the Corporation to redeem, (i) after July 31, 2002 up to fifty percent
(50%) of the outstanding Class A Preferred Shares then held by such holder,
and (ii) after July 31, 2003, all or any portion of the outstanding Class A
Preferred Shares then held by such holder. Each holder of Class B Preferred
Shares may require the Corporation to redeem, (i) after December 31, 2002,
up to fifty percent (50%) of the outstanding Class B Preferred Shares then
held by such holder, and (ii) after December 31, 2003, all or any portion
of the outstanding Class B Preferred Shares then held by such holder. Each
holder of Class C Preferred Shares may require the Corporation to redeem,
(i) after June 22, 2003, up to fifty percent (50%) of the outstanding Class
C Preferred Shares then held by such holder, and (ii) after June 22, 2004,
all or any portion of the outstanding Class C Preferred Shares then held by
such holder. At least 60 days prior to any redemption of Preferred Shares,
each holder of Preferred Shares
<PAGE> 57
1P
electing to redeem its Preferred Shares in accordance with this paragraph
5(a) shall give written notice to the Corporation specifying the number of
Preferred Shares such holder desires the Corporation to redeem and the date
of such redemption (hereinafter referred to as a "Redemption Date").
(b) OPTIONAL REDEMPTION UPON CHANGE OF CONTROL. Each holder of Class A
Preferred Shares may require the Corporation to redeem all, but not less
than all, of the outstanding Class A Preferred Shares then held by such
holder, upon a Change in Control. Similarly, each holder of Class B
Preferred Shares and Class C Preferred Shares may require the Corporation
to redeem all, but not less than all, of the outstanding Class B Preferred
Shares and Class C Preferred Shares then held by such holder, upon a Change
in Control. A "Change in Control" for purposes of this paragraph 5(b) shall
mean any issuance of voting securities by the Corporation or transfer of
voting securities by the holder(s) thereof (or combination thereof) to any
person or persons acting in concert or a group of affiliated persons, which
issuance and/or transfer results in such person or persons or group holding
in the aggregate voting securities having the power to cast 50% or more of
the votes on any matters submitted from time to time to holders of voting
securities of the Corporation or which otherwise provides such persons with
the ability to elect a majority of the Board of Directors of the
Corporation. Notice of such issuance and/or transfer (the "Control Notice")
shall be given to the holders of Preferred Shares by the Corporation within
10 days of the earlier of the Corporation's making such issuance and/or
being informed of such transfer. Within 60 days of receiving the Control
Notice, each holder of Preferred Shares electing to redeem all of such
holders Class A Preferred Shares and/or Class B Preferred Shares, as the
case may be, in accordance with this paragraph 5(b) shall give written
notice to the Corporation specifying the number of Preferred Shares held by
such holder and the date of such redemption (also, a "Redemption Date").
(c) REDEMPTION PRICE AND PAYMENT. The Class A Preferred Shares to be redeemed
on any Redemption Date pursuant to paragraphs 5(a) or 5(b) above shall be
redeemed by paying for each share in cash an amount equal to $0.375 plus
all accrued but unpaid dividends thereon up to and including the date the
redemption price is received by the holder (the "Class A Redemption
Price"). The Class B Preferred Shares to be redeemed on any Redemption Date
pursuant to paragraphs 5(a) or 5(b) above shall be redeemed by paying for
each share in cash an amount equal to $0.95 plus all accrued but unpaid
dividends thereon up to and including the date the redemption price is
received by the holder (the "Class B Redemption Price"). The Class C
Preferred Shares to be redeemed on any Redemption Date pursuant to
paragraphs 5(a) or 5(b) above shall be redeemed by paying for each share in
cash an amount equal to $0.95 plus all accrued but unpaid dividends thereon
up to and including the date the redemption price is received by the holder
(the "Class C Redemption Price").
<PAGE> 58
1Q
(d) REDEMPTION MECHANICS. Upon receipt of payment by each holder of Preferred
Shares electing to redeem pursuant to paragraphs 5(a) or 5(b) above of the
redemption price applicable to such Preferred Shares (the Class A
Redemption Price, the Class B Redemption Price or the Class C Redemption
Price, as the case may be), all rights of holders of such redeemed shares
shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to
be outstanding for any purpose whatsoever. If the funds of the Corporation
legally available for redemption of Preferred Shares on any Redemption Date
are insufficient to redeem the total number of outstanding Preferred Shares
as to which redemption is requested, the holders of Preferred Shares
requesting redemption shall share rateably in any funds legally available
for redemption of such shares according to the respective amounts which
would be payable with respect to the full number of shares owned by such
holders as to which redemption is requested if all such outstanding shares
were redeemed in full. The Preferred Shares not redeemed shall remain
outstanding and entitled to all rights and preferences provided herein. At
any time thereafter when additional funds of the Corporation are legally
available for the redemption of such Preferred Shares, such funds will be
used, at the end of the next succeeding fiscal quarter, to redeem the
balance of such shares as to which redemption had been requested, or such
portion thereof for which funds are then legally available, on the basis
set forth above, regardless of whether any last date for giving notice
pursuant to paragraphs 5(a) or 5(b), as the case may be, has passed.
(e) REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED. Any Preferred Shares
redeemed pursuant to this Section 5 or otherwise acquired by the
Corporation in any manner whatsoever shall be cancelled.
6. CURRENCY
All references herein to dollar amounts are references to Canadian dollars.
<PAGE> 59
5. The amendment has been duly authorized as required by Sections 168 & 170
(as applicable) of the Business Corporations Act.
La modification a ete dument autorisee conformement a l'article 168 et,
s'il y a lieu, a article 170 de la Loi sur les compagnies.
6. The resolution authorizing the amendment was approved by the
shareholders/directors (as applicable) of the corporation on
Les actionnaires ou les adminstrateurs (le cas echeant) de la compagnie ont
approuve la resolution autorisant la modification
June 24, 1999
---------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
These articles are signed in duplicate.
Les presents status sont signes en double exemplaire.
DELANO TECHNOLOGY CORPORATION
---------------------------------------------------------------------------
(Name of Corporation)
(Denomination social de la compagnie)
By/Par: (Signed) Secretary
---------------------------------------------------------------------------
(Signature) (Description of Office)
(Signature) (Fonction)
<PAGE> 60
For Ministry Use Only Ontario Corporation Number
A l'usage exclusif du ministere Numero de la societe en Ontario
1294608
Ministry of Ministere de
[LOGO] Consumer and la Consommation
Commercial Relations et du Commerce
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que las presents
articles are effective on status entrant en vigueur le
DECEMBER 21 DECEMBRE, 1999
- -------------------------------------------------------------
(Signed)
Director / Directeur
Business Corporations Act / Loi sur les societes par actions
TRANS
CODE
C
18
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
Form 3 Business Corporations Act
Formule numero 3 Loi sur les compagnies
1. The present name of the corporation is:
Denomination sociale actuelle de la compagnie:
DELANO TECHNOLOGY CORPORATION
2. The name of the corporation is changed to (if applicable):
Nouvelle denomination sociale de la compagnie (s'il y a lieu):
N/A
3. Date of incorporation/amalgamation:
Date de la constitution ou de la fusion:
7 May 1998
---------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
4. The articles of the corporation are amended as follows:
Les statuts de la compagnie sont modifies de la facon suivante:
(a) to change the designation of the Class A Preferred Shares of the
Corporation to Class A Special Shares;
(b) to change the designation of the Class B Preferred Shares of the
Corporation to Class B Special Shares;
(c) to change the designation of the Class C Preferred Shares of the
Corporation to Class C Special Shares;
(d) to delete the words "Preferred Shares" throughout the rights,
privileges, restrictions and conditions attached to the Class A
Special Shares, the Class B Special Shares and the Class C Special
Shares and to replace them with the words "Special Shares"; and
(e) to create an unlimited number of Preferred Shares, issuable in series,
and to provide that the rights, privileges, restrictions and
conditions attaching to the Preference Shares, issuable in series,
shall be as set out in the attached Schedule A.
<PAGE> 61
1A
SCHEDULE A
PREFERENCE SHARES.
The Preference Shares, as a class, shall have the following rights, privileges,
restrictions and conditions:
1. One or more series - The Preference Shares may from time to time be issued
in one or more series;
2. Terms of each series - Subject to the following provisions, and subject to
the filing of articles of amendment in prescribed form and the endorsement
thereon of a certificate of amendment, in accordance with the Business
Corporations Act (Ontario), the directors may fix from time to time before
such issue the number of shares that is to comprise each series and the
designation, rights, privileges, restrictions and conditions attaching to
each series of Preference Shares including, without limiting the generality
of the foregoing, the issue price per share, the rate or amount of any
dividends or the method of calculating any dividends, the dates of payment
thereof, any redemption, purchase and/or conversion prices and terms and
conditions of any redemption, purchase and/or conversion, and any sinking
fund or other provisions;
3. Ranking of Preference Shares - The Preference Shares of each series shall,
with respect to the payment of any dividends and any distribution of assets
or return of capital in the event of liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, or any other return
of capital or distribution of the assets of the Corporation among its
shareholders for the purpose of winding up its affairs, rank on a parity
with the Preference Shares of every other series and be entitled to a
preference over the Common Shares, the Special Shares and over any other
shares of the Corporation ranking junior to the Preference Shares. The
Preference Shares of any series may also be given such other preferences,
not inconsistent with these articles, over the Common Shares, the Special
Shares and any other shares of the Corporation ranking junior to such
Preference Shares as may be fixed in accordance with section 2;
4. Cumulative Dividends and Payments on the Return of Capital - If any
cumulative dividends, whether or not declared, or any amounts payable on
the return of capital in the event of the liquidation, dissolution or
winding up of the Corporation, in respect of a series of Preference Shares
are not paid in full, the shares of such series of Preference Shares shall
participate rateably with the shares of all other series of Preference
Shares in respect of, all accumulated cumulative dividends, whether or not
declared, or all amounts payable on the return of capital in the event of
the liquidation, dissolution or winding up of the Corporation, as the case
may be.
5. Conversion into Common Shares - The Preference Shares of any series may be
made convertible into Common Shares;
6. Voting - Subject to the provisions of the Business Corporations Act
(Ontario), and section 7 below, the Preference Shares shall have no voting
rights as a class;
<PAGE> 62
1B
7. Variation of rights - The provisions attaching to the Preference Shares as
a class may be amended or repealed at any time with such approval as may
then be required by law to be given by the holders of the Preference Shares
as a class.
<PAGE> 63
5. The amendment has been duly authorized as required by Sections 168 & 170
(as applicable) of the Business Corporations Act.
La modification a ete dument autorisee conformement a l'article 168 et,
s'il y a lieu, a article 170 de la Loi sur les compagnies.
6. The solution authorizing the amendment was approved by the
shareholders/directors (as applicable) of the corporation on
Les actionnaires ou les adminstrateurs (le cas echeant) de la compagnie ont
approuve la resolution autorisant la modification
13 December 1999
---------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
These articles are signed in duplicate.
Les presents status sont signes en double exemplaire.
DELANO TECHNOLOGY CORPORATION
---------------------------------------------------------------------------
(Name of Corporation)
(Denomination social de la compagnie)
By/Par: (Signed) Secretary
---------------------------------------------------------------------------
(Signature) (Description of Office)
(Signature) (Fonction)
<PAGE> 64
1294608
-------
TRANS
CODE
[C]
10
- --------------------------------------------------------------------------------
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
Form 3 1. The present name of Denomination sociale actuelle
Business the corporation is: de la compagnie:
Corporations
Act
Formule D E L A N O T E C H N O L O G Y C O R P O R A T I O N
numero 3 ----------------------------------------------------------
Loi
sur les
compagnies 2. The name of the Nouvelle denomination sociale
corporation is changed de la compagnie (s'il y a lieu):
to (if applicable):
N / A
----------------------------------------------------------
3. Date of incorporation/ Date de la constitution ou de la
amalgamation: fusion:
7 MAY 1998
----------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
4. The articles of the Les statuts de la compagnie sont
corporation are amended modifies de la facon suivante:
as follows:
to change each issued and outstanding Common Share of the
Corporation into 1.5 Common Shares, effective on January 1,
2000.
<PAGE> 65
5. The amendment has been duly La modification a ete dument autorisee
authorized as required by conformement a l'article 168 et, s'il y
Sections 168 & 170 (as a lieu, a article 170 de la loi sur les
applicable) of the Business compagnies.
Corporations Act.
6. The resolution authorizing the Les actionnaires ou les administrateurs
amendment was approved by the (le cas echeant) de la compagnie ont
shareholders/directors (as approuve la resolution autorisant la
applicable) of the corporation on modification
January 11, 2000
------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
These articles are signed in duplicate. Les presents status sont signes en
double exemplaire.
DELANO TECHNOLOGY CORPORATION
-------------------------------------
(Name of Corporation)
(Denomination sociale de la compagnie
By/Par. (Signed/signe) SECRETARY
-------------------------------------
(Signature) (Description of Officer)
(Signature) (Principal)
<PAGE> 1
Exhibit 3.2
BY-LAW NO. 2
a by-law relating generally
to the transaction of the
business and affairs of
DELANO TECHNOLOGY CORPORATION
(the "Corporation")
1 - INTERPRETATION
1.1 DEFINITIONS
In this by-law and all other by-laws of the Corporation, unless the context
requires otherwise:
(a) "the Act" means the Business Corporations Act (Ontario), or any statute
which may be substituted therefor, including the regulations made
thereunder as amended from time to time;
(b) "articles" means the original or restated articles of incorporation,
articles of amendment, articles of amalgamation, articles of
arrangement, articles of continuance, articles of dissolution, articles
of re-organization, articles of revival, letters patent, supplementary
letters patent, a special Act and any other instrument by which the
Corporation is incorporated;
(c) "board" means the board of directors of the Corporation; and "director"
means a member of the board;
(d) "meeting of shareholders" means an annual meeting of shareholders or a
special meeting of shareholders;
(e) "non-business day" means Saturday, Sunday and any other day that is a
holiday as defined in the Interpretation Act (Ontario);
(f) "person" includes an individual, sole proprietorship, partnership,
unincorporated association, unincorporated syndicate, unincorporated
organization, trust, body corporate, and a natural person in the
capacity of trustee, executor, administrator, or other legal
representative;
(g) "resident Canadian" means a Canadian citizen ordinarily resident in
Canada or as otherwise defined in the Act;
(h) words importing the singular number also include the plural and
vice-versa; words importing the masculine gender include the feminine
and neuter genders;
(i) all words used in this by-law and defined in the Act shall have the
meanings given to such words in the Act or in the related Parts
thereof.
<PAGE> 2
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1.2 EXECUTION IN COUNTERPART AND BY FACSIMILE
Signatures on any notice, resolution, requisition, statement or other document
required or permitted to be executed by more than one person for the purposes of
the Act may be obtained by means of facsimile or by execution of several
documents of like form, each of which is executed by one or more of such
persons, and such documents, when duly executed by all persons required or
permitted, as the case may be, to do so, shall be deemed to constitute one
document for the purposes of the Act.
2 - GENERAL BUSINESS
2.1 REGISTERED OFFICE
The registered office of the Corporation shall be in the municipality or
geographical township within Ontario specified in the articles or in a special
resolution and at such location therein as the board may from time to time
determine.
2.2 SEAL
The Corporation may have a seal which shall be adopted and may be changed by the
board.
2.3 FINANCIAL YEAR
Until changed by the board, the financial year of the Corporation shall end on
the 31st day of March in each year.
2.4 EXECUTION OF INSTRUMENTS
Deeds, transfers, assignments, contracts, obligations, certificates and other
instruments shall be signed on behalf of the Corporation by any one person who
holds the office of chairman of the board, president, managing director,
vice-president, secretary, treasurer, assistant secretary, assistant treasurer,
or any other office created by by-law or by resolution of the board or who is a
director. In addition, the board may from time to time direct the manner in
which and the person or persons by whom any particular instrument or class of
instruments may or shall be signed.
The secretary or any other officer or any director may sign certificates and
similar instruments (other than share certificates) on the Corporation's behalf
with respect to any factual matters relating to the Corporation's business and
affairs, including certificates verifying copies of the articles, by-laws,
resolutions and minutes of meetings of the Corporation.
2.5 BANKING ARRANGEMENTS
The banking business of the Corporation, or any part thereof, shall be
transacted with such bank, trust company or other firm or body corporate as the
board may designate, appoint or authorize from time to time and all such banking
business, or any part thereof, shall be transacted on the Corporation's behalf
by such one or more officers or other persons as the board may designate, direct
or authorize from time to time and to the extent thereby provided.
<PAGE> 3
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3 - BORROWING
3.1 BORROWING
Without limit to the powers of the board as provided in the Act, the board may
from time to time on behalf of the Corporation:
(a) borrow money upon the credit of the Corporation;
(b) issue, reissue, sell or pledge debt obligations of the Corporation;
(c) to the extent permitted by the Act, give, directly or indirectly,
financial assistance to any person by means of a loan, a guarantee or
otherwise to secure the performance of an obligation; and
(d) mortgage, hypothecate, pledge or otherwise create a security interest
in all or any property of the Corporation, owned or subsequently
acquired, to secure any obligation of the Corporation.
3.2 DELEGATION
Subject to the Act, the articles and the by-laws, the board may from time to
time delegate to a director, a committee of directors or an officer of the
Corporation or such other person or persons so designated by the board all or
any of the powers conferred on the board by section 3.1 or by the Act to such
extent and in such manner as the board shall determine at the time of each such
delegation.
4 - DIRECTORS
4.1 DUTIES OF DIRECTORS
The board shall manage or supervise the management of the business and affairs
of the Corporation.
