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As filed with the Securities and Exchange Commission on March 9, 2000.
Registration No.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES
EXCHANGE ACT OF 1934
BLUE ZONE, INC.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
NEVADA 541512 86-0863053
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
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329 RAILWAY STREET, 5TH FLOOR
VANCOUVER, BRITISH COLUMBIA
CANADA V6A 1A4
(604) 685-4310
(Address and telephone number of principal executive offices
and principal place of business)
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Copies of Communications to:
MARK L. MANDEL, ESQ.
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104-0050
(212) 468-8000
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Not applicable
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.001 par value per share
(Title of Class)
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This registration statement contains forward-looking statements that
are subject to a number of risks and uncertainties, many of which are beyond
our control. Some of these risks and uncertainties include:
- plans and ability to hire additional personnel;
- business strategy, including development of our MediaBz(TM) software;
- expectations for future expansion both in the United States and
in Asia;
- anticipated growth in revenue;
- uncertainty regarding our future operating results;
- anticipated sources of funds to fund our operations; and
- plans, objectives, expectations and intentions contained in this
registration statement that are not historical facts.
All statements, other than statements of historical fact included in
this registration statement, regarding our strategy, future operations,
financial position, estimated revenues or losses, projected costs, prospects,
plans and objectives of management are forward-looking statements. When used in
this registration statement, the words "will", "believe", anticipate", "intend",
estimate", "expect", "project" and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements
contain such identifying words. All forward-looking statements speak only as of
the date of this registration statement. You should not place undue reliance
on these forward-looking statements. Although we believe that our plans,
intentions and expectations reflected in or suggested by the forward-looking
statements that we make in this registration statement are reasonable, we can
give no assurance that these plans, intentions or expectations will be
achieved.
ITEM 1. BUSINESS
BLUE ZONE, INC.
GENERAL
Blue Zone, Inc. is currently engaged in two principal lines of business:
- WEBSITE DEVELOPMENT AND STRATEGIC CONSULTING SERVICES. We
create, develop, and maintain interactive Websites for
broadcasting and media companies to help them establish and
expand their presence on the Internet. We also provide
strategic and technical advice to broadcasting and media
companies to help them to identify and exploit Internet
applications and outlets for their television, radio and print
content.
- DEVELOPMENT OF OUR MEDIABZ(TM) SOFTWARE PRODUCTS. We are currently
developing a proprietary software platform called MediaBz(TM).
MediaBz(TM) is a family of software applications that will allow
broadcasters to manage their television, radio and print content and
permit them to transmit that content to consumers through a variety of
outlets, such as a computer monitor, an analog television equipped
with a cable set-top box, a digital television, or a hand-held
electronic device such as personal digital assistant. Within the
MediaBz(TM) family of software products, we are currently developing
two specialized applications: NewsBz(TM), which will be customized for
news broadcasters, and RadioBz(TM), which will be customized for radio
broadcasters. We believe that our MediaBz(TM) family of software
applications will enable our broadcasting and media clients to
capitalize on the emerging technology of convergence broadcasting.
Convergence broadcasting refers to the technology that allows
broadcasters to combine the allure of their video or audio content
with the information-rich nature of print publications and the
interactivity of the Internet. In addition to NewsBz(TM) and
RadioBz(TM), we intend to develop software applications for other
specialized broadcasting subjects, such as sports, entertainment and
finance. Ultimately, we expect to derive fees from developing,
marketing, licensing and maintaining our family of MediaBz(TM)
software applications.
We currently have agreements with several of Canada's leading television and
radio broadcasting companies. We have a Website and interactive television
development agreement with CTV, Inc. to develop interactive Websites for its
24-hour NewsNet Station and CTV National News broadcasting content properties.
In addition, we have Website development
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agreements with WIC Premium Television, a Limited Subsidiary of Western
International Communications Ltd. and owner of the "Super Channel", "Movie Max"
and "Viewer's Choice" cable channels, and with CKNW/CFMI, a division of WIC
RADIO Ltd. and owner of the CKNW and Rock 101 radio stations.
We have previously worked with BCTV to develop its interactive Website.
Since its launch in 1998, the BCTV Website has received more than 12 million
unique visits. During the design and development phase of that relationship,
we obtained information and experience that allow us to address the particular
technical and creative requirements of broadcasting and media companies.
We intend to use our relationships with our Canadian broadcasting and
media partners to strengthen our market position in Canada and to develop our
business in the United States and Asia. We are currently marketing our
strategic consulting and Website development services to television, radio and
print media companies in these markets. We also intend to develop, market,
license and maintain our MediaBz(TM) family of software applications worldwide.
HISTORY
Blue Zone, Inc. was originally incorporated on March 11, 1997 in the
State of Nevada under the name "Western Food Distributors, Inc." On July 21,
1998, Western Food Distributors, Inc. filed a disclosure statement pursuant to
Rule 15c2-11 of the Securities Exchange Act of 1934 with the National
Association of Securities Dealers, Inc. for the purpose of including its
common stock, $.001 par value per share, for trading on the OTC Bulletin Board,
a quotation service for securities that are not listed or traded on a national
securities exchange.
On October 8, 1999, pursuant to a Share Exchange Agreement between
Blue Zone Productions Ltd. and Western Food Distributors, Inc., all of the
shares of Blue Zone Productions Ltd. were exchanged for 12 million shares of
Western Food Distributors, Inc., Blue Zone Productions Ltd. became a
wholly-owned subsidiary of Western Food Distributors, Inc., and Western Food
Distributors, Inc. changed its name to "Blue Zone, Inc." The existing
management of Western Food Distributors, Inc. then resigned, and the current
officers and directors assumed the management of Blue Zone, Inc. Blue Zone,
Inc. is currently publicly traded on the OTC Bulletin Board under the symbol
"BLZN."
In connection with the share exchange described above, Blue Zone
Productions Ltd. entered into a Loan Agreement and a General Security
Agreement, each dated as of August 30, 1999, with Terra Growth Investments
Fund. Under the Loan Agreement, Terra Growth loaned Blue Zone Productions Ltd.
$2,000,000 to be repaid within 30 days after the closing of the transaction
contemplated by the Share Exchange Agreement. Contemporaneously with the
transactions described under the Share Exchange Agreement, we received
$5,254,429 in proceeds from a private placement of our common stock and warrants
exercisable for shares of our common stock. We used a portion of the monies
received from the private placement to repay the outstanding loan to Terra
Growth Investments Fund.
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We presently conduct our business through our subsidiaries, Blue Zone
Productions Ltd., Blue Zone Entertainment Inc. and Blue Zone International Inc.
Blue Zone Productions Ltd., which was incorporated in British Columbia, Canada
on January 14, 1975, is a wholly owned subsidiary of Blue Zone, Inc. Blue Zone
Entertainment Inc., which was incorporated in British Columbia, Canada on April
24, 1994, and Blue Zone International Inc., which was incorporated in Barbados
on July 5, 1996, are each wholly owned subsidiaries of Blue Zone Productions
Ltd. Unless otherwise indicated, references in this Form 10 to "Blue Zone",
"we", "us", and "our" include Blue Zone, Inc., Western Food Distributors, Inc.,
and all of our subsidiaries. In addition, unless otherwise indicated, all
references to share numbers contained in this registration statement give effect
to a 5-for-1 stock split of all of our outstanding common stock, effected on
July 14, 1998, and a 1.125-for-1 stock split of all of our issued and
outstanding stock, effected on September 27, 1999.
We operate in one business segment: we develop, maintain and license
software relating to websites and we provide consulting services to
broadcasting companies to assist them to identify and exploit interactive and
convergence Internet applications and outlets for their television, radio and
print content. To date, all of our revenue has been derived exclusively from
customers in Canada.
Our executive offices are located at 329 Railway Street, 5th Floor,
Vancouver, British Columbia Canada V6A 1A4. Our telephone number (604) 685-4310.
INDUSTRY OVERVIEW
The Internet provides broadcasting and media companies with a new
outlet to deliver content to consumers. Recognizing this market, many
broadcasters are creating interactive Websites to establish or enhance their
presence on the Internet. In addition, many broadcasters are focused on
determining how they can use the Internet to generate new business
opportunities or improve their existing business strategies. Rather than
developing Internet-related technology or expertise in-house, broadcasting
companies frequently rely on outside firms such as ours that can provide
specialized products and services. As a result, various providers of products
and services have entered this market, such as computer software and hardware
manufacturers, Internet service firms, technology consulting firms and
strategic consulting firms. We believe that the broadcasting industry is a
specialized market, however, and many of our competitors lack the experience
and technical expertise necessary to address the particular needs of
broadcasting companies. In addition, we believe that our existing
relationships with several leading Canadian television and radio broadcasting
companies give us a marketing advantage over actual or potential competitors.
We intend to use these relationships to strengthen our competitive position
and reputation in Canada. We also intend to establish similar business
relationships in the United States and Asia.
In addition, we operate in the developing industry of convergence
broadcasting. Many companies in this industry, including telecommunications
firms, cable companies, and hardware and software manufacturers, are working to
assemble a high-speed digital network capable of carrying voice, data and video
directly to consumers. Other companies, including broadcasting
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and media companies, are working to establish and expand their digital content
capacity. We believe that, as with their efforts to exploit the Internet,
broadcasting companies will turn to outside firms with specialized expertise
to help them understand and exploit the market for convergence broadcasting. We
also believe that our industry experience, our proprietary software, our
service and content offerings, and our relationships with leading Canadian
broadcasting and media companies will enable us to compete successfully in
this market. As with the market for Internet services, we intend to use our
strong market position and reputation in Canada to compete in the developing
markets for convergence broadcasting in the United States and Asia.
BUSINESS
We utilize a multi-stage approach to create, develop and maintain
broadcasters' Websites. We also provide authoring tools to design and create
interactive television broadcasts for our broadcasting and media clients. The
following description illustrates the products and services that we may
provide to broadcasters and those that we are currently developing as well as
a typical timetable for implementation.
Initial Consulting Services and Strategy
Our initial involvement with a broadcasting or media company consists
of consulting with the client to define its Internet strategy with respect to
one or more of the following: Website design, content offerings, interactive
convergence broadcasting, targeted advertising or electronic commerce. We are
typically retained by broadcasters who are seeking to expand and enhance the
products and services that they offer over the Internet. Generally, we support
the senior management of our clients, and the management executives that we
assist frequently have little technical training or expertise. Therefore, our
principal focus at this stage is to provide creative vision and technical
advice in terms that can be understood and implemented by a non-technical
person. In addition, because Internet revenue models may be unfamiliar to our
clients, we also identify and articulate revenue strategies for these
management executives.
This initial phase of our engagement typically lasts for approximately
eight weeks. In that time, we work with the client to understand its business
needs and long-term goals. We attend meetings with senior management, evaluate
the market segment in which the client competes, and assess the client's
operating and technical environment. Once the client's objectives are defined,
we prepare a written plan that identifies the client's strategy, establishes
the project's scope and budget, creates a detailed working schedule, and
defines clear criteria for implementation.
An important goal at this stage is to position us to generate more
revenue by having the client select us to develop, deploy, and maintain the
client's interactive Website. Accordingly, we generally provide strategic and
technical consulting services only to those clients who we reasonably expect
will select us to function in a fulfillment capacity. By providing strategic
and technical advisory services at an early stage, however, we believe that we
enhance our industry visibility and cement our relationship with senior
management.
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To date, we have provided consulting services to CTV, Inc. as part of
our arrangement to develop interactive Websites for its 24-hour NewsNet
Station and CTV National News broadcasting content properties. We have also
provided consulting services to WIC Premium Television and CKNW/CFMI to develop
interactive Websites for their specialty pay-per-view television and radio
stations, respectively. We intend to enter into similar arrangements with other
television, radio and print media companies as we expand our business into the
United States and Asia.
On-going Consulting Services
As part of our engagement, we may be retained by a client to provide
consulting services on an on-going basis. CTV has retained us to advise it on
macro Internet strategies and technological opportunities. In this capacity, we
continue to participate in key management and executive meetings and we make
quarterly presentations to CTV regarding interactivity, strategy, content,
advertising and technology. We agreed to provide on-going consulting services
for a one-year minimum, which is automatically extended on a month-to-month
basis unless either party gives sixty days' written notice. We expect to enter
into similar relationships with other broadcasting and media companies in the
future.
We believe that we benefit from providing on-going consulting
services because we continue to receive access to information, technology and
business opportunities and we maintain strong ties with senior management. We
intend to use our relationships with our current clients to expand the scope
and length of our current projects and to enter into additional projects. We
also anticipate that, as our clients consider how to exploit emerging
technologies such as convergence broadcasting, they will continue to utilize
our technology and expertise.
Interactive Website Design and Development
With the written plan as a guide, we move from design and strategy to
fulfillment and production. We begin by working with the client to define
further the functional, technical, and creative requirements needed to
implement the client's Internet strategy.
Our software development team combines third-party software with our
own proprietary software to build the basic platform that will become the
client's interactive Website. Because our clients are broadcasting and media
companies, they generally want their Websites to retain the "look and feel" of
their on-air broadcasting presence. Accordingly, we customize our software to
create a user interface that incorporates the features, functionality and
branding desired by each client. We also typically develop one or more
prototypes of the Website to test design concepts and functionality.
During this stage, we define the hardware, software, interactive
elements, networking and telecommunications equipment needed to operate the
interactive Website, and we work with the client to integrate the equipment
into its existing information technology infrastructure. We collaborate with
the client to identify staffing requirements and technical expertise necessary
to
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maintain the interactive Website after launch, and we may begin training the
client's personnel to operate and maintain the Website.
Each aspect of the design and development phase of a project is
documented in writing, and we collaborate with the client to refine the
strategy and assess whether the interactive Website meets the client's goals.
Our development team can generally accomplish the design and development phase
of a project in approximately six months.
Development of Convergence Broadcasting Software -- MediaBz(TM)
We are currently developing a proprietary software platform, called
MediaBz(TM), that we intend to offer in the emerging market of convergence
broadcasting. Convergence broadcasting refers to the technology that allows
broadcasters to combine the allure of their video or audio content with the
information-rich nature of print publications and the interactivity of the
Internet. MediaBz(TM) is a software application that is compatible with the
equipment and technology standards currently used by many broadcasters. Using
MediaBz(TM), broadcasters will be able to adapt their current technology to
deliver their video and audio and print media content for broadcast over the
Internet as well as through existing channels. We are developing MediaBz(TM)
because we believe that, rather than developing technology for convergence
broadcasting in-house, broadcasters will prefer to engage outside firms that
can offer proprietary technology and specialized expertise in this area. We
intend to capitalize on our strength in building and managing interactive
Websites and our solid base of broadcasting and media clients to exploit this
emerging market. As the first two members of the MediaBz(TM) family, we are
developing NewsBz(TM) and RadioBz(TM), which we intend to market to news media
and radio broadcasters, respectively.
NEWSBZ(TM)
We are developing NewsBz(TM) as a software application to be used by
both producers and consumers of interactive news content. We plan to make the
software accessible from anywhere with access to the Internet through a
convenient, Internet-based user interface called a Web browser. We expect that
NewsBz(TM) will incorporate the following features and functionality:
- PRODUCERS OF NEWS CONTENT. NewsBz(TM) will allow a news reporter to
prepare an interactive news story, including text, graphics and audio
and video clips, without the need for a Web development team or
technical expertise. While researching the news story, for example, a
reporter will be able to access the broadcaster's password-protected
Website and, using NewsBz(TM), search the broadcaster's database of
past video, audio and print content for relevant information. Once the
story is complete, NewsBz(TM) will enable the reporter to incorporate
audio and video clips, graphics, interactive advertising and links to
articles on the same or related content, into the story. If a
television broadcaster has relationships with several newspapers, for
example, NewsBz(TM) can be used to establish links from the
broadcaster's Website to related content on the Websites of its print
media partners.
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In addition, we are developing NewsBz(TM) to be compatible with the
hardware and software currently used by most broadcasters to produce
their television news programs. By using NewsBz(TM), a news reporter
will be able to send a completed story to an editor for review or
publish the story directly to the broadcaster's Website or on-air.
Finally, because the broadcaster's Website and the NewsBz(TM) software
will be accessible via the Internet, the reporter will be able to
write the story as easily from a hotel room in a foreign country as
from the office or from home.
- CONSUMERS OF NEWS CONTENT. NewsBz(TM) will allow consumers to
experience interactive news content using either a Web browser on
their computer, a digital television or an analog television equipped
with a cable set-top box. For example, a Website user will be able to
watch and listen to "headlines" composed of streaming video and audio
clips, similar to a 30-second segment on a conventional television
news program. Unlike conventional television news programs, however, a
consumer using NewsBz(TM) will be able to access additional content by
clicking on the streaming video "headline" with a computer mouse or a
television remote control. The additional content available to the
consumer may include interactive graphics, video and audio clips, or
text stories on the same or related content. As a result, NewsBz(TM)
will combine the immediacy of video content with the information-rich
nature of print publications and the interactivity of the Internet.
RADIOBZ(TM)
We are developing RadioBz(TM) as a software application to be used by
producers and consumers of radio broadcasting content. As with NewsBz(TM), we
intend to make our RadioBz(TM) software accessible through a Web browser.
Because NewsBz(TM) and RadioBz(TM) are being developed using the same software
platform, they will share many of the same features and functionality.
- PRODUCERS OF RADIO CONTENT. RadioBz(TM) will allow radio broadcasters
to expand their content offerings and their market reach. RadioBz(TM)
will enable a station manager or on-air personality to manage the
station's database of audio content and to combine that content with
video, print media, and interactive features. For news broadcasters,
RadioBz(TM) will provide features and functionality similar to
NewsBz(TM), such as the ability to search the station's archives of
radio content and to integrate text, graphics, links to other
Websites, and audio and video clips into a news story without the need
for extensive technical training or expertise. Examples of audio and
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video content that could be integrated include live transmissions that
might be generated from the disc jockey booth or television
advertisements or promotional segments produced by the radio stations.
For music and entertainment stations, RadioBz(TM) will support
features such as chat rooms, on-air requests and audio-on-demand.
Using RadioBz(TM), radio stations will be able to broadcast both audio
and video content in digital form by "streaming" the content over the
Internet. Thus, radio stations equipped with RadioBz(TM) will be able
to broadcast their signal to a consumer anywhere in the world with
access to the Internet.
- CONSUMERS OF RADIO CONTENT. RadioBz(TM) will allow consumers to
experience interactive radio broadcasting using a Web browser and
their computer, a digital television or an analog television equipped
with a cable set-top box. Because the content will be transmitted by
"streaming" over the Internet, a radio listener will not be limited by
the strength of the radio signal but will be able to receive the radio
broadcasting content from anywhere. In addition to streaming audio,
consumers will be offered streaming video clips, such as music videos,
as well as interactive interviews, chat rooms and audio-on-demand.
We expect to launch the NewsBz(TM) software application in the late
summer of 2000. While we are developing NewsBz(TM) under our agreement with CTV,
we expect to license NewsBz(TM) to other present and future news broadcasting
clients outside of Canada. Accordingly, we are developing NewsBz(TM) as a
general software application that can be customized to suit an individual
broadcaster's specific needs. For example, while the basic software
functionality will not vary, we will customize the user interface used by
consumers to incorporate the branding, colors, features and functionality
required by a particular client.
In November 1999, we launched the first elements of the RadioBz(TM)
software platform. Although our development of RadioBz(TM) is not complete,
our clients CKNW and Rock 101 are using particular applications of RadioBz(TM)
to manage their databases of audio content. We expect that, as with NewsBz(TM),
we will customize the RadioBz(TM) application to suit the technical and
promotional needs of a particular client. We also expect to market and license
RadioBz(TM) to radio broadcasters worldwide.
Additional Opportunities for Our Convergence Broadcasting Software
We believe that NewsBz(TM) and RadioBz(TM) will be the first examples
of a family of related software applications that will present us with
additional revenue opportunities. Ultimately, once we have launched NewsBz(TM)
and RadioBz(TM), we intend to license the software to our broadcasting and
media clients and derive fees from licensing, maintenance and the development
and sale of updates to the software. We also believe that our Web-based
interactive broadcasting platform is not limited to news broadcasting, and we
plan to create related software applications, such as SportsBz(TM),
EntertainmentBz(TM) and BusinessBz(TM), for the sports,
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entertainment and finance broadcasting industries, respectively. With these
applications, consumers will be able to access information, such as statistical
information about a particular sports figure or franchise, in-depth coverage of
a celebrity news story, or stock charts and detailed financial information
relating to a particular company.
We also intend to expand and enhance our product and service offerings
to exploit new revenue opportunities, such as targeted advertising and
electronic commerce, that we believe will be made possible by convergence
broadcasting. By having users of NewsBz(TM) register to use the software, for
instance, we intend to develop user profiles, which can be used to target
advertisements to consumers based on their geographic location, buying patterns
or personal choices. Similarly, we intend to offer broadcasters the possibility
of engaging in electronic commerce by coupling targeted advertisements to
interactive content available via NewsBz(TM). A television viewer or computer
user could, for example, use a television remote control or a computer mouse to
purchase merchandise, request product samples, coupons or catalogues. We also
intend to continue providing strategic and technical consulting to help our
clients to identify and exploit new opportunities in this area.
Key Customers
In June 1998, Blue Zone Entertainment Inc. signed a 2-year agreement
with WIC Premium Television, a Limited Subsidiary of Western International
Communications Ltd., to design, operate and maintain the WIC Premium Television
Website. WPT is one of the leading cable television providers in western Canada,
operating the "Super Channel", "Movie Max" and "Viewer's Choice" channels. We
have already received the development fees due to us under the agreement, and
we will share any revenue generated from the sale of advertising and products
sold from the client's Website. While there are currently no products sold from
the WPT Website, we expect to begin to receive our share of the advertising
revenue generated from this Website later this year. Our agreement with WIC
Premium Television will terminate on June 16, 2000, but both parties have
agreed to negotiate an extension or renewal of the contract in good faith. We
do not know if these negotiations will result in an extension or renewal of the
contract.
In July 1999, Blue Zone Entertainment Inc. signed a 3-year contract
with CKNW/CFMI, a division of WIC RADIO Ltd., under which we will design,
operate and maintain the Websites for the radio stations CKNW and Rock 101 in
Vancouver, Canada and provide exclusive Website hosting and streaming media
services. We have received a fee for developing the Websites, and we continue
to receive promotional advertising on the client's Websites and radio station.
We will also share with the client any advertising revenue generated from the
Website. Our agreement with CKNW/CFMI may be terminated either by CKNW/CFMI or
by us upon six months' notice. Our agreement with CKNW/CFMI contains certain
exclusivity provisions. CKNW/CFMI agreed not to use any party other than us to
maintain, design or host the CKNW and Rock 101 Websites. CKNW/CFMI also agreed
that it would not use anyone other than us to host or stream CKNW/CFMI content
online. We agreed not to engage directly or indirectly in Website design
services for radio stations based in British Columbia.
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In December 1999, Blue Zone Productions Ltd. signed an agreement with
CTV Television, Inc. to be the exclusive provider of Website development, Web
hosting, and strategic consulting services to the CTV NewsNet and the CTV
National News interactive properties. We are developing a customized version of
our NewsBz(TM) software platform for CTV, for which we expect to receive
development, licensing, and maintenance fees from CTV. We also expect to
provide Website hosting services to the CTV Websites, which will include the
operation and maintenance of the CTV Website and 24-hour telephone support in
Toronto, Canada. In exchange for providing the Website hosting services, we
will receive our labor, materials and out-of-pocket costs plus a 20% premium.
As part of our agreement with CTV, we have provided each other with
reciprocal rights of first refusal. Until December 2001, we cannot provide
website production or interactive television development services relating to
news broadcasting to any other Canadian television company, and CTV cannot use
any other provider for website production or interactive television development
services relating to news. In addition, we agreed not to offer website
production or interactive television development services in any area of
broadcasting to another Canadian television company until June 2000. As part of
our agreement with CTV, we each also have a right of first refusal until June
2000 with regard to website production or interactive television development
services relating to broadcasting content other than news. Our existing
relationships with WIC Premium Television and WIC Radio were specifically
excluded from these non-compete provisions.
We have been and expect to continue to be substantially dependent on
several key contracts with customers as a source of revenue. For the fiscal
year ended December 31, 1999, approximately 80% of our revenues were derived
from contracts with two customers. During 1999, our contract with CTV accounted
for approximately 10% of our revenue, but we expect that it may account for
substantially more of our revenue during the fiscal year ending December 31,
2000. Our agreement with CTV is terminable by the client at any time upon 60
days' prior written notice. If CTV terminates the agreement, it is required to
pay us for all of the time, materials and expenses that we have incurred
through the effective date of termination. We believe that we will continue to
derive a significant portion of our revenues from a limited number of larger
clients. Any cancellation, deferral or significant reduction in work performed
for these principal clients or a significant number of smaller clients could
have a material adverse effect on our business, financial condition and results
of operations.
SALES AND MARKETING
Our marketing efforts are dedicated to strengthening our brand name and
enhancing our reputation as a creative provider of interactive Website
development and strategic consulting services to broadcasting and media clients.
We believe that our relationships with leading Canadian broadcasting and media
companies provide us with an advantage over competitors whose brands and
reputations may not be as established or whose businesses may not be as focused
on the broadcasting and media industry. We receive and expect to continue to
receive a substantial amount of our business through referrals from our existing
customers.
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Our marketing campaign will continue to incorporate all media,
including television, radio, print and the Internet. As part of our agreements
with our broadcasting clients, we receive promotion and advertisement in the
form of co-branding, news releases, trade show appearances, and attendance at
key management and executive meetings of our clients. We believe that one of
the best means of promotion is to co-brand Blue Zone with the high-quality
content of our broadcasting and media clients.
To date, our president and chief executive officer have taken primary
responsibility for our marketing and sales. Because of the historically high
demand for our services, we have not needed a formal marketing or sales force.
As our business opportunities expand, however, we are developing a sales and
marketing force to generate new business leads and to pursue contracts with
prospective clients.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
Our ability to compete is dependent, in part, upon our internally
developed, proprietary intellectual property. We seek to protect our
intellectual property through a combination of license agreements and trademark,
service mark, copyright and trade secret laws. We are currently pursuing
protection of our trademarks in the United States and internationally. We
generally enter into non-competition/non-disclosure agreements with our
employees and clients and use our best efforts to limit access to and
distribution of proprietary information licensed from third parties. Despite
these precautions, it may be possible for a third party to copy or otherwise
obtain and use our products or technology without our authorization, or to
develop similar products or technology independently through reverse
engineering or other means. Policing unauthorized use of our products is
difficult. The steps that we take to prevent misappropriation of our
intellectual property and proprietary technology may not be successful.
COMPETITIVE CONSIDERATIONS
We compete in the information technology services market, which is a
relatively new and intensely competitive market. There are many firms that
provide Website development, hosting and maintenance services as well as
strategic consulting services. There are also an increasing number of firms
working in the emerging industry of convergence broadcasting. We anticipate
that competition will increase as existing broadcasting and media companies
continue to migrate their businesses to the Internet and as Internet
competitors expand their businesses and market reach.
Many of our existing and potential competitors have longer operating
histories, larger client bases, longer relationships with clients, greater
brand or name recognition and significantly greater financial, technical,
marketing and public relations resources than we do. As a result of their
greater resources, our competitors may be in a position to respond more quickly
to new or emerging technologies and changes in customer requirements and to
develop and promote their products and services more effectively than we do.
There are relatively low barriers to entry into the information
technology services market.
11
<PAGE> 13
As a result, new market entrants pose a threat to our business. We do not own
any patents nor have we filed any patent applications that might preclude or
inhibit potential competitors from entering our markets. Existing or future
competitors may develop or offer services that are comparable or superior to
ours at a lower price, which could have a material adverse effect on our
business, results of operations and financial condition.
RESEARCH AND DEVELOPMENT
We expended $65,158 for research and development expenditures for the
fiscal year ended December 31, 1999. We expect to significantly increase our
research and development expenditures for the fiscal year ending December 31,
2000. These expenditures are contingent upon our ability to raise additional
financing. If we are not able to raise sufficient additional financing, we may
not be able to complete all of our proposed research and development
activities, which could adversely affect the development of our business. Our
research and development expenses will include further development of our
NewsBz(TM) and RadioBz(TM) software applications, the creation and development
of MediaBz(TM) applications for other broadcasting areas, and expenses
associated with building and equipping a multimedia interactive television
studio at our facility in Vancouver.
GOVERNMENTAL REGULATION
We operate in an environment of tremendous uncertainty as to potential
government regulation of the Internet. We believe that our business is not
currently subject to direct regulation other than regulations applicable to
businesses generally. However, the Internet is evolving rapidly, and
governmental agencies have not yet been able to adapt all existing regulations
to the Internet environment.
Although Canada does not presently have laws regulating the Internet,
the Canadian Radio-television and Telecommunications Commission is considering
legislation that would regulate certain aspects of the Internet, including
on-line content, copyright infringement, user privacy, taxation, access
charges, liability for third-party activities, jurisdiction and the protection
of Canadian culture. Laws and regulations may be introduced and court
decisions reached that affect the Internet or other online services, covering
issues such as user pricing, user privacy, freedom of expression, access
charges, content and quality of products and services, advertising,
intellectual property rights and information security.
The United States Congress has recently passed legislation that
regulates certain aspects of the Internet, including on-line content,
copyright infringement, user privacy, taxation, access charges, liability for
third-party activities and jurisdiction. In addition, federal, state, local and
foreign governmental organizations also are considering other legislative and
regulatory proposals that would regulate the Internet. Laws and regulations may
be introduced and court decisions reached that affect the Internet or other
online services, covering issues such as user pricing, user privacy, freedom of
expression, access charges, content and quality of products and services,
advertising, intellectual property rights and information security.
12
<PAGE> 14
We or our customers may also become subject to legislation or
regulation in the broadcasting industry and the cable television industry.
Broadcasting industries are regulated in the United States by the FCC, some
states and substantially all local governments. Congress has passed
legislation that regulates the broadcasting industry including programming
access and exclusivity arrangements, consumer protection, technical standards
and privacy of customer information. Various legislative and regulatory
proposals under consideration from time to time by Congress and various federal
agencies may in the future materially affect the broadcasting and cable
television industries. Since we market and expect to continue to market our
products and services to companies in the broadcasting and cable television
industries, increased regulation in these areas could have a material adverse
effect on our business, results of operations and financial condition.
We cannot predict what new laws will be enacted or how courts will
interpret both existing and new laws. As a result, we are uncertain as to how
new laws or the application of existing laws may affect our business. In
addition, our business may be indirectly affected by our clients who may be
subject to such legislation. Increased regulation of the Internet or the
broadcasting industry may decrease the growth in the use of the Internet or
hamper the development of convergence broadcasting, which could decrease the
demand for our services, increase our cost of doing business or otherwise have
a material adverse effect on our business, results of operations and financial
condition.
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
All of our revenue for fiscal year ended December 31, 1999 was derived
exclusively from customers in Canada.
EMPLOYEES
As of February 1, 2000, we employed 29 persons on a full-time basis,
excluding temporary personnel, consultants and independent contractors. None of
our employees is represented by a labor union, and we believe that our
relationship with our employees is good.
We believe that our future success will depend to a significant extent
upon our ability to attract, train and retain highly skilled technical,
creative, management, sales, and marketing personnel. Competition for such
personnel in the industry is intense, and we cannot be certain that we will be
successful in attracting, motivating or retaining such personnel. Our inability
to attract, motivate or retain our employees could have a material adverse
effect on our business, financial condition and results of operations.
We are substantially dependent upon the continued services and
performance of our senior management, including our chief executive officer,
Bruce Warren, and our president, Jamie Ollivier, each of whom co-founded our
business. Our agreement with CTV Television, Inc. terminates automatically if
our chief executive officer and president are no longer our principals or
employees. The loss of the services of any of our executive officers or other
key employees
13
<PAGE> 15
could have a material adverse effect on our business, financial condition and
results of operations.
See the description of "Executive Compensation" in Item 6 for the terms
of our Employment Agreements with Bruce Warren, our Chief Executive Officer,
Jamie Ollivier, our President, and Catherine Warren, our Chief Operating
Officer.
14
<PAGE> 16
ITEM 2. FINANCIAL INFORMATION.
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for each of
the three years ended December 31, 1997, 1998 and 1999, have been derived from
our audited financial statements. When you read this financial data, it is
important that you also read the historical financial statements and related
notes included at the end of this registration statement, as well as the section
of this registration statement related to "Management's Discussion and Analysis
of Financial Condition and Results of Operations." These historical results are
not necessarily indicative of future results.
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------------
December 31,
------------------------------------------------------
1997 1998 1999
------------------------------------------------------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.................................. 342,120 774,830 883,137
Cost of revenues.......................... 51,759 144,419 370,803
Gross profit.............................. 290,361 630,411 512,334
Loss from operations...................... 14,623 32,888 1,422,331
Net loss.................................. 17,054 28,457 1,422,331
Basic and diluted net loss per share...... .00 .00 0.09
BALANCE SHEET DATA:
Cash and cash equivalents................. 891 4,097,869
Total assets.............................. 41,906 4,784,850
Working capital (deficit)................. (51,265) 3,763,577
Total liabilities......................... 52,714 595,677
Total stockholders' equity................ (10,808) 4,189,173
</TABLE>
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATION
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward-looking statements. The following
discussion should be read in conjunction with our audited Consolidated
Financial Statements and related Notes thereto and the Special Note regarding
forward-looking statements included elsewhere in this registration statement.
OVERVIEW
We generate revenue from software licensing, interactive television
content enhancements, creative production and maintenance services related to
website development and interactive television broadcasting and from consulting
services related to Internet strategies. Our
16
<PAGE> 18
business has historically been focused on providing website design and content
services to a range of British Columbia-based media and broadcasting companies,
as well as fulfilling the interactive needs of a group of clients on a project
basis.
We have developed proprietary technology and knowledge from working
closely with broadcasting companies. Our experience with live news delivery,
including the large variety of filming, graphics and editing equipment for
audio and video production and specific communication standards that exist
inside a newsroom between equipment or employees, has provided us with
opportunities to develop software to service the unique needs of the broadcast
community.
Bruce Warren and Jamie Ollivier, our Chief Executive Officer and
President, respectively, have worked in the broadcast field for ten years,
during which time we acquired valuable insights into the technology
requirements of traditional television and radio broadcast companies to access
the world wide web, set-top-boxes, and other interactive devices. In 1997, we
began development of a proprietary product, now trademarked as the MediaBz(TM)
suite of products, to facilitate convergence of television, radio, and print
media organizations to the interactive environment.
In the latter half of 1999, we contracted with CTV, Canada's largest
private TV network, to develop, plan, and design CTV's interactive website, to
be focused around the MediaBz(TM) product. We have also been retained as an
ongoing consultant to CTV.
We have incurred losses in the last three years, and as of
December 31, 1999, had an accumulated deficit of $1.45 million. The net loss
in fiscal 1999 was $1.4 million because we began implementing our business
plan built on the marketing of the MediaBz(TM) product line to a broad range of
television and radio media companies. To this end, general and administrative
expenses have been increased to support this effort. We have leased new office
space, and our capital budget has been increased to provide some of our enlarged
infrastructure needs.
Revenues have been recorded as the services are rendered to our
clients. For long-term development projects, such as the fulfillment of the
CTV contract, revenue is recognized on a percentage of completion basis.
Payments under the CTV contract are received based on the achievement of
specifically identifiable milestones. The deferred revenue of $180,000 item on
our balance sheet represents payment received from CTV that does not meet the
revenue recognition criteria.
A significant proportion of our revenue for the past three years has
been in the form of an exchange agreement with BCTV. This revenue has been
recorded as gross, with the offset to Selling and Marketing expense.
17
<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
items from the our consolidated statement of income, expressed as a percentage
of sales.
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------
December 31,
--------------------------------------------------
1997 1998 1999
------------ ------------------- -------------
(audited)
<S> <C> <C> <C>
INCOME STATEMENT DATA
Revenues.................................. 100% 100% 100%
Cost of revenues.......................... 15.1% 18.6% 42.0%
Gross profit.............................. 84.9% 81.4% 58.0%
Operating Expenses:
General and Administrative................ 18.1% 16.4% 138.9%
Selling and Marketing..................... 66.1% 65.4% 69.1
Depreciation.............................. 5.0 3.9 11.1%
-------------------------------------------------------
89.2% 85.7% 219.1%
Loss before income taxes.................. (4.3)% (4.3)% (161.1)%
-------------------------------------------------------
Income tax expense (recovery)............. 0.7% (0.6)% 0%
-------------------------------------------------------
Net loss.................................. (5.0)% (3.7)% (161.1)%
-------------------------------------------------------
</TABLE>
REVENUE
Our revenue increased 14% in 1999 to $883,000 from $775,000 in 1998
and from $342,000 in 1997. The first payments recorded from the CTV contract,
including consulting fees, accounted for all of the increased revenue. More
than 60% of the 1999 revenue was contributed by BCTV, as we completed a
three-year website evolution project. This BCTV contract payment consisted
almost entirely of exchange income. We exchange our services for airtime
rather than receiving a cash payment. In return for services, we received
television airtime with a commercial value of $504,000. We then recorded this
as a selling and marketing expense. We used this airtime to enhance our name
recognition because we believe it to be valuable in marketing our products to
current and other potential clients. A similar arrangement with BCTV was in
effect in 1998 and 1997 and we recorded expense charges of $505,000 and
$225,000, respectively, to selling and marketing.
We received revenues from Lotus (an IBM company) for recurring work
in the amount of $38,000 in 1999, compared with $43,000 in 1998 and nothing in
1997; and from Electronic Arts Canada, $13,000 in each of the past two years.
The balance of the revenue was derived from individual projects, generally of
a non-recurring nature.
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<PAGE> 20
Major account revenue, including BC Tel, Lotus, Electronic Arts Canada,
and the WIC Group, in 1998 was $132,000, compared with only $15,000 in 1997.
The balance of revenue in both years was from project work of a non-recurring
nature from more than a dozen customers. All of our revenues were derived from
Canadian based customers and paid in Canadian currency.
GROSS PROFIT
Cost of revenues include labor, materials and overhead expenses
incurred in the delivery of software and services. Prior to our reorganization
in late 1999, the bulk of the technical workforce was retained on short-term
contracts. Our Chief Executive Officer, Bruce Warren and our President, Jamie
Ollivier, contributed much of the detailed design and code writing for software.
The 1999 margins were unfavorably impacted by the recruitment and
retention fees associated with replacing a contract workforce with full-time
employees. The higher gross margins realized in 1998 and 1997 were primarily
attributable to the contribution without remuneration by our CEO and President.
We expect our gross profit to fluctuate based on our product mix,
geographic mix, product and patent licenses, and the uncertain costs associated
with hiring competent technical, creative and management personnel. There can
be no assurance that we will be able to improve our gross margins.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased from $127,000 in 1998
to $1,227,000 in 1999 and from $62,000 in 1997. The 1999 level of expenses was
139% of revenue, 16% in 1998 and 18% in 1997. Our increase in general and
administrative expenses was primarily the result of the implementation of our
new business plan, which focused on marketing the MediaBz(TM) suite of
products, and has resulted in a build-up of full-time personnel, in place of a
contract workforce in 1997 and 1998. Personnel and related costs rose $75,000
in 1999 from $39,000 1998 and $19,000 in 1997.
We moved to new Vancouver headquarters in late 1999. Occupancy and
related costs increased $62,000 to $98,000 in 1999.
Accounting, legal, and investor relation fees rose by $376,000 from
$31,000 in 1998 compared to $407,000 in 1999. Much of this increase was
attributable to our reorganization in October 1999, as well as the legal
support enlisted in the execution of the CTV contract. Professional fees, of
$33,000 relating to the share issuance were charged against the shareholders'
equity account.
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<PAGE> 21
We incurred substantial travel and entertainment costs in the months
leading up to the completion of our private placement in October 1999. This
spending was $287,000 in 1999 compared with $4,000 in 1998 and $8,000 in 1997.
We have reserved 4.5 million shares of common stock for issuance under
a stock option plan. The plan is an essential tool to attract and retain the
qualified personnel needed to implement our business strategy. Our plan provides
for the granting of stock options to directors, officers, eligible employees
and contractors. At December 31, 1999, we have granted 1.995 million options.
While no options were exercised in 1999, we incurred a non-cash charge to the
1999 income statement of $297,000.
General and administrative expenses are expected to continue to grow
in the future as additional personnel are hired and new offices are opened in
the United States and overseas.
General and administrative expenses in 1998 were $127,000 representing
an increase of $65,000 from 1997. Occupancy costs were $15,000 higher;
accounting and legal fees increased $24,000, and personnel costs increased
$20,000 from 1997 to 1998.
We recorded $26,000 in interest income in 1999 (none in 1998 or 1997)
as the proceeds of the share issuance were invested in high quality debt
securities.
RESEARCH AND DEVELOPMENT
Based on the anticipated success of the MediaBz(TM) suite of software
products and based on our ability to raise additional funds we expect to invest
large amounts of money in research and development. These funds will be used to
improve the existing MediaBz(TM) products and to provide features and options
requested by broadcasters and other clients. The amounts invested in research
and development for 1997, 1998 and 1999 were $6,675, $25,273 and $65,158,
respectively. Most of our research and development prior to becoming a public
company came in the form of time invested by our President, Jamie Ollivier and
Chief Executive Officer, Bruce Warren. This was time for which little or no
remuneration was received. We cannot guarantee that expenditures in research
and development will ensure our success or lead to innovations that are not
available to our competition.
SALES AND MARKETING
We recorded an expense of $610,000 in 1999 compared with $506,000 in
1998 and $226,000 in 1997. The offset to the revenue received from BCTV and
other clients in 1999 was $13,000. The balance of the 1999 expense of $96,000
was expended primarily for preparation of promotional and marketing material.
All of the 1998 expense was related to the exchange transactions with BCTV, as
was all of the $226,000 recorded in 1997.
DEPRECIATION
Depreciation has been provided on the declining balance basis using a
30% rate for all capital asset categories. The 1999 expense increased to $98,000
from $30,000 in 1998 and from $17,000 in 1997 because we expended $483,000 on
capital assets and leasehold improvements in 1999. Almost $200,000 was related
to the occupation of the new Vancouver head office and the Toronto office
servicing the CTV contract.
Capital additions in 1998 were $45,000 compared with $12,000 in 1997
and the depreciation charge was $30,000 and $17,000 for 1998 and 1997,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Prior to our reorganization in October 1999, we had very limited
access to capital, and we depended entirely on our principal stockholder and
current Chairman Michael Warren for direct financing or as guarantor of a line
of credit from recognized financial institutions.
As a result of the $5.25 million private placement in October 1999, we
had working capital of $3.76 million as of December 31, 1999. This compared to
a cash position of less than $1,000 at the end of fiscal 1998 and $12,375 in
1997.
During fiscal 1999, we used $788,000 in our operating activities. The
negative impact on
20
<PAGE> 22
cash from our net loss of $1.4 million was mitigated by a total of $395,000 of
non-cash charges relating to stock options and depreciation and amortization.
We invested $482,000 in equipment and leaseholds, the latter in
connection with the move to a new Vancouver head office, and the opening of a
Toronto office to service the CTV contract.
We believe we have sufficient liquidity on hand to finance our
operations through to the end of fiscal 2000, however we are heavily dependent
on the CTV contract. Should CTV cancel our agreement we do not have other
existing clients to support our Toronto office. We do not have in place any
lines of credit. Our future capital requirements will, however, depend on a
number of factors, including costs associated with product development efforts,
the success of the commercial introduction of our products and the possible
acquisition of complementary business, products and technologies. To the
extent additional capital is required, we may sell additional equity, debt or
convertible securities or establish credit facilities. We cannot assure you
that additional capital will be available when we need it on terms that we
consider acceptable.
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<PAGE> 23
INCOME TAXES
No taxes are payable in 1999, as a result of the operating loss
recorded. Based on a number of factors, including the lack of a history of
profits, management believes there is sufficient uncertainty regarding the
realization of deferred tax assets, and has not booked an income tax benefit.
The 1999 loss can be carried forward for seven years.
In 1998, we recovered $4,000 of income tax, as the loss recorded for
fiscal 1998 was carried back to earlier profitable years. In 1997, despite
recording a book loss before tax, we had taxable income and recorded a
provision of $2,000.
COST OF YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products were
coded to accept only two-digit entries in date code fields. Both before and
after the year 2000, these date code fields will need to accept four-digit
entries to enable the computer systems and software products to distinguish
twenty-first century dates from twentieth century dates. Any of our computer
programs or hardware that have date-sensitive software or embedded computer
chips which have not been upgraded to be compliant with the requirements of the
year 2000 changeover may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including among other things, a temporary
inability to properly process transactions internally or in conjunction with
external computer systems on which we depend to provide our customers with our
product and services. Although we have not suffered from any of these types of
events to date, we may do so in the future.
OUR GENERAL READINESS
The year 2000 requirements affect the computers, software and other
equipment that we use, operate or maintain for our operations. Substantially
all of our software was developed after awareness of these issues became wide
spread in the software industry, such that our software was designed with
reference to preventing year 2000 related difficulties from arising.
Nonetheless, we have adopted an internal policy to ensure that our product
remains year 2000 compliant. To the best of our knowledge, none of our
internal systems or equipment which are necessary for the conduct of our
business has any defects, errors or deficiencies relating to the year 2000
which are not capable of being remedied.
COST OF OUR YEAR 2000 EFFORTS
We have incurred no direct expenses since our inception in connection
with this process, and do not expect to incur any significant additional
expenditures in this regard.
MOST LIKELY CONSEQUENCES OF YEAR 2000 PROBLEMS
We believe that it is not possible to determine with complete
certainty that all year 2000 related problems affecting us have been identified
or corrected. The number of devices and systems that could be affected and the
interactions among these devices and systems are numerous. We believe that
there exists the potential for a significant number of operational
inconveniences and inefficiencies, and possible disputes and claims related to
products or services used or provided by us.
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<PAGE> 24
CONTINGENCY PLANS
We have taken measures to ensure that our internal systems and
equipment are year 2000 compliant for both hardware and software. All of our
operating systems on all critical servers have been upgraded, and all
individual computers and tools have been verified as year 2000 compliant. We
perform a daily back-up of all critical information. In the event of a failure,
we estimate that the information technology infrastructure necessary to run
our internal business operations could be restored.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 1999, we had not entered into or acquired financial
instruments that have material market risk. We have no financial instruments
for trading or other purposes or derivative or other financial instruments with
off balance sheet risk. All financial assets and liabilities are due within the
next twelve months and are classified as current assets or liabilities in the
consolidated balance sheet provided in response to Item 13. The fair value of
all financial instruments at December 31, 1999 is not materially different
from their carrying value.
We regularly invest funds in excess of our immediate needs in
guaranteed investment certificates issued by major Canadian banks. The fair
value of these instruments, which generally have a term to maturity of 90 days
or less, does not differ significantly from their face value.
To December 31, 1999, substantially all revenues and the majority of
cash costs have been realized or incurred in Canadian dollars. To date we have
not entered into foreign currency contracts to hedge against foreign currency
risks between the Canadian dollar or other foreign currencies and our reporting
currency, the United States dollar. Generally, however, we attempt to manage
our risk of exchange rate fluctuations by maintaining sufficient net assets in
Canadian dollars to retire our liabilities as they come due.
ITEM 3. PROPERTIES.
Through our Blue Zone Entertainment Inc. subsidiary, we entered into
a five year lease, commencing on October 1, 1999, that houses our corporate
headquarters in approximately 6,110 square feet located at 329 Railway Street,
5th Floor, Vancouver, British Columbia, Canada V6A 1A4. Blue Zone Productions
Ltd. guaranteed the lease. Our monthly rent over the term of the lease is
$4,277.
Through our Blue Zone Entertainment Inc. subsidiary, we entered into
a five year lease, commencing on November 1, 1999, for approximately 3,006
square feet of office space at 488 Wellington Street, Suite 202, Toronto,
Ontario, Canada M5V 1E3. Our monthly rent over the term of the lease is $3,070.
We believe that our existing facilities are adequate for our needs
through the end of 2000. Should we require additional space at that time, or
prior thereto, we believe that we could secure such space on commercially
reasonable terms and without undue operational disruption.
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<PAGE> 25
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with respect
to beneficial ownership of our common stock as of March 1, 2000 by:
- each person known by us to beneficially own 5% or more of our
outstanding common stock;
- each of our directors and executive officers; and
- each executive officer named in the summary compensation table.
In general, a person is deemed to be a "beneficial owner" of a security if
that person has or shares the power to vote or direct the voting of such
security, or the power to dispose or direct the disposition of such security.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options
held by that person that are currently exercisable or exercisable within 60 days
of March 1, 2000 are deemed outstanding. Percentage of beneficial ownership is
based upon 21,538,100 shares of common stock outstanding at March 1, 2000. To
our knowledge, except as set forth in the footnotes to this table and subject to
applicable community property laws, each person named in the table has sole
voting and investment power with respect to the shares set forth opposite such
person's name. Except as otherwise indicated, the address of each of the
persons in this table is as follows: c/o Blue Zone, Inc., 329 Railway Street,
5th Floor, Vancouver, British Columbia, V6A 1A4.
<TABLE>
<CAPTION>
Number of Shares Percent
Officers and Directors Beneficially Owned Beneficially Owned
- ---------------------- ------------------ ------------------
<S> <C> <C>
Bruce Warren........................................ 1,000,000(1) 4.44%
Jamie Ollivier.........,,........................... 1,000,000(1) 4.44%
F. Michael P. Warren................................ 12,150,100(2) 56.02%
P.O. Box 772
The Valley
Anguilla, B.W.I.
Tryon M. Williams .................................. 150,000(3) (4)
3711 Pugent Drive
Vancouver, BC
Canada, V6L 2T8
</TABLE>
24
<PAGE> 26
<TABLE>
<S> <C> <C>
David A. Thomas..................................... 150,000(3) (4)
Suite 412
1 Stafford Road
Nepean, ON
Canada, K2H 1B9
Jay Shecter......................................... 0 0
1235 North Wetherly Drive
Los Angeles, CA 90069
All directors and executive officers 14,650,100(5) 60.57%
as a group (7 persons):
Five Percent Stockholders
- -------------------------
Savoy Holdings Limited ............................. 1,574,944(6) 7.14%
Mansion House-- Suite 2B
143 Main Street
Gibraltar
Doug McLeod ....................................... 1,125,000 5.22%
688-6 Ishikawa
Fujisawa City
Kanagawa, Japan
252 0815
</TABLE>
- ---------------
(1) Represents options to purchase 500,000 shares of our common stock at
$5.00 per share until November 10, 2009 and options to purchase
500,000 shares of our common stock at $7.44 per share until
November 10, 2009.
(2) Includes options to purchase 150,000 shares of our common stock at
$5.00 per share until November 10, 2009.
(3) Represents options to purchase 150,000 shares of our common stock at
$5.00 per share until November 10, 2009.
(4) Represents less than one percent.
(5) Includes a total of 12,000,100 shares and 2,450,000 options referred
to in notes (1), (2) and (3) and a total of 200,000 options held by
Catherine Warren, our Chief Operating Officer, to purchase 100,000
shares of our common stock at $5.00 per share until November 10, 2009
and to purchase 100,000 shares of our common stock at $7.44 per share
until November 10, 2009.
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<PAGE> 27
(6) Includes stock purchase warrants to purchase 524,981 shares of the
Company's common stock at a price of $5.63 per share if the warrant is
exercised before October 1, 2000 and at a price of $6.75 per share if
the warrant is exercised after October 1, 2000 but before the warrants
expire on October 1, 2001.
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<PAGE> 28
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
MANAGEMENT
Our directors and executive officers are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
F. Michael P. Warren 64 Chairman of the Board of Directors
Bruce Warren 34 Chief Executive Officer and Director
Jamie Ollivier 36 President and Director
Catherine Warren 37 Chief Operating Officer
Tryon Williams 59 Director
David Thomas 53 Director
Jay Shecter 56 Treasurer and Director
- ---------------------------------
</TABLE>
FAMILY RELATIONSHIPS
Our chief executive officer, Bruce Warren, and our chief operating
officer, Catherine Warren, are the son and daughter, respectively, of our
Chairman, F. Michael P. Warren. Otherwise, no family relationship exists
between or among any of our directors, executive officers or significant
employees or any person contemplated to become a director, executive officer
or significant employee.
BUSINESS EXPERIENCE
F. MICHAEL P. WARREN, Q.C. has been our Chairman since October 8, 1999. Mr.
Warren is the founder and chairman of Warren Capital Ltd., a venture capital
fund with holdings in a broad range of industrial and technological companies,
and has served as its chairman since March 1998. From January 1991 to March
1998, Mr. Warren was chairman of International Murex Technologies Corporation,
a medical diagnostics company, which was sold to Abbott Laboratories in March
1998. Prior to January 1991, Mr. Warren was a partner of the law firm of Owen,
Bird, Barristers & Solicitors, in Vancouver, BC.
BRUCE WARREN has been our Chief Executive Officer and a Director since
October 8, 1999. Mr. Warren is a co-founder of Blue Zone Productions Ltd. and
has served as its President since 1992. Mr. Warren created and programmed the
MediaBz(TM) prototype and, along with our President
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Jamie Ollivier, is primarily responsible for negotiating our agreements with
our broadcasting and media clients.
JAMIE OLLIVIER has been our President and a Director since October 8, 1999.
Mr. Ollivier is a co-founder of Blue Zone Productions Ltd. and has served as
its creative director from 1994 to the present. From January 1991 to January
1993, Mr. Ollivier was secretary of Balancetech, Inc., a software development
firm, which he also co-founded.
CATHERINE WARREN has been our Chief Operating Officer since October 8, 1999 and
was the chief operating officer for Blue Zone Productions Ltd. from May 1999
until October 1999. From June 1996 to February 1999, Ms. Warren was the
director of education and community programming at the Vancouver Aquarium,
where her responsibilities included strategic business development for new
media. From November 1992 to June 1996, Ms. Warren was executive director and
publisher for the Association for the Promotion and Advancement of Science
Education, a multimedia and educational program development organization.
TRYON M. WILLIAMS has served as one of our Directors since October 8, 1999.
Since 1984, Mr. Williams has served as a principal of Tarpen Research
Corporation, a private consulting firm, and since 1993, he has been an Adjunct
Professor, Faculty of Commerce and Business Administration at the University
of British Columbia. From 1988 to 1991, he was President and chief executive
officer of Distinctive Software, Inc. in Vancouver, BC, and, upon the
acquisition of that company by Electronic Arts Inc., North America's largest
developer of entertainment software, he became President and chief executive
officer of Electronic Arts (Canada) Inc., where he continued until 1993. Since
1993, Mr. Williams has also been a Managing Partner in the CEG, AVC, and PEG
Partnerships, created to invest in entertainment software worldwide. Mr.
Williams is a director of American Softworks Corporation, York Medical, Inc.,
and several other private corporations.
DAVID THOMAS has served as one of our Directors since October 8, 1999. In
1997, Mr. Thomas founded Bedarra Corporation, a privately-held management and
technology consulting company, and has served as its President since 1998. From
1991 to 1998, Mr. Thomas was President and chief executive officer of Object
Technology International, a technology company, which he also founded. Mr.
Thomas was a professor of engineering at Carleton University from 1983 to 1991.
JAY SHECTER has served as our Treasurer and one of our Directors since January
1, 2000. From March 1997 to December 1999, Mr. Shecter was a vice president in
charge of strategic sourcing for the Universal Studios subsidiary of The
Seagram Company Ltd. From July 1992 to February 1997, Mr. Shecter was a senior
vice president and chief financial officer for Chivas Brothers Ltd., that
company's Global Whisky Group.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
None of our directors or executive officers has been involved in any legal
proceedings during the past five years that are material to an evaluation of
their ability or integrity as a director or executive officer.
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BOARD OF DIRECTORS
We currently have six directors. All directors currently hold office
until the next annual meeting of stockholders or until their successors have
been elected and qualified. Our officers are elected annually by the Board of
Directors and hold office until their successors are elected and qualified.
COMMITTEES OF THE BOARD OF DIRECTORS
In December 1999, the Board of Directors designated an Audit Committee,
a Compensation Committee, and a Finance Committee. The basic functions of these
committees are summarized below.
AUDIT COMMITTEE. The Audit Committee, which currently consists of
Messrs. Shecter, B. Warren and M. Warren, recommends the appointment of our
independent public accountants, reviews and approves the scope of our annual
audit, and reviews the results thereof with our independent accountants. The
Audit Committee also assists the Board of Directors in fulfilling its fiduciary
responsibilities relating to accounting and reporting policies, practices and
procedures, and reviews the continuing effectiveness of our business ethics and
conflicts of interest policies.
COMPENSATION COMMITTEE. The Compensation Committee, which currently
consists of Messrs. Shecter, Williams and M. Warren recommends to the Board of
Directors the salaries, bonuses and stock awards received by our executive
officers. The Compensation Committee is also responsible for administering our
1999 Stock Option Plan. The Compensation Committee determines the recipients of
awards, sets the exercise price and number of shares granted, and determines the
terms, provisions and conditions of rights granted.
FINANCE COMMITTEE. The Finance Committee, which consists of Messrs.
Shecter, M. Warren and B. Warren, reviews and approves our annual operating
budget, capital budget and our financing plans. The Finance Committee will
oversee the implementation of personnel and systems to manage the financial
reporting needs of our business. The Finance Committee will also oversee our
credit facilities, insurance coverage, investments, and commercial and
investment banking relationships.
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<PAGE> 31
ITEM 6. EXECUTIVE COMPENSATION.
The table below summarizes information for the fiscal year ended December 31,
1999, concerning the total compensation paid to our chief executive officer.
None of our other executive officers were paid compensation in excess of
$100,000 during the fiscal year ended December 31, 1999. The table only relates
to compensation paid by Blue Zone Productions Ltd. after we acquired it on
October 8, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
COMPENSATION AWARD LONG TERM-COMPENSATION
SECURITIES
UNDERLYING
NAME SALARY OPTIONS (#) OTHER COMPENSATION
---- ------ ----------- ------------------
<S> <C> <C> <C>
Bruce Warren .............. $ 40,000 (1) 500,000 -0-
</TABLE>
(1) Bruce Warren was paid $40,000 in compensation for the last four months of
1999, which corresponds to $120,000 on an annualized basis.
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<PAGE> 32
OPTION GRANTS IN THE FISCAL YEAR ENDED DECEMBER 31, 1999
The following table sets forth all stock options granted to our chief
executive officer during the fiscal year ended December 31, 1999. The options
were granted pursuant to our 1999 Stock Option Plan. In accordance with the
rules of the Securities and Exchange Commission, also shown is the potential
realizable value over the term of the option, the period from the grant date to
the expiration date, giving effect to an assumed price of $4.50 per share (the
fair market value on the date of grant) and based on an assumed rate of stock
appreciation of 5% and 10%, compounded annually. These rates are mandated by
the Securities and Exchange Commission and do not represent our estimate of our
future common stock price. Actual gains, if any, on stock option exercises will
depend on the future performance of our common stock. In the fiscal year ended
December 31, 1999, we granted options to acquire up to an aggregate of
1,955,000 shares of common stock to employees, consultants and directors.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS THE OPTION PERIOD
-------------------------------------------------------------------- -------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE OR
UNDERLYING TO EMPLOYEES IN BASE PRICE
NAME OPTIONS GRANTED FISCAL YEAR PER SHARE EXPIRATION DATE 5% 10%
- ----- --------------- ----------- --------- --------------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Bruce Warren 500,000 28.0% $5.00 11/9/2009 1,165,012 3,335,920
</TABLE>
1999 STOCK OPTION PLAN
Our 1999 Stock Option Plan was adopted by the Board of Directors in
November, 1999. The purpose of our Plan is to attract and retain the best
available personnel, to provide an additional incentive to our employees,
directors and consultants and to promote the success of our business. Our Plan
provides for the issuance to our employees, directors and eligible advisors and
consultants shares of common stock pursuant to the grant of non-qualified stock
options. We may also issue incentive stock options within the meaning of
Section 422 of the Internal Revenue Code to our employees. At our next annual
meeting, we intend to submit the Plan to our stockholders for approval. If the
Plan is not approved by our stockholders, we will still be able to issue
non-qualified options but not incentive options.
A total of 4,500,000 shares of our common stock has been reserved for
issuance under our 1999 Stock Option Plan. The Plan is administered by the
Compensation Committee of our Board of Directors that currently consists of
Messrs. Shecter, Williams and M. Warren. Subject to the provisions of the Plan,
the Compensation Committee has the authority to
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<PAGE> 33
determine to whom stock options are granted and the terms of any such grant,
including the number of shares subject to, the exercise price and vesting
provisions of, the award.
Incentive stock options granted under the Plan have a maximum term of
10 years, or five years in the case of incentive stock options granted to an
employee who owns common shares having more than 10% of the voting power of our
company. The exercise price of incentive stock options will be no less than the
fair market value of our common stock on the date of the grant, or 110% of the
fair market value in the case of an incentive stock option granted to an
employee who owns common shares having more than 10% of the voting power of our
company. Non-qualified stock options granted under the Plan have a term set
forth in the Option Award Agreement and an exercise price of no less than 85%
of fair market value of our common shares on the date of the grant, unless
otherwise determined by the Administrator.
Payment for the exercise of an option may be made by cash, check
delivery of a promissory note by the grantee, surrender of shares owned by the
grantee, or through a broker-dealer sale and remittance procedure.
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation from us for
their services as members of the Board of Directors, although members are
reimbursed for expenses in connection with attendance at Board of Directors,
committee meetings, and specific Blue Zone business meetings. Directors are
eligible to participate in our 1999 Stock Option Plan. Option grants to
directors are at our discretion, and we have no specific plans regarding amounts
to be granted to our directors in the future.