4.2 APPROVAL OF ANNUAL BUDGET
Until the Corporation completes a transaction that results in the automatic
conversion of the Special Shares into Common Shares pursuant to subsection
4(a)(ii) of Schedule A of the articles of the Corporation, the Corporation shall
prepare an annual budget to be presented to the board no later than 30 days
before each fiscal year end.
4.3 QUALIFICATIONS OF DIRECTORS
A majority of directors on the board shall be resident Canadians. No person
shall be elected or appointed a director if that person is less than 18 years of
age, of unsound mind and has been so found by a court in Canada or elsewhere, is
not an individual, or has the status of bankrupt. A director need not hold
shares issued by the Corporation. At least one-third of the directors of an
offering corporation shall not be officers or employees of the corporation or
any of its affiliates.
<PAGE> 4
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4.4 NUMBER OF DIRECTORS
The board shall consist of such number of directors as shall be set out in the
articles or as may from time to time be determined in accordance with the Act.
Where the board is empowered by special resolution to determine the number of
directors within a range set out in the articles:
(a) the directors may appoint additional directors provided that after such
appointment the total number of directors would not be greater than one
and one-third times the number of directors required to have been
elected at the last annual meeting nor greater than the maximum number
set out above; and
(b) the number of directors to be elected at the annual meeting shall be
the number of directors last determined by the board.
4.5 QUORUM
Until the Corporation completes a transaction that results in the automatic
conversion of the Special Shares into Common Shares pursuant to subsection
4(a)(ii) of Schedule A of the articles of the Corporation, a quorum for meetings
of the board of directors shall consist of a majority of the members of the
board, provided that at least (i) one nominee of the holders of the Class A
Shares and (ii) one nominee of the holders of the Common Shares or the Chief
Executive Officer, is present. After the Corporation completes a transaction
that results in the automatic conversion of the Special Shares into Common
Shares pursuant to subsection 4(a)(ii) of Schedule A of the articles of the
Corporation, a quorum for meetings of the board of directors shall consist of a
majority of the members of the board.
4.6 ELECTION AND TERM
Directors shall be elected by the shareholders at the first meeting of
shareholders after the effective date of this by-law and at each succeeding
annual meeting at which an election of directors is required and shall hold
office until the next annual meeting of shareholders or, if elected for an
expressly stated term, for a term expiring not later than the close of the third
annual meeting of shareholders following the election. The number of directors
to be elected at any such meeting shall be that number most recently determined
in the manner referred to in section 4.3. The election need not be by ballot
unless a ballot is demanded by any shareholder or required by the chairman in
accordance with section 8.18. If an election of directors is not held at an
annual meeting of shareholders at which such election is required, the incumbent
directors shall continue in office until their successors are elected.
4.7 REMOVAL OF DIRECTORS
Subject to the provisions of the Act, the shareholders may, by ordinary
resolution passed by a majority of the votes cast at a meeting of shareholders,
remove any director and may at that meeting elect a qualified person in place of
that director for the unexpired term of such director's predecessor.
<PAGE> 5
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4.8 CEASING TO HOLD OFFICE
A director may resign as director by delivering a written resignation to the
Corporation and such resignation becomes effective at the time the resignation
is received by the Corporation or the time specified in the resignation
whichever is later. A director shall forthwith cease to hold office as a
director should the director cease to be qualified in accordance with the Act.
Any attempt to amend or terminate any unanimous shareholder agreement without
written consent of all persons who are then directors of the Corporation shall
constitute the immediately effective resignation of all such directors who have
not so consented.
4.9 VACANCIES
Subject to the Act, a quorum of directors (whether or not the majority of such
quorum are resident Canadians) may fill a vacancy among the directors, except a
vacancy resulting from,
(a) an increase in the number of directors otherwise than an increase in
the board of directors pursuant to a special resolution empowering the
board to fix the number of directors within a range set out in the
articles; or,
(b) an increase in the maximum number of directors set out in the articles,
as the case may be; or,
(c) a failure to elect the number of directors required to be elected at
any meeting of shareholders.
4.10 ACTION BY THE BOARD
The board shall exercise its powers by or pursuant to a by-law or resolution
either passed at a meeting of directors at which a quorum is present and at
which a majority of the directors present are resident Canadians or consented to
by the signatures of all the directors then in office if constituting a quorum.
Where a corporation has fewer than three directors, one of the directors present
at a meeting of directors shall be a resident Canadian. Subject to the Act, the
board may transact business at a meeting of directors where a majority of
resident Canadian directors is not present if a resident Canadian director who
is unable to be present approves in writing or by telephone or other
communications facilities the business transacted at the meeting, and a majority
of resident Canadian directors would have been present had that director been
present at the meeting.
4.11 ACTION IN WRITING
A resolution in writing, signed by all the directors entitled to vote on that
resolution at a meeting of directors or a committee of directors, is as valid as
if it had been passed at a meeting of directors or a committee of directors.
4.12 MEETINGS BY TELEPHONE
Any director may participate in a meeting of the board by means of such
telephone, electronic, or other communication facilities as permit all persons
participating in the meeting to communicate with each other simultaneously and
instantaneously, if all the directors present at or participating in the meeting
consent to the holding of meetings in such manner.
<PAGE> 6
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4.13 PLACE OF MEETINGS
Meetings of the board may be held at the registered office of the Corporation or
at any other place within or outside Ontario and in any financial year of the
Corporation a majority of the meetings of the board need not be held in Canada.
4.14 CALLING OF MEETINGS
Meetings of the board shall be held from time to time at such place, on such day
and at such time as the board, the chairman of the board, the managing director,
the president, the secretary or any two directors may determine.
4.15 NOTICE OF MEETINGS
Notice of the time and place of each meeting of the board shall be given to each
director not less than 48 hours before the time when the meeting is to be held
and need not be in writing. No notice of a meeting shall be necessary if all the
directors and officers are present or if those absent waive notice of such
meeting, except where a director attends the meeting for the sole purpose of
objecting to the transaction of any business on the grounds that the meeting is
not lawfully called. The notice of the meeting of directors need not specify the
purpose of or the business to be transacted at the meeting except where the Act
requires such purpose or business or the general nature thereof to be specified.
4.16 FIRST MEETING OF NEW BOARD
Provided a quorum of directors is present, each newly elected board may without
notice hold its first meeting following the meeting of shareholders at which
such board is elected.
4.17 ADJOURNED MEETING
Notice of an adjourned meeting of the directors is not required if the time and
place of the adjourned meeting is announced at the original meeting.
4.18 REGULAR MEETINGS
The board may appoint a day or days in any month or months for regular meetings
at a place and hour to be named. A copy of any resolution by the board fixing
the time and place of regular meetings of the board shall be sent to each
director forthwith after being passed, but no other notice shall be required for
any such regular meeting.
4.19 VOTES TO GOVERN
At all meetings of the board any question shall be decided by a majority of the
votes cast on the question and in the case of an equality of votes the chairman
of the meeting shall not be entitled to a second or casting vote. Any question
at a meeting of the board shall be decided by a show of hands unless a ballot is
required or demanded.
<PAGE> 7
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4.20 CHAIRMAN AND SECRETARY
The chairman of the board or, in the absence of the chairman, the president if a
director or, in the absence of the president, a vice-president who is a director
shall be chairman of any meeting of the board. If none of the said officers is
present, the directors present shall choose one of their number to be chairman.
The secretary of the Corporation shall act as secretary at any meeting of the
board and, if the secretary of the Corporation is absent, the chairman of the
meeting shall appoint a person who need not be a director to act as secretary of
the meeting.
4.21 REMUNERATION AND EXPENSES
Subject to any unanimous shareholder agreement, the directors shall be paid such
remuneration for their services as directors as the board may from time to time
authorize. The directors shall also be entitled to be paid in respect of
travelling and other expenses properly incurred by them in attending meetings of
the board or any committee thereof or in otherwise serving the Corporation.
Nothing herein contained shall preclude any director from serving the
Corporation in any other capacity and receiving remuneration therefor.
4.22 CONFLICT OF INTEREST
Subject to and in accordance with the provisions of the Act, a director or
officer of the Corporation who is a party to a material contract or transaction
or proposed material contract or transaction with the Corporation, or is a
director or an officer of or has a material interest in any person who is a
party to a material contract or transaction or proposed material contract or
transaction with the Corporation, shall disclose in writing to the Corporation
or request to have entered in the minutes of meetings of directors the nature
and extent of such interest, and any such director shall refrain from voting in
respect thereof unless otherwise permitted by the Act.
5 - COMMITTEES
5.1 COMMITTEES OF DIRECTORS
The board may appoint, from their number, a committee or committees of
directors, however designated, and delegate to such committee or committees any
of the powers of the board except powers to:
(a) submit to the shareholders any question or matter requiring the
approval of the shareholders;
(b) fill a vacancy among the directors or in the office of auditor, or
appoint or remove any of the chief executive officer, however
designated, the chief financial officer, however designated, the
chairman of the board or the president of the corporation;
(c) issue securities except in the manner and on the terms authorized by
the directors;
(d) declare dividends;
(e) purchase, redeem or otherwise acquire shares issued by the Corporation;
(f) pay a commission for the sale of shares of the Corporation;
<PAGE> 8
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(g) approve a management information circular;
(h) approve a take-over bid or directors' circular;
(i) approve any annual financial statements; or
(j) adopt, amend or repeal by-laws.
A majority of the members of any such committee shall be resident Canadians.
5.2 TRANSACTION OF BUSINESS
The powers of a committee of directors may be exercised by a meeting at which a
quorum is present or by resolution in writing signed by all the members of such
committee who would have been entitled to vote on that resolution at a meeting
of the committee. Meetings of such committee may be held at any place in or
outside Ontario and, subject to the provisions of section 4.11 which shall be
applicable mutatis mutandis, may be held by means of telephone or other
communications equipment.
5.3 PROCEDURE
Unless otherwise determined by the board, each committee shall have the power to
fix its quorum at not less than a majority of its members, to elect its chairman
and to regulate its procedure.
6 - OFFICERS
6.1 APPOINTMENT OF OFFICERS
The board may from time to time appoint a chairman of the board, a managing
director (who shall be a resident Canadian), a president, one or more
vice-presidents, a secretary, a treasurer and such other officers as the board
may determine, including one or more assistants to any of the officers so
appointed. The board may specify the duties of such officers and, in accordance
with this by-law and subject to the provisions of the Act, delegate to such
officers powers to manage the business and affairs of the Corporation other than
any of the powers listed in section 5.1. Except for a managing director and a
chairman of the board, an officer need not be a director and one person may hold
more than one office. The president or such other officer as the board may
designate shall be the chief executive officer of the Corporation.
6.2 AGENTS AND ATTORNEYS
The board shall have the power from time to time to appoint agents or attorneys
for the Corporation in or out of Ontario with such powers of management or
otherwise (including the power to sub-delegate) as the board may determine.
6.3 CONFLICT OF INTEREST
An officer shall disclose an interest in any material contract or transaction or
proposed material contract or transaction with the Corporation in accordance
with section 4.21.
<PAGE> 9
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7 - PROTECTION OF DIRECTORS AND OFFICERS
7.1 INDEMNITY OF DIRECTORS AND OFFICERS
The Corporation shall indemnify a director or officer of the Corporation, a
former director or officer of the Corporation or a person who acts or acted at
the Corporation's request as a director or officer of a body corporate of which
the Corporation is or was a shareholder or creditor, and the heirs and legal
representatives of any such person, against all costs, charges and expenses,
including an amount paid to settle an action or satisfy a judgment, reasonably
incurred by such person in respect of any civil, criminal or administrative
action or proceeding to which the person is made a party by reason of being or
having been a director or officer of such corporation or body corporate, if
(a) the person acted honestly and in good faith with a view to the best
interests of the Corporation; and
(b) in the case of a criminal or administrative action or proceeding that
is enforced by a monetary penalty, the person had reasonable grounds
for believing that the relevant conduct was lawful.
The Corporation may, with the approval of the court, indemnify a person referred
to above in respect of an action by or on behalf of the Corporation or body
corporate to procure a judgment in its favour, to which the person is made a
party by reason of being or having been a director or an officer of the
Corporation or body corporate, against all costs, charges and expenses
reasonably incurred by that person in connection with such action if the person
fulfills the conditions set out in (a) and (b) above.
Notwithstanding anything in this section, a person referred to above is entitled
to indemnity from the Corporation in respect of all costs, charges and expenses
reasonably incurred by that person in connection with the defence of any civil,
criminal or administrative action or proceeding to which the person is made a
party by reason of being or having been a director or officer of the Corporation
or body corporate, if the person seeking indemnity,
(a) was substantially successful on the merits in that person's defence of
the action or proceeding; and
(b) fulfills the conditions set out in (a) and (b) above.
7.2 INSURANCE
Subject to the Act, the Corporation may purchase and maintain insurance for the
benefit of any person referred to above against any liability incurred by that
person,
(a) in the capacity as a director or officer of the Corporation,
except where the liability relates to that person's failure to
act honestly and in good faith with a view to the best
interests of the Corporation; or
(b) in the capacity as a director or officer of another body
corporate where said person acts or acted in that capacity at
the Corporation's request, except where the
<PAGE> 10
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liability relates to that person's failure to act honestly and
in good faith with a view to the best interests of the body
corporate.
8 - MEETINGS OF SHAREHOLDERS
8.1 ANNUAL MEETINGS
The annual meeting of shareholders shall be held on such day and at such time in
each year as the board, or the chairman of the board, or the president, in the
absence of the chairman of the board, may from time to time determine, for the
purpose of considering the financial statements and reports required by the Act
to be placed before the annual meeting, electing directors, appointing auditors
and the transaction of such other business as may properly be brought before the
meeting.
8.2 SPECIAL MEETINGS
The board shall have power to call a special meeting of shareholders at any
time.
8.3 RESOLUTION IN LIEU OF MEETING
Except where a written statement is submitted by a director or where
representations in writing are submitted by an auditor in accordance with the
provisions of the Act, a resolution in writing signed by all the shareholders
entitled to vote on that resolution at a meeting of shareholders is as valid as
if it had been passed at a meeting of the shareholders; and a resolution in
writing dealing with all matters required to be dealt with at a meeting of
shareholders, and signed by all the shareholders entitled to vote at such
meeting, satisfies all the requirements of the Act relating to meetings of
shareholders.
8.4 PLACE OF MEETINGS
Subject to the articles, a meeting of shareholders of the Corporation shall be
held at such place in or outside Ontario as the directors determine or, in the
absence of such a determination, at the place where the registered office of the
Corporation is located.
8.5 NOTICES OF MEETINGS
Notice of the time and place of every meeting of shareholders shall be sent in
the case of an offering corporation, not less than 21 days and, in the case of
any other corporation, not less than 10 days, but in either case, not more than
50 days before the meeting to each shareholder entitled to vote at the meeting,
to each director and to the auditor of the Corporation. Notice of a meeting of
shareholders at which special business is to be transacted shall state or be
accompanied by a statement of (i) the nature of that business in sufficient
detail to permit the shareholder to form a reasoned judgment thereon and (ii)
the text of any special resolution or by-law to be submitted to the meeting. All
business transacted at a special meeting of shareholders and all business
transacted at an annual meeting of shareholders, except consideration of the
minutes of an earlier meeting, the financial statements and auditor's report,
election of directors and reappointment of the incumbent auditor, is deemed to
be special business.
<PAGE> 11
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8.6 RECORD DATE FOR NOTICE
The board may fix in advance a record date, preceding the date of any meeting of
shareholders by not more than 50 days and not less than 21 days, for the
determination of the shareholders entitled to notice of the meeting, provided
that notice of any such record date is given, not less than 7 days before such
record date, by advertisement in a newspaper published or distributed in the
place where the Corporation has its registered office and in each place in
Canada where it has a transfer agent or where a transfer of the Corporation's
shares may be recorded, and, where applicable, by written notice to each stock
exchange in Canada on which the Corporation's shares are listed for trading
unless notice of the record date is waived in writing by every holder of a share
of the class or series affected whose name is set out in the securities register
of the Corporation at the close of business on the day the directors fix the
record date. If no record date is fixed the record date for the determination of
the shareholders entitled to notice of the meeting shall be at the close of
business on the day immediately preceding the day on which the notice is given.
8.7 LIST OF SHAREHOLDERS ENTITLED TO NOTICE
For every meeting of shareholders, the Corporation shall prepare a list of
shareholders entitled to receive notice of the meeting, arranged in alphabetical
order and showing the number of shares entitled to be voted at the meeting held
by each shareholder. If a record date for the meeting is fixed, such list shall
be prepared as of such record date and not later than 10 days after such record
date. If no record date is fixed, such list shall be prepared as of the close of
business on the day immediately preceding the day on which the notice of the
meeting is given and shall be prepared at such time. The list shall be available
for examination by any shareholder during usual business hours at the registered
office of the Corporation or at the place where its central securities register
is maintained and at the meeting for which the list is prepared. Notwithstanding
the foregoing, where no notice of meeting is given, such list shall be prepared
as of the day on which the meeting is held and so that it is available at such
meeting.
8.8 CHAIRMAN AND SECRETARY
The chairman of the board or, in the absence of the chairman, the president or,
in the absence of the president, a vice-president shall be chairman of any
meeting of shareholders and, if none of the said officers be present within 15
minutes after the time appointed for holding the meeting, the shareholders
present and entitled to vote shall choose a chairman from amongst themselves.
The secretary of the Corporation shall act as secretary at any meeting of
shareholders or, if the secretary of the Corporation be absent, the chairman of
the meeting shall appoint some person, who need not be a shareholder, to act as
secretary of the meeting. If desired, one or more scrutineers, who need not be
shareholders, may be appointed by resolution or by the chairman with the consent
of the meeting.
8.9 PERSONS ENTITLED TO BE PRESENT
The only persons entitled to be present at a meeting of shareholders shall be
those entitled to vote thereat, the directors and auditors of the Corporation
and others who, although not entitled to vote, are entitled or required under
any provision of the Act or the articles or by-laws to be present at the
meeting. Any other person may be admitted only on the invitation of the chairman
of the meeting or with the consent of the meeting.
<PAGE> 12
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8.10 QUORUM
Until the Corporation completes a transaction that results in the automatic
conversion of the Special Shares into Common Shares pursuant to subsection
4(a)(ii) of Schedule A of the articles of the Corporation, a quorum of
shareholders is present at a meeting if at least two shareholders holding, in
the aggregate, a majority of the outstanding shares of the Corporation (on an as
if converted to Common Shares basis) are present in person or represented by
proxy; provided that a holder of the Class A special shares is present (so long
as the Class A special shares represent 15% or more of the outstanding shares of
the Corporation on an as if converted to Common Shares basis) and any one of the
holders of Common Shares is present. After the Corporation completes a
transaction that results in the automatic conversion of the Special Shares into
Common Shares pursuant to subsection 4(a)(ii) of Schedule A of the articles of
the Corporation, a quorum of shareholders shall be present at a meeting of
shareholders if the holders of at least 10% of the shares entitled to vote at
the meeting are present in person or represented by proxy. A quorum need not be
present throughout the meeting provided that a quorum is present at the opening
of the meeting.
8.11 RIGHT TO VOTE
At any meeting of shareholders every person who is named in the list referred to
in section 8.7, shall be entitled to vote the shares shown thereon opposite such
person's name except to the extent that such person has transferred any of such
shares and the transferee, upon producing properly endorsed certificates
evidencing such shares or otherwise establishing that the transferee owns such
shares, demands not later than the time at which the meeting commences that the
transferred name be included on the list to vote the transferred shares at the
meeting.
8.12 PROXIES AND REPRESENTATIVES
Every shareholder entitled to vote at a meeting of shareholders may, by means of
a proxy, appoint a proxyholder, or one or more alternate proxyholders, who need
not be shareholders, as that shareholder's nominee, to attend and act at the
meeting in the manner, to the extent, and with the authority conferred by the
proxy. A proxy shall be in writing executed by the shareholder or shareholder's
attorney authorized in writing. A body corporate or association which is a
shareholder of the Corporation may be represented at a meeting of shareholders
by any individual authorized by a resolution of its directors or governing body
of the body corporate or association and such individual may exercise on behalf
of the body corporate or association represented all the powers it could
exercise if it were an individual shareholder. In the case of a proxy appointing
a proxyholder to attend and act at a meeting or meetings of shareholders of an
offering corporation, the proxy ceases to be valid one year from its date.
8.13 TIME FOR DEPOSIT OF PROXIES
The directors may by resolution fix a time not exceeding forty-eight hours,
excluding non-business days, preceding any meeting or adjourned meeting of
shareholders before which time proxies to be used at that meeting must be
deposited with the Corporation or an agent thereof, and any period of time so
fixed shall be specified in the notice calling the meeting. A proxy may be used
at the meeting only if, prior to the time so specified, it shall have been
deposited with the Corporation or an agent thereof specified in such
<PAGE> 13
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notice or, if no such time is specified in such notice, it shall have been
received by the secretary of the Corporation or by the chairman of the meeting
or adjournment thereof prior to the time of voting.
8.14 JOINT SHAREHOLDERS
Where two or more persons hold the same shares jointly, one of those holders
present or represented by proxy at a meeting of shareholders may in the absence
of the other or others vote such shares, but, if more than one of such persons
are present or represented by proxy, that one of such persons whose name stands
first on the securities register of the Corporation or that person's proxy shall
alone be entitled to vote such shares.
8.15 VOTES TO GOVERN
Except as otherwise required by the Act, all questions proposed for the
consideration of shareholders at a meeting of shareholders shall be determined
by the majority of the votes cast, whether by a show of hands or by ballot, as
the case may be.
8.16 CASTING VOTE
In case of an equality of votes at any meeting of shareholders either upon a
show of hands or upon a ballot, the chairman of the meeting shall not be
entitled to a second or casting vote.
8.17 SHOW OF HANDS
Any question at a meeting of shareholders shall be decided by a show of hands
unless a ballot thereon is required or demanded as hereinafter provided. Upon a
show of hands every person who is present and entitled to vote thereon shall
have one vote. Whenever a vote by show of hands shall have been taken upon a
question, unless a ballot thereon is so required or demanded, a declaration by
the chairman of the meeting that the vote upon the question has been carried or
carried by a particular majority or not carried and an entry to that effect in
the minutes of the meeting shall be prima facie evidence of the fact without
proof of the number or proportion of the votes recorded in favour of or against
any resolution or other proceeding in respect of the said question, and the
result of the vote so taken shall be the decision of the shareholders upon the
said question.
8.18 BALLOTS
On any question proposed for consideration at a meeting of shareholders, and
whether or not a show of hands has been taken thereon, the chairman may require,
or any shareholder or proxyholder entitled to vote at the meeting may demand, a
ballot. A ballot so required or demanded shall be taken in such manner as the
chairman shall direct. A requirement or demand for a ballot may be withdrawn at
any time prior to the taking of the ballot. If a ballot is taken each person
present shall be entitled, in respect of the shares which the person is entitled
to vote at the meeting upon the question, to that number of votes provided by
the Act or the articles, and the result of the ballot so taken shall be the
decision of the shareholders upon the said question.
8.19 ADJOURNMENT
If a meeting of shareholders is adjourned for less than 30 days, it shall not be
necessary to give notice of the adjourned meeting, other than by announcement at
the earliest meeting that is
<PAGE> 14
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adjourned. If a meeting of shareholders is adjourned by one or more adjournments
for an aggregate of 30 days or more, notice of the adjourned meeting shall be
given as for an original meeting.
8.20 ONE SHAREHOLDER
Where the Corporation has only one shareholder or only one holder of any class
or series of shares, the shareholder present in person or by proxy constitutes a
meeting.
9 - SECURITIES
9.1 OPTIONS OR RIGHTS
Subject to the provisions of the Act and the articles, the board may from time
to time issue or grant options to purchase or rights to acquire unissued shares
of the Corporation at such times and to such persons and for such consideration
as the board shall determine, provided that no share shall be issued until it is
fully paid.
9.2 COMMISSIONS
The board may from time to time authorize the Corporation to pay a reasonable
commission to any person in consideration of purchasing or agreeing to purchase
shares of the Corporation, whether from the Corporation or from any other
person, or procuring or agreeing to procure purchasers for any such shares.
9.3 SECURITIES RECORDS
The Corporation shall prepare and maintain, at its registered office or at any
other place in Ontario designated by the board, a securities register in which
it records the securities issued by it in registered form, showing with respect
to each class or series of securities:
(a) the names, alphabetically arranged, of persons who,
(i) are or have been within six years registered as shareholders
of the Corporation, the address including the street and
number, if any, of every such person while a holder, and the
number and class of shares registered in the name of such
holder,
(ii) are or have been within six years registered as holders of
debt obligations of the Corporation, the address including the
street and number, if any, of every such person while a
holder, and the class or series and principal amount of the
debt obligations registered in the name of such holder, or
(iii) are or have been within six years registered as holders of
warrants of the Corporation, other than warrants exercisable
within one year from the date of issue, the address including
the street and number, if any, of every such person while a
registered holder, and the class or series and number of
warrants registered in the name of such holder; and
(b) the date and particulars of the issue of each security and warrant.
<PAGE> 15
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9.4 REGISTER OF TRANSFER
The Corporation shall cause to be kept a register of transfers in which all
transfers of securities issued by the Corporation in registered form and the
date and other particulars of each transfer shall be set out.
9.5 REGISTRATION OF TRANSFER
Subject to the provisions of the Act, no transfer of shares shall be registered
in a securities register except upon presentation of the certificate
representing such shares with a transfer endorsed thereon or delivered therewith
duly executed by the registered holder or by the holder's attorney or successor
duly appointed, together with such reasonable assurance or evidence of
signature, identification and authority to transfer as the board may from time
to time prescribe, upon payment of all applicable taxes and any fees prescribed
by the board or in accordance with the Act upon compliance with such
restrictions on transfer as are authorized by the articles and upon satisfaction
of any lien referred to in section 9.6.
9.6 LIEN FOR INDEBTEDNESS
Except in the case of any class or series of shares of the Corporation listed on
a stock exchange, the Corporation shall have a lien on the shares registered in
the name of a shareholder who is indebted to the Corporation, to the extent of
such indebtedness and such lien may be enforced, subject to any provision of the
articles and to any unanimous shareholder agreement, by the sale of the shares
thereby affected or by any other action, suit, remedy or proceeding authorized
or permitted by law or by equity and, pending such enforcement, the Corporation
may refuse to register a transfer of the whole or part of such shares.
9.7 NON-RECOGNITION OF TRUSTS
Subject to the provisions of the Act, the Corporation may treat the registered
owner of a share as the person exclusively entitled to vote, to receive notices,
to receive any dividend or other payments in respect thereof and otherwise to
exercise all the rights and powers of an owner of a share.
9.8 SECURITY INSTRUMENTS
Every holder of one or more securities of the Corporation shall be entitled, at
the holder's option, to a security certificate in respect of the securities held
by that person or to a non-transferable written acknowledgement of that person's
right to obtain a security certificate, stating the number and class or series
of shares held by that person as shown on the securities register. Security
certificates and acknowledgements of a shareholder's right to a security
certificate, respectively, shall be in such form as the board may from time to
time approve. Unless otherwise ordered by the board, security certificates shall
be signed by any one of:
(a) the chairman of the board, the president, the managing director, a
vice-president or a director, any one of:
(b) the secretary, treasurer, any assistant secretary or any assistant
treasurer or a director
<PAGE> 16
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and need not be under corporate seal. Signatures of signing officers may be
printed or mechanically reproduced in facsimile upon security certificates and
every such facsimile shall for all purposes be deemed to be the signature of the
officer whose signature it reproduces and shall be binding upon the Corporation;
provided that at least one director or officer of the Corporation shall manually
sign each certificate (other than a scrip certificate or a certificate
representing a fractional share or a warrant or a promissory note that is not
issued under a trust indenture) in the absence of a manual signature thereon of
a duly appointed transfer agent, registrar, branch transfer agent or issuing or
other authenticating agent of the Corporation or trustee who certifies it in
accordance with a trust indenture. A security certificate executed as aforesaid
shall be valid notwithstanding that an officer whose facsimile signature appears
thereon no longer holds office at the date of issue of the certificate.
9.9 REPLACEMENT OF SECURITY CERTIFICATES
Subject to the provisions of the Act, the board or any officer or agent
designated by the board may in the discretion of the board or that person direct
the issue of a new security certificate in lieu of and upon cancellation of a
security certificate claimed to have been lost, apparently destroyed or
wrongfully taken on payment of such fee, prescribed by or in accordance with the
Act, and on such terms as to indemnity, reimbursement of expenses and evidence
of loss and of title as the board may from time to time prescribe, whether
generally or in any particular case.
9.10 JOINT SHAREHOLDERS
If two or more persons are registered as joint holders of any share, the
Corporation shall not be bound to issue more than one certificate in respect
thereof, and delivery of such certificate to one of such persons shall be
sufficient delivery to all of them. Any one of such persons may give effectual
receipts for the certificate issued in respect thereof or for any dividend,
bonus, return of capital or other money payable or warrant issuable in respect
of such share.
9.11 DECEASED SHAREHOLDERS
In the event of the death of a holder, or of one of the joint holders, of any
share, the Corporation shall not be required to make any entry in the securities
register in respect thereof or to make payment of any dividends thereon except
upon production of all such documents as may be required by the Act and upon
compliance with the reasonable requirements of the Corporation or transfer
agent.
10 - DIVIDENDS AND RIGHTS
10.1 DIVIDENDS
Subject to the provisions of the Act and the articles, the board may from time
to time declare dividends payable to the shareholders according to their
respective rights and interests in the Corporation. Dividends may be paid in
money or property or by issuing fully paid shares or options or rights to
acquire fully paid shares of the Corporation.
<PAGE> 17
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10.2 DIVIDEND CHEQUES
A dividend payable in cash shall be paid by cheque drawn on the Corporation's
bankers or one of them to the order of each registered holder of shares of the
class or series in respect of which it has been declared and mailed by prepaid
ordinary mail to such registered holder at the address recorded in the
Corporation's securities register, unless in each case such holder otherwise
directs. In the case of joint holders the cheque shall, unless such joint
holders otherwise direct, be made payable to the order of all of such joint
holders and, if more than one address is recorded in the Corporation's security
register in respect of such joint holding, the cheque shall be mailed to the
first address so appearing. The mailing of such cheque as aforesaid, unless the
same is not paid on due presentation, shall satisfy and discharge the liability
for the dividend to the extent of the sum represented thereby plus the amount of
any tax which the Corporation is required to and does withhold.
10.3 NON-RECEIPT OR LOSS OF CHEQUES
In the event of non-receipt or loss of any dividend cheque by the person to whom
it is sent, the Corporation shall issue to such person a replacement cheque for
a like amount on such terms as to indemnity, reimbursement of expenses and
evidence of non-receipt and of title as the board may from time to time
prescribe, whether generally or in any particular case.
10.4 RECORD DATE FOR DIVIDENDS AND RIGHTS
The board may fix in advance a date as the record date for the determination of
the shareholders entitled to receive payment of a dividend, entitled to
participate in a liquidation or distribution, or for any other purpose except to
receive notice of or to vote at a meeting, but the record date shall not precede
by more than 50 days the particular action to be taken. Notice of the record
date shall be given, not less than 7 days before such record date, by
advertisement in a newspaper published or distributed in the place where the
Corporation has its registered office and in each place in Canada where it has a
transfer agent or where a transfer of the Corporation's shares may be recorded
and, where applicable, by written notice to each stock exchange in Canada on
which the Corporation's shares are listed for trading, unless notice of the
record date is waived in writing by every holder of a share of the class or
series affected whose name is set out in the securities register of the
Corporation at the close of business on the day the directors fix the record
date. If no such record date is fixed, such record date shall be the close of
business on the day on which the directors pass the resolutions relating
thereto.
10.5 UNCLAIMED DIVIDENDS
Any dividend unclaimed after a period of six years from the date on which the
same has been declared to be payable shall be forfeited and shall revert to the
Corporation.
11 - NOTICES
11.1 METHOD OF GIVING NOTICES
Any notice, communication or document ("notice") to be given or sent pursuant to
the Act, the articles, the by-laws or otherwise to or on a shareholder,
director, officer, auditor or member of a committee of the board shall be
sufficiently given or sent if given or sent by prepaid mail,
<PAGE> 18
-18-
prepaid transmitted or recorded communication, or delivered personally to such
persons's latest address as shown on the securities register of the Corporation
or, in the case of a director, if more current, the address as shown in the most
recent notice filed under the Corporations Information Act (Ontario). A notice
shall be deemed to have been received on the date when it is delivered
personally, or on the fifth day after mailing, or on the date of dispatch of a
transmitted or recorded communication. The secretary may change or cause to be
changed the recorded address of any shareholder, director, officer, auditor or
member of a committee of the board in accordance with any information believed
by the secretary to be reliable.
11.2 NOTICE TO JOINT SHAREHOLDERS
If two or more persons are registered as joint holders of any share, any notice
shall be addressed to all of such joint holders but notice to one of such
persons shall be sufficient notice to all of them.
11.3 COMPUTATION OF TIME
In computing the date when notice must be sent under any provision requiring a
specified period of days' notice of any meeting or other event, the period of
days shall commence on the day following the sending of such notice and shall
terminate on the day preceding the date of the meeting or other event provided
that the last day of the period shall not be a non-business day.
11.4 UNDELIVERED NOTICES
If any notice given or sent to a shareholder pursuant to section 11.1 is
returned on three consecutive occasions because the person cannot be found, the
Corporation shall not be required to give or send any further notice to such
shareholder until the Corporation is informed in writing of the new address for
such person.
11.5 OMISSIONS AND ERRORS
The accidental omission to give or send any notice to any shareholder, director,
officer, auditor or member of a committee of the board or the non-receipt of any
notice by any such person or any error in any notice not affecting the substance
thereof shall not invalidate any action taken at any meeting held pursuant to
such notice or otherwise based thereon.
11.6 PERSONS ENTITLED BY DEATH OR OPERATION OF LAW
Every person who, by operation of law, transfer, death of a shareholder or any
other means whatsoever, shall become entitled to any share, shall be bound by
every notice in respect of such share which shall have been duly given or sent
to the shareholder from whom the person derives title to such share prior to
that person's name and address being entered on the securities register (whether
such notice was given or sent before or after the happening of the event upon
which that person becomes so entitled) and prior to that person furnishing to
the Corporation the proof of authority or evidence of entitlement prescribed by
the Act.
11.7 WAIVER OF NOTICE
Any shareholder (or shareholder's duly appointed proxyholder), director,
officer, auditor or member of a committee of the board may at any time waive the
giving or sending of any notice,
<PAGE> 19
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or waive or abridge the time for any notice, required to be given to that person
under any provision of the Act, the articles, the by-laws or otherwise and such
waiver or abridgement shall cure any default in the giving or sending or in the
time of such notice, as the case may be. Any such waiver or abridgement shall be
in writing except a waiver of notice of a meeting of shareholders or of the
board which may be given in any manner. Attendance of a director at a meeting of
directors or of a shareholder or any other person entitled to attend a meeting
of shareholders is a waiver of notice of the meeting except where such director,
shareholder or other person, as the case may be, attends a meeting for the
express purpose of objecting to the transaction of any business on the grounds
that the meeting is not lawfully called.