OPTION GRANTS TO DIRECTORS AND OFFICERS
On December 29, 1999, we entered into an agreement with Jay Shecter
when Mr. Shecter joined our Board of Directors. The agreement provides that Mr.
Shecter will provide financial advisory services to us in consideration for
being granted an option to acquire 150,000 shares of our common stock at an
exercise price of $5.00 per share. We have not yet granted these options.
For the year ended December 31, 1999, we have granted a total of
1,550,000 options to our executive officers and directors. We granted options
to each of F. Michael P. Warren, our chairman, David Thomas, a director, and
Tryon Williams, a director, to purchase 150,000 shares of common stock. The
options have an exercise price of $5.00 per share and expire on November 10,
2009. We have also granted options to Bruce Warren, our chief executive
officer, Jamie Ollivier, our president and Catherine Warren, our chief
operating officer, to purchase 500,000, 500,000 and 150,000 shares of our
common stock, respectively. The options granted to our executive officers have
an exercise price of $5.00 and terminate on November 10, 2009.
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<PAGE> 34
On January 21, 2000, we granted 500,000 options to both Bruce Warren
and Jamie Ollivier and 100,000 options to Catherine Warren. These options are
exercisable at $7.44 per share until November 10, 2009.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
As of January 1, 2000, our Blue Zone Entertainment Inc. subsidiary
entered into employment agreements with Bruce Warren, to serve as our Chief
Executive Officer, Jamie Ollivier, to serve as our President, and Catherine
Warren to serve as our Chief Operating Officer. The agreements provide for
annual salaries of not less than $120,000, $120,000, and $100,000 for Bruce
Warren, Jamie Ollivier and Catherine Warren, respectively. The annual salaries
may be increased by our Compensation Committee upon review of the executive's
performance for the preceding year. Under the agreements, the executives are
entitled to receive incentive compensation based upon the achievement of
performance goals to be established jointly by the executive and the
Compensation Committee. If the executive achieves the performance goals, the
executive will receive a bonus equal to 50% of the executive's annual salary. If
the executive exceeds the performance goals by an amount agreed upon by the
executive and the Compensation Committee, then the executive may receive a
bonus of up to an additional 100% of the executive's annual salary, for a total
bonus of 150% of the executive's salary.
The employment agreements do not specify a term of employment.
However, the executive's employment with us may be terminated if (a) the
executive is convicted of a felony or any other criminal offense which has a
material adverse effect on us or the executive's ability to carry out his
duties of employment; (b) the executive willfully commits acts materially
detrimental to our business or reputation; (c) there is any material breach of
any of the executive's covenants or fiduciary duties as specified in the
employment agreement which is not capable of being cured by the executive or,
if capable of being cured, which is not cured by the executive within 15 days
following written notice thereof from our Board of Directors; or (d) the
executive knowingly fails to follow specific directives of our Board of
Directors consistent with his duties.
The executive's employment with us may be terminated if the executive
suffers a physical or mental condition, other than pregnancy, which results in
the executive's absence from his employment duties for a period of ninety (90)
or more consecutive days. If the employment of any of the executives is
terminated under such circumstances, the executive shall be entitled to 180 days
of severance pay at full salary from the date the executive is deemed to have
such disability less any amounts received by the executive from disability
insurance. Alternatively, the executive's employment with us may be terminated
upon the death of the executive. If the employment of any of the executives is
terminated by reason of death, the Company shall pay the balance of the monies
due under the agreement to the estate or beneficiaries of the decreased
executive.
An executive's employment may also be terminated at the sole
discretion of the Board of Directors. In such circumstances, however, we are
required to pay the executive two years of
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<PAGE> 35
severance pay at full salary plus one year of any incentive or bonus
compensation required to be paid to the executive and, in such an event, the
executive is not required to mitigate damages.
The employment agreements with Bruce Warren and Jamie Ollivier
provide that each of them shall be nominated for election to our Board of
Directors. In addition, we agreed that, while employed with us, Mr. Warren and
Mr. Ollivier would each serve as members of the Executive Committee of our
Board of Directors, when and if established, along with the Chairman of the
Board.
Under the agreements, the executives are entitled to receive certain
additional benefits. The executives may participate in our present and future
stock option, benefit and deferred compensation plans. In addition, we are
required to reimburse the executives for their club and professional society
membership dues and monthly charges, the costs of their financial, tax and
estate planning, and an automobile allowance. Under the employment agreements,
we are also required to reimburse each executive for: (i) travel, meals and
lodging expenses incurred when the executive's spouse travels with the
executive on business for more than 15 days; (ii) childcare expenses incurred
for the executive's pre-school children when the executive's nanny or
babysitter accompanies the executive on business travel; or (iii) expenses
incurred for home-based childcare for the executive's pre-school children when
the executive travels on our behalf. In addition, if any executive is required
to include any of these benefits as income for purposes of federal or
provincial tax, we will reimburse the executive for any and all taxes paid.
Under the employment agreements, we retain all proprietary and
intellectual property rights in everything created, developed or conceived by
the executives while employed with us. In addition, so long as any executive is
employed with us, the executive is bound by non-competition and
non-solicitation covenants. During the term of employment and for one year
thereafter, the executive is prohibited from directly competing with us in any
management capacity in any phase of our business in any geographic area
throughout the world in which we presently market our products and services. If
we begin to market our products and services in new countries, the prohibition
is amended automatically to include those new geographic areas and, if we
cease to market our products and services in a particular geographic area, that
area is no longer prohibited after six months. During the term of employment
and for two years thereafter, the executive is prohibited from soliciting
business or customers that the executive serviced while employed with us and
may not solicit or attempt to solicit any of our employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee and none of our executive
officers has a relationship that would constitute an interlocking relationship
with executive officers and directors of another entity.
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ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On July 9, 1999, our Blue Zone Productions Ltd. subsidiary executed a
Business Banking Loan Agreement with the Royal Bank of Canada for a $100,000
line of credit. Under a Guarantee and Postponement of Claim Agreement, dated
July 9, 1999, our principal stockholder and current chairman, F. Michael P.
Warren, provided a guarantee of the line of credit in favor of Royal Bank of
Canada. Mr. Warren's liability under the guarantee was limited to $50,000. All
funds borrowed under the line of credit were paid in October 1999 and the line
of credit was terminated.
In connection with the closing of the transactions described in the
Share Exchange Agreement on October 8, 1999, we used a portion of the
proceeds from our private placement to Savoy Holdings to repay $96,600 to F.
Michael P. Warren, our chairman, $48,400 to Bruce Warren, our chief executive
officer, and $10,350 to Jamie Ollivier, our president, for loans and advances
made by those persons to our Blue Zone Productions Ltd. subsidiary.
As of December 31, 1999, our chairman, F. Michael P. Warren, had
advanced $45,559.00 to us in connection with unreimbursed travel and business
expenses. As of March 1, 2000, we owed $17,559.00 to Mr. Warren for
unreimbursed travel and business expenses.
See the description of "Executive Compensation" in Item 6 for the terms
of Employment Agreements between the Company and Bruce Warren, our Chief
Executive Officer and a Director, Jamie Ollivier, our President and a Director,
and Catherine Warren, our Chief Operating Officer.
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ITEM 8. LEGAL PROCEEDINGS.
We are not a party to any legal proceedings.
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ITEM 9. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
Our common stock, $.001 per share, is quoted on the OTC Bulletin Board
under the symbol "BLZN". The following table sets forth the highest and lowest
bid prices for our common stock for each calendar quarter since September 1999
when our common stock commenced trading, as reported by the National Quotation
Bureau, Inc.
As of February 1, 2000, there were 11 record holders of our common
stock. Because a significant number of shares of our common stock are held in
the names of nominees and through brokerage accounts and we have not conducted
a search of those accounts, we do not know the exact number of beneficial
owners of our common stock.
The prices set forth below represent interdealer quotations, without
retail markup, markdown or commission and may not be reflective of actual
transactions.
<TABLE>
<CAPTION>
Fiscal 1999 High Bid Low Bid
- ----------- -------- -------
<S> <C> <C>
Third Quarter ............................. $5.33 $4.00
Fourth Quarter ............................. $10.25 $3.75
</TABLE>
We have never paid cash dividends on our common stock and we presently
intend to retain future earnings, if any, to finance the expansion of our
business. We do not anticipate that any cash dividends will be paid in the
foreseeable future. Future dividend policy will depend on our earnings, capital
requirements, expansion plans, financial condition and other relevant factors.
As of March 1, 2000, we have granted an aggregate of 3,286,000 options
exercisable into shares of our common stock. In connection with our private
placement of September 22, 1999, we issued warrants to acquire 524,981
(466,650 prior to giving effect to the 1.125-for-1 stock split on
September 27, 1999) shares of our common stock.
In connection with the closing under the Share Exchange Agreement on
October 8, 1999, we issued 12,000,000 shares of our common stock to F. Michael
P. Warren, our Chairman, in exchange for all of the issued and outstanding
common stock of Blue Zone Productions Ltd. Pursuant to the Share Exchange
Agreement, Mr. Warren agreed that he would not transfer, assign or sell the
shares for one year. We are required to register Mr. Warren's 12,000,000 shares
of common stock under the Securities Act of 1933, as amended, provided that Mr.
Warren pays for the expenses of such registration.
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ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
We sold the following securities within the past three years and prior
to the date of filing of this registration statement.
On or about March 11, 1997, we issued 28,125,000 (5,000,000 prior to
giving effect to our five-for-one stock split on July 14, 1998 and our
1.125-for-1 stock split on September 27, 1999) shares of our restricted common
stock to a person who was then a director and our secretary in consideration
for services rendered to us in connection with our formation and organization.
In April 1997, pursuant to Rule 504, we issued an aggregate of
1,125,000 (200,000 prior to giving effect to our five-for-one stock split on
July 14, 1998 and our 1.125-for-1 stock split on September 27, 1999) shares of
our common stock for an aggregate purchase price of $20,000. One person, then
a director and our secretary, acquired 20,000 shares for $2,000. The remaining
180,000 shares were issued to a group of 41 persons in exchange for an
aggregate purchase price of $18,000.
On April 5 1999, pursuant to Rule 504 and Section 3(b) of the
Securities Act of 1933, as amended, we issued an aggregate of 6,750,000
(6,000,000 prior to giving effect to the 1.125-for-1 stock split on September
27, 1999) shares of our common stock to 11 investors for an aggregate purchase
price of $120,000.
On September 22, 1999, we sold 1,049,963 (933,300 prior to giving
effect to the 1.125-for-1 stock split on September 27, 1999) units to Savoy
Holdings Limited for an aggregate purchase price of $5,254,479. Each unit
consisted of one share of common stock and one half of one non-transferable
share purchase warrant entitling the holder to purchase a further share of
common stock at a price of $5.63 per share if the warrant is exercised before
October 1, 2000 and at a price of $6.75 per share if the warrant is exercised
before October 1, 2001 when the warrant expires. The units were issued
pursuant to an exemption under Regulation S of the Securities Act. The common
stock issuable upon exercise of the warrants, when issued, will be restricted
securities issued in reliance on Regulation S.
From November 1999 through March 1, 2000, pursuant to Rule 701 and
Regulation S, we have granted a total of 3,286,000 options to our employees,
officers, and directors under our 1999 Stock Option Plan, which options may be
exercised at prices ranging from $5.00 to $7.44 per share.
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ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
GENERAL
Under our amended certificate of incorporation, we are authorized to
issue up to 100,000,000 shares of common stock, $.001 par value per share. We
are also authorized to issue up to 5,000,000 shares of preferred stock, $.001
par value per share, which may contain special preferences as determined by our
Board of Directors including, but not limited to, the bearing of interest and
convertibility into shares of our common stock. As of December 31, 1999, we had
21,538,100 shares of common stock issued and outstanding. No shares of
preferred stock are issued and outstanding.
The following summary of the terms and provisions of our capital stock
is not complete, and you should read our certificate of incorporation and
bylaws, copies of which have been filed as exhibits to this registration
statement.
COMMON STOCK
Holders of our common stock are entitled to one vote per share for
each share owned of record. Generally, all matters to be voted on by our
stockholders must be approved by a majority of the votes that are entitled to
be cast by all shares of our common stock that are present in person or
represented by proxy. Except as otherwise provided by law, amendments to our
certificate of incorporation generally must be approved by a majority of the
votes entitled to be cast by all outstanding shares of our common stock.
Our certificate of incorporation does not provide for cumulative
voting in the election of directors, which means that the holders of more than
50% of the outstanding shares voting for directors can elect all of the
directors and, in such event, the holders of the remaining shares will be
unable to elect any of our directors.
Holders of shares of our common stock have no preemptive, conversion
or subscription rights, and shares of our common stock are not subject to
redemption. Except as otherwise provided by law, dividends may be declared at
the sole discretion of the Board of Directors and may be paid in cash, property,
shares of corporate stock, or any other medium.
PREFERRED STOCK
Our Board of Directors is authorized to issue preferred stock in
series from time to time with such designations, rights, preferences and
limitations as our Board of Directors may determine. Moreover, unless the
nature of a particular transaction and applicable statute require such
approval, our Board of Directors need not obtain shareholder approval before
issuing preferred stock. The potential exists, therefore, that additional
shares of preferred stock might be issued with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting
power or other rights of holders of our stock. The issuance of preferred stock
may
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have the effect of delaying or preventing a change in control without any
further action by stockholders.
WARRANTS
On September 22, 1999, we issued stock purchase warrants to purchase
an aggregate of 524,981 shares of our common stock to Savoy Holdings Limited.
Each warrant entitles the holder to purchase one share of our common stock at
an exercise price of $5.63 per share if the warrant is exercised before October
1, 2000 and at a price of $6.75 per share if the warrant is exercised after
October 1, 2000 but before the warrants expire on October 1, 2001. As of
February 1, 2000, none of these warrants has been exercised.
The warrants are immediately exercisable, non-transferable, and not
redeemable. The warrants bear a legend to prevent sale, transfer, assignment or
hypothecation in the absence of an effective registration statement or an
exemption from registration. In addition, any share certificates issued upon
exercise of the warrants but prior to the effective date of a registration
statement will bear similar legends.
In issuing the warrants to Savoy Holdings Ltd., we relied upon an
exemption from registration provided by Regulation S of the Securities Act.
Upon exercise of any or all of the warrants, the holder exercising the warrants
must provide to us either (i) certification that the holder is not a "U.S.
Person" as defined in Regulation S or (ii) a legal opinion satisfactory to us
that the warrants and the shares of common stock issuable upon exercise of the
warrants have been registered or are exempt from registration.
TRANSFER AGENT
The transfer agent for our common stock is First American Stock
Transfer located at 610 East Bell Road, Suite 2-155 PMB, Phoenix, AZ 85022-2393;
telephone number (608) 485-1346.
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ITEM 12. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Limitation on liability
Our certificate of incorporation contains a provision that is
intended to limit the liability of our officers and directors. Specifically,
our officers and directors will not be liable to us or our shareholders for
damages for any breach of fiduciary duty, except for liability arising as a
result of acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law.
The principal effect of the limitation of liability provision is
that a shareholder is unable to prosecute an action for monetary damages
against one of our officers or directors unless the shareholder can
demonstrate one of the specified bases for liability. The provision does not
eliminate or limit liability arising in connection with causes of action
brought under the federal securities laws. In addition, our certificate of
incorporation does not eliminate the duty of care.
The inclusion of this provision in our certificate of incorporation
may discourage or deter our shareholders or our management from bringing a
lawsuit for breach of fiduciary duty against an officer or director, even
though such an action, if successful, might otherwise have benefited us and
our shareholders.
Indemnification
With regard to indemnification of our officers and directors, our
certificate of incorporation provides as follows:
Article X. INDEMNIFICATION: Each director and each officer of the
corporation may be indemnified by the corporation as follows:
(a) The corporation may indemnify any person who was or is a party, or
is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the corporation), by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement, actually and
reasonably incurred by him in connection with the action, suit or
proceeding, if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of
the corporation and with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suite or proceeding, by
judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, does not of itself create a presumption
that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of
the corporation, and that, with respect to any criminal action or
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proceeding, he had reasonable cause to believe that his conduct was
unlawful.
(b) The corporation may indemnify any person who was or is a party, or
is threatened to be made a party, to any threatened, pending or
completed action or suit by or in the right of the corporation, to
procure a judgment in its favor by reason of the fact that he is or
was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses including amounts
paid in settlement and attorneys' fees actually and reasonably
incurred by him in connection with the defense or settlement of the
action or suit, if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of
the corporation. Indemnification may not be made for any claim, issue
or matters as to which such a person has been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals there from, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the
action or suit was brought or other court of competent jurisdiction
determines upon application that in view of all the circumstances of
the case the person is fairly and reasonably entitled to indemnity for
such expenses as the court deems proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in subsections (a) and
(b) of this Article, or in defense of any claim, issue or matter
therein, he must be indemnified by the corporation against expenses,
including attorney's fees, actually and reasonably incurred by him in
connection with the defense.
(d) Any indemnification under subsections (a) and (b) unless ordered
by a court or advanced pursuant to subsection (e), must be made by
the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee
or agent is proper in the circumstances. The determination must be
made:
(i) By the stockholders;
(ii) By the Board of Directors by majority vote of a
quorum consisting of directors who were not parties
to the act, suit or proceeding;
(iii) If a majority vote of a quorum consisting of
directors who were not parties to the act, suit or
proceeding so orders, by independent legal counsel
in a written opinion; or
(iv) If a quorum consisting of directors who were not
parties to the act, suit or proceeding cannot be
obtained, by independent legal counsel in a written
opinion.
(e) Expenses of officers and directors incurred in defending a civil
or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of
42
<PAGE> 44
the final disposition of the action, suit or proceeding, upon receipt
of an undertaking by or on behalf of the director or officer to repay
the amount if it is ultimately determined by a court of competent
jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subsection do not affect any
rights to advancement of expenses to which corporate personnel other
than directors or officers may be entitled under any contract or
otherwise by law.
(f) The indemnification and advancement of expenses authorized in
or ordered by a court pursuant to this section:
(i) Does not exclude any other rights to which a person
seeking indemnification or advancement of expenses may be
entitled under the certificate or articles of incorporation
or any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, for either an action
in his official capacity or an action in another capacity
while holding his office, except that indemnification,
unless ordered by a court pursuant to subsection (b) or for
the advancement of expenses made pursuant to subsection (e)
may not be made t or on behalf of any director or officer if
a final adjudication establishes that his acts or omissions
involved intentional misconduct, fraud or a knowing
violation of the law and was material to the case of action.
(ii) Continues for a person who has ceased to be a
director, officer, employee or agent and insures to
the benefit of the heirs, executors and
administrators of such a person.
With regard to indemnification of our officers and directors, our
bylaws provide as follows:
Article VII.
INDEMNIFICATION
Section 7.1 Indemnification. The corporation shall, unless prohibited by Nevada
Law, indemnify any person (an "Indemnitee") who is or was involved in any
manner (including, without limitation, as a party or a witness) or is threatened
to be so involved in any threatened, pending or completed action suit or
proceeding, whether civil, criminal, administrative, arbitrative or
investigative, including without limitation, any action, suit or proceeding
brought by or in the right of the corporation to procure a judgment in its
favor (collectively, a "Proceeding") by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other entity or enterprise, against all Expenses and Liabilities actually
and reasonably incurred by him in connection with such Proceeding. The right to
indemnification conferred in this Article shall be presumed to have been relied
upon by the directors, officers, employees and agents of the
43
<PAGE> 45
corporation and shall be enforceable as a contract right and inure to the
benefit of heirs, executors and administrators of such individuals.
Section 7.2 Indemnification Contracts. The Board of Directors is authorized on
behalf of the corporation, to enter into, deliver and perform agreements or
other arrangements to provide any Indemnitee with specific rights of
indemnification in addition to the rights provided hereunder to the fullest
extent permitted by Nevada Law. Such agreements or arrangements may provide (i)
that the Expenses of officers and directors incurred in defending a civil or
criminal action, suit or proceeding, must be paid by the corporation as they
are incurred and in advance of the final disposition of any such action, suit
or proceeding provided that, if required by Nevada Law at the time of such
advance, the officer or director provides an undertaking to repay such amounts
if it is ultimately determined by a court of competent jurisdiction that such
individual is not entitled to be indemnified against such expenses, (iii) that
the Indemnitee shall be presumed to be entitled to indemnification under this
Article or such agreement or arrangement and the corporation shall have the
burden of proof to overcome that presumption, (iii) for procedures to be
followed by the corporation and the Indemnitee in making any determination of
entitlement to indemnification or for appeals therefrom and (iv) for insurance
or such other Financial Arrangements described in Paragraph 7.02 of this
Article, all as may be deemed appropriate by the Board of Directors at the time
of execution of such agreement or arrangement.
Section 7.3 Insurance and Financial Arrangements. The corporation may, unless
prohibited by Nevada Law, purchase and maintain insurance or make other
financial arrangements ("Financial Arrangements") on behalf of any Indemnitee
for any liability asserted against him and liability and expenses incurred by
him in his capacity as a director, officer, employee or agent, or arising out
of his status as such, whether or not the corporation has the authority to
indemnify him against such liability and expenses. Such other Financial
Arrangements may include (i) the creation of a trust fund, (ii) the
establishment of a program of self-insurance, (iii) the securing of the
corporation's obligation of indemnification by granting a security interest or
other lien on any assets of the corporation, or (iv) the establishment of a
letter of credit, guaranty or surety.
Section 7.4 Definitions. For purposes of this Article:
Expenses. The word "Expenses" shall be broadly construed and, without
limitation, means (i) all direct and indirect costs incurred, paid or
accrued, (ii) all attorneys' fees, retainers, court costs, transcripts,
fees of experts, witness fees, travel expenses, food and lodging
expenses while traveling, duplicating costs, printing and binding
costs, telephone charges, postage, delivery service, freight or other
transportation fees and expenses, (iii) all other disbursements and
out-of-pocket expenses, (iv) amounts paid in settlement, to the extent
permitted by Nevada Law, and (v) reasonable compensation for time
spent by the Indemnitee for which he is otherwise not compensated by
the corporation or any third party, actually and reasonably incurred
in connection with either the appearance at or investigation, defense,
settlement or appeal of a Proceeding or establishing or enforcing a
right to indemnification under any agreement or arrangement, this
Article, the Nevada Law or otherwise; provided, however, that
"Expenses" shall not include any judgments or
44
<PAGE> 46
fines or excise taxes or penalties imposed under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or other
excise taxes or penalties.
Liabilities. "Liabilities" of any type whatsoever, including, but not
limited to, judgments or fines, ERISA or other excise taxes and
penalties, and amounts paid in settlement.
Nevada Law. "Nevada Law" means Chapter 78 of the Nevada Revised
Statutes as amended and in effect from time to time or any successor
or other statutes of Nevada having similar import and effect.
This Article. "This Article" means Paragraphs 7.01 through 7.04 of
these By-Laws or any portion of them.
Power of Stockholders. Paragraphs 7.01 through 7.04, including this
Paragraph, of these By-Laws may be amended by the stockholders only by
vote of the holders of sixty-six and two-thirds percent (66 2/3%) of
the entire number of shares of each class, voting separately, of the
outstanding capital stock of the corporation (even though the right of
any class to vote is otherwise restricted or denied); provided,
however, no amendment or repeal of this Article shall adversely affect
any right of any Indemnitee existing at the time such amendment or
repeal becomes effective.
Power of Directors. Paragraphs 7.01 through 7.04 and this Paragraph of
these By-Laws may be amended or repealed by the Board of Directors
only by vote of eighty percent (80%) of the total number of Directors
and the holders of sixty-six and two-thirds percent (66 2/3%) of the
entire number of shares of each class, voting separately, of the
outstanding capital stock of the corporation (even though the right of
any class to vote is otherwise restricted or denied); provided,
however, no amendment or repeal of this Article shall adversely affect
any right of any Indemnitee existing at the time such amendment or
repeal becomes effective.
In addition to the indemnification provisions present in our
certificate of incorporation and bylaws, we have liability insurance for our
officers and directors in the amount of $1 million. We also intend to enter
into separate indemnification agreements with each of our directors.
At present, there is no pending or threatened litigation or proceeding
involving any director or officer, employee or agent of ours where such
indemnification will be required or permitted.
45
<PAGE> 47
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Financial Statements and Supplementary Data required by this Item
are filed as part of this Form 10. See Index to Financial Statement Information
at page F-1 of this Form 10.
46
<PAGE> 48
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
In December 1999, we selected KPMG LLP as our principal independent
auditors to replace David E. Coffey, Certified Public Accountant. In connection
with the audit for the fiscal years ended December 31, 1997 and 1998, there were
no disagreements with David E. Coffey, Certified Public Accountant on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which, if not resolved to the satisfaction of
David E. Coffey, Certified Public Accountant, would have caused them to make
reference to the matter in their report. The report of David E. Coffey,
Certified Public Accountant on our financial statement for the fiscal years
ended December 31, 1997 and 1998 did not contain any adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope or accounting principles.
For accounting purposes, the transaction between Western Food
Distributors, Inc. and Blue Zone Productions Ltd. was accounted for as a
recapitalization of Blue Zone Productions Ltd., effectively as if it has issued
common stock for consideration equal to the net assets of Western Food
Distributors, Inc. Our comparative financial statements included in response to
Item 13 are those of Blue Zone Productions Ltd. and not of Western Food
Distributors. Accordingly, the report of David Coffee C.P.A. on the Western
Food Distributors financial statements is not included in this registration
statement.
47
<PAGE> 49
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(A) Financial Statements
The information required by this item is contained in the "Index to Financial
Statements" on Page F-1 of this Form 10 registration statement and such
information is incorporated herein by reference.
(B) EXHIBITS
The following exhibits are being filed as a part of this Form 10 registration
statement:
Exhibit No. Description
2.1 Share Exchange Agreement, dated as of October 5, 1999, among F.
Michael P. Warren, Bruce Warren, Jamie Ollivier, Blue Zone
Productions Ltd., Blue Zone Entertainment Inc., Blue Zone
International Inc. and Western Food Distributors, Inc. (A list of
exhibits and schedules to the Share Exchange Agreement is set
forth therein. The Registrant agrees to furnish to the Commission
supplementally, upon request, a copy of any such exhibits or
schedules not otherwise filed herewith.)
3.1 Registrant's Articles of Incorporation dated March 10, 1997.
3.2 Certificate of Amendment to the Registrant's Articles of
Incorporation, dated July 14, 1998, providing for a 5-for-1 stock
split of all of the Registrant's outstanding common stock.
3.3 Certificate of Amendment to the Registrant's Certificate of
Incorporation, dated September 28, 1999, changing the name of the
Registrant to "Blue Zone, Inc." and providing for a 1.125-for-1
stock split of all of the Registrant's issued and outstanding
common stock.
3.4 Bylaws.
4.1 Specimen Common Stock Certificate.
4.2 Warrant to Purchase 524,981 shares of common stock of Blue Zone,
Inc., dated October 1, 1999, issued to Savoy Holdings Limited.
10.1* Website and Interactive Television Development Agreement, dated
as of December 14, 1999, between CTV Television Inc. and Blue
Zone Productions Ltd.
10.2* Website Development Agreement, dated July 1, 1999, between
CKNW/CFMI, a division of WIC RADIO LTD., and Blue Zone
Entertainment
48
<PAGE> 50
Inc.
10.3* Joint Venture Agreement, dated June 16, 1998, between WIC
Premium Television, a Limited Subsidiary of WIC Western
International Communications Ltd. and Blue Zone
Entertainment Inc.
10.4 Business Banking Loan Agreement, dated July 9, 1999,
between Blue Zone Productions Ltd. and Royal Bank of
Canada.
10.5 Guarantee and Postponement of Claim, dated July 9, 1999,
executed by F. Michael P. Warren in favor of Royal Bank of
Canada.
10.6 Employment Agreement, dated January 1, 2000, between Blue
Zone Entertainment Inc. and Jamie Ollivier.
10.7 Employment Agreement, dated January 1, 2000, between Blue
Zone Entertainment Inc. and Bruce Warren.
10.8 Employment Agreement, dated January 1, 2000, between Blue
Zone Entertainment Inc. and Catherine Warren.
10.9 1999 Stock Option Plan
10.10 Subscription Agreement, dated as of September 22, 1999,
between Savoy Holdings Limited and Western Food
Distributors, Inc. for private placement of common stock
and stock purchase warrants.
16.1 Letter regarding change in certifying accountant.
21.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule
* Confidential treatment has been requested with respect to certain portions of
the Exhibit. Omitted portions will be filed separately with the Securities and
Exchange Commission.
49
<PAGE> 51
Consolidated Financial Statements of
BLUE ZONE, INC.
(Expressed in U.S. dollars)Years ended December 31, 1999, 1998
and 1997
50
<PAGE> 52
BLUE ZONE, INC.
Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<S> <C>
Auditors' Report F-1
Consolidated Financial Statements
Balance Sheets F-2
Statements of Operations F-3
Statements of Stockholders' Equity (Deficit) F-4
Statements of Cash Flows F-5
Notes F-6
</TABLE>
51
<PAGE> 53
Independent Auditors' Report
The Board of Directors and Stockholders
Blue Zone, Inc.
We have audited the consolidated balance sheets of Blue Zone, Inc. and
subsidiaries as of December 31, 1999 and 1998 and the related consolidated
statements of operations and stockholders' (deficit) and cash flows for each of
the years in the three year period ended December 31, 1999. These 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 United States 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, these consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Blue Zone,
Inc. and subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1999 in conformity with United States generally accepted
accounting principles.
/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada
February 10, 2000
F-1
<PAGE> 54
BLUE ZONE, INC.
Consolidated Balance Sheets
(Expressed in U.S. dollars)
December 31, 1999 and 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,097,869 $ 891
Accounts receivable 97,600 -
Work-in-progress 70,581 -
Prepaid expenses 93,204 558
- ---------------------------------------------------------------------------------------
4,359,254 1,449
Capital assets (note 3) 425,596 40,457
- ---------------------------------------------------------------------------------------
$ 4,784,850 $ 41,906
- ---------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 191,675 $ 21,830
Accrued liabilities 178,300 19,033
Deferred revenue 180,143 -
Income taxes payable - 2,589
Payable to stockholders (note 4) 45,559 9,262
- ---------------------------------------------------------------------------------------
595,677 52,714
Stockholders' equity (deficit) (note 5):
Preferred stock, authorized 5,000,000
shares, $.01 par value, none
issued in 1999 (1998 - 5 shares) - 5
Common stock, $.001 par value, authorized
100,000,000 shares; 21,538,100 issued in
1999 (1998 - 7 shares) 21,538 7
Additional paid in capital 5,626,371 -
Deficit (1,433,831) (11,500)
Accumulated other comprehensive income (loss):
Foreign currency translation adjustment (24,905) 680
- ---------------------------------------------------------------------------------------
4,189,173 (10,808)
- ---------------------------------------------------------------------------------------
$ 4,784,850 $ 41,906
- ---------------------------------------------------------------------------------------
</TABLE>
Uncertainty due to the Year 2000 Issue (note 10)
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 55
BLUE ZONE, INC.
Consolidated Statements of Operations
(Expressed in U.S. dollars)
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Production and service revenue $ 883,137 $ 774,830 $ 342,120
Cost of revenues 370,803 144,419 51,759
- --------------------------------------------------------------------------------------------------------------
Gross profit 512,334 630,411 290,361
- --------------------------------------------------------------------------------------------------------------
Operating expenses:
General and administrative 1,226,900 127,029 62,020
Selling and marketing 610,010 506,410 226,036
Depreciation 97,755 29,860 16,928
- --------------------------------------------------------------------------------------------------------------
1,934,665 663,299 304,984
- --------------------------------------------------------------------------------------------------------------
Loss before income taxes 1,422,331 32,888 14,623
Income tax expense (recovery) - (4,431) 2,431
- --------------------------------------------------------------------------------------------------------------
Net loss $ 1,422,331 $ 28,457 $ 17,054
- --------------------------------------------------------------------------------------------------------------
Net loss per common share, basic and diluted
(note 2(l)) $ .09 $ - $ -
- --------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding,
basic and diluted (note 2(l)) 14,168,937 12,000,000 12,000,000
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 56
BLUE ZONE, INC.
Consolidated Statements of Stockholders' Equity (Deficit)
(Expressed in U.S. dollars)
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
other
comprehensive
earning
----------
Foreign Total
Paid-in currency stock-
Preferred Stock Common Stock additional Retained translation holders'
Shares Amount Shares Amount capital earnings adjustment equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1996 5 $ 5 7 $ 7 $ - $ 34,011 $ - 34,023
Net loss - - - - - (17,054) - (17,054)
Cumulative translation
adjustment - - - - - - (423) (423)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1997 5 5 7 7 - 16,957 (423) 16,548
Net loss - - - - - (28,457) - (28,457)
Cumulative translation
adjustment - - - - - - 1,103 1,103
- ------------------------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1998 5 5 7 7 - (11,500) 680 (10,808)
Adjustments to comply with
recapitalization
accounting, net of cost
of recapitalization
transaction of $32,791 (5) (5) 21,538,093 21,531 5,329,360 - - 5,350,886
- ------------------------------------------------------------------------------------------------------------------------------------
Issuance of stock options
(note 5(b)) - - - - 297,011 - - 297,011
Net loss - - - - - (1,422,331) - (1,422,331)
Cumulative translation
adjustment - - - - - - (25,585) (25,585)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1999 - $ - 21,538,100 $ 21,538 $ 5,626,371 $(1,433,831) (24,905) $4,189,173
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 57
BLUE ZONE, INC.
Consolidated Statements of Cash Flows
(Expressed in U.S. dollars)
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $ (1,422,331) $ (28,457) $ (17,054)
Items not involving cash:
Stock based compensation 297,011 - -
Depreciation 97,755 29,860 16,928
Changes in operating assets and liabilities:
Accounts receivable (110,801) 45,771 (3,431)
Work-in-progress (70,581) - (764)
Prepaid expenses (92,646) - -
Accounts payable 170,944 8,321 9,369
Accrued liabilities 164,907 9,336 -
Deferred revenue 180,143 - -
Income taxes payable (2,589) (3,137) 2,206
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities (788,188) 61,694 7,254
Cash flows from financing activities:
Increase in payable to stockholders 36,296 - 12,363
Repayment of payable to shareholder - (28,641) -
Issue of common shares 5,331,764 - -
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 5,368,060 (28,641) 12,363
Cash flows from investing activities:
Purchase of capital assets (482,894) (44,537) (12,089)
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (482,894) (44,537) (12,089)
- -----------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 4,096,978 (11,484) 7,528
Cash and cash equivalents, beginning of year 891 12,375 4,847
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 4,097,869 $ 891 $ 12,375
- -----------------------------------------------------------------------------------------------------------------
Supplementary information:
Interest paid $ 23,984 $ 1,592 $ -
Income taxes paid 1,090 - -
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 58
BLUE ZONE, INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
- -------------------------------------------------------------------------------
1. NATURE OF BUSINESS:
Blue Zone, Inc. (the "Company") is incorporated in the state of Nevada and
is in the business of providing technical and creative expertise related to
website/interactive television development and related internet strategies
to assist the traditional mass media corporations in accessing the world
wide web, set-top boxes and other interactive devices.
On October 8, 1999, Western Food Distributors Ltd. ("Western Food"), a
public company listed on the over-the-counter bulletin board in the United
States, an entity without significant operations, issued 12,000,000 common
shares as consideration in exchange for 100% of the issued and outstanding
shares of Blue Zone Productions Ltd. ("Blue Zone"), a company incorporated
in the province of British Columbia, Canada. This transaction was accounted
for as a recapitalization of Blue Zone, effectively as if Blue Zone had
issued common shares for consideration equal to the net assets of Western
Food. Immediately following the transaction, Western Food changed its name
to Blue Zone, Inc.
The Company's historical financial statements reflect the financial
position, results of operations and cash flows of Blue Zone for each of the
years in the three year period ended December 31, 1999 and include the
operations of Western Food from the date of the effective recapitalization,
being October 8, 1999. Stockholders' equity gives effect to the shares
issued to the stockholders of Blue Zone prior to October 8, 1999 and of the
Company thereafter.
2. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
These consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United
States. The financial statements include the accounts of the Company's
wholly-owned subsidiaries, Blue Zone Productions Ltd., Blue Zone
Entertainment Inc. and Blue Zone International Inc. All material
intercompany balances and transactions have been eliminated in the
consolidated financial statements.
(b) Use of estimates:
The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and recognized revenues and
expenses for the reporting periods. To these consolidated financial
statements, significant areas requiring the use of estimates include
the valuation of long-lived assets, estimating the fair market value of
equity instruments and the valuation of deferred tax assets. Actual
results may significantly differ from these estimates.
F-6
<PAGE> 59
BLUE ZONE, INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
- -------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(c) Revenue recognition:
The Company generates revenue from creative production and maintenance
services related to website development and from consulting services
related to internet strategies. Revenues are recorded as the services
are rendered. Revenues under exchange agreements are recorded gross
with an offset to advertising expense. For long-term development
projects, revenue is recognized on a percentage completion basis based
upon achievement of specifically identifiable milestones. Amounts for
which payment has been received but the services or projects do not yet
meet the revenue recognition criteria are recorded as deferred revenue.
(d) Foreign currency:
The functional currency of the Company and its Barbados subsidiary is
the United States dollar. The functional currency of the operations of
the Company's wholly-owned Canadian operating subsidiaries is the
Canadian dollar. Assets and liabilities measured in Canadian dollars
are translated into United States dollars using exchange rates in
effect at the balance sheet date with revenue and expense transactions
translated using average exchange rates prevailing during the year.
Exchange gains and losses arising on this translation are excluded from
the determination of income and reported as the foreign currency
translation adjustment in stockholders' equity.
(e) Cash and cash equivalents:
The Company considers all short-term investments with a term to
maturity at the date of purchase of three months or less to be cash
equivalents.
(f) Capital assets:
Capital assets are stated at cost.
Depreciation is provided on the declining balance basis using the
following annual rates:
<TABLE>
<CAPTION>
===============================================================================================================
Asset Rate
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Equipment and computers 30%
Software 30%
Furniture and fixtures 30%
===============================================================================================================
</TABLE>
Leasehold improvements are amortized on the straight-line basis over 5
years representing the term of the lease.
F-7
<PAGE> 60
BLUE ZONE, INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
- -------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(g) Research and development and advertising:
Research and development and advertising costs are expensed as
incurred. Research and development costs expensed in 1999 total $65,158
(1998 - $25,273, 1997 - $6,675). Advertising costs expensed in 1999
total $513,252 (1998 - $505,698, 1997 - $225,730).
Equipment used in research and development is capitalized only if it
has an alternative in future use, which alternative is not solely in
research and development activities.
(h) Stock-based compensation:
As allowed under generally accepted accounting principles, the Company
accounts for its stock-based compensation arrangements with employees
in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. As such, compensation expense
under fixed term option plans is recorded at the date of grant when the
market value of the underlying stock at the date of grant exceeds the
exercise price. The Company recognizes compensation expense for stock
options, common stock and other equity instruments issued to
non-employees for services received based upon the fair value of the
services or equity instruments issued, whichever is more reliably
determined. This information is presented in note 5.
(i) Impairment of long-lived assets and long-lived assets to be disposed
of:
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of
long-lived assets and for long-lived assets to be disposed of". At
December 31, 1999, the only long-lived assets reported on the Company's
consolidated balance sheet are capital assets. This statement requires
that long-lived assets and certain identifiable recorded intangibles be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount of fair value less costs to sell.
F-8
<PAGE> 61
BLUE ZONE, INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
- -------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(j) Comprehensive income:
To the Company, comprehensive income consists of net income or loss and
foreign currency translation adjustments that are separately presented
in the consolidated statements of stockholders' equity. Comprehensive
income for each of the years presented is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss $ 1,422,331 $ 28,457 $ 17,054
Other comprehensive loss (income):
Foreign currency translation adjustment 25,585 (1,103) 423
- ---------------------------------------------------------------------------------------------------------------
Comprehensive income $ 1,447,916 $ 27,354 $ 17,477
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(k) Income taxes:
The Company follows the asset and liability method of accounting for
income taxes. Under this method, current taxes are recognized for the
estimated income taxes payable for the current period. Deferred income
taxes are provided based on the estimated future tax effects of
temporary differences between financial statement carrying amounts of
assets and liabilities and their respective tax bases as well as the
benefit of losses available to be carried forward to future years for
tax purposes.
Deferred tax assets and liabilities are measured using the enacted tax
rates that are expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered and
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in operations in the period that includes
the substantive enactment date. A valuation allowance is recorded for
deferred tax assets when it is not more likely than not that such
deferred tax assets will be realized.
(l) Net loss per share:
Basic loss per share is computed using the weighted average number of
common stock outstanding during the periods, and gives retroactive
effect to the shares issued on the recapitalization described in note
1. Diluted loss per share is computed using the weighted average number
of common and potentially dilutive common stock outstanding during the
period. As the Company has a net loss in each of the periods presented,
basic and diluted net loss per share is the same as any exercise of
warrants or options would be anti-dilutive.
F-9
<PAGE> 62
BLUE ZONE, INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
- -------------------------------------------------------------------------------
3. CAPITAL ASSETS:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Accumulated Net book
1999 Cost depreciation value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equipment and computers $ 292,249 $ 70,668 $ 221,581
Software 37,644 8,562 29,082
Furniture and fixtures 42,362 9,343 33,019
Leasehold improvements 172,008 30,094 141,914
- ---------------------------------------------------------------------------------------------------------------
$ 544,263 $ 118,667 $ 425,596
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Accumulated Net book
1998 Cost depreciation value
- ---------------------------------------------------------------------------------------------------------------
Equipment and computers $ 38,691 $ 13,061 $ 25,630
Software 6,863 1,144 5,719
Furniture and fixtures 5,337 1,468 3,869
Leasehold improvements 10,478 5,239 5,239
- ---------------------------------------------------------------------------------------------------------------
$ 61,369 $ 20,912 $ 40,457
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
4. PAYABLE TO STOCKHOLDERS:
The amount payable to stockholders is repayable in Canadian dollars,
non-interest bearing, unsecured and without specific terms of repayment.
5. STOCKHOLDERS' EQUITY:
(a) Stock option plan:
The Company has reserved 4,500,000 common shares for issuance under its
stock option plan. The plan provides for the granting of stock options
to directors, officers, eligible employees and contractors.
1,660,000 options granted in the year ended December 31, 1999 vest
immediately and the remaining options vest at a rate of 25% per year.
F-10
<PAGE> 63
BLUE ZONE, INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
- -------------------------------------------------------------------------------
5. STOCKHOLDERS' EQUITY (CONTINUED):
(b) Stock option plan (continued):
The Board of Directors determines the terms of the options granted,
including the number of options granted, the exercise price and their
vesting schedule.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Number
of
Exercise
shares
price
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, December 31, 1998 and 1997 - $ -
Granted 1,995,000 5.00
Exercised - -
Cancelled - -
- ----------------------------------------------------------------------------------------------------------------
Outstanding, December 31, 1999 1,995,000 $ 5.00
- ----------------------------------------------------------------------------------------------------------------
Exercisable, December 31, 1999 1,660,000 $ 5.00
- ----------------------------------------------------------------------------------------------------------------
Weighted average fair value of options granted during 1999 $ 2.81
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The options outstanding at December 31, 1999 expire on November 9,
2009.
In 1999 the Company recorded non-cash compensation expense of $16,094
and deferred compensation expense of $48,281 relating to the issuance
of 45,000 stock options to purchase common shares to certain employees
of the Company, representing an implicit benefit derived from the
exercise price being less than fair market value. The deferred
compensation is being amortized at 25% a year, the vesting period of
the underlying options.
In 1999, the Company recorded non-cash compensation expense of $280,917
and deferred compensation expense of $23,552 relating to the issuance
of 111,500 stock options to purchase common shares to certain
contractors of the Company. The fair value of the stock options was
estimated at $2.66 per option at the time of the transaction. The
deferred compensation is being amortized at 25% a year, the vesting
period of the underlying options.
F-11
<PAGE> 64
BLUE ZONE, INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
- -------------------------------------------------------------------------------
5. STOCKHOLDERS' EQUITY (CONTINUED):
(b) Stock option plan (continued):
The Company has adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 123 ("FAS 123"), Accounting for
Stock Based Compensation, to account for grants to employees under the
Company's existing stock based compensation plan. Had compensation cost
for the Company's stock option plan been determined based on the fair
value at the grant date for awards under those plans consistent with
the measurement provisions of FAS 123, the Company's net loss and basic
loss per share would have been adjusted as follows (as no options were
granted prior to the year ended December 31, 1999, there would be no
differences to actual reported loss and loss per share prior to 1999):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
December 31,
1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Loss for the period - as reported $ 1,422,331
Loss for the period - proforma 6,943,905
Basic loss per share - as reported 0.09
Basic loss per shares - proforma 0.49
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The fair value of each option grant has been estimated on the date of
the grant using the Black-Scholes option-pricing model with the
following assumptions:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
December 31,
1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Expected dividend yield 0.0%
Expected stock price volatility 70.0%
Risk-free interest rate 6.0%
Expected life of options 5 years
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of options which have no vesting restrictions
and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-12
<PAGE> 65
BLUE ZONE, INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
- -------------------------------------------------------------------------------
5. STOCKHOLDERS' EQUITY (CONTINUED):
(c) Warrants:
During 1999, the Company issued 524,981 (1998 - Nil, 1997 - Nil) stock
purchase warrants. The warrants allow the holder to purchase 1 common
share at a price of $5.63 per share if the warrant is exercisable
before October 1, 2000 and a price of $6.73 per share if the warrant is
exercisable after October 1, 2000. The exercise price of the warrants
exceeded the market price of the Company's common stock on the date of
issuance. The warrants expire on October 1, 2001. To December 31, 1999,
no warrants have been exercised.
6. OPERATING LEASES:
The Company leases office facilities in Vancouver and Toronto in addition
to internet services under operating lease agreements that expire to
September, 2004. Minimum lease payments under these operating leases are
approximately as follows:
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
2000 $ 119,000
2001 116,000
2002 120,000
2003 92,000
2004 72,000
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Rent expense totalled $27,940 for the year ended December 31, 1999 (1998 -
$13,184, 1997 - $12,950).
7. INCOME TAXES:
Income tax recovery attributable to losses from operations was $Nil and
$4,431 for the years December 31, 1999 and 1998, respectively, and differed
from the amounts computed by applying the United States federal income tax
rate of 34 percent to pretax losses from operations as a result of the
following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax recovery $ (483,592) $ (11,182) $ (5,118)
Increase (reduction) in income taxes resulting from
income taxes in a higher jurisdiction (156,456) (3,617) (1,550)
Permanent difference resulting from stock based compensation 133,654 - -
Change in the beginning-of-the-year balance of the valuation
allowance for deferred tax assets allocated to income tax
expense 506,394 10,368 9,099
- ---------------------------------------------------------------------------------------------------------------------
$ - $ (4,431) $ 2,431
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE> 66
BLUE ZONE, INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
- -------------------------------------------------------------------------------
7. INCOME TAXES (CONTINUED):
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
Deferred tax assets
<S> <C> <C>
Capital assets, principally due to differences in depreciation $ 46,996 $ 3,006
Net operating loss carryforwards 474,508 12,104
- ---------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 521,504 15,110
Less valuation allowance (521,504) (15,110)
- ---------------------------------------------------------------------------------------------------------------
Net deferred tax assets - -
Net deferred tax liabilities - -
- ---------------------------------------------------------------------------------------------------------------
Deferred taxes $ - $ -
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1999 and
1998 was $521,504 and $15,110, respectively. The net change in the total
valuation allowance for the years ended December 31, 1999 and 1998 was an
increase of $506,394 and $10,368, respectively. 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 the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. In order to fully realize the deferred tax asset, the Company
will need to generate future taxable income of approximately $1,150,000
prior to the expiration of the net operating loss carryforwards in 2006.
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 does not believe it is more likely than not that the
Company will realize the benefits of these deductible differences.
8. FINANCIAL INSTRUMENTS:
(a) Fair values:
The Company regularly invests funds in excess of its immediate needs in
guaranteed investment certificates. The fair value of cash and cash
equivalents, trade accounts receivable, receivable from employees,
accounts payable and accrued liabilities approximates their financial
statement carrying amounts due to the short-term maturities of these
instruments. The carrying amount of shareholder loans approximates fair
value since they have a short-term to maturity.
F-14
<PAGE> 67
BLUE ZONE, INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
- -------------------------------------------------------------------------------
8. FINANCIAL INSTRUMENTS (CONTINUED):
(b) Concentration of credit risk:
During the year ended 1999 approximately 80% of the Company's revenues
were derived from two customers. In 1998 approximately 74% of revenue
was derived from two customers and in 1997 approximately 20% of revenue
was derived from one customer.
(c) Foreign currency risk:
The Company operates internationally which give rise to the risk that
cash flows may be adversely impacted by exchange rate fluctuations.
9. SEGMENTED INFORMATION:
The Company operates in one business segment, the development, maintenance
and consulting related to website/interactive television and internet
strategies. The revenue for the three years ended December 31, 1999 has
been derived exclusively from business in Canada.
10. 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. Although the change in date has
occurred, it is not possible to conclude that all aspects of the Year 2000
issue that may affect the entity, including those related to customers,
suppliers, or third parties, have been fully resolved.
F-15
<PAGE> 68
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Act of
1934, the registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned, there unto duly authorized on March 8, 2000.
BLUE ZONE, INC.
By: /s/ Bruce Warren
---------------------------------------
Bruce Warren, Chief Executive Officer
52
<PAGE> 69
EXHIBIT INDEX
Exhibit No. Description
2.1 Share Exchange Agreement, dated as of October 5, 1999, among F.
Michael P. Warren, Bruce Warren, Jamie Ollivier, Blue Zone
Productions Ltd., Blue Zone Entertainment Inc., Blue Zone
International Inc. and Western Food Distributors, Inc. (A list of
exhibits and schedules to the Share Exchange Agreement is set
forth therein. The Registrant agrees to furnish to the Commission
supplementally, upon request, a copy of any such exhibits or
schedules not otherwise filed herewith.)
3.1 Articles of Incorporation dated March 10, 1997.
3.2 Certificate of Amendment to the Registrant's Articles of
Incorporation, dated July 14, 1998, providing for a 5-for-1 stock
split of all of the Registrant's outstanding common stock.
3.3 Certificate of Amendment to the Registrant's Certificate of
Incorporation, dated September 28, 1999, changing the name of the
Registrant to "Blue Zone, Inc." and providing for a 1.125-for-1
stock split of all of the Registrant's issued and outstanding
common stock.
3.4 Bylaws.
4.1 Specimen Common Stock Certificate.
4.2 Warrant to purchase shares of common stock of Blue Zone, Inc.,
dated October 1, 1999, issued to Savoy Holdings Limited.
10.1* Website and Interactive Television Development Agreement, dated
as of December 14, 1999, between CTV Television Inc. and Blue
Zone Productions Ltd.
10.2* Website Development Agreement, dated July 1, 1999, between
CKNW/CFMI, a division of WIC RADIO LTD., and Blue Zone
Entertainment Inc.
10.3* Joint Venture Agreement, dated June 16, 1998, between WIC Premium
Television, a Limited Subsidiary of WIC Western International
Communications Ltd. and Blue Zone Entertainment Inc.
10.4 Business Banking Loan Agreement, dated July 9, 1999, between Blue
Zone Productions Ltd. and Royal Bank of Canada.
<PAGE> 70
10.5 Guarantee and Postponement of Claim, dated July 9, 1999, executed
by F. Michael P. Warren in favor of Royal Bank of Canada.
10.6 Employment Agreement, dated January 1, 2000, between Blue Zone
Entertainment Inc. and Jamie Ollivier.
10.7 Employment Agreement, dated January 1, 2000, between Blue Zone
Entertainment Inc. and Bruce Warren.
10.8 Employment Agreement, dated January 1, 2000, between Blue Zone
Entertainment Inc. and Catherine Warren.
10.9 1999 Stock Option Plan
10.10 Subscription Agreement, dated as of September 22, 1999, between
Savoy Holdings Limited and Western Food Distributors, Inc. for
private placement of common stock and stock purchase warrants.
16.1 Letter regarding change in certifying accountant.
21.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule
* Confidential treatment has been requested with respect to certain portions of
the Exhibit. Omitted portions will be filed separately with the Securities and
Exchange Commission.
<PAGE> 1
EXHIBIT 2.1
SHARE EXCHANGE AGREEMENT
MADE EFFECTIVE AS OF 5 OCTOBER 1999 (the "Effective Date"),
BETWEEN: F. MICHAEL P. WARREN, Sea Rocks, Island Harbour, The Valley, Anguila,
British West Indies
(the "Shareholder");
AND: BRUCE WARREN, 2006 - 1238 Melville St., Vancouver, British Columbia,
V6E 4N2, and JAMIE OLLIVIER, 765 Keefer Street, Vancouver, British
Columbia, V6E 1Y6
(the "Managers");
AND: BLUE ZONE PRODUCTIONS LTD., a corporation continued under the laws of
Bermuda, and having a registered office at Reid House, 31 Church
Street, Hamilton, HM12, Bermuda;
("Blue Zone");
AND: BLUE ZONE ENTERTAINMENT INC., a corporation incorporated under the laws
of the Province of British Columbia and having a place of business at
329 Railway Street, Vancouver, British Columbia, V6A 1A4;
("BZE");
AND: BLUE ZONE INTERNATIONAL INC., a corporation incorporated under the laws
of Barbados, and having a registered office at Whitepark House, White
Park Road, Bridgetown, Barbados;
("BZI");
AND: WESTERN FOOD DISTRIBUTORS, INC., a company incorporated under the laws
of the State of Nevada having a place of business at 688 - 6 Ishikawa,
Kanagawa, Japan, 252 0815
("WFD");
WHEREAS:
A. The authorized share capital of Blue Zone consists of 12,000 common shares
with a par value of U.S.$1.00 each, of which all 12,000 shares (the "Blue Zone
Shares") are issued and outstanding;
B. The Shareholder is the legal and beneficial owner of all the Blue Zone
Shares;
<PAGE> 2
C. The authorized share capital of BZE is 1,000,000 common shares without par
value, of which only 100 common shares (the "BZE Shares") are issued and
outstanding;
D. The authorized share capital of BZI is an unlimited number of common shares
without par value, of which only 1,667 common shares (the "BZI Shares") are
issued and outstanding;
E. Blue Zone is the legal and beneficial owner of all the BZE Shares and the
BZI Shares (collectively, the "Subsidiary Shares"), and BZE and BZI (the
"Subsidiaries") are the only subsidiaries of Blue Zone;
F. The Shareholder and WFD have agreed to exchange the Blue Zone Shares for
voting common shares of WFD, on the terms and conditions described in this
Agreement; and
G. The Managers have been actively involved in the management of BZE and expect
to benefit directly and indirectly from the completion of the transactions
contemplated herein;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the covenants
and agreements herein contained, the parties hereto do covenant and agree (the
"Agreement") as follows:
1. SHARE EXCHANGE
1.1 Subject to the terms and conditions of this Agreement, the Shareholder
and WFD agree that the Shareholder shall transfer all of the Blue Zone
Shares to WFD at an agreed value of U.S.$120,000, in exchange for the
issue to the Shareholder of 12,000,000 voting common shares of WFD (the
"WFD Shares") at the deemed price of US$0.01 per WFD Share.
1.2 The transactions contemplated under this Agreement (the "Transactions")
shall be completed (the "Completion") at the offices of WFD's
solicitors, Messrs. Campney & Murphy, 2100 - 1111 West Georgia Street,
Vancouver, British Columbia, or at such other place as may be agreed
between the parties, at 11:00 o'clock a.m. local time in Vancouver,
B.C., or at such other time as may be agreed between the parties, (the
"Time of Closing") on 8 October 1999, or on such other date as may be
agreed between the parties, (the "Closing Date").
2. CONDITIONS PRECEDENT
2.1 WFD's obligation to carry out the terms of this Agreement and to
complete its transactions contemplated under this Agreement is subject
to the fulfilment to the satisfaction of WFD of each of the following
conditions that:
(a) on or before 7 October 1999 (the "Subject Removal Date"), WFD shall have
been able to complete WFD's Investigation (defined below) with results
to its reasonable satisfaction;
(b) at the Time of Closing, the solicitors for the Shareholder shall provide
opinions dated as of the Closing Date, substantially in the form of
Schedule A to this Agreement (the "Blue Zone Solicitor Opinions");
(c) at the Time of Closing, the common shares of WFD will be quoted on the
Over the Counter Bulletin Board of NASDAQ (the "OTC Board");
(d) as of the Time of Closing, the Shareholder, the Managers, Blue Zone and
the Subsidiaries (collectively, the "Blue Zone Group") shall have
complied in all material respects with all of their respective covenants
and agreements contained in this Agreement; and
2
<PAGE> 3
(e) as of the Time of Closing, the representations and warranties of each of
the Blue Zone Group contained in this Agreement or contained in any
certificates or documents delivered by any of them pursuant to this
Agreement shall be true in all material respects as if such
representations and warranties had been made as of the Time of Closing.
The conditions set forth above are for the exclusive benefit of WFD and may be
waived by WFD in whole or in part at any time at or before the Time of Closing.
2.2 The Shareholder's obligations to carry out the terms of this Agreement and
to complete its transactions contemplated under this Agreement are subject to
the fulfilment to its satisfaction of each of the following conditions that:
(a) on or before the Subject Removal Date, the Shareholder shall have been
able to complete the Shareholder's Investigation (defined below) with
results to its reasonable satisfaction;
(b) on or before the Subject Removal Date, WFD shall have restructured or
otherwise altered its share capital so that upon the issuance of the
WFD Shares on the Closing Date, WFD's issued share capital and share
capital reserved for issuance pursuant to issued share purchase
warrants will be not more than 22,063,069 common shares;
(c) prior to the Time of Closing, the Financing (defined below) shall have
been completed and the net proceeds in an amount not less than
U.S.$5,000,000 shall have been paid to and shall be held by Campney &
Murphy, barristers and solicitors, in trust for WFD, and written
confirmation of same shall have been provided to the solicitors for
Blue Zone which shall include an acknowledgement that such funds will
be released in accordance with instructions of the new board of WFD;
(d) at the Time of Closing, the solicitors for WFD shall provide an
opinion dated as of the Closing Date, substantially in the form of
Schedule B to this Agreement (the "WFD Solicitor Opinion");
(e) at the Time of Closing solicitors for Blue Zone shall receive written
confirmation from WFD's stock transfer agent confirming that the WFD
Shares have been allotted and issued and an undertaking from the stock
transfer agent to deliver the share certificates representing the WFD
Shares to the Shareholder as soon as possible;
(f) at the Time of Closing, the common shares of WFD will be quoted on the
OTC Board;
(g) as of the Time of Closing, WFD shall have complied in all material
respects with all of its covenants and agreements contained in this
Agreement; and
(h) as of the Time of Closing, the representations and warranties of WFD
contained in this Agreement or contained in any certificates or
documents delivered by it pursuant to this Agreement shall be true in
all material respects as if such representations and warranties had
been made by WFD as of the Time of Closing.
The conditions set forth above are for the exclusive benefit of the Shareholder
and may be waived by the Shareholder in whole or in part at or before the Time
of Closing.
3
<PAGE> 4
2.3 The parties acknowledge and agree each with the other that this
Agreement and all of the transactions contemplated under this Agreement are
subject to receipt of any regulatory approvals that may be required under
applicable laws. If any such approvals are required but are not obtained by the
Subject Removal Date, then this Agreement shall terminate and be of no further
force or effect.
3. COVENANTS, AGREEMENTS AND ACKNOWLEDGEMENTS
3.1 Each of the Blue Zone Group severally covenants and agrees with WFD
that it shall:
(a) from and including the Effective Date through to and including the
Time of Closing, use its reasonable best efforts to permit WFD,
through its directors, officers, employees and authorized agents and
representatives, at WFD's own cost, full access to the books, records
and property of Blue Zone and the Subsidiaries including, without
limitation, all of the assets, contracts, correspondence, accounts and
minute books of Blue Zone and the Subsidiaries, so as to permit WFD to
make such investigation ("WFD's Investigation") of Blue Zone and the
Subsidiaries as WFD considers advisable;
(b) use its reasonable best efforts to obtain any regulatory approvals for
this Agreement and the transactions contemplated hereunder required by
applicable laws to be obtained by the Shareholder, Blue Zone or either
of the Subsidiaries on or before the Subject Removal Date;
(c) provide to WFD all such further documents, instruments and materials
and do all such acts and things as may be reasonably requested in
writing by WFD to obtain any regulatory approvals that may be required
under applicable laws;
(d) from and including the Effective Date through to and including the
Time of Closing, use its reasonable best efforts to ensure that all of
its representations and warranties contained in this Agreement or any
certificates or documents delivered by it pursuant to this Agreement
remain true and correct;
(e) from and including the Effective Date through to and including the
Time of Closing, use its reasonable best efforts to preserve and
protect all of the goodwill, assets, business and undertaking of Blue
Zone and the Subsidiaries and, without limiting the generality of the
foregoing, carry on the businesses of Blue Zone and the Subsidiaries
in a reasonable and prudent manner; and
(f) from and including the Effective Date through to and including the
Time of Closing, keep confidential all discussions and communications
(including all information communicated therein) between the parties,
and all written and printed materials of any kind whatsoever exchanged
by the parties, except only any information or material that:
(i) was in the public domain at the time of disclosure to a party
(the "Recipient");
(ii) was already in the possession of the Recipient prior to
disclosure, as demonstrated by the Recipient through tangible
evidence;
(iii) subsequently enters the public domain through no fault of the
Recipient or any officer, director, employee or agent of the
Recipient; or
4
<PAGE> 5
(iv) is required to be disclosed by law or by a court or regulatory
authority of competent jurisdiction;
and, if so requested by WFD, each of the Blue Zone Group shall use its
reasonable best efforts to cause any director, officer, employee,
authorized agent or representative of Blue Zone or the Subsidiaries to
enter into, and each of the Blue Zone Group themselves shall enter
into, a non-disclosure agreement with WFD in a form acceptable to WFD
acting reasonably.