12 - REPEAL OF BY-LAWS
12.1 REPEAL
Upon this by-law coming into force, by-law number 1 of the Corporation is
repealed. However, such repeal shall not affect the previous operation of such
by-law or affect the validity of any act done or right, privilege, obligation or
liability acquired or incurred under the validity of any contract or agreement
made pursuant to such by-law prior to its repeal. All officers and persons
acting under such repealed by-law shall continue to act as if appointed under
the provisions of this by-law and all resolutions of the shareholders or board
with continuing effect passed under such repealed by-law shall continue good and
valid, until amended or repealed, except to the extent inconsistent with this
by-law.
ENACTED by the board of directors on November 30, 1999 and confirmed by
the shareholders of the Corporation on December 13, 1999.
- --------------------------------------- ---------------------------------
President - John Gregory Foresi Secretary - David Lewis
<PAGE> 1
[Letterhead of Osler, Hoskin & Harcourt LLP]
Exhibit 5.1
Direct Dial: (416) 862-4226
Our Matter Number: 1009215
February 7, 2000
Delano Technology Corporation
40 West Wilmont Street
Richmond Hill, Ontario
CANADA L4B 1H8
Dear Sirs/Madams:
DELANO TECHNOLOGY CORPORATION REGISTRATION STATEMENT ON FORM F-1 REGISTERING
5,750,000 COMMON SHARES
We are acting as Canadian counsel to Delano Technology Corporation (the
"Company") in connection with the issue by the Company of up to 5,750,000 common
shares (the "Common Shares") of the Company and in connection with the
Registration Statement on Form F-1 (the "Registration Statement") filed with the
United States Securities and Exchange Commission by the Company relating to the
registration of the Common Shares under the United States Securities Act of
1933, as amended, (the "Act") including the prospectus of the Company contained
therein (the "Prospectus").
We have examined originals or copies, certified or otherwise identified to our
satisfaction, of the articles of incorporation and the by-laws of the Company,
each as amended from time to time, and resolutions of the directors of the
Company with respect to the matters referred to herein. We have also examined
such certificates of public officials, officers of the Company, corporate
records and other documents as we have deemed relevant or necessary as a basis
for the opinion expressed below. In our examination of such documents, we have
assumed the authenticity of all documents submitted to us as certified copies or
facsimiles thereof.
We are barristers and solicitors qualified to practice law in the Province of
Ontario and our opinion expressed below is limited to the laws of such Province
and the laws of Canada applicable therein and should not be relied upon, nor is
it given, in respect of the laws of any other jurisdiction.
Based upon and subject to the foregoing, we are of the opinion that the Common
Shares have been duly authorized, and that upon receipt of full consideration
for the Common Shares, the Common Shares will be validly issued, fully paid and
non-assessable shares of the Company.
1
<PAGE> 2
Subject to the limitations and qualifications stated therein, we hereby
confirm, in all material respects, our opinion with respect to Canadian income
tax law contained in the Prospectus under the caption "Tax Considerations --
Canadian Federal Income Tax Considerations."
Consent is hereby given to the use of our name under the caption "Legal Matters"
in the Prospectus included in the Registration Statement and to the filing, as
an exhibit to the Registration Statement, of this letter. In giving such consent
we do not admit that we come within the category of persons whose consent is
required under Section 7 of the Act.
Yours very truly,
/s/ Osler, Hoskin & Harcourt LLP
EAS:CG
2
<PAGE> 1
Exhibit 8.1
[Letterhead of Skadden, Arps, Slate, Meagher & Flom LLP]
February 7, 2000
Delano Technology Corporation
40 West Wilmot Street,
Richmond Hill, Ontario
Canada L4B 1H8
Ladies and Gentlemen:
We are acting as your special United States counsel in
connection with the Registration Statement on Form F-1 (the "Registration
Statement") filed with the United States Securities and Exchange Commission by
Delano Technology Corporation (the "Company") relating to the initial public
offering of the Company's common shares.
We hereby confirm, in all material respects, our opinion with
respect to United States federal income tax laws contained in Part I of the
Registration Statement under the caption "Tax Considerations - United States
Federal Income Tax Considerations", subject to the assumptions and limitations
set forth therein, including the discussion under the headings "Personal Holding
Companies," "Foreign Personal Holding Companies," "Passive Foreign Investment
Companies" and "Controlled Foreign Corporation."
We hereby consent to the use of our name under the caption
"Legal Matters" in the Registration Statement and to the filing, as an exhibit
to the Registration Statement, of this letter. In giving such consent, we do
not admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher & Flom LLP
1
<PAGE> 1
Exhibit 10.14
AMALGAMATION AGREEMENT made as of the 30th day of November, 1999.
B E T W E E N:
DELANO TECHNOLOGY CORPORATION, a corporation governed by the Business
Corporations Act (Ontario), ("Delano")
- and -
XDL DELANO HOLDINGS INC., a corporation governed by the Business
Corporations Act (Ontario), ("Holdings")
RECITALS:
A. Delano was incorporated pursuant to the provisions of the Business
Corporations Act (Ontario) by Certificate and Articles of Incorporation
dated May 7, 1998 and its authorized capital consists of an unlimited
number of Common Shares, Class A Preferred Shares, Class B Preferred Shares
and Class C Preferred Shares, of which 3,500,000 Common Shares, 4,000,000
Class A Preferred Shares and 3,789,476 Class B Preferred Shares have been
issued and are currently outstanding.
B. Prior to the Effective Date of the amalgamation referenced in this
Agreement, it is anticipated that 4,326,924 Class C Preferred Shares of
Delano will be issued pursuant to the exercise of previously issued special
warrants.
C. Holdings was incorporated pursuant to the provisions of the Business
Corporations Act (Ontario) by Certificate and Articles of Incorporation
dated July 14, 1998 and its authorized capital consists of an unlimited
number of Common Shares and Class A Preferred Shares of which 3,150 Common
Shares and 1,100 Class A Preferred Shares have been issued and are
currently outstanding.
D. The parties to this Agreement, having made full disclosure each to the
other of all their respective assets and liabilities, have determined that
it is desirable that their amalgamation should be effected and, acting
under the authority contained in the Business Corporations Act (Ontario),
have agreed to amalgamate and continue as one corporation upon the terms
and conditions set out in this Agreement.
NOW THEREFORE, the parties agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
Whenever used in this Agreement, the following terms shall have the respective
meanings ascribed to them as follows:
(a) "Act" means the Business Corporations Act (Ontario) as amended from
time to time and includes any regulations made pursuant to such Act
and any term
<PAGE> 2
defined in the Act and not otherwise defined herein is used in this
Agreement with the same meaning;
(b) "Board" means the board of directors of the Corporation, it being
understood that references herein to matters to be decided by the
Board shall not be in derogation of the rights of the Board pursuant
to the provisions of Section 127 of the Act;
(c) "Corporation" means the corporation continuing from the amalgamation
of the parties hereto;
(d) "Expiry Date" shall have the meaning ascribed to it in the Special
Warrant Indenture, which, as at the date hereof is the date which is
the earlier to occur of (i) the fifth business day after the date on
which a receipt has been issued by the last of the securities
regulatory authorities in each province of Canada in which holders of
Special Warrants are resident for the (final) prospectus qualifying
the issuance of shares of Delano upon exercise of the Special Warrants
and (ii) June 24, 2000;
(e) "Special Warrants" means, collectively, the special warrants of Delano
issued pursuant to the Special Warrant Indenture;
(f) "Special Warrant Indenture" means the special warrant indenture dated
as of June 24, 1999 between Delano and The Trust Company of Bank of
Montreal, as such indenture may be amended or supplemented from time
to time; and
(g) "Fair Market Value" means, except as otherwise explicitly set forth
herein, (a) in respect of the Class A Preferred Shares, the Class B
Preferred Shares and the Class C Preferred Shares, in the event that
the Common Shares of Delano have been approved for trading on NASDAQ,
the closing price of the Common Shares on the date prior to the Expiry
Date, or if there is no such closing price, the opening price of the
Common Shares on the Expiry Date, or if there is no such opening price
prior to the effective time of the amalgamation, the price of the
Common Shares issued by Delano in the public offering to which the
NASDAQ listing of Common Shares relates; or (b) in the event that the
Common Shares of Delano have not been approved for trading on NASDAQ,
the amount, as determined by the directors of Delano who are not
precluded from voting in respect of the amalgamation by virtue of
Section 132(5) of the Act, in their sole discretion, that is
equivalent to the price of the share or other property, as the case
may be, on the effective date of the amalgamation in an open and
unrestricted market between informed prudent parties, acting at arm's
length and under no compulsion to act.
ARTICLE 2
IMPLEMENTATION
2.1 EFFECTIVE DATE
Delano and Holdings shall amalgamate under the provisions of the Act effective
immediately following the deemed exercise of Special Warrants on the Expiry Date
and shall continue as one
<PAGE> 3
corporation upon the terms and conditions set out in this Agreement. Subject to
Section 2.3, articles of amalgamation in prescribed form shall be sent to the
Director under the Act, together with all other documents necessary to bring the
amalgamation into effect.
2.2 EFFECT
Upon the amalgamation of Delano and Holdings and their continuance as one
corporation becoming effective:
(a) the Corporation shall possess all the property, rights, privileges and
franchises and shall be subject to all liabilities; including civil,
criminal and quasi-criminal and all contracts, disabilities and debts
of each of Delano and Holdings;
(b) a conviction against, or ruling, order or judgment in favour or
against any of Delano or Holdings may be enforced by or against the
Corporation;
(c) the Corporation shall be deemed to be the party plaintiff or the party
defendant, as the case may be, in any civil action commenced by or
against Delano or Holdings before the amalgamation has become
effective; and
(d) except for the purposes specified in the Act, the Corporation's
articles of amalgamation shall be deemed to be its articles of
incorporation and the Corporation's certificate of amalgamation shall
be deemed to be its certificate of incorporation.
2.3 TERMINATION
Notwithstanding the approval of this Agreement by their shareholders, the board
of directors of any of Delano and Holdings, without further shareholder
approval, may terminate the amalgamation and this Agreement at any time before
the issuance of a certificate of amalgamation.
ARTICLE 3
CONDITIONS PRECEDENT
3.1 MUTUAL CONDITION PRECEDENT
The amalgamation is subject to the condition that the amalgamation and this
Agreement shall be approved by:
(a) (i) not less than two-thirds of the votes cast by the holders of
Common Shares of Holdings who vote in respect of the special
resolution to approve the amalgamation and this Agreement and not less
than two-thirds of the votes cast by the holders of Class A Preferred
Shares of Holdings, voting separately as a class, who vote in respect
of the special resolution to approve the amalgamation and this
Agreement at a special meeting of Holdings' Shareholders called for
that purpose or (ii) all of the holders of Common Shares and Class A
Preferred Shares of Holdings, in writing.
<PAGE> 4
(b) (i) not less than two-thirds of the votes cast by the holders of
Common Shares, Class A Preferred Shares, Class B Preferred Shares and
Class C Preferred Shares, each voting separately as a single class,
who vote in respect of the special resolution to approve the
amalgamation and this Agreement at a special meeting of Delano
shareholders called for that purpose or (ii) all of the holders of
Common Shares, Class A Preferred Shares, Class B Preferred Shares and
Class C Preferred Shares of Delano, in writing; and
(c) Mr. Bahman Koohestani, in accordance with the terms of the amended and
restated shareholders agreement in respect of Delano dated as of
January 27, 1999.
ARTICLE 4
ORGANIZATION
4.1 NAME
The name of the Corporation shall be DELANO TECHNOLOGY CORPORATION.
4.2 AUTHORIZED CAPITAL
The Corporation shall be authorized to issue the following shares:
(a) an unlimited number of Common Shares;
(b) an unlimited number of Class A Special Shares;
(c) an unlimited number of Class B Special Shares; and
(d) an unlimited number of Class C Special Shares.
provided that, notwithstanding the foregoing, in the event that the issued and
outstanding preferred shares of Delano have been converted to Common Shares of
Delano in accordance with their terms prior to the effective time of the
amalgamation, the Corporation shall be authorized to issue an unlimited number
of Common Shares.
The holders of the Common Shares, the Class A Special Shares, the Class B
Special Shares and the Class C Special Shares shall have the rights, privileges,
and are subject to the restrictions and conditions set out in Schedule A to this
Agreement.
4.3 BUSINESS
There shall be no restrictions on the business the Corporation may carry on or
on the powers the Corporation may exercise.
4.4 REGISTERED OFFICE
Until changed in accordance with the Act, the place in Ontario where the
registered office of the Corporation is to be situated is the City of Toronto,
in the Province of Ontario, and the address of
<PAGE> 5
the registered office of the Corporation shall be 40 West Wilmot Street,
Richmond Hill, Ontario, L4B 1H8.
4.5 BY-LAWS
Until repealed, amended, altered or added to, so far as applicable, the by-laws
of Delano at the time the amalgamation becomes effective shall be the by-laws of
the Corporation. A copy of the by-laws may be examined at the registered office
of the Corporation.
4.6 SHARE CERTIFICATE
Until altered, the forms of share certificates for the Common Shares, the Class
A Special Shares, the Class B Special Shares and the Class C Special Shares of
the Corporation shall be in the same forms respectively as the share
certificates for the Common Shares, the Class A Preferred Shares, the Class B
Preferred Shares and the Class C Preferred Shares of Delano, as such share
certificate shall be amended from time to time.
4.7 BANKING
Until repealed, amended, altered or added to, so far as applicable, the banking
resolutions of the Corporation shall be the same as the banking resolutions of
Delano.
ARTICLE 5
DIRECTORS AND OFFICERS
5.1 DIRECTORS
Until changed in accordance with the Act, the Board of the Corporation shall
consist of the Board of Delano at the time the amalgamation becomes effective.
Each director shall hold office until the first meeting of shareholders of the
Corporation, or until his successor is elected or appointed. The election of
subsequent directors shall take place thereafter in accordance with the
provisions of the by-laws of the Corporation and the Act. Subject to the
provisions of the Act and any unanimous shareholder agreement, the Board shall
manage or supervise the management of the business and affairs of the
Corporation.
5.2 OFFICERS
The officers of the Corporation shall consist of the officers of Delano at the
time the amalgamation becomes effective, until their successors are duly elected
or appointed.
ARTICLE 6
ISSUED CAPITAL
6.1 TRANSITION
At the time the amalgamation of Delano and Holdings becomes effective, their
shares become issued and fully paid shares of the Corporation, or are cancelled,
as the case may be, as follows:
<PAGE> 6
(a) Class A Preferred Shares (Holdings) - all of the issued and outstanding
Class A Preferred Shares in the capital of Holdings shall be converted into
fully paid and non-assessable Class A Special Shares, Class B Special
Shares and Class C Special Shares of the Corporation equal to that
percentage (the "Class A Preferred Applicable Percentage") of each of (A)
4,000,000 Class A Preferred Shares, (B) 2,631,580 Class B Preferred Shares
and (C) 124,308 Class C Preferred Shares that the Fair Market Value of the
Class A Preferred Shares of Holdings is of the Fair Market Value of
Holdings; and for this purpose the Fair Market Value of the Class A
Preferred Shares of Holdings is $4,646,401.60 and the aggregate Fair Market
Value of Holdings is the aggregate Fair Market Value of each of 4,000,000
Class A Preferred Shares, 2,631,308 Class B Preferred Shares and 124,308
Class C Preferred Shares.
Accordingly, each Class A Preferred Share of Holdings shall be converted
into fully paid and non-assessable Class A Special Shares, Class B Special
Shares and Class C Special Shares in accordance with the following formula:
Number of Class A Special Shares =
Class A Preferred Applicable Percentage x 4,000,000
1,100
Number of Class B Special Shares =
Class A Preferred Applicable Percentage x 2,631,580
1,100
Number of Class C Special Shares =
Class A Preferred Applicable Percentage x 124,308
1,100
(b) Common Shares (Holdings) - all of the issued and outstanding Common Shares
in the capital of Holdings shall be converted into fully paid and
non-assessable Class A Special Shares, Class B Special Shares and Class C
Special Shares of the Corporation equal to that percentage (the "Common
Share Applicable Percentage") of each of (A) 4,000,000 Class A Preferred
Shares, (B) 2,631,580 Class B Preferred Shares and 124,308 Class C
Preferred Shares that the Fair Market Value of the Common Shares of
Holdings is of the Fair Market Value of Holdings and for this purpose the
Fair Market Value of the Class A Preferred Shares of Holdings is
$4,646,401.60 and the Fair Market Value of Holdings is the aggregate Fair
Market Value of each of 4,000,000 Class A Preferred Shares and 2,631,308
Class B Preferred Shares and 124,308 Class C Preferred Shares and the Fair
Market Value of the Common Shares of Holdings is equal to the Fair Market
Value of Holdings less the Fair Market Value of the Class A Preferred
Shares of Holdings.
<PAGE> 7
Accordingly, each Common Share of Holdings shall be converted into fully
paid and non-assessable Class A Special Shares, Class B Special Shares and
Class C Special Shares in accordance with the following formula:
Number of Class A Special Shares =
Common Share Applicable Percentage x 4,000,000
3,150
Number of Class B Special Shares =
Common Share Applicable Percentage x 2,631,580
3,150
Number of Class C Special Shares =
Common Share Applicable Percentage x 124,308
3,150
(c) Common Shares - the following issued and outstanding shares become Common
Shares of the Corporation on the basis that all of the issued and
outstanding Common Shares in the capital of Delano shall be converted into
fully paid and non-assessable Common Shares of the Corporation on the basis
of one Common Share of the Corporation for each Common Share of Delano.
(d) Class B Preferred Shares - all of the issued and outstanding Class B
Preferred Shares in the capital of Delano held by Shareholders other than
Holdings shall be converted into fully paid and non-assessable Class B
Special Shares of the Corporation on the basis of one Class B Special Share
of the Corporation for each Class B Preferred Share of Delano;
(e) Class C Preferred Shares - all of the issued and outstanding Class C
Preferred Shares in the capital of Delano held by shareholders other than
Holdings shall be converted into fully paid and non-assessable Class C
Special Shares of the Corporation on the basis of one Class C Special Share
of the Corporation for each Class C Preferred Share of Delano; and
(f) Cancelled Shares - the following shares are cancelled:
(i) the 4,000,000 issued and outstanding Class A Preferred Shares in the
capital of Delano, without any repayment of capital in respect
thereof;
(ii) the 2,631,580 Class B Preferred Shares in the capital of Delano owned
by Holdings, without any repayment of capital in respect thereof;
(iii) the 124,308 Class C Preferred Shares in the capital of Delano owned
by Holdings, without any repayment of capital in respect thereof; and
(iv) all authorized but unissued shares in the capital of Delano and
Holdings;
<PAGE> 8
6.2 CONVERSION TO COMMON SHARES OF DELANO
In the event that the issued and outstanding preferred shares of Delano have
been converted to Common Shares of Delano in accordance with their terms prior
to the effective time of the amalgamation, all references in this Agreement to
Special Shares of the Corporation shall be deemed to be references to Common
Shares of the Corporation, as if such Special Shares were Class A Preferred
Shares, Class B Preferred Shares or Class C Preferred Shares of Delano, as the
case may be, and were converted to Common Shares in accordance with their terms.
6.3 FRACTIONAL SHARES
Notwithstanding anything herein contained, no fractional shares of the
Corporation will be issued in connection with this amalgamation. Where the
aggregate number of Class A Special Shares, Class B Special Shares, Class C
Special Shares or Common Shares of the Corporation, as the case may be, to be
issued to a holder of Class A Preferred Shares or Common Shares of Holdings
would result in a fraction of a share being issued, such holder shall receive,
in lieu of such fractional share, a cash payment from the Corporation equal to
the fraction of a Class A Special Share, Class B Special Share, Class C Special
Share or Common Share of the Corporation otherwise issuable, multiplied by the
Fair Market Value of the Class A Preferred Share or Common Share of Holdings, as
the case may be.
6.4 STATED CAPITAL
The aggregate stated capital of the Corporation shall be equal to the aggregate
stated capital of Holdings plus the aggregate stated capital of Delano
immediately prior to the amalgamation, less the stated capital attributable to
the shares of Delano owned by Holdings which are to be cancelled on the
amalgamation and shall be allocated among the shares of the Corporation as
follows:
(a) $1,500,018.65 to the Class A Special Shares of the Corporation;
(b) $3,600,014.37 to the Class B Special Shares of the Corporation;
(c) $22,500,005.58 to the Class C Special Shares of the Corporation; and
(d) $3,500 to the Common Shares of the Corporation
6.5 SHARE CERTIFICATES
After the amalgamation becomes effective, the shareholders of Delano and
Holdings, when requested by the Corporation, shall surrender for cancellation
the certificates representing shares held by them in Delano and Holdings,
respectively, and shall be entitled to receive, upon request, certificates for
shares of the Corporation on the basis aforesaid.
<PAGE> 9
ARTICLE 7
GENERAL
7.1 INDEMNITY
XDL Ventures Corp. covenants and agrees with Delano to indemnify and save
harmless Delano from and against any and all liabilities of Holdings that Delano
may assume pursuant to the amalgamation.
7.2 EXPENSES
Whether or not the amalgamation is consummated, Holdings agrees to pay or to
reimburse Delano for all out of pocket expenses of Delano relating to the
amalgamation.
7.3 JOINDER
XDL Ventures Corp. has executed this Agreement for the purpose of agreeing to be
bound by the provisions of Section 7.1.
IN WITNESS WHEREOF the parties have executed this Agreement as of the date first
written above.
DELANO TECHNOLOGY CORPORATION
By: [Signed by David Latner]
-----------------------------------------
Name: David Latner
Title: Secretary
XDL DELANO HOLDINGS INC.
By: [Signed by David Latner]
-----------------------------------------
Name: David Latner
Title: Vice President and Secretary
EXECUTED as of the date first written above, for the purposes of agreeing to be
bound by Section 6.1.
XDL VENTURES CORP.
By: [Signed by David Latner]
-----------------------------------------
Name: David Latner
Title:
<PAGE> 10
SCHEDULE A
DELANO TECHNOLOGY CORPORATION
ARTICLES OF AMENDMENT
COMMON SHARES
1. VOTING RIGHTS
Each holder of Common Shares shall be entitled to receive notice of and to
attend all meetings of shareholders of the Corporation and to vote thereat,
except meetings at which only holders of a specified class of shares (other than
Common Shares) or specified series of shares are entitled to vote. At all
meetings of holders of Common Shares, each holder of Common Shares shall be
entitled to one vote in respect of each Common Share held by such holder.
2. DIVIDENDS
The Common Shares shall be entitled, subject to the rights, privileges,
restrictions and conditions attaching to any other class of shares of the
Corporation, to receive any dividend declared by the Board of Directors of the
Corporation.
3. LIQUIDATION, DISSOLUTION OR WINDING-UP
In the event of any liquidation, dissolution or winding-up of the Corporation or
other distribution of assets of the Corporation among its shareholders for the
purpose of winding-up its affairs, subject to the rights, privileges,
restrictions and conditions attaching to any other class of shares of the
Corporation, the assets and funds of the Corporation available for distribution
to shareholders shall be distributed among the holders of the Common Shares, the
holders of the Class A Special Shares, the holders of the Class B Special
Shares, the holders of the Class C Special Shares and any other class or series
of shares entitled to participate in a liquidation distribution with the holders
of Common Shares, pro rata based on the number of Common Shares held by each
holder (assuming conversion into Common Shares of all Class A Special Shares,
Class B Special Shares and Class C Special Shares) and any other participating
outstanding series or class of shares convertible into Common Shares.
SPECIAL SHARES
4. DIVIDENDS ON SPECIAL SHARES
The Class A Special Shares, the Class B Special Shares and the Class C Special
Shares (collectively, the "Special Shares") shall participate equally with
respect to dividends and for greater certainty, all dividends which the
directors may declare in any fiscal year of the Corporation on the Class A
Special Shares, the Class B Special Shares and the Class C Special Shares shall
be declared and paid in equal or equivalent amounts per share on the Class A
<PAGE> 11
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Special Shares, the Class B Special Shares and the Class C Special Shares at the
time outstanding without preference or priority.
Holders of outstanding Class A Special Shares shall be entitled to receive, in
any fiscal year, annually or when otherwise as declared by the Board of
Directors of the Corporation and to the extent permitted under the Business
Corporations Act (Ontario), dividends in cash at the rate of $0.03 per share per
annum plus an amount per share equal to 8% per annum of the accrued and unpaid
dividends thereon (providing for an 8% cumulative compounding return), which
shall accrue as provided herein, before any dividend is paid on the Common
Shares. Such dividends shall accrue on outstanding Class A Special Shares
cumulatively, commencing on the date of the original issuance thereof, on a
daily basis. Except to the extent otherwise permitted by these Articles,
dividends or distributions may be declared and paid upon Common Shares in any
fiscal year of the Corporation only if all accrued dividends shall have been
paid on all Class A Special Shares in accordance with this section. If, after
payment of such dividends to holders of the Special Shares, dividends are paid
to holders of Common Shares, the holders of outstanding Special Shares shall be
entitled to receive, out of any assets at the time legally available therefor,
additional dividends per share equal to the per share dividends paid to holders
of Common Shares (treating each Special Share as being equal to the number of
Common Shares into which each such Special Share could be converted pursuant to
Section 4 (Conversion) hereof, with such number determined as of the record date
for the determination of holders of Common Shares entitled to receive such
dividend).
5. LIQUIDATION, DISSOLUTION OR WINDING-UP
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of Class A
Special Shares shall be entitled to receive, prior and in preference to any
distribution of any of the assets of the Corporation to the holders of the
Common Shares or to the holders of the Class B Special Shares or the Class
C Special Shares, by reason of their ownership thereof, the Class A
Redemption Price (as defined in paragraph 5(c) below) for each Class A
Special Share then held by such holders. If the amount available for such
distribution is insufficient to pay the Class A Redemption Price on all
outstanding Class A Special Shares, the assets available for distribution
shall be distributed among the holders of the Class A Special Shares pro
rata in accordance with the total number of Class A Special Shares held by
such holders.
(b) After the payment of all preferential amounts required to be paid to the
holders of the Class A Special Shares and any other class or series of
shares of the Corporation ranking on liquidation on a parity with or senior
to the Class A Special Shares, the holders of Class B Special Shares and
the holders of Class C Special Shares shall be entitled to receive, prior
and in preference to any distribution of any of the assets of the
Corporation to the holders of the Common Shares, by reason of their
ownership thereof, for each Class B Special Share and Class C Special Share
then held by a holder, a sum equal to:
FOR HOLDERS OF CLASS B SPECIAL SHARES:
(i) the Class B Redemption Price (as defined in paragraph 5(c) below); and
(ii) an additional amount equal to the following:
<PAGE> 12
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(A) 8% of the holders subscription price for the Class B Special Share, per
annum since the date of issuance (non-compounded), if the aggregate value
of all assets available for distribution to the holders of the Corporation
(prior to making any payments pursuant to this Section 2) is less than or
equal to $9,999,999; or
(B) 16% of the holders subscription price for the Class B Special Share, per
annum since the date of issuance (non-compounded), if the aggregate value
of all assets available for distribution to the holders of the Corporation
(prior to making any payments pursuant to this Section 2) is greater than
$9,999,999 but less than or equal to $19,999,999; or
(C) 24% of the holders subscription price for the Class B Special Share, per
annum since the date of issuance (non-compounded) if the aggregate value of
all assets available for distribution to the holders of the Corporation
(prior to making any payments pursuant to this Section 2) is greater than
$19,999,999.
FOR HOLDERS OF CLASS C SPECIAL SHARES:
(iii) the Class C Redemption Price (as defined in paragraph 5(c) below);
and
(iv) an additional amount equal to the following:
(A) 8% of the holders subscription price for the Class C Special Share, per
annum since the date of issuance (non-compounded), if the aggregate value
of all assets available for distribution to the holders of the Corporation
(prior to making any payments pursuant to this Section 2) is less than or
equal to $9,999,999; or
(B) 16% of the holders subscription price for the Class C Special Share, per
annum since the date of issuance (non-compounded), if the aggregate value
of all assets available for distribution to the holders of the Corporation
(prior to making any payments pursuant to this Section 2) is greater than
$9,999,999 but less than or equal to $19,999,999; or
(C) 24% of the holders subscription price for the Class C Special Share, per
annum since the date of issuance (non-compounded) if the aggregate value of
all assets available for distribution to the holders of the Corporation
(prior to making any payments pursuant to this Section 2) is greater than
$19,999,999.
If the amount available for such distribution is insufficient to
pay the Class B Redemption Price and the Class C Redemption Price
(plus any additional amount applicable pursuant to this Section
2) on all outstanding Class B Special Shares and Class C Special
Shares, the assets available for distribution shall be
distributed among the holders of the Class B Special Shares and
the holders of the Class C Special Shares pro rata based on the
number of Common Shares into which each Class B Special Share and
Class C Special Share could be converted pursuant to Section 4
(conversion) hereof.
(c) After the payment of all preferential amounts required to be paid to the
holders of the Class A Special Shares, the holders of the Class B Special
Shares and the holders of the Class C Special Shares and any other class or
series of shares of the Corporation ranking on liquidation senior to the
Common Shares, upon the liquidation, dissolution or winding up of
<PAGE> 13
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the Corporation, the remaining assets and funds of the Corporation
available for distribution to its shareholders shall be distributed among
the holders of the Class A Special Shares, the holders of the Class B
Special Shares, the holders of the Class C Special Shares and the holders
of the Common Shares and any other class or series of shares entitled to
participate in liquidation distributions with the holders of Common Shares,
pro rata based on the number of Common Shares held by each holder (assuming
conversion into Common Shares of all Special Shares) and any other
participating outstanding series or class of shares convertible into Common
Shares.
(d) The amalgamation, merger or consolidation of the Corporation into or with
another corporation (where the shareholders of the Corporation are not the
majority shareholders of the merged entity), or the sale of all or
substantially all the assets of the Corporation, shall be deemed a
liquidation, dissolution or winding up of the Corporation for purposes of
this Section 2 unless the prior written consent to such transaction is
obtained from the holders of at least two-thirds of the outstanding Class A
Special Shares, from the holders of at least two-thirds of the outstanding
Class B Special Shares and from the holders of at least two thirds of the
outstanding Class C Special Shares, voting separately.
(e) In the event of a liquidation, dissolution or winding up of the Corporation
resulting in the availability of assets other than cash for distribution to
the holders of Special Shares, the cash amount deemed distributed to such
holders shall be the cash value of the property, rights or securities
distributed to such holders by the Corporation or the acquiring
corporation. If the non-cash consideration is publicly traded shares, then
the cash value for such consideration shall be the simple average of the
closing price (or closing bid price during) in the ten trading days
preceding announcement of the distribution. The Board of Directors of the
Corporation shall first determine the value of such property, rights or
other securities for such purpose, and shall notify all holders of Special
Shares of such determination. The value of such property, rights or other
securities for purposes of the distribution under this paragraph 2(e) shall
be the value as determined by the Board of Directors of the Corporation in
good faith, unless the holders of a majority of the outstanding Special
Shares shall object thereto in writing within 15 days after receiving
written notice of such value. In the event of such objection, the valuation
of such property, rights or other securities for purposes of such
distribution shall be determined by an arbitrator selected by the objecting
shareholders and the Board of Directors of the Corporation, or in the event
a single arbitrator cannot be agreed upon within 10 days after the written
objection sent by the objecting shareholders in accordance with the
previous sentence, the valuation of such property, rights or other
securities shall be determined by arbitration in which (i) the objecting
shareholders shall name one arbitrator, (ii) the Board of Directors of the
Corporation shall name a second arbitrator, (iii) the two arbitrators thus
selected shall select a third arbitrator, and (iv) the three arbitrators
thus selected shall determine the valuation of such property, rights or
other securities within 15 days for purposes of such distribution or as
soon as practicable thereafter by majority vote. The costs of such
arbitration shall be borne by the Corporation or by the holders of the
Special Shares (on a pro rata basis out of the property, rights or other
securities otherwise distributable to them) as follows: (A) if the
valuation as determined by the arbitrators is equal to or exceeds the
valuation as determined by the Board of Directors of the Corporation, the
holders of the Special Shares shall pay the costs of the arbitration, and
(B) otherwise, the Corporation shall bear the costs of the arbitration.
<PAGE> 14
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6. VOTING RIGHTS
Except as otherwise provided herein and except as otherwise required by law, on
all matters submitted to a vote of holders of Common Shares, a holder of Special
Shares shall be entitled to the number of votes which is equal to the number of
Common Shares into which such Special Shares are then convertible pursuant to
Section 4 (Conversion) hereof, and in all ways shall have voting rights and
powers equal to the voting rights and powers of the Common Shares, including the
right to notice of any shareholders' meeting in accordance given to the holders
of Common Shares. Except as otherwise required by law, the Special Shares and
Common Shares vote together as a single class. Fractional votes shall not,
however, be permitted and any fractional voting rights resulting from the above
formula (after aggregating all Common Shares into which Special Shares held by
each holder could then be converted) shall be rounded to the nearest whole
number (with one-half being rounded upward).
7. CONVERSION
The holders of Special Shares shall have the following conversion rights (the
"Conversion Rights"):
(a) RIGHT TO CONVERT.
(i) OPTIONAL CONVERSION. Each Class A Special Share shall be convertible, at
the option of the holder thereof, at the office of the Corporation, into
such number of fully paid and non-assessable Common Shares as determined by
dividing $0.375 by the Class A Conversion Price (as defined below), in
effect at the time of conversion. The price at which Common Shares shall be
deliverable upon conversion (the "Class A Conversion Price") shall
initially be $0.375. Such Class A Conversion Price shall be subject to
adjustment as hereinafter provided. Each Class B Special Share shall be
convertible, at the option of the holder thereof, at the office of the
Corporation, into such number of fully paid and non-assessable Common
Shares as determined by dividing $0.95 by the Class B Conversion Price (as
defined below), in effect at the time of conversion. The price at which
Common Shares shall be deliverable upon conversion (the "Class B Conversion
Price") shall initially be $0.95. Such Class B Conversion Price shall be
subject to adjustment as hereinafter provided. Each Class C Special Share
shall be convertible, at the option of the holder thereof, at the office of
the Corporation, into one Common Share and the number of Common Shares
received upon the conversion of Class C Special Shares shall not be subject
to adjustment at any time including, without limitation, pursuant to the
provisions of paragraph 4(c).