3.2 Each of the Blue Zone Group severally covenants and agrees with WFD
that, from and including the Effective Date through to and including the Time of
Closing, it shall:
(a) not do any act or thing that would render any representation
or warranty of any of the Blue Zone Group contained in this
Agreement or any certificates or documents delivered by any
of them pursuant to this Agreement untrue or incorrect; and
(b) not sell, encumber or dispose of, or negotiate with any
other person in respect of a sale, encumbrance or
disposition of, any of the Blue Zone Shares, the Subsidiary
Shares or any goodwill, assets, business or undertaking of
Blue Zone or the Subsidiaries, other than a sale of part of
the assets of Blue Zone or the Subsidiaries for at least
fair market value in the ordinary course of business.
3.3 Each of the Blue Zone Group acknowledges to and agrees with WFD that
WFD's Investigation shall in no way limit or otherwise adversely affect the
rights of WFD as provided for hereunder in respect of the representations and
warranties of each of the Blue Zone Group contained in this Agreement or in any
certificates or documents delivered by any of them pursuant to this Agreement.
3.4 WFD covenants and agrees with the Blue Zone Group that WFD shall:
(a) from and including the Effective Date through to and
including the Time of Closing, permit the Shareholder,
through his authorized agents and representatives, at the
Shareholder's own cost, full access to the books, records
and property of WFD including, without limitation, all of
the assets, contracts, correspondence, accounts and minute
books of WFD, so as to permit the Shareholder to make such
investigation (the "Shareholder's Investigation") of WFD as
the Shareholder considers advisable;
(b) use its reasonable best efforts to obtain any regulatory
approvals for this Agreement and the transactions
contemplated hereunder required by applicable laws to be
obtained by WFD on or before the Subject Removal Date
including, without limitation, all approvals required under
applicable securities laws or the rules or policies relating
to the OTC Board and make any and all filings and provide
all notices required under applicable securities laws in
connection with this Agreement and the consummation of the
transactions contemplated herein, including the issue to the
Shareholder of the WFD Shares;
(c) provide to the Shareholder all such further documents,
instruments and materials and do all such acts and things as
may reasonably be requested in writing by the Shareholder to
obtain any regulatory approvals that may be required under
applicable laws;
(d) from and including the Effective Date through to and
including the Time of Closing, do all such acts and things
that may be necessary to ensure that all of the
representations and
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<PAGE> 6
warranties of WFD contained in this Agreement or in any
certificates or documents delivered by it pursuant to this
Agreement remain true and correct; and
(e) from and including the Effective Date through to and
including the Time of Closing, subject to its legal
reporting obligations, keep confidential all discussions and
communications (including all information communicated
therein) between the parties, and all written and printed
materials of any kind whatsoever exchanged by the parties,
except only any information or material that:
(i) was in the public domain at the time of disclosure
to a party (the "Recipient");
(ii) was already in the possession of the Recipient
prior to disclosure, as demonstrated by the
Recipient through tangible evidence;
(iii) subsequently enters the public domain through no
fault of the Recipient or any officer, director,
employee or agent of the Recipient; or
(iv) is required to be disclosed by law or by a court
or regulatory authority of competent jurisdiction;
and, if so requested by the Blue Zone or the Subsidiaries, WFD shall
arrange for any director, officer, employee, authorized agent or
representative of WFD to enter into, and WFD itself shall enter into,
a non-disclosure agreement with Blue Zone and the Subsidiaries in a
form acceptable to Blue Zone and the Subsidiaries acting reasonably.
3.5 WFD acknowledges to and agrees with the Shareholder that the
Shareholder's Investigation shall in no way limit or otherwise adversely affect
the rights of the Shareholder as provided for hereunder in respect of the
representations and warranties of WFD contained in this Agreement or in any
certificates or documents delivered by WFD pursuant to this Agreement.
3.6 WFD covenants and agrees with the Blue Zone Group that, from and
including the Effective Date through to and including the Time of Closing, WFD
shall not do any act or thing that would render any representation or warranty
of WFD contained in this Agreement or any certificates or documents delivered by
it pursuant to this Agreement untrue or incorrect.
3.7 At or prior to the Time of Closing, WFD will take all necessary
corporate action so that the officers and directors of WFD will be as follows:
Directors: Bruce Warren
Jamie Ollivier
Mike Warren
Tryon (Tarrnie) Williams
Dave Thomas
Officers:
Michael Warren Chairman and Chief Financial Officer
Bruce Warren Chief Executive Officer
Jamie Olivier President
Catherine Warren Chief Operating Officer
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<PAGE> 7
Peter C. Kalbfleisch Secretary
3.8 On September 23, 1999, WFD closed a financing (the "Financing") which
raised U.S.$5,254,479 for working capital purposes by issuing 933,300 units (the
"Units") of WFD at a price of U.S.$5.63 per Unit. Each Unit consists of one
common share of WFD and one-half of a share purchase warrant. The share purchase
warrants (the "Warrants") have a term of two years. Each pair of one-half
Warrants constitutes one whole share purchase Warrant entitling the holder to
purchase one additional share of WFD in the first year at a price of U.S.$5.63
per share or in the second year at a price of U.S.$6.75 per share.
3.9 After the Financing but prior to the Closing Date, WFD will effect a
1.125 forward split (the "Forward Split") of the common shares of WFD issued and
outstanding and reserved for issuance pursuant to the Warrants.
3.10 Upon Completion, WFD shall pay to Terra Growth Investment Fund
("Terra") on behalf of Blue Zone the full amount of the U.S.$2,000,000 loan
owing by Blue Zone to Terra (the "Terra Loan"), together with all interest due
thereon, in exchange for an assignment by Terra to WFD of the Terra Loan and the
General Security Agreement between Blue Zone and Terra dated 30 August 1999 (the
"Terra GSA") securing repayment of the Terra Loan by Blue Zone.
4. REPRESENTATIONS AND WARRANTIES
4.1 In order to induce WFD to enter into this Agreement and complete its
transactions contemplated hereunder, each of the Blue Zone Group severally
represents and warrants to WFD that:
(a) Blue Zone was duly incorporated under the laws of the
British Columbia and has been duly continued and remains
validly existing under the laws of Bermuda, and Blue Zone:
(i) is not subject to the reporting issuer
requirements of the British Columbia Securities
Act (the "B.C. Act");
(ii) has the power, authority and capacity to enter
into this Agreement and carry out its terms; and
(iii) is in good standing under the laws of Bermuda;
(b) the Directors and Officers of Blue Zone are as follows:
(i) Bruce Warren - Director;
(ii) Peter Martin - Director;
(iii) Bruce Murray - Director and Secretary; and
(iv) Michael Warren - Director and President;
Bermuda law permits the appointment of alternate directors.
Steven Morris has been appointed alternate director for
Peter Martin and Philip Chesterman has been appointed
alternate director for Bruce Murray.
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<PAGE> 8
(c) the authorized and issued share capital of Blue Zone is as
set forth in paragraph A of the recitals to this Agreement;
(d) except for the Blue Zone Shares, there are no documents,
instruments or other writings of any kind whatsoever which
constitute a "security" of Blue Zone as that term is defined
in the B.C. Act and, except as is provided for by operation
of this Agreement, there are no options, agreements or
rights of any kind whatsoever to acquire directly or
indirectly any other shares of Blue Zone from Blue Zone;
(e) the constating documents of Blue Zone have not been altered
since the continuance of Blue Zone to Bermuda on 26 August
1999;
(f) BZE was and remains duly incorporated and validly existing
under the laws of British Columbia and BZE:
(i) is not subject to the reporting issuer
requirements of the B.C. Act;
(ii) has the power, authority and capacity to enter
into this Agreement and carry out its terms; and
(iii) is in good standing with respect to the filing of
annual reports required under the laws of British
Columbia;
(g) Bruce Warren is the sole Director and Officer of BZE;
(h) the authorized and issued share capital of BZE is as set
forth in paragraph C of the Recitals to this Agreement;
(i) BZI was and remains duly incorporated and validly existing
under the laws of Barbados and BZI:
(i) is not subject to the reporting issuer
requirements of the B.C. Act;
(ii) has the power, authority and capacity to enter
into this Agreement and carry out its terms; and
(iii) is in good standing with respect to the filing of
annual reports required under the laws of
Barbados;
(j) Michael Warren is the sole Director and Officer of BZI;
(k) the authorized and issued share capital of BZI is as set
forth in paragraph D of the Recitals to this Agreement;
(l) the Subsidiary Shares are and will on the Closing Date
immediately prior to Completion be validly issued and
outstanding fully paid and non-assessable common shares of
the Subsidiaries registered in the name of, and legally and
beneficially owned by, Blue Zone, free and clear of all
voting restrictions, trade restrictions, liens, charges or
encumbrances of any kind whatsoever save and except for the
security interest granted by Blue Zone in favour of Terra
pursuant to the Terra GSA to secure repayment of the Terra
Loan;
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<PAGE> 9
(m) except for the Subsidiary Shares, there are no documents,
instruments or other writings of any kind whatsoever which
constitute a "security" of either of the Subsidiaries as
that term is defined in the B.C. Act and, except as is
provided for by operation of this Agreement, there are no
options, agreements or rights of any kind whatsoever to
directly or indirectly acquire all or any part of the
Subsidiary Shares or any interest in them from Blue Zone, or
to acquire any other shares of either of the Subsidiaries
from anyone;
(n) the constating documents of each of the Subsidiaries have
not been altered since incorporation;
(o) Blue Zone and each of the Subsidiaries has the corporate
power to own the Assets and to carry on the business carried
on by it, and each of Blue Zone and the Subsidiaries is duly
qualified to carry on business in all jurisdictions in which
it carries on business;
(p) each of Blue Zone and each of the Subsidiaries has good and
sufficient power, authority and capacity to enter into this
Agreement and complete its respective transactions
contemplated under this Agreement on the terms and
conditions set forth herein; and
(q) none of the Blue Zone Group has incurred any liability for
agency, brokerage, referral or finder's fees, commissions or
compensation of any kind whatsoever with respect to this
Agreement or any transaction contemplated under this
Agreement.
4.2 In order to induce WFD to enter into this Agreement and complete its
transactions contemplated hereunder, each of the Managers severally represents
and warrants to WFD that:
(a) he has good and sufficient power, authority and capacity to
enter into this Agreement and complete the transactions
contemplated under this Agreement on the terms and
conditions set forth herein;
(b) to the best of his knowledge, no third party privacy or
intellectual property rights, including without limitation,
copyright, trade secret or patent rights, were violated in
the creation, compilation or acquisition of, or are violated
by the use of, any of the Assets by Blue Zone, either of the
Subsidiaries or by any party through whom Blue Zone or
either of the Subsidiaries acquired title or a license or to
whom Blue Zone or either of the Subsidiaries has granted a
license in respect of the Assets, and in particular, to the
best of his knowledge, the use of the Domain Name by Blue
Zone does not infringe upon or induce or contribute to the
infringement of any intellectual property rights, domestic
or foreign, of any other person;
(c) all of the material transactions of Blue Zone have been
promptly and properly recorded or filed in or with the books
or records of Blue Zone and the minute books of Blue Zone
contain all records of the meetings and proceedings of the
shareholders and directors of Blue Zone since its
incorporation;
(d) Blue Zone and the Subsidiaries each holds all material
licences and permits that are required for carrying on their
respective businesses in the manner in which such businesses
have been carried on;
(e) except as specified in Schedule C to this Agreement, Blue
Zone or one of the Subsidiaries is the registered and
beneficial owner of the domain name "Bluezone.net" (the
"Domain
9
<PAGE> 10
Name") and the other assets listed on Schedule C to this
Agreement, which are owned as indicated therein
(collectively the "Assets");
(f) to the best of his knowledge, other than the Assets, there
are no material properties or material assets used by Blue
Zone or either of the Subsidiaries in the conduct of its
business;
(g) Blue Zone or one of the Subsidiaries has good and marketable
exclusive title to each of the Assets free and clear of all
licenses, liens, charges and encumbrances of any kind
whatsoever save and except those specified as "Permitted
Encumbrances" on Schedule C to this Agreement, and in
particular:
(i) Blue Zone is to the best of its knowledge the sole
and exclusive legal and beneficial owner of the
Domain Name, free and clear of all encumbrances
whatsoever, and is not a party to or bound by any
contract or any other obligation whatsoever that
limits or impairs its ability to sell, transfer,
assign or convey, or that otherwise affects, the
Domain Name;
(ii) Blue Zone is the registered owner of the Domain
Name, and all fees or other costs associated with
maintaining the registration of the Domain Name
have been paid for the 1999 calendar year and the
registration of the Domain Name is in good
standing with Network Solutions, Inc.; and
(iii) Blue Zone has not granted any other person any
interest in or right to use all or any portion of
the Domain Name;
(h) each item of machinery and equipment of any kind whatsoever
comprised in the Assets is in reasonable operating condition
and in a state of reasonable maintenance and repair taking
into account its age and use;
(i) all of the bank accounts and safety deposit boxes of Blue
Zone or either of the Subsidiaries are listed on Schedule C
to this Agreement;
(j) the unaudited financial statements of Blue Zone and BZE for
the periods ending 31 December 1996, 1997 and 1998
(collectively, the "Blue Zone Statements"), copies of which
are attached as Schedule D to this Agreement, are true and
correct in every material respect and present fairly and
accurately the financial position and results of the
operations of Blue Zone and BZE for the periods indicated,
and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis;
(k) the Blue Zone Statements disclose all material financial
transactions of Blue Zone and BZE since their respective
dates of incorporation to the date of such financial
statements and such transactions have been fairly and
accurately recorded;
(l) except as disclosed in the Blue Zone Statements:
(i) no dividends or other distributions of any kind
whatsoever on any shares in the capital of Blue
Zone or either of the Subsidiaries have been made,
declared or authorized;
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<PAGE> 11
(ii) no new machinery or equipment of any kind
whatsoever has been ordered by, or installed or
assembled on the premises of, Blue Zone or either
of the Subsidiaries, except in the ordinary course
of business and for machinery and equipment
received and/or ordered in connection with the
expansion of Blue Zone and the Subsidiaries all
having a cost of not more than CDN$500,000;
(iii) none of Blue Zone or the Subsidiaries is indebted
to the Shareholder, except in connection with a
demand shareholder loan owing by Blue Zone to the
Shareholder in the amount of CDN$140,000;
(iv) none of the Shareholder or any other officer,
director or employee of Blue Zone or either of the
Subsidiaries is indebted or under obligation to
Blue Zone or either of the Subsidiaries on any
account whatsoever; and
(v) none of Blue Zone or the Subsidiaries has
guaranteed or agreed to guarantee any debt,
liability or other obligation of any kind
whatsoever of any person, firm or corporation of
any kind whatsoever;
(m) there are no material financial liabilities of Blue Zone or
either of the Subsidiaries, whether direct, indirect,
absolute, contingent or otherwise, which are not disclosed
or reflected in the Blue Zone Statements, except for
liabilities arising in the ordinary course of business since
the date thereof and liabilities in respect of the Terra
Loan;
(n) to the best of its knowledge, any accounts receivable of
Blue Zone or either of the Subsidiaries shown in the Blue
Zone Statements are bona fide, good and collectible without
setoff or counterclaim;
(o) the current directors, officers, key employees and
independent contractors and consultants of Blue Zone and of
each of the Subsidiaries, and all of their current
compensation arrangements with Blue Zone or either of the
Subsidiaries, whether as directors, officers or employees,
or as independent contractors or consultants, are as listed
on Schedule E to this Agreement;
(p) no future payments of any kind whatsoever have been
authorized or provided by Blue Zone or the Subsidiary
directly or indirectly to or on behalf of the Shareholder,
the Managers or any of the directors, officers, key
employees, independent contractors or consultants of Blue
Zone or the Subsidiaries except in accordance with those
compensation arrangements specified on Schedule E to this
Agreement or except as contemplated by this Agreement;
(q) there are no pensions, profit sharing, group insurance or
similar plans or other deferred compensation plans of any
kind whatsoever affecting Blue Zone or either of the
Subsidiaries other than those specified on Schedule E to
this Agreement;
(r) none of Blue Zone or the Subsidiaries is now, or has ever
been, a party to any collective agreement with any labour
union or other association of employees of any kind
whatsoever, no collective bargaining agent has been
certified in respect of Blue Zone or either of the
Subsidiaries and there is no application pending for
certification of a collective bargaining agent in respect of
Blue Zone or either of the Subsidiaries;
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<PAGE> 12
(s) the contracts and agreements included on Schedule E to this
Agreement and those additional contracts and agreements
specified on Schedule F to this Agreement constitute all of
the contracts and agreements of Blue Zone and of the
Subsidiaries which are currently outstanding and which
involve expenditures or receipts of CDN$100,000 or more per
annum, or licensing of or access to any of the Assets,
(collectively the "Material Contracts");
(t) except as is noted on the appropriate Schedule to this
Agreement, the Material Contracts are valid and enforceable
and Blue Zone or the Subsidiaries, as the case may be, is
not in material default thereunder and, to the best of its
knowledge, the other party or parties thereto are not in
material default thereunder;
(u) none of Blue Zone or the Subsidiaries has licensed, leased,
transferred, disposed of or encumbered any of the Assets in
any way, or permitted any third party access to any of the
Assets the value of which may be compromised by such access,
including in particular the source code to any computer
software or any trade secret information included in the
Assets, except only in accordance with the terms of the
Material Contracts;
(v) all tax returns and reports of Blue Zone and of BZE required
by law to have been filed have been filed and are
substantially true, complete and correct and all taxes and
other government charges of any kind whatsoever of Blue Zone
and of BZE have been paid or accrued in the Blue Zone
Statements;
(w) none of Blue Zone or the Subsidiaries has:
(i) made any election under any applicable tax
legislation with respect to the acquisition or
disposition of any property at other than fair
market value;
(ii) acquired any property for proceeds greater than
the fair market value thereof; or
(iii) disposed of anything for proceeds less than the
fair market value thereof;
(x) each of Blue Zone and BZE has made all elections required to
have been made under any applicable tax legislation in
connection with any distributions made by either of them and
all such elections were true and correct and filed in the
prescribed form and within the prescribed time period;
(y) adequate provision has been made on the Blue Zone Statements
for taxes payable by Blue Zone and by BZE to the date
thereof and there are no agreements, waivers or other
arrangements of any kind whatsoever providing for an
extension of time with respect to the filing of any tax
return by, or payment of, any tax or governmental charge of
any kind whatsoever by Blue Zone or by either of the
Subsidiaries;
(z) none of Blue Zone or the Subsidiaries has any contingent tax
liabilities of any kind whatsoever, and there are no grounds
which would prompt a material reassessment of Blue Zone or
BZE, including for aggressive treatment of income or
expenses in earlier tax returns filed;
(aa) there are no amounts outstanding and unpaid for which Blue
Zone or BZE has previously claimed a deduction under any
applicable tax legislation;
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<PAGE> 13
(bb) each of Blue Zone and BZE has made all collections,
deductions, remittances and payments of any kind whatsoever,
except for any 1999 instalment payments, and filed all
reports and returns required to be made or filed by it under
the provisions of all applicable statutes requiring the
making of collections, deductions, remittances or payments
of any kind whatsoever in those jurisdictions in which Blue
Zone or BZE carries on business;
(cc) to the best of its knowledge there are no actions, suits,
judgements, investigations or proceedings of any kind
whatsoever outstanding, pending or threatened against or
affecting Blue Zone or either of the Subsidiaries at law or
in equity or before or by any federal, provincial, state,
municipal or other governmental department, commission,
board, bureau or agency of any kind whatsoever and, to the
best of its knowledge, there is no basis therefor;
(dd) the execution and delivery of this Agreement, the
performance of the respective obligations of the Blue Zone
Group under this Agreement and the Completion will not:
(i) conflict with, or result in the breach of or the
acceleration of any indebtedness under, or
constitute default under, any of the constating
documents of Blue Zone or the Subsidiaries or, to
the best of its knowledge, any of the terms of any
indenture, mortgage, agreement, lease, licence or
other instrument of any kind whatsoever to which
any of the Blue Zone Group is a party or by which
any of them is bound, or any judgement or order of
any kind whatsoever of any court or administrative
body of any kind whatsoever by which any of them
is bound, except that it will accelerate payment
of the Terra Loan; nor
(ii) to the best of its knowledge, result in the
violation of any law or regulation of any kind
whatsoever by any of Blue Zone Group; and
(ee) to the best of his knowledge, none of Blue Zone or the
Subsidiaries is in material breach of any applicable law,
ordinance, statute, regulation, by-law, order or decree of
any kind whatsoever including, without limitation, any
applicable securities laws.
4.3 In order to induce WFD to enter into this Agreement and complete its
transactions contemplated hereunder, the Shareholder represents and warrants to
WFD that:
(a) the Blue Zone Shares are and will on the Closing Date
immediately prior to Completion be validly issued and
outstanding fully paid and non-assessable common shares of
Blue Zone registered in the name of, and legally and
beneficially owned by, the Shareholder, free and clear of
all voting restrictions, trade restrictions, liens, claims,
charges or encumbrances of any kind whatsoever;
(b) the Shareholder has good and sufficient power, authority and
capacity to enter into this Agreement and complete the
transactions contemplated under this Agreement on the terms
and conditions set forth herein, and in particular to sell
the Blue Zone Shares to WFD as contemplated herein;
(c) there are no actions, suits, judgements, investigations or
proceedings of any kind whatsoever outstanding, pending or
threatened against or affecting the Shareholder at law or in
equity or before or by any federal, provincial, state,
municipal or other governmental department, commission,
board, bureau or agency of any kind whatsoever which in any
13
<PAGE> 14
way relate to the Blue Zone Shares or could affect the
ability of the Shareholder to perform his obligations
hereunder and to the best of his knowledge there is no basis
therefor;
(d) the Shareholder, based solely on having made appropriate
inquiries of the Managers, believes each of the
representations of the Managers in paragraph 4.2 of this
Agreement is correct in all material respects;
(e) the Shareholder has such knowledge and experience in
financial and business matters as to be capable of
evaluating the merits and risks of an investment in the WFD
Shares and is able to bear the economic risk of loss of the
Shareholder's entire investment;
(f) WFD has provided to the Shareholder the opportunity to ask
questions and receive answers concerning the terms and
conditions of the issuance of the WFD Shares and the
Shareholder has had access to such information concerning
WFD as he has considered necessary or appropriate in
connection with the investment decision to acquire the WFD
Shares;
(g) the Shareholder is acquiring the WFD Shares for his own
account, for investment purposes only and not with a view to
any resale, distribution or other disposition of the WFD
Shares in violation of the United States securities laws;
(h) the Shareholder has not agreed to acquire the WFD Shares as
a result of any form of general solicitation or general
advertising, including advertisements, articles, notices or
other communications published in any newspaper, magazine or
similar media or broadcast over radio, or television, or any
seminar or meeting whose attendees have been invited by
general solicitation or general advertising; and
(i) the Shareholder satisfies one or more of the categories
indicated below (the Shareholder must initial at least one
applicable line):
____ Category 1. An organization described in Section
501(c)(3) of the United States Internal Revenue Code, a
corporation, a Massachusetts or similar business trust or
partnership, not formed for the specific purpose of
acquiring the WFD Shares, with total assets in excess of
U.S.$5,000,000;
____ Category 2. A natural person whose individual net
worth, or joint net worth with that person's spouse, at the
date hereof exceeds U.S.$1,000,000;
____ Category 3. A natural person who had an individual
income in excess of U.S.$200,000 in each of the two most
recent years or joint income with that person's spouse in
excess of U.S.$300,000 in each of those years and has a
reasonable expectation of reaching the same income level in
the current year;
____ Category 4. A trust that (a) has total assets in excess
of U.S.$5,000,000, (b) was not formed for the specific
purpose of acquiring the WFD Shares and (c) is directed in
its purchases of securities by a person who has such
knowledge and experience in financial and business matters
that he or she is capable of evaluating the merits and risks
of an investment in the Securities;
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<PAGE> 15
____ Category 5. An investment company registered under the
Investment Company Act of 1940 or a business development
company as defined in Section 2(a)(48) of that Act;
____ Category 6. A Small Business Investment Company
licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act
of 1958;
____ Category 7. A private business development company as
defined in Section 202(a)(22) of the Investment Advisors
Acts of 1940; or
____ Category 8. An entity in which all of the equity owners
satisfy the requirements of one or more of the foregoing
categories.
4.4 The Shareholder acknowledges and agrees that:
(a) the WFD Shares have not been and, subject to paragraph 7.1
of this Agreement, will not be registered under the United
States Securities Act of 1933 (the "Securities Act") or the
securities laws of any state of the United States or other
jurisdiction and that the exchange contemplated hereby is
being made in reliance on the Shareholder's representations
and warranties regarding the circumstances required for an
exemption from such registration requirements;
(b) the issuance of the WFD Shares has not been approved or
disapproved by the United States Securities and Exchange
Commission, any state securities agency, or any foreign
securities agency, and WFD is not registered under the
United States Securities Exchange Act of 1934 (the "Exchange
Act");
(c) the certificates representing the WFD Shares will bear a
legend stating that such shares have not been registered
under the Securities Act or the securities laws of any state
of the United States and may not be traded except in
compliance with the Securities Act and the Exchange Act and,
without limiting the foregoing, may not be traded for a
period of not less than one year following the issuance of
the WFD Shares; and
(d) if the Shareholder decides to offer, sell or otherwise
transfer any of the WFD Shares, he will not offer, sell or
otherwise transfer any of the WFD Shares directly or
indirectly, unless:
(i) the sale is to WFD;
(ii) the sale is made pursuant to a valid registration
or an exemption from the registration requirements
under the Securities Act provided by Rule 144
thereunder and in accordance with any applicable
state securities or "Blue Sky" laws; or
(iii) the WFD Shares are sold in a transaction that does
not require registration under the Securities Act
or any applicable state laws and regulations
governing the offer and sale of securities, and he
has prior to such sale furnished to WFD an opinion
of counsel reasonably satisfactory to WFD.
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<PAGE> 16
4.5 The Shareholder consents to WFD making a notation on its records or
giving instructions to any transfer agent of WFD in order to implement the
restrictions on transfer set forth and described herein.
4.6 The Shareholder acknowledges and accepts that there may be material
tax consequences to a shareholder in respect of an acquisition or disposition of
the WFD Shares, and that WFD gives no opinion and makes no representation with
respect to the tax consequences to the Shareholder under United States, state,
local or foreign tax law in respect of the Shareholder's acquisition or
disposition of the WFD Shares.
4.7 In order to induce the Blue Zone Group to enter into this Agreement
and complete its transactions contemplated hereunder, WFD represents and
warrants to the Blue Zone Group that:
(a) WFD was and remains duly incorporated and validly existing
under the laws of the State of Nevada, and WFD is in good
standing with respect to all filings required by the Nevada
Secretary of State;
(b) as of the Effective Date, the authorized capital of WFD
consisted of 105,000,000 shares, comprised of 100,000,000
common shares with a par value of U.S.$0.001 per share and
5,000,000 preference shares with a par value of U.S.$0.001
per share, of which 9,538,088 common shares and no
preference shares were validly authorized, created,
allotted, issued and outstanding as fully paid and
non-assessable, and 524,981 common shares were reserved for
issuance pursuant to Warrants issued in the course of the
Financing;
(c) other than as contemplated in this Agreement, no further
"securities" (as described in the B.C. Act) of WFD will be
issued after the Effective Date, and there are no
commitments, plans or arrangements of any kind whatsoever to
issue any securities of WFD, nor are there any outstanding
options, warrants, convertible securities or other rights of
any kind whatsoever calling for the issuance of any of the
unissued shares of WFD;
(d) the WFD Shares to be issued on Completion will be, when
issued, validly issued as fully paid and non-assessable and
registered in the name of the Shareholder;
(e) WFD has good and sufficient power, authority and capacity to
enter into this Agreement and complete its transactions
contemplated under this Agreement on the terms and
conditions set forth herein;
(f) the common shares of WFD are currently quoted on the OTC
Board;
(g) WFD is in material compliance with all applicable U.S.
securities laws and to the best of its knowledge, WFD is in
material compliance with all other laws including, without
limitation, the laws of Nevada and Japan;
(h) the constating documents of WFD have not been altered since
the incorporation of WFD;
(i) WFD has never carried on and does not currently carry on any
business;
(j) there has been no material adverse change to the financial
position of WFD since 31 December 1998, as set forth in the
audited financial statements of WFD as of that date, which
financial statements have been prepared in accordance with
generally accepted
16
<PAGE> 17
accounting principles applied on a consistent basis with
prior periods and which are attached as Schedule G to this
Agreement and have been filed with appropriate regulatory
authorities (the "WFD Statements");
(k) the WFD Statements disclose all material financial
transactions of WFD since its date of incorporation and such
transactions have been fairly and accurately recorded;
(l) to the best of its knowledge, any accounts receivable WFD
shown in the WFD Statements are bona fide, good and
collectible without setoff or counterclaim;
(m) WFD does not have any property or assets except those
referred to in the WFD Statements;
(n) WFD has not disposed of any property or assets except as
shown in the WFD Statements;
(o) all of the bank accounts and safety deposit boxes of WFD are
listed on Schedule H to this Agreement;
(p) there are no material financial liabilities of WFD, whether
primary, secondary, direct, indirect, absolute, contingent
or otherwise, under or in respect of any contract,
agreement, arrangement, commitment or undertaking which are
not disclosed or reflected in the WFD Statements except for
liabilities arising in the ordinary course since the date
thereof;
(q) WFD has not entered into any indenture, mortgage, agreement,
lease, license or other instrument of any kind whatsoever
relating to any indebtedness;
(r) WFD has not entered into and is not currently a party to any
material contracts which are currently outstanding and which
involve expenditures or receipts of CDN$100,000 or more per
annum;
(s) WFD has not had and does not currently have any employees or
any compensation arrangements with any employees,
independent contractors or consultants;
(t) no payments of any kind whatsoever have been made or
authorized by WFD directly or indirectly to or on behalf of
any of its shareholders, or any of its directors or
officers;
(u) there are no pensions, profit sharing, group insurance or
similar plans or other deferred compensation plans of any
kind whatsoever effecting WFD;
(v) Doug McLeod is the sole Director and Officer of WFD;
(w) all tax returns and reports of WFD required by law have been
filed and are substantially true, complete and correct and
all taxes and other government charges of any kind
whatsoever of WFD have been paid or accrued in WFD
statements;
(x) WFD has not:
(i) made an election under any applicable tax
legislation with respect to the acquisition or
disposition of any property at other than fair
market value; or
(ii) acquired or disposed of any property at other than
fair market value;
17
<PAGE> 18
(y) WFD has made all elections required to have been made under
any applicable tax legislation in connection with any
distributions made by it and all such elections were true
and correct and filed in the prescribed time period;
(z) adequate provisions have been made on the WFD Statements for
taxes payable by WFD for the current period for which tax
returns are not yet required to be filed and there are no
agreements, waivers or other arrangements of any kind
whatsoever providing for an extension of time with respect
to the filing of any tax return by, or payment of, any tax
or governmental charge of any kind whatsoever by WFD;
(aa) WFD does not have any contingent tax liabilities of any kind
whatsoever, and there are no grounds which would prompt a
re-assessment of WFD, including for aggressive treatment of
income or expenses in early tax returns filed;
(bb) WFD has made all collections, deductions, remittances and
payments of any kind whatsoever and filed all reports and
returned required to be made or filed under the provisions
of all applicable statutes requiring the making of
collections, deductions, remittances or payments of any kind
whatsoever;
(cc) to the best of its knowledge, there are no actions, suits,
judgments, investigations or proceedings of any kind
whatsoever outstanding, pending or threatened against or
effecting WFD at law or in equity or by any federal, state,
municipal or other governmental department, commission,
board, bureau or agency of any kind whatsoever and, to the
best of its knowledge, there is no basis therefor;
(dd) the execution and delivery of this Agreement, the
performance of its obligations under this Agreement and the
Completion will not:
(i) conflict with, or result in a breach of, or
constitute default under, any of the material
contracts or the constating documents of WFD; or
(ii) to the best of its knowledge, result in the
violation of any law or regulation of any kind
whatsoever by WFD; and
(ee) WFD has not incurred any liability for agency, brokerage,
referral or finders' fees, commissions or compensation of
any kind whatsoever with respect to this Agreement or any
transaction contemplated by this Agreement.
4.8 The representations and warranties of WFD contained in this Agreement
shall be true at the Time of Closing as though they were made at the Time of
Closing, and they shall survive the Completion and remain in full force and
effect thereafter for the benefit of the Shareholder.
5. INDEMNITIES
5.1 Notwithstanding the Completion of the transactions contemplated under
this Agreement or WFD's Investigation, the representations, warranties and
acknowledgements of any of the Blue Zone Group contained in this Agreement or
any certificates or documents delivered by any of them pursuant to this
Agreement shall survive the Completion and shall continue in full force and
effect thereafter for the benefit of WFD. If any of the representations,
warranties or acknowledgements given by any of the Blue Zone Group is found to
be untrue or there is a breach of any covenant or agreement in this Agreement on
18
<PAGE> 19
the part of any of the Blue Zone Group, then the party or parties responsible
shall, subject to paragraph 5.3 of this Agreement, jointly and severally
indemnify and save harmless WFD from and against any and all liability, claims,
debts, demands, suits, actions, penalties, fines, losses, costs (including legal
fees, disbursements and taxes as charged on a lawyer and own client basis),
damages and expenses of any kind whatsoever which may be brought or made against
WFD by any person, firm or corporation of any kind whatsoever or which may be
suffered or incurred by WFD, directly or indirectly, arising out of or as a
consequence of any such misrepresentation or breach of warranty,
acknowledgement, covenant or agreement. Without in any way limiting the
generality of the foregoing, this shall include any loss of any kind whatsoever
which may be suffered or incurred by WFD, directly or indirectly, arising out of
any material assessment or reassessment levied upon Blue Zone or either of the
Subsidiaries for tax, interest and/or penalties relating to any period of
business operations up to and including the Closing Date and all claims,
demands, costs (including legal fees, disbursements and taxes as charged on a
lawyer and own client basis) and expenses of any kind whatsoever in respect of
the foregoing.
5.2 Notwithstanding the Completion of the transactions contemplated under
this Agreement or the Shareholder's Investigation, the representations,
warranties and acknowledgements of WFD contained in this Agreement or any
certificates or documents delivered by WFD pursuant to this Agreement shall
survive the Completion and shall continue in full force and effect thereafter
for the benefit of the Shareholder. If any of the representations, warranties or
acknowledgements given by WFD is found to be untrue or there is a breach of any
covenant or agreement in this Agreement on the part of WFD, then WFD shall,
subject to paragraph 5.3 of this Agreement, indemnify and save the Shareholder
harmless from and against any and all liability, claims, debts, demands, suits,
actions, penalties, fines, losses, costs (including legal fees, disbursements
and taxes as charged on a lawyer and own client basis), damages and expenses of
any kind whatsoever which may be brought or made against the Shareholder by any
person, firm or corporation of any kind whatsoever or which may be suffered or
incurred by the Shareholder, directly or indirectly, arising out of or as a
consequence of any such misrepresentation or breach of warranty,
acknowledgement, covenant or agreement. Without in any way limiting the
generality of the foregoing, this shall include any loss of any kind whatsoever
which may be suffered or incurred by the Shareholder, directly or indirectly,
arising out of any material assessment or reassessment levied upon WFD for tax,
interest and/or penalties relating to any period of business operations up to
and including the Closing Date and all claims, demands, costs (including legal
fees, disbursements and taxes as charged on a lawyer and own client basis) and
expenses of any kind whatsoever in respect of the foregoing.
5.3 Notwithstanding anything else contained in this Agreement, the parties
agree that:
(a) no claim for indemnification may be made under the
provisions of paragraph 5.1 or 5.2 of this Agreement, under
this Agreement or the transactions hereby contemplated
unless notice of the claim including reasonable particulars
thereof is provided to the party against whom the claim is
to be made, no later than eighteen (18) months following the
Effective Date; and
(b) the aggregate liability of the Shareholder and the Managers
under this Agreement including, without limitation, any
liability for any of the representations, warranties or
acknowledgements contained in this Agreement, or any breach
of any covenant or agreement in this Agreement shall be
limited to U.S.$240,000, being the agreed value for the
transfer of all the Blue Zone Shares to WFD; and
(c) the aggregate liability of WFD under this Agreement
including, without limitation, any liability for any of the
representations, warranties or acknowledgements contained in
this Agreement, or any breach of any covenant or agreement
in this Agreement shall be limited
19
<PAGE> 20
to U.S.$240,000, being the agreed value for the transfer of
all the Blue Zone Shares to WFD.
6. CLOSING
6.1 At the Time of Closing, the Blue Zone Group shall deliver to the
solicitors for WFD:
(a) certified true copies of the resolutions of the directors of
Blue Zone and the Subsidiaries evidencing that the directors
of Blue Zone and the Subsidiaries have approved this
Agreement and all of the transactions of Blue Zone and the
Subsidiaries contemplated hereunder, and in the case of Blue
Zone specifically referring to:
(i) the exchange and transfer of the Blue Zone Shares
from the Shareholder to WFD as provided for in
this Agreement;
(ii) the cancellation of the share certificates (the
"Old Share Certificates") representing the Blue
Zone Shares held as set forth in paragraph B of
the recitals to this Agreement; and
(iii) the issuance of a new share certificate (the "New
Share Certificate") representing the Blue Zone
Shares registered in the name of WFD;
(b) the Old Share Certificates;
(c) the New Share Certificate;
(d) releases in the form of Schedule I to this Agreement (the
"Releases") from each of the Shareholder and the Managers of
all claims against Blue Zone or the Subsidiary for
outstanding amounts owing by either of Blue Zone or the
Subsidiary on account of any loans, bonuses, reimbursements,
compensation, fees, royalties, dividends or other
consideration whatsoever as at the Closing Date other than
for the advances referred to in paragraph 7.2 and for
accrued salary since the last regular payday;
(e) INTENTIONALLY DELETED
(f) the Blue Zone Solicitor Opinions;
(g) certificates of confirmation from each of the Shareholder,
the Managers, Blue Zone and the Subsidiary substantially in
the form of Schedule J to this Agreement;
(h) the consent of the directors and officers specified in
paragraph 3.6; and
(i) any other materials that are, in the opinion of the
solicitors for WFD, reasonably required to complete the
transactions contemplated under this Agreement.
6.2 At the Time of Closing, WFD shall pay to Terra the amount due in
respect of the Terra Loan, in exchange for an assignment of the Terra Loan and
the Terra GSA, and WFD shall deliver to the solicitors for the Shareholder:
(a) certified true copies of the resolutions of the directors
and, if shareholder approval is required, of the
shareholders of WFD, evidencing that the directors and, as
applicable, the
20
<PAGE> 21
shareholders, of WFD have approved this Agreement and all of
the transactions of WFD contemplated hereunder, including
the issuance of the WFD Shares in exchange for the Blue Zone
Shares, the setting of the number of Directors of WFD at
four (4), and the appointment of the directors and officers
specified in paragraph 3.6;
(b) a share certificate representing the WFD Shares registered
in the name of the Shareholder or written confirmation from
WFD's stock transfer agent that the Shareholder has been
registered as the owner of the WFD Shares, the WFD Shares
have been allotted and issued and a share certificate
representing the WFD Shares registered in the name of the
Shareholder will be delivered to the order of the
Shareholder as soon as practicable;
(c) all minute books, business records, files and papers of WFD;
(d) the resignation of the current directors and officers of
WFD, effective on Completion, together with a Release from
each such director and officer in the form of Schedule I;
(e) the WFD Solicitor Opinions; and
(f) a certificate of confirmation signed by a director or
officer of WFD substantially in the form of Schedule K to
this Agreement.
7. BUSINESS MATTERS
7.1 WFD agrees that it will, if requested by the Shareholder, file a
registration statement to effect the qualification and registration under
applicable U.S. securities laws of the resale of the WFD Shares and WFD will pay
all costs and expenses in connection with the preparation and filing of such
registration statement. The Shareholder shall be responsible for underwriting
and brokerage commissions payable in connection with such sale.
7.2 On the closing date, Blue Zone shall repay the following loans and
advances:
Name of Payee Amount
Michael Warren CDN$140,000
Bruce Warren CDN$65,000
Jamie Ollivier CDN$15,000
7.3 WFD shall take all necessary actions prior to the Closing Date to
change its name to "Blue Zone Inc.", provided however that if the transactions
contemplated herein do not complete on the Closing Date, then upon written
request by Blue Zone, WFD shall promptly change its name to another name that
does not contain the words "Blue Zone" or any confusingly similar words.
8. GENERAL
8.1 Time and each of the terms and conditions of this Agreement shall be
of the essence of this Agreement and any waiver by the parties of this paragraph
8.1 or any failure by them to exercise any of their rights under this Agreement
shall be limited to the particular instance and shall not extend to any other
instance or matter in this Agreement or otherwise affect any of their rights or
remedies under this Agreement.
21
<PAGE> 22
8.2 The Schedules to this Agreement incorporated by reference and the
recitals to this Agreement constitute a part of this Agreement.
8.3 This Agreement constitutes the entire Agreement between the parties
hereto in respect of the matters referred to herein and there are no
representations, warranties, covenants or agreements, expressed or implied,
collateral hereto other than as expressly set forth or referred to herein.
8.4 The headings in this Agreement are for reference only and do not
constitute terms of the Agreement.
8.5 The provisions contained in this Agreement which, by their terms,
require performance by a party to this Agreement subsequent to the Closing Date
of this Agreement, shall survive the Closing Date of this Agreement.
8.6 No alteration, amendment, modification or interpretation of this
Agreement or any provision of this Agreement shall be valid and binding upon the
parties hereto unless such alteration, amendment, modification or interpretation
is in written form executed by the parties directly affected by such alteration,
amendment, modification or interpretation.
8.7 It is intended that all of the provisions of this Agreement will be
fully binding and effective between the parties. If any particular provision or
provisions or a part of one or more is held to be invalid, illegal, void,
voidable or unenforceable for any reason whatsoever in any jurisdiction, then
that particular provision or part of the provision or those provisions will be
deemed severed from the remainder of this Agreement. The remainder of this
Agreement will not be affected by the severance and will remain in full force
and effect.
8.8 Whenever the singular or masculine is used in this Agreement the same
shall be deemed to include the plural or the feminine or the body corporate as
the context may require.
8.9 The parties hereto shall execute and deliver all such further
documents and instruments and do all such acts and things as any party may,
either before or after the Closing Date, reasonably require in order to carry
out the full intent and meaning of this Agreement.
8.10 Any notice, request, demand and other communication to be given under
this Agreement shall be in writing and shall be delivered by hand to the
appropriate party at the address as first set out above or to such other
addresses or by such other means as may be designated in writing by the parties
hereto in the manner provided for in this paragraph, and shall be deemed to have
been received on the date of delivery by hand, or if delivered by e-mail or
telecopy, then on the date transmission completes.
8.11 This Agreement will enure to the benefit of and be binding on the
parties hereto and their respective heirs, executors, administrators, successors
and permitted assigns.
8.12 This Agreement shall be subject to, governed by, and construed in
accordance with the laws of the Province of British Columbia and the laws of
Canada applicable therein.
8.13 This Agreement may be signed by the parties in as many counterparts as
may be deemed necessary, each of which so signed shall be deemed to be an
original, and all such counterparts together shall constitute one and the same
instrument. Counterparts may be executed either in original or faxed form and
the parties adopt any signatures received by a receiving fax machine as original
signatures of the
22
<PAGE> 23
parties; provided, however, that any party providing its signature in such
manner shall promptly forward to legal counsel for the other parties an original
of the signed copy of this Agreement which was so faxed.
IN WITNESS WHEREOF the parties have hereunto set their hands and seals as of the
Effective Date:
SIGNED, SEALED & DELIVERED )
by F.MICHAEL P. WARREN in the presence of: )
)
/s/ Donald R. Carse Jr. )
- -------------------------------------- ) /s/ F. Michael P. Warren
Signature of Witness ---------------------------
) F. MICHAEL P. WARREN
Name: Donald R. Carse Jr. )
Address: 70 Endlesham Road )
London, England )
Occupation: Banker )
SIGNED, SEALED & DELIVERED )
by BRUCE WARREN in the presence of: )
)
/s/ Donald R. Carse Jr. )
- -------------------------------------- ) /s/ Bruce Warren
Signature of Witness ---------------------------
) BRUCE WARREN
Name: Donald R. Carse Jr. )
Address: 70 Endlesham Road )
London, England )
Occupation: Banker )
SIGNED, SEALED & DELIVERED )
by JAMIE OLLIVIER in the presence of: )
)
/s/ Donald R. Carse Jr. )
- -------------------------------------- ) /s/ Jamie Ollivier
Signature of Witness ---------------------------
) JAMIE OLLIVIER
Name: Donald R. Carse Jr. )
Address: 70 Endlesham Road )
London, England )
Occupation: Banker )
THE CORPORATE SEAL of )
BLUE ZONE PRODUCTIONS LTD. )
was hereunto affixed in the presence
of its authorized signatory(ies): )
) c/s
/s/ F. Michael P. Warren )
- --------------------------------------
)
Name: F. Michael P. Warren
Title: Director
23
<PAGE> 24
THE CORPORATE SEAL of )
BLUE ZONE ENTERTAINMENT INC. )
was hereunto affixed in the presence
of its authorized signatory(ies): )
) c/s
/s/ Bruce Warren )
- --------------------------------------
)
Name: Bruce Warren )
Title: CEO )
THE CORPORATE SEAL of
BLUE ZONE INTERNATIONAL INC. )
was hereunto affixed in the presence
of its authorized signatory(ies): )
)
/s/ F. Michael P. Warren ) c/s
- --------------------------------------
)
Name: F. Michael P. Warren ))
Title: Director )
THE CORPORATE SEAL of )
WESTERN FOOD DISTRIBUTORS, INC. )
was hereunto affixed in the presence
of its authorized signatory(ies): )
) c/s
/s/ Doug McLeod )
- --------------------------------------
)
Name: Doug McLeod )
Title: President
24
<PAGE> 25
List of Schedules to Share Exchange Agreement
Schedule A Blue Zone Solicitor Opinions.
Schedule B WFD Solicitor Opinion.
Schedule C Assets.
Schedule D Unaudited Financial Statements of Blue Zone and BZE for the
years ended December 31, 1996, December 31, 1997 and December
31, 1998.
Schedule E Current Directors, Officers, Key Employees and Independent
Contractors and consultants of Blue Zone and of each of the
Subsidiaries.
Pensions, Profit Sharing, Group Insurance or Similar Plans or
Other Deferred Compensation Plans.
Schedule F Material Contracts.
Schedule G WFD Statements.
Schedule H Bank Accounts and Safety Deposit Boxes of WFD.
Schedule I Releases.
Schedule J Certificates of Confirmation from each of the Shareholder,
the Managers, Blue Zone and the Subsidiary.
Schedule K Certificate of Confirmation Signed by a Director or Officer of
WFD.
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
WESTERN FOOD DISTRIBUTORS, INC.
KNOW ALL MEN BY THESE PRESENTS:
That we, the undersigned, have this day voluntarily associated ourselves
together for the purpose of forming a Corporation under and pursuant to the laws
of the State of Nevada, and we do hereby certify that:
ARTICLE I - NAME: The exact name of this Corporation is:
Western Food Distributors, Inc.
ARTICLE II - RESIDENT AGENT:
The Resident Agent of the Corporation is Max C. Tanner, Esq., The Law
Offices of Max C. Tanner, 2950 East Flamingo Road, Suite G, Las Vegas, Nevada
89121.
ARTICLE III - DURATION: The Corporation shall have perpetual existence.
ARTICLE IV - PURPOSES: The purpose, object and nature of the business for which
this Corporation is organized are:
(a) To engage in any lawful activity;
(b) To carry on such business as may be necessary, convenient, or
desirable to accomplish the above purposes, and to do all other
things incidental thereto which are not forbidden by law or by these
Articles of Incorporation.
ARTICLE V - POWERS: The powers of the Corporation shall be those powers granted
by 78.060 and 78.070 of the Nevada Revised Statutes under which this corporation
is formed. In addition, the Corporation shall have the following specific
powers:
(a) To elect or appoint officers and agents of the Corporation and to
fix their compensation;
(b) To act as an agent for any individual, association, partnership,
corporation or other legal entity;
<PAGE> 2
(c) To receive, acquire, hold, exercise rights arising out of the
ownership or possession thereof, sell, or otherwise dispose of,
shares or other interests in, or obligations of, individuals,
associations, partnerships, corporations, or governments;
(d) To receive, acquire, hold, pledge, transfer, or otherwise dispose of
shares of the corporation, but such shares may only be purchased,
directly or indirectly, out of earned surplus;
(e) To make gifts or contributions for the public welfare or for
charitable, scientific or educational purposes, and in time of war,
to make donations in aid of war activities.
ARTICLE VI - CAPITAL STOCK:
SECTION 1. AUTHORIZED SHARES. The total number of shares which this
Corporation is authorized to issue is 25,000,000 shares of Capital Stock
at $.001 par value per share as set forth in subsections (a) and (b) of
this Section 1 of Article VI.
(a) The total number of shares of Common Stock which this Corporation is
authorized to issue is 20,000,000 shares at $.001 par value per
share.
(b) The total number of shares of Preferred Stock which this Corporation
is authorized to issue is 5,000,000 shares at $.001 par value per
share, which Preferred Stock may contain special preferences as
determined by the Board of Directors of the Corporation, including,
but not limited to, the bearing of interest and convertibility into
shares of Common Stock of the Corporation.
SECTION 2. VOTING RIGHTS OF SHAREHOLDERS. Each holder of the Common Stock
shall be entitled to one vote for each share of stock standing in his name
on the books of the Corporation.
SECTION 3. CONSIDERATION FOR SHARES. The Common Stock shall be issued for
such consideration , as shall be fixed from time to time by the Board of
Directors. In the absence of fraud, the judgment of the Directors as to
the value of any property for shares shall be conclusive. When shares are
issued upon payment of other consideration fixed by the Board of
Directors, such shares shall be taken to be fully paid stock and shall be
non-assessable. The Articles shall not be amended in this particular.
SECTION 4. PRE-EMPTIVE RIGHTS. Except as may otherwise be provided by the
Board of Directors, no holder of any shares of the stock of the
Corporation, shall have any preemptive right to purchase, subscribe for,
or otherwise acquire any shares of stock of the Corporation of any class
now or hereafter authorized, or any securities exchangeable for or
convertible into such shares, or any warrants or
2
<PAGE> 3
other instruments evidencing rights or options to subscribe for, purchase,
or otherwise acquire such shares.
SECTION 5. STOCK RIGHTS AND OPTIONS. The Corporation shall have the power
to create and issue rights, warrants, or options entitling the holders
thereof to purchase from the corporation any shares of its capital stock
of any class or classes, upon such terms and conditions and at such times
and prices as the Board of Directors may provide, which terms and
conditions shall be incorporated in an instrument or instruments
evidencing such rights. In the absence of fraud, the judgment of the
Directors as to the adequacy of consideration for the issuance of such
rights or options and the sufficiency thereof shall be conclusive.
ARTICLE VII - ASSESSMENT OF STOCK: The Capital stock of this Corporation, after
the amount of the subscription price has been fully paid in, shall not be
assessable for any purpose, and no stock issued as fully paid up shall ever be
assessable or assessed. The holders of such stock shall not be individually
responsible for the debts, contracts, or liabilities of the Corporation and
shall not be liable for assessments to restore impairments in the capital of the
Corporation.
ARTICLE VIII - DIRECTORS: For the management of the business, and for the
conduct of the affairs of the Corporation, and for the future definition,
limitation, and regulation of the powers of the Corporation and its directors
and shareholders, it is further provided:
SECTION 1. SIZE OF BOARD. The members of the governing board of the
Corporation shall be styled directors. The number of directors of the
Corporation, their qualifications, terms of office, manner of election,
time and place of meeting, and powers and duties shall be such as are
prescribed by statute and in the by-laws of the Corporation. The name and
post office address of the directors constituting the first board of
directors, which shall be One (1) in number are:
NAME ADDRESS
Max C. Tanner 2950 East Flamingo
Road
Suite G
Las Vegas, NV 89121
SECTION 2. POWER OF BOARD. In furtherance and not in limitation of the
powers conferred by the laws of the State of Nevada, the Board of
Directors is expressly authorized and empowered:
(a) To make, alter, amend, and repeal the By-Laws subject to the power
of the shareholders to alter or repeal the By-Laws made by the Board
of Directors.
(b) Subject to the applicable provisions of the By-Laws then in effect,
to determine, from time to time, whether and to what extent, and at
what
3
<PAGE> 4
times and places, and under what conditions and regulations, the
accounts and books of the Corporation, or any of them, shall be open
to shareholder inspection. No shareholder shall have any right to
inspect any of the accounts, books or documents of the Corporation,
except as permitted by law, unless and until authorized to do so by
resolution of the Board of Directors or of the Shareholders of the
Corporation;
(c) To issue stock of the Corporation for money, property, services
rendered, labor performed, cash advanced, acquisitions for other
corporations or for any other assets of value in accordance with the
action of the board of directors without vote or consent of the
shareholders and the judgment of the board of directors as to value
received and in return therefore shall be conclusive and said stock,
when issued, shall be fully-paid and non-assessable.
(d) To authorize and issue, without shareholder consent, obligations of
the Corporation, secured and unsecured, under such terms and
conditions as the Board, in its sole discretion , may determine, and
to pledge or mortgage, as security therefore, any real or personal
property of the Corporation, including after-acquired property;
(e) To determine whether any and, if so, what part, of the earned
surplus of the Corporation shall be paid in dividends to the
shareholders, and to direct and determine other use and disposition
of any such earned surplus;
(f) To fix, from time to time, the amount of the profits of the
Corporation to be reserved as working capital or for any other
lawful purpose;
(g) To establish bonus, profit-sharing, stock option, or other types of
incentive compensation plans for the employees, including officers
and directors, of the Corporation, and to fix the amount of profits
to be share or distributed, and to determine the persons to
participate in any such plans and the amount of their respective
participations.
(h) To designate, by resolution or resolutions passed by a majority of
the whole Board, one or more committees, each consisting of two or
more directors, which, to the extent permitted by law and authorized
by the resolution or the By-Laws, shall have and may exercise the
powers of the Board;
(i) To provide for the reasonable compensation of its own members
By-Law, and to fix the terms and conditions upon which such
compensation will be paid;
(j) In addition to the powers and authority herein before, or by
statute, expressly conferred upon it, the Board of Directors may
exercise all such powers and do al such acts and things as may be
exercised or done by the corporation, subject, nevertheless, to the
provisions of the laws of the State
4
<PAGE> 5
of Nevada, of these Articles of Incorporation, and of the By-Laws of
the Corporation.
SECTION 3. INTERESTED DIRECTORS. No contract or transaction between this
Corporation and any of its directors, or between this Corporation and any
other corporation, firm association, or other legal entity shall be
invalidated by reason of the fact that the director of the Corporation has
a direct or indirect interest, pecuniary or otherwise, in such
corporation, firm, association, or legal entity, or because the interested
director was present at the meeting of the Board of Directors which acted
upon or in reference to such contract or transaction, or because he
participated in such action, provided that: (1) the interest of each such
director shall have been disclosed to or known by the Board and a
disinterested majority of the Board shall have nonetheless ratified and
approved such contract or transaction (such interested director or
directors may be counted in determining whether a quorum is present for
the meeting at which such ratification or approval is given ); or (2) the
conditions of N.R.S. 78.140 are met.
ARTICLE IX - LIMITATION OF LIABILITY OF OFFICERS OR DIRECTORS: The personal
liability of a director or officer of the corporation to the corporation or the
Shareholders for damages for breach of fiduciary duty as a director or officer
shall be limited to acts or omissions which involve intentional misconduct,
fraud or a knowing violation of law.
ARTICLE X - INDEMNIFICATION: Each director and each officer of the corporation
may be indemnified by the corporation as follows:
(a) The corporation may indemnify any person who was or is a party;, or
is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the corporation), by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement, actually and reasonably incurred by him in connection
with the action, suit or proceeding, if he acted in good faith and
in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation and with respect to any
criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. The termination of any action, suite or
proceeding;, by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not of itself create
a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the
best interests of the corporation, and that, with respect to any
criminal action or proceeding, he had reasonable cause to believe
that his conduct was unlawful.
5
<PAGE> 6
(b) The corporation may indemnify any person who was or is a party, or
is threatened to be made a party, to any threatened, pending or
completed action or suit by or in the right of the corporation, to
procure a judgment in its favor by reason of the fact that he is or
was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses including
amounts paid in settlement and attorneys' fees actually and
reasonably incurred by him in connection with the defense or
settlement of the action or suit, if he acted in good faith and in a
manner which he reasonably believed to be in or not opposed to the
best interests of the corporation. Indemnification may not be made
for any claim, issue or matters as to which such a person has been
adjudged by a court of competent jurisdiction, after exhaustion of
all appeals there from, to be liable to the corporation or for
amounts paid in settlement to the corporation, unless and only to
the extent that the court in which the action or suit was brought or
other court of competent jurisdiction determines upon application
that in view of all the circumstances of the case the person is
fairly and reasonably entitled to indemnity for such expenses as the
court deems proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in subsections
(a) and (b) of this Article, or in defense of any claim, issue or
matter therein, he must be indemnified by the corporation against
expenses, including attorney's fees, actually and reasonably
incurred by him in connection with the defense.
(d) Any indemnification under subsections (a) and (b) unless ordered by
a court or advanced pursuant to subsection (e), must be made by the
corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer,
employee or agent is proper in the circumstances. The determination
must be made:
(i) By the stockholders;
(ii) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the act, suit
or proceeding;
(iii) If a majority vote of a quorum consisting of directors who
were not parties to the act, suit or proceeding so orders, by
independent legal counsel in a written opinion; or
(iv) If a quorum consisting of directors who were not parties to
the act, suit or proceeding cannot be obtained, by independent
legal counsel in a written opinion.
6
<PAGE> 7
(e) Expenses of officers and directors incurred in defending a civil or
criminal action, suit or proceeding must be paid by the corporation
as they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on
behalf of the director or officer to repay the amount if it is
ultimately determined by a court of competent jurisdiction that he
is not entitled to be indemnified by the corporation. The provisions
of this subsection do not affect any rights to advancement of
expenses to which corporate personnel other than directors or
officers may be entitled under any contract or otherwise by law.
(f) The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
(i) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled
under the certificate or articles of incorporation or any
bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his
office, except that indemnification, unless ordered by a court
pursuant to subsection (b) or for the advancement of expenses
made pursuant to subsection (e) may not be made t or on behalf
of any director or officer if a final adjudication establishes
that his acts or omissions involved intentional misconduct,
fraud or a knowing violation of the law and was material to
the case of action.
(ii) Continues for a person who has ceased to be a director,
officer, employee or agent and insures to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE XI - PLACE OF MEETING; CORPORATE BOOKS: Subject to the laws of the State
of Nevada, the shareholders and the Directors shall have power to hold their
meetings, and the Director shall have power to have an office or offices and to
maintain the books of the Corporation outside the State of Nevada, at such place
or places as may from time to time be designated in the By-Laws or by
appropriate resolution.
ARTICLE XII - AMENDMENT OF ARTICLES: The provisions of these Articles of
Incorporation may be amended, altered or repealed from time to time to the
extent and in the manner prescribed by the laws of the State of Nevada, and
additional provisions authorized by such laws as are then in force may be added.
All rights herein conferred on the directors, officers and shareholders are
granted subject to this reservation.
ARTICLE XIII - INCORPORATOR: The name and address of the sole incorporator
signing these Articles of Incorporation is as follows:
Name POST OFFICE ADDRESS
7
<PAGE> 8
1. Max C. Tanner 2950 East Flamingo Road, Suite G
Las Vegas, Nevada 89121
IN WITNESS WHEREOF, the undersigned incorporator has executed these
Articles of Incorporation this 10th day of March, 1997.
/s/ Max C. Tanner
----------------------------------------
Max C. Tanner
STATE OF NEVADA )
) ss:
COUNTY OF CLARK )
On March 10, 1997, personally appeared before me, a Notary Public, Max C.
Tanner, who acknowledged to me that he executed the foregoing Articles of
Incorporation for Western Food Distributors, Inc., a Nevada corporation.
/s/ Lise-Lotte Ruzicka
--------------------------------------------
Notary Public
[Seal of Notary Public]
8
<PAGE> 9
CERTIFICATE OF ACCEPTANCE
OF APPOINTMENT BY RESIDENT AGENT
IN THE MATTER OF WESTERN FOOD DISTRIBUTORS, INC.
I, Max C. Tanner, do hereby certify that on the 10th day of March, 1997, I
accepted the appointment as Resident Agent of the above-entitled corporation in
accordance with Sec. 78.090, NRS 1957.
Furthermore, that the principal office in this state is located at The Law
Offices of Max C. Tanner, 2950 East Flamingo Road, Suite G, City of Las Vegas
89121, County of Clark, State of Nevada.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of March,
1997.
MAX C. TANNER
/s/ Max C. Tanner
-------------------------------------
Max C. Tanner, Esq.
Resident Agent
9
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
FOR
WESTERN FOOD DISTRIBUTORS, INC.
Pursuant to NRS 78.207, the undersigned President and Secretary of
Western Food Distributors, Inc. do hereby certify:
That the following amendments to the articles of incorporation were
unanimously approved by the Board of Directors of said corporation by written
consent in lieu of a special meeting of the Board of Directors, dated June 19,
1998 and by a majority of the outstanding shares entitled to vote, there being
400,000 shares authorized to vote and 220,000 shares having voted in favor of
the amended articles.
1. Change of Authorized Capital.
After giving effect to a five for one (5 for 1) forward stock split, the
authorized common stock shall be increased from 20,000,000 shares, $.001 par
value per share to 100,000,000 shares, $.001 par value per share.
Accordingly,
Article VI is hereby amended to read as follows:
Section 1. Authorized Shares. The total number of shares which this
Corporation is authorized to issue is 105,000,000 shares consisting of Common
and Preferred Stock as follows:
(a) After giving effect to a five for one (5 for 1) forward
stock split and thereafter increasing the authorized
Common Stock, the total number of shares of Common Stock
which this Corporation is authorized to issue is
100,000,000 shares at $.001 par value per share.
(b) The total number of shares of Preferred Stock which this
Corporation is authorized to issue is 5,000,000 shares at
$.001 par value per share, which Preferred stock may
contain special preferences as determined by the Board of
Directors of the Corporation, including, but not limited
to, the bearing of interest and convertibility into shares
of Common Stock of the Corporation.
/s/ Joey Smith
------------------------------------
Joey Smith
President
/s/ Lise-Lotte Newell
------------------------------------
<PAGE> 2
Lise-Lotte (Ruzicka) Newell
Secretary
STATE OF UTAH )
) ss.
COUNTY OF UTAH )
On this 13th day of July 1998, personally appeared before me, a Notary
Public, Joey Smith, President of the above-mentioned Corporation, who
acknowledged that he executed the Certificate of Amendment of the Articles of
Incorporation for Western Food Distributors, Inc.
/s/ Robert A. Williams
------------------------------------
Notary Public
(Notary stamp or seal)
STATE OF NEVADA )
) ss.
COUNTY OF CLARK )
On this 14th day of July 1998, personally appeared before me, a Notary
Public, Lise-Lotte (Ruzicka) Newell, Secretary, of the above-mentioned
Corporation, who acknowledged that he executed the Certificate of Amendment of
the Articles of Incorporation for Western Food Distributors, Inc.
/s/ Max C. Tanner
------------------------------------
Notary Public
(Notary stamp or seal)
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
WESTERN FOOD DISTRIBUTORS, INC.
Pursuant to Chapter 78 of the Nevada State Corporation Code,
Western Food Distributors, Inc., a Nevada corporation (the "Corporation"), DOES
HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, acting by
consent in lieu of a special meeting, duly adopted resolutions on the 27th day
of September 1999, setting forth proposed amendments to the Certificate of
Incorporation of the Corporation, declaring said amendments to be advisable and
recommending approval of such amendment by the shareholders of the Corporation.
The resolutions setting forth the proposed amendments are as follows:
RESOLVED that, upon shareholder approval, the Certificate of
Incorporation of the Corporation be amended to change the name of
the Corporation to BLUE ZONE, INC. by amending the FIRST
paragraph as follows:
FIRST: The name of the corporation (hereafter called the
corporation) is BLUE ZONE, INC.
RESOLVED that, upon approval of a majority of the shareholders of
the Corporation, the Certificate of Incorporation of the
Corporation be amended by adding the following paragraph:
FIRST: The 8,478,300 shares of issued and outstanding
common shares of the Corporation, with a par value of
$0.001, either issued and outstanding or held by the
Corporation as treasury stock, immediately prior to
October 4, 1999 at 5:00 p.m. (Eastern Standard Time) shall
be automatically reclassified and changed (without any
further act) into 9,538,088 fully-paid and non-assessable
shares of Common Stock of the Corporation, with a par
value of $0.001, without increasing or decreasing the
amount of stated capital or paid in surplus of the
Corporation, provided that no fractional shares shall be
issued. The fractional share interests that occur as a
result of the foregoing reclassification and change shall
be conglomerated by the transfer agent of the company and
the shares resulting from such conglomeration shall be
sold by the transfer agent and the net proceeds received
from such sale shall be
<PAGE> 2
allocated and distributed among the holders of such
fractional interests in shares as their interests appear.
SECOND: A majority of the shareholders of the Corporation,
acting by consent in lieu of a special meeting, duly
authorized and adopted this Certificate of Amendment to
the Certificate of Incorporation of the Corporation and
written notice of the adoption of the _______ has been
given as provided in Chapter 78 of the Nevada State
Corporation Code to every shareholder entitled to such
notice.
THIRD: Said resolution was duly adopted in accordance with
the provisions of Chapter 78 of the Nevada State
Corporation Code.
FOURTH: The capital of the Corporation will not be reduced
by reason of such amendment.
DATED this 28th day of September 1999.
By: /s/ Doug McLeod
---------------------------
Doug McLeod
Title: President
<PAGE> 1
EXHIBIT 3.4
BY-LAWS OF
WESTERN FOOD DISTRIBUTORS, INC.
ARTICLE I
SHAREHOLDERS
SECTION 1.1 ANNUAL MEETING. The annual meeting of the shareholders shall
be held at such date and time as shall be designated by the board of directors
and stated in the notice of the meeting or in a duly-executed waiver of notice
thereof. If the corporation shall fail to provide notice of the annual meeting
of the shareholder as set forth above, the annual meeting of the shareholders of
the corporation shall be held during the month of November or December of each
year as determined by the Board of Directors, for the purpose of electing
directors of the corporation to serve during the ensuing year and for the
transaction of such other business as may properly come before the meeting. If
the election of the directors is not held on the day designated herein for any
annual meeting of the shareholders, or at any adjournment thereof, the president
shall cause the election to beheld at a special meeting of the shareholders as
soon thereafter as is convenient.
SECTION 1.2 SPECIAL MEETING. Special meetings of the shareholders may be
called by the president or the Board of Directors and shall be called by the
president at the written request of the holders of not less than 51% of the
issued and outstanding shares of capital stock of the corporation.
All business lawfully to be transacted by the shareholders may be
transacted at any special meeting at any adjournment thereof. However, no
business shall be acted upon at a special meeting, except that referred to in
the notice calling the meeting, unless all of the outstanding capital stock of
the corporation is represented either in person or by proxy. Where all of the
capital stock is represented, any lawful-business may be transacted and the
meeting shall be valid for all purposes.
SECTION 1.3 PLACE OF MEETING. Any meeting of the shareholders of the
corporation may be held at its principal office in the State of Nevada or such
other place in or out of the United States as the Board of Directors may
designate. A waiver of notice signed by the shareholders entitled to vote may
designate any place for the holding of such meeting.
SECTION 1.4 NOTICE OF MEETINGS.
<PAGE> 2
(a) The secretary shall sign and deliver to all shareholders of
record written or printed notice of any meeting at least ten (10) days,
but not more than sixty (60) days, before the date of such meeting; which
notice shall state the place, date and time of the meeting, the general
nature of the business to be transacted, and, in the case of any meeting
at which directors are to be elected, the names of nominees, if any, to be
presented for election.
(b) In the case of any meeting, any proper business may be presented
for action, except that the following items shall be valid only if the
general nature of the proposal is stated in the notice or written waiver
of notice:
(1) Action with respect to any contract or transaction between
the corporation and one or more of its directors or another firm,
association, or corporation in which one or more of its directors
has a material financial interest;
(2) Adoption of amendments to the Articles of Incorporation;
or
(3) Action with respect to the merger, consolidation,
reorganization, partial or complete liquidation, or dissolution of
the corporation.
(c) The notice shall be personally delivered or mailed by first
class mail to each shareholder of record at the last known address
thereof, as the same appears on the books of the corporation, and the
giving of such notice shall be deemed delivered the date the same is
deposited in the United States mail, postage prepaid. If the address of
any shareholder does not appear upon the books of the corporation, it will
be sufficient to address any notice to such shareholder at the principal
office of the corporation.
(d) The written certificate of the person calling any meeting, duly
sworn, setting forth the substance of the notice, the time and place the
notice was mailed or personally delivered to the several shareholders, and
the addresses to which the notice was mailed shall be prima facie evidence
of the manner and fact of giving such notice.
SECTION 1.5 WAIVER OF NOTICE. If all of the shareholders of the
corporation shall waive notice of a meeting, no notice shall be required, and,
whenever all of the shareholders shall meet in person or by proxy, such meeting
shall be valid for all purposes without call or notice, and at such meeting any
corporate action may be taken.
SECTION 1.6 DETERMINATION OF SHAREHOLDERS OF RECORD.
(a) The Board of Directors may at any time fix a future date as a
record date for the determination of the shareholders entitled to notice
of any meeting or to vote or entitled to receive payment of any dividend
or other distribution or allotment of any rights or entitled to exercise
any rights in respect
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<PAGE> 3
of any other lawful action. The record date so fixed shall not be more
than sixty (60) days prior to the date of such meeting nor more than sixty
(60) days prior to any other action. When a record date is so fixed, only
shareholders of record on that date are entitled to notice of and to vote
at the meeting or to receive the dividend, distribution or allotment of
rights, or to exercise their rights, as the case may be, notwithstanding
any transfer of any share on the books of the corporation after the record
date.
(b) If no record date is fixed by the Board of Directors, then (1)
the record date for determining shareholders entitled to notice of or to
vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice
is waived, at the close of business on the day next preceding the day on
which the meeting is held; (2) the record date for determining
shareholders entitled to give consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which written consent is given; and (3) the
record date for determining shareholders for any other purpose shall be at
the close of business on the day on which the Board of Directors adopts
the resolution relating thereto, or the sixtieth (60th) day prior to the
date of such other action, whichever is later.
SECTION 1.7 QUORUM; ADJOURNED MEETINGS.
(a) At any meeting of the shareholders, a majority of the issued and
outstanding shares of the corporation represented in person or by proxy,
shall constitute a quorum.
(b) If less than a majority of the issued and outstanding shares are
represented, a majority of shares so represented may adjourn from time to
time at the meeting, until holders of the amount of stock required to
constitute a quorum shall be in attendance. At any such adjourned meeting
at which a quorum shall be present, any business may be transacted which
might have been transacted as originally called. When a shareholders'
meeting is adjourned to another time or place, notice need not be given of
the adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken, unless the adjournment is for
more than ten (10) days in which event notice thereof shall be given.
SECTION 1.8 VOTING.
(a) Each shareholder of record, such shareholder's duly authorized
proxy or attorney-in-fact shall be entitled to one (1) vote for each share
of stock standing registered in such shareholder's name on the books of
the corporation on the record date.
(b) Except as otherwise provided herein; all votes with respect to
share standing in the name of an individual on the record date (included
pledged shares)
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<PAGE> 4
shall be cast only by that individual or such individual's duly authorized
proxy or attorney-in-fact. With respect to shares held by a representative
of the estate of a deceased shareholder, guardian, conservator, custodian
or trustee, votes may be cast by such holder upon proof of capacity, even
though the shares do not stand in the name of such holder. In the case of
shares under the control of a receiver, the receiver may cast votes
carried by such shares even though the shares do not stand in the name of
the receiver provided that the order of the court of competent
jurisdiction which appoints the receiver contains the authority to cast
votes carried by such shares. If shares stand in the name of a minor,
votes may be cast only by the duly-appointed guardian of the estate of
such minor if such guardian has provided the corporation with written
notice and proof of such appointment.
(c) With respect to shares standing in the name of a corporation on
the record date, votes may be cast by such officer or agents as the
by-laws of such corporation prescribe or, in the absence of an applicable
by-law provision, by such person as may be appointed by resolution of the
Board of Directors of such corporation. In the event no person is so
appointed, such votes of the corporation may be cast by any person
(including the officer making the authorization) authorized to do so by
the Chairman of the Board of Directors, President or any Vice President of
such corporation.
(d) Notwithstanding anything to the contrary herein contained, no
votes may be cast by shares owned by this corporation or its subsidiaries,
if any. If shares are held by this corporation or its subsidiaries, if
any, in a fiduciary capacity, no votes shall be cast with respect thereto
on any matter except to the extent that the beneficial owner thereof
possesses and exercises either a right to vote or to give the corporation
holding the same binding instruction on how to vote.
(e) With respect to shares standing in the name of two or more
persons, whether fiduciaries, members of a partnership, joint tenants in
common, husband and wife as community property, tenants by the entirety,
voting trustees, persons entitled to vote under a shareholder voting
agreement or otherwise and shares held by two or more persons (including
proxy holders) having the same fiduciary relationship respect in the same
shares, votes may be cast in the following manner:
(1) If only one such person votes, the votes of such person
binds all.
(2) If more than one person casts votes, the act of the
majority so voting binds all.
(3) If more than one person cats votes, but the vote is evenly
split on a particular matter, the votes shall be deemed cast
proportionately as split.
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<PAGE> 5
(f) Any holder of shares entitled to vote on any matter may cast a
portion of the votes in favor of such matter and refrain from casting the
remaining votes or cast the same against the proposal, except in the case
of elections of directors. If such holder entitled to vote fails to
specify the number of affirmative votes, it will be conclusively presumed
that the holder is casting affirmative votes with respect to all shares
held.
(g) If a quorum is present, the affirmative vote of holders of a
majority of the shares represented at the meeting and entitled to vote on
any matter shall be the act of the shareholders, unless a vote of greater
number or voting by classes is required by the laws of the State of
Nevada, the Articles of Incorporation and these By-Laws.
SECTION 1.9 PROXIES. At any meeting of shareholders, any holder of shares
entitled to vote may authorize another person or persons to vote by proxy with
respect to the shares held by an instrument in writing and subscribed to by the
holder of such shares entitled to vote. No proxy shall be valid after the
expiration of six (6) months from the date of execution thereof, unless coupled
with an interest or unless otherwise specified in the proxy. In no event shall
the term of a proxy exceed seven (7) years from the date of its execution. Every
proxy shall continue in full force and effect until its expiration or
revocation. Revocation may be effected by filing an instrument revoking the same
or a duly-executed proxy bearing a later date with the secretary of the
corporation.
SECTION 1.10 ORDER OF BUSINESS. At the annual shareholders meeting, the
regular order of business shall be as follows:
(1) Determination of shareholders present and existence of quorum;
(2) Reading and approval of the minutes of the previous meeting or
meetings;
(3) Reports of the Board of Directors, the president, treasurer and
secretary of the corporation, in the order named;
(4) Reports of committee;
(5) Election of directors;
(6) Unfinished business;
(7) New business;
(8) Adjournment.
SECTION 1.11 ABSENTEES CONSENT TO MEETINGS. Transactions of any meeting of
the shareholders are as valid as though had at a meeting duly-held after regular
call and notice if a quorum is present, either in person or by proxy, and if,
either before or after
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the meeting, each of the persons entitled to vote, not present or by proxy (and
those who, although present, either object at the beginning of the meeting to
the transaction of any business because the meeting has not been lawfully called
or convened or expressly object at the meeting to the consideration of matters
not included in the notice which are legally required to be included therein),
signs a written waiver of notice and/or consent to the holding of the meeting or
an approval of the minutes thereof. All such waivers, consents, and approvals
shall be filed with the corporate records and made a part of the minutes of the
meeting. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person objects at the beginning of the meeting
to the transaction of any business because the meeting is not lawfully called or
convened and except that attendance at a meeting is not a waiver of any right to
object to the consideration of matters not included in the notice if such
objection is expressly made at the beginning. Neither the business to be
transacted at nor the purpose of any regular or special meeting of shareholders
need be specified in any written waiver of notice, except as otherwise provided
in Section 1.04(b) of these By-Laws.
SECTION 1.12 ACTION WITHOUT MEETING. Any action which may be taken by the
vote of the shareholders at a meeting may be taken without a meeting if
consented to bye the holders of a majority of the shares entitled to vote or
such greater proportion as may be required by the laws of the State of Nevada,
the Articles of Incorporation, or these By-Laws. Whenever action is taken by
written consent, a meeting of shareholders needs not be called or noticed.
ARTICLE II
DIRECTORS
SECTION 2.1 NUMBER, TENURE AND QUALIFICATION. Except as otherwise provided
herein, the Board of Directors of the corporation shall consist of at least one
(1) but no more than nine (9) persons, who shall be elected at the annual
meeting of the shareholders of the corporation and who shall hold office for one
(1) year or until their successors are elected and qualify.
SECTION 2.2 RESIGNATION. Any director may resign effective upon giving
written notice to the chairman of the Board of Directors, the president, or the
secretary of the corporation, unless the notice specifies a later time for
effectiveness of such resignation. If the Board of Directors accepts the
resignation of a director tendered to take effect at a future date, the Board or
the shareholders may elect a successor to take office when the resignation
becomes effective.
SECTION 2.3 REDUCTION IN NUMBER. No reduction of the number of directors
shall have the effect of removing any director prior to the expiration of his
term of office.
SECTION 2.4 REMOVAL.
(a) The Board of Directors or the shareholders of the corporation,
by a majority vote, may declare vacant the office of a director who has
been declared
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incompetent by an order of a court of competent jurisdiction or convicted
of a felony.
SECTION 2.5 VACANCIES.
(a) A vacancy in the Board of Directors because of death,
resignation, removal, change in number of directors, or otherwise may be
filled by the shareholders at any regular or special meeting or any
adjourned meeting thereof or the remaining director(s) by the affirmative
vote of a majority thereof. A Board of Directors consisting of less than
the maximum number authorized in Section 2.01 of ARTICLE II constitutes
vacancies on the Board of Directors for purposes of this paragraph and may
be filled as set forth above including by the election of a majority of
the remaining directors. Each successor so elected shall hold office until
the next annual meeting of shareholders or until a successor shall have
been duly-elected and qualified.
(b) If, after the filling of any vacancy by the directors, the
directors then in office who have been elected by the shareholders shall
constitute less than a majority of the directors then in office, any
holder or holders of an aggregate of five percent (5%) or more of the
total number of shares entitled to vote may call a special meeting of
shareholders to be held to elect the entire Board of Directors. The term
of office of any director shall terminate upon such election of a
successor.
SECTION 2.6 REGULAR MEETINGS. Immediately following the adjournment of,
and at the same place as, the annual meeting of the shareholders, the Board of
Directors, including directors newly elected, shall hold its annual meeting
without notice, other than this provision, to elect officers of the corporation
and to transact such further business as may be necessary or appropriate. The
Board of Directors may provide by resolution the place, date and hour for
holding additional regular meetings.
SECTION 2.7 SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the chairman and shall be called by the chairman upon the
request of any two (2) directors or the president of the corporation.
SECTION 2.8 PLACE OF MEETINGS. Any meeting of the directors of the
corporation may be held at its principal office in the State of Nevada, or at
such other place in or out of the United States as the Board of Directors may
designate. A waiver or notice signed by the directors may designate any place
for the holding of such meeting.
SECTION 2.9 NOTICE OF MEETINGS. Except as otherwise provided in Section
2.06, the chairman shall deliver to all directors written or printed notice of
any special meeting, at least three (3) days before the date of such meeting, by
delivery of such notice personally or mailing such notice first class mail, or
by telegram. If mailed, the notice shall be deemed delivered two (2) business
days following the date the same is deposited in the United States mail, postage
prepaid. Any director may waive notice of any meeting, and the attendance of a
director at a meeting shall constitute a waiver of notice
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of such meeting, unless such attendance is for the express purpose of objecting
to the transaction of business threat because the meeting is not properly called
or convened.
SECTION 2.10 QUORUM; ADJOURNED MEETINGS.
(a) A majority of the Board of Directors in office shall constitute
a quorum.
(b) At any meeting of the Board of Directors where a quorum is not
present, a majority of those present may adjourn, from time to time, until
a quorum is present, and no notice of such adjournment shall be required.
At any adjourned meeting where a quorum is present, any business may be
transacted which could have been transacted at the meeting originally
called.
SECTION 2.11 ACTION WITHOUT MEETING. Any action required or permitted to
be taken at any meeting of the Board of Directors or any committee thereof may
be taken without a meeting if a written consent thereto is signed by all of the
members of the Board of Directors or of such committee. Such written consent or
consents shall be filed with the minutes of the proceedings of the Board of
Directors or committee. Such action by written consent shall have the same force
and effect as the unanimous vote of the Board of Directors or committee.
SECTION 2.12 TELEPHONIC MEETINGS. Meetings of the Board of Directors may
be held through the use of a conference telephone or similar communications
equipment so long as all members participating in such meeting can hear one
another at the time of such meeting. Participation in such a meeting constitutes
presence in person at such meeting.
SECTION 2.13 BOARD DECISIONS. The affirmative vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
SECTION 2.14 POWERS AND DUTIES.
(a) Except as otherwise provided in the Articles of Incorporation or
the laws of the State of Nevada, the Board of Directors is invested with
the complete and unrestrained authority to manage the affairs of the
corporation, and is authorized to exercise for such purpose as the general
agent of the corporation, its entire corporate authority in such manner as
it sees fit. The Board of Directors may delegate any of its authority to
manage, control or conduct the current business of the corporation to any
standing or special committee or to any officer or agent and to appoint
any persons to be agents of the corporation with such powers, including
the power to sub-delegate, and upon such terms as may be deemed fit.
(b) The Board of Directors shall present to the shareholders at
annual meetings of the shareholders, and when called for by a majority
vote of the shareholders at a special meeting of the shareholders, a full
and clear statement of
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the condition of the corporation, and shall, at request, furnish each of
the shareholders with a true copy thereof.
(c) The Board of Directors, in its discretion, may submit any
contract or act for approval or ratification at any annual meeting of the
shareholders or any special meeting properly called for the purpose of
considering any such contract or act, provided a quorum is present. The
contract or act shall be valid and binding upon the corporation and upon
al the shareholders thereof, if approved and ratified by the affirmative
vote of a majority of the shareholders at such meeting.
(d) In furtherance and not in limitation of the powers conferred by
the laws of the State of Nevada, the Board of Directors is expressly
authorized and empowered to issue stock of the Corporation for money,
property, services rendered, labor performed, cash advanced, acquisitions
for other corporations or for any other assets of value in accordance with
the action of the Board of Directors without vote or consent of the
shareholders and the judgment of the Board of Directors as to the value
received and in return therefore shall be conclusive and said stock, when
issued, shall be fully-paid and non-assessable.
SECTION 2.15 COMPENSATION. The directors shall be allowed and paid all
necessary expenses incurred in attending any meetings of the Board.
SECTION 2.16 BOARD OF OFFICERS.
(a) At its annual meeting, the Board of Directors shall elect, from
among its members, a chairman to preside at the meetings of the Board of
Directors. The Board of Directors may also elect such other board officers
and for such term as it may, from time to time, determine advisable.
(b) Any vacancy in any board office because of death, resignation,
removal or otherwise may be filled by the Board of Directors for the
unexpired portion of the term of such office.
SECTION 2.17 ORDER OF BUSINESS. The order of business at any meeting of
the Board of Directors shall be as follows:
(1) Determination of members present and existence of quorum;
(2) Reading and approval of the minutes of any previous meeting or
meetings;
(3) Reports of officers and committeemen;
(4) Election of officers;
(5) Unfinished business;
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(6) New business;
(7) adjournment.
ARTICLE III
OFFICERS
SECTION 3.1 ELECTION. The Board of Directors, at its first meeting
following the annual meeting of shareholders, shall elect a president, a
secretary and a treasurer to hold office for one (1) meeting of shareholders,
shall elect a president, a secretary and a treasurer to hold office for one (1)
year next coming and until their successors are elected and qualify. Any person
may hold two or more offices. The Board of Directors may, from time to time, by
resolution, appoint one or more vice presidents, assistant secretaries,
assistant treasurers and transfer agents of the corporation as it may deem
advisable; prescribe their duties; and fix their compensation.
SECTION 3.2 REMOVAL; RESIGNATION. Any officer or agent elected or
appointed by the Board of Directors may be removed by it whenever, in its
judgment, the best interest of the corporation would be served thereby. Any
officer may resign at any time upon written notice to the corporation without
prejudice to the rights, if any, of the corporation under any contact to which
the resigning officer is a party.
SECTION 3.3 VACANCIES. Any vacancy in any office because of death,
resignation, removal, or otherwise may be filled by the Board of Directors for
the unexpired portion of the term of such office.
SECTION 3.4 PRESIDENT. The president shall be the general manager and
executive officer of the corporation, subject to the supervision and control of
the Board of Directors, and shall direct the corporate affairs, with full power
to execute all resolutions and orders of the Board of Directors not especially
entrusted t some other officer of the corporation. The president shall preside
at all meetings of the shareholders and shall sign the certificates of stock
issued by the corporation, and shall perform such other duties as shall be
prescribed by the Board of Directors.
Unless otherwise ordered by the Board of Directors, the president shall
have full power and authority on behalf of the corporation to attend and to act
and to vote at any meetings of the shareholders of any corporation in which the
corporation may hold stock and, at any such meetings, shall possess and may
exercise any and all rights and powers incident to the ownership of such stock.
The Board of Directors, by resolution from time to time, may confer like powers
on any person or persons in place of the president to represent the corporation
for these purposes.
SECTION 3.5 VICE PRESIDENT. The Board of Directors may elect one or more
vice presidents who shall vested with all the powers and perform all the duties
of the president whenever the president is absent or unable to act, including
the signing of the
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certificates of stock issued by the corporation, and the vice president shall
perform such other duties as shall be prescribed by the Board of Directors.
SECTION 3.6 SECRETARY. The secretary shall keep the minutes of all
meetings of the shareholders and the Board of Directors in books provided for
that purpose. The secretary shall attend to the giving and service of all
notices of the corporation, may sign with the president in the name of the
corporation all contracts authorized by the Board of Directors or appropriate
committee, shall have the custody of the corporate seal, shall affix the
corporate seal to all certificates of stock duly issued by the corporation,
shall have charge of stock certificate books, transfer books and stock ledgers,
and such other books and papers as the Board of Directors or appropriate
committee may direct, and shall, in general perform all duties incident to the
office of the secretary. All corporate books kept by the secretary shall be open
for examination by any director at any reasonable time.
SECTION 3.7 ASSISTANT SECRETARY. The Board of Directors may appoint an
assistant secretary who shall have such powers and perform such duties as may be
prescribed for him by the secretary of the corporation or by the Board of
Directors.
SECTION 3.8 TREASURER. The treasurer shall be the chief financial officer
of the corporation, subject to the supervision and control of the Board of
Directors, and shall have custody of all the funds and securities of the
corporation. When necessary or proper, the treasurer shall endorse on behalf of
the corporation for collection checks, notes and other obligations, and shall
deposit all monies to the credit of the corporation in such bank or banks or
other depository as the Board of Directors may designate, and shall sign all
receipts and vouchers for payments made by the corporation. Unless otherwise
specified by the Board of Directors, the treasurer shall sign with the president
all bills of exchange and promissory notes of the corporation, shall also have
the care and custody of the stocks, bonds, certificates, vouchers, evidence of
debts, securities and such other property belonging to the corporation as the
Board of Directors shall designate, and shall sign all papers required by law,
by these By-laws or by the Board of Directors to be signed by the treasurer. The
treasurer shall enter regularly in the books of the corporation, to be kept for
that purpose, full and accurate accounts of all monies received and paid on
account of the corporation and whenever required by the Board of Directors, the
treasurer shall render a statement of any or all accounts. The treasurer shall
at all reasonable times exhibit the books of account to any directors of the
corporation and shall perform al acts incident to the position of treasurer
subject to the control of the Board of Directors. The treasurer shall, if
required by the Board of Directors, give a bond to the corporation in such sum
and with such security as shall be approved by the Board of Directors for the
faithful performance of all the duties of the treasurer and for restoration to
the corporation in the event of the treasurer's death, resignation, retirement,
or removal from office, of all books, records, papers, vouchers, money and other
property belonging to the corporation. The expense of such bond shall be borne
by the corporation.
SECTION 3.9 ASSISTANT TREASURER. The Board of Directors may appoint an
assistant treasurer who shall have such powers and perform such duties as may be
prescribed by the treasurer of the corporation or by the Board of Directors, and
the Board
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of Directors may require the assistant treasurer to give a bond to the
corporation in such sum and with such security as it may approve, for the
faithful performance of the duties of assistant treasurer, and for the
restoration to the corporation, in the event of the assistant treasurer's death,
resignation, retirement or removal from office, of all books, records, papers,
vouchers, money and other property belonging to the corporation. The expense of
such bond shall be borne by the corporation.
ARTICLE IV
CAPITAL STOCK
SECTION 4.1 ISSUANCE. Shares of capital stock of the corporation shall be
issued in such manner and at such times and upon such conditions as shall be
prescribed by the Board of Directors.
SECTION 4.2 CERTIFICATES. Ownership in the corporation shall be evidenced
by certificates for shares for stock in such form as shall be prescribed by the
Board of Directors, shall be under the seal of the corporation and shall be
signed by the president or the vice president and also by the secretary or an
assistant secretary. Each certificate shall contain the name of the record
holder, the number, designation, if any, class or series of shares represented,
a statement of summary of any applicable rights, preferences, privileges, or
restrictions thereon, and a statement that the shares are assessable, if
applicable. All certificates shall be consecutively numbered. The name and
address of the shareholder, the number of shares, and the date of issue shall be
entered on the stock transfer books of the corporation.
SECTION 4.3 SURRENDER: LOST OR DESTROYED CERTIFICATES. All certificates
surrendered to the corporation, except those representing shares of treasury
stock, shall be canceled and no new certificates shall be issued until the
former certificate for a like number of shares shall have been canceled, except
that in case of a lost, stolen, destroyed or mutilated certificate, a new one
may be issued therefor. However, any shareholder applying for the issuance of a
stock certificate in lieu of one alleged to have been lost, stolen, destroyed or
mutilated shall, prior to the issuance of a replacement, provide the corporation
with his, her or its affidavit of the facts surrounding the loss, theft,
destruction or mutilation and an indemnity bond in an amount less than twice the
current market value of the stock and it shall indemnify the corporation against
any loss, damage, cost or inconvenience of the issuance of a replacement
certificate.
SECTION 4.4 REPLACEMENT CERTIFICATE. When the Articles of Incorporation
are amended in any way affecting the statements contained in the certificates
for outstanding shares of capital stock of the corporation or it becomes
desirable for any reason, including, without limitation, the merger or
consolidation of the corporation with another corporation or the reorganization
of the corporation, to cancel any outstanding certificate for shares and issue a
new certificate therefor conforming to the rights of the holder, the Board of
Directors may order any holders of outstanding certificates for shares to
surrender and exchange the same for new certificates within a reasonable time to
be fixed
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by the Board of Directors. The order may provide that a holder of any
certificate(s) ordered to be surrendered shall not be entitled to vote, receive
dividends or exercise any other rights of shareholders until the holder has
complied with the order provided that such order operates to suspend such rights
only after notice and until compliance.
SECTION 4.5 TRANSFER OF SHARES. No transfer of stock shall be valid as
against the corporation except on surrender and cancellation by the certificate
therefor, accompanied by an assignment or transfer by the registered owner made
either in person or under assignment. Whenever any transfer shall be expressly
made for collateral security and not absolutely, the collateral nature of the
transfer shall be reflected in the entry of transfer on the books of the
corporation.
SECTION 4.6 TRANSFER AGENT. The Board of Directors may appoint one or more
transfer agents and registrars of transfer and may require all certificates for
shares of stock to bear the signature of such transfer agent and such registrar
of transfer.
SECTION 4.7 STOCK TRANSFER BOOKS. The stock transfer books shall be closed
for a period of ten (10) days prior to all meetings of the shareholders and
shall be closed for the payment of dividends as provided in Article V hereof and
during such periods as, from time to time, may be fixed by the Board of
Directors, and, during such periods, no stock shall be transferable.
SECTION 4.8 MISCELLANEOUS. The Board of Directors shall have the power and
authority to make such rules and regulations not inconsistent herewith as it may
deem expedient concerning the issue, transfer and registration of certificates
for shares of the capital stock of the corporation.
ARTICLE V
DIVIDENDS
SECTION 5.1 Dividends may be declared, subject to the provisions of the
laws of the State of Nevada and the Articles of Incorporation, by the Board of
Directors at any regular or special meeting an may be paid in cash, property,
shares of corporate stock, or any other medium. The Board of Directors may fix
in advance a record date, as provided in Section 1.06 of these By-laws, prior to
the dividend payment for the purpose of determining shareholders entitled to
receive payment of any dividend. The Board of Directors may close the stock
transfer books for such purpose for a period of not more than ten (10) days
prior to the payment date of such dividend.
ARTICLE VI
OFFICES; RECORDS; REPORTS; SEAL AND FINANCIAL MATTERS
SECTION 6.1 PRINCIPAL OFFICE. The principal office of the corporation in
the State of Nevada shall be the Law Offices of Max C. Tanner, 2950 East
Flamingo Road,
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Suite G, Las Vegas, Nevada 89121, and the corporation may have an office in any
other state or territory as the Board of Directors may designate.
SECTION 6.2 RECORDS. The stock transfer books and a certified copy of the
By-laws, Articles of Incorporation, any amendments thereto, and the minutes of
other proceedings of the shareholders, the Board of Directors, and committees of
the Board of Directors shall be kept at the principal office of the corporation
for the inspection of all who have the right to see the same and for the
transfer of stock. All other books of the corporation shall be kept at such
places as may be prescribed by the Board of Directors.
SECTION 6.3 FINANCIAL REPORT ON REQUEST. Any shareholder or shareholders
holding at least five (5%) of the outstanding shares of any class of stock may
make a written request for an income statement of the corporation for the three
(3) month, six (6) month, or nine (9) month period of the current fiscal year
ended more than thirty (30) days prior to the date of the request and a balance
sheet of the corporation as of the end of such period. In addition, if no annual
report for the last fiscal year has been sent to shareholders, such shareholder
or shareholders may make a request for a balance sheet as of the end of such
fiscal year and an income statement and statement of changes in financial
position for such fiscal year. The statement and statement of changes in
financial position for such fiscal year. The statement shall be delivered or
mailed to the person making the request within thirty (30) days thereafter. A
copy of the statements shall be kept on file in the principal office of the
corporation for twelve (12) months, and such copies shall be exhibited at all
reasonable times to any shareholder demanding an examination of them or a copy
shall be mailed to each shareholder. Upon request by any shareholder, there
shall be mailed to the shareholder a copy of the last annual, semiannual or
quarterly income statement which it has prepared and a balance sheet as of the
end of the period. The financial statements referred to in this Section 6.03
shall be accompanied by the report thereon, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that such financial statements were prepared without
audit from the books and records of the corporation.
SECTION 6.4 RIGHT OF INSPECTION.
(a) The accounting books and records and minutes of proceedings of
the shareholders and the Board of Directors and committees of the Board of
Directors shall be open to inspection upon the written demand of any
shareholder or holder of a voting trust certificate at any reasonable time
during usual business hours for a purpose reasonably related to such
holder's interest as a shareholder or as the holder of such voting trust
certificate. This right of inspection shall extend to the records of the
subsidiaries, if any, of the corporation. Such inspection may be made in
person or by agent or attorney, and the right of inspection includes the
right to copy and make extracts.
(b) Every director shall have the absolute right at any reasonable
time to inspect and copy all books, records and documents of every kind
and to inspect the physical properties of the corporation and/or its
subsidiary corporations. Such
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inspection may be made in person or by agent or attorney, and the right o
inspection includes the right to copy and make extracts.
SECTION 6.5 CORPORATE SEAL. The Board of Directors may, by resolution,
authorize a seal, and the seal may be used by causing it, or a facsimile, to be
impressed or affixed or reproduced or otherwise. Except when otherwise
specifically provided herein, any officer of the corporation shall have the
authority to affix the seal to any document requiring it.
SECTION 6.6 FISCAL YEAR. The fiscal year-end of the corporation shall be
the calendar year or such other term as may be fixed by resolution of the Board
of Directors.
SECTION 6.7 RESERVES. The Board of Directors may create, by resolution,
out of the earned surplus of the corporation such reserves as the directors may,
from time to time, in their discretion, think proper to provide for
contingencies, or to equalize dividends or to repair or maintain any property of
the corporation, or such other purpose as the Board of Directors may deem
beneficial to the corporation, and the directors may modify or abolish any such
reserves in the manner in which they were created.
ARTICLE VII
INDEMNIFICATION
SECTION 7.1 INDEMNIFICATION. The corporation shall, unless prohibited by
Nevada Law, indemnify any person (an "Indemnitee") who is or was involved in any
manner (including, without limitation, as a party or a witness) or is threatened
to be so involved in any threatened, pending or completed action suit or
proceeding, whether civil, criminal, administrative, arbitrative or
investigative, including without limitation, any action, suit or proceeding
brought by or in the right of the corporation to procure a judgment in its favor
(collectively, a "Proceeding") by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other entity or enterprise, against all Expenses and Liabilities actually and
reasonably incurred by him in connection with such Proceeding. The right to
indemnification conferred in this Article shall be presumed to have been relied
upon by the directors, officers, employees and agents of the corporation and
shall be enforceable as a contract right and inure to the benefit of heirs,
executors and administrators of such individuals.
SECTION 7.2 INDEMNIFICATION CONTRACTS. The Board of Directors is
authorized on behalf of the corporation, to enter into, deliver and perform
agreements or other arrangements to provide any Indemnitee with specific rights
of indemnification in addition to the rights provided hereunder to the fullest
extent permitted by Nevada Law. Such agreements or arrangements may provide (i)
that the Expenses of officers and directors incurred in defending a civil or
criminal action, suit or proceeding, must be paid by the corporation as they are
incurred and in advance of the final disposition of any such
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action, suit or proceeding provided that, if required by Nevada Law at the time
of such advance, the officer or director provides an undertaking to repay such
amounts if it is ultimately determined by a court of competent jurisdiction that
such individual is not entitled to be indemnified against such expenses, (iii)
that the Indemnitee shall be presumed to be entitled to indemnification under
this Article or such agreement or arrangement and the corporation shall have the
burden of proof to overcome that presumption, (iii) for procedures to be
followed by the corporation and the Indemnitee in making any determination of
entitlement to indemnification or for appeals therefrom and (iv) for insurance
or such other Financial Arrangements described in Paragraph 7.02 of this
Article, all as may be deemed appropriate by the Board of Directors at the time
of execution of such agreement or arrangement.
SECTION 7.3 INSURANCE AND FINANCIAL ARRANGEMENTS. The corporation may,
unless prohibited by Nevada Law, purchase and maintain insurance or make other
financial arrangements ("Financial Arrangements") on behalf of any Indemnitee
for any liability asserted against him and liability and expenses incurred by
him in his capacity as a director, officer, employee or agent, or arising out of
his status as such, whether or not the corporation has the authority to
indemnify him against such liability and expenses. Such other Financial
Arrangements may include (i) the creation of a trust fund, (ii) the
establishment of a program of self-insurance, (iii) the securing of the
corporation's obligation of indemnification by granting a security interest or
other lien on any assets of the corporation, or (iv) the establishment of a
letter of credit, guaranty or surety.
SECTION 7.4 DEFINITIONS. For purposes of this Article:
EXPENSES. The word "Expenses" shall be broadly construed and,
without limitation, means (I) all direct and indirect costs incurred, paid
or accrued, (ii) all attorneys' fees, retainers, court costs, transcripts,
fees of experts, witness fees, travel expenses, food and lodging expenses
while traveling, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service, freight or other transportation fees
and expenses, (iii) all other disbursements and out-of-pocket expenses,
(iv) amounts paid in settlement, to the extent permitted by Nevada Law,
and (v) reasonable compensation for time spent by the Indemnitee for which
he is otherwise not compensated by the corporation or any third party,
actually and reasonably incurred in connection with either the appearance
at or investigation, defense, settlement or appeal of a Proceeding or
establishing or enforcing a right to indemnification under any agreement
or arrangement, this Article, the Nevada Law or otherwise; provided,
however, that "Expenses" shall not include any judgments or fines or
excise taxes or penalties imposed under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or other excise taxes or
penalties.
LIABILITIES. "Liabilities" of any type whatsoever, including,
but not limited to, judgments or fines, ERISA or other excise taxes and
penalties, and amounts paid in settlement.
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NEVADA LAW. "Nevada Law" means Chapter 78 of the Nevada Revised
Statutes as amended and in effect from time to time or any successor or
other statutes of Nevada having similar import and effect.
THIS ARTICLE. "This Article" means Paragraphs 7.01 through 7.04
of these By-Laws or any portion of them.
POWER OF STOCKHOLDERS. Paragraphs 7.01 through 7.04, including this
Paragraph, of these By-Laws may be amended by the stockholders only by
vote of the holders of sixty-six and two-thirds percent (66 2/3%) of the
entire number of shares of each class, voting separately, of the
outstanding capital stock of the corporation (even though the right of any
class to vote is otherwise restricted or denied); provided, however, no
amendment or repeal of this Article shall adversely affect any right of
any Indemnitee existing at the time such amendment or repeal becomes
effective.
POWER OF DIRECTORS. Paragraphs 7.01 through 7.04 and this Paragraph
of these By-Laws may be amended or repealed by the Board of Directors only
by vote of eighty percent (80%) of the total number of Directors and the
holders of sixty-six and two-thirds percent (66 2/3%) of the entire number
of shares of each class, voting separately, of the outstanding capital
stock of the corporation (even though the right of any class to vote is
otherwise restricted or denied); provided, however, no amendment or repeal
of this Article shall adversely affect any right of any Indemnitee
existing at the time such amendment or repeal becomes effective.
ARTICLE VIII
BY-LAWS
SECTION 8.1 AMENDMENT. Amendments and changes of these By-Laws may be made
at any regular or special meeting of the Board of Directors by a vote of not
less than all of the entire Board, or may be made by a vote of, or a consent in
writing signed by the holders of a majority of the issued and outstanding
capital stock.
SECTION 8.2 ADDITIONAL BY-LAWS. Additional by-laws not inconsistent
herewith may be adopted by the Board of Directors at any meeting of the Board of
Directors at which a quorum is present by an affirmative vote of a majority of
the directors or by the unanimous consent of the Board of Directors in
accordance with Section 2.11 of these By-laws.
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CERTIFICATION
I, the undersigned, being the duly elected secretary of the Corporation,
do hereby certify that the foregoing By-laws were adopted by the Board of
Directors on the 11th day of March, 1997.
/s/ Lise-Lotte Ruzicka
-------------------------------------------
Lise-Lotte Ruzicka, Secretary
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EXHIBIT 4.1
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
WESTERN FOOD DISTRIBUTORS, INC.
20,000,000 AUTHORIZED SHARES $.001 PAR VALUE
NONASSESSABLE
This Certifies that
is the record holder of
shares of WESTERN FOOD DISTRIBUTORS, INC. Common Stock
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed.
This Certificate is not valid until countersigned by
the Transfer Agent and the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers. Dated:
- ---------------------- ----------------------
Secretary/Treasurer President
[Corporate Seal]
Countersigned and Registered
Silver State Registrar
P.O. Box 17885, Salt Lake City, Utah 84117
By: Authorized Signature
------------------------------------------
<PAGE> 1
EXHIBIT 4.2
466,650 Common Shares Void after
Par Value of U.S. $0.001 October 1, 2001
SHARE PURCHASE WARRANT
WESTERN FOOD DISTRIBUTORS, INC.
(the "Company")
This is to certify that, for value received, Savoy Holdings Limited (the
"Warrant Holder") of Suite 2B-Mansion House, 143 Main Street, Gibraltar, has the
right to purchase from the Company upon and subject to the terms and conditions
hereinafter referred to, 466,650 common shares having a par value of U.S. $0.001
per share (the "Shares") in the capital of the Company. The Shares may be
purchased at a price of:
1. U.S. $5.63 per Share at any time up to 5:00 p.m. local time in Seattle,
Washington on October 1, 2000 and
2. U.S. $6.75 per Share at any time up to 5:00 p.m. local time in Seattle,
Washington on October 1, 2001.
The right to purchase the Shares may be exercised in whole or in part, by the
Warrant Holder only, at the prices set forth above (the "Exercise Price") within
the times set forth above by:
(a) completing and executing the Subscription Form attached hereto
for the number of the Shares which the Warrant Holder wishes
to purchase, in the manner therein indicated;
(b) surrendering this Warrant Certificate, together with the
completed Subscription Form, to Silver State Registrar (the
"Transfer Agent"); and
(c) paying the appropriate Exercise Price, in United States funds,
for the number of the Shares of the Company subscribed for,
either by certified cheque or bank draft or money order
payable to the Company in Seattle, Washington or such other
address as the Company may advise by written notice to the
address of the Warrant Holder set forth above.
Upon surrender and payment, the Company shall issue to the Warrant Holder or to
such other person or persons as the Warrant Holder may direct, the number of the
Shares subscribed for and will deliver to the Warrant Holder, at the address set
forth on the subscription form, a certificate or certificates evidencing the
number of the Shares subscribed for. If the Warrant Holder subscribes for a
number of Shares which is less than the number of Shares permitted by this
warrant, the Company shall forthwith cause to be delivered to the Warrant Holder
a further Warrant Certificate in respect of the balance of Shares referred to in
this Warrant Certificate not then subscribed for.
In the event of any subdivision of the common shares of the Company (as such
common shares are constituted on the date hereof) into a greater number of
common shares while this warrant is outstanding, the number of Shares
represented by this warrant shall thereafter be deemed to be subdivided in like
manner and the Exercise Price adjusted accordingly, and any subscription by the
Warrant Holder for Shares hereunder shall be deemed to be a subscription for
common shares of the Company as subdivided.
In the event of any consolidation of the common shares of the Company (as such
common shares are constituted on the date hereof) into a lesser number of common
shares while this warrant is outstanding, the number of Shares represented by
this warrant shall thereafter be deemed to be consolidated in like manner and
the Exercise Price adjusted accordingly, and any subscription by the Warrant
Holder for Shares hereunder shall be deemed to be a subscription for common
shares of the Company as consolidated.
<PAGE> 2
In the event of any capital reorganization or reclassification of the common
shares of the Company or the merger or amalgamation of the Company with another
corporation at any time while this warrant is outstanding, the Company shall
thereafter deliver at the time of purchase of the Shares hereunder the number of
common shares the Warrant Holder would have been entitled to receive in respect
of the number of Shares so purchased had the right to purchase been exercised
before such capital reorganization or reclassification of the common shares of
the Company or the merger or amalgamation of the Company with another
corporation.
If at any time while this, or any replacement, warrant is outstanding:
(a) the Company proposes to pay any dividend of any kind upon its common
shares or make any distribution to the holders of its common shares;
(b) the Company proposes to offer for subscription pro rata to the holders
of its common shares any additional shares of stock of any class or
other rights;
(c) the Company proposes any capital reorganization or classification of
its common shares or the merger or amalgamation of the Company with
another corporation; or
(d) there is a voluntary or involuntary dissolution, liquidation or
winding-up of the Company.
The Company shall give to the Warrant Holder at least seven days prior written
notice (the "Notice") of the date on which the books of the Company are to close
or a record is to be taken for such dividend, distribution or subscription
rights, or for determining rights to vote with respect to such reorganization,
reclassification, consolidation, merger, amalgamation, dissolution, liquidation
or winding-up. The Notice shall specify, in the case of any such dividend,
distribution or subscription rights, the date on which holders of common shares
of the Company will be entitled to exchange their common shares for securities
or other property deliverable upon any reorganization, reclassification,
consolidation, merger, amalgamation, sale, dissolution, liquidation or
winding-up, as the case may be. Each Notice shall be delivered by hand,
addressed to the Warrant Holder at the address of the Warrant Holder set forth
above or at such other address as the Warrant Holder may from time to time
specify to the Company in writing.
The holding of this Warrant Certificate or the Warrants represented hereby does
not constitute the Warrant Holder a member of the Company.
Nothing contained herein confers any right upon the Warrant Holder or any other
person to subscribe for or purchase any Shares of the Company at any time
subsequent to 5:00 p.m. local time in Seattle, Washington on October 1, 2001 and
from and after such time, this Warrant and all rights hereunder will be void.
The Warrants represented by this warrant Certificate are non-transferable. Any
Common shares issued pursuant to this Warrant will bear the following legend:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 19933, AS AMENDED
(THE "1933 ACT"), OR THE SECURITIES LAW OF ANY STATE, AND MAY BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED OR ASSIGNED ONLY (i) TO
THE COMPANY; (ii) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH
REGULATIONS UNDER THE 1933 ACT; (iii) IN ACCORDANCE WITH RULE 144 UNDER
THE 1933 ACT; OR (iv) IN A TRANSACTION THAT IS OTHERWISE EXEMPT FROM
REGISTRATION UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS,
PROVIDED, PRIOR TO ANY SUCH SALE, TRANSFER OR ASSIGNMENT, THE COMPANY
SHALL HAVE RECEIVED AN OPINION OF COUNSEL, IN FORM ACCEPTABLE TO THE
COMPANY, THAT NO VIOLATION OF
2
<PAGE> 3
SUCH REGISTRATION PROVISIONS WOULD RESULT FROM ANY PROPOSED TRANSFER OR
ASSIGNMENT. HEDGING TRANSACTIONS INVOLVING THE SECURITIES REPRESENTED
HEREBY MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE U.S.
SECURITIES ACT."
Time will be of the essence hereof.
This Warrant Certificate is not valid for any purpose until it has been signed
by the company.
IN WITNESS WHEREOF, the Company has caused this warrant certificate to be signed
by one of its directors as of the 1st day of October, 1999.
WESTERN FOOD DISTRIBUTORS, INC.
Per:
/s/ Doug McLeod
- ------------------------
Doug McLeod
Director
3
<PAGE> 4
SUBSCRIPTION FORM
To: Western Food Distributors, Inc. (the "Company")
And to: The directors thereof.
Pursuant to the Share Purchase Warrant made the ___day of ___________,1999, the
undersigned hereby subscribes for and agrees to take up ? common shares having a
par value of U.S. $ ? (the Shares") in the capital of the Company, at a price of
U.S. $ ? per Share for the aggregate sum of $ ? (the "Subscription Funds"), and
encloses herewith a certified cheque, bank draft or money order payable to the
Company in full payment of the Shares.
The undersigned hereby requests that:
(a) the Shares be allotted to the undersigned;
(b) the name and address of the undersigned as shown below be entered in
the registers of members and allotments of the Company;
(c) the Shares be issued to the undersigned as fully paid and
non-assessable common shares of the Company; and
(d) a share certificate representing the Shares be issued in the name of
the undersigned.
4
<PAGE> 5
Dated this ___day of _______, 19__.
DIRECTION AS TO REGISTRATION:
(Name and address exactly as you wish them to appear on your share certificate
and in the register of members.)
Full Name(1) : ________________________________________________________________
Full Address: ________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Signature of Subscriber(1): _____________________________________________
If the name above differs from the name
of the Subscriber, then please complete
the following guarantee:
Signature of Subscriber(1) guaranteed by:
______________________________
Authorized Signature Number
NOTE: The signature to this subscription form must correspond with the name as
recorded on the warrant certificate in every particular without alteration or
enlargement or any change whatever. The signature of the person executing this
power must be guaranteed in a manner satisfactory to the Company's transfer
agent.
5
<PAGE> 1
**** CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED.
EXHIBIT 10.1
WEB SITE AND INTERACTIVE TELEVISION DEVELOPMENT AGREEMENT
BY AND BETWEEN
CTV TELEVISION INC.
AND
BLUE ZONE PRODUCTIONS LTD.
DATED AS OF DECEMBER 14, 1999
This WEB SITE AND INTERACTIVE TELEVISION DEVELOPMENT AGREEMENT
("Agreement"), dated as of December 14, 1999, is by and between Blue Zone
Productions Ltd., a corporation formed under the laws of Bermuda having an
office at Reid House, 31 Church Street, Hamilton Bermuda ("Blue Zone"), and CTV
Television Inc., a corporation formed under the laws of Canada having
headquarters at 9 Channel Nine Court, Toronto, Ontario M1S 4B5 ("CTV").
W I T N E S S E T H :
WHEREAS, Blue Zone designs Web sites for use on the Internet's World
Wide Web and provides certain Web hosting and interactive television development
services;
<PAGE> 2
CONFIDENTIAL
WHEREAS, CTV desires to engage Blue Zone to create, develop, test,
deliver, manage, and consult with respect to the CTV Web Site; and
WHEREAS, Blue Zone wants to undertake such work,
NOW THEREFORE, in consideration of the promises and mutual covenants
and agreements hereinafter contained, the receipt and sufficiency of which is
hereby mutually acknowledged, the parties hereto agree as follows:
Section 1. Definitions.
Under this Agreement, the following terms will have the following
meanings:
"Blue Zone Intellectual Property" has the meaning set forth in Section
5(c).
"Canadian Television Company" means a CRTC-licensed programming
undertaking under the Canadian Broadcasting Act, a broadcasting company
excluding radio whose headquarters is in Canada, whose primary target area and
audience/viewers are in Canada, whose signals are broadcast from within Canada,
and which is Canadian-owned and Canadian-controlled. The term expressly excludes
U.S. and other foreign-owned television broadcasting companies whose broadcast
signals may be or are received within Canada.
"Completion Certification" means the issuance of a written certificate
of the Designated CTV Representative acting reasonably that the testing of the
CTV Web Site has been successfully concluded, and that the CTV Web Site
demonstrates substantially all of the material content, core functionality and
performance characteristics described in the Specifications when tested
according to the agreed upon Test Plan, all as described more fully in Section
2.
"Consulting Fee" has the meaning set forth in Section 3.
"Corrected Version" means a version of the CTV Web Site prepared
substantially for the purpose of correcting Nonconformities in the CTV Web Site.
"CTV Materials" means the proprietary materials whether or not
designated in writing as such by CTV and delivered by CTV to Blue Zone for the
purpose of assisting Blue Zone in completing its obligations hereunder. "CTV
Materials" may include video, text and graphical content deemed appropriate by
CTV for public distribution, in digital or hard copy format, including articles,
news stories and flow charts, as well as CTV's marketing plans.
"Confidential Information" has the meaning set forth in Section 10.
"Content Model" has the meaning set forth in Section 2(b)(iii)
<PAGE> 3
CONFIDENTIAL
"CTV Web Site" means the interactive video-to-publishing cross-media,
multi-platform environment including Internet (high and low bandwidth/speed),
web TV, and digital set-top environment using CTV Newsnet and CTV National News
as sources. The term "CTV Web Site" does not include Blue Zone Intellectual
Property.
"Designated CTV Representative" has the meaning set forth in Section
12(b)(ii).
"Effective Date" means the date first set forth above, which upon
execution of the Agreement by both parties, will be the effective date of this
Agreement.
"Final Acceptance" has the meaning set forth in Section 2(b)(vi)(3).
"includes" or "including", except where followed directly by the word
"only," means, "includes, but is not limited to" and "including, but not limited
to," respectively; it being the intention of the parties that any listing
following thereafter is illustrative and non exclusive or exhaustive.
"Indemnified Party" has the meaning set forth in Section 6(c).
"Indemnitor" has the meaning set forth in Section 6(c).
"License" has the meaning set forth in Section 5(d).
"Nonconformity" means a material design error, design defect,
functional defect, programming error or anomaly in the CTV Web Site and/or
deviation from the Specifications in the reasonable determination of Blue Zone.
"Phase I" means the process described in Section 2(a).
"Phase II" means the process described in Section 2(b).
"Specifications" has the meaning set forth in Section 2(a)(i).
"Term" has the meaning set forth in Section 13(a).
"Test Plan" has the meaning set forth in Section 2(b)(vi).
"Third-Party Commercial Matter" has the meaning set forth in Section
5(e).
"Web Site" means a computer system, but not the hardware, intended to
be accessed via the World Wide Web segment of the Internet or via an alternative
signal or proprietary transmissions of interactive data, including the content
intended to be viewed or accessed by persons so accessing the computer system.
"Year 2000 Compliant" means a product which:
<PAGE> 4
CONFIDENTIAL
(i) accepts, calculates, compares, sorts, extracts, sequences,
and otherwise processes date inputs and date values (whether forward or
backward), and returns, generates, processes and displays date output
and date values, accurately, without interruptions, and in a consistent
manner (without errors or omissions due to date selection), regardless
of the date used, and whether before, on or after January 1, 2000 and
whether or not the dates are affected by leap years;
(ii) accepts and responds to two-digit year-date input in a
manner that resolves any ambiguities as to the century in a defined,
predetermined, and manner agreed to by the parties to be appropriate;
and
(iii) stores, processes and displays date information
(including, without limitation, in user interfaces and data fields) in
ways that are unambiguous as to the determination of the century in a
defined, predetermined and appropriate manner.
Section 2. Development of the CTV Web Site.
(a) Phase I.
(i) Preparation of Specifications. The CTV Web Site will
aggregate content from CTV News and CTV National News. Blue Zone will prepare,
with the assistance of CTV, specifications for the CTV Web Site setting forth
the concept; subject matter; major formatting requirements and other required
technical characteristics of the content; operation and technical requirements;
use and capacity expectations and other pertinent information for the CTV Web
Site; the development activities of the parties; the preliminary development
budget for the CTV Web Site; the allocation of responsibilities; and the
preliminary timelines for completion of those activities with respect to the CTV
Web Site (the "Specifications"), all as further described on Schedule A hereto.
The parties understand and agree that the Specifications may be modified from
time to time with the written agreement of the parties. The CTV Web Site will
not be required to meet standards or have characteristics which are not set
forth in the Specifications or in any agreed upon written modifications thereto.
(ii) Schedule for Preparation of Specifications. Blue Zone
will have ten (10) business days from the date hereof (which time may be
extended by mutual agreement of the parties acting reasonably) to prepare and
deliver to CTV a preliminary version of the Specifications. CTV will have five
(5) business days (which date may be extended by mutual agreement of the parties
acting reasonably) from the date it receives a copy of the proposed
Specifications to accept the Specifications, and such acceptance will not be
unreasonably withheld or delayed. Blue Zone agrees to make itself available for
a "walk through" of the preliminary Specifications during this review period.
Acceptance of the Specifications will be deemed to have occurred if CTV provides
Blue Zone with written notice of acceptance or if CTV fails to reject the
Specifications by written notice to Blue Zone delivered within such five (5)
business day period, at which point the parties will be deemed to have agreed to
proceed to Phase II. In the event that CTV, acting reasonably, rejects the
Specifications, CTV will notify Blue Zone in writing, and will
<PAGE> 5
CONFIDENTIAL
specify its reasons in such notice for such rejection. If CTV rejects the
Specifications, Blue Zone will have thirty (30) business days (which date may be
extended by mutual agreement of the parties acting reasonably in light of the
objections made by CTV) in which to prepare and submit revised Specifications,
in which case the provisions of this Section 2 will apply to such re-submission
until such time as the Specifications are accepted by CTV. In the event that CTV
rejects the Specifications, CTV agrees to make itself available for a "walk
through" of its reasons for rejection during this 30 business day period. Unless
otherwise agreed in writing, the total time period for completion of Phase I
will not exceed sixty (60) business days. Either party may elect to review Phase
I materials prepared by Blue Zone or submitted by the other party "on line" in
lieu of or in addition to any in-person "walk through." In the event that the
parties cannot reach agreement on the revised Specifications, either party may
terminate the Agreement with no further liability on either party's part, except
for payments due and payments of amounts owed for costs and expenses incurred to
that date.
(iii) Payment Schedule for Phase I. The total consideration to
be paid to Blue Zone by CTV for Phase I is as specified on Schedule G, which
non-refundable amount has been received by Blue Zone from CTV.
(b) Phase II.
(i) Development of CTV Web Site. Upon successful completion of
Phase I, Blue Zone will then proceed to use its commercially reasonable efforts
to design, build and develop the CTV Web Site in accordance with the
Specifications, pursuant to the terms and conditions hereunder. During the
course of the development, Blue Zone will develop an executable and baseline
architecture; the specification of all important architecture patterns; a
release plan; and a risk assessment plan. Unless otherwise agreed in writing,
Blue Zone will deliver the CTV Web Site for Completion Certification according
to the agreed Test Plan no later than August 31, 2000.
(ii) Acquisition of Rights From Third Parties. Except with
respect to the CTV Materials, the CTV Web Site content furnished by CTV, and any
other materials supplied by CTV, for all of which CTV will bear all
responsibility, Blue Zone will be responsible for obtaining all rights and/or
permissions from any third party, if any, subject to approval by CTV which are
necessary for the development and use of the CTV Web Site, subject to the
restrictions set forth in this Agreement and in third party commercial software
licenses used by Blue Zone in developing and operating the CTV Web Site.(which
are subject to approval by CTV ) CTV shall pay all approved costs and expenses
associated with obtaining these rights and/or permissions within 45 days of
receiving Blue Zone's invoice for same.
(iii) CTV Acceptance of Content Model. As soon as is practical
after completion of the Specifications applicable to the intended content of the
CTV Web Site and delivery to Blue Zone by CTV of any and all content to be
supplied by CTV, Blue Zone will prepare and present to CTV prototypes or mockups
of the appearance and operation of the CTV Web Site and implementation and
presentation of the intended content (the "Content Model"). CTV will have ten
(10) business days after the date on
<PAGE> 6
CONFIDENTIAL
which CTV receives from Blue Zone a copy of the proposed Content Model to accept
the Content Model, with such acceptance not to be unreasonably withheld or
delayed. Blue Zone will make itself available for questions and discussions of
the Content Model during this period. In the event that CTV rejects the Content
Model or any portion thereof, CTV will notify Blue Zone in writing, and will
specify its reasons for such rejection. CTV and Blue Zone will make itself
available for questions and discussions relating to CTV's rejection during this
period. If CTV rejects the Content Model, Blue Zone will have thirty (30)
business days, or such further time as, acting reasonably, it advises CTV is
necessary in light of CTV's reasons for rejection, in which to prepare and
submit a revised Content Model. In this case the provisions of this Section 2
will apply to such re-submission until such time as the Content Model is
accepted by CTV. In the event the parties cannot reach an agreement on a revised
Content Model, either party may terminate this Agreement with no further
liability on the part of either party, except for payments of amounts owed to
Blue Zone for services provided and costs and expenses incurred to that date.