(ii) AUTOMATIC CONVERSION. Each Special Share shall be converted automatically
into Common Shares (for the Class A Special Shares and the Class B Special
Shares, at the then effective Class A Conversion Price or Class B
Conversion Price, as the case may be) immediately prior to (A) the
completion of a Canadian public offering of Common Shares pursuant to a
prospectus or a sale of Common Shares in a public offering registered under
the U.S. Securities Act of 1933, as amended, (or the applicable law of such
other jurisdiction in which the Corporation goes public) that results in
aggregate net proceeds to the Corporation (defined as aggregate sales price
to the public, less expenses and underwriters' discounts) of at least
twenty million dollars ($20,000,000) at a price per share which is based on
a pre-offering valuation of the Corporation of not less than thirty million
dollars ($30,000,000) (a "Qualified Public Offering"); or (B) the
Corporation acquiring all or substantially all of the
<PAGE> 15
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assets of any other person or business entity or entering into any
consolidation, merger, or other business combination, or transferring all
or substantially all of the Corporation's business or assets to any
partnership, joint venture or other similar jointly owned business venture,
with any other corporation or business entity, or effecting a liquidation,
winding up, reorganization or sale or other disposition of the Corporation
or of all or substantially all of the assets of the Corporation in a
transaction that in any such event either (x) provides the holders of the
Special Shares with cash proceeds, or securities of a class of shares that
is traded on the Toronto Stock Exchange, NASDAQ National Market system or
the NYSE or AMEX exchanges (or any other recognized exchange or trading
system of approximately equivalent stature) or some combination thereof
equal to at least $2.25 per Special Share, less the amount of any dividends
actually paid by the Corporation per share to the holder of Special Shares
(if such transaction closes on or prior to July 31, 2002), or $2.625 per
Special Share less the amount of any dividends actually paid by the
Corporation per share to the holder of Special Shares (if such transaction
closes after July 31, 2002 but on or prior to July 31, 2003) or (y) the
holders of at least 50% of the aggregate number of outstanding Class A
Special Shares, the holders of at least 50% of the aggregate number of
outstanding Class B Special Shares and the holders of at least 50% of the
aggregate number of outstanding Class C Special Shares, voting separately,
approve at a meeting of shareholders or otherwise in writing both the
proposed transaction and the conversion of Special Shares to Common Shares.
The Corporation shall not pay dividends (regardless of whether such
dividends have been accrued or declared) on any Special Shares that are
automatically converted pursuant to this subsection (ii) above in addition
to any dividends that were actually paid to holders of Special Shares prior
to the automatic conversion.
(b) MECHANICS OF CONVERSION. Except on an automatic conversion under
subparagraph 4(a)(ii) above, before any holder of Special Shares shall be
entitled to convert Special Shares into Common Shares, such holder shall
surrender the certificate or certificates thereof, duly endorsed, at the
office of the Corporation and shall give written notice to the Corporation
at such office that such holder elects to convert the Special Shares and
shall state therein the name or names in which such holder wishes the
certificate or certificates for Common Shares to be issued. The Corporation
shall, as soon as practicable thereafter, issue and deliver at such office
to such holder, or to such holder's nominee or nominees, a certificate or
certificates for the number of Common Shares to which such holder shall be
entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of surrender of the
Special Shares to be converted, and the person or persons entitled to
receive the Common Shares issuable upon such conversion shall be treated
for all purposes as the record holder or holders of such Common Shares on
such date. If a holder tenders Special Shares for conversion in connection
with any automatic conversion event described in subparagraph 4(a)(ii)
above the conversion may, at the option of the holder tendering Special
Shares for conversion, be conditioned upon the closing of the relevant
transaction, in which event the person(s) entitled to receive the Common
Shares issuable upon such conversion of the Special Shares shall not be
deemed to have converted such Special Shares until immediately prior to the
closing of such transaction.
(c) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of this paragraph 4(c), the following
definitions shall apply:
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(A) Additional Common Shares shall mean all Common Shares issued (or, pursuant
to subparagraph 4(c)(iii), deemed to be issued) by the Corporation after
the Original Issue Date, other than Common Shares issued or issuable:
(1) upon conversion of Special Shares;
(2) to officers, directors or employees of, or consultants to, the
Corporation, in accordance with a plan approved by the Board of Directors
of the Corporation or pursuant to a compensation package for new senior
officers of the Corporation which the holders of a majority of the Special
Shares have agreed to in writing ("Permitted Employee Shares"), subject to
adjustment for all reclassifications, subdivisions, combinations or similar
recapitalizations of Common Shares;
(3) as a dividend or distribution on Special Shares; and
(4) by way of dividend or other distribution on Common Shares which
were, when issued, excluded from the definition of Additional Common Shares
by the foregoing clauses (1), (2) and (3) or this clause (4).
(B) "Convertible Securities" shall mean any evidence of indebtedness, and
shares (other than Common Shares) or other securities convertible into or
exchangeable for Common Shares, including the Special Shares.
(C) "Options" shall mean rights, options or warrants to subscribe for, purchase
or otherwise acquire either Common Shares or Convertible Securities.
(D) "Original Issue Date" shall mean the date on which a Special Share was
first issued.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in either the Class A
Conversion Price or the Class B Conversion Price shall be made in respect
of the issuance of Additional Common Shares unless the Net Cash
Consideration (as defined below) per share for an Additional Common Share
issued or deemed to be issued by the Corporation is less than the Class A
Conversion Price or Class B Conversion Price, as the case may be, in effect
on the date of, and immediately prior to such issue for such Special
Shares. The "Net Cash Consideration" shall mean the cash value of the
consideration received by the Corporation (determined pursuant to
subparagraph 4(c)(v)) less any commissions payable to third parties with
respect to the transaction in which the cash consideration is received.
(iii)DEEMED ISSUE OF ADDITIONAL COMMON SHARES.
(A) OPTIONS AND CONVERTIBLE SECURITIES. If the Corporation at any time or from
time to time after the Original Issue Date shall issue any Options or
Convertible Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum aggregate number (as set forth in
the instrument relating thereto without regard to any provision contained
therein for a subsequent adjustment of such number) of Common Shares
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Common Shares
<PAGE> 17
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issued as of the time of such issue or, in case such a record date shall
have been fixed, as of the close of business on such record date.
Notwithstanding the foregoing, in respect of Special Shares
Additional Common Shares shall not be deemed to have been
issued unless the Net Cash Consideration (as defined in
subparagraph 4(c)(ii)) per share (determined pursuant to
subparagraph 4(c)(v) hereof) of such Additional Common
Shares would be less than the Class A Conversion Price or
the Class B Conversion Price, as the case may be, in effect
on the date of and immediately prior to such issue, or such
record date, as the case may be, and provided further that
in any such case in which Additional Common Shares are
deemed to be issued:
(1) no further adjustment in the Class A Conversion Price or the Class B
Conversion Price shall be made upon the subsequent issue of Convertible
Securities or Common Shares pursuant to the exercise of such Options or
conversion or exchange of such Convertible Securities;
(2) if such Options or Convertible Securities by their terms provide, with the
passage of time or otherwise, for any increase in the consideration payable
to the Corporation, or decrease in the number of Common Shares issuable,
upon the exercise, conversion or exchange thereof, the Class A Conversion
Price and the Class B Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and
any subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
(3) upon the expiration or termination of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not
have been exercised, the Class A Conversion Price and the Class B
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration or termination, be
recomputed as if:
A. in the case of Convertible Securities or Options for Common Shares, the
only Additional Common Shares issued were the Common Shares, if any,
actually issued upon the exercise of such Options or the conversion or
exchange of such Convertible Securities and the consideration received
therefor was the consideration actually received by the Corporation for the
issue of all such Options, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or for the issue
of all such Convertible Securities, whether or not actually converted or
exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and
B. in the case of Options for Convertible Securities, only Convertible
Securities, if any, actually issued upon the exercise thereof were issued
at the time of issue of such options, and the consideration received by the
Corporation for the
<PAGE> 18
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Additional Common Shares deemed to have been then issued was the
consideration actually received by the Corporation for the issue of all
such Options, whether or not exercised, plus the consideration deemed to
have been received by the Corporation upon the issue of the Convertible
Securities with respect to which such Options were actually exercised; and
(4) for greater certainty, no adjustment pursuant to either clause B. or C.
above shall have the effect of increasing the Class A Conversion Price or
the Class B Conversion Price which shall continue to be, for the purposes
of any recalculation of the number of Additional Common Shares deemed to be
issued, the Class A Conversion Price or the Class B Conversion Price, as
the case may be, in effect immediately prior to the initial deemed issuance
of such Additional Common Shares.
(B) SHARE DIVIDENDS AND SUBDIVISIONS. If the Corporation at any time or from
time to time after the Original Issue Date shall declare or pay any
dividend on the Common Shares payable in Common Shares, or effect a
subdivision of the outstanding shares of Common Shares into a greater
number of shares of Common Shares (by reclassification or otherwise than by
payment of a dividend in Common Shares), then, and in any such event,
Additional Common Shares shall be deemed to have been issued:
(1) in the case of any such dividend, immediately after the close of business
on the record date for the determination of holders of any class of
securities entitled to receive such dividend, or
(2) in the case of any such subdivision, at the close of business on the date
immediately prior to the date upon which such corporate action becomes
effective.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL COMMON SHARES.
If the Corporation shall issue Additional Common Shares (including
Additional Common Shares deemed to be issued pursuant to subparagraph
4(c)(iii)) for a Net Cash Consideration (as defined in subparagraph
4(c)(ii)) per share less than the Class A Conversion Price or the
Class B Conversion Price on the date of and immediately prior to such
issuance, then, and in such event, the Class A Conversion Price and/or
the Class B Conversion Price, as the case may be, shall be reduced,
concurrently with such issue, to a price (calculated to the nearest
hundredth of a cent) determined by multiplying such conversion price
by a fraction, the numerator of which shall be the sum of (1) the
number of Common Shares outstanding immediately prior to such issue,
(2) any Permitted Employee Shares which have not been issued
immediately prior to such issue, but are then issuable pursuant to
options which have been granted, and which have an exercise price
below the price of such issue and (3) the number of Common Shares
which the aggregate consideration received by the Corporation for the
total number of Additional Common Shares so issued would purchase at
such conversion price; and the denominator of which shall be the sum
of (1) the number of Common Shares outstanding immediately prior to
such issue, (2) any Permitted Employee Shares which have not been
issued immediately prior to such issue but are then issuable pursuant
to options which have been granted, and which have an exercise price
below the price of such issue, and (3) the number of such Additional
<PAGE> 19
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Common Shares so issued; provided that, for the purposes of this
subparagraph 4(c)(iv), all Common Shares issuable upon conversion of
outstanding Special Shares and Convertible Securities and upon the
exercise of Options (including the conversion into Common Shares of
Convertible Securities issuable upon the exercise of such Options) and
all Additional Shares previously deemed issued pursuant to
subparagraph 4(c)(iii) (adjusted pursuant to subparagraph
4(c)(iii)(3), if applicable) shall be deemed to be outstanding.
(v) DETERMINATION OF CONSIDERATION. For purposes of this paragraph 4(c), the
consideration received by the Corporation for the issue of any Additional
Common Shares shall be computed as follows:
(A) CASH AND PROPERTY: Such consideration shall:
(1) insofar as it consists of cash, be computed at the aggregate amount of cash
received by the Corporation excluding amounts paid or payable for accrued
interest or accrued dividends;
(2) insofar as it consists of property other than cash, be computed at the fair
value thereof at the time of such issue, as determined in good faith by the
Board of Directors of the Corporation (and if the non-cash consideration is
public traded company shares, then the price shall be the simple average of
the closing price (or closing bid price) in the ten trading days preceding
the issue or deemed issue of the Additional Common Shares); and
(3) if Additional Common Shares are issued together with other shares or
securities or other assets of the Corporation for consideration which
covers both, be the proportion of such consideration so received in respect
of the Additional Common Shares, computed as provided in clauses (1) and
(2) above, as determined in good faith by the Board of Directors of the
Corporation.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per share received by
the Corporation for Additional Common Shares deemed to have been issued
pursuant to subparagraph 4(c)(iii)(A), relating to Options and Convertible
Securities, shall be determined by dividing:
(1) the total amount, if any, received or receivable by the Corporation as
consideration for the issue of such Options or Convertible Securities, plus
the minimum aggregate amount of additional consideration (as set forth in
the instruments relating thereto, without regard to any provisions
contained therein for a subsequent adjustment of such consideration)
payable to the Corporation upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities and the conversion or exchange of such
Convertible Securities, by
(2) the maximum number of shares of Common Shares (as set forth in the
instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
<PAGE> 20
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(C) SHARE DIVIDENDS AND SHARE SUBDIVISIONS. Any Additional Common Shares deemed
to have been issued pursuant to subparagraph 4(c)(iii)(B), relating to
share dividends and share subdivisions, shall be deemed to have been issued
for no consideration.
(vi) ADJUSTMENTS FOR COMBINATIONS OR CONSOLIDATION OF COMMON SHARES. If the
outstanding Common Shares shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of Common Shares, the
Class A Conversion Price and the Class B Conversion Price in effect
immediately prior to such combination or consolidation shall, concurrently
with the effectiveness of such combination or consolidation, be
proportionately increased.
(vii)ADJUSTMENT FOR MERGERS OR REORGANIZATION, ETC. In case of any amalgamation,
consolidation or merger of the Corporation with or into another corporation
or the conveyance of all or substantially all of the assets of the
Corporation to another corporation (which is not, in any such case, deemed
to be a liquidation, dissolution or winding up of the Corporation pursuant
to paragraph 2(c)), each Special Share shall thereafter, at the option of
the holder, be convertible into the number of shares or other securities or
property to which a holder of Common Shares deliverable upon conversion of
such Special Shares would have been entitled upon such consolidation,
merger or conveyance; and, in any such case, appropriate adjustment (as
determined by the Board of Directors of the Corporation) shall be made in
the application of the provisions herein set forth with respect to the
rights and interest thereafter of the holders of the Special Shares, to the
end that the provisions set forth herein (including provisions with respect
to changes in and other adjustments of the Class A Conversion Price and the
Class B Conversion Price) shall hereafter be applicable, as nearly as
reasonably may be, in relation to any shares or other property thereafter
deliverable upon the conversion of the Special Shares.
(d) NO IMPAIRMENT. The Board of Directors of the Corporation will at all times
in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Special Shares against impairment.
(e) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Class A Conversion Price or the Class B Conversion
Price pursuant to this Section 4, the Corporation, at its expense, promptly
shall compute such adjustment or readjustment in accordance with the terms
hereof and, upon written request of any holder of Class A Special Shares or
Class B Special Shares, as the case may be, shall cause independent public
accountants selected by the Corporation to verify such computation and
prepare and furnish to each holder of Class A Special Shares or Class B
Special Shares, as the case may be, a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of Class B Special Shares or
Class C Special Shares, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments, (ii)
the conversion price applicable to such Class B Special Shares and Class C
Special Shares in effect at the time, and (iii) the number of Common Shares
and the amount, if any, of other property which at the time would be
received upon the conversion of such Class B Special Shares and Class C
Special Shares.
(f) TAXES. The Corporation shall pay any and all issue taxes that may be
payable solely in respect of any issue or delivery of shares of Common
Shares on conversion of Special Shares
<PAGE> 21
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pursuant hereto; provided, however, that the Corporation shall not be
obligated to pay any transfer taxes resulting from any transfer requested
by any holder in connection with any such conversion or, for greater
certainty, any income tax payable by holders of Special Shares.
(g) RESERVATION OF SHARES ISSUABLE UPON CONVERSION. The Corporation shall at
all times reserve and keep available out of its authorized but unissued
Common Shares, solely for the purpose of effecting the conversion of the
shares of the Special Shares, such number of its Common Shares as shall
from time to time be sufficient to effect the conversion of all outstanding
Special Shares; and if at any time the number of authorized but unissued
Common Shares shall not be sufficient to effect the conversion of all then
outstanding Special Shares, the Corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued Common Shares to such number of shares as shall be
sufficient for such purpose.
(h) FRACTIONAL SHARES. No fractional share shall be issued upon the conversion
of any Special Shares. All Common Shares (including fractions thereof)
issuable upon conversion of more than one Special Share by a holder thereof
shall be aggregated for purposes of determining whether the conversion
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of
a fraction of a Common Share, the Corporation shall, in lieu of issuing any
fractional share, pay the holder otherwise entitled to such fraction a sum
in cash equal to the fair market value of such fraction on the date of
conversion (as determined in good faith by the Board of Directors of the
Corporation).
8. REDEMPTION
The Special Shares may not be redeemed by the Corporation at any time, but the
holders may require the Corporation to redeem the Special Shares in the
following circumstances:
(a) OPTIONAL REDEMPTION. Each holder of Class A Special Shares may require the
Corporation to redeem, (i) after July 31, 2002 up to fifty percent (50%) of
the outstanding Class A Special Shares then held by such holder, and (ii)
after July 31, 2003, all or any portion of the outstanding Class A Special
Shares then held by such holder. Each holder of Class B Special Shares may
require the Corporation to redeem, (i) after December 31, 2002, up to fifty
percent (50%) of the outstanding Class B Special Shares then held by such
holder, and (ii) after December 31, 2003, all or any portion of the
outstanding Class B Special Shares then held by such holder. Each holder of
Class C Special Shares may require the Corporation to redeem, (i) after
June 22, 2003, up to fifty percent (50%) of the outstanding Class C Special
Shares then held by such holder, and (ii) after June 22, 2004, all or any
portion of the outstanding Class C Special Shares then held by such holder.
At least 60 days prior to any redemption of Special Shares, each holder of
Special Shares electing to redeem its Special Shares in accordance with
this paragraph 5(a) shall give written notice to the Corporation specifying
the number of Special Shares such holder desires the Corporation to redeem
and the date of such redemption (hereinafter referred to as a "Redemption
Date").