(iv) Training. During the course of the Phase II development
process and prior to Final Acceptance, Blue Zone will commence training of
approximately 25 (subject to adjustment as the parties may agree) individuals,
who may, with CTV's approval, be CTV employees, in the requirements and
techniques of content production for the CTV Web Site.
(v) Personnel Funding/CTV Employees. During Phase II, CTV will
make available funding as specified on Schedule F, for approximately 25
individuals who will be engaged in content production and integration of CTV
Materials. Should Blue Zone and CTV agree that additional personnel will be
necessary, the parties shall agree on the appropriate number of personnel at
CTV's cost. At CTV's sole election, the personnel may be CTV personnel dedicated
to this project. CTV and Blue Zone will agree on the suitable technology,
graphic design, digital video, and/or management experience such employees must
have. CTV will indemnify and hold Blue Zone harmless for any acts or omissions
of CTV's employees whose services are provided in accordance with this provision
provided they are CTV employees. Blue Zone will indemnify and hold CTV harmless
for any acts or omissions of Blue Zone's employees whose services are provided
in accordance with this provision provided they are Blue Zone employees. Under
no circumstances will either party's employees bind the other party. CTV will
instruct any such CTV employees that Blue Zone has full authority to direct such
CTV employees with respect to the activities contemplated in Sections 2(b)(iv)
and (v). Either party will remove any one of its employees from such training
program at the reasonable request of the other party. CTV may replace any CTV
employee in such training program for any reason; provided, however, that CTV
agrees that Blue Zone will not be responsible for training more than a mutually
agreed number of replacement employees during the course of this Agreement
except upon the additional payment to Blue Zone of an agreed upon training fee
per CTV additional employee who Blue Zone trains pursuant to this Section
2(b)(v). To the extent that personnel requirements are met through the use of
CTV employees, CTV shall pay those employees directly and the payments CTV makes
to those employees shall be deducted from CTV's payment obligations under this
<PAGE> 7
CONFIDENTIAL
paragraph. Blue Zone shall not be responsible for withholding or other required
payments with respect to CTV employees acting pursuant to this paragraph.
(vi) Technical Testing and Acceptance.
(1) Test Plan. Blue Zone will develop a test plan in
consultation with CTV for the purpose of unit testing,
integration testing and live environment testing of the CTV
Web Site and determining whether and when the CTV Web Site is
suitable for Completion Certification (the "Test Plan"). The
Test Plan will include procedures to be followed in conducting
actual online testing through Internet access prior to
publication of the address of the CTV Web Site or public
announcement of availability of the CTV Web Site and include
test scripts for each testing level which shall be designed by
the parties. The Test Plan will be subject to the prior
written approval of CTV, which approval will not be
unreasonably withheld or delayed.
(2) During the development phase Blue Zone will
periodically conduct preliminary testing in accordance with
the Test Plan, and will report the results of such completed
testing to CTV. The parties understand and agree that interim
or preliminary versions of the CTV Web Site may contain
Nonconformities which are not detected during preliminary
testing because of the limited nature of such testing,
including the facts that (a) a module or incomplete portion
may perform acceptably on its own, but fail to perform
acceptably when integrated with other elements of the CTV Web
Site or when operated in conjunction with hardware or other
software with which it is intended to operate, and (b)
preliminary testing does not include live environment testing
on real data. Once Blue Zone has completed work on the CTV Web
Site off-line, it will run the agreed upon Test Plan on-line
through Internet access prior to publication of the address of
the CTV Web Site or public announcement of availability of the
CTV Web Site and will provide the CTV Designated
Representative with the opportunity to view this testing. If
for ten (10) consecutive days or a for reasonable period of
time as the parties may agree (i) the completed CTV Web Site
reasonably appears to have the functionality and performance
as set forth in the Specifications; (ii) the completed CTV Web
Site reasonably appears to perform the functions described in
the Specifications in the manner described; (iii) the
completed CTV Web Site reasonably appears to be free from
material Nonconformities; and (iv) the completed CTV Web Site
reasonably appears to have no Nonconformities which cause
operational failure and/or premature termination of operation
of the CTV Web Site or any component thereof, CTV will issue a
Completion Certification. If the CTV Web Site does not pass
the Test Plan, CTV and Blue Zone will confer as to the reasons
and agree to a schedule for Blue Zone to correct any
<PAGE> 8
CONFIDENTIAL
Nonconformities and resubmit the CTV Web Site for testing
under the Test Plan.
(3) Final Acceptance. Final Acceptance shall be
deemed to have occurred if CTV issues a Completion
Certification. In any event, should CTV commence live
commercial operation of the CTV Web Site, CTV will be deemed
to have finally accepted the CTV Web Site provided testing is
complete and successful in accordance with specifications.
(4) Preparation of Corrected Versions. During the
course of testing and through Final Acceptance, Blue Zone
will, to the extent practical, diligently prepare Corrected
Versions on a commercially reasonable basis on a timetable
taking into account the extent of any changes required to be
made by Blue Zone to prepare a Corrected Version.
(vii) Maintenance and Enhancement. Blue Zone will provide CTV
with the technical and formatting specifications which graphic and other content
submitted for inclusion in the Web Site must meet and will, pursuant to and
subject to the terms of the License granted in Section 5, provide employees
designated by CTV with access to Blue Zone input mechanisms for adding content
to the CTV Web Site and with Blue Zone methodologies for inputting, integrating
and modifying CTV content for the CTV Web Site. Such access is granted solely
for the purpose of permitting CTV employees to use said mechanisms and
methodologies to add CTV Material to or delete it from the CTV Web Site. All
such mechanisms and methodologies are Confidential Information. Only mutually
agreed upon CTV employees who have received appropriate training in the
techniques described in Sections 2(b)(iv) and (v) shall be given access to such
mechanisms and methodologies. Said employees may not reproduce, modify, divulge,
copy, reverse engineer, deal in or transfer Blue Zone's input, integration, or
modification mechanisms or methodologies, or use them other than as specified
herein, or permit others to do so.
(viii) Payment Schedule for Phase II. The total production fee
to be paid to Blue Zone by CTV for Phase 2 will be as specified on Schedule G,
to be paid by CTV as follows:
25% on execution of this Agreement
10% on acceptance by CTV of the Content Model
10% on delivery of the Specifications and Development
Plan
25% on delivery of the CTV Web site for testing on-line
according to the Test Plan
30% on issuance by CTV of the Completion Certification
and in no event later than August 31, 2000 provided
Blue Zone delivers the CTV Web Site for Completion
Certification on this said date, or as mutually
agreed.
<PAGE> 9
CONFIDENTIAL
In addition, CTV will reimburse Blue Zone for all of its reasonable costs and
expenses associated with the development and creation of the CTV Web Site during
Phase II within 45 days after receiving Blue Zone's invoices for such approved
costs and expenses. Blue Zone will provide an estimate of such costs and
expenses as set forth in Schedule C and Schedule F hereto. The actual costs and
expenses may be higher or lower. In respect to the costs as set out in Schedule
C in this Phase II, Blue Zone agrees to provide to CTV a list of necessary
facilities, hardware and software in order to permit CTV an opportunity to
provide any of its own equipment and materials meeting these requirements to
reduce the costs for this Phase II. CTV agrees that any hardware it provides
will be dedicated to the CTV Web Site. Once the hardware is so located, Blue
Zone personnel shall have, unrestricted access to the hardware during the term
of this Agreement and any renewals of the Consulting Services Contract or
Contract for Management and Hosting of the CTV Web Site set forth in Sections 3
and 4 below. In the event that CTV hardware, software and/or facilities
(hereinafter "Materials")are located at Blue Zone's premises CTV shall have the
right , on notice, to attend the Blue Zone premises to perform technical
maintenance as it sees fit including, without limitation, the right to update
its Materials, replace its servers and Materials, and repair defects in its
hardware and Materials.
(ix) Modifications. If CTV requests any modifications to the
Specifications after agreement on the Specifications, CTV will first provide to
Blue Zone notice in writing setting out the particulars of the requested
modifications. Within fifteen (15) business days of receipt of CTV'S
modification notice, Blue Zone, acting reasonably, will notify CTV in writing of
Blue Zone's decision as to whether or not it is willing to perform the requested
modifications and will provide CTV an estimate of the costs and projected timing
to complete the specified modifications. In the event that Blue Zone is willing
to perform the requested modifications, Blue Zone will commence the requested
modifications only upon CTV's approval of Blue Zone's cost and timing estimate.
Blue Zone shall provide any upgrades to its software(as it becomes generally
available to its customers and provided same is within the reasonable parameters
of the Content Model) and shall install such upgrades provided CTV continues to
pay the annual Licence Fee.
Section 3. Consulting Services
(a) CTV hereby engages Blue Zone on an ongoing consulting basis for a
minimum one year term (subject to any early termination by CTV ) to perform
consulting services on a macro-level as described in Schedule D, relating to
developing long-term strategies for updating and enhancing the CTV Web Site. CTV
agrees to pay Blue Zone for these services a non-refundable consulting fee as
specified in Schedule G, plus disbursements as CTV approves, which approval will
not be unreasonably withheld (the "Consulting Fee"). The Consulting Fee will be
paid monthly in advance by way of twelve equal installments as specified in
Schedule G, except that the first payment shall include monthly payments
retroactive to October 1, 1999. The consulting services shall be performed for
CTV by Bruce Warren and /or Jamie Ollivier and Blue Zone shall use reasonable
best efforts to provide the consulting services on a priority basis to CTV. The
<PAGE> 10
CONFIDENTIAL
consulting services will not include work performed relating to modifications,
as described in Paragraph 2(b)(ix).
(b) This Consulting Services provision will be automatically extended
at the end of the first one-year term on a month-to-month basis, and shall
automatically be renewed for successive periods of one month, unless either
party provides the other with at least sixty (60) days prior written notice of
non-renewal.
Section 4. Management and Hosting of the CTV Web Site
(a) CTV hereby engages Blue Zone to provide certain Web hosting
services to CTV described below, in Toronto, Ontario, or such other locations as
the parties may agree. CTV agrees to pay Blue Zone for these Web hosting
services commencing May 1, 2000, and continuing for the term of this Agreement,
at a rate to be agreed upon by the parties after determining the scope of the
required services. The rate to be paid will be Blue Zone's actual human
resources, material, and out-of-pocket costs incurred in performing the Web
hosting services, plus 20%.
(b) The Web hosting services provided by Blue Zone hereunder will not
include Internet connectivity from any network hubs or points of presence. CTV
will be solely responsible for obtaining the telecommunications infrastructure
necessary to operate the CTV Web Site. Before retaining any third parties to
perform services with respect to the telecommunications infrastructure, CTV
shall determine that they are mutually acceptable to Blue Zone.
(c) The Web hosting services provided by Blue Zone will not include any
conduct or review of chat rooms, message boards, or compilations of or responses
to e-mails. Should CTV wish to have a third party conduct these hosting
services, it shall notify Blue Zone in writing of the identity of such third
party and provide Blue Zone with contact information for such provider.
(d) The Web hosting services to be performed by Blue Zone will consist
solely of the maintenance and operation of the input and content integration and
modification mechanisms of the CTV Web Site and telephone support on a
twenty-four (24) hours per day, seven (7) days per week, including holidays
basis for inquiries and problem resolution encountered or required by CTV at its
locations. Blue Zone, using its commercially reasonable efforts, shall provide
these services continuously, twenty-four (24) hours per day, seven (7) days per
week, including holidays. Blue Zone will use its commercially reasonable efforts
to schedule and perform all hardware and software maintenance relating to these
mechanisms of the CTV Web Site during the hours of lowest historical usage in
the jurisdiction of the hosting environment. Blue Zone will use its commercially
reasonable efforts to maintain all equipment in good working order, will
maintain proper environmental conditions in the area(s) where such equipment is
located, and will also make and store archival backups with reasonable frequency
and store such archival backups in a secure, off site location suitable for
maintenance of such materials. In addition, CTV shall have audit rights to
ensure sufficient and proper archival back-ups.
<PAGE> 11
CONFIDENTIAL
Blue Zone will use its commercially reasonable efforts to prevent unauthorized
access to the physical locations of the computer(s) on which the CTV Web Site is
established, and will use reasonable efforts to prevent unauthorized electronic
access to the CTV Web Site. Blue Zone will promptly notify CTV in the event of a
material breach (or known potential material breach) of the physical or
electronic security, or the operational integrity, of the CTV Web Site and will
promptly take all reasonable corrective steps. CTV will provide reasonable
cooperation with respect to such corrective steps.
(e) Operations Consistent with Internet Technical Standards. Blue Zone
covenants that it will perform its obligations with respect to the CTV Web Site
as described above in a manner consistent with any formal rules or formal
requirements established by InterNIC, the National Science Foundation, or any
other party whose authority to set such rules or requirements is either
established by applicable law or generally accepted within the Internet
community.
(f) Blue Zone assumes no control over, accepts no responsibility for,
and will not review the content, ownership, lawfulness, or accuracy of any
content passing to or posted on the CTV Web Site by CTV.
(g) Unless CTV or Blue Zone provide the other party with sixty (60)
days prior written notice of termination of the Web hosting and management
services under Section 4 hereof, such services will be automatically renewed for
successive periods of one year.
Section 5. Ownership and Rights
(a) CTV Rights. ****
(b) Right to Alter Web Site. Blue Zone agrees that while the License
granted hereunder remains in effect, CTV will have the unlimited right to vary,
change, alter, modify, add to or delete any content provided by CTV for the CTV
Web Site provided that all content meets the technical formatting and other
specifications provided by Blue Zone, and that if the License ceases to remain
in effect, CTV shall continue to have these rights but will no longer have the
right to use Blue Zone Intellectual Property to exercise them.
(c) Blue Zone Rights.
(1) CTV acknowledges and agrees the CTV Web Site will
include certain modules, routines, subroutines, programming
tools,
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH THE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE
24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE> 12
CONFIDENTIAL
methods, know how, techniques, inputting and content
integration and modification mechanisms and methodologies and
other computer software other than Third-Party Commercial
Matter (as defined below), which were or will be created by
Blue Zone or other parties prior to, during and after the
commencement of work hereunder, and, that, in addition, Blue
Zone may prepare documentation relating to the immediately
foregoing items (collectively, the "Blue Zone Intellectual
Property"). Accordingly, as between CTV and Blue Zone, Blue
Zone will own all copyright, trade secret, trademark, patent,
and other proprietary right in and to the Blue Zone
Intellectual Property. CTV agrees that unless CTV terminates
this agreement for cause, Blue Zone shall have the world-wide
non-exclusive right to use, reproduce and analyze user/viewer
data which is processed, gathered or otherwise personalized by
Blue Zone in connection with the development and management by
Blue Zone of the CTV Web Site and to reproduce, market and
distribute such data and analyses thereof as permitted by law,
in compiled or uncompiled form, provided, however, that Blue
Zone shall not disclose, transfer, license or sell said data
or analyses (whether in compiled or uncompiled form) to any
other Canadian Television Company. If Blue Zone wishes to
offer said data or analyses in connection with an existing or
potential CTV-specific advertising opportunity, it shall
coordinate its efforts with CTV.
(2) CTV further agrees that Blue Zone is and will be
the owner, with no rights therein of any kind whatsoever in
favor of CTV, of all Blue Zone Intellectual Property including
software, documentation, copyrights, trademarks (other than
any CTV trademark, copyright or patent), back-end trade dress
rights, patents, trade secrets, methods, know how, formatting
methodologies, inputting and content integration and
modification mechanisms and methodologies, techniques, and
other intellectual property rights relating to the CTV Web
Site throughout the universe in all languages and in all media
and forms of expression and communication now known.
(3) Blue Zone Advertising on the CTV Web Site. CTV
agrees that Blue Zone will have the right at no charge to
place video advertising of Blue Zone's services on the CTV Web
Site at locations mutually agreed upon by the parties.
Additionally, Blue Zone will have the right at no charge to
place Blue Zone's trademarks or other identity designator as
an interactive graphic on the CTV Web Site with a hyperlink to
Blue Zone's own Web Site, and to place the Blue Zone name and
other indicators of identity on each page of the CTV Web Site
in a manner agreed to by CTV.
(d) License to CTV.
(1) In exchange for the annual fee specified in Schedule G, Blue Zone
grants CTV a non-exclusive, non-transferable worldwide License to use the Blue
Zone
<PAGE> 13
CONFIDENTIAL
Intellectual Property (to the extent permitted under any license between
Blue Zone and a third party), but only (i) to process, input, integrate, modify
and display news content as an integrated part of the CTV Web Site. This License
may not be sublicensed or transferred to others or used or exploited by or on
behalf of others. CTV agrees that it does not have any right to reproduce,
modify, reverse engineer, transfer or distribute the Blue Zone Intellectual
Property, or to permit any other party to do so, and further agrees that it
shall have no rights with respects to such Blue Zone Intellectual Property other
than those specified in this paragraph 5(b) and (d)(1). Should CTV wish to
obtain additional licenses to use Blue Zone Intellectual Property for content
other than news, it may do so, provided that it is not in breach of this
Agreement, at the rates specified on Schedule E. There shall be no additional
Licenses or License fees required for local news, so long as CTV's local news
content becomes incorporated as part of the CTV Web Site. This License shall
automatically terminate if Blue Zone terminates this agreement for cause or if
CTV ceases to engage and pay Blue Zone for hosting and Licensing the
Intellectual Property for the CTV Web Site. CTV shall have the exclusive right
to terminate the License on sixty (60) days written notice to Blue Zone.
(2) During the period of the License, CTV shall use
Blue Zone's mark NewsBz(TM), or such other trademark as Blue
Zone specifies in writing, in the manner agreed to between CTV
and Blue Zone on the CTV Web Site and in promotional materials
relating to the CTV Web Site. Upon termination of this License
for any reason, CTV will not be entitled to use or display the
NewsBz(TM) or other Blue Zone trademarks or indicators of
identity on or in promotional material about the CTV Web Site.
(3) In the event that CTV terminates or does not
renew Blue Zone's Web hosting services under Sections 4, the
License under Section 5(d)(2) will immediately terminate on
the termination date or renewal date, as the case may be. In
that event, CTV will be entitled to continue to exercise all
rights of ownership of the CTV Web Site and over CTV Material
that has been prepared for display or is displayed on the CTV
Web Site using the Blue Zone Intellectual Property, but will
not be entitled to continue to access or use Blue Zone
Intellectual Property from that date forward.
(e) Third-Party Commercial Matter. CTV acknowledges and agrees that the
CTV Web Site may include certain software code, devices and other matter from
commercially available computer software products (collectively the "Third-Party
Commercial Matter") and that nothing in this Agreement conveys ownership of the
Third-Party Commercial Matter to CTV.
(f) Discussion of Relationship. Upon execution of this Agreement, Blue
Zone may refer to CTV as client of Blue Zone. After Final Acceptance, Blue Zone
may include a link of CTV's Web Site on Blue Zone's Web Site. If Blue Zone or
CTV receive press
<PAGE> 14
CONFIDENTIAL
inquiries about Blue Zone's work for CTV, the parties may respond but will each
advise the other of the inquiry.
(g) Ownership of CTV Materials. As between CTV and Blue Zone, all
right, title and interest in and to, and ownership of the CTV Materials will
remain at all times exclusively in CTV, and Blue Zone will not acquire any
right, title or interest therein.
(h) Domain Names. As between CTV and Blue Zone, all right, title and
interest in and to, and ownership of the domain name "ctvnews.com" will remain
at all times exclusively in CTV.
Section 6. Indemnification
(a) Indemnification by CTV. CTV will indemnify and hold harmless Blue
Zone Productions, Ltd. and/or each of their directors, officers, agents,
employees, advisers and representatives from and against any losses, expenses,
claims, damages or liabilities of whatever nature, joint or several, including
reasonable costs of investigation and reasonable legal fees and expenses which
said directors, officers, agents, employees, advisers and representatives incur,
whether directly or as a result of claims by third parties, which arise out of
or are based upon:
(i) any representation or warranty of CTV made herein not
having been materially true, complete and accurate when made; and
(ii) any covenant made herein by CTV (whether in Section 12 or
elsewhere in this Agreement) not having been complied with.
CTV's obligations to indemnify for Blue Zone Productions,
Ltd's losses under this Agreement will accrue up to a maximum of CAN$Three (3)
million; provided, further, that the foregoing limitations will not apply in
respect of any payment default by CTV.
(b) Indemnification by Blue Zone. Blue Zone will indemnify and
hold harmless CTV and each of its directors, officers, agents, employees,
advisers, representatives from and against any losses, expenses, claims, damages
or liabilities, joint or several, including reasonable costs of investigation
and reasonable legal fees and expenses of legal counsel which CTV and/or each of
its directors, officers, employees, advisers and representatives incur, whether
directly or as a result of claims by third parties, which arise out of or are
based upon:
(i) any representation or warranty of Blue Zone made herein
not having been materially true, complete and accurate when made; and
(ii) any covenant made herein by Blue Zone (whether in Section
12 or elsewhere in this Agreement) not having been complied with.
<PAGE> 15
CONFIDENTIAL
Blue Zone's obligations to indemnify CTV for losses under this
Agreement will accrue up to a maximum liability of the Blue Zone of CAN$ Three
(3) million.
(c) Indemnification Procedure. In the case of any claim asserted by a
third party against a party entitled to indemnification under this Agreement
(the "Indemnified Party"), written notice will be given by the Indemnified Party
to the indemnifying party (the "Indemnitor") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought, and
the Indemnified Party will permit the Indemnitor (at Indemnitor's expense) to
assume the defense of any claim or any litigation resulting therefrom, provided
that (i) the counsel for the Indemnitor who will conduct the defense of such
claim or litigation will be reasonably satisfactory to the Indemnified Party,
(ii) the Indemnified Party may participate in such defense at such Indemnified
Party's own expense, and (iii) the omission by any Indemnified Party to give
written notice as provided herein will not relieve the Indemnitor of its
indemnification obligation under this Agreement except to the extent that such
omission results in a failure of actual notice to the Indemnitor and the
Indemnitor is prejudiced as a result of such failure to give notice. Except with
the prior written consent of the Indemnified Party, the Indemnitor, in the
defense of any such claim or litigation, will not consent to entry of any
judgment or order, interim or otherwise, or enter into any settlement that
provides for injunctive or other nonmonetary relief affecting the Indemnified
Party or that does not include as an unconditional term thereof the giving by
each claimant or plaintiff to such Indemnified Party of a release from all
liability with respect to such claim or litigation. In the event that the
Indemnified Party in good faith determines that the conduct of the defense of
any claim subject to indemnification hereunder or any proposed settlement of any
such claim by the Indemnitor might be expected to affect adversely the
Indemnified Party's tax liability or the ability of the Indemnified Party or any
of its subsidiaries to conduct its business, or that the Indemnified Party may
have available to it one or more defenses or counterclaims that are inconsistent
with one or more of those that may be available to the Indemnitor in respect of
such claim or any litigation relating thereto, the Indemnified Party will have
the right at all times to take over and assume control over the defense,
settlement, negotiations or litigation relating to any such claim at the sole
cost of the Indemnified Party, provided that if the Indemnified Party does so
take over and assume control, the Indemnified Party will not settle such claim
or litigation without the written consent of the Indemnitor, such consent not to
be unreasonably withheld. In the event that the Indemnitor does not accept the
defense of any matter as above provided, the Indemnified Party will have the
full right to defend against any such claim or demand and will be entitled to
settle or agree to pay in full such claim or demand. Notwithstanding the
foregoing, the Indemnitor will still be obliged to provide indemnification to
the Indemnified Party. In any event, the Indemnitor and the Indemnified Party
will cooperate in the defense of any claim or litigation subject to this Section
and the records of each will be available to the other with respect to such
defense.
(d) Claims of Infringement. In the event that the claim for which
indemnification is sought is a claim that the Indemnified Party has, by reason
of the actions of the Indemnitor, infringed or violated the intellectual
property rights of a third party, the Indemnitor may, at its option, and at its
own expense, (1) procure for the Indemnitee the
<PAGE> 16
CONFIDENTIAL
right to continue using the allegedly infringing intellectual property, (2)
replace or modify the allegedly infringing intellectual property in response to
the infringement claims, provided the third party acknowledges in writing that
the intellectual property, as modified, no longer infringes on the third-party
intellectual property, or (3) remove the allegedly infringing intellectual
property from the CTV Web Site and provide the Indemnified Party with a
commercially reasonable substitute of substantially similar functionality. In
the event that Indemnitor elects to take the measures set forth in paragraphs
6(d)(1), (2), or (3), and pays the amount it was otherwise obliged to pay under
this paragraph prior to taking these corrective measures, Indemnitor will have
fully discharged its indemnification obligation with respect to that specific
claim. Alternatively, the Indemnitor may litigate the claim to secure a
determination of non-infringement.
(e) Survival of Obligations. The obligations of the parties under
this Section 6 will survive the expiry or termination of this Agreement.
(f) Further Limitations on Liability.
(1) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED
HEREIN, EXCEPT AS EXPRESSLY PROVIDED, NEITHER PARTY
WILL, UNDER ANY CIRCUMSTANCES, BE LIABLE TO THE OTHER
PARTY OR INDEMNIFY THE OTHER PARTY FOR THIRD PARTY
CLAIMS FOR CONSEQUENTIAL, INCIDENTAL, OR SPECIAL
DAMAGES, INCLUDING BUT NOT LIMITED TO LOST PROFITS,
EVEN IF SUCH PARTY HAS BEEN APPRISED OF THE
LIKELIHOOD OF SUCH DAMAGES OCCURRING EXCEPT FOR GROSS
NEGLIGENCE OR WILFUL MISCONDUCT OF BLUE ZONE OR THOSE
FOR WHOM IT IS LEGALLY RESPONSIBLE FOR.
(2) SAVE AS PROVIDED HEREIN, BLUE ZONE DISCLAIMS ALL
EXPRESS OR IMPLIED WARRANTIES, REPRESENTATIONS OR
CONDITIONS, INCLUDING, WITHOUT LIMITATION, THE
IMPLIED WARRANTIES OF MERCHANTABILITY, MERCHANTABLE
QUALITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH
RESPECT TO ANY PRODUCTS AND THE SERVICES DELIVERED
HEREUNDER.
<PAGE> 17
CONFIDENTIAL
Section 7. Exclusivity; Option to Expand Relationship
(a) During the term of this Agreement, or, if the Agreement terminates
for any reason, until the effective date of termination, Blue Zone will not
provide Web Site production or interactive television development services or
intellectual property relating to news to any other Canadian Television Company,
and CTV will not use the services of others to develop or maintain Web Site or
interactive television services or intellectual property relating to news other
than to create content and graphic materials for display on the CTV Web Site.
CTV acknowledges that Blue Zone has existing relationships and is engaged in
ongoing activities with WIC Premium Television, which includes Superchannel,
MovieMax!, and Viewer's Choice; with the following radio broadcasters: CKNW and
Rock 101 (CFMI). Blue Zone acknowledges that CTV has existing local station web
sites at some of it's local stations. Both CTV and Blue Zone do not deem these
activities to be in violation of this Section 7.
(b) The parties agree that for six (6) months after the Effective Date,
CTV shall not solicit the services of third parties to develop or maintain Web
site or interactive television services and Blue Zone shall not affirmatively
offer Web site development or maintenance or interactive television services to
any other Canadian Television Company, excluding non-competitive specialty
channels, including, but not-limited to YTV, and music stations.
(c) In the event that at any time within six (6) months of the
Effective Date, Blue Zone desires to develop an interactive television Web site
for a third party Canadian Television Company relating to a subject matter other
than news (the "Proposed Web Site") pursuant to a bona fide offer from such
third party Canadian Television Company (together, with, in the case of CTV,
bona fide offers from third parties to CTV as described in Paragraph (d) below,
the "Proposal"), Blue Zone shall submit a written offer to CTV (the "Blue Zone
Offer") to develop such Proposed Web Site exclusively for CTV on terms and
conditions, including total consideration, not less favorable to CTV than those
on which Blue Zone proposes to develop the Proposed Web Site for such third
party Canadian Television Company under the Proposal. The Blue Zone Offer shall
disclose the identity of the third party Canadian Television Company, the terms
and conditions, including the total consideration, of the Proposal, and any
other material facts relating to the Proposal. CTV agrees to treat all such
information submitted to it by Blue Zone as Confidential Information. The Blue
Zone Offer shall further state that CTV may acquire the right to have Blue Zone
develop the Proposed Web Site exclusively for CTV for the price, and upon the
terms and conditions, set forth therein. The annual license fee component
associated with each new Proposed Web Site shall be as set forth in Schedule E.
If CTV desires to acquire such right, CTV shall communicate in writing its
election to do so within thirty (30) days of the date on which the Blue Zone
Offer was made. Such communication shall, when taken in conjunction with the
Blue Zone Offer, be deemed to constitute a valid, legally binding and
enforceable agreement for the development by Blue Zone of the Proposed Web Site
for CTV. If CTV does not elect to enter into an agreement with Blue Zone for the
development of the Proposed Web Site, Blue Zone at any time thereafter may enter
into an agreement with the third party Canadian Television Company regarding the
development of Proposed Web Site.
<PAGE> 18
CONFIDENTIAL
(d) In the event that at any time within six (6) months of the
Effective Date, CTV desires to engage a third party other than Blue Zone to
develop a Proposed Web Site pursuant to a Proposal, CTV shall submit a written
offer to Blue Zone (the "CTV Offer") to engage Blue Zone to develop such
Proposed Web Site exclusively for CTV on terms and conditions, including total
consideration not less favorable to Blue Zone than those on which CTV proposes
to have such third party develop the Proposed Web Site for CTV. The CTV Offer
shall disclose the identity of the third party, the terms and conditions,
including the total consideration, of the Proposal, and any other material facts
relating to the Proposal. Blue Zone agrees to treat all such information
submitted to it by Blue Zone as Confidential Information. The CTV Offer shall
further state that Blue Zone may acquire the right to have CTV engage Blue Zone
to develop the Proposed Web Site for the price, and upon the terms and
conditions, set forth therein. If Blue Zone desires to acquire such right, Blue
Zone shall communicate in writing its election to do so within thirty (30) days
of the date on which the CTV Offer was made. Such communication shall, when
taken in conjunction with the CTV Offer, be deemed to constitute a valid,
legally binding and enforceable agreement for the development by Blue Zone of
the Proposed Web Site for CTV. If Blue Zone does not elect to enter into an
agreement with CTV for the development of the Proposed Web Site, CTV at any time
thereafter may enter an agreement with a third party regarding the development
of the Proposed Web Site.
Section 8. Credit Clause
CTV's Web Site and all on-air, online and print
promotions/advertising of the CTV Web Site will contain Blue Zone's NewsBz(TM)
trademark or such other trademark as Blue Zone may specify in the style and
manner specified by Blue Zone where CTV, acting reasonably, determine that use
of said trademark is appropriate.
Section 9. Compensation
(a) All monies are stated in this Agreement in Canadian dollars.
However, payment will be in dollars at the United States dollar equivalent of
Canadian funds at the most favourable commercially available rate of exchange,
as determined by CTV's Canadian Chartered Bank, on the date the payment is
made.
(b) Expenses -- CTV will reimburse Blue Zone for all of Blue Zone's
pre-approved reasonable costs and expenses arising from its performance of its
obligations under this Agreement within forty-five days of receiving invoices
from Blue Zone for such costs and expenses.
(d) Records and Audit -- Blue Zone will maintain accounting records to
substantiate Blue Zone's charges on each invoice. Blue Zone will preserve such
records for a period of one year after completion of the pertinent work. CTV
will have access to such records at the offices of Blue Zone or other site
designated by Blue Zone for purposes of audit, either through its own
representatives or through an accounting firm selected and
<PAGE> 19
CONFIDENTIAL
paid by CTV. Any such review of Blue Zone's records will be conducted at
reasonable times during business hours upon at least three (3) business days'
notice.
Section 10. Confidentiality
(a) Confidential Information. For purposes of this Agreement,
"Confidential Information" will mean any information or material which offers a
competitive advantage to the disclosing party, is not generally known other than
by the disclosing party, and is the subject of reasonable precautions by the
disclosing party to maintain secrecy. Confidential Information also includes any
information which the disclosing party obtains from any third party which the
disclosing party treats as Confidential Information or designates in writing as
Confidential Information, whether or not owned by the disclosing party. To the
extent practical, the disclosing party shall designate Confidential Information
as such in writing. "Confidential Information" does not include the following:
(i) information which is known by the receiving party at the time of disclosure
by the disclosing party which is not subject to any other non-disclosure
agreement between the parties; (ii) information which is now, or which hereafter
becomes, generally known to the industry through no fault of the receiving
party, or which is later published or generally disclosed to the public by the
disclosing party or others not under a duty of confidentiality to the disclosing
party; or (iii) information which is otherwise lawfully developed by the
receiving party, or lawfully acquired from a third party without any obligation
of confidentiality.
(b) Non-Disclosure. The receiving party agrees to hold in confidence
and not to disclose or reveal to any person or entity any Confidential
Information disclosed hereunder without the express prior written consent of a
duly authorized representative of the disclosing party. The receiving party
further agrees not to use or disclose any of the Confidential Information for
any purpose at any time, other than for the limited purpose(s) of this
Agreement. Each representative of the receiving party who is given access to
Confidential Information will execute an agreement to be bound by these
obligations. In the event that either party is subpoenaed or otherwise directed
to disclose any portion of any Confidential Information of the other party or
any other materials proprietary to the other party in conjunction with a
judicial proceeding or arbitration, the party so directed will immediately
notify the other party both orally and in writing. Each party agrees to provide
the other with reasonable cooperation and assistance in obtaining a suitable
protective order and in taking any other reasonable steps to preserve
confidentiality.
(c) Published Reports. Without limiting the generality of the
foregoing, the parties specifically agree that any reports concerning
Confidential Information which are not made or authorized by the disclosing
party and which appear in any publication shall not release the receiving party
from its obligations hereunder with respect to such Confidential Information.
Section 11. Representations and Warranties
(a) CTV represents and warrants to Blue Zone the following:
<PAGE> 20
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(i) Creation. CTV is a duly created corporation, validly
existing, duly registered and in good standing pursuant to the laws of Canada.
(ii) Authority. CTV has full corporate authority and capacity
to enter into this Agreement and perform its obligations hereunder and
consummate the transactions contemplated hereby, pursuant to the terms and
conditions established herein
(iii) Binding Obligation. This Agreement constitutes a
binding, valid and legal obligation of CTV and is enforceable against it
pursuant to its terms except to the extent that enforceability may be limited by
applicable bankruptcy, insolvency, moratorium, and other laws relating to or
affecting creditors' rights generally or by equitable principles.
(iv) No Violation.CTV is not subject to or bound by any
provisions of:
(1) any law, statute, rule, regulation or judicial or
administrative decision,
(2) any articles or certificate of incorporation or
bylaws,
(3) any mortgage, deed of trust, lease, note,
shareholders' agreement, bond, trust, indenture, other
instrument or agreement, license, permit, trust, custodianship
or restriction, or
(4) any judgment, order, writ, injunction or decree
of any court, governmental body, administrative agency or
arbitrator,
that would prevent or be violated by or that would result in creation of any
encumbrances or order which there would be a default as a result of, the
execution, delivery and performance by CTV of this Agreement and the
consummation of the transaction contemplated hereby.
(v) Consents. No consent, approval, or authorization or
declaration or filing with any individual, corporation, trust or any government
or agency or political subdivision thereof is required for the valid execution,
delivery and performance by CTV of this Agreement and the consummation of the
transactions contemplated hereby.
(vi) Year 2000. CTV represents and warrants to use its
reasonable efforts to ensure that any computer equipment, hardware or software
supplied and delivered by it under this Agreement will be Year 2000 compliant.
(vii) Non-Infringement. To the best of CTV's knowledge and
belief, the content, software and hardware, as well as the CTV Materials, to be
provided by CTV do not violate any existing intellectual property or privacy
rights of any third party, and are
<PAGE> 21
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not libelous or slanderous, and CTV has received no reasonable notice or claim
of infringement.
(b) Blue Zone represents and warrants to CTV the following:
(i) Creation. Blue Zone is a duly created corporation, validly
existing, duly registered and in good standing pursuant to the laws of Bermuda.
(ii) Authority. Blue Zone has full corporate authority and
capacity to enter into this Agreement and perform its obligations hereunder and
consummate the transactions contemplated hereby, pursuant to the terms and
conditions established herein. Prior to Blue Zone's execution of this Agreement,
the Board of Directors of Blue Zone will approve this Agreement, pursuant to the
terms and conditions hereof.
(iii) Binding Obligation. This Agreement constitutes a
binding, valid and legal obligation of Blue Zone and is enforceable against it
pursuant to its terms except to the extent that enforceability may be limited by
applicable bankruptcy, insolvency, moratorium, and other laws relating to or
affecting creditors' rights generally or by equitable principles.
(iv) No Violation. Blue Zone is not subject to or bound by any
provisions of:
(1) any law, statute, rule, regulation or judicial or
administrative decision,
(2) any articles or certificate of incorporation or
bylaws,
(3) any mortgage, deed of trust, lease, note,
shareholders' agreement, bond, trust, indenture, other
instrument or agreement, license, permit, trust, custodianship
or restriction, or
(4) any judgment, order, writ, injunction or decree
of any court, governmental body, administrative agency or
arbitrator,
that would prevent or be violated by or that would result in creation of any
encumbrances or order which there would be a default as a result of, the
execution, delivery and performance by Blue Zone of this Agreement and the
consummation of the transaction contemplated hereby.
(v) Consents. No consent, approval, or authorization or
declaration or filing with any individual, corporation, trust or any government
or agency or political subdivision thereof is required for the valid execution,
delivery and performance by Blue Zone of this Agreement and the consummation of
the transactions contemplated hereby.
<PAGE> 22
CONFIDENTIAL
(vi) Year 2000. Blue Zone represents and warrants to use its
reasonable efforts to ensure that any computer equipment, hardware or software
supplied and delivered by it under this Agreement will be Year 2000 compliant.
(vii) Non-Infringement. To the best of Blue Zone's knowledge
and belief, the Blue Zone Intellectual Property and CTV Web Site to be designed
and developed by Blue Zone do not violate any existing intellectual property
rights of any third party, and Blue Zone has received no reasonable notice or
claim of infringement. The foregoing representation does not apply to the CTV
Materials or content supplied by CTV. In the event of an infringement herein,
Section 6(d) shall apply. In the further event that Blue Zone cannot rectify the
infringement by use of the remedies as contained in Section 6(d), then CTV shall
be entitled and Blue Zone shall refund the payments made pursuant to Section 2
(b) (viii) and Section 4(a) on a depreciated basis of twenty per cent (20%) per
year calculated daily to commence on the date of the first installment payment
as contained in Section 2(b) (viii). A non rectified infringement herein shall
be considered as an automatic termination as contained in section 13(c).
Section 12. Covenants.
(a) Covenants of Blue Zone.
(i) Employment Agreements. Blue Zone will enter into
agreements with Blue Zone Entertainment Inc. to obtain the services of Bruce
Warren and Jamie Ollivier and other Blue Zone employees trained by them and
acting under their supervision and control to perform the material obligations
of Blue Zone hereunder.
(ii) Most Favored Nations Provision. Blue Zone hereby agrees
that the terms for the License of the Blue Zone Intellectual Property to CTV
hereunder will be at least as favorable as those offered to other customers of
Blue Zone for a License in respect of Blue Zone Intellectual Property in
connection with the development by Blue Zone of a Web site relating to news, and
in the event Blue Zone enters into more favorable pricing, the pricing under
this Agreement will be immediately modified, as appropriate.
(b) Covenants of CTV.
(i) CTV will undertake all necessary measures, including,
those required under any license or other agreements to which CTV may be a
party, to provide Blue Zone with direct and unfettered access at Blue Zone's
facilities throughout the term of this Agreement to the video, text and
graphical content in digital or hard copy format which Blue Zone determines is
necessary to enable Blue Zone to encode and digitize the CTV content for the CTV
Web Site. CTV acknowledges that its failure to obtain such consents and provide
such access will delay or jeopardize completion of the CTV Web Site.
<PAGE> 23
CONFIDENTIAL
(ii) CTV will within three (3) business days of the date
hereof appoint a single designated representative (the "CTV Designated
Representative") who will act as the signing authority for approving all matters
requiring action by CTV during the Term. This CTV Designated Representative will
act as the sole and exclusive representative for the full course of the Term,
until his or her successor or substitute is appointed in writing by CTV. All
approvals by the CTV Designated Representative will be binding on CTV.
Section 13. Term and Termination
(a) Term and Termination. This Agreement will become effective on the
date hereof and will continue until December 31, 2001, unless earlier terminated
in accordance with this Section 13 (the "Term"). Except as expressly set forth,
this Agreement may not be terminated by either party except in accordance with
this Section 13.
(b) Termination for Cause. Either party may terminate this Agreement at
any time effective upon written notice of termination to the other party in the
event that such other party fails to perform any of its material obligations
hereunder and such failure continues unremedied, after written notice of such
failure from the party alleging such failure, for a period of ten (10) days in
the case of any payment default or for a period of sixty (60) days in the case
of any other default hereunder. Such termination shall not relieve the party
initiating the termination from any payment obligations it had as of the date of
termination. In the event of a termination for cause as herein, the
non-defaulting party shall receive a complete refund of the payments made by it
under this Agreement or to be made to it under this Agreement depreciated on
annual basis of twenty percent (20%) calculated daily to commence on the date of
the first installment made pursuant to section 2 (b) (viii).
(c) Automatic Termination. This Agreement will terminate automatically,
with no further act or action of either party required for such termination to
be effective, if a receiver is appointed for either party or its property,
either party makes an assignment for the benefit of its creditors, any
proceedings are commenced by, for or against either party under any bankruptcy,
insolvency or debtor's relief law, or either party is liquidated or dissolved or
Blue Zone sells its assets out of the ordinary course of business or sells its
shares that effects a change of control of Blue Zone or James Olivier and Bruce
Warren are no longer principles, employees or associated with Blue Zone, Blue
Zone Entertainment Ltd. or their successors. In this event CTV shall be free to
terminate this Agreement, retrieve its hardware at the Web Presence hosting
site, select a new Web Presence host and support and modify the Web Presence as
it sees fit. The parties shall agree upon a source code escrow agreement which
will govern access to source code in the event of Automatic Termination.
(d) Termination by CTV. CTV may terminate this Agreement without cause
upon sixty days written notice to Blue Zone. In the event that CTV terminates
this Agreement without cause, the License granted to CTV shall terminate, and
Blue Zone will be entitled to receive all payments owed under all of the
sections included in this Agreement up through the date of termination and CTV's
obligation to pay Blue Zone
<PAGE> 24
CONFIDENTIAL
pursuant to Section 4 above will continue, (without duplication), during the
first year of this Agreement, for an additional twelve (12) months following the
effective date of such termination, or, in the second year of this Agreement,
for an additional six (6) months following the effective date of such
termination.
(e) Return of Property. In the event that this Agreement terminates for
any reason, the parties will return to each other any property in their
possession belonging to the other and will, at the disclosing party's option,
return or destroy any Confidential Information of the other.
(f) Survival. The obligations set forth in Sections 2(b)(ii)(iv), (v)
(vii) and (ix), 5, 6, 10, 11(a)(vii), 11(b)(vii) and 13 will survive the expiry,
termination by CTV and automatic termination of this Agreement for any reason
whatsoever. In the event Blue Zone terminates this Agreement for cause, all the
above-mentioned sections shall survive save and except Sections 2 and 5.
Section 14. Reports and Visits
(a) Site Visits. Blue Zone will, from time to time and upon reasonable
prior notice, allow representatives of CTV access to the portions of its
premises where it is conducting work or performing services for purposes of
project review and discussions between CTV and Blue Zone's management and
personnel concerning the status and conduct of work being performed hereunder.
Section 15. Miscellaneous
(a) Force Majeure. Either party will be excused from delays in
performing or from its failure to perform hereunder to the extent that such
delays or failures result from an "Act of God" beyond the control of such party,
except for approved money payment obligations which have arisen or arise
hereunder. The party whose performance is claimed to be suspended by an act of
force majeure shall notify the other party of the event and circumstances.
(b) No Agency. Blue Zone, in rendering performance under this
Agreement, is acting and will act solely as an independent contractor. CTV does
not undertake by this Agreement or otherwise to perform any obligation of Blue
Zone, whether by regulation or contract. In no way is Blue Zone to be construed
as the agent or to be acting as the agent of CTV in any respect, any other
provisions of this Agreement notwithstanding.
(c) Authority To Enter Into Agreement. The parties and their
representatives signing this Agreement hereby acknowledge and represent that the
representatives signing this Agreement are duly authorized agents of the parties
hereto and are authorized and have full authority to enter into this Agreement
on behalf of the parties for whom they are signing.
<PAGE> 25
CONFIDENTIAL
(d) Section Headings; Exhibits and Schedules. The section and
subsection headings used herein are for reference and convenience only, and will
not enter into the interpretation hereof. The exhibits and schedules referred to
herein and attached hereto, or to be attached hereto, are incorporated herein to
the same extent as if set forth in full herein.
(e) No Waiver. No delay or omission by either party hereto to exercise
any right or power occurring upon any noncompliance or default by the other
party with respect to any of the terms of this Agreement will impair any such
right or power or be construed to be a waiver thereof. The terms and conditions
of this Agreement may be waived or amended only in writing and only by the party
that is entitled to the benefits of the term(s) or condition(s) being waived or
amended. A waiver by either of the parties hereto of any of the covenants,
conditions, or agreements to be performed by the other will not be construed to
be a waiver of any succeeding breach thereof or of any covenant, condition, or
agreement herein contained (whether or not the provision is similar). Unless
stated otherwise, all remedies provided for in this Agreement will be cumulative
and in addition to and not in lieu of any other remedies available to either
party at law, in equity, or otherwise.
(f) Governing Law/Consent to Jurisdiction and Venue. This Agreement
will be governed by and construed in accordance with the laws of the Province of
Ontario, without reference to the choice of law provisions thereof. All aspects
of all actions brought relating to the subject matter of this Agreement will be
governed by Province of Ontario law, without reference to the choice of law
provisions thereof. The parties hereto hereby consent to the exclusive
jurisdiction and venue of the courts for Toronto Region, Province of Ontario for
any action that may be brought in connection with this Agreement other than a
cross-claim for indemnification brought in response to a claim filed by a third
party in another court.
(g) Entire Agreement. Each party to this Agreement acknowledges that
this Agreement constitutes the entire Agreement of the parties with regard to
the subject matters addressed in this Agreement, that this Agreement supersedes
all prior or contemporaneous agreements, discussions, or representations,
whether oral or written, with respect to the subject matter of this Agreement,
and that this Agreement cannot be varied, amended, changed, waived, or
discharged except by a writing signed by all parties hereto. Except as provided
herein, each party to this Agreement further acknowledges that no promises,
representations, inducements, agreements, or warranties, other than those set
forth herein, have been made to induce the execution of this Agreement by said
party, and each party acknowledges that it has not executed this Agreement in
reliance on any promise, representation, inducement, or warranty not contained
herein.
(h) Neutral Construction. The parties to this Agreement agree that this
Agreement was negotiated fairly between them at arm's length and that the final
terms of this Agreement are the product of the parties' negotiations. Each party
warrants and represents that it has sought and received legal counsel of its own
choosing with regard to the contents of this Agreement and the rights and
obligations affected hereby. The parties
<PAGE> 26
CONFIDENTIAL
agree that this Agreement will be deemed to have been jointly and equally
drafted by them, and that the provisions of this Agreement therefore should not
be construed against a party or parties on the grounds that the party or parties
drafted or was more responsible for drafting the provision(s).
(i) No Third Party Beneficiaries. This Agreement is intended solely for
and inures to the benefit of the parties. No third party will have the right to
make any claim or assert any right under it, and no third party will be deemed a
beneficiary of this Agreement, except as expressly provided herein.
(j) Unenforceability. If any provision of this Agreement or any word,
phrase, clause, sentence, or other portion thereof should be held to be
unenforceable or invalid for any reason, then provided that the essential
consideration for entering into this Agreement on the part of any party is not
unreasonably impaired, such provision or portion thereof will be modified or
deleted in such manner as to render this Agreement as modified legal and
enforceable to the maximum extent permitted under applicable laws.
(k) Assignment. Blue Zone will not, without the prior written
permission of CTV, assign, transfer, subcontract, or sublicense this Agreement
or any obligation hereunder to any third party other than an affiliate partially
owned or controlled by Blue Zone. CTV may not, without the prior written consent
of Blue Zone, assign CTV's performance under this Agreement to a third party.
Except as otherwise provided herein, each party shall have the right to assign
or transfer this Agreement and its rights hereunder to any person into which
that party may be merged or consolidated or which purchases all or substantially
all of the assets of that party; provided, however, that (x) such transferee
agrees to be bound by the terms of this Agreement and (y) any such assignment or
transfer shall not relieve that party from any liability or obligation under
this Agreement, and (z) the provisions of 5(d) remain limited to the CTV Web
site only as defined in this Agreement.
(l) Notices All notices, petitions, demands for performances and other
communications pursuant to this Agreement will be in writing and in the
following way due:
To Blue Zone:
Blue Zone Productions Ltd.
Reid House
31 Church Street
Hamilton, Bermuda
Attention: [_______________]
<PAGE> 27
CONFIDENTIAL
with a copy to:
Blue Zone Entertainment
329 Railway Street
Vancouver, BC
Canada, V6A 1A4
Attention: Bruce Warren
Chief Executive Officer
Telephone: (604) 685-4310
Facsimile: (604) 685-4391
E-mail: [email protected]
and a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, New York, 10022-4697
Attention: William F. Schwitter, Esq.
Mark G. Pedretti, Esq.
Telephone: (212) 318-6000
Facsimile: (212) 319-4090
To CTV:
CTV Inc.
P.O. Box 9, Station O
Toronto, Ontario M4A 2M9
Attention: Henry Eaton
Vice President, Strategic Planning and
Business Development
Telephone:
Facsimile:
E-mail: [email protected]
with a copy to:
Charles Cooke, Esq.
CTV Inc.
P.O. Box 9, Station O
Toronto, Ontario M4A 2M9
Telephone: (416) 332-5972
Facsimile: (416) 332-5975
E-mail: [email protected]
(m) Schedules. The Schedules hereto are deemed to be incorporated
herein.
<PAGE> 28
CONFIDENTIAL
IN WITNESS WHEREOF, CTV and Blue Zone have caused this Agreement to be
signed and delivered by their duly authorized agents, all as of the date of this
Agreement herein.
BLUE ZONE PRODUCTIONS LTD.
By: /s/ Peter Martin
Peter Martin
Director
CTV TELEVISION INC.
By: /s/ Henry Eaton
Henry Eaton
Vice President, Strategic Planning
and Business Development
By /s/ Robin Fillingham
Robin Fillingham
Executive Vice President
and Chief Financial Officer
<PAGE> 29
CONFIDENTIAL
Schedule A
Phase I Development of Specification
(1) Development of a CTV Web Site strategy including:
- - Project Mission/ Vision Statement Project Objectives Conceptual
development, competitor and precedent assessment, business and
marketing objectives.
- - Creating and defining Web Presence and interactive TV objectives, and
defining clear criteria for success.
- - Recommendations for the scope, structure, and composition of the Web
Presence that will serve as the foundation for growth and expansion.
- - Identify content, intellectual property
- - Preliminary budget, schedule, resource evaluation
- - Defining the scope and terms of a CTV News standards document for
interactive Blue Zone and development
- - Exploring centralized/ decentralized solutions in all respects of the
Web Presence strategy and determining the necessary resources required
- - Making recommendations on the workflow and content streams including
evaluating mechanisms for quality management and editorial approval
- - Making suggestions for personnel requirements and task descriptions for
the internal and external Blue Zone and management of resources
(2) Technical recommendations including:
- - Client-side technologies for the interactive News properties
- - Database technology and architecture
- - Video delivery and management strategies
- - Networking/server solutions
<PAGE> 30
CONFIDENTIAL
- - Backup and site maintenance technologies
(3) Requirements
- - Functional Requirements
Define the high-level processes that the Web Presence will be able to
perform in terms of information publishing and other management of
information.
- - Data Requirements
Define the high-level data groups that the Web Presence must store and
process.
- - Hardware Requirements
Define the specific type of equipment on which the system will operate.
- - Software Requirements
Define the specific software with which the system will be developed
and run.
- - Human Resource Requirements
Define the specific human resources necessary to develop and run the
web sites.
- - Interfaces to Other Systems
Define the need for communicating with other systems. This may involve
accepting input data from other systems and/or producing data for other
systems, or suggesting beneficial upgrades or additions and automation
of key operational processes.
- - Security, Audit and Control Requirements
Define the need for user ID's, passwords, logging of data updates, and
limiting user access to specific functions and data.
- - Legal Requirements
Define the legislated functions or data that the system must
accommodate.
<PAGE> 31
CONFIDENTIAL
Schedule B
Phase II
Objectives:
Based on the Requirements Document, the technical aspects of the systems and
site architecture will be developed and produced.
Actions:
Development Plan
Development Schedule
Development Budget
1 Technical Design
2 Staged Delivery Plan
3 Performance and Schedule Estimates
4 Determine the Development Team
Assign Roles and Responsibilities
Cross Training Plan
5 Re-use Analysis
Buy vs. Build/ Sub-Contracting
6 Development Budget
Hardware
Software
Human Resources
7 Documenting Vendor Dependencies
8 Prototypical UI Development
9 Design and Production
<PAGE> 32
CONFIDENTIAL
Exploratory Phase
Initial site development is component based, with segmented functionality. This
staged delivery is to accommodate all aspects of a project to operate in
tighter, more accountable cycles, with the development team sequentially moving
through discovery, invention, and implementation.
Architectural Design
Design Considerations:
User interface
Database organization
Data storage
Memory management
Security
Localization
Networking
Portability
Programming language
Error handling
Blue Zone
Blue Zone commences after Phase I. Blue Zone estimates that a staff will be
hired as necessary to develop the site over a 6-month period.
<PAGE> 33
CONFIDENTIAL
Schedule C
Estimated Phase II Costs
Blue Zone estimates year 1 infrastructure costs of approximately CAN $****. This
amount is to be applied to facilities, hardware, third party software licences
and software necessary for the Blue Zone and ongoing maintenance of the CTV News
Site. Detailed infrastructure figures will be established during Phase II.
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH THE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE
24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE> 34
CONFIDENTIAL
Schedule D
Consulting Fees
Consulting fees will cover professional services provided in the areas of Web
site development and interactive television development for CTV. Blue Zone's
role will be to advise CTV on macro Web strategies and technology opportunities.
Consulting services will include participation in key management and executive
meetings and minimum quarterly presentations to CTV, and may upon agreement of
the parties include some of the following items:
Strategy
- - Interactive content creation, Blue Zone and distribution
- - Consolidation of technology
- - Consolidation of content management infrastructure
- - Establishment of Blue Zone standards and guidelines
Content
- - Proprietary Interactive content Blue Zone and distribution
- - A centralized content resource via CTV News online.
(The content is available from all CTV station news Web Sites.)
- - Distributed content Blue Zone
(All CTV affiliate Web Sites contribute to the content.)
Identity
- - National and Regional broadcasters identity
(Local branding and regional, national and international content.)
Advertising of CTV
- - Regional marketing and promotion
(Accessing regional advertising as well as national advertising.)
<PAGE> 35
CONFIDENTIAL
Technical consolidation: Discussions pertaining to
- - Building the infrastructure to efficiently collect, manage, and deliver
branding, content, and advertising to 30 separate web sites
- - Creation of centralized databases for content, video, advertising, and
user profiles
- - Creation of content input forms, standards manual and guidelines for
Blue Zone of material at the 30 separate stations
Data mining and analysis, if desired, will be provided subject to a separate
Analysis and Interpretation Agreement.
<PAGE> 36
CONFIDENTIAL
Schedule E
Licensing Fees
****
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH THE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE
24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE> 37
CONFIDENTIAL
Schedule F
Management and Human Resource Costs
CTV will pay all reasonable costs associated with the use of CTV personnel in
content preparation and integration of CTV materials into the Web Presence. This
estimate is for approximately 25 full time dedicated positions or the equivalent
in total, some of whom may be CTV personnel, to staff the ongoing demand for
management and production of the Web site and for hardware, facilities and
software.
Schedule Totals
ITEM TIMING DESCRIPTION AMOUNT
Annual Ongoing Production and CAN $**** -
Management of CTV Web site $****
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH THE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE
24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE> 38
CONFIDENTIAL
Schedule G
SUMMARY OF FEES
Schedule Totals
<TABLE>
<CAPTION>
ANTICIPATED
ITEM TIMING DESCRIPTION AMOUNT
<S> <C> <C> <C> <C>
Phase I Schedule A Delivered October 1, Strategy and Requirements CAN $****
1999 Document
Phase II Schedule B Production started Design and Blue Zone CAN $****
October 15
Schedule C Dec. - February Infrastructure Costs CAN
$****
Schedule D Annual Consulting Fees CAN
$****
--------------------
[First payment to include monthly
payments retroactively to October,
1999]
Schedule E Annual Licensing Fees CAN
$****
Schedule F Annual Ongoing Blue Zone CAN
Production and Management $**** to
$****
Web Hosting and Management ****
Fees
</TABLE>
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH THE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE
24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE> 1
**** CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED.
EXHIBIT 10.2
THIS AGREEMENT made as of the 1st day of July, 1999.
BETWEEN:
CKNW/CFMI, A DIVISION OF WIC RADIO LTD. a company having its
business offices at 2000-700 West Georgia Street Vancouver,
B.C.
("CKNW/CFMI")
AND
BLUE ZONE ENTERTAINMENT, INC., a company having its registered
office at 52 Water Street, Vancouver, B.C. V6B 1A4
("BZE")
A. BZE specializes in strategic interactive development, web site
design and other internet services.
B. CKNW/CFMI specializes in radio production and promotion.
C. CKNW/CFMI have developed individual Web Sites but desire such
Web Sites to be re-designed, enhanced, hosted and maintained
by Blue Zone
C. The parties desire to enter into this Agreement on the terms
and conditions hereinafter set forth.
NOW THEREFORE THIS AGREEMENT WITNESSES that it is agreed by
and among the parties hereto as follows:
ARTICLE 1
DEFINITIONS
1.1 In this Agreement, the following expressions shall have the
following meanings:
a) "CKNW" means CKNW, a division of WIC RADIO Ltd.;
b) "ROCK101" means ROCK101/CFMI, a division of WIC RADIO
Ltd.;
c) "BZE" means Blue Zone Entertainment, Inc.;
<PAGE> 2
CONFIDENTIAL
d) "AGREEMENT" means this agreement, including any
written amendments hereafter made to this agreement;
e) "WEB SITES" means CKNW and ROCK101's internet world
wide Web Sites, with the Universal Resource Locator
addresses www.CKNW.com and www.ROCK101.com.
ARTICLE 2
ENGAGEMENT OF BZE
2.1 CKNW/CFMI hereby engages BZE to design, maintain and operate
the Web Sites on the terms and conditions set forth herein.
2.2 The parties acknowledge that all remuneration provided herein,
including monthly fees, commissions and net revenue
distributions are for the period commencing July 1, 1999.
2.3 CKNW/CFMI shall:
a) pay an initial production fee of $**** (plus
applicable taxes) to towards a $**** development
budget to BZE for its know-how and effort in creating
the Web Sites, 100% of such fee to be payable upon
execution of this contract as a deposit prior to
commencing production of the Web Sites, and the
balance ($****) to be provided in the form of
commercial air-time during the first 12 months of the
contract, in accordance with Article 8.3.
b) pay BZE a monthly fee starting July 1, 1999 of $****
(plus applicable taxes) to be applied toward the
monthly maintenance of the Web Sites.
c) provide, during the life of this agreement but
without transfer of any ownership, all equipment,
software, connectivity, hosting fees and out of
pocket expenses which CKNW/CFMI and BZE mutually
agree are necessary for BZE's activities relating to
the ongoing maintenance of the Web Sites;
d) collect and distribute Web Sites revenue in
accordance with Article 3; and
e) provide BZE full access to CKNW/CFMI's news, sports
and other proprietary content (and, where
permissible, content purchased by CKNW/CFMI, with a
cost allocation against revenue to cover royalties,
mutually agreed upon by CKNW/CFMI and BZE) for use
only on the Web Sites, subject always to CKNW/CFMI's
right and discretion to exclude any content which,
for any reason, it does not wish to appear on the Web
Sites.
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH THE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE
24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE> 3
CONFIDENTIAL
f) make its best efforts to sell advertising on the Web
Sites and pursue other interactive media and internet
business for the benefit of the Web Sites and
CKNW/CFMI and BZE;
g) provide BZE with a license to publish and broadcast
CKNW/CFMI content online.
h) provide BZE with contra air-time to offset BZE
development costs in accordance with Article 8.
i) Invite and include a representative of BZE in all
internal strategic meetings pertaining to the
development and commercialization of the Web Sites
including meetings facilitated by CKNW/CFMI with 3rd
parties.
2.4 BZE shall:
a) re-design, maintain, and operate, the Web Sites at a
leading level of aesthetic and technical quality and
content;
b) act as an advertising representative for the Web
Sites and make its best efforts to sell advertising
on the Web Sites and associated streaming media feeds
and to pursue other interactive media and internet
business for the benefit of the Web Sites and
CKNW/CFMI;
c) provide exclusive site hosting and streaming media
hosting for the CKNW/CFMI Web Sites.
d) provide exclusive ad management, whether facilitated
by BZE or a third party and content sales support for
the Web Sites.
e) remain in good corporate standing and provide, at its
own expense, all know-how, management and personnel
necessary to carry out BZE's obligations herein.
2.7 Nothing in this Agreement shall be construed as transferring
or diminishing ownership of any interest in any assets,
including intellectual property rights, or altering the
ownership structure of CKNW/CFMI or BZE in any way, or to
entitle BZE to any interest whatsoever in CKNW/CFMI's
broadcasting business or entitle CKNW/CFMI to any interest
whatsoever in BZE's interactive business
2.8 This Agreement will commence on August 1, 1999 and terminate
on the earlier of:
a) an agreement in writing of the parties to terminate;
b) three years from the date hereof, unless renewed or
extended by written agreement of the parties after
making good faith efforts to negotiate a renewal or
extension hereof;
c) for any reason, upon 6 months' notice from CKNW/CFMI
to BZE or from BZE to CKNW/CFMI;
<PAGE> 4
CONFIDENTIAL
d) in the event of default in accordance with Article 6.
2.9 In the event of termination for any reason other than default
by BZE, CKNW/CFMI agrees to provide BZE with a positive letter
of reference.
2.10 The parties agree that during the term of this Agreement their
relationship is exclusive, meaning CKNW/CFMI shall not employ
any other third party to maintain, design, host or alter
CKNW/CFMI's Web Sites CKNW/CFMI or stream/host CKNW/CFMI's
media feeds online. Blue Zone will not engage directly or
indirectly in website design services for - radio stations
based in British Columbia, without the prior written consent
of CKNW/CFMI, such consent not to be unreasonably withheld.
2.11 The parties acknowledge that CKNW/CFMI are the sole owners of
the domain names www.cknw.com and www.rock101.com and all
content originally provided by CKNW/CFMI including text,
graphics, pictures, sounds or moving images placed on the Web
Sites, and digitized or coded by BZE for placement on the Web
Sites. With respect to all code developed and owned by BZE
which is required to run the Web Sites, BZE hereby grants an
irrevocable and non-transferable, non-exclusive license to
CKNW/CFMI to retain and use such code. On the event of default
by CKNW/CFMI per Article 6.1, there will be immediate
termination of license. All trademarks and logos of BZE, which
may be used on the Web Sites from time to time are owned by
BZE, but will be included in back ups of the Web Sites.
2.12 All code, graphics, audio and video on the Web Sites must be
backed up at least once every quarter and once after every
major change. A copy of this tested backup will be presented
to CKNW/CFMI within ten working days of its creation. This
code cannot be altered, re-purposed, sold, shared, distributed
or transmitted in any way without the prior written consent of
BZE, unless this agreement has been terminated per Article
2.8.
ARTICLE 3
ACCOUNTING AND DISTRIBUTION OF REVENUE
3.1 Web Sites revenue shall consist of the fees paid by
advertisers who pay for a presence on the Web Sites and
exclusively placed within associated streaming media feeds,
e-commerce, content sales and additional revenue sources which
the parties may agree in writing to include. Such revenue,
after deduction of Web Site expenses which shall, hereunder,
be charged against Web Sites revenue, are referred to herein
as "Net Web Site Revenue".
<PAGE> 5
CONFIDENTIAL
3.2 The parties acknowledge CKNW/CFMI and BZE are each making
certain proprietary assets or goodwill available to assist
business. It is intended that net revenue which is
attributable principally to a proprietary asset or goodwill of
one party shall be divided ****%/****% in favour of that
party. More particularly, the parties agree:
3.3 Advertising revenue, meaning revenue from advertisers who pay
for a presence on the Web Sites, shall be distributed, after
payment of related expenses which shall not exceed ****%
of net revenue unless both parties agree to such costs, ****%
to CKNW/CFMI and ****% to BZE.
3.4 In determining what expenses shall be charged against Web
Sites revenue for the determination of Net Web Site Revenue,
both CKNW/CFMI and BZE will assign job numbers to each
category of expense, allocate hourly and monetary costs
against such categories in an accurate and timely fashion, and
such allocations will be reviewed and approved by CKNW/CFMI
and BZE prior to any distributions.
3.5 BZE will be entitled to a commission of ****% of the money
paid to CKNW/CFMI for any Web Sites advertisements sold by BZE
after July 1, 1999, to be paid at the time of net revenue
distributions, and such commissions shall be charged as an
expense against Gross Web Sites revenue
3.51 CKNW/CFMI will be entitled to a commission of ****% of the
money paid to CKNW/CFMI for any Web Sites advertisements sold
by CKNW/CFMI after July 1, 1999, to be paid at the time of net
revenue distributions, and such commissions shall be charged
as an expense against Gross Web Sites revenue
3.6 Subject only to a reasonable holdback agreeable to the parties
for anticipated expenses, CKNW/CFMI shall distribute all Net
Web Sites Revenue at the end of each quarter, or so soon
thereafter as the approval process under Article 3.3 permits,
for the accounting period beginning July 1, 1999.
3.7 CKNW/CFMI shall prepare and distribute financial reports
within 60 days after each quarter.
3.8 If any financial report shows that in the period covered by
such report a party has retained or been paid an amount which
exceeds or is less than its entitlement for such period then
that party shall forthwith repay such excess or be paid such
deficiency.
ARTICLE 4
LIABILITY AND INSURANCE
4.1 Each party covenants and agrees with the others to indemnify
and save harmless the others from any and all liability,
obligations, claims or losses
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH THE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 406
UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE> 6
CONFIDENTIAL
resulting from any liability arising from content it alone has
created, from its unauthorized acts and from its failure to
comply with its obligations hereunder.
4.2 BZE will carry:
a) a Comprehensive General Liability policy with all normal
extensions including, but not limited to, products, completed
operations, broad form property damage, non-owned automobile,
personal injury, contingent employers' liability, and a cross
liability clause with a limit of not less than $2,000,000.
b) an errors and omissions liability policy with a limit of
not less than $2,000,000 and this policy will include a cross
liability clause. Coverage will include protection in respect
of libel and slander and defamation of character.
4.3 The policies outlined in (a) and (b) above will include
CKNW/CFMI, a division of WIC Radio Ltd. as an additional
insured. A certificate of insurance evidencing (a) and a
complete copy of (b) will be provided. All coverages must be
in a form acceptable to and approved by our insurance advisor.
4.4 BZE shall indemnify and save harmless CKNW/CFMI from any
deductible, insured's contribution or uninsured claims or
liabilities arising from the activities of BZE except as
described in article 4.5.
4.5 Notwithstanding Article 4.4, CKNW/CFMI shall bear its own
liability for damages or other claims incurred:
a) as a result of the willful act or omission or the
gross negligence of CKNW/CFMI or its employee(s);
b) in connection with or in the course of the
performance or purported performance by a party of
any work or service related to BZE's operations
carried out solely by CKNW/CFMI or its employees; or
c) arising from any content produced by CKNW/CFMI and
merely reproduced (with necessary formatting and
coding by BZE) on the Web Sites.
4.5 Notwithstanding Article 4.4, BZE shall bear its own liability
for damages or other claims incurred:
a) as a result of the willful act or omission or the
gross negligence of BZE or its employee(s);
b) in connection with or in the course of the
performance or purported performance by a party of
any work or service related to BZE's operations
carried out solely by BZE or its employees; or
c) arising from any content produced by BZE alone.
<PAGE> 7
CONFIDENTIAL
ARTICLE 5
DECISION MAKING AND INSPECTION OF BOOKS
5.1 Except as expressly provided herein, all decisions regarding
the maintenance, design, content, and alterations to the Web
Sites, and all decisions regarding the pursuit and conduct of
other business by BZE shall be subject to CKNW/CFMI's ongoing
approval, in CKNW/CFMI's discretion, not to be reasonably
withheld.
5.2 A designated representative from each of CKNW/CFMI and BZE
shall meet monthly or on such further occasions as any one of
them requests, to review any issues pertaining to the Web
Sites or this Agreement.
5.3 CKNW/CFMI shall keep complete and accurate books of account,
accounting and banking records, corporate documents and
records, and any other records necessary to the proper
operation of the Web Sites. Such records will be kept in
accordance with generally accepted accounting and business
procedures, and in full accordance with all requirements of
law. BZE shall have the right at all reasonable times (but at
its own expense) to examine and make copies of or extracts
from all such documents and books. Such right may be exercised
through any agent or employee of BZE designated by it or by an
independent chartered accountant or lawyer designated by BZE.
ARTICLE 6
DEFAULT
6.1 In this Article, the following expressions shall have the
following meanings:
a) "Default" means:
i) failure to promptly and honestly honour any financial
obligation herein;
ii) any action or omission which causes the Web Sites to
cease to exist;
iii) any assignment for the benefit of creditors,
appointment of a trustee or receiver of any assets,
or institution of any bankruptcy proceedings which is
acquiesced in or is not dismissed within ninety days
of the bringing of such action;
iv) the dissolution, winding-up or termination of a
party; or
iiv) a breach of any other provision of this Agreement of
which the party is advised by notice in writing from
another party, which failure continues for fourteen
days after the said notice. The party who is in
receipt of such a notice may request that the
validity of the notice be determined by a single
arbitrator appointed pursuant to the provisions of
the Commercial Arbitration Act (B.C.). The costs of
the arbitrator so appointed shall be borne by the
party requesting arbitration, and if it is
<PAGE> 8
CONFIDENTIAL
determined that the notice is invalid, the requesting
party shall be repaid the cost of the arbitration by
the party who issues the notice.
6.2 In the event of a Default by any party, a non-defaulting party
may do any one or more of the following:
a) terminate this agreement immediately without giving
up any claim for damages arising from the default;
b) pursue any remedy available to it in law, equity or
by statute, it being acknowledged by each party that
specific performance, injunctive relief (mandatory or
otherwise) or other equitable relief may be the only
adequate remedy for a default;
c) take all steps and make all payments as may
reasonably be required to cure the default, in which
event all payments, costs and expenses incurred
therefore shall be payable by the defaulting party to
the non-defaulting party on demand;
d) waive the default provided, however, that any waiver
of a particular default shall not operate as a waiver
of any subsequent or continuing default and shall not
bind the other non-defaulting party.
ARTICLE 7
PROMOTION OF BZE
7.1 CKNW/CFMI will promote BZE without charge in the following
ways:
a) CKNW/CFMI shall permit BZE to include reasonable
promotional logos, hyperlinks and design credits, on
each and every page of the Web Sites.
b) After termination of this Agreement, CKNW/CFMI shall
ensure that an acknowledgment of BZE's design of the
Web Sites appears at the bottom of the main page of
the Web Sites for a period of five years after
termination, or until the majority of the Web Sites,
including the front end design and back-end
programming/database is redesigned by someone else,
whichever happens first.
c) CKNW/CFMI will actively promote the Web Site content,
services, features and the URL(s) with on-air
promotional spots. Each of the CKNW/CFMI stations
will broadcast these promotions on a regular basis to
assist in attracting traffic to the Web Site.
CKNW/CFMI will give BZE a design credit within those
promotional broadcasts. These credits will include a
BZE mention and a "SITE DESIGNED BY BLUE ZONE" or
alternative credit to be determined by BZE within all
such promotional broadcasts. CKNW/CFMI will include a
credit and reasonable promotion of BZE on all
promotional ads CKNW/CFMI broadcasts or prints for
the Web Site;
<PAGE> 9
CONFIDENTIAL
d) CKNW/CFMI will make good faith efforts to ensure its
sales and other staff refers all requests it receives
for internet ad designs, web design or other services
of an interactive media or internet nature to BZE.
ARTICLE 8
CONTRA
8.1 The parties agree that the value of the Web Sites at launch
(Fall 1999) is **** Dollars ($****) per Web Site for a total
value of **** Dollars ($****). This total development cost
represents approximately **** hours at BZE's book rate of
$**** per hour. This development budget to BZE for its
know-how and effort in creating the Web Sites, minus the
initial deposit will place a value of $**** on the Web Sites
at public launch. CKNW/CFMI will provide to BZE commercial
air-time of equal value ($****) during the first 12 months of
the contract, in accordance with Article 8.3.
8.2 After the public launch of the Web Sites, the parties will
collectively assign a monthly value for ongoing interactive
development by BZE beyond that covered by the basic
maintenance fee, and provide BZE with additional contra
commercial air time of equal value.
8.3 Blue Zone will have the right to choose which station(s) and
times to place such commercial air time, and have full
creative control over such commercials. CKNW/CFMI has the
right to approve the suitability for broadcast of all
creative. Such approval will not be unreasonably withheld. All
commercials will be booked on a pre-emptible basis, subject to
air time availability. BZE agrees to pay CKNW/CFMI for all out
of pocket costs incurred in producing these commercial
announcements. The commercials are intended for the sole use
of BZE to advertise its products or services, and are not to
be used either directly or indirectly for any other product or
service.
ARTICLE 9
ACKNOWLEDGMENTS UPON TERMINATION
9.1 Upon termination of this Agreement, CKNW/CFMI shall perform a
final distribution in accordance with the terms hereof, and
thereafter BZE shall not be entitled to any further payments,
remuneration or share of revenue. In that event, all equipment
and software purchased by CKNW/CFMI, together with incidental
documentation, as well as all copyright to Web Sites content,
and all design, HTML, Web page and database coding, is owned
by CKNW/CFMI and shall be relinquished to CKNW/CFMI forthwith.
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH THE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE
24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE> 10
CONFIDENTIAL
9.2 BZE is the sole owner of all of its proprietary, patented and
copyrighted technology, equipment, chattels or software
created by BZE, and all such items shall be relinquished to
BZE forthwith except code which is subject to the license
granted under Article 2 herein.
ARTICLE 10
ARBITRATION
10.1 All disputes or differences whatsoever which shall at any time
hereafter (whether during the continuance in effect of this
Agreement or upon or after its discharge or termination) arise
between the parties concerning this Agreement, its
construction or effect or as to the rights, duties and
liabilities of the parties hereto, under or by virtue of this
Agreement, or otherwise, as to any other matter in any way
connected with or arising out of or in relation to the subject
matter of this Agreement shall be referred to arbitration
pursuant to the provisions of the Commercial Arbitration Act
(B.C.).
ARTICLE 11
NOTICES
11.1 Any notice or demand or other document required or permitted
to be given under the terms of this Agreement shall be
sufficiently given to the party to whom it is addressed if
delivered or forwarded by registered mail or facsimile to the
parties hereto at the addresses set forth below.
a) CKNW/CFMI: _________________________________________
b) BZE: _______________________________________________
or to such other address as either party or parties may
furnish to the other from time to time. Every such notice
shall be deemed to have been received and given at the time
when, in the ordinary course of transmission, it would have
been delivered at the address to which it was sent.
ARTICLE 12
INTERPRETATION
12.1 The headings to the paragraphs of this Agreement are inserted
for convenience of reference only and shall not affect the
construction or interpretation of this Agreement.
12.2 Where the context of this Agreement requires, all pronouns and
any variations thereof shall be deemed to refer to the
masculine, feminine or neuter, or singular or plural, as the
identity of the person, persons, entity or entities may
require.
12.3 In the event that any provision of this Agreement or any part
thereof is invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions shall
not in any way be affected thereby.
<PAGE> 11
CONFIDENTIAL
ARTICLE
RELATIONSHIP
The parties agree and acknowledge that their relationship is an
Interactive Partnership designed to commercialize the Web Sites and
generate revenue. Nothing contained in this agreement shall be deemed
or construed to constitute a relationship or partnership, joint
venture, or agency relationship between BZE and CKNW/CFMI.
BZE has the right to represent the Web Sites in accordance with Article
2.4.
Each party represents that it is and shall be during the currency of
this Agreement a "resident of Canada" within the meaning of the Income
Tax Act (Canada).
ARTICLE
MISCELLANEOUS
1.1 The parties shall execute and deliver such further documents, and do
such further acts and things as may be required to implement the intent
and provisions of this Agreement and shall not act unreasonably or
arbitrarily in respect of any matter hereunder.
14.2 Time shall be of the essence of each of the provisions of this
Agreement.
14.3 This Agreement may be executed by the parties hereto in any number of
counterparts with the same effect as if the parties hereto had all
signed the same document. All counterparts of this Agreement shall be
construed together and constitute one instrument.
14.4 The termination of this Agreement will not affect the rights or
obligations of any party arising pursuant hereto prior to the date of
termination.
14.5 No party shall assign this Agreement or any part of it to any other
person without the written consent of the remaining parties hereto.
14.6 This Agreement shall ensure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns.
14.7 This Agreement shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the laws of the
Province of British Columbia and laws of Canada applicable therein
excluding any conflicts of law, rule or principle which might refer
such construction to the laws of another jurisdiction.
14.8 Each of the Owners acknowledges that it has obtained such independent
legal advice with respect to this Agreement and the matters
contemplated thereby as it determined appropriate or necessary.
<PAGE> 12
CONFIDENTIAL
IN WITNESS WHEREOF the parties hereto have executed this Agreement to
take effect as of July 1, 1999
Authorized Signatory of )
CKNW/CFMI, a division of WIC RADIO LTD. )
)
)
)
)
/s/ )
- --------------------------------------------------
Authorized Signatory )
)
/s/ )
- --------------------------------------------------
Authorized Signatory )
The Corporate Seal of )
BLUE ZONE ENTERTAINMENT, INC. )
was hereunto affixed in the )
presence of: )
)
)
/s/ Bruce Warren )
- --------------------------------------------------
Authorized Signatory ) c/s
)
/s/ Jamie Ollivier )
- --------------------------------------------------
Authorized Signatory
<PAGE> 1
CONFIDENTIAL
**** CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED.
EXHIBIT 10.3
June 16, 1998
THIS AGREEMENT made as of this 16th day of June, 1998.
BETWEEN:
WIC Premium Television, a Limited Subsidiary of WIC Western International
Communications Ltd. an Alberta company having its business offices at
200-5324 Calgary Trail Edmonton, Alberta, T6H 4J8
("WPT")
and:
BLUE ZONE ENTERTAINMENT INC., a British
Columbia company having its registered
office at 52 Water Street, Vancouver,
BC, V6B 1A4 ("BZE")
A. BZE specializes in interactive media and content creation. BZE will
design and operate WPT's internet Web Site as defined herein.
B. BZE, which maintains and markets the Web Site and pursues other
interactive media and internet business.
C. WPT specializes in pay and pay per view television broadcast and or
distribution and promotion. WPT will provide and continue to provide
BZE with content and programming information subject to the terms of
its supply agreements.
D. WPT has developed its own web site but desires such web site to be
enhanced hosted and maintained by Blue Zone
E. The parties desire to enter into this Agreement on the terms and
conditions hereinafter set forth.
NOW THEREFORE THIS AGREEMENT WITNESSES that it is agreed by and among
the parties hereto as follows:
ARTICLE 1
DEFINITIONS
1.1 In this Agreement, including the recitals hereto, the following expressions
shall have the following meanings:
"WPT" means WIC Premium Television, a Limited Subsidiary of Western
International Communications Ltd.;
"BZE" means Blue Zone Entertainment Inc.;
"Agreement" means this agreement, including any written amendments hereafter
made to this agreement;
<PAGE> 2
CONFIDENTIAL
"Person" means an individual, a partnership, an incorporated company, a trust
company, an unincorporated association, a government or any department or agency
thereof and the heirs and legal representatives of an individual;
"Web Site" means WPT's internet world wide web site created by BZE, which
includes, but is not limited to; text, audio, video, photographic, graphic and
interactive content, promotional materials, pertaining to Super Channel, Movie
Max and Viewer's Choice and WIC Premium Television which services are currently
available only in Canada. This content and material will be made publicly
available on the world wide web at the Universal Resource Locator (URL) address
www.premiumtv.ca. and or any future name change in this URL, including but not
limited to multiple URL distribution, consolidation and integration with other
WIC/broadcaster entities.
ARTICLE 2
ENGAGEMENT OF BZE
2.1 WPT hereby engages BZE to maintain and operate the Web Site on the terms and
conditions set forth herein.
2.2 WPT shall, at its own expense: pay a production fee of $**** to BZE for its
know-how and effort in creating the Web Site, 50% of such fee to be payable as a
deposit and 50% upon launch of the Web Site;
to provide all necessary content and internet hosting which WPT and BZE agree
are necessary for the Web Site and BZE's activities relating to the Web Site;
to pay for all software purchases and or licensing fees associated with server
and database hosting;
provide full access to WPT's video content, graphic content, programming content
and other proprietary content (and, where permissible, content purchased and or
licensed by WPT) for use only on the Web Site, subject always to WPT's right and
discretion to exclude any such content which it does not desire to appear on the
Web Site; and to promote BZE as provided herein.
2.3 BZE agrees to maintain and operate the Web Site at a leading level of
aesthetic and technical quality and content; to pursue other interactive media
and internet business; and to deal with all related revenue as provided herein.
2.4 BZE agrees to maintain good corporate standing and to provide, at its
own expense, all know-how, management and personnel necessary for BZE
to carry out BZE's obligations herein.
2.5 Nothing in this Agreement shall be construed as transferring any interest in
any assets, including intellectual property rights, from any party to any other
party, or altering the ownership structure of WPT or BZE in any way, or to
entitle BZE to any interest whatsoever in WPT's broadcasting business, or to
entitle WPT to any interest whatsoever in BZE's interactive business.
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH THE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE
24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE> 3
CONFIDENTIAL
2.5 The term of this agreement and BZE's engagement will commence on the
date of execution of this Agreement and terminate on the earlier of:
an agreement in writing of the parties;
Two (2) years from the date hereof, unless renewed or extended by written
agreement of the parties;
if the Web Site ceases to exist; or
in the event of default in accordance with Article 7.
2.7 The parties agree to make reasonable good faith efforts to negotiate a
renewal agreement or extension hereof prior to the termination of this
Agreement.
2.8 The parties agree that during the term of this Agreement their
relationship is exclusive, meaning WPT shall not employ any other third
party to maintain, design or alter WPT's Web Site. WPT acknowledges
that BZE will continue to do unrestricted business with other clients
as well as business with other broadcasters which business involves web
design.
ARTICLE 3
SCOPE OF PARTNERSHIP BUSINESS
3.1 The business activities of BZE shall consist of designing and maintaining
the Web Site, marketing the Web Site, and acting as the exclusive agent for
advertising on the Web Site, and actively seeking out interactive media and
internet business opportunities for the partnership. BZE and WPT agree to
cooperate and assist the Web Site and BZE in that regard by making available
content, industry contacts, skill, goodwill and cross-promotional opportunities.
ARTICLE 4
LIABILITY AND INSURANCE
4.1 Each party covenants and agrees with the others to indemnify and save
harmless the others from any and all liability, obligations, claims or losses
resulting from any liability arising from content it alone has created, from its
unauthorized acts and from its failure to comply with its obligations hereunder.
ARTICLE 5
COLLECTION AND DISTRIBUTION OF REVENUE
5.1 The parties acknowledge WPT and BZE are each making certain proprietary
assets or goodwill available to assist business. BZE will not itself retain
profits. It is intended that its net revenue which is attributable principally
to a proprietary asset or goodwill of one party shall be divided ****%/****% in
favour of that party. More particularly, the parties agree:
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH THE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE
24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE> 4
CONFIDENTIAL
Advertising revenue, meaning revenue from advertisers who pay for a presence on
the Web Site, shall be distributed, after payment of related expenses which
shall not exceed **** (****) % of net revenue unless both parties agree to such
costs in accordance with ARTICLE 5.2, ****% to WPT and ****% to BZE. However, it
is agreed that if the net advertising revenue in any 12 month period exceeds
$**** (Cdn) the parties agree for such period BZE's share of that shall be
limited ****% of $**** and WPT's share shall be the balance.
Revenue from BZE properties, meaning revenue generated by the sale facilitated
on the Web Site of properties of BZE (including but not limited to BZE's videos,
WEB TV, DVD and other storage/delivery mediums, patented 3D technology, and any
code, database or game products owned by BZE or developed in the design of the
Web Site, which WPT acknowledges to be owned by BZE) shall be distributed, after
payment of all related expenses in accordance with ARTICLE 5.3, ****% to Blue
Zone and ****% to WPT. Revenue from WPT properties, meaning revenue generated by
the sale facilitated on the Web Site of properties of WPT (including videos, WEB
TV, DVD and other storage/delivery mediums) shall be distribute, after payment
of all related expenses in accordance with ARTICLE 5.2, ****% to WPT and ****%
to BZE.
5.2 In determining what revenue is attributable to each category in ARTICLE 5.1,
BZE will allocate each item of revenue to the category it initially considers
appropriate and maintain detailed descriptions of each item of revenue, and such
allocations will be reviewed and approved by both WPT and BZE parties prior to
any distributions which shall not exceed **** (****) % of net revenue unless
both parties agree to such costs.
5.3 In determining what expenses are related to each category of revenue, both
WPT and BZE will assign job numbers to each for the purpose of allocating hourly
and monetary costs, and such allocations will be reviewed and approved by WPT
and BZE prior to any distributions.
5.4 Payments to employees or representatives of BZE for their know-how and
effort are deemed to be expenses related to production fees. Out of pocket
expenses which are general in nature and not attributable to a single category
of revenue shall be allocated to the three categories of revenue in proportion
to the revenue generated in those categories for the same time period.
5.5 Subject only to a reasonable holdback agreeable to the parties for
anticipated Expenses, BZE shall distribute all net revenue on a quarterly basis
beginning January 1, 1999 or at such other or earlier period as the parties
agree.
5.6 BZE shall prepare and distribute financial reports following and within 30
days of each distribution.
5.7 BZE hereby guarantees the payment of all monies to which WPT is entitled
herein.
5.8 If any financial report shows that in the period covered by such report a
party has retained or been paid an amount which exceeds or is less than its
entitlement for such period then that party shall forthwith repay such excess or
be paid such deficiency.
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH THE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE
24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE> 5
CONFIDENTIAL
ARTICLE 6
OPERATIONS
6.1 Except as expressly provided herein, all decisions regarding the
maintenance, design, WPT content, and alterations to the Web Site, shall be
subject to WPT's ongoing approval and subject to restrictions WPT might have in
its supply agreements.
6.2 A designated representative from each of WPT, and BZE shall discuss monthly
or on such further occasions as any one of them requests, to review the progress
of the Web Site's business and financial position, and to ensure that the
cross-promotion opportunities and new business development of the Web Site is
maximized.
6.3 BZE shall keep complete and accurate books of account, accounting and
banking records, corporate documents and records, and any other records
necessary to the proper operation of the Web Site. Such records will be kept in
accordance with generally accepted accounting and business procedures, and in
full accordance with all requirements of law. WPT shall have the right at all
reasonable times (but at its own expense) to examine and make copies of or
extracts from all such documents and books. Such right may be exercised through
any agent or employee of WPT designated by it or by an independent chartered
accountant or lawyer designated by WPT.
ARTICLE 7
Default
7.1 In this ARTICLE, the following expressions shall have the following
meanings, namely:
"Default" means: failure to promptly honour any indemnification or make any
distribution required herein; any assignment for the benefit of creditors,
appointment of a trustee or receiver of any assets, or institution of any
bankruptcy proceedings which is acquiesced in or is not dismissed within ninety
days of the bringing of such action;
the dissolution, winding-up or termination of a party; or
a material breach of any other provision of this Agreement of which the party is
advised by notice in writing from another party, which failure continues for
fourteen days after the said notice. The party who is in receipt of such a
notice may request that the validity of the notice be determined by a single
arbitrator appointed pursuant to the provisions of the Commercial Arbitration
Act (B.C.). The costs of the arbitrator so appointed shall be borne by the party
requesting arbitration, and if it is determined that the notice is invalid, the
requesting party shall be repaid the cost of the arbitration by the party who
issues the notice.
7.2 In the event of a Default by any party, a non-defaulting party may do any
one or more of the following:
pursue any remedy available to it in law, equity or by statute, it being
acknowledged by each party that specific performance, injunctive relief
(mandatory or otherwise) or other equitable relief may be the only adequate
remedy for a default;
take all actions in its name or in the name of the defaulting party as may
reasonably be required to cure the default, in which event all payments, costs
and expenses incurred therefore shall be payable by the defaulting party to the
non-defaulting party on demand;
<PAGE> 6
CONFIDENTIAL
waive the default provided, however, that any waiver of a particular default
shall not operate as a waiver of any subsequent or continuing default and shall
not bind the other non-defaulting party;
ARTICLE 8
Promotions
8.1 WPT will promote BZE without charge in the following ways:
BZE may include reasonable promotional logos, hyperlinks and design credits on
each and every page of the Web Site;
WPT will actively promote the Web Site content, services, features and the
URL(s) with on-air promotional spots. Each of the Premium TV services will
broadcast these promotions on a regular basis to assist in attracting traffic to
the Web Site. WPT will include a credit and reasonable promotion of BZE on all
promotional ads WPT prints for the Web Site;
WPT will make good faith efforts to ensure its sales and other staff refer all
requests it receives for internet ad designs, web design or other services of an
interactive media or internet nature to BZE; and
ARTICLE 9
ACKNOWLEDGMENTS upon termination
9.1 Upon termination of this Agreement, BZE shall perform a final distribution
in accordance with the terms hereof.
9.2 WPT is the sole owner of the domain known as www.premiumtv.ca, together with
all raw content provided by WPT for the Web Site and all equipment and software
it purchases for the use of BZE in accordance with the terms hereof.
9.3 BZE is the sole owner of all of its design, HTML, ASP, JAVA and other
coding/programming and content, together with incidental documentation, code,
database design, interactive designs and strategies, patented and copyrighted
technology, equipment and chattels supplied by BZE or its principals, and
software created by BZE.
ARTICLE 10
arbitration
10.1 All disputes or differences whatsoever which shall at any time hereafter
(whether during the continuance in effect of this Agreement or upon or after its
discharge or termination) arise between the Owners concerning this Agreement,
its construction or effect or as to the rights, duties and liabilities of the
Owners or Agent hereto, or any of them, under or by virtue of this Agreement, or
otherwise, as to any other matter in any way connected with or arising out of or
in relation to the subject matter of this Agreement shall be referred to
arbitration pursuant to the provisions of the Commercial Arbitration Act (B.C.).
ARTICLE 11
notices
11.1 Any notice or demand or other document required or permitted to be given
under the terms of this Agreement shall be sufficiently given to the party to
whom it is addressed if
<PAGE> 7
CONFIDENTIAL
delivered or forwarded by registered mail, return
receipt requested, cable, telegraph, telex, email or facsimile to the parties
hereto at the addresses set forth below.
WPT: _____________________________________________
BZE: _______________________________________________
or to such other address as either party or parties may furnish to the other
from time to time. Every such notice shall be deemed to have been received and
given at the time when, in the ordinary course of transmission, it would have
been delivered at the address to which it was sent.
ARTICLE 12
interpretation
12.1 The headings to the paragraphs of this Agreement are inserted for
convenience of reference only and shall not affect the construction or
interpretation of this Agreement.
12.2 Where the context of this Agreement requires, all pronouns and any
variations thereof shall be deemed to refer to the masculine, feminine or
neuter, or singular or plural, as the identity of the person, persons, entity or
entities may require.
12.3 In the event that any provision of this Agreement or any part thereof
is invalid, illegal or unenforceable, the validity, legality or
enforceability of the remaining provisions shall not in any way be
affected thereby.
ARTICLE 13
Relationship
13.1 Except as expressly provided herein, nothing herein shall be construed to
limit the parties in the carrying on of their own respective businesses or
activities. No party shall have any authority or power to act for or to
undertake any obligation or responsibility on behalf of any of the other party
except as herein may be expressly provided.
ARTICLE 14
Miscellaneous
14.1 The parties shall execute and deliver such further documents, and do such
further acts and things as may be required to implement the intent and
provisions of this Agreement and shall not act unreasonably or arbitrarily in
respect of any matter hereunder.
14.2 Time shall be of the essence of each of the provisions of this Agreement.
14.3 This Agreement may be executed by the parties hereto in any number of
counterparts with the same effect as if the parties hereto had all signed the
same document. All counterparts of this Agreement shall be construed together
and constitute one instrument.
14.4 The termination of this Agreement will not affect the rights or obligations
of any party arising pursuant hereto prior to the date of termination.
14.5 This Agreement shall ensure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns.
14.6 This Agreement shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the laws of the Province of British
Columbia and laws of
<PAGE> 8
CONFIDENTIAL
Canada applicable therein excluding any conflicts of law, rule or principle
which might refer such construction to the laws of another jurisdiction.
14.7 Each of the Owners acknowledges that it has obtained such independent legal
advice with respect to this Agreement and the matters contemplated thereby as it
determined appropriate or necessary.
IN WITNESS WHEREOF the parties hereto have executed this Agreement to
take effect as of June 16, 1998.
Authorized Signatory of
WIC Premium Television, a Limited Subsidiary of Western International
Communications Ltd.
)
)
)
)
)Signed /s/
-------------------------------------
Authorized Signatory
)-------------------------------------
)name/title (print)
)
Witness )Signed /s/ Luther Haave
)-------------------------------------
) /s/ Luther Haave
)name/title (print)
)
Authorized Signatory of
BLUE ZONE ENTERTAINMENT INC.
)Signed /s/ Bruce Warren
-------------------------------------
Authorized Signatory
) Bruce Warren
-------------------------------------
)name/title (print)
)
Witness )Signed /s/ Jamie Ollivier
-------------------------------------
) Jamie Ollivier
-------------------------------------
)name/title (print)
)President
<PAGE> 1
EXHIBIT 10.4
ROYAL BANK OF CANADA
BUSINESS BANKING LOAN AGREEMENT
Each of the undersigned Customer and owners/partners requests that Royal Bank of
Canada ("RBC") provides the Customer with the following loans (each a "Loan")
and banking services, and each of the undersigned Customer and owners/partners
agrees to be jointly and severally liable for each such Loan.
Service Name
Demand Operating Loan
Maximum Amount: $100,000.00
Revolvement Account: #107 - 149 - 7 Transit #: 00010
Minimum Retained Balance: $0.00
Minimum Revolvement Amount: $5,000/00
Interest Rate: Royal Bank Prime Rate plus 2.0000% per annum payable in the
20th day of each month.
Set-up Fee: $300.00 Monthly Fee: $50.00 MONTHLY REVOLVING FEE
Renewal Fee:
THE CUSTOMER AND THE OWNERS / PARTNERS SIGNING BELOW (WE) ACKNOWLEDGE THAT WE
HAVE RECEIVED FOR EACH LOAN SPECIFIED ABOVE, A COPY OF THE APPLICABLE STANDARD
TERMS WHICH ARE INCORPORATED BY REFERENCE TO THIS AGREEMENT.
We agree to be bound by those Standard Terms. We further agree that if, for any
particular loan, RBC sends us a revised set of Standard Terms, and if we do not
repay that Loan before the effective date of the revised Standard Terms, it will
attest that we have received a copy of and agreed to the revised Standard Terms.
Date: June 9, 1999
BLUE ZONE PRODUCTIONS LTD.
Name of Customer
/s/ Bruce Warren /s/ Bruce F.M. Warren
- -------------------------- -----------------------------
Authorized Signing Officer Signature of Owner / Partner
/s/ Jamie Ollivier /s/ Jamie John Ollivier
- -------------------------- -----------------------------
Authorized Signing Officer Signature of Owner / Partner
/s/ F. Michael P. Warren
-----------------------------
Signature of Owner / Partner
Accepted:
ROYAL BANK OF CANADA
/s/ RBC Authorized Signing Officer
- ----------------------------------
A copy of the Standard Terms (having the same revision date as this Agreement)
for each Loan specified above has been given to the above named Customer and to
each of the owners / partners signing above, this July 9, 1999.
/s/ T. D G. (on behalf of RBC)
- ------------------------------
<PAGE> 2
Standard Demand Operating Loan Terms
The following set of standard demand operating loan terms (the "Standard Terms")
are deemed to be included in the Royal Bank of Canada Business Banking Loan
Agreement (the "Agreement") which refers to terms with this version date and in
which Royal Bank of Canada ("RBC") provides a demand operating loan (the "Demand
Operating Loan" to a customer (the "Customer").
1. INTEREST AND FEES
Interest. The interest RBC charges on a Demand Operating Loan is the
interest indicated in the Agreement with respect to that Demand
Operating Loan and is calculated monthly both before and after
maturity, default and judgement, on the daily balance outstanding, with
interest in overdue interest at the same rate as on the principal
amount of the Demand Operating Loan, and shall be payable monthly on
the date specified in the Agreement.
Fees. The Customer will pay to RBD the Fees in the amounts and at the
times specified in the Agreement. Fees are payable both before and
after any default, demand or judgement.
Interest and Fees. In no event will interest and fees exceed the rate
permitted by law. Interest Act Disclosure. The annual rates of interest
to which the rates calculated in accordance with these Standard Terms
are equivalent, are the rates so calculated multiplied by the actual
number of days in the calendar year and divided by 365. Royal Bank
Prime. The Royal Bank Prime means the annual rate of interest RBC
announces from time to time as a reference rate then in effect for
determining interest rates on Canadian dollar commercial loans in
Canada.
2. Purpose
The Demand Operating Loan is available to the Customer for the sole
purpose of operating the business of the Customer.
3. Revolvement by RBC and Payment
The outstanding amount of a Demand Operating Loan may be revolved by
RBC up to the Maximum Amount specified, until demand for repayment by
RBC. RBC is authorized (but not obligated):
a) Whenever there is a credit balance in the Customer's
Revolvement Account that exceeds the sum of the Minimum
Retained Balance plus the Minimum Revolvement Amount, to apply
all or any part of such credit balance as a repayment on
account of the Demand Operating Loan, and
b) Whenever the balance in the Customer's Revolvement Account is
less than the Minimum Retained Balance, to debit the
Customer's business current account of an amount which is
equal to the Minimum Revolvement Amount and deposit such
amount to the Customer's Revolvement Account.
The Customer agrees to pay the Demand Operating Loan in demand.
4. Evidence of Indebtedness
RBC will maintain accounts and records evidencing all advances made by
RBC in respect of each Demand Operating Loan, together with all accrued
interest, and all payments of principal, interest and fees made by the
Customer. Such accounts and records will constitute, in the absence of
manifest error, evidence of the amounts of all such advances, interest
and payments and of the indebtedness owing by the Customer to RBC at
any time. RBC may use a microfilm, electronic or other reproduction of
any transaction or other document evidencing the Demand Operating Loan
to establish the Customer's liability for that Demand Operating Loan.
<PAGE> 3
If it is necessary for RBC to prove the Interest Rate in effect at any
time, the Customer agrees that RBC's written certificate, setting out
the interest rate at that time, is sufficient proof for that purpose.
5. Debiting of Accounts
RBC is authorized, but not obligated, to debit any of the Customer's
accounts with any amounts due and payable by the Customer, under the
Agreement.
6. Compliance with Law
The Customer represents and warrants that the Customer is in compliance
and agrees that in the future the Customer will comply with all laws,
regulations, official directives and authorizations applying to the
Customer or any of the Customer's property or business, including any
relating to the environment of public heath and safety ("Environment
Laws"). The Customer will notify RBC immediately of any breach of
Environment Laws. The Customer will also promptly advise RBC of all
communications and reports in connection with any matters materially
affecting the Customer, and the Customer's property or business and
relating to Environment Laws.
7. Expenses
The Customer shall pay all fees expenses and legal costs (on the basis
of a solicitor and its own client, or where applicable including
extra-judicial costs) incurred by RBC in connection with the Agreement
and any security provided to RBC and the enforcement of RBC's rights
against the Customer or under any security. These costs and expenses
may include (but are not limited to) costs of amendments, appraisals,
inspections, environmental reviews, registrations, searches, discharges
and actions taken in connection with the preservation of RBC's rights
under the Agreement or under RBC's security.
8. Change
a) Interest Rate: The interest rate under the Agreement will
change automatically, without notice, whenever the Royal Bank
Prime changes.
b) Other terms: RBC may change any other terms of the Agreement
periodically. Unless the law requires RBC to do otherwise, RBC
does not have to advise the Customer about these changes
before they take place. If the Demand Operating Loan remains
unpaid after the effective date of a change, it will attest
that the Customer has agreed to the change.
9. Whole Agreement
The Agreement and any documents or instruments referred to in, or
delivered pursuant to, the Agreement constitute the whole and entire
agreement between the Customer and the RBC with respect to the Demand
Operating Loan.
10. Governing Law and Submission to Jurisdiction
The Agreement shall be construed in accordance with and governed by the
Laws of the Province where the Customer resides and the laws applicable
therein. The Customer irrevocably submits to the non-exclusive
jurisdiction of the courts of such Province and acknowledges the
competence of such courts and irrevocably agrees to be bound by a
judgment of any such court.
11. Set Off
RBC is authorized (but not obligated) at any time and without notice,
to apply the credit balance (whether or not then due) to which the
Customer is beneficially entitled on any account (in any currency) at
any branch or agency of RBC in or towards satisfaction of the
obligations and
<PAGE> 4
liabilities of the Customer due to RBC under the Agreement. For that
purpose, RBC is irrevocably authorized to use all or any part of any
such credit balance to buy other such currencies as may be necessary to
effect such application.
12. Notices
Any notice or demand under the Agreement shall be given in writing by
way of a letter addressed to the Customer. If the letter is sent by
telecopier, is shall be deemed to be received on the date of
transmission provided such transmission is received by 5pm on a day on
which the Customer's business is open for normal business, and
otherwise on the next such day. If the letter is sent by ordinary mail
is shall be deemed received on the date falling five (5) days following
the date of the letter, unless the letter is hand-delivered to the
Customer in which case the letter shall be deemed to be received on the
date of the delivery. The Customer must advise RBC at once about any
changes in the Customer's address.
13. Language
The Customer and RBC have expressly requested that the Agreement and
all related documents, including notices, be drawn up in the English
language. Les parties ont expressement demande que la presents
convention et tous les documents y afferents y compris les avis, solent
rediges en langue anglaise (Quebec only / Quebec seulement)
<PAGE> 1
EXHIBIT 10.5
Guarantee and Postponement of Claim
To: Royal Bank of Canada
FOR VALUABLE CONSIDERATION, receipt whereof is hereby acknowledged, the
undersigned and each of them (if more than one) hereby jointly and
severally guarantee(s) payment on demand to Royal Bank of Canada
(hereinafter called the "Bank") of all debts and liabilities, present
or future, direct or indirect, absolute or contingent, matured or not,
at any time owing by BLUE ZONE PRODUCTIONS LTD (hereinafter called the
"customer") to the Bank or remaining unpaid by the customer to the Bank,
heretofore or hereinafter incurred or arising and whether incurred by
or arising from agreement or dealings between the Bank and the customer
or by or from any agreement or dealings with any third party by which
the Bank may be or become in any manner whatsoever a creditor of the
customer or however otherwise incurred or arising anywhere within or
outside the country where this guarantee is executed and whether the
customer be bound alone or with another or others and whether as
principal or surety (such debts and liabilities being hereinafter
called the "liabilities"); the liability of the undersigned hereunder
being limited to the sum of $50,000.00 (Fifty Thousand Dollars)
together with interest thereon from the date of demand for payment at a
rate equal to the Bank's Prime Interest Rate per annum in effect from
time to time plus 2.00% (two point zero percent) per annum as well as
after as before default and judgment.
AND THE UNDERSIGNED AND EACH OF THEM (IF MORE THAN ONE) HEREBY JOINTLY
AND SEVERALLY AGREE(S) WITH THE BANK AS FOLLOWS:
(1) The Bank may grant time, renewals, extensions, indulgences, releases
and discharges to, take securities (which word used herein includes
securities taken by the Bank from the Customer and others, monies which
the Customer has on deposit with the Bank, other assets of the Customer
held by the Bank in safekeeping or otherwise, and other guarantees)
from and give the same and any or all existing securities up to,
abstain from taking securities from, or perfecting securities of, cease
or refrain from giving credit or making loans or advanced to, accept
compositions from or otherwise deal with, the customer and others and
with all securities upon such part of the liabilities as the Bank deems
bast and change any such application in whole or in part from time to
time as the Bank may see fit, the whole without in any way limiting or
lessening the liability of the undersigned under this guarantee, and no
loss of or in respect of any securities received by the Bank from the
customer or others, whether occasioned by the fault of the Bank or
otherwise, shall in any way limit or lessen the liability of the
undersigned under this guarantee.
<PAGE> 2
(2) This guarantee shall be a continuing guarantee and shall cover all the
liabilities, and it shall apply to and secure any ultimate balance due
or remaining unpaid to the Bank.
(3) The Bank shall not be bound to exhaust its recourse against the
customer or others or any securities it may at any time hold before
being entitles to payment from the undersigned of the liabilities. The
undersigned renounce(s) to all benefits of discussion and division,
(4) The undersigned or any of them may, by notice in writing delivered to
the Manager of the branch or agency of the Bank receiving this
instrument, determine their or his/her liability under this guarantee
in respect of liabilities thereafter incurred or arising but not in
respect of any liabilities theretofore incurred or arising even though
not then matured, provided, however, that notwithstanding receipt of
any such notice and any resulting liabilities shall be based on
agreements express or implied made prior to the receipt of such notice,
and any resulting liabilities shall be covered by this guarantee, and
provided further that in the event of the determination of the
guarantee as to one of more of the undersigned it shall remain a
continuing guarantee as to the other or others of the undersigned.
(5) All indebtedness and liability, present and future, of the customer to
the undersigned or any of them are hereby assigned to the Bank and
postponed to the liabilities, and all monies received by the
undersigned or any of them in respect thereof shall be received in
trust for the Bank, and forthwith upon receipt shall be paid over to
the Bank, the whole without in any way limiting or lessening the
liability of the undersigned under the foregoing guarantee; and this
assignment and postponement is independent of the said guarantee and
shall remain in full effect notwithstanding that the liability of the
undersigned or any of them under the said guarantee may be extinct. The
term "Liabilities", as previously defined, for purposes of the
postponement feature provided by this agreement, and this section in
particular, includes any funds advanced or held at the disposal of the
customer under any line(s) of credit.
(6) This guarantee and agreement shall not be affected by the death or loss
or diminution of capacity of the undersigned or any of them or by any
change in the name of the customer or in the membership of the
customer's firm through the death or retirement of one or more partners
or the introduction of one or more other partners or otherwise, or by
the acquisition of the customer's business or by a corporation, or by
any change whatsoever in the objects, capital structure or constitution
of the customer, or by the customer's business being amalgamated with a
corporation, but shall notwithstanding the happening of any such event
continue to apply to all the liabilities whether theretofore or
thereafter incurred or arising and in this instrument the word
'customer' shall include every such firm and corporation.
(7) This guarantee shall not be considered as wholly or partially satisfied
by the payment or liquidation at any time or times of any sum or sums
of money for the time being due or remaining unpaid to the Bank, and
all dividends, compositions, proceeds of security valued and payments
received by the Bank
<PAGE> 3
from the customer or from others or from estates shall be regarded for
all purposes as payments in gross without any right on the part of the
undersigned to claim in reduction of the liability under this guarantee
the benefit of any such dividends, compositions, proceeds or payments
or any securities held by the Bank or proceeds thereof, and the
undersigned shall have no right to be subrogated in any rights of the
Bank until the Bank shall have received payment in full of the
liabilities.
(8) All monies, advances, renewals, credits and credit facilities in face
borrows or obtained from the Bank shall be deemed to form part of the
liabilities, notwithstanding any lack or limitation of status or of
power, incapacity or disability of the customer or the directors,
partners or agents of the customer, or that the customer may not be a
legal or suable entity or any irregularity defect or informality in the
borrowing or obtaining of such monies, advances, renewals, credits or
credit facilities, ort any other reason, similar or not, the whole
whether known to the Bank or not. Any sum which may not be recoverable
from the undersigned on the footing or a guarantee, whether for the
reasons set out in the previous sentence, or for any other reason,
similar or not, shall be recoverable from the undersigned and each of
them as sole or principal debtor in respect of that sum, and shall be
paid to the Bank on demand with interest and accessories.
(9) This guarantee is in addition to and not in substitution for any other
guarantee, by whomsoever given, at any time held by the Bank, and any
present or future obligation to the Bank incurred or arising otherwise
then under a guarantee, of the undersigned or any of then or any other
obligant, whether bound with or apart from the customer, excepting any
guarantee surrendered for cancellation on delivery of this instrument.
(10) The undersigned and each other them shall be bound by any account
settled between the Bank and the customer, and if no account has been
so settled immediately before demand for payment under this guarantee
any account stated by the Bank shall be accepted by the undersigned and
each of them as conclusive evidence of the amount which at the date of
the account so stated is due by the customer to the Bank or remains
unpaid by the customer to the Bank.
(11) This guarantee and agreement shall be operative and binding upon every
signatory thereof notwithstanding the non-execution thereof by any
other proposed signatory or signatories, and possession of this
instrument by the Bank shall be conclusive evidence against the
undersigned and each of them that this instrument was not delivered in
escrow or pursuant to any agreement that is should not be effective
until any conditions precedent or subsequent had been complied with,
unless at the time of receipt of this instrument by the Bank each
signatory thereof obtains from the Manager of the branch or agency of
the Bank receiving this instrument a letter setting out the terms and
conditions under which this instrument was delivered and the
conditions, if any, to be observed before it becomes effective.
(12) No suit based on this guarantee shall be instituted until demand for
payment has been made, and demand for payment shall be deemed to have
<PAGE> 4
been effectually made upon any guarantor if and when an envelope
containing such demand, addressed to such guarantor at the address of
such guarantor last known to the Bank, is posted, postage prepaid, in
the post office, and in the event of the death of any guarantor demand
for payment addressed to any of such guarantor's heirs, executors,
administrators or legal representatives at the address of the addressee
last known to the Bank and posted as aforesaid shall be deemed to have
been effectually made upon all of them. Moreover, when demand for
payment has been made, the undersigned shall also be liable to the bank
for all legal costs (on a solicitor and own client basis) incurred by
or on behalf of the Bank resulting from any action instituted on the
basis of this guarantee. All payments hereunder shall me made to the
Bank at a branch or agency of the Bank.
(13) This instrument covers all agreements between the parties hereto
relative to this guarantee and assignment and postponement, and none of
the parties shall be bound by any representation of promise made by any
person relative thereto which is not embodied herein.
(14) This guarantee and agreement shall extend to and endure to the benefit
of the bank, and its successors and assigns, and every reference herein
to the undersigned or to each of them or to any of them, is a reference
to and shall be construed as including the undersigned and the heirs,
executors, administrators, legal representatives, successors and
assigns of the undersigned or of each of them or of any of them, as the
case may be, to and upon all of whom this guarantee and agreement shall
extend and be binding.
(15) Prime Interest Rate is the annual rate is interest announced from time
to time by Royal Bank of Canada as a reference rate then in effect for
determining interest rates on Canadian dollar commercial loans in
Canada.
(16) This guarantee and postponement of Claim shall be governed by and
construed in accordance with the laws of the Province of British
Columbia ("Jurisdiction"). The undersigned irrevocably submits to the
courts of the Jurisdiction in any action or proceeding arising out of
or relating to this Guarantee and Postponement of Claim, and
irrevocably agrees that all such action and proceedings may be heard
and determined in such courts, and irrevocably waives, to the fullest
extent possible, the defense of an inconvenient forum. The undersigned
agrees that a judgment or order in any such action or proceeding may be
enforced in other jurisdictions in any manner provided by law.
Provided, however, that the Bank may serve legal process in any manner
permitted by law or may bring an action or proceeding against the
undersigned or the property or assets of the undersigned in the courts
of any other jurisdiction.
(17) The undersigned hereby acknowledges receipt of a copy of this
agreement.
(18) The undersigned hereby waives undersigned's right to receive a copy of
any Financing Statement or Financing Change Statement registered by the
Bank.
GIVEN UNDER SEAL at Vancouver, this July 9, 1999
<PAGE> 5
SIGNED, SEALED AND DELIVERED IN THE PRESENCE OF
/S/Witness /s/ F. Michael P Warren.
- --------------------- ---------------------------
<PAGE> 1
EXHIBIT 10.6
JAMIE OLLIVIER
EMPLOYMENT AGREEMENT
CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
INTRODUCTION.............................................................................................1
TERMS AND CONDITIONS.....................................................................................1
1.0 RETENTION OF JAMIE OLLIVIER......................................................................1
2.0 PERFORMANCE OF DUTIES............................................................................1
3.0 DIRECT COMPENSATION..............................................................................1
4.0 ADDITIONAL BENEFITS..............................................................................2
5.0 DURATION OF AGREEMENT............................................................................3
6.0 COMPENSATION UPON TERMINATION....................................................................4
7.0 RESTRICTIVE COVENANTS............................................................................5
8.0 OWNERSHIP OF FUTURE INTELLECTUAL PROPERTY........................................................6
9.0 DELIVERY OF RECORDS..............................................................................7
10.0 NON-COMPETITION, SOLICITATION OF CUSTOMERS, SOLICITATION OF EXECUTIVES...........................7
11.0 OTHER PROVISIONS.................................................................................8
12.0 INJUNCTIVE RELIEF................................................................................9
13.0 INDEPENDENT LEGAL ADVICE.........................................................................9
14.0 COUNTERPARTS....................................................................................10
EXHIBIT A. INVENTIONS..................................................................................11
</TABLE>
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of January 1, 2000 (the
"Effective Date") by and BETWEEN: BLUE ZONE ENTERTAINMENT INC. a company
incorporated under the laws of Canada (the "Company") and Jamie Ollivier (the
"Executive").
INTRODUCTION
The Company has proposed an arrangement whereunder the
Executive will be retained by the Company as an executive employee. The
Executive has acceded to this proposal. This Agreement sets forth the terms and
conditions of that arrangement.
TERMS AND CONDITIONS
1.0 RETENTION OF JAMIE OLLIVIER
1.1 The Company hereby employs the Executive to act on its behalf in an
executive and managerial capacity and to participate in the supervision and
direction of the operations of the Company as they are now or may hereafter be
constituted and as directed by the Company's Board of Directors (the "Board")
and the Chairman of the Board (the "Chairman"). The Executive shall initially
have the title of President. The Executive shall have the responsibility for
supervising the business affairs and operations of the Company and its various
subsidiaries throughout the world. As and when required, the Executive shall
share responsibility for stockholder relations and fundraising. The Executive
shall have all functional responsibilities necessary to enable him or her to
discharge his or her duties hereunder and to conduct the Company's business
throughout the world. The executive shall have such other responsibilities as
the Board and the Chairman shall from time to time assign to him or her, but the
duties which he or she shall be called upon to render hereunder shall not be of
a nature substantially inconsistent with those customarily performed by
individuals holding principal executive offices in similar business
organizations. The Executive shall report and be responsible to the Board and
the Chairman.
1.2 Each year during which this Agreement is in effect, the Company shall cause
the Executive to be nominated for election to the Board. During the term of this
Agreement, the Executive shall also serve as a member of the Executive Committee
to be appointed by the Board, at least two members of which shall consist of the
Chairman and the Executive. The Executive Committee shall be given authority by
the Board to make decisions respecting the operations of the Company, subject to
the approval of the Board. All decisions of the Executive Committee shall be
made by a majority vote of its members.
2.0 PERFORMANCE OF DUTIES
2.1 The Executive hereby accepts employment by the Company and agrees to serve
the Company faithfully and to the best of his or her ability and to devote the
time, attention and efforts necessary to advance the business and affairs of the
Company during the Term of this Agreement except for reasonable time spent for
service on the boards of directors of other corporations, vacations and civic
and charitable activities. It is understood and agreed that the Executive may
pursue personal investments requiring time commitments that do not conflict with
his obligations to the Company, including those in the preceding sentence. The
Executive hereby confirms that he is under no contractual commitments
inconsistent with his obligations set forth in this Agreement, and that during
the Term of this Agreement, he shall not render or perform services, or enter
into any contract to do so, for any other corporation, firm, entity or person
which are inconsistent with his or her duties to the Company.
2.2 All duties performed by the Executive under the terms of this Agreement
(other than incidental duties) shall be performed at such locations both inside
or outside Canada as the Board of the Directors of the Company may from time to
time direct.
3.0 DIRECT COMPENSATION
3.1 The Company shall pay to the Executive in each 365 day period within the
term of this Agreement a base salary of not less than US$120,000.00 ("Base
Salary"), which shall be payable in accordance with the Company's regularly
established pay schedule applicable to corporate officers of the Company. The
Executive's Base Salary shall be reviewed at the end of each 365 day period
within the term
<PAGE> 3
of this Agreement and may be increased by an amount to be determined by the
Compensation Committee on the basis of the Executive's performance.
3.2 The Executive shall be entitled to an annual bonus based upon performance
("Incentive Compensation") which shall be determined under a plan to be prepared
by the Compensation Committee in consultation with the Executive and approved by
the Compensation Committee (the "Statement of Objectives"), and which shall be
paid to the Executive in accordance with the following procedures:
3.2.1 The Statement of Objectives shall consist of an outline of the Executive's
performance goals for the fiscal year under consideration. Each performance goal
set forth in the Statement of Objectives shall be measurable and the Statement
of Objectives shall set forth the basis for measurement of the achievement as
well as the over-achievement of each goal. A dollar value shall be assigned to
each performance goal set forth in the Statement of Objectives. Wherever there
can be variations in the degree of the achievement or over-achievement of a
goal, the range of percentage participation in the dollar value of the goal
relating to the varying levels of achievement shall be clearly stated.
3.2.2 The aggregate dollar value assigned to the achievement (but not the
over-achievement) of the performance goals set forth in the Statement of
Objectives shall equal 50 percent of the Executive's Base Salary for the year
with respect to which the bonus shall be paid. Additional dollar values which
equal in the aggregate an additional 100 percent of the Executive's Base Salary
for the year with respect to which the Incentive Compensation will be paid shall
be assigned to the over-achievemen of the performance goals set forth in the
Statement of Objectives, so that the maximum potential Incentive Compensation to
be awarded to the Executive for any year may equal 150 percent of his or her
Base Salary for that year.
3.2.3 Immediately upon receipt of the Statement of Objectives from the
Executive, the Compensation Committee shall review it and shall either approve
it as submitted or shall modify any or all of the performance goals, and/or the
dollar values assigned to the achievement and to the over-achievement of the
goal or goals in question, and/or the range of percentage participation in the
dollar value of any or all of the goals relating to varying levels of
achievement; provided, that any such modification by the Compensation Committee
shall in no event reduce the aggregate dollar values assigned to the achievement
and over-achievement of the performance goals below the levels specified in
Section 3.2.3.
3.2.4 Payment of the Incentive Compensation shall be based upon the achievement
of the performance goals at the end of the fiscal year in question. The
Incentive Compensation payable to the Executive for each fiscal year shall equal
the aggregate of the dollar values assigned to the relevant levels of
achievement or over-achievement attained by the Executive with respect to each
performance goal set forth in the Statement of Objectives for that year. If the
relevant level of achievement or ove achievement of any goal falls within a
range of participation assigned to that goal, the dollar amount of the bonus
award for the achievement or over-achievement of that goal shall be
proportionate to the level of achievement or over-achievement reached within
that designated range.
3.2.5 The Incentive Compensation shall be paid to the Executive no later than
120 days following the end of the fiscal year with respect to which it is being
paid. In the event that the Executive dies or his or her employment hereunder
terminates for any other reason after the end of any fiscal year but before the
payment of the Incentive Compensation due with respect to that year, the
Incentive Compensation shall be paid to the Executive's estate.
4.0 ADDITIONAL BENEFITS
4.1 During the term of this Agreement, the Executive shall be entitled to
participate in all present and future employee benefit plans, maternity benefit
plans, deferred compensation plans and all other compensation and benefit plans,
programs and structures as may from time to time be made available by the
Company to all other key corporate executives of the Company, and on terms and
conditions no less favorable than those generally available to other such
employees. The Executive shall also be entitled to the highest number of
vacation days with full pay during each twelve months in which this Agreement is
in effect as are available to any other key Canadian corporate executive of the
Company, without any reduction based upon length of service to the Company. In
addition, during the term of this Agreement the Executive shall be entitled to
the club and professional society membership dues and monthly charges,
reimbursement for the costs of financial, tax and estate planning and an
automobile allowance. In the event that the Company elects to obtain key person
life insurance insuring the Executive, the Executive shall make him/herself
available for the necessary physical examinations and shall cooperate in all
other respects with the Company's efforts to obtain such insurance. The
Executive hereby represents that he does not know of any condition, which would
cause him to be uninsurable.
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<PAGE> 4
4.2 In addition to the compensation provided in the previous paragraphs the
Company will reimburse the Executive for reasonable expenses which he may incur
in the course of the performance of his duties for the Company, and he will
furnish documentation thereof in accordance with the Company's practices
regarding the same. This obligation of the Company shall include but not be
limited to travel, meals and lodging expenses incurred by the Executive's spouse
in accompanying the Executive on any business trip on behalf of the Company,
which exceeds fifteen (15) days in duration. This obligation of the Company
shall also include but not be limited to travel, meals and lodging expenses
incurred by the Executive's nanny/babysitter in accompanying the Executive on
any business trip on behalf of the Company, for business trips of any duration,
whenever the Executive travels with pre-school child(ren) without his or her
spouse. The Company will similarly reimburse the Executive for home-based
nanny/babysitter expenses for pre-school child(ren) incurred while the Executive
is on Company business.
4.3 The Executive shall be entitled to participate in a stock option plan or
share purchase plan or any similar plan as may be offered by the Company at its
sole discretion from time to time. The introduction and administration of any
such plan is entirely at the Company's sole discretion, and the introduction,
deletion or amendment of such plan shall not constitute a breach of this
Agreement.