(b) OPTIONAL REDEMPTION UPON CHANGE OF CONTROL. Each holder of Class A Special
Shares may require the Corporation to redeem all, but not less than all, of
the outstanding Class A Special Shares then held by such holder, upon a
Change in Control. Similarly, each holder of
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Class B Special Shares and Class C Special Shares may require the
Corporation to redeem all, but not less than all, of the outstanding Class
B Special Shares and Class C Special Shares then held by such holder, upon
a Change in Control. A "Change in Control" for purposes of this paragraph
5(b) shall mean any issuance of voting securities by the Corporation or
transfer of voting securities by the holder(s) thereof (or combination
thereof) to any person or persons acting in concert or a group of
affiliated persons, which issuance and/or transfer results in such person
or persons or group holding in the aggregate voting securities having the
power to cast 50% or more of the votes on any matters submitted from time
to time to holders of voting securities of the Corporation or which
otherwise provides such persons with the ability to elect a majority of the
Board of Directors of the Corporation. Notice of such issuance and/or
transfer (the "Control Notice") shall be given to the holders of Special
Shares by the Corporation within 10 days of the earlier of the
Corporation's making such issuance and/or being informed of such transfer.
Within 60 days of receiving the Control Notice, each holder of Special
Shares electing to redeem all of such holders Class A Special Shares and/or
Class B Special Shares, as the case may be, in accordance with this
paragraph 5(b) shall give written notice to the Corporation specifying the
number of Special Shares held by such holder and the date of such
redemption (also, a "Redemption Date").
(c) REDEMPTION PRICE AND PAYMENT. The Class A Special Shares to be redeemed on
any Redemption Date pursuant to paragraphs 5(a) or 5(b) above shall be
redeemed by paying for each share in cash an amount equal to $0.375 plus
all accrued but unpaid dividends thereon up to and including the date the
redemption price is received by the holder (the "Class A Redemption
Price"). The Class B Special Shares to be redeemed on any Redemption Date
pursuant to paragraphs 5(a) or 5(b) above shall be redeemed by paying for
each share in cash an amount equal to $0.95 plus all accrued but unpaid
dividends thereon up to and including the date the redemption price is
received by the holder (the "Class B Redemption Price"). The Class C
Special Shares to be redeemed on any Redemption Date pursuant to paragraphs
5(a) or 5(b) above shall be redeemed by paying for each share in cash an
amount equal to $0.95 plus all accrued but unpaid dividends thereon up to
and including the date the redemption price is received by the holder (the
"Class C Redemption Price").
(d) REDEMPTION MECHANICS. Upon receipt of payment by each holder of Special
Shares electing to redeem pursuant to paragraphs 5(a) or 5(b) above of the
redemption price applicable to such Special Shares (the Class A Redemption
Price, the Class B Redemption Price or the Class C Redemption Price, as the
case may be), all rights of holders of such redeemed shares shall cease
with respect to such shares, and such shares shall not thereafter be
transferred on the books of the Corporation or be deemed to be outstanding
for any purpose whatsoever. If the funds of the Corporation legally
available for redemption of Special Shares on any Redemption Date are
insufficient to redeem the total number of outstanding Special Shares as to
which redemption is requested, the holders of Special Shares requesting
redemption shall share rateably in any funds legally available for
redemption of such shares according to the respective amounts which would
be payable with respect to the full number of shares owned by such holders
as to which redemption is requested if all such outstanding shares were
redeemed in full. The Special Shares not redeemed shall remain outstanding
and entitled to all rights and preferences provided herein. At any time
thereafter when additional funds of the Corporation are legally available
for the redemption of such Special Shares, such funds will be used, at the
end of the next succeeding fiscal quarter, to redeem the balance of such
shares as to which redemption had been requested, or such portion thereof
for which
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funds are then legally available, on the basis set forth above, regardless
of whether any last date for giving notice pursuant to paragraphs 5(a) or
5(b), as the case may be, has passed.
(e) REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED. Any Special Shares
redeemed pursuant to this Section 5 or otherwise acquired by the
Corporation in any manner whatsoever shall be cancelled.
9. CURRENCY
All references herein to dollar amounts are references to Canadian dollars.
<PAGE> 1
Exhibit 10.15
AMENDMENT NO. 1 DATED FEBRUARY 7, 2000 TO THE AMALGAMATION AGREEMENT MADE
AS OF THE 30TH DAY OF NOVEMBER, 1999.
B E T W E E N:
DELANO TECHNOLOGY CORPORATION, a corporation governed by the
Business Corporations Act (Ontario), ("Delano")
- and -
XDL DELANO HOLDINGS INC., a corporation governed by the
Business Corporations Act (Ontario), ("Holdings")
RECITALS:
A. Delano and Holdings have entered into an Amalgamation Agreement dated as of
the 30th day of November, 1999;
B. Delano and Holdings wish to amend the Amalgamation Agreement in certain
respects, which amendments have been approved in writing by the
shareholders of each of Delano and Holdings.
NOW THEREFORE, the parties agree as follows:
ARTICLE 1
1.1 Section 4.2 of the Amalgamation Agreement is hereby deleted in its entirety
and replaced by the following:
4.2 AUTHORIZED CAPITAL
The Corporation shall be authorized to issue the following shares:
(a) an unlimited number of Common Shares;
(b) an unlimited number of Class A Special Shares;
(c) an unlimited number of Class B Special Shares; and
(d) an unlimited number of Class C Special Shares.
provided that, notwithstanding the foregoing, in the event that the issued
and outstanding Special Shares of Delano have been converted to Common
Shares of Delano in accordance with their terms prior to the effective time
of the amalgamation, the Corporation shall be authorized to issue an
unlimited number of Common Shares and an unlimited number of Preference
Shares.
The holders of the Common Shares, the Class A Special Shares, the Class B
Special Shares the Class C Special Shares and Preference Shares shall have
the rights, privileges, and are subject to the restrictions and conditions
set out in Schedule A to this Agreement
<PAGE> 2
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or, in the event that the issued and outstanding Special Shares of Delano
have been converted to Common Shares of Delano in accordance with their
terms prior to the effective time of the amalgamation, the holders of
Common Shares and Preference Shares shall have the rights, privileges, and
are subject to the restrictions and conditions set out in Schedule B to
this Agreement.
1.2 Section 6.1 of the Amalgamation Agreement is hereby amended by deleting
Section 6.1(c) in its entirety and replacing it with the following:
(c) Common Shares - all of the issued and outstanding Common Shares in the
capital of Delano held by shareholders other than Holdings shall be
converted into fully paid and non-assessable Common Shares of the
Corporation on the basis of one Common Share of the Corporation for each
Common Share of Delano.
1.3 Section 6.2 of the Amalgamation Agreement is hereby deleted in its entirety
and replaced by the following:
6.2 CONVERSION TO COMMON SHARES OF DELANO
In the event that the issued and outstanding preferred shares of Delano
have been converted to Common Shares of Delano in accordance with their
terms prior to the effective time of the amalgamation, all references in
this Agreement to Special Shares of the Corporation shall be deemed to be
references to Common Shares of the Corporation, as if such Special Shares
were Class A Preferred Shares, Class B Preferred Shares or Class C
Preferred Shares of Delano, as the case may be, and were converted to
Common Shares in accordance with their terms and, in the case of the Class
C Preferred Shares (in addition to and in the same manner as the Class A
Preferred Shares and Class B Preferred Shares), as adjusted to give effect
to any stock split in respect of the Common Shares.
1.4 Section 6.5 of the Amalgamation Agreement is hereby deleted in its entirety
and replaced by the following:
6.5 SHARE CERTIFICATES
After the amalgamation becomes effective, the shareholders of Delano and
Holdings, if and when requested by the Corporation, shall surrender for
cancellation the certificates representing shares held by them in Delano
and Holdings, respectively, and shall be entitled to receive, upon request,
certificates for shares of the Corporation on the basis aforesaid.
1.5 Schedule A of the Amalgamation Agreement is hereby amended by adding at the
end thereof the following:
PREFERENCE SHARES
The Preference Shares, as a class, shall have the following rights,
privileges, restrictions and conditions:
1. One or more series - The Preference Shares may from time to time be
issued in one or more series;
<PAGE> 3
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2. Terms of each series - Subject to the following provisions, and subject
to the filing of articles of amendment in prescribed form and the
endorsement thereon of a certificate of amendment, in accordance with the
Business Corporations Act (Ontario), the directors may fix from time to
time before such issue the number of shares that is to comprise each series
and the designation, rights, privileges, restrictions and conditions
attaching to each series of Preference Shares including, without limiting
the generality of the foregoing, the issue price per share, the rate or
amount of any dividends or the method of calculating any dividends, the
dates of payment thereof, any redemption, purchase and/or conversion prices
and terms and conditions of any redemption, purchase and/or conversion, and
any sinking fund or other provisions;
3. Ranking of Preference Shares - The Preference Shares of each series
shall, with respect to the payment of any dividends and any distribution of
assets or return of capital in the event of liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, or any
other return of capital or distribution of the assets of the Corporation
among its shareholders for the purpose of winding up its affairs, rank on a
parity with the Preference Shares of every other series and be entitled to
a preference over the Common Shares, and over any other shares of the
Corporation ranking junior to the Preference Shares. The Preference Shares
of any series may also be given such other preferences, not inconsistent
with these articles, over the Common Shares, and any other shares of the
Corporation ranking junior to such Preference Shares as may be fixed in
accordance with section 2;
4. Cumulative Dividends and Payments on the Return of Capital - If any
cumulative dividends, whether or not declared, or any amounts payable on
the return of capital in the event of the liquidation, dissolution or
winding up of the Corporation, in respect of a series of Preference Shares
are not paid in full, the shares of such series of Preference Shares shall
participate rateably with the shares of all other series of Preference
Shares in respect of, all accumulated cumulative dividends, whether or not
declared, or all amounts payable on the return of capital in the event of
the liquidation, dissolution or winding up of the Corporation, as the case
may be.
5. Conversion into Common Shares - The Preference Shares of any series may
be made convertible into Common Shares;
6. Voting - Subject to the provisions of the Business Corporations Act
(Ontario), and section 7 below, the Preference Shares shall have no voting
rights as a class;
7. Variation of rights - The provisions attaching to the Preference Shares
as a class may be amended or repealed at any time with such approval as may
then be required by law to be given by the holders of the Preference Shares
as a class.
1.6 The Amalgamation Agreement is hereby amended by adding the following as
Schedule B thereto:
<PAGE> 4
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SCHEDULE B
COMMON SHARES
1. VOTING RIGHTS
Each holder of Common Shares shall be entitled to receive notice of and to
attend all meetings of shareholders of the Corporation and to vote thereat,
except meetings at which only holders of a specified class of shares (other
than Common Shares) or specified series of shares are entitled to vote. At
all meetings of holders of Common Shares, each holder of Common Shares
shall be entitled to one vote in respect of each Common Share held by such
holder.
2. DIVIDENDS
The Common Shares shall be entitled, subject to the rights, privileges,
restrictions and conditions attaching to any other class of shares of the
Corporation, to receive any dividend declared by the Board of Directors of
the Corporation.
3. LIQUIDATION, DISSOLUTION OR WINDING-UP
In the event of any liquidation, dissolution or winding-up of the
Corporation or other distribution of assets of the Corporation among its
shareholders for the purpose of winding-up its affairs, subject to the
rights, privileges, restrictions and conditions attaching to any other
class of shares of the Corporation, the assets and funds of the Corporation
available for distribution to shareholders shall be distributed among the
holders of the Common Shares, pro rata based on the number of Common Shares
held by each holder and any other participating outstanding series or class
of shares convertible into Common Shares.
PREFERENCE SHARES
The Preference Shares, as a class, shall have the following rights,
privileges, restrictions and conditions:
1. One or more series - The Preference Shares may from time to time be
issued in one or more series;
2. Terms of each series - Subject to the following provisions, and subject
to the filing of articles of amendment in prescribed form and the
endorsement thereon of a certificate of amendment, in accordance with the
Business Corporations Act (Ontario), the directors may fix from time to
time before such issue the number of shares that is to comprise each series
and the designation, rights, privileges, restrictions and conditions
attaching to each series of Preference Shares including, without limiting
the generality of the foregoing, the issue price per share, the rate or
amount of any dividends or the method of calculating any dividends, the
dates of payment thereof, any redemption, purchase and/or conversion prices
and terms and conditions of any redemption, purchase and/or conversion, and
any sinking fund or other provisions;
<PAGE> 5
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3. Ranking of Preference Shares - The Preference Shares of each series
shall, with respect to the payment of any dividends and any distribution of
assets or return of capital in the event of liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, or any
other return of capital or distribution of the assets of the Corporation
among its shareholders for the purpose of winding up its affairs, rank on a
parity with the Preference Shares of every other series and be entitled to
a preference over the Common Shares, and over any other shares of the
Corporation ranking junior to the Preference Shares. The Preference Shares
of any series may also be given such other preferences, not inconsistent
with these articles, over the Common Shares, and any other shares of the
Corporation ranking junior to such Preference Shares as may be fixed in
accordance with section 2;
4. Cumulative Dividends and Payments on the Return of Capital - If any
cumulative dividends, whether or not declared, or any amounts payable on
the return of capital in the event of the liquidation, dissolution or
winding up of the Corporation, in respect of a series of Preference Shares
are not paid in full, the shares of such series of Preference Shares shall
participate rateably with the shares of all other series of Preference
Shares in respect of, all accumulated cumulative dividends, whether or not
declared, or all amounts payable on the return of capital in the event of
the liquidation, dissolution or winding up of the Corporation, as the case
may be.
5. Conversion into Common Shares - The Preference Shares of any series may
be made convertible into Common Shares;
6. Voting - Subject to the provisions of the Business Corporations Act
(Ontario), and section 7 below, the Preference Shares shall have no voting
rights as a class;
7. Variation of rights - The provisions attaching to the Preference Shares
as a class may be amended or repealed at any time with such approval as may
then be required by law to be given by the holders of the Preference Shares
as a class.
IN WITNESS WHEREOF the parties have executed this Agreement as of the date first
written above.
DELANO TECHNOLOGY CORPORATION
By: ____________________________________
Name: David Latner
Title: Secretary
XDL DELANO HOLDINGS INC.
By: ____________________________________
Name: David Latner
Title: Vice President and Secretary
<PAGE> 1
Exhibit 10.16
- 1 -
SUBSCRIPTION AGREEMENT
THIS AGREEMENT is made as of the 7th day of February, 2000
BETWEEN:
DELANO TECHNOLOGY CORPORATION, a corporation governed by the laws of
the Province of Ontario, (the "Corporation")
- and -
NORTEL NETWORKS CORPORATION, a corporation governed by the laws of
Canada, (the "Investor")
RECITALS:
The authorized capital of the Corporation consists of an unlimited number of
redeemable convertible special shares, an unlimited number of common shares, and
an unlimited number of preferred shares. There are presently issued and
outstanding 7,789,476 redeemable convertible special shares and 5,500,000 common
shares of the Corporation, giving effect to articles of amendment to be filed on
or about the date hereof in respect of a three for two split in the common
shares of the Corporation.
The corporation has filed an amended and restated Canadian prospectus dated
January 12, 2000 in respect of the offer and sale of New Common Shares (as
defined herein) and common shares in the capital of the Corporation issuable
upon the exercise of 4,326,924 special warrants and has filed a registration
statement in the United States in respect of the offer and sale of the New
Common Shares.
The Investor wishes to subscribe for the Purchased Shares (as defined herein).
THEREFORE, the parties agree as follows:
<PAGE> 2
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ARTICLE 1
DEFINITIONS AND PRINCIPLES OF INTERPRETATION
1.1 DEFINITIONS
Whenever used in this Agreement, unless there is something inconsistent in the
subject matter or context, the following words and terms shall have the meanings
set out below:
"AGREEMENT" means this subscription agreement, including the schedules, and
all instruments supplementing or amending or confirming this Agreement;
"hereof", "hereto" and "hereunder" and similar expressions mean and refer
to this Agreement and not to any particular article or section; "Article"
or "Section" means and refers to the specified article or section of this
Agreement;
"BUSINESS DAY" means a day, other than a Saturday or Sunday, on which the
principal commercial banks located at Toronto, Ontario are open for
business during normal banking hours;
"CLOSING" means the completion of the issue, sale and purchase of the
Purchased Shares at the Closing Date by the deliveries of share
certificates representing the Purchased Shares to the Investor and the
payment of the purchase price therefor, all in accordance with this
Agreement;
"CLOSING TIME" means immediately following the completion of the Prospectus
Closing, or such other time or date as may be agreed upon by the parties;
"DISPOSITION" shall have the meaning assigned thereto in Section 7.1;
"IPO PRICE" means the price per New Common Shares, as set forth in the
final Offering Memorandum, which price is presently estimated to be in the
range of $9.00 to $11.00 but is subject to change;
"LOCK-UP PERIOD" shall have the meaning assigned thereto in Section 7.1;
"NEW COMMON SHARES" shall mean the common shares in the capital of the
Corporation to be issued to and purchased by the underwriters, as set forth
in the Offering Memorandum;
"OFFERING MEMORANDUM" means the amended and restated preliminary prospectus
of the Corporation dated January 12, 2000, together with the Offering
Memorandum supplement thereto, as the same may be supplemented or amended;
"PARTIES" shall mean the Corporation and the Investor, collectively;
<PAGE> 3
- 3 -
"PERSON" includes any individual, legal or personal representative,
partnership, corporation, incorporated syndicate, unincorporated or
incorporated association, trust or governmental body, howsoever designated
or constituted;
"PROSPECTUS CLOSING" shall mean the issue of New Common Shares;
"PUBLIC OFFERING" means the public offering of common shares in the capital
of the Corporation described in the Offering Memorandum;
"PURCHASED SHARES" means 500,000 common shares in the capital of the
Corporation or such lesser number of common shares in the capital of the
Corporation having an aggregate value of $10,000,000 at the IPO Price,
giving effect to a 3 for 2 stock split in respect of which articles of
amendment are to be filed by the Corporation before Closing;
"SECURITIES" shall have the meaning assigned thereto in Section 7.1;
"SUBSCRIPTION PRICE" shall have the meaning assigned thereto in Section
2.1; and
"UNDERWRITING AGREEMENT" means the underwriting agreement to be entered
into between the Corporation and the underwriters in respect of the issue
of the New Common Shares.