4.4 If for any reason any amounts paid to the Executive pursuant to Sections 4.1
through 4.3 above are required to be included in the Executive's income for
purposes of determining federal or provincial income taxes payable by him/her,
the Company shall pay to the Executive an amount which after taking into account
all taxes required to be paid by the Executive as a result of the Executive's
receipt of such payment from the Company, shall cause the Executive's after-tax
return on the payments made pursuant to Sections 4.1 through 4.3 above to equal
the amount which would have been available to the Executive had no federal or
provincial income taxes been due thereon. The amount required to be paid by the
Company pursuant to this Section 4.4 shall be determined by the Executive's tax
return preparer, shall take into account all applicable deductions or credits,
and shall be paid to the Executive no later than 15 days following the date on
which the Executive files the income tax return in which any payments made
pursuant to Sections 4.1 through 4.3 are included in the Executive's income or
within fifteen days following the date on which the relevant taxing authority
makes a determination that any payments made pursuant to Sections 4.1 through
4.3 are required to be included in the Executive's income, as the case may be.
5.0 DURATION OF AGREEMENT
5.1 The term of this Agreement shall be from the date hereof until such time as
it is terminated pursuant to Section 5.2 of this Agreement, or up to and
including the first to occur of the following:
5.1.1 the date upon which the Executive commits a "prohibited act" (as
hereinafter defined);
5.1.2 the date upon which the Executive has been determined to have a "permanent
disability" (in the manner set forth in Section 5.1.5 hereof); or
5.1.3 the date of the Executive's death. No event other than those specified in
this Section 5.1 shall constitute grounds for the termination of this Agreement
or discharge of the Executive from employment with the Company. Upon the
termination of this Agreement pursuant to this Section 5, if the Executive is
then serving as a Board member and the term of his or her service as a Board
member does not expire prior to or concurrently with the termination of this
Agreement, the Executive shall submit his or her resignation as a member of the
Board.
5.1.4 For purposes of this Section 5, the term "prohibited act" shall mean the
Executive's commission of any of the following: (a) conviction of a felony or
any other criminal offense which has a material adverse effect on the Company or
the ability of the Executive to carry out his or her duties of employment; (b)
willful commission of acts materially detrimental to the Company's business or
reputation; (c) material breach of any of the Executive's covenants or fiduciary
duties as specified in this Agreement which is not capable of being cured by the
Executive or, if capable of being cured, which is not cured by the Executive
within fifteen days following written notice thereof by the Company; or (d) the
knowing failure of the Executive to follow specific directives of the Board of
Directors of the Company consistent with his or her duties. If the Board of
Directors terminate this Agreement pursuant to Section 5, the Executive will be
provided seven (7) days written notice. No other acts or omissions by the
Executive shall constitute prohibited acts sufficient to give rise to the
Executive's discharge from employment hereunder. A termination of this Agreement
by reason of the Executive's commission of a prohibited act shall not be
effective unless the Executive has been given a notice of termination for cause
by the Company which sets forth in detail the basis of the findings by the Board
that cause for termination exists under Section 5.1.1 of
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<PAGE> 5
this Agreement. Notwithstanding the foregoing, no such notice of termination
shall be given to the Executive unless the Executive has been provided with an
opportunity to appear with counsel and to be heard by the Board on the issue of
whether such cause for termination exists hereunder; provided, that the
Executive's counsel shall not be entitled to be present during any vote by the
board on the question of whether cause for termination of the Executive's
employment exists.
5.1.5 For purposes of this Agreement, the term "permanent disability" shall be
limited to a physical or mental condition, other than pregnancy, which results
in the Executive's absence from his employment duties for a period of ninety
(90) or more consecutive days, in which event the Executive shall be determined
to have a "permanent disability" for purposes of this Agreement upon the
expiration of such 90-day period. Anything in this Section 5.1.5 to the contrary
notwithstanding, the provisions of this Agreement respecting permanent
disability shall be without prejudice to any rights which the Executive may have
under any applicable disability insurance policy or other plan maintained by the
Company for the benefit of its employees.
5.2 The Board of Directors of the Company shall determine, in its sole
discretion, that the termination of this Agreement is in the best interest of
the Company, and in which event Executive shall have no duty to mitigate his or
her damages. If the Board of Directors terminate this Agreement pursuant to this
Section 5.1.5, the Executive will be provided thirty (30) days written notice.
5.3 Notwithstanding any termination of this Agreement, the Executive, in
consideration of his employment hereunder to the date of such termination, shall
remain bound by the provisions of this Agreement which specifically relate to
periods, activities or obligations upon or subsequent to the termination of the
Executive's employment.
6.0 COMPENSATION UPON TERMINATION
6.1 Upon termination of the Executive's employment hereunder for any reason, in
addition to any benefits to which the Executive may then or following the
termination of his or her employment be entitled under any other applicable
policy or plan of the Company then in effect, the Company shall pay to the
Executive (or to his or her estate, as the case may be) his or her Base Salary,
Incentive Compensation and benefits due through the effective date of
termination. In the event that such termination occurs on any date other than
the last day of the fiscal year, the Incentive Compensation shall be based upon
the performance goals achieved at the end of the fiscal year, but shall be
prorated based upon the number of days which have elapsed in the fiscal year
through the date of termination. Payment of the Incentive Compensation due under
this Section 6.1 shall be made no later one hundred twenty (120) days following
the end of the fiscal year with respect to which it is being paid. Payment of
all other amounts due under this Section 6.1 shall be made not later than the
10th day following the effective date of termination.
6.2 In the event the Executive's employment terminates by reason of a "permanent
disability", as defined in Section 5.1.5, the Company shall pay to the Executive
an amount equal to the Base Salary, benefits and Incentive Compensation that
would have been payable to the Executive for the 180 day period following the
date on which the Executive is determined to have a permanent disability in the
manner set forth in Section 5.1.5, less the amount of disability pay (if any)
which the Executive receives for that 180-day period under any applicable
disability insurance policy.
6.3 The parties acknowledge that if the Executive's employment is terminated by
the Company in any manner not permitted by Section 5 of this Agreement, or in
the event of a material breach by the Company of any of its covenants under this
Agreement (any such termination of the Executive's employment or material breach
by the Company shall hereinafter be referred to as a "Wrongful Termination"),
the damages suffered by the Executive by reason thereof would be extremely
difficult to ascertain. In recognition thereof, the parties agree that in the
event of a Wrongful Termination, the Company shall pay to the Executive an
amount equal to (i) the Base Salary and benefits that would have been payable to
the Executive for a period of 24 (twenty-four) full calendar months from and
after the month in which the Wrongful Termination occurred and (ii) the
Incentive Compensation that would have been payable to the Executive for a
period of 12 (twelve) full calendar months from and after the month in which the
Wrongful Termination occurred. Notwithstanding the foregoing, the Executive
shall use reasonable efforts following a Wrongful Termination to obtain
employment comparable in nature and compensation to the Executive's employment
hereunder and, in the event that he or she obtains such employment prior to the
expiration of the aforementioned 24 (twenty-four) month period, the amount due
to the Executive pursuant to this Section 6.3 shall be reduced by the amount of
the compensation (if any) which he or she receives during the 24 (twenty-four)
month period from the new position of employment.
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<PAGE> 6
6.4 The Base Salary and benefits payable hereunder for any period following a
termination by reason of the Executive's permanent disability or a Wrongful
Termination shall be determined on the basis of the Base Salary and benefits in
effect on the date of the Executive's permanent disability or on the date of the
Wrongful Termination, as the case may be. The Incentive Compensation payable
hereunder for the 180-day period following a termination by reason of the
Executive's permanent disability shall equal one-half of the Incentive
Compensation payable to the Executive with respect to the entire fiscal year in
which the permanent disability occurred, and the Incentive Compensation payable
hereunder for the 12-month period following a Wrongful Termination shall equal
the Incentive Compensation payable to the Executive with respect to the entire
fiscal year in which the Wrongful Termination occurred, in each case based upon
the performance goals achieved at the end of that fiscal year. Also in the event
of a termination by reason of the Executive's permanent disability or a Wrongful
Termination, the Company shall make such other and further payments to the
Executive, his designated beneficiaries and dependents or his estate as may be
provided pursuant to any employee benefit plan and other compensation plan or
program in which the Executive is a participant at the time of the termination
of his or her employment, and the Company shall use its best efforts to cause
all insurance policies under which coverage was then being afforded to the
Executive pursuant to this Agreement to be maintained in effect with coverage
for the Executive through the end of the period for which he or she is entitled
to his Base Salary and benefits; provided, that if continued coverage following
termination is not available under the terms of any of those policies, the
Company shall either use its best efforts to procure the same coverage from
another insurer reasonably deemed acceptable by the Executive, or shall pay to
the Executive an amount equal to the cost to the Company of such coverage as it
was being provided to the Executive under such policy or policies in effect on
the date of termination.
7.0 RESTRICTIVE COVENANTS
7.1 In the course of carrying out and performing his or her duties and
responsibilities to the Company, the Executive shall obtain access to and be
entrusted with Confidential Information (as hereinafter defined) relating to the
business and affairs of the Company or its Affiliates.
7.2 The term "Confidential Information" as used in this Agreement means all
trade secrets, proprietary information and other data or information (and any
tangible evidence, record or representation thereof), whether prepared,
conceived or developed by an Executive of the Company or its Affiliates or
received by the Company or its Affiliates from an outside source which is
maintained in confidence by the Company or its Affiliates or any of its
customers to obtain a competitive advantage over competitors who do not have
access to such trade secrets, proprietary information, or other data or
information. Without limiting the generality of the foregoing, Confidential
Proprietary Information includes:
7.2.1 any ideas, improvements, know-how, research, inventions, innovations,
products, services, sales, scientific or other formulae, patterns, processes,
methods, machines, manufactures, compositions, processes, procedures, tests,
treatments, developments, technical data, designs, devices, patterns, concepts,
computer programs, computer code, creative development, training or service
manuals, plans for new or revised services or products or other plans, items or
strategy methods on compilation of information, or works in process, or any
Invention (as defined in this Agreement), or parts thereof, and any and all
revisions and improvements relating to any of the foregoing (in each case
whether or not reduced to tangible form) that relate to the business or affairs
of the Company or Affiliates, or that result from its marketing, research and/or
development activities;
7.2.2 any information relating to the relationship of the Company or its
Affiliates with any clients, customers, suppliers, principals, contacts or
prospects of the Company or its Affiliates and any information relating to the
requirements, specifications, proposals, orders, contracts or transactions of or
with any such clients, customers, suppliers, principals, contacts or prospects
of the Company or its Affiliates, including but not limited to client lists;
7.2.3 any sales plan, marketing material, plan or survey, business plan or
opportunity, product or service development plan or specification, business
proposal or business agreement; and
7.2.4 any information relating to the present or proposed business of the
Company or its Affiliates.
7.3 The Executive agrees that the Confidential Information is and will remain
the exclusive property of the Company or its Affiliates. The Executive also
agrees that the Confidential Information:
7.3.1 constitutes a proprietary right which the Company or its Affiliates is
entitled to protect; and
7.3.2 constitutes information and knowledge not generally known to the trade.
7.4 The Executive understands that the Company has from time to time in its
possession information belonging to others or which is claimed by others to be
confidential or proprietary and which
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<PAGE> 7
the Company has agreed to keep confidential. The Executive agrees that all such
information shall be Confidential Information for the purposes of this
Agreement.
7.5 For purposes of the copyright laws of Canada and the USA, to the extent, if
any, that such laws are applicable to any Confidential Information, it shall be
considered a work made for hire and the Company shall be considered the author
thereof.
7.6 The Executive acknowledges and agrees that any Confidential Information
disclosed to the Executive is in the strictest confidence and the Executive
agrees to maintain and hold in strict confidence all Confidential Information
disclosed to him or her. The disclosure of any such Confidential Information by
the Executive in any form whatsoever except as authorized by the Company or
permitted under this Agreement is and shall be considered a breach of the
Executive's employment arrangement and shall constitute immediate cause for
dismissal.
7.7 Except as authorized by the Company, the Executive shall not:
7.7.1 duplicate, transfer, disclose or use nor allow any other person to
duplicate, transfer or disclose any of the Confidential Information; or
7.7.2 incorporate, in whole or in part, within any domestic or foreign patent
application, any proprietary or Confidential Information disclosed to the
Executive by the Company or its Affiliates.
7.8 The Executive will safeguard all Confidential Information to which the
Executive has access at all times so that it is not exposed to or used by
unauthorized persons, and will exercise at least the same degree of care that he
would use to protect his or her own confidential information.
7.9 The restrictive obligations set forth above shall not apply to the
disclosure or use of any information which:
7.9.1 is or later becomes publicly known under circumstances involving no breach
of this Agreement by the Executive;
7.9.2 is already known to the Executive outside his or her employment at the
time of receipt of the Confidential Information;
7.9.3 is disclosed to a third party under an appropriate confidentiality
agreement;
7.9.4 is lawfully made available to the Executive by a third party;
7.9.5 is independently developed by the Executive who has not been privy to the
Confidential Information provided by the Company; or
7.9.6 is required by law to be disclosed but only to the extent of such
requirement and the Executive shall immediately notify in writing the Chairman
of the Company upon receipt of any request for such disclosure.
7.10 The Executive acknowledges that a breach by the Executive of any of the
covenants contained in Section 7 herein shall result in damages to the Company
and that the Company could not be adequately compensated for such damages by a
monetary award. Accordingly, in the event of any such breach, in addition to all
other remedies available to the Company at law or in equity, the Company shall
be entitled as a matter of right to apply to a court of competent jurisdiction
for such relief by way of restraining order, temporary or permanent injunction,
decree or otherwise, as may be appropriate to ensure compliance with the
provisions of this Agreement.
7.11 The Executive acknowledges that the restrictions contained in this Section
7 are reasonable and valid and all defences to the strict enforcement thereof by
the Company are hereby waived by the Executive.
7.12 The provisions of this Section 7 shall survive the termination of this
Agreement.
8.0 OWNERSHIP OF FUTURE INTELLECTUAL PROPERTY
8.1 Any new technology, knowledge or information developed by the Executive
related to the business of the Company or any of its Affiliates during the term
of this Agreement shall be the exclusive property of the Company and its
Affiliates.
8.2 The Executive acknowledges that all Confidential Information and all other
discoveries, know-how, inventions, ideas, concepts, processes, products,
protocols, treatments, methods, tests and improvements, computer programs, or
parts thereof, conceived, developed, reduced to practice or otherwise made by
him or her either alone or with others, and that in any way relates to the
present programs, services, product or business of the Company or its
Affiliates, during the course of his or her employment with the Company pursuant
to this Agreement or any previous employment agreements or arrangements between
the Executive and the Company or its Affiliates, whether or not conceived,
developed, reduced to practice or made during the Executive's regular working
hours or on the premises of the Company (collectively "Inventions"), and any and
all services and products which embody, emulate or employ any
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<PAGE> 8
such Inventions will be the sole property of the Company or its nominee and all
copyrights, patents, patent rights, trademarks, service marks and reproduction
rights to, and other proprietary rights in, each such Invention, whether or not
patentable or copyrightable, will belong exclusively to the Company or its
nominee. For purposes of the copyright laws of the United States of America, to
the extent, if any, that such laws are applicable to any such Invention or any
such service or product, it will be considered a work made for hire and the
Company will be considered the author thereof;
8.3 The Executive hereby assigns to the Company or its nominee, their successors
or assigns, all his or her rights, title and interest in and to the Inventions;
8.4 The Executive hereby waives for the benefit of the Company and its
successors and assigns all his or her moral rights in respect of the Inventions;
8.5 The Executive will assist the Company or its nominee in every proper way
(but at the Company's expense) to obtain and, from time to time to enforce,
patents or copyrights in respect of the Inventions in any and all countries, and
to that end the Executive will execute all documents for use in applying for,
obtaining and enforcing patents and copyrights on such Inventions as the Company
may desire, together with any assignments of such Inventions to the Company or
Persons designated by it; and
8.6 The Executive represents and warrants that he or she is subject to no
contractual or other restriction or obligation, which will in any way limit his
or her activities on behalf of the Company. The Executive hereby represents and
warrants to the Company that he or she has no continuing obligations to any
previous employer with respect to any previous invention, discovery or other
item of intellectual property or which requires the Executive not to disclose
any information or data to the Company. The Executive further represents and
warrants that he or she does not claim rights in, or otherwise excludes from
this Agreement, any Invention except as listed on Exhibit A hereto.
8.7 The Executive acknowledges that a breach by the Executive of any of the
covenants contained in Section 8 herein shall result in damages to the Company
and that the Company could not be adequately compensated for such damages by a
monetary award. Accordingly, in the event of any such breach, in addition to all
other remedies available to the Company at law or in equity, the Company shall
be entitled as a matter of right to apply to a court of competent jurisdiction
for such relief by way of restraining order, temporary or permanent injunction,
decree or otherwise, as may be appropriate to ensure compliance with the
provisions of this Agreement.
8.8 The provisions of this Section 8 shall survive the termination of this
Agreement.
9.0 DELIVERY OF RECORDS
9.1 Any and all computer code, data, notes, diagrams, reports, notebook pages,
memoranda, and like materials, including Confidential Information and Inventions
(as such terms are herein defined) received from or developed for the Company or
its Affiliates and any copies or excerpts thereof shall remain the property of
the Company or its Affiliates. Upon the termination of the Executive's
relationship with the Company as established under this Agreement, or at anytime
during the term hereof at the request of the Company, the Executive shall
deliver to the Company all such materials and other property belonging to the
Company or developed in connection with the business of the Company.
10.0 NON-COMPETITION, SOLICITATION OF CUSTOMERS, SOLICITATION OF EXECUTIVES
10.1 The Executive agrees that, during the period of his employment hereunder
and for a period of twelve (12) months following the termination of such
employment, he or she shall not directly engage in competition with the Company
within the "Territory" (as hereinafter defined) in any management capacity in
any phase of the Company's business of developing, manufacturing, distributing,
marketing, leasing or selling any of the products or services which the Company
is in the business of developing, manufacturing, distributing, marketing,
licensing to others or selling (the "Competitive Areas") during the Term of this
Agreement or which the Company has definitive plans to develop, manufacture or
market.
10.2 The "Territory" shall be that area throughout the world in which the
Company presently markets its products and services. This agreement shall be
deemed automatically amended without the need of further action by any party to
add any new countries or parts thereof where after date hereof and prior to the
termination of the Executive's employment the Company begins to market its
products and services and to delete any countries after no Company products or
services have been sold there for a period of six months.
10.3 The restrictions in this Section 10 shall not apply with respect to (i) a
passive investment by the Executive of less than 5% of the outstanding shares of
capital stock of any corporation, or (ii)
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<PAGE> 9
employment by the Executive with an entity in a management capacity in an area
of business which is not, directly or indirectly, a Competitive Area.
10.4 The Executive agrees that during his employment by the Company hereunder
and for the two (2) year period following the termination of such employment, he
or she shall not, without the prior written consent of the Company, in the
Territory, either directly or indirectly, on his own behalf or in the service or
on behalf of others, solicit, divert or appropriate, or attempt to solicit,
divert or appropriate, to any competing business any person or entity whose
account with the Company was sold or serviced by or under the supervision of the
Executive during the year preceding the termination of such employment.
10.5 The Executive agrees that during his employment by the Company hereunder
and for the two (2) year period following the termination of such employment, he
or she shall not, either directly or indirectly, on his own behalf or in the
service or on behalf of others, solicit, divert, or attempt to solicit or divert
any person then employed by the Company.
11.0 OTHER PROVISIONS
11.1 Any notice or other communication required or permitted hereunder shall be
in writing and shall be sufficiently given (i) when sent by registered mail,
with postage and registration fees prepaid, or by overnight courier service to
the party to be notified at his or its last known address as determined by due
diligence by the party sending such notice or other communication; or (ii) when
delivered into the hands of the party to be notified.
11.2 This Agreement shall be binding upon and shall inure to the benefit of the
Company and the Executive and their respective heirs, personal representatives,
transferees, successors (as a result of a merger, consolidation or other form of
corporate reorganization, a sale or other disposition through liquidation or
otherwise of all or substantially all of the assets of the Company, or otherwise
arising by operation of law) and assigns (including any entity with which the
Company may merge or consolidate or to which it may transfer substantially all
of its assets); provided, that this Agreement shall not be assignable by the
Executive, and it shall not be assignable by the Company except to an entity
with which it may merge, consolidate or to which it may transfer substantially
all of its assets. The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and to agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean the
Company as herinbefore defined and any successor to its business and/or assets
as aforesaid which assumes and agrees to perform this Agreement either expressly
or by operation of law.
11.3 This Agreement and the rights and obligations of the parties hereto shall
be governed by and construed in every respect (including but not limited to
validity and performance) in accordance with the internal laws of the province
of British Columbia, without giving affect to the conflict of law principles
thereof, notwithstanding that one or more of the parties to this Agreement may
now be or hereafter become domiciled in or a resident of another province or a
foreign country.
11.4 No amendment or modification of this Agreement shall be valid or binding on
the Company unless made in writing and signed by a duly authorized officer of
the Company or upon the Executive unless made in writing and signed by him. The
waiver of a breach of any provision of this Agreement by any party or the
failure of any party otherwise to insist upon strict performance of any
provision hereof shall not constitute a waiver of any subsequent breach or of
any subsequent failure to perform.
11.5 Section headings and numbers have been inserted herein for convenience of
reference only, and if there shall be any conflict between such numbers or
headings and the text of this Agreement, the text shall control.
11.6 In the event that any provision of this Agreement is held illegal or
invalid for any reason, such illegality or invalidity shall at the option of the
party against whom the same is asserted not affect the remaining parts of this
Agreement, but this Agreement shall be construed and enforced as if that illegal
and invalid provision had never been inserted herein.
11.7 This Agreement and the attached Exhibit A constitutes the entire agreement
of the parties with respect to the subject matter hereof and supersede all prior
agreements, arrangements and communications of the parties dealing with such
subject matter, whether oral or written. No other promise, agreement,
understanding or representation will be binding unless made in writing and
signed by the parties hereto.
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<PAGE> 10
11.8 If the Executive dies prior to the payment of all amounts due and owing to
him under the terms of this Agreement, such amounts shall be paid to such
beneficiary or beneficiaries as the Executive may have last designated in
writing filed with the Company or as provided under applicable benefit plans and
programs or, if the Executive has made no beneficiary designation, to the
Executive's estate. Such designated beneficiary or the executor of his estate,
as the case may be, may exercise all of the Executive's rights hereunder,
including without limitation those relating to the exercise of stock options or
otherwise to the extent permitted in any plan or other instrument relating
thereto. If any beneficiary designated by the Executive shall predecease the
Executive, the designation of such beneficiary shall be deemed revoked, and any
amounts which would have been payable to such beneficiary shall be paid to the
Executive's estate. If any designated beneficiary survives the Executive, but
dies before payment of all amounts due hereunder, such payments shall, unless
the Executive has designated otherwise, be made to such beneficiary's estate.
11.9 To the best of his or her knowledge, the Executive is not a party to any
agreement, which will be enforced in a manner, which would prevent him from
assuming and fulfilling his responsibilities under this Agreement.
12.0 INJUNCTIVE RELIEF
12.1 Executive agrees that it would be difficult to compensate the Company fully
for damages for any violation of the provisions of this Agreement, including
without limitation the provisions of Sections 7, 8, 9 and 10. Accordingly, the
Executive specifically agrees that the Company shall be entitled to temporary
and permanent injunctive relief to enforce the provisions of this Agreement.
This provision with respect to injunctive relief shall not, however, diminish
the right of the Company to claim and recover damages in addition to injunctive
relief.
13.0 INDEPENDENT LEGAL ADVICE
13.1 The Executive acknowledges that this Agreement has been prepared by the
Company and acknowledges that the Executive has had sufficient time to review
this Agreement thoroughly, that he or she has read and understood the terms of
this Agreement and that the Executive has been given the opportunity to obtain
independent legal advice concerning the interpretation and effect of this
Agreement prior to its execution.
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<PAGE> 11
14.0 COUNTERPARTS
14.1 This Agreement may be executed in one or more counterparts, including by
facsimile, each of which shall be considered an original, and all of which taken
together shall be considered one and the same instrument and notwithstanding the
date of execution shall be deemed to bear the date as set out on the first page
of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year set forth on the first page of this Agreement.
Signed by )
)
For and on behalf of )
BLUE ZONE ENTERTAINMENT INC. ) /s/ Bruce Warren
---------------------------------
) Authorized Signatory
- ------------------
/s/ Catherine Warren
---------------------------------
) Authorized Signatory
SIGNED, SEALED AND DELIVERED by )
JAMIE OLLIVIER in the presence of: )
)
/s/ Joan Powell )
- ----------------------------------------
Witness )
)
Joan Powell ) /s/ Jamie Ollivier
- ---------------------------------------- -------------------------------
Name ) JAMIE OLLIVIER
)
565 W. St. James Rd. )
- ----------------------------------------
Address )
)
North Vancouver, BC )
- ----------------------------------------
)
)
COO Liason )
- ----------------------------------------
Occupation
- 10 -
<PAGE> 12
Exhibit A
Pursuant to this Agreement, the Executive excludes the following Inventions from
the operation of the Agreement:
RAD-I/O
ROM PIRATES
DESKTOPLESS
AND ALL INTELLECTUAL PROPERTY ASSOCIATED WITH THE ABOVE, INCLUDING BUT NOT
LIMITED TO: DOMAIN NAMES, COLLATERAL MATERIALS, CONCEPTS, INTERACTIVE
PROTOTYPES, DEMOS, MULTIMEDIA ENGINEERING AND CREATIVE DEVELOPMENT AND
EXECUTION.
- 11 -
<PAGE> 1
EXHIBIT 10.7
Bruce Warren
EMPLOYMENT AGREEMENT
CONTENTS
SECTION
<TABLE>
<CAPTION>
PAGE
<S> <C>
Introduction....................................................................... 1
Terms and Conditions............................................................... 1
1.0 Retention of Bruce Warren.................................................. 1
2.0 Performance of Duties...................................................... 1
3.0 Direct Compensation........................................................ 1
4.0 Additional Benefits........................................................ 2
5.0 Duration of Agreement...................................................... 3
6.0 Compensation upon Termination.............................................. 4
7.0 Restrictive Covenants...................................................... 5
8.0 Ownership Of Future Intellectual Property.................................. 6
9.0 Delivery of Records........................................................ 7
10.0 Non-Competition, Solicitation of Customers, Solicitation of Executives..... 7
11.0 Other Provisions........................................................... 8
12.0 Injunctive Relief.......................................................... 9
13.0 Independent Legal Advice................................................... 9
14.0 Counterparts............................................................... 10
Exhibit A. Inventions............................................................. 11
</TABLE>
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of January 1, 2000 (the
"Effective Date") by and BETWEEN: BLUE ZONE ENTERTAINMENT INC. a company
incorporated under the laws of Canada (the "Company") and Bruce Warren (the
"Executive").
Introduction
The Company has proposed an arrangement whereunder the Executive will
be retained by the Company as an executive employee. The Executive has acceded
to this proposal. This Agreement sets forth the terms and conditions of that
arrangement.
Terms and Conditions
1.0 RETENTION OF BRUCE WARREN
1.1 The Company hereby employs the Executive to act on its behalf in an
executive and managerial capacity and to participate in the supervision and
direction of the operations of the Company as they are now or may hereafter be
constituted and as directed by the Company's Board of Directors (the "Board")
and the Chairman of the Board (the "Chairman"). The Executive shall initially
have the title of Chief Executive Officer. The Executive shall have the
responsibility for supervising the business affairs and operations of the
Company and its various subsidiaries throughout the world. As and when required,
the Executive shall share responsibility for stockholder relations and
fundraising. The Executive shall have all functional responsibilities necessary
to enable him or her to discharge his or her duties hereunder and to conduct the
Company's business throughout the world. The executive shall have such other
responsibilities as the Board and the Chairman shall from time to time assign to
him or her, but the duties which he or she shall be called upon to render
hereunder shall not be of a nature substantially inconsistent with those
customarily performed by individuals holding principal executive offices in
similar business organizations. The Executive shall report and be responsible to
the Board and the Chairman.
1.2 Each year during which this Agreement is in effect, the Company shall
cause the Executive to be nominated for election to the Board. During the term
of this Agreement, the Executive shall also serve as a member of the Executive
Committee to be appointed by the Board, at least two members of which shall
consist of the Chairman and the Executive. The Executive Committee shall be
given authority by the Board to make decisions respecting the operations of the
Company, subject to the approval of the Board. All decisions of the Executive
Committee shall be made by a majority vote of its members.
2.0 PERFORMANCE OF DUTIES
2.1 The Executive hereby accepts employment by the Company and agrees to
serve the Company faithfully and to the best of his or her ability and to devote
the time, attention and efforts necessary to advance the business and affairs of
the Company during the Term of this Agreement except for reasonable time spent
for service on the boards of directors of other corporations, vacations and
civic and charitable activities. It is understood and agreed that the Executive
may pursue personal investments requiring time commitments that do not conflict
with his obligations to the Company, including those in the preceding sentence.
The Executive hereby confirms that he is under no contractual commitments
inconsistent with his obligations set forth in this Agreement, and that during
the Term of this Agreement, he shall not render or perform services, or enter
into any contract to do so, for any other corporation, firm, entity or person
which are inconsistent with his or her duties to the Company.
2.2 All duties performed by the Executive under the terms of this Agreement
(other than incidental duties) shall be performed at such locations both inside
or outside Canada as the Board of the Directors of the Company may from time to
time direct.
3.0 DIRECT COMPENSATION
3.1 The Company shall pay to the Executive in each 365 day period within
the term of this Agreement a base salary of not less than US$120,000.00 ("Base
Salary"), which shall be payable in accordance with the Company's regularly
established pay schedule applicable to corporate officers of the Company. The
Executive's Base Salary shall be reviewed at the end of each 365 day period
within the term
<PAGE> 3
of this Agreement and may be increased by an amount to be determined by the
Compensation Committee on the basis of the Executive's performance.
3.2 The Executive shall be entitled to an annual bonus based upon
performance ("Incentive Compensation") which shall be determined under a plan to
be prepared by the Compensation Committee in consultation with the Executive and
approved by the Compensation Committee (the "Statement of Objectives"), and
which shall be paid to the Executive in accordance with the following
procedures:
3.2.1 The Statement of Objectives shall consist of an outline of the
Executive's performance goals for the fiscal year under consideration. Each
performance goal set forth in the Statement of Objectives shall be measurable
and the Statement of Objectives shall set forth the basis for measurement of the
achievement as well as the over-achievement of each goal. A dollar value shall
be assigned to each performance goal set forth in the Statement of Objectives.
Wherever there can be variations in the degree of the achievement or
over-achievement of a goal, the range of percentage participation in the dollar
value of the goal relating to the varying levels of achievement shall be clearly
stated.
3.2.2 The aggregate dollar value assigned to the achievement (but not the
over-achievement) of the performance goals set forth in the Statement of
Objectives shall equal 50 percent of the Executive's Base Salary for the year
with respect to which the bonus shall be paid. Additional dollar values which
equal in the aggregate an additional 100 percent of the Executive's Base Salary
for the year with respect to which the Incentive Compensation will be paid shall
be assigned to the over-achievement of the performance goals set forth in the
Statement of Objectives, so that the maximum potential Incentive Compensation to
be awarded to the Executive for any year may equal 150 percent of his or her
Base Salary for that year.
3.2.3 Immediately upon receipt of the Statement of Objectives from the
Executive, the Compensation Committee shall review it and shall either approve
it as submitted or shall modify any or all of the performance goals, and/or the
dollar values assigned to the achievement and to the over-achievement of the
goal or goals in question, and/or the range of percentage participation in the
dollar value of any or all of the goals relating to varying levels of
achievement; provided, that any such modification by the Compensation Committee
shall in no event reduce the aggregate dollar values assigned to the achievement
and over-achievement of the performance goals below the levels specified in
Section 3.2.3.
3.2.4 Payment of the Incentive Compensation shall be based upon the
achievement of the performance goals at the end of the fiscal year in question.
The Incentive Compensation payable to the Executive for each fiscal year shall
equal the aggregate of the dollar values assigned to the relevant levels of
achievement or over-achievement attained by the Executive with respect to each
performance goal set forth in the Statement of Objectives for that year. If the
relevant level of achievement or over-achievement of any goal falls within a
range of participation assigned to that goal, the dollar amount of the bonus
award for the achievement or over-achievement of that goal shall be
proportionate to the level of achievement or over-achievement reached within
that designated range.
3.2.5 The Incentive Compensation shall be paid to the Executive no later than
120 days following the end of the fiscal year with respect to which it is being
paid. In the event that the Executive dies or his or her employment hereunder
terminates for any other reason after the end of any fiscal year but before the
payment of the Incentive Compensation due with respect to that year, the
Incentive Compensation shall be paid to the Executive's estate.
4.0 ADDITIONAL BENEFITS
4.1 During the term of this Agreement, the Executive shall be entitled to
participate in all present and future employee benefit plans, maternity benefit
plans, deferred compensation plans and all other compensation and benefit plans,
programs and structures as may from time to time be made available by the
Company to all other key corporate executives of the Company, and on terms and
conditions no less favorable than those generally available to other such
employees. The Executive shall also be entitled to the highest number of
vacation days with full pay during each twelve months in which this Agreement is
in effect as are available to any other key Canadian corporate executive of the
Company, without any reduction based upon length of service to the Company. In
addition, during the term of this Agreement the Executive shall be entitled to
the club and professional society membership dues and monthly charges,
reimbursement for the costs of financial, tax and estate planning and an
automobile allowance. In the event that the Company elects to obtain key person
life insurance insuring the Executive, the Executive shall make him/herself
available for the necessary physical examinations and shall cooperate in all
other respects with the Company's efforts to obtain such insurance. The
Executive hereby represents that he does not know of any condition, which would
cause him to be uninsurable.
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<PAGE> 4
4.2 In addition to the compensation provided in the previous paragraphs the
Company will reimburse the Executive for reasonable expenses which he may incur
in the course of the performance of his duties for the Company, and he will
furnish documentation thereof in accordance with the Company's practices
regarding the same. This obligation of the Company shall include but not be
limited to travel, meals and lodging expenses incurred by the Executive's spouse
in accompanying the Executive on any business trip on behalf of the Company,
which exceeds fifteen (15) days in duration. This obligation of the Company
shall also include but not be limited to travel, meals and lodging expenses
incurred by the Executive's nanny/babysitter in accompanying the Executive on
any business trip on behalf of the Company, for business trips of any duration,
whenever the Executive travels with pre-school child(ren) without his or her
spouse. The Company will similarly reimburse the Executive for home-based
nanny/babysitter expenses for pre-school child(ren) incurred while the Executive
is on Company business.
4.3 The Executive shall be entitled to participate in a stock option plan
or share purchase plan or any similar plan as may be offered by the Company at
its sole discretion from time to time. The introduction and administration of
any such plan is entirely at the Company's sole discretion, and the
introduction, deletion or amendment of such plan shall not constitute a breach
of this Agreement.
4.4 If for any reason any amounts paid to the Executive pursuant to
Sections 4.1 through 4.3 above are required to be included in the Executive's
income for purposes of determining federal or provincial income taxes payable by
him/her, the Company shall pay to the Executive an amount which after taking
into account all taxes required to be paid by the Executive as a result of the
Executive's receipt of such payment from the Company, shall cause the
Executive's after-tax return on the payments made pursuant to Sections 4.1
through 4.3 above to equal the amount which would have been available to the
Executive had no federal or provincial income taxes been due thereon. The amount
required to be paid by the Company pursuant to this Section 4.4 shall be
determined by the Executive's tax return preparer, shall take into account all
applicable deductions or credits, and shall be paid to the Executive no later
than 15 days following the date on which the Executive files the income tax
return in which any payments made pursuant to Sections 4.1 through 4.3 are
included in the Executive's income or within fifteen days following the date on
which the relevant taxing authority makes a determination that any payments made
pursuant to Sections 4.1 through 4.3 are required to be included in the
Executive's income, as the case may be.
5.0 DURATION OF AGREEMENT
5.1 The term of this Agreement shall be from the date hereof until such
time as it is terminated pursuant to Section 5.2 of this Agreement, or up to and
including the first to occur of the following:
5.1.1 the date upon which the Executive commits a "prohibited act" (as
hereinafter defined);
5.1.2 the date upon which the Executive has been determined to have a
"permanent disability" (in the manner set forth in Section 5.1.5 hereof); or
5.1.3 the date of the Executive's death. No event other than those specified
in this Section 5.1 shall constitute grounds for the termination of this
Agreement or discharge of the Executive from employment with the Company. Upon
the termination of this Agreement pursuant to this Section 5, if the Executive
is then serving as a Board member and the term of his or her service as a Board
member does not expire prior to or concurrently with the termination of this
Agreement, the Executive shall submit his or her resignation as a member of the
Board.
5.1.4 For purposes of this Section 5, the term "prohibited act" shall mean
the Executive's commission of any of the following: (a) conviction of a felony
or any other criminal offense which has a material adverse effect on the Company
or the ability of the Executive to carry out his or her duties of employment;
(b) willful commission of acts materially detrimental to the Company's business
or reputation; (c) material breach of any of the Executive's covenants or
fiduciary duties as specified in this Agreement which is not capable of being
cured by the Executive or, if capable of being cured, which is not cured by the
Executive within fifteen days following written notice thereof by the Company;
or (d) the knowing failure of the Executive to follow specific directives of the
Board of Directors of the Company consistent with his or her duties. If the
Board of Directors terminate this Agreement pursuant to Section 5, the Executive
will be provided seven (7) days written notice. No other acts or omissions by
the Executive shall constitute prohibited acts sufficient to give rise to the
Executive's discharge from employment hereunder. A termination of this Agreement
by reason of the Executive's commission of a prohibited act shall not be
effective unless the Executive has been given a notice of termination for cause
by the Company which sets forth in detail the basis of the findings by the Board
that cause for termination exists under Section 5.1.1 of
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<PAGE> 5
this Agreement. Notwithstanding the foregoing, no such notice of termination
shall be given to the Executive unless the Executive has been provided with an
opportunity to appear with counsel and to be heard by the Board on the issue of
whether such cause for termination exists hereunder; provided, that the
Executive's counsel shall not be entitled to be present during any vote by the
board on the question of whether cause for termination of the Executive's
employment exists.
5.1.5 For purposes of this Agreement, the term "permanent disability" shall
be limited to a physical or mental condition, other than pregnancy, which
results in the Executive's absence from his employment duties for a period of
ninety (90) or more consecutive days, in which event the Executive shall be
determined to have a "permanent disability" for purposes of this Agreement upon
the expiration of such 90-day period. Anything in this Section 5.1.5 to the
contrary notwithstanding, the provisions of this Agreement respecting permanent
disability shall be without prejudice to any rights which the Executive may have
under any applicable disability insurance policy or other plan maintained by the
Company for the benefit of its employees.
5.2 The Board of Directors of the Company shall determine, in its sole
discretion, that the termination of this Agreement is in the best interest of
the Company, and in which event Executive shall have no duty to mitigate his or
her damages. If the Board of Directors terminate this Agreement pursuant to this
Section 5.1.5, the Executive will be provided thirty (30) days written notice.
5.3 Notwithstanding any termination of this Agreement, the Executive, in
consideration of his employment hereunder to the date of such termination, shall
remain bound by the provisions of this Agreement which specifically relate to
periods, activities or obligations upon or subsequent to the termination of the
Executive's employment.
6.0 COMPENSATION UPON TERMINATION
6.1 Upon termination of the Executive's employment hereunder for any
reason, in addition to any benefits to which the Executive may then or following
the termination of his or her employment be entitled under any other applicable
policy or plan of the Company then in effect, the Company shall pay to the
Executive (or to his or her estate, as the case may be) his or her Base Salary,
Incentive Compensation and benefits due through the effective date of
termination. In the event that such termination occurs on any date other than
the last day of the fiscal year, the Incentive Compensation shall be based upon
the performance goals achieved at the end of the fiscal year, but shall be
prorated based upon the number of days which have elapsed in the fiscal year
through the date of termination. Payment of the Incentive Compensation due under
this Section 6.1 shall be made no later one hundred twenty (120) days following
the end of the fiscal year with respect to which it is being paid. Payment of
all other amounts due under this Section 6.1 shall be made not later than the
10th day following the effective date of termination.
6.2 In the event the Executive's employment terminates by reason of a
"permanent disability", as defined in Section 5.1.5, the Company shall pay to
the Executive an amount equal to the Base Salary, benefits and Incentive
Compensation that would have been payable to the Executive for the 180 day
period following the date on which the Executive is determined to have a
permanent disability in the manner set forth in Section 5.1.5, less the amount
of disability pay (if any) which the Executive receives for that 180-day period
under any applicable disability insurance policy.
6.3 The parties acknowledge that if the Executive's employment is
terminated by the Company in any manner not permitted by Section 5 of this
Agreement, or in the event of a material breach by the Company of any of its
covenants under this Agreement (any such termination of the Executive's
employment or material breach by the Company shall hereinafter be referred to as
a "Wrongful Termination"), the damages suffered by the Executive by reason
thereof would be extremely difficult to ascertain. In recognition thereof, the
parties agree that in the event of a Wrongful Termination, the Company shall pay
to the Executive an amount equal to (i) the Base Salary and benefits that would
have been payable to the Executive for a period of 24 (twenty-four) full
calendar months from and after the month in which the Wrongful Termination
occurred and (ii) the Incentive Compensation that would have been payable to the
Executive for a period of 12 (twelve) full calendar months from and after the
month in which the Wrongful Termination occurred. Notwithstanding the foregoing,
the Executive shall use reasonable efforts following a Wrongful Termination to
obtain employment comparable in nature and compensation to the Executive's
employment hereunder and, in the event that he or she obtains such employment
prior to the expiration of the aforementioned 24 (twenty-four) month period, the
amount due to the Executive pursuant to this Section 6.3 shall be reduced by the
amount of the compensation (if any) which he or she receives during the 24
(twenty-four) month period from the new position of employment.
-4-
<PAGE> 6
6.4 The Base Salary and benefits payable hereunder for any period following
a termination by reason of the Executive's permanent disability or a Wrongful
Termination shall be determined on the basis of the Base Salary and benefits in
effect on the date of the Executive's permanent disability or on the date of the
Wrongful Termination, as the case may be. The Incentive Compensation payable
hereunder for the 180-day period following a termination by reason of the
Executive's permanent disability shall equal one-half of the Incentive
Compensation payable to the Executive with respect to the entire fiscal year in
which the permanent disability occurred, and the Incentive Compensation payable
hereunder for the 12-month period following a Wrongful Termination shall equal
the Incentive Compensation payable to the Executive with respect to the entire
fiscal year in which the Wrongful Termination occurred, in each case based upon
the performance goals achieved at the end of that fiscal year. Also in the event
of a termination by reason of the Executive's permanent disability or a Wrongful
Termination, the Company shall make such other and further payments to the
Executive, his designated beneficiaries and dependents or his estate as may be
provided pursuant to any employee benefit plan and other compensation plan or
program in which the Executive is a participant at the time of the termination
of his or her employment, and the Company shall use its best efforts to cause
all insurance policies under which coverage was then being afforded to the
Executive pursuant to this Agreement to be maintained in effect with coverage
for the Executive through the end of the period for which he or she is entitled
to his Base Salary and benefits; provided, that if continued coverage following
termination is not available under the terms of any of those policies, the
Company shall either use its best efforts to procure the same coverage from
another insurer reasonably deemed acceptable by the Executive, or shall pay to
the Executive an amount equal to the cost to the Company of such coverage as it
was being provided to the Executive under such policy or policies in effect on
the date of termination.
7.0 RESTRICTIVE COVENANTS
7.1 In the course of carrying out and performing his or her duties and
responsibilities to the Company, the Executive shall obtain access to and be
entrusted with Confidential Information (as hereinafter defined) relating to the
business and affairs of the Company or its Affiliates.
7.2 The term "Confidential Information" as used in this Agreement means all
trade secrets, proprietary information and other data or information (and any
tangible evidence, record or representation thereof), whether prepared,
conceived or developed by an Executive of the Company or its Affiliates or
received by the Company or its Affiliates from an outside source which is
maintained in confidence by the Company or its Affiliates or any of its
customers to obtain a competitive advantage over competitors who do not have
access to such trade secrets, proprietary information, or other data or
information. Without limiting the generality of the foregoing, Confidential
Proprietary Information includes:
7.2.1 any ideas, improvements, know-how, research, inventions, innovations,
products, services, sales, scientific or other formulae, patterns, processes,
methods, machines, manufactures, compositions, processes, procedures, tests,
treatments, developments, technical data, designs, devices, patterns, concepts,
computer programs, computer code, creative development, training or service
manuals, plans for new or revised services or products or other plans, items or
strategy methods on compilation of information, or works in process, or any
Invention (as defined in this Agreement), or parts thereof, and any and all
revisions and improvements relating to any of the foregoing (in each case
whether or not reduced to tangible form) that relate to the business or affairs
of the Company or Affiliates, or that result from its marketing, research and/or
development activities;
7.2.2 any information relating to the relationship of the Company or its
Affiliates with any clients, customers, suppliers, principals, contacts or
prospects of the Company or its Affiliates and any information relating to the
requirements, specifications, proposals, orders, contracts or transactions of or
with any such clients, customers, suppliers, principals, contacts or prospects
of the Company or its Affiliates, including but not limited to client lists;
7.2.3 any sales plan, marketing material, plan or survey, business plan or
opportunity, product or service development plan or specification, business
proposal or business agreement; and
7.2.4 any information relating to the present or proposed business of the
Company or its Affiliates.
7.3 The Executive agrees that the Confidential Information is and will
remain the exclusive property of the Company or its Affiliates. The Executive
also agrees that the Confidential Information:
7.3.1 constitutes a proprietary right which the Company or its Affiliates is
entitled to protect; and
7.3.2 constitutes information and knowledge not generally known to the trade.
7.4 The Executive understands that the Company has from time to time in its
possession information belonging to others or which is claimed by others to be
confidential or proprietary and which
-5-
<PAGE> 7
the Company has agreed to keep confidential. The Executive agrees that all such
information shall be Confidential Information for the purposes of this
Agreement.
7.5 For purposes of the copyright laws of Canada and the USA, to the
extent, if any, that such laws are applicable to any Confidential Information,
it shall be considered a work made for hire and the Company shall be considered
the author thereof.
7.6 The Executive acknowledges and agrees that any Confidential Information
disclosed to the Executive is in the strictest confidence and the Executive
agrees to maintain and hold in strict confidence all Confidential Information
disclosed to him or her. The disclosure of any such Confidential Information by
the Executive in any form whatsoever except as authorized by the Company or
permitted under this Agreement is and shall be considered a breach of the
Executive's employment arrangement and shall constitute immediate cause for
dismissal.
7.7 Except as authorized by the Company, the Executive shall not:
7.7.1 duplicate, transfer, disclose or use nor allow any other person to
duplicate, transfer or disclose any of the Confidential Information; or
7.7.2 incorporate, in whole or in part, within any domestic or foreign patent
application, any proprietary or Confidential Information disclosed to the
Executive by the Company or its Affiliates.
7.8 The Executive will safeguard all Confidential Information to which the
Executive has access at all times so that it is not exposed to or used by
unauthorized persons, and will exercise at least the same degree of care that he
would use to protect his or her own confidential information.
7.9 The restrictive obligations set forth above shall not apply to the
disclosure or use of any information which:
7.9.1 is or later becomes publicly known under circumstances involving no
breach of this Agreement by the Executive;
7.9.2 is already known to the Executive outside his or her employment at the
time of receipt of the Confidential Information;
7.9.3 is disclosed to a third party under an appropriate confidentiality
agreement;
7.9.4 is lawfully made available to the Executive by a third party;
7.9.5 is independently developed by the Executive who has not been privy to
the Confidential Information provided by the Company; or
7.9.6 is required by law to be disclosed but only to the extent of such
requirement and the Executive shall immediately notify in writing the Chairman
of the Company upon receipt of any request for such disclosure.
7.10 The Executive acknowledges that a breach by the Executive of any of the
covenants contained in Section 7 herein shall result in damages to the Company
and that the Company could not be adequately compensated for such damages by a
monetary award. Accordingly, in the event of any such breach, in addition to all
other remedies available to the Company at law or in equity, the Company shall
be entitled as a matter of right to apply to a court of competent jurisdiction
for such relief by way of restraining order, temporary or permanent injunction,
decree or otherwise, as may be appropriate to ensure compliance with the
provisions of this Agreement.
7.11 The Executive acknowledges that the restrictions contained in this
Section 7 are reasonable and valid and all defences to the strict enforcement
thereof by the Company are hereby waived by the Executive.
7.12 The provisions of this Section 7 shall survive the termination of this
Agreement.
8.0 OWNERSHIP OF FUTURE INTELLECTUAL PROPERTY
8.1 Any new technology, knowledge or information developed by the Executive
related to the business of the Company or any of its Affiliates during the term
of this Agreement shall be the exclusive property of the Company and its
Affiliates.
8.2 The Executive acknowledges that all Confidential Information and all
other discoveries, know-how, inventions, ideas, concepts, processes, products,
protocols, treatments, methods, tests and improvements, computer programs, or
parts thereof, conceived, developed, reduced to practice or otherwise made by
him or her either alone or with others, and that in any way relates to the
present programs, services, product or business of the Company or its
Affiliates, during the course of his or her employment with the Company pursuant
to this Agreement or any previous employment agreements or arrangements between
the Executive and the Company or its Affiliates, whether or not conceived,
developed, reduced to practice or made during the Executive's regular working
hours or on the premises of the Company (collectively "Inventions"), and any and
all services and products which embody, emulate or employ any
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<PAGE> 8
such Inventions will be the sole property of the Company or its nominee and all
copyrights, patents, patent rights, trademarks, service marks and reproduction
rights to, and other proprietary rights in, each such Invention, whether or not
patentable or copyrightable, will belong exclusively to the Company or its
nominee. For purposes of the copyright laws of the United States of America, to
the extent, if any, that such laws are applicable to any such Invention or any
such service or product, it will be considered a work made for hire and the
Company will be considered the author thereof;
8.3 The Executive hereby assigns to the Company or its nominee, their
successors or assigns, all his or her rights, title and interest in and to the
Inventions;
8.4 The Executive hereby waives for the benefit of the Company and its
successors and assigns all his or her moral rights in respect of the Inventions;
8.5 The Executive will assist the Company or its nominee in every proper
way (but at the Company's expense) to obtain and, from time to time to enforce,
patents or copyrights in respect of the Inventions in any and all countries, and
to that end the Executive will execute all documents for use in applying for,
obtaining and enforcing patents and copyrights on such Inventions as the Company
may desire, together with any assignments of such Inventions to the Company or
Persons designated by it; and
8.6 The Executive represents and warrants that he or she is subject to no
contractual or other restriction or obligation, which will in any way limit his
or her activities on behalf of the Company. The Executive hereby represents and
warrants to the Company that he or she has no continuing obligations to any
previous employer with respect to any previous invention, discovery or other
item of intellectual property or which requires the Executive not to disclose
any information or data to the Company. The Executive further represents and
warrants that he or she does not claim rights in, or otherwise excludes from
this Agreement, any Invention except as listed on Exhibit A hereto.
8.7 The Executive acknowledges that a breach by the Executive of any of the
covenants contained in Section 8 herein shall result in damages to the Company
and that the Company could not be adequately compensated for such damages by a
monetary award. Accordingly, in the event of any such breach, in addition to all
other remedies available to the Company at law or in equity, the Company shall
be entitled as a matter of right to apply to a court of competent jurisdiction
for such relief by way of restraining order, temporary or permanent injunction,
decree or otherwise, as may be appropriate to ensure compliance with the
provisions of this Agreement.
8.8 The provisions of this Section 8 shall survive the termination of this
Agreement.
9.0 DELIVERY OF RECORDS
9.1 Any and all computer code, data, notes, diagrams, reports, notebook
pages, memoranda, and like materials, including Confidential Information and
Inventions (as such terms are herein defined) received from or developed for the
Company or its Affiliates and any copies or excerpts thereof shall remain the
property of the Company or its Affiliates. Upon the termination of the
Executive's relationship with the Company as established under this Agreement,
or at anytime during the term hereof at the request of the Company, the
Executive shall deliver to the Company all such materials and other property
belonging to the Company or developed in connection with the business of the
Company.
10.0 NON-COMPETITION, SOLICITATION OF CUSTOMERS, SOLICITATION OF EXECUTIVES
10.1 The Executive agrees that, during the period of his employment
hereunder and for a period of twelve (12) months following the termination of
such employment, he or she shall not directly engage in competition with the
Company within the "Territory" (as hereinafter defined) in any management
capacity in any phase of the Company's business of developing, manufacturing,
distributing, marketing, leasing or selling any of the products or services
which the Company is in the business of developing, manufacturing, distributing,
marketing, licensing to others or selling (the "Competitive Areas") during the
Term of this Agreement or which the Company has definitive plans to develop,
manufacture or market.
10.2 The "Territory" shall be that area throughout the world in which the
Company presently markets its products and services. This agreement shall be
deemed automatically amended without the need of further action by any party to
add any new countries or parts thereof where after date hereof and prior to the
termination of the Executive's employment the Company begins to market its
products and services and to delete any countries after no Company products or
services have been sold there for a period of six months.
10.3 The restrictions in this Section 10 shall not apply with respect to (i)
a passive investment by the Executive of less than 5% of the outstanding shares
of capital stock of any corporation, or (ii)
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<PAGE> 9
employment by the Executive with an entity in a management capacity in an area
of business which is not, directly or indirectly, a Competitive Area.
10.4 The Executive agrees that during his employment by the Company
hereunder and for the two (2) year period following the termination of such
employment, he or she shall not, without the prior written consent of the
Company, in the Territory, either directly or indirectly, on his own behalf or
in the service or on behalf of others, solicit, divert or appropriate, or
attempt to solicit, divert or appropriate, to any competing business any person
or entity whose account with the Company was sold or serviced by or under the
supervision of the Executive during the year preceding the termination of such
employment.
10.5 The Executive agrees that during his employment by the Company
hereunder and for the two (2) year period following the termination of such
employment, he or she shall not, either directly or indirectly, on his own
behalf or in the service or on behalf of others, solicit, divert, or attempt to
solicit or divert any person then employed by the Company.
11.0 OTHER PROVISIONS
11.1 Any notice or other communication required or permitted hereunder shall
be in writing and shall be sufficiently given (i) when sent by registered mail,
with postage and registration fees prepaid, or by overnight courier service to
the party to be notified at his or its last known address as determined by due
diligence by the party sending such notice or other communication; or (ii) when
delivered into the hands of the party to be notified.
11.2 This Agreement shall be binding upon and shall inure to the benefit of
the Company and the Executive and their respective heirs, personal
representatives, transferees, successors (as a result of a merger, consolidation
or other form of corporate reorganization, a sale or other disposition through
liquidation or otherwise of all or substantially all of the assets of the
Company, or otherwise arising by operation of law) and assigns (including any
entity with which the Company may merge or consolidate or to which it may
transfer substantially all of its assets); provided, that this Agreement shall
not be assignable by the Executive, and it shall not be assignable by the
Company except to an entity with which it may merge, consolidate or to which it
may transfer substantially all of its assets. The Company shall require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume expressly and to agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, "Company"
shall mean the Company as herinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement
either expressly or by operation of law.
11.3 This Agreement and the rights and obligations of the parties hereto
shall be governed by and construed in every respect (including but not limited
to validity and performance) in accordance with the internal laws of the
province of British Columbia, without giving affect to the conflict of law
principles thereof, notwithstanding that one or more of the parties to this
Agreement may now be or hereafter become domiciled in or a resident of another
province or a foreign country.
11.4 No amendment or modification of this Agreement shall be valid or
binding on the Company unless made in writing and signed by a duly authorized
officer of the Company or upon the Executive unless made in writing and signed
by him. The waiver of a breach of any provision of this Agreement by any party
or the failure of any party otherwise to insist upon strict performance of any
provision hereof shall not constitute a waiver of any subsequent breach or of
any subsequent failure to perform.
11.5 Section headings and numbers have been inserted herein for convenience
of reference only, and if there shall be any conflict between such numbers or
headings and the text of this Agreement, the text shall control.
11.6 In the event that any provision of this Agreement is held illegal or
invalid for any reason, such illegality or invalidity shall at the option of the
party against whom the same is asserted not affect the remaining parts of this
Agreement, but this Agreement shall be construed and enforced as if that illegal
and invalid provision had never been inserted herein.
11.7 This Agreement and the attached Exhibit A constitutes the entire
agreement of the parties with respect to the subject matter hereof and supersede
all prior agreements, arrangements and communications of the parties dealing
with such subject matter, whether oral or written. No other promise, agreement,
understanding or representation will be binding unless made in writing and
signed by the parties hereto.
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<PAGE> 10
11.8 If the Executive dies prior to the payment of all amounts due and owing
to him under the terms of this Agreement, such amounts shall be paid to such
beneficiary or beneficiaries as the Executive may have last designated in
writing filed with the Company or as provided under applicable benefit plans and
programs or, if the Executive has made no beneficiary designation, to the
Executive's estate. Such designated beneficiary or the executor of his estate,
as the case may be, may exercise all of the Executive's rights hereunder,
including without limitation those relating to the exercise of stock options or
otherwise to the extent permitted in any plan or other instrument relating
thereto. If any beneficiary designated by the Executive shall predecease the
Executive, the designation of such beneficiary shall be deemed revoked, and any
amounts which would have been payable to such beneficiary shall be paid to the
Executive's estate. If any designated beneficiary survives the Executive, but
dies before payment of all amounts due hereunder, such payments shall, unless
the Executive has designated otherwise, be made to such beneficiary's estate.
11.9 To the best of his or her knowledge, the Executive is not a party to
any agreement, which will be enforced in a manner, which would prevent him from
assuming and fulfilling his responsibilities under this Agreement.
12.0 INJUNCTIVE RELIEF
12.1 Executive agrees that it would be difficult to compensate the Company
fully for damages for any violation of the provisions of this Agreement,
including without limitation the provisions of Sections 7, 8, 9 and 10.
Accordingly, the Executive specifically agrees that the Company shall be
entitled to temporary and permanent injunctive relief to enforce the provisions
of this Agreement. This provision with respect to injunctive relief shall not,
however, diminish the right of the Company to claim and recover damages in
addition to injunctive relief.
13.0 INDEPENDENT LEGAL ADVICE
13.1 The Executive acknowledges that this Agreement has been prepared by the
Company and acknowledges that the Executive has had sufficient time to review
this Agreement thoroughly, that he or she has read and understood the terms of
this Agreement and that the Executive has been given the opportunity to obtain
independent legal advice concerning the interpretation and effect of this
Agreement prior to its execution.
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<PAGE> 11
14.0 COUNTERPARTS
14.1 This Agreement may be executed in one or more counterparts, including
by facsimile, each of which shall be considered an original, and all of which
taken together shall be considered one and the same instrument and
notwithstanding the date of execution shall be deemed to bear the date as set
out on the first page of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year set forth on the first page of this Agreement.
Signed by )
)
For and on behalf of )
BLUE ZONE ENTERTAINMENT INC. ) /s/ Jamie Ollivier
--------------------------------
) Authorized Signatory
/s/ Catherine Warren
--------------------------------
) Authorized Signatory
SIGNED, SEALED AND DELIVERED by )
JAMIE OLLIVIER in the presence of: )
)
/s/ Joan Powell )
- ---------------------------------- )
Witness )
)
Joan Powell ) /s/ Bruce Warren
- ---------------------------------- -------------------------------
Name ) BRUCE WARREN
)
565 W. St. James Rd. )
- ---------------------------------- )
Address )
)
North Vancouver, BC )
- ---------------------------------- )
)
COO Liason )
- ---------------------------------- )
Occupation
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<PAGE> 12
Exhibit A
Pursuant to this Agreement, the Executive excludes the following Inventions from
the operation of the Agreement:
RAD-I/O
ROM PIRATES
DESKTOPLESS
AND ALL INTELLECTUAL PROPERTY ASSOCIATED WITH THE ABOVE, INCLUDING BUT NOT
LIMITED TO: DOMAIN NAMES, COLLATERAL MATERIALS, CONCEPTS, INTERACTIVE
PROTOTYPES, DEMOS, MULTIMEDIA ENGINEERING AND CREATIVE DEVELOPMENT AND
EXECUTION.
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<PAGE> 1
EXHIBIT 10.8
Catherine Warren
EMPLOYMENT AGREEMENT
INDEX
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
Introduction.......................................................................... 1
Terms and Conditions.................................................................. 1
1.0 Retention of Catherine Warren................................................. 1
2.0 Performance of Duties......................................................... 1
3.0 Direct Compensation........................................................... 1
4.0 Additional Benefits........................................................... 2
5.0 Duration of Agreement......................................................... 3
6.0 Compensation upon Termination................................................. 4
7.0 Restrictive Covenants......................................................... 5
8.0 Ownership Of Future Intellectual Property..................................... 6
9.0 Delivery of Records........................................................... 7
10.0 Non-Competition, Solicitation of Customers, Solicitation of Executives........ 7
11.0 Other Provisions.............................................................. 8
12.0 Injunctive Relief............................................................. 9
13.0 Independent Legal Advice...................................................... 9
14.0 Counterparts.................................................................. 101
Exhibit A. Inventions................................................................ 12
</TABLE>
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of January 1, 2000 (the
"Effective Date") by and BETWEEN: BLUE ZONE ENTERTAINMENT INC. a company
incorporated under the laws of Canada (the "Company") and Catherine Warren (the
"Executive").
INTRODUCTION
The Company has proposed an arrangement whereunder the Executive will
be retained by the Company as an executive employee. The Executive has acceded
to this proposal. This Agreement sets forth the terms and conditions of that
arrangement.