1.2 CERTAIN RULES OF INTERPRETATION
In this Agreement:
(a) time is of the essence in the performance of the parties' respective
obligations;
(b) unless otherwise specified, all references to money amounts are to
United States currency;
(c) the descriptive headings of Articles and Sections are inserted solely
for convenience of reference and are not intended as complete or
accurate descriptions of content; and
(d) the use of words in the singular or plural, or with a particular
gender, shall not limit the scope or exclude the application of any
provision of this Agreement to such person or persons or circumstances
as the context otherwise permits.
1.3 INVALIDITY OF PROVISIONS
The invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provisions hereof and such
invalid or unenforceable provision shall be deemed severable.
<PAGE> 4
- 4 -
1.4 ENTIRE AGREEMENT
This Agreement together with the letter agreement between the parties dated the
date hereof and the documents to be delivered pursuant to this Agreement,
constitute the entire agreement between the parties pertaining to the subject
matter of this Agreement and supersede all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the parties and there
are no warranties, representations or other agreements between the parties or
any of them in connection with the subject matter of this Agreement except as
specifically set forth in this Agreement and any document delivered pursuant to
this Agreement. No supplement, modification or waiver or termination of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions (whether or not similar) nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
1.5 APPLICABLE LAW
This Agreement shall be construed in accordance with the laws of the Province of
Ontario and the laws of Canada applicable therein and shall be treated, in all
respects, as an Ontario contract.
ARTICLE 2
SUBSCRIPTION AND CLOSING
2.1 SUBSCRIPTION
Subject to the completion of all of the deliveries and other actions and
conditions provided for in this Agreement, the Investor hereby subscribes for
and agrees to purchase at Closing, and the Corporation agrees to issue and sell
to the Investor at Closing, the Purchased Shares for an aggregate amount equal
to the IPO Price multiplied by the number of Purchased Shares (the "Subscription
Price").
2.2 CLOSING ARRANGEMENTS
The completion of the transactions contemplated by this Agreement shall take
place at the offices of Osler, Hoskin & Harcourt, 66th Floor, 1 First Canadian
Place, Toronto, Ontario at the Closing Time or at such other time and place as
may be determined by the Corporation.
2.3 DELIVERIES AT CLOSING
At Closing:
(a) the Investor shall make full payment of the Subscription Price to the
Corporation for the Purchased Shares being purchased by it by delivery
to the Corporation of a certified cheque or bank draft payable to or
to the order of the Corporation or by wire transfer to the Corporation
in the amount of the Subscription Price;
<PAGE> 5
- 5 -
(b) the Corporation shall deliver to or to the order of the Investor a
share certificate representing the Purchased Shares;
(c) there shall be delivered to the Investor legal opinions of counsel to
the Corporation which are substantially the same as the opinions
delivered to the underwriters pursuant to the Underwriting Agreement,
with such deviations therefrom as are necessary to reflect the private
placement nature of the purchase of the Purchased Shares by a resident
of Canada, including an opinion that the Purchased Shares have been
duly authorized and validly issued and are outstanding as fully paid
and non-assessable shares of the Corporation;
(d) there shall be delivered to the Investor a long form comfort letter
from the Corporation's auditors which is substantially the same as the
long form comfort letter delivered to the underwriters pursuant to the
Underwriting Agreement, with such deviations therefrom as are
necessary to reflect the private placement nature of the purchase of
the Purchased Shares by a resident of Canada; and
(e) the Corporation and the Investor shall deliver all other documents,
instruments or contracts reasonably required to implement the
transactions contemplated hereby.
ARTICLE 3
REPRESENTATIONS OF THE CORPORATION
The Corporation hereby represents and warrants to the Investor the matters set
out below.
3.1 DUE AUTHORIZATION
Prior to Closing, the Corporation shall have all the necessary corporate power
and capacity to enter into this Agreement, to issue and sell the Purchased
Shares to be issued to the Investor pursuant to this Agreement, and the
execution and delivery of this Agreement and the issue and sale of such
Purchased Shares to the Investor shall have been duly authorized by all
necessary corporate action on the part of the Corporation.
3.2 ENFORCEABILITY OF OBLIGATIONS
This Agreement constitutes a valid and binding obligation of the Corporation
enforceable against it in accordance with its terms.
3.3 SHARES
Upon receipt of the Subscription Price by the Corporation for the Purchased
Shares, the Purchased Shares shall be issued as fully paid and non-assessable
common shares in the capital stock of the Corporation.
<PAGE> 6
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3.4 ABSENCE OF CONFLICTING AGREEMENTS
The Corporation is not a party to, bound or affected by or subject to any
contract, mortgage, lease, charter or by-law provision, statute, regulation,
judgment, decree or law which would be violated, contravened, breached by or
under which default would occur or under which any payment or repayment would be
accelerated as a result of the execution and delivery of this Agreement or the
issuance and sale of the Purchased Shares as provided for in this Agreement.
3.5 NO CONSENTS
No consent, approval, authorization, order, registration or qualification of, or
with, any court or governmental agency or body is required for the issue and
sale of the Purchased Shares, as contemplated by this Agreement, the performance
or consummation by the Corporation of the transaction contemplated in this
Agreement and the compliance by the Corporation with the terms of this
Agreement, other than the filing of a Form 45-501F1 under the Securities Act
(Ontario) with the Ontario Securities Commission.
3.6 UNDERWRITING AGREEMENT
The Corporation agrees and confirms that the Investor will be entitled to the
full benefit of all representations and warranties to be made by the Corporation
to the underwriters in the Underwriting Agreement, if and when the Underwriting
Agreement is executed, as if such representations and warranties were fully set
forth in this Agreement and such representations and warranties will be deemed
to be incorporated by reference herein.
ARTICLE 4
REPRESENTATIONS OF THE INVESTOR
The Investor hereby represents, warrants and acknowledges to the Corporation the
matters set out below.
4.1 ENFORCEABILITY
This Agreement constitutes a valid and binding obligation of the Investor
enforceable against it in accordance with its terms.
4.2 PURCHASING AS PRINCIPAL
The Investor is purchasing the Purchased Shares under this Agreement as
principal and not for the account of or on behalf of any other person.
4.3 INCORPORATION, AUTHORIZATION AND CAPACITY
The Investor is duly incorporated or organized and validly existing under the
laws of the jurisdiction of its incorporation or organization and has all the
necessary corporate or legal
<PAGE> 7
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power, authority and capacity to enter into this Agreement and the execution and
delivery of this Agreement has been duly authorized by all necessary corporate
action on the part of the Investor. The Investor has such knowledge and
experience in financial and business affairs as to be capable of evaluating the
merits and risks of the investment hereunder in the Purchased Shares and the
restrictions on their transfer and is able to bear the economic risk of loss of
such investment.
4.4 OFFERING MEMORANDUM
The Investor has received from the Corporation a copy of the Offering Memorandum
and is basing its investment decision solely on the Offering Memorandum and not
on any other information concerning the Corporation. The Investor acknowledges
and agrees that the offer and sale of the Purchased Shares hereunder has not
been accompanied by any advertisement in any printed medium of general and
regular paid circulation, radio or television or any other form of advertising.
4.5 RESALE
The Investor acknowledges that the Purchased Shares are being issued by the
Corporation pursuant to registration and prospectus exemptions pursuant to the
Securities Act (Ontario) and, accordingly, any resale of Purchased Shares must
be made through an appropriately registered dealer and in accordance with, or
pursuant to an exemption from, the prospectus requirements of said Act and the
regulations, rules and written policies made thereunder.
4.6 U.S. SECURITIES LAWS
(a) The Investor is neither a "U.S. Person" nor a person within the United
States (as such terms are defined in Regulation S under the Securities
Act of 1933, as amended, which definitions include but are not limited
to, a natural person resident in United States, an estate or trust of
which any executor or administrator or trustee, respectively, is a
U.S. Person and any partnership or corporation organized or
incorporated under the laws of the United States) nor purchasing the
Purchased Shares, directly or indirectly, for the account or benefit
of a U.S. Person or a person within the United States for resale in
the United States in violation of U.S. federal or state securities
laws, and the Investor does not have any agreement or understanding
(either written or oral) with any U.S. Person or a person within the
United States respecting:
(i) the transfer or assignment of any rights or interest in any of
the Purchased Shares; or
(ii) the division of profits, losses, fees, commissions, or any
financial stake in connection with the purchase of the Purchased
Shares.
<PAGE> 8
- 8 -
(b) The Purchased Shares were not offered to the Investor in the United
States and this Agreement has not been signed in the United States.
(c) Notwithstanding anything to the contrary in Section 7.1 hereof, for a
period of 40 days following the Closing Date, the Investor may not
offer, sell or otherwise transfer any Purchased Shares to a person
within the United States or a U.S. Person.
ARTICLE 5
SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES
5.1 SURVIVAL
All representations and warranties set forth in Articles 3 and 4 shall survive
the execution, delivery and performance of this Agreement and the Closing and
continue in full force and effect for the benefit of the parties to which they
were given, notwithstanding any investigation at any time made by or on behalf
of the party to which it has been given, for a period of 180 days subsequent to
the Closing Time, provided, however, that any such representations or warranties
which are fraudulently made shall survive the Closing and shall continue in full
force and effect indefinitely.
ARTICLE 6
CLOSING CONDITIONS
6.1 INVESTOR'S CONDITIONS OF CLOSING
The obligations of the Investor under this Agreement shall be conditional upon
the following:
(a) the representations and warranties of the Corporation set forth in
Article 3 shall be true and correct as at Closing, except for the
transactions contemplated by this Agreement, including the Prospectus
Closing;
(b) the completion of all the deliveries contemplated by Section 2.3 by
the Corporation;
(c) the completion of the Prospectus Closing with aggregate gross proceeds
of not less than $50,000,000 from the issuance of New Common Shares;
and
(d) such other documentation as the Investor and its legal counsel may
reasonably require.
The foregoing conditions are inserted for the exclusive benefit of the Investor
and may be waived, in whole or in part, by the Investor, and will be deemed to
have been so waived if the purchase of the Purchased Shares from the Corporation
is completed hereunder.
<PAGE> 9
- 9 -
6.2 CORPORATION'S CONDITIONS OF CLOSING
The obligations of the Corporation under this Agreement shall be conditional
upon the following:
(a) the representations and warranties of the Investor set forth in
Article 4 shall be true and correct as at Closing;
(b) the completion of all the deliveries contemplated by Section 2.3 by
the Investor;
(c) the completion of the Prospectus Closing; and
(d) such other documentation as the Corporation and its legal counsel may
reasonably require.
The foregoing conditions are inserted for the exclusive benefit of the
Corporation and may be waived, in whole or in part, by the Corporation, and will
be deemed to have been so waived if the issue of the Purchased Shares is
completed hereunder.
ARTICLE 7
OTHER CONDITIONS
7.1 AGREEMENT NOT TO SELL SHARES
The Investor shall not offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to (collectively, a
"Disposition") any common shares of the Corporation, any options or warrants to
purchase any common shares of the Corporation, or any securities convertible
into or exchangeable for common shares of the Corporation (collectively,
"Securities") now owned or hereafter acquired directly by the Investor or with
respect to which the Investor has or hereafter acquires the power of
disposition, otherwise than (a) as a bona fide gift or gifts, provided that the
donee or donees thereof agree in writing to be bound by this restriction, (b)
with respect to Dispositions of common shares of the Corporation acquired on the
open market, or (c) with the prior written consent of FleetBoston Robertson
Stephens Inc., for a period commencing on the Closing Date and continuing to a
date 180 days after the date on which the registration statement filed in
connection with the Public Offering is declared effective by the Securities and
Exchange Commission (the "Lock-up Period"). The foregoing restriction has been
expressly agreed to preclude the holder of the Securities from engaging in any
hedging or other transaction that is designed to or reasonably expected to lead
to or result in a Disposition of Securities during the Lock-up Period, even if
such Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions include, without limitation, any short
sale (whether or not against the box) or any purchase, sale or grant of any
right (including, without limitation, any put or call option) with respect to
any Securities or with respect to any security (other than a broad-based market
basket or index) that included, relates to or derives any significant part of
its value from Securities. The Investor also agrees and consents to the entry of
stop transfer instructions with the Corporation's transfer agent and registrar
<PAGE> 10
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against the transfer of Securities held by the Investor except in compliance
with the foregoing restrictions.
ARTICLE 8
CONTRACTUAL RIGHT OF ACTION
8.1 RIGHTS OF ACTION
If the final Offering Memorandum contains an untrue statement of a material fact
or omits to state a material fact that is required to be stated or is necessary
in order to make any statement therein not misleading in the light of the
circumstances in which it was made (herein called a "misrepresentation") and it
was a misrepresentation at the Closing Time, the Investor shall have, subject as
hereinafter in this section provided, a right of action, exercisable on written
notice given not more than 180 days subsequent to the date of investment in the
case of rescission and not later than 180 days subsequent to the date of
investment in the case of damages while still the owner of any of the Purchased
Shares provided that:
(a) the Corporation will not be held liable under this section if the
Investor purchased the Purchased Shares with knowledge of the
misrepresentation;
(b) in an action for damages, the Corporation will not be liable for all
or any portion of such damages that it proves do not represent the
depreciation in value of the Purchased Shares as a result of the
misrepresentation relied upon;
(c) in no case will the amount recoverable under this paragraph exceed the
price at which the Purchased Shares are sold to the Investor;
(d) if the Investor elects to exercise the right of rescission, the
Investor will have no right of action of damages against the
Corporation; and
(e) the rights herein conferred are in addition to any other right or
remedy available at law to the Investor.
ARTICLE 9
GENERAL
9.1 ASSIGNMENT
This Agreement shall not be assigned by either party without the prior written
consent of the other party.
<PAGE> 11
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9.2 FURTHER ASSURANCES
Each of the parties covenants and agrees to take all such action and to execute
all such documents as may be necessary or advisable to implement the provisions
of this Agreement fully and effectively and to make them binding on the parties
hereto.
9.3 ENUREMENT
This Agreement shall enure to the benefit of and be binding upon the parties to
this Agreement and their respective heirs, executors, administrators and
successors.
9.4 NOTICES
Any notice or other writing required or permitted to be given under this
Agreement or for the purposes of this Agreement (referred to in this Section as
a "notice") to any Party shall be sufficiently given if delivered personally, or
if sent by prepaid registered mail or if transmitted by fax or other form of
recorded communication tested prior to transmission to such Party:
(a) in the case of a notice to the Corporation at:
40 West Wilmont Street
Richmond Hill, Ontario
Canada
L4B 1H8
Attention: Mr. David Lewis
General Counsel and Secretary
FAX: (905) 764-7445
(b) in the case of a notice to the Investor at:
Nortel Networks Corp.
8200 Dixie Road, Suite 100
Brampton, Ontario
L6T 5P6
Attention: Deborah J. Noble, Corporate Secretary
FAX: (905) 863-8386
or at such other address as the party to whom such notice is to be given shall
have last notified to the party giving the notice in the manner provided in this
Section. Any notice personally delivered to the party to whom it is addressed as
provided in this Section shall be deemed to have been given and received on the
day it is so delivered at such address, provided that if such day is
<PAGE> 12
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not a Business Day then the notice shall be deemed to have been given and
received on the Business Day next following such day. Any notice mailed to the
address and in the manner provided for in this Section shall be deemed to have
been given and received on the fifth Business Day next following the date of its
mailing. Any notice transmitted by fax or other form of recorded communication
shall be deemed given and received on the first Business Day next following its
transmission.
9.5 PUBLIC NOTICES
All public notices to third parties and all other publicity concerning the
transactions contemplated by this Agreement shall be jointly planned and
coordinated by the Corporation and the Investor and no party shall act
unilaterally in this regard without the prior approval of the other party, such
approval not to be unreasonably withheld, except:
(a) in the case of the Corporation for communications made in confidence
to the Corporation's employees affected by such transactions; or
(b) where required to do so by law or by the applicable regulations or
policies of any provincial or Canadian or other regulatory agency of
competent jurisdiction or any stock exchange in circumstances where
prior consultation with the other party is not possible.
<PAGE> 13
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9.6 COUNTERPARTS
This Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which together shall be deemed to constitute one and the
same instrument.
IN WITNESS WHEREOF the parties hereto have executed this Agreement, or a
counterpart hereof, all as of the date first above written.
DELANO TECHNOLOGY CORPORATION
By:
-------------------------------------
Name:
Title:
NORTEL NETWORKS CORPORATION
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 23.3
The Board of Directors
Delano Technology Corporation
We consent to the use of our report included herein and to the references to our
firm under the headings "Selected Consolidated Financial Data" and "Experts" in
the prospectus.
Toronto, Canada
February 8, 2000 /s/ KPMG LLP