TERMS AND CONDITIONS
1.0 RETENTION OF CATHERINE WARREN
1.1 The Company hereby employs the Executive to act on its behalf in an
executive and managerial capacity and to participate in the supervision and
direction of the operations of the Company as they are now or may hereafter be
constituted and as directed by the Company's Board of Directors (the "Board")
and the Chairman of the Board (the "Chairman"). The Executive shall initially
have the title of Chief Operating Officer. The Executive shall have the
responsibility for supervising the business affairs and operations of the
Company and its various subsidiaries throughout the world. As and when required,
the Executive shall share responsibility for stockholder relations and
fundraising. The Executive shall have all functional responsibilities necessary
to enable him or her to discharge his or her duties hereunder and to conduct the
Company's business throughout the world. The executive shall have such other
responsibilities as the Board and the Chairman shall from time to time assign to
him or her, but the duties which he or she shall be called upon to render
hereunder shall not be of a nature substantially inconsistent with those
customarily performed by individuals holding principal executive offices in
similar business organizations. The Executive shall report and be responsible to
the Board and the Chairman.
2.0 PERFORMANCE OF DUTIES
2.1 The Executive hereby accepts employment by the Company and agrees to
serve the Company faithfully and to the best of his or her ability and to devote
the time, attention and efforts necessary to advance the business and affairs of
the Company during the Term of this Agreement except for reasonable time spent
for service on the boards of directors of other corporations, vacations and
civic and charitable activities. It is understood and agreed that the Executive
may pursue personal investments requiring time commitments that do not conflict
with his obligations to the Company, including those in the preceding sentence.
The Executive hereby confirms that he is under no contractual commitments
inconsistent with his obligations set forth in this Agreement, and that during
the Term of this Agreement, he shall not render or perform services, or enter
into any contract to do so, for any other corporation, firm, entity or person
which are inconsistent with his or her duties to the Company.
2.2 All duties performed by the Executive under the terms of this Agreement
(other than incidental duties) shall be performed at such locations both inside
or outside Canada as the Board of the Directors of the Company may from time to
time direct.
3.0 DIRECT COMPENSATION
3.1 The Company shall pay to the Executive in each 365 day period within
the term of this Agreement a base salary of not less than US$100,000.00 ("Base
Salary"), which shall be payable in accordance with the Company's regularly
established pay schedule applicable to corporate officers of the Company. The
Executive's Base Salary shall be reviewed at the end of each 365 day period
within the term of this Agreement and may be increased by an amount to be
determined by the Compensation Committee on the basis of the Executive's
performance.
3.2 The Executive shall be entitled to an annual bonus based upon
performance ("Incentive Compensation") which shall be determined under a plan to
be prepared by the Compensation Committee in consultation with the Executive and
approved by the Compensation Committee (the "Statement of Objectives"), and
which shall be paid to the Executive in accordance with the following
procedures:
<PAGE> 3
3.2.1 The Statement of Objectives shall consist of an outline of the
Executive's performance goals for the fiscal year under consideration. Each
performance goal set forth in the Statement of Objectives shall be measurable
and the Statement of Objectives shall set forth the basis for measurement of the
achievement as well as the over-achievement of each goal. A dollar value shall
be assigned to each performance goal set forth in the Statement of Objectives.
Wherever there can be variations in the degree of the achievement or
over-achievement of a goal, the range of percentage participation in the dollar
value of the goal relating to the varying levels of achievement shall be clearly
stated.
3.2.2 The aggregate dollar value assigned to the achievement (but not the
over-achievement) of the performance goals set forth in the Statement of
Objectives shall equal 50 percent of the Executive's Base Salary for the year
with respect to which the bonus shall be paid. Additional dollar values which
equal in the aggregate an additional 100 percent of the Executive's Base Salary
for the year with respect to which the Incentive Compensation will be paid shall
be assigned to the over-achievement of the performance goals set forth in the
Statement of Objectives, so that the maximum potential Incentive Compensation to
be awarded to the Executive for any year may equal 150 percent of his or her
Base Salary for that year.
3.2.3 Immediately upon receipt of the Statement of Objectives from the
Executive, the Compensation Committee shall review it and shall either approve
it as submitted or shall modify any or all of the performance goals, and/or the
dollar values assigned to the achievement and to the over-achievement of the
goal or goals in question, and/or the range of percentage participation in the
dollar value of any or all of the goals relating to varying levels of
achievement; provided, that any such modification by the Compensation Committee
shall in no event reduce the aggregate dollar values assigned to the achievement
and over-achievement of the performance goals below the levels specified in
Section 3.2.3.
3.2.4 Payment of the Incentive Compensation shall be based upon the
achievement of the performance goals at the end of the fiscal year in question.
The Incentive Compensation payable to the Executive for each fiscal year shall
equal the aggregate of the dollar values assigned to the relevant levels of
achievement or over-achievement attained by the Executive with respect to each
performance goal set forth in the Statement of Objectives for that year. If the
relevant level of achievement or over-achievement of any goal falls within a
range of participation assigned to that goal, the dollar amount of the bonus
award for the achievement or over-achievement of that goal shall be
proportionate to the level of achievement or over-achievement reached within
that designated range.
3.2.5 The Incentive Compensation shall be paid to the Executive no later than
120 days following the end of the fiscal year with respect to which it is being
paid. In the event that the Executive dies or his or her employment hereunder
terminates for any other reason after the end of any fiscal year but before the
payment of the Incentive Compensation due with respect to that year, the
Incentive Compensation shall be paid to the Executive's estate.
4.0 ADDITIONAL BENEFITS
4.1 During the term of this Agreement, the Executive shall be entitled to
participate in all present and future employee benefit plans, maternity benefit
plans, deferred compensation plans and all other compensation and benefit plans,
programs and structures as may from time to time be made available by the
Company to all other key corporate executives of the Company, and on terms and
conditions no less favorable than those generally available to other such
employees. The Executive shall also be entitled to the highest number of
vacation days with full pay during each twelve months in which this Agreement is
in effect as are available to any other key Canadian corporate executive of the
Company, without any reduction based upon length of service to the Company. In
addition, during the term of this Agreement the Executive shall be entitled to
the club and professional society membership dues and monthly charges,
reimbursement for the costs of financial, tax and estate planning and an
automobile allowance. In the event that the Company elects to obtain key person
life insurance insuring the Executive, the Executive shall make him/herself
available for the necessary physical examinations and shall cooperate in all
other respects with the Company's efforts to obtain such insurance. The
Executive hereby represents that he does not know of any condition, which would
cause him to be uninsurable.
4.2 In addition to the compensation provided in the previous paragraphs the
Company will reimburse the Executive for reasonable expenses which he may incur
in the course of the performance of his duties for the Company, and he will
furnish documentation thereof in accordance with the Company's practices
regarding the same. This obligation of the Company shall include but not be
limited to travel, meals and lodging expenses incurred by the Executive's spouse
in accompanying the Executive on any business trip on behalf of the Company,
which exceeds fifteen (15) days in duration. This obligation of the Company
shall also include but not be limited to travel, meals and lodging expenses
incurred by the
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<PAGE> 4
Executive's nanny/babysitter in accompanying the Executive on any business trip
on behalf of the Company, for business trips of any duration, whenever the
Executive travels with pre-school child(ren) without his or her spouse. The
Company will similarly reimburse the Executive for home-based nanny/babysitter
expenses for pre-school child(ren) incurred while the Executive is on Company
business.
4.3 The Executive shall be entitled to participate in a stock option plan
or share purchase plan or any similar plan as may be offered by the Company at
its sole discretion from time to time. The introduction and administration of
any such plan is entirely at the Company's sole discretion, and the
introduction, deletion or amendment of such plan shall not constitute a breach
of this Agreement.
4.4 If for any reason any amounts paid to the Executive pursuant to
Sections 4.1 through 4.3 above are required to be included in the Executive's
income for purposes of determining federal or provincial income taxes payable by
him/her, the Company shall pay to the Executive an amount which after taking
into account all taxes required to be paid by the Executive as a result of the
Executive's receipt of such payment from the Company, shall cause the
Executive's after-tax return on the payments made pursuant to Sections 4.1
through 4.3 above to equal the amount which would have been available to the
Executive had no federal or provincial income taxes been due thereon. The amount
required to be paid by the Company pursuant to this Section 4.4 shall be
determined by the Executive's tax return preparer, shall take into account all
applicable deductions or credits, and shall be paid to the Executive no later
than 15 days following the date on which the Executive files the income tax
return in which any payments made pursuant to Sections 4.1 through 4.3 are
included in the Executive's income or within fifteen days following the date on
which the relevant taxing authority makes a determination that any payments made
pursuant to Sections 4.1 through 4.3 are required to be included in the
Executive's income, as the case may be.
5.0 DURATION OF AGREEMENT
5.1 The term of this Agreement shall be from the date hereof until such
time as it is terminated pursuant to Section 5.2 of this Agreement, or up to and
including the first to occur of the following:
5.1.1 the date upon which the Executive commits a "prohibited act" (as
hereinafter defined);
5.1.2 the date upon which the Executive has been determined to have a
"permanent disability" (in the manner set forth in Section 5.1.5 hereof); or
5.1.3 the date of the Executive's death. No event other than those specified
in this Section 5.1 shall constitute grounds for the termination of this
Agreement or discharge of the Executive from employment with the Company. Upon
the termination of this Agreement pursuant to this Section 5, if the Executive
is then serving as a Board member and the term of his or her service as a Board
member does not expire prior to or concurrently with the termination of this
Agreement, the Executive shall submit his or her resignation as a member of the
Board.
5.1.4 For purposes of this Section 5, the term "prohibited act" shall mean
the Executive's commission of any of the following: (a) conviction of a felony
or any other criminal offense which has a material adverse effect on the Company
or the ability of the Executive to carry out his or her duties of employment;
(b) willful commission of acts materially detrimental to the Company's business
or reputation; (c) material breach of any of the Executive's covenants or
fiduciary duties as specified in this Agreement which is not capable of being
cured by the Executive or, if capable of being cured, which is not cured by the
Executive within fifteen days following written notice thereof by the Company;
or (d) the knowing failure of the Executive to follow specific directives of the
Board of Directors of the Company consistent with his or her duties. If the
Board of Directors terminate this Agreement pursuant to Section 5, the Executive
will be provided seven (7) days written notice. No other acts or omissions by
the Executive shall constitute prohibited acts sufficient to give rise to the
Executive's discharge from employment hereunder. A termination of this Agreement
by reason of the Executive's commission of a prohibited act shall not be
effective unless the Executive has been given a notice of termination for cause
by the Company which sets forth in detail the basis of the findings by the Board
that cause for termination exists under Section 5.1.1 of this Agreement.
Notwithstanding the foregoing, no such notice of termination shall be given to
the Executive unless the Executive has been provided with an opportunity to
appear with counsel and to be heard by the Board on the issue of whether such
cause for termination exists hereunder; provided, that the Executive's counsel
shall not be entitled to be present during any vote by the board on the question
of whether cause for termination of the Executive's employment exists.
5.1.5 For purposes of this Agreement, the term "permanent disability" shall
be limited to a physical or mental condition, other than pregnancy, which
results in the Executive's absence from his employment
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<PAGE> 5
duties for a period of ninety (90) or more consecutive days, in which event the
Executive shall be determined to have a "permanent disability" for purposes of
this Agreement upon the expiration of such 90-day period. Anything in this
Section 5.1.5 to the contrary notwithstanding, the provisions of this Agreement
respecting permanent disability shall be without prejudice to any rights which
the Executive may have under any applicable disability insurance policy or other
plan maintained by the Company for the benefit of its employees.
5.2 The Board of Directors of the Company shall determine, in its sole
discretion, that the termination of this Agreement is in the best interest of
the Company, and in which event Executive shall have no duty to mitigate his or
her damages. If the Board of Directors terminate this Agreement pursuant to this
Section 5.1.5, the Executive will be provided thirty (30) days written notice.
5.3 Notwithstanding any termination of this Agreement, the Executive, in
consideration of his employment hereunder to the date of such termination, shall
remain bound by the provisions of this Agreement which specifically relate to
periods, activities or obligations upon or subsequent to the termination of the
Executive's employment.
6.0 COMPENSATION UPON TERMINATION
6.1 Upon termination of the Executive's employment hereunder for any
reason, in addition to any benefits to which the Executive may then or following
the termination of his or her employment be entitled under any other applicable
policy or plan of the Company then in effect, the Company shall pay to the
Executive (or to his or her estate, as the case may be) his or her Base Salary,
Incentive Compensation and benefits due through the effective date of
termination. In the event that such termination occurs on any date other than
the last day of the fiscal year, the Incentive Compensation shall be based upon
the performance goals achieved at the end of the fiscal year, but shall be
prorated based upon the number of days which have elapsed in the fiscal year
through the date of termination. Payment of the Incentive Compensation due under
this Section 6.1 shall be made no later one hundred twenty (120) days following
the end of the fiscal year with respect to which it is being paid. Payment of
all other amounts due under this Section 6.1 shall be made not later than the
10th day following the effective date of termination.
6.2 In the event the Executive's employment terminates by reason of a
"permanent disability", as defined in Section 5.1.5, the Company shall pay to
the Executive an amount equal to the Base Salary, benefits and Incentive
Compensation that would have been payable to the Executive for the 180 day
period following the date on which the Executive is determined to have a
permanent disability in the manner set forth in Section 5.1.5, less the amount
of disability pay (if any) which the Executive receives for that 180-day period
under any applicable disability insurance policy.
6.3 The parties acknowledge that if the Executive's employment is
terminated by the Company in any manner not permitted by Section 5 of this
Agreement, or in the event of a material breach by the Company of any of its
covenants under this Agreement (any such termination of the Executive's
employment or material breach by the Company shall hereinafter be referred to as
a "Wrongful Termination"), the damages suffered by the Executive by reason
thereof would be extremely difficult to ascertain. In recognition thereof, the
parties agree that in the event of a Wrongful Termination, the Company shall pay
to the Executive an amount equal to (i) the Base Salary and benefits that would
have been payable to the Executive for a period of 24 (twenty-four) full
calendar months from and after the month in which the Wrongful Termination
occurred and (ii) the Incentive Compensation that would have been payable to the
Executive for a period of 12 (twelve) full calendar months from and after the
month in which the Wrongful Termination occurred. Notwithstanding the foregoing,
the Executive shall use reasonable efforts following a Wrongful Termination to
obtain employment comparable in nature and compensation to the Executive's
employment hereunder and, in the event that he or she obtains such employment
prior to the expiration of the aforementioned 24 (twenty-four) month period, the
amount due to the Executive pursuant to this Section 6.3 shall be reduced by the
amount of the compensation (if any) which he or she receives during the 24
(twenty-four) month period from the new position of employment.
6.4 The Base Salary and benefits payable hereunder for any period following
a termination by reason of the Executive's permanent disability or a Wrongful
Termination shall be determined on the basis of the Base Salary and benefits in
effect on the date of the Executive's permanent disability or on the date of the
Wrongful Termination, as the case may be. The Incentive Compensation payable
hereunder for the 180-day period following a termination by reason of the
Executive's permanent disability shall equal one-half of the Incentive
Compensation payable to the Executive with respect to the entire fiscal year in
which the permanent disability occurred, and the Incentive Compensation payable
hereunder for the 12-month period following a Wrongful Termination shall equal
the Incentive Compensation payable to the
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Executive with respect to the entire fiscal year in which the Wrongful
Termination occurred, in each case based upon the performance goals achieved at
the end of that fiscal year. Also in the event of a termination by reason of the
Executive's permanent disability or a Wrongful Termination, the Company shall
make such other and further payments to the Executive, his designated
beneficiaries and dependents or his estate as may be provided pursuant to any
employee benefit plan and other compensation plan or program in which the
Executive is a participant at the time of the termination of his or her
employment, and the Company shall use its best efforts to cause all insurance
policies under which coverage was then being afforded to the Executive pursuant
to this Agreement to be maintained in effect with coverage for the Executive
through the end of the period for which he or she is entitled to his Base Salary
and benefits; provided, that if continued coverage following termination is not
available under the terms of any of those policies, the Company shall either use
its best efforts to procure the same coverage from another insurer reasonably
deemed acceptable by the Executive, or shall pay to the Executive an amount
equal to the cost to the Company of such coverage as it was being provided to
the Executive under such policy or policies in effect on the date of
termination.
7.0 RESTRICTIVE COVENANTS
7.1 In the course of carrying out and performing his or her duties and
responsibilities to the Company, the Executive shall obtain access to and be
entrusted with Confidential Information (as hereinafter defined) relating to the
business and affairs of the Company or its Affiliates.
7.2 The term "Confidential Information" as used in this Agreement means all
trade secrets, proprietary information and other data or information (and any
tangible evidence, record or representation thereof), whether prepared,
conceived or developed by an Executive of the Company or its Affiliates or
received by the Company or its Affiliates from an outside source which is
maintained in confidence by the Company or its Affiliates or any of its
customers to obtain a competitive advantage over competitors who do not have
access to such trade secrets, proprietary information, or other data or
information. Without limiting the generality of the foregoing, Confidential
Proprietary Information includes:
7.2.1 any ideas, improvements, know-how, research, inventions, innovations,
products, services, sales, scientific or other formulae, patterns, processes,
methods, machines, manufactures, compositions, processes, procedures, tests,
treatments, developments, technical data, designs, devices, patterns, concepts,
computer programs, computer code, creative development, training or service
manuals, plans for new or revised services or products or other plans, items or
strategy methods on compilation of information, or works in process, or any
Invention (as defined in this Agreement), or parts thereof, and any and all
revisions and improvements relating to any of the foregoing (in each case
whether or not reduced to tangible form) that relate to the business or affairs
of the Company or Affiliates, or that result from its marketing, research and/or
development activities;
7.2.2 any information relating to the relationship of the Company or its
Affiliates with any clients, customers, suppliers, principals, contacts or
prospects of the Company or its Affiliates and any information relating to the
requirements, specifications, proposals, orders, contracts or transactions of or
with any such clients, customers, suppliers, principals, contacts or prospects
of the Company or its Affiliates, including but not limited to client lists;
7.2.3 any sales plan, marketing material, plan or survey, business plan or
opportunity, product or service development plan or specification, business
proposal or business agreement; and
7.2.4 any information relating to the present or proposed business of the
Company or its Affiliates.
7.3 The Executive agrees that the Confidential Information is and will
remain the exclusive property of the Company or its Affiliates. The Executive
also agrees that the Confidential Information:
7.3.1 constitutes a proprietary right which the Company or its Affiliates is
entitled to protect; and
7.3.2 constitutes information and knowledge not generally known to the trade.
7.4 The Executive understands that the Company has from time to time in its
possession information belonging to others or which is claimed by others to be
confidential or proprietary and which the Company has agreed to keep
confidential. The Executive agrees that all such information shall be
Confidential Information for the purposes of this Agreement.
7.5 For purposes of the copyright laws of Canada and the USA, to the
extent, if any, that such laws are applicable to any Confidential Information,
it shall be considered a work made for hire and the Company shall be considered
the author thereof.
7.6 The Executive acknowledges and agrees that any Confidential Information
disclosed to the Executive is in the strictest confidence and the Executive
agrees to maintain and hold in strict confidence all Confidential Information
disclosed to him or her. The disclosure of any such Confidential
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Information by the Executive in any form whatsoever except as authorized by the
Company or permitted under this Agreement is and shall be considered a breach of
the Executive's employment arrangement and shall constitute immediate cause for
dismissal.
7.7 Except as authorized by the Company, the Executive shall not:
7.7.1 duplicate, transfer, disclose or use nor allow any other person to
duplicate, transfer or disclose any of the Confidential Information; or
7.7.2 incorporate, in whole or in part, within any domestic or foreign patent
application, any proprietary or Confidential Information disclosed to the
Executive by the Company or its Affiliates.
7.8 The Executive will safeguard all Confidential Information to which the
Executive has access at all times so that it is not exposed to or used by
unauthorized persons, and will exercise at least the same degree of care that he
would use to protect his or her own confidential information.
7.9 The restrictive obligations set forth above shall not apply to the
disclosure or use of any information which:
7.9.1 is or later becomes publicly known under circumstances involving no
breach of this Agreement by the Executive;
7.9.2 is already known to the Executive outside his or her employment at the
time of receipt of the Confidential Information;
7.9.3 is disclosed to a third party under an appropriate confidentiality
agreement;
7.9.4 is lawfully made available to the Executive by a third party;
7.9.5 is independently developed by the Executive who has not been privy to
the Confidential Information provided by the Company; or
7.9.6 is required by law to be disclosed but only to the extent of such
requirement and the Executive shall immediately notify in writing the Chairman
of the Company upon receipt of any request for such disclosure.
7.10 The Executive acknowledges that a breach by the Executive of any of the
covenants contained in Section 7 herein shall result in damages to the Company
and that the Company could not be adequately compensated for such damages by a
monetary award. Accordingly, in the event of any such breach, in addition to all
other remedies available to the Company at law or in equity, the Company shall
be entitled as a matter of right to apply to a court of competent jurisdiction
for such relief by way of restraining order, temporary or permanent injunction,
decree or otherwise, as may be appropriate to ensure compliance with the
provisions of this Agreement.
7.11 The Executive acknowledges that the restrictions contained in this
Section 7 are reasonable and valid and all defences to the strict enforcement
thereof by the Company are hereby waived by the Executive.
7.12 The provisions of this Section 7 shall survive the termination of this
Agreement.
8.0 OWNERSHIP OF FUTURE INTELLECTUAL PROPERTY
8.1 Any new technology, knowledge or information developed by the Executive
related to the business of the Company or any of its Affiliates during the term
of this Agreement shall be the exclusive property of the Company and its
Affiliates.
8.2 The Executive acknowledges that all Confidential Information and all
other discoveries, know-how, inventions, ideas, concepts, processes, products,
protocols, treatments, methods, tests and improvements, computer programs, or
parts thereof, conceived, developed, reduced to practice or otherwise made by
him or her either alone or with others, and that in any way relates to the
present programs, services, product or business of the Company or its
Affiliates, during the course of his or her employment with the Company pursuant
to this Agreement or any previous employment agreements or arrangements between
the Executive and the Company or its Affiliates, whether or not conceived,
developed, reduced to practice or made during the Executive's regular working
hours or on the premises of the Company (collectively "Inventions"), and any and
all services and products which embody, emulate or employ any such Inventions
will be the sole property of the Company or its nominee and all copyrights,
patents, patent rights, trademarks, service marks and reproduction rights to,
and other proprietary rights in, each such Invention, whether or not patentable
or copyrightable, will belong exclusively to the Company or its nominee. For
purposes of the copyright laws of the United States of America, to the extent,
if any, that such laws are applicable to any such Invention or any such service
or product, it will be considered a work made for hire and the Company will be
considered the author thereof;
8.3 The Executive hereby assigns to the Company or its nominee, their
successors or assigns, all his or her rights, title and interest in and to the
Inventions;
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8.4 The Executive hereby waives for the benefit of the Company and its
successors and assigns all his or her moral rights in respect of the Inventions;
8.5 The Executive will assist the Company or its nominee in every proper
way (but at the Company's expense) to obtain and, from time to time to enforce,
patents or copyrights in respect of the Inventions in any and all countries, and
to that end the Executive will execute all documents for use in applying for,
obtaining and enforcing patents and copyrights on such Inventions as the Company
may desire, together with any assignments of such Inventions to the Company or
Persons designated by it; and
8.6 The Executive represents and warrants that he or she is subject to no
contractual or other restriction or obligation, which will in any way limit his
or her activities on behalf of the Company. The Executive hereby represents and
warrants to the Company that he or she has no continuing obligations to any
previous employer with respect to any previous invention, discovery or other
item of intellectual property or which requires the Executive not to disclose
any information or data to the Company. The Executive further represents and
warrants that he or she does not claim rights in, or otherwise excludes from
this Agreement, any Invention except as listed on Exhibit A hereto.
8.7 The Executive acknowledges that a breach by the Executive of any of the
covenants contained in Section 8 herein shall result in damages to the Company
and that the Company could not be adequately compensated for such damages by a
monetary award. Accordingly, in the event of any such breach, in addition to all
other remedies available to the Company at law or in equity, the Company shall
be entitled as a matter of right to apply to a court of competent jurisdiction
for such relief by way of restraining order, temporary or permanent injunction,
decree or otherwise, as may be appropriate to ensure compliance with the
provisions of this Agreement.
8.8 The provisions of this Section 8 shall survive the termination of this
Agreement.
9.0 DELIVERY OF RECORDS
9.1 Any and all computer code, data, notes, diagrams, reports, notebook
pages, memoranda, and like materials, including Confidential Information and
Inventions (as such terms are herein defined) received from or developed for the
Company or its Affiliates and any copies or excerpts thereof shall remain the
property of the Company or its Affiliates. Upon the termination of the
Executive's relationship with the Company as established under this Agreement,
or at anytime during the term hereof at the request of the Company, the
Executive shall deliver to the Company all such materials and other property
belonging to the Company or developed in connection with the business of the
Company.
10.0 NON-COMPETITION, SOLICITATION OF CUSTOMERS, SOLICITATION OF EXECUTIVES
10.1 The Executive agrees that, during the period of his employment
hereunder and for a period of twelve (12) months following the termination of
such employment, he or she shall not directly engage in competition with the
Company within the "Territory" (as hereinafter defined) in any management
capacity in any phase of the Company's business of developing, manufacturing,
distributing, marketing, leasing or selling any of the products or services
which the Company is in the business of developing, manufacturing, distributing,
marketing, licensing to others or selling (the "Competitive Areas") during the
Term of this Agreement or which the Company has definitive plans to develop,
manufacture or market.
10.2 The "Territory" shall be that area throughout the world in which the
Company presently markets its products and services. This agreement shall be
deemed automatically amended without the need of further action by any party to
add any new countries or parts thereof where after date hereof and prior to the
termination of the Executive's employment the Company begins to market its
products and services and to delete any countries after no Company products or
services have been sold there for a period of six months.
10.3 The restrictions in this Section 10 shall not apply with respect to (i)
a passive investment by the Executive of less than 5% of the outstanding shares
of capital stock of any corporation, or (ii) employment by the Executive with an
entity in a management capacity in an area of business which is not, directly or
indirectly, a Competitive Area.
10.4 The Executive agrees that during his employment by the Company
hereunder and for the two (2) year period following the termination of such
employment, he or she shall not, without the prior written consent of the
Company, in the Territory, either directly or indirectly, on his own behalf or
in the service or on behalf of others, solicit, divert or appropriate, or
attempt to solicit, divert or appropriate, to any competing business any person
or entity whose account with the Company was sold or serviced by or under the
supervision of the Executive during the year preceding the termination of such
employment.
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10.5 The Executive agrees that during his employment by the Company
hereunder and for the two (2) year period following the termination of such
employment, he or she shall not, either directly or indirectly, on his own
behalf or in the service or on behalf of others, solicit, divert, or attempt to
solicit or divert any person then employed by the Company.
11.0 OTHER PROVISIONS
11.1 Any notice or other communication required or permitted hereunder shall
be in writing and shall be sufficiently given (i) when sent by registered mail,
with postage and registration fees prepaid, or by overnight courier service to
the party to be notified at his or its last known address as determined by due
diligence by the party sending such notice or other communication; or (ii) when
delivered into the hands of the party to be notified.
11.2 This Agreement shall be binding upon and shall inure to the benefit of
the Company and the Executive and their respective heirs, personal
representatives, transferees, successors (as a result of a merger, consolidation
or other form of corporate reorganization, a sale or other disposition through
liquidation or otherwise of all or substantially all of the assets of the
Company, or otherwise arising by operation of law) and assigns (including any
entity with which the Company may merge or consolidate or to which it may
transfer substantially all of its assets); provided, that this Agreement shall
not be assignable by the Executive, and it shall not be assignable by the
Company except to an entity with which it may merge, consolidate or to which it
may transfer substantially all of its assets. The Company shall require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume expressly and to agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, "Company"
shall mean the Company as herinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement
either expressly or by operation of law.
11.3 This Agreement and the rights and obligations of the parties hereto
shall be governed by and construed in every respect (including but not limited
to validity and performance) in accordance with the internal laws of the
province of British Columbia, without giving affect to the conflict of law
principles thereof, notwithstanding that one or more of the parties to this
Agreement may now be or hereafter become domiciled in or a resident of another
province or a foreign country.
11.4 No amendment or modification of this Agreement shall be valid or
binding on the Company unless made in writing and signed by a duly authorized
officer of the Company or upon the Executive unless made in writing and signed
by him. The waiver of a breach of any provision of this Agreement by any party
or the failure of any party otherwise to insist upon strict performance of any
provision hereof shall not constitute a waiver of any subsequent breach or of
any subsequent failure to perform.
11.5 Section headings and numbers have been inserted herein for convenience
of reference only, and if there shall be any conflict between such numbers or
headings and the text of this Agreement, the text shall control.
11.6 In the event that any provision of this Agreement is held illegal or
invalid for any reason, such illegality or invalidity shall at the option of the
party against whom the same is asserted not affect the remaining parts of this
Agreement, but this Agreement shall be construed and enforced as if that illegal
and invalid provision had never been inserted herein.
11.7 This Agreement and the attached Exhibit A constitutes the entire
agreement of the parties with respect to the subject matter hereof and supersede
all prior agreements, arrangements and communications of the parties dealing
with such subject matter, whether oral or written. No other promise, agreement,
understanding or representation will be binding unless made in writing and
signed by the parties hereto.
11.8 If the Executive dies prior to the payment of all amounts due and owing
to him under the terms of this Agreement, such amounts shall be paid to such
beneficiary or beneficiaries as the Executive may have last designated in
writing filed with the Company or as provided under applicable benefit plans and
programs or, if the Executive has made no beneficiary designation, to the
Executive's estate. Such designated beneficiary or the executor of his estate,
as the case may be, may exercise all of the Executive's rights hereunder,
including without limitation those relating to the exercise of stock options or
otherwise to the extent permitted in any plan or other instrument relating
thereto. If any beneficiary designated by the Executive shall predecease the
Executive, the designation of such beneficiary shall be deemed revoked, and any
amounts which would have been payable to such beneficiary shall be paid to the
Executive's estate. If
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any designated beneficiary survives the Executive, but dies before payment of
all amounts due hereunder, such payments shall, unless the Executive has
designated otherwise, be made to such beneficiary's estate.
11.9 To the best of his or her knowledge, the Executive is not a party to
any agreement, which will be enforced in a manner, which would prevent him from
assuming and fulfilling his responsibilities under this Agreement.
12.0 INJUNCTIVE RELIEF
12.1 Executive agrees that it would be difficult to compensate the Company
fully for damages for any violation of the provisions of this Agreement,
including without limitation the provisions of Sections 7, 8, 9 and 10.
Accordingly, the Executive specifically agrees that the Company shall be
entitled to temporary and permanent injunctive relief to enforce the provisions
of this Agreement. This provision with respect to injunctive relief shall not,
however, diminish the right of the Company to claim and recover damages in
addition to injunctive relief.
13.0 INDEPENDENT LEGAL ADVICE
13.1 The Executive acknowledges that this Agreement has been prepared by the
Company and acknowledges that the Executive has had sufficient time to review
this Agreement thoroughly, that he or she has read and understood the terms of
this Agreement and that the Executive has been given the opportunity to obtain
independent legal advice concerning the interpretation and effect of this
Agreement prior to its execution.
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14.0 COUNTERPARTS
14.1 This Agreement may be executed in one or more counterparts, including
by facsimile, each of which shall be considered an original, and all of which
taken together shall be considered one and the same instrument and
notwithstanding the date of execution shall be deemed to bear the date as set
out on the first page of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year set forth on the first page of this Agreement.
Signed by )
)
For and on behalf of )
BLUE ZONE ENTERTAINMENT INC. ) /s/ Bruce Warren
-----------------------------
) Authorized Signatory
/s/ Jamie Ollivier
-----------------------------
) Authorized Signatory
SIGNED, SEALED AND DELIVERED by )
JAMIE OLLIVIER in the presence of: )
)
/s/ Joan Powell )
- -----------------------------
Witness )
)
Joan Powell ) /s/ Catherine Warren
- ----------------------------- -----------------------------
Name ) CATHERINE WARREN
)
565 W. St. James Rd. )
- -----------------------------
Address )
)
North Vancouver, BC )
- -----------------------------
)
)
COO Liason )
- -----------------------------
Occupation
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List of Exhibits
Exhibit A: Inventions
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EXHIBIT 10.9
BLUE ZONE, INC.
1999 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel, to provide additional incentive
to Employees, Directors and Consultants and to promote the success of the
Company's business.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of the Committees appointed
to administer the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
administration of stock option plans, if any, under applicable provisions of
federal securities laws, state corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to Options granted to residents therein.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means, with respect to the termination by the Company or a
Related Entity of the Grantee's Continuous Service, that such termination is for
"Cause" as such term is expressly defined in a then-effective written agreement
between the Grantee and the Company or such Related Entity, or in the absence of
such then-effective written agreement or definition, is based on, in the
determination of the Administrator, any act or omission of the Grantee that
would constitute cause for the purposes of the applicable common law, including
without limitation the Grantee's: (i) refusal or failure to act in accordance
with any specific, lawful direction or order of the Company or a Related Entity;
(ii) unfitness or unavailability for service or unsatisfactory performance
(other than as a result of Disability); (iii) performance of any act or failure
to perform any act in bad faith and to the detriment of the Company or a Related
Entity; (iv) dishonesty, intentional misconduct or material breach of any
agreement with the Company or a Related Entity; or (v) commission of a crime
involving dishonesty, breach of trust, or physical or emotional harm to any
person. At least 30 days prior to the termination of the Grantee's Continuous
Service pursuant to (i) or (ii) above, the Administrator shall provide the
Grantee with notice of the Company's or such Related Entity's intent to
terminate, the reason therefor, and an opportunity for the Grantee to cure such
defects in his or her service to the Company's or such Related Entity's
satisfaction. During this 30 day (or longer) period, no Option issued to the
Grantee under the Plan may be exercised or purchased.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means any committee appointed by the Board to
administer the Plan.
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(g) "Common Stock" means the common stock of the Company.
(h) "Company" means Blue Zone, Inc. a Nevada corporation.
(i) "Consultant" means any person (other than an Employee or a
Director, solely with respect to rendering services in such person's capacity as
a Director) who is engaged by the Company or any Related Entity to render
consulting or advisory services to the Company or such Related Entity, including
such a person with whom the Company has entered into an agreement designating
such person as an "independent contractor".
(j) "Continuous Service" means that the provision of services to the
Company or a Related Entity in any capacity of Employee, Director or Consultant,
is not interrupted or terminated. Continuous Service shall not be considered
interrupted in the case of (i) any approved leave of absence, (ii) transfers
among the Company, any Related Entity, or any successor, in any capacity of
Employee, Director or Consultant, or (iii) any change in status as long as the
individual remains in the service of the Company or a Related Entity in any
capacity of Employee, Director or Consultant (except as otherwise provided in
the Option Agreement). An approved leave of absence shall include sick leave,
maternity leave, military leave, or any other authorized personal leave. For
purposes of Incentive Stock Options, no such leave may exceed ninety (90) days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract.
(k) "Corporate Transaction" means any of the following transactions:
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state, territory, province or country in which the Company is
incorporated;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock of
the Company's subsidiary corporations) in connection with the complete
liquidation or dissolution of the Company;
(iii) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such securities
immediately prior to such merger; or
(iv) acquisition by any person or related group of persons
(other than the Company or by a Company-sponsored employee benefit plan) of
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities, but excluding any such
transaction that the Administrator determines shall not be a Corporate
Transaction.
(l) "Director" means a member of the Board or the board of directors of
any Related Entity.
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(m) "Disability" means that a Grantee is permanently unable to carry
out the responsibilities and functions of the position held by the Grantee by
reason of any medically determinable physical or mental impairment. A Grantee
will not be considered to have incurred a Disability unless he or she furnishes
proof of such impairment sufficient to satisfy the Administrator in its
discretion.
(n) "Employee" means any person, including an Officer or Director, who
is an employee of the Company or any Related Entity. The payment of a director's
fee by the Company or a Related Entity shall not be sufficient to constitute
"employment" by the Company.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(p) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) Where there exists a public market for the Common Stock,
the Fair Market Value shall be (A) the closing price for a Share for the last
market trading day prior to the time of the determination (or, if no closing
price was reported on that date, on the last trading date on which a closing
price was reported) on the stock exchange determined by the Administrator to be
the primary market for the Common Stock or the Nasdaq National Market, whichever
is applicable or (B) if the Common Stock is not traded on any such exchange or
national market system, the average of the closing bid and asked prices of a
Share on the Nasdaq Small Cap Market for the day prior to the time of the
determination (or, if no such prices were reported on that date, on the last
date on which such prices were reported), in each case, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(ii) If the Common Stock is traded on the over-the counter
market, the average of the closing bid and asked prices of a Share of Common
Stock on the day prior to the time of the determination (or if no such
quotations shall have been made on such date, on the last date on which there
were such quotations, provided that such quotations shall have been made within
the ten (10) business days preceding the date of determination), in each case,
as reported in such source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock of the type described in (i) or (ii), above, the Fair Market Value thereof
shall be determined by the Administrator in good faith.
(q) "Grantee" means an Employee, Director or Consultant who receives
an Option pursuant to an Option Agreement under the Plan.
(r) "Immediate Family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, any person sharing the
Grantee's household (other than a tenant or employee), a trust in which these
persons have more than fifty percent (50%) of the beneficial interest, a
foundation in which
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<PAGE> 4
these persons (or the Grantee) control the management of assets, and any other
entity in which these persons (or the Grantee) own more than fifty percent (50%)
of the voting interests.
(s) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(t) "Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(u) "Officer" means a person who is an officer of the Company or a
Related Entity within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.
(v) "Option" means an option to purchase Shares pursuant to an Option
Agreement granted under the Plan.
(w) "Option Agreement" means the written agreement evidencing the grant
of an Option executed by the Company and the Grantee, including any amendments
thereto.
(x) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(y) "Plan" means this 1999 Stock Option Plan.
(z) "Related Entity" means any Parent, Subsidiary and any business,
corporation, partnership, limited liability company or other entity in which the
Company, a Parent or a Subsidiary holds a substantial ownership interest,
directly or indirectly.
(aa) "Related Entity Disposition" means the sale, distribution or other
disposition by the Company, a Parent or a Subsidiary of all or substantially all
of the interests of the Company, a Parent or a Subsidiary in any Related Entity
effected by a sale, merger or consolidation or other transaction involving that
Related Entity or the sale of all or substantially all of the assets of that
Related Entity, other than any Related Entity Disposition to the Company, a
Parent or a Subsidiary.
(bb) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act
or any successor thereto.
(cc) "Share" means a share of the Common Stock.
(dd) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan.
(a) Subject to the provisions of Section 10, below, the maximum
aggregate number of Shares which may be issued pursuant to all Options
(including Incentive Stock
4
<PAGE> 5
Options) is 4,500,000 Shares. The Shares to be issued pursuant to Options may be
authorized, but unissued, or reacquired Common Stock.
(b) Any Shares covered by an Option (or portion of an Option) which is
forfeited or canceled, expires or is settled in cash, shall be deemed not to
have been issued for purposes of determining the maximum aggregate number of
Shares which may be issued under the Plan. Shares that actually have been issued
under the Plan pursuant to an Option shall not be returned to the Plan and shall
not become available for future issuance under the Plan.
4. Administration of the Plan.
(a) Plan Administrator.
(i) Administration with Respect to Directors and Officers. With
respect to grants of Options to Directors or Employees who are also Officers or
Directors of the Company, if Section 16(b) of the Exchange Act is applicable,
the Plan shall be administered by (A) the Board or (B) a Committee designated by
the Board, which Committee shall be constituted in such a manner as to satisfy
the Applicable Laws and to permit such grants and related transactions under the
Plan to be exempt from Section 16(b) of the Exchange Act in accordance with Rule
16b-3. Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board.
(ii) Administration With Respect to Consultants and Other
Employees. With respect to grants of Options to Employees or Consultants who are
neither Directors nor Officers of the Company, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the Applicable Laws. Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. The Board may authorize one or more
Officers to grant such Options and may limit such authority as the Board
determines from time to time.
(iii) Administration Errors. In the event an Option is granted in
a manner inconsistent with the provisions of this subsection (a), such Option
shall be presumptively valid as of its grant date to the extent permitted by the
Applicable Laws.
(b) Powers of the Administrator. Subject to Applicable Laws and the
provisions of the Plan (including any other powers given to the Administrator
hereunder), and except as otherwise provided by the Board, the Administrator
shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to whom
Options may be granted from time to time hereunder;
(ii) to determine whether and to what extent Options are granted
hereunder;
(iii) to determine the number of Shares or the amount of other
consideration to be covered by each Option granted hereunder;
5
<PAGE> 6
(iv) to approve forms of Option Agreements for use under the
Plan;
(v) to determine the terms and conditions of any Option granted
hereunder;
(vi) to amend the terms of any outstanding Option granted under
the Plan, provided that any amendment that would adversely affect the Grantee's
rights under an outstanding Option shall not be made without the Grantee's
written consent;
(vii) to construe and interpret the terms of the Plan and Options
granted pursuant to the Plan, including without limitation, any notice of Option
or Option Agreement, granted pursuant to the Plan;
(viii) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign jurisdictions
and to afford Grantees favorable treatment under such laws; provided, however,
that no Option shall be granted under any such additional terms, conditions,
rules or procedures with terms or conditions which are inconsistent with the
provisions of the Plan; and
(ix) to take such other action, not inconsistent with the terms
of the Plan, as the Administrator deems appropriate.
5. Eligibility. Options other than Incentive Stock Options may be granted
to Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees of the Company, a Parent or a Subsidiary. An Employee,
Director or Consultant who has been granted an Option may, if otherwise
eligible, be granted additional Options. Options may be granted to such
Employees, Directors or Consultants who are residing in foreign jurisdictions as
the Administrator may determine from time to time.
6. Terms and Conditions of Options.
(a) Type of Options. The Administrator is authorized under the Plan to
issue Incentive Stock Options and Non-Qualified Stock Options.
(b) Designation of Option. Each Option shall be designated in the
Option Agreement as either an Incentive Stock Option or a Non-Qualified Stock
Option. However, notwithstanding such designation, to the extent that the
aggregate Fair Market Value of Shares subject to Options designated as Incentive
Stock Options which become exercisable for the first time by a Grantee during
any calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options, to the extent of the Shares covered
thereby in excess of the foregoing limitation, shall be treated as Non-Qualified
Stock Options. For this purpose, Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the date the Option with respect to such
Shares is granted.
(c) Conditions of Option. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Option including, but not limited to,
6
<PAGE> 7
the Option vesting schedule, repurchase provisions, rights of first refusal,
forfeiture provisions, and form of payment (cash, Shares, or other
consideration) upon settlement of the Option.
(d) Acquisitions and Other Transactions. The Administrator may issue
Options under the Plan in settlement, assumption or substitution for,
outstanding Options or obligations to grant future Options in connection with
the Company or a Related Entity acquiring another entity, an interest in another
entity or an additional interest in a Related Entity whether by merger, stock
purchase, asset purchase or other form of transaction.
(e) Deferral of Option Payment. The Administrator may establish one or
more programs under the Plan to permit selected Grantees the opportunity to
elect to defer receipt of consideration upon exercise of an Option. The
Administrator may establish the election procedures, the timing of such
elections, the mechanisms for payments of, and accrual of interest or other
earnings, if any, on amounts, Shares or other consideration so deferred, and
such other terms, conditions, rules and procedures that the Administrator deems
advisable for the administration of any such deferral program.
(f) Early Exercise. The Option Agreement may, but need not, include a
provision whereby the Grantee may elect at any time while an Employee, Director
or Consultant to exercise any part or all of the Option prior to full vesting of
the Option. Any unvested Shares received pursuant to such exercise may be
subject to a repurchase right in favor of the Company or a Related Entity or to
any other restriction the Administrator determines to be appropriate.
(g) Term of Option. The term of each Option shall be the term stated in
the Option Agreement, provided, however, that the term of an Incentive Stock
Option shall be no more than ten (10) years from the date of grant thereof.
However, in the case of an Incentive Stock Option granted to a Grantee who, at
the time the Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the term of the Incentive Stock Option shall be five (5) years
from the date of grant thereof or such shorter term as may be provided in the
Option Agreement.
(h) Transferability of Options. Incentive Stock Options may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Grantee, only by the Grantee; provided,
however, that the Grantee may designate a beneficiary of the Grantee's Incentive
Stock Option in the event of the Grantee's death on a beneficiary designation
form provided by the Administrator. Other Options may be transferred by will or
by the laws of descent or distribution and may be transferred by gift or through
a domestic relations order to members of the Grantee's Immediate Family, and the
Grantee may designate a beneficiary of the Grantee's Option in the event of the
Grantee's death on a beneficiary designation form provided by the Administrator,
to the extent provided in the Option Agreement or in the manner and to the
extent determined by the Administrator. Notwithstanding the foregoing, no Option
may be transferred in any manner, nor may the Grantee designate a beneficiary,
to the extent that such transfer or designation of beneficiary is not permitted
by Applicable Law.
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<PAGE> 8
(i) Time of Granting Options. The date of grant of an Option shall for
all purposes be the date on which the Administrator makes the determination to
grant such Option, or such other date as is determined by the Administrator.
Notice of the grant determination shall be given to each Employee, Director or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
7. Option Exercise or Purchase Price, Consideration and Taxes.
(a) Exercise or Purchase Price. The exercise or purchase price, if
any, for an Option shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be not less than one hundred ten
percent (110%) of the Fair Market Value per Share on the date of grant; or
(B) granted to any Employee other than an Employee
described in the preceding paragraph, the per Share exercise price shall be not
less than one hundred percent (100%) of the Fair Market Value per Share on the
date of grant.
(ii) In the case of a Non-Qualified Stock Option, the per Share
exercise price shall be not less than eighty-five percent (85%) of the Fair
Market Value per Share on the date of grant unless otherwise determined by the
Administrator.
(iii) Notwithstanding the foregoing provisions of this Section
7(a), in the case of an Option issued pursuant to Section 6(d), above, the
exercise or purchase price for the Option shall be determined in accordance with
the principles of Section 424(a) of the Code.
(b) Consideration. Subject to Applicable Laws, the consideration to be
paid for the Shares to be issued upon exercise or purchase of an Option
including the method of payment, shall be determined by the Administrator (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant). In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for Shares
issued under the Plan the following:
(i) cash (payable in U.S. dollars, unless otherwise specified
in the Option Agreement);
(ii) check (payable in U.S. dollars, unless otherwise specified
in the Option Agreement);
(iii) delivery of Grantee's promissory note with such recourse,
interest, security, and redemption provisions as the Administrator determines as
appropriate;
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<PAGE> 9
(iv) surrender of Shares or delivery of a properly executed form
of attestation of ownership of Shares as the Administrator may require
(including withholding of Shares otherwise deliverable upon exercise of the
Option) which have a Fair Market Value on the date of surrender or attestation
equal to the aggregate exercise price of the Shares as to which said Option
shall be exercised (but only to the extent that such exercise of the Option
would not result in an accounting compensation charge with respect to the Shares
used to pay the exercise price unless otherwise determined by the
Administrator);
(v) with respect to Options, payment through a broker-dealer
sale and remittance procedure, if available, pursuant to which the Grantee (A)
shall provide written instructions to a Company designated brokerage firm to
effect the immediate sale of some or all of the purchased Shares and remit to
the Company, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the purchased
Shares and (B) shall provide written directives to the Company to deliver the
certificates for the purchased Shares directly to such brokerage firm in order
to complete the sale transaction; or
(vi) any combination of the foregoing methods of payment.
(c) Taxes. No Shares shall be delivered under the Plan to any Grantee
or other person until such Grantee or other person has made arrangements
acceptable to the Administrator for the satisfaction of any foreign, federal,
state, or local income and employment tax withholding obligations, including,
without limitation, obligations incident to the receipt of Shares or the
disqualifying disposition of Shares received on exercise of an Incentive Stock
Option. Upon exercise of an Option, the Company shall withhold or collect from
Grantee an amount sufficient to satisfy such tax obligations.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder.
(i) Any Option granted hereunder shall be exercisable at such
times and under such conditions as determined by the Administrator under the
terms of the Plan and specified in the Option Agreement.
(ii) An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised, including,
to the extent selected, use of the broker-dealer sale and remittance procedure
to pay the purchase price as provided in Section 7(b)(v). Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to Shares subject to an Option,
notwithstanding the exercise of an Option or other Option. The Company shall
issue (or cause to be issued) such stock certificate promptly upon exercise of
the Option. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in the Option Agreement or Section 10, below.
9
<PAGE> 10
(b) Exercise of Option Following Termination of Continuous Service.
(i) An Option may not be exercised after the termination date
of such Option set forth in the Option Agreement and may be exercised following
the termination of a Grantee's Continuous Service only to the extent provided in
the Option Agreement.
(ii) Where the Option Agreement permits a Grantee to exercise an
Option following the termination of the Grantee's Continuous Service for a
specified period, the Option shall terminate to the extent not exercised on the
last day of the specified period or the last day of the original term of the
Option, whichever occurs first.
(iii) Any Option designated as an Incentive Stock Option to the
extent not exercised within the time permitted by law for the exercise of
Incentive Stock Options following the termination of a Grantee's Continuous
Service shall convert automatically to a Non-Qualified Stock Option and
thereafter shall be exercisable as such to the extent exercisable by its terms
for the period specified in the Option Agreement.
9. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued pursuant to the exercise of an Option
unless the exercise of such Option and the issuance and delivery of such Shares
pursuant thereto shall comply with all Applicable Laws, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.
10. Adjustments Upon Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of Shares covered by each
outstanding Option, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan, the exercise or purchase price of each
such outstanding Option, the maximum number of Shares with respect to which
Options may be granted to any Employee in any fiscal year of the Company, as
well as any other terms that the Administrator determines require adjustment
shall be proportionately adjusted for (i) any increase or decrease in the number
of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Shares, or similar event
affecting the Shares, (ii) any other increase or decrease in the number of
issued Shares effected without receipt of consideration by the Company, or (iii)
as the Administrator may determine in its discretion, any other transaction with
respect to Common Stock to which Section 424(a) of the Code applies or any
similar transaction; provided, however that conversion of any convertible
securities of the Company shall not be deemed to have been "effected without
receipt of consideration." Such adjustment shall be made by the Administrator
and its determination shall be final, binding and conclusive. Except as the
Administrator determines, no issuance by the
10
<PAGE> 11
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason hereof shall be
made with respect to, the number or price of Shares subject to an Option.
11. Corporate Transactions/Related Entity Dispositions. Except as may be
provided in an Option Agreement:
(a) Effective upon the consummation of a Corporate Transaction, all
outstanding Options under the Plan shall terminate. However, all such Options
shall not terminate if they are, in connection with the Corporate Transaction,
assumed by the successor corporation or Parent thereof.
(b) Effective upon the consummation of a Related Entity Disposition,
for purposes of the Plan and all Options, the Continuous Service of each Grantee
who is at the time engaged primarily in service to the Related Entity involved
in such Related Entity Disposition shall be deemed to terminate and each Option
of such Grantee which is at the time outstanding under the Plan shall be
exercisable in accordance with the terms of the Option Agreement evidencing such
Option. However, such Continuous Service shall be not to deemed to terminate if
such Option is, in connection with the Related Entity Disposition, assumed by
the successor entity or its parent.
12. Effective Date and Term of Plan. The Plan shall become effective upon
the earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated, provided that the Plan shall continue in effect
after the expiration of the ten year term solely for the purpose of governing
Options granted prior to such termination. Subject to Section 17, below, and
Applicable Laws, Options may be granted under the Plan upon its becoming
effective.
13. Amendment, Suspension or Termination of the Plan.
(a) The Board may at any time amend, suspend or terminate the Plan. To
the extent necessary to comply with Applicable Laws, the Company shall obtain
stockholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) No Option may be granted during any suspension of the Plan or after
termination of the Plan.
(c) Any amendment, suspension or termination of the Plan (including
termination of the Plan under Section 12, above) shall not affect Options
already granted, and such Options shall remain in full force and effect as if
the Plan had not been amended, suspended or terminated, unless mutually agreed
otherwise between the Grantee and the Administrator, which agreement must be in
writing and signed by the Grantee and the Company.
14. Reservation of Shares.
(a) The Company, during the term of the Plan, will at all times reserve
and keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
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<PAGE> 12
(b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
15. No Effect on Terms of Employment/Consulting Relationship. The Plan
shall not confer upon any Grantee any right with respect to the Grantee's
Continuous Service, nor shall it interfere in any way with his or her right or
the Company's right to terminate the Grantee's Continuous Service at any time,
with or without cause.
16. No Effect on Retirement and Other Benefit Plans. Except as specifically
provided in a retirement or other benefit plan of the Company or a Related
Entity, Options shall not be deemed compensation for purposes of computing
benefits or contributions under any retirement plan of the Company or a Related
Entity, and shall not affect any benefits under any other benefit plan of any
kind or any benefit plan subsequently instituted under which the availability or
amount of benefits is related to level of compensation. The Plan is not a
"Retirement Plan" or "Welfare Plan" under the Employee Retirement Income
Security Act of 1974, as amended.
17. Stockholder Approval. The grant of Incentive Stock Options under the
Plan shall be subject to approval by the stockholders of the Company within
twelve (12) months before or after the date the Plan is adopted excluding
Incentive Stock Options issued in substitution for outstanding Incentive Stock
Options pursuant to Section 424(a) of the Code. Such stockholder approval shall
be obtained in the degree and manner required under Applicable Laws. The
Administrator may grant Incentive Stock Options under the Plan prior to approval
by the stockholders, but until such approval is obtained, no such Incentive
Stock Option shall be exercisable. In the event that stockholder approval is not
obtained within the twelve (12) month period provided above, all Incentive Stock
Options previously granted under the Plan shall be exercisable as Non-Qualified
Stock Options.
12
<PAGE> 1
EXHIBIT 10.10
SUBSCRIPTION AGREEMENT
THIS AGREEMENT MADE EFFECTIVE AS OF THE 22nd DAY OF SEPTEMBER, 1999 (the
"Effective Date")
BETWEEN:
WESTERN FOOD DISTRIBUTORS, INC.
688-6 Ishikawa
Kanagawa
Japan 252 0815
(the "Company")
AND:
THE PARTY NAMED AS PURCHASER BELOW
(the "Purchaser")
WHEREAS:
A. The Purchaser wishes to subscribe for 933,300 units, where each unit consists
of one common share and one-half of one non-transferable share purchase warrant
of the Company (the "Securities");
B. It is the intention of the parties to this Agreement that this subscription
will be made pursuant to appropriate exemptions (the "Exemptions") from the
registration and prospectus or equivalent requirements of all rules, policies,
notices, orders and legislation of any kind whatsoever (collectively the
"Securities Rules") of all jurisdictions applicable to this subscription;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual
covenants and agreements herein contained, the receipt of which is hereby
acknowledged, the parties covenant and agree with each other (the "Agreement")
as follows:
1. Representative and Warranties of the Purchaser
1.1. The Purchaser represents and warrants to the Company, and acknowledges that
the Company is relying on these representations and warranties to, among other
things, ensure that it is complying with all of the applicable Securities Rules,
that:
(a) the Purchaser is purchasing a sufficient number of Securities such
that the aggregate acquisition cost to the Purchaser of such
Securities is not less than $97,000, if the Purchaser is a resident of
British Columbia, Alberta,
<PAGE> 2
Manitoba, New Brunswick, Prince Edward Island, Newfoundland or an
International Jurisdiction, or $150,000 if the Purchaser is a resident
of Saskatchewan, Ontario, Quebec or Nova Scotia and the Purchaser is:
(i) purchasing such Securities as principal for its own account
and not for the benefit of any other person; or
(ii) deemed to be acting as principal by virtue of it being:
A. a trust company or insurer which is authorized to carry
on business in B.C. under the Financial Institutions
Act (British Columbia) and which is acting as agent or
trustee for accounts that are fully managed by it
within the meaning of ss. 74(1)(a) of the Securities
Act (British Columbia (the "Act") and NIN #97/11 is
issued by the B.C. Securities Commission (the
"Commission")); or
B. a portfolio manager within the meaning of ss. 1(1) of
the Act which is carrying on business in B.C. and which
is registered or exempt from registration under the Act
and which is acting as agent for accounts that are
fully managed by it within the meaning of ss. 74(1)(b)
of the Act and NIN #97/11; or
C. a trust company, insurer or portfolio manager within
the meaning of BOR #97/4 issued by the Commission which
is acting, in the case of a trust company or insurer,
as agent or trustee or, in the case of a portfolio
manager, as agent, for accounts that are fully managed
by it within the meaning of BOR #97/4 and NIN #97/11;
and the Purchaser is also deemed to be acting as principal
under the analogous provisions of any other Securities Rules
having application;
(b) the Purchaser has not been formed, created, established or
incorporated for the purpose of permitting the purchase of the
Securities without a prospectus by groups of individuals whose
individual share of the aggregate acquisition cost for such Securities
is less than $97,000, if the beneficial purchaser is a resident of
British Columbia, Alberta, Manitoba, New Brunswick, Prince Edward
Island, Newfoundland or an International Jurisdiction, or $150,000 if
the beneficial purchaser is a resident of Saskatchewan, Ontario,
Quebec or Nova Scotia;
2
<PAGE> 3
(c) the Purchaser is resident of an "International Jurisdiction"
(which means a country other than Canada or the United States) and
the Purchaser further represents and warrants that:
(i) the Purchaser is knowledgeable of, or has been
independently advised as to, the applicable
Securities Rules of the International Jurisdiction
which would apply to this subscription, if there are
any;
(ii) the Purchaser is purchasing the Securities pursuant
to Exemptions under the Securities Rules of that
International Jurisdiction or, if such is not
applicable, the Purchaser is permitted to purchase
the Securities under the applicable Securities Rules
of the International Jurisdiction without the need
to rely on Exemptions; and
(iii) the applicable Securities Rules do not require the
Company to make any filings or seek any approvals of
any kind whatsoever from any regulatory authority of
any kind whatsoever in the International
Jurisdiction; and
the Purchaser will, if requested by the Company, deliver to the
Company a certificate or opinion of local counsel from the
International Jurisdiction which will confirm the matters referred
to in subparagraphs (ii) and (iii) above to the satisfaction of
the Company, acting reasonably;
(d) [intentionally left blank]
(e) the Purchaser acknowledges that the Company is relying on the
Exemptions in order to complete the trade and distribution of the
Securities and the Purchaser is aware of the criteria of the
Exemptions to be met by the Purchaser, and if applicable, the
Purchaser meets those criteria;
(f) the Purchaser acknowledges that because this subscription is being
made pursuant to the Exemptions:
(i) the Purchaser is restricted from using certain of
the civil remedies available under the applicable
Securities Rules;
(ii) the Purchaser may not receive information that might
otherwise be required to be provided to the
Purchaser under the applicable Securities Rule if
the Exemptions were not being used; and
(iii) the Company is relieved from certain obligations
that would otherwise apply under the applicable
Securities Rules if the Exemptions were not being
used;
3
<PAGE> 4
(iv) no securities commission, stock exchange or similar
regulatory authority has reviewed or passed on the
merits of the Securities;
(v) there is no government or other insurance covering
the Securities;
(vi) there are risks associated with the purchase of the
Securities;
(vii) there are restrictions on the Purchaser's ability to
resell the Securities and it is the responsibility
of the Purchaser to find out what those restrictions
are and to comply with them before selling the
Securities.
(g) the Securities are not being subscribed for by the Purchaser as a
result of any material information about the Company's affairs
that has not been publicly disclosed;
(h) the offer and sale of these Securities was not accompanied by an
advertisement and the Purchaser was not induced to purchase these
Securities as a result of any advertisement made by the Company;
(i) if the Purchaser is a corporation, the Purchaser is a valid and
subsisting corporation, has the necessary corporate capacity and
authority to execute and deliver this Agreement and to observe and
perform its covenants and obligations hereunder and has taken all
necessary corporate action in respect thereof, or, if the
Purchaser is a partnership, syndicate, trust or other form of
unincorporated organization, the Purchaser has the necessary legal
capacity and authority to execute and deliver this Agreement and
to observe and perform its covenants and obligations hereunder and
has obtained all necessary approvals in respect thereof, and, in
either case, upon the Company executing and delivering this
Agreement, this Agreement will constitute a legal, valid and
binding contract of the Purchaser enforceable against the
Purchaser in accordance with its terms and neither the agreement
resulting from such acceptance nor the completion of the
transactions contemplated hereby conflicts with, or will conflict
with, or results, or will result, in a breach or violation of any
law applicable to the Purchaser, any constating documents of the
Purchaser or any agreement to which the Purchaser is a party or by
which the Purchaser is bound;
(j) the Purchaser is not, and was not at any time that it purchased
the Securities or received an offer to purchase the Securities
pursuant to this subscription, a "U.S. Person" as defined in
Regulation S under the United States Securities Act of 1933, as
amended (the "U.S. Securities Act"), which definition includes,
but is not limited to, an individual resident in
4
<PAGE> 5
the 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;
(k) the Purchaser did not receive any term sheet, subscription from or
other offering materials in connection with this subscription in
the United States, and did not execute or deliver any such
subscription form or other materials in the United States;
(l) no offers of Securities were made by any person to the Purchaser
while the Purchaser was in the United States; and
(m) the Purchaser is not acquiring Securities, directly or indirectly,
for the account or benefit of a U.S. Person or a person in the
United States.
1.2. The company represents and warrants to the Purchaser, and acknowledges that
the Purchaser is relying on these representations and warranties in entering
into this Agreement, that:
(a) the Company is a valid and subsisting corporation duly
incorporated and in good standing under the laws of Nevada;
(b) the Company is not a reporting issuer in British Columbia and any
Securities issued to the Purchaser that are or become subject to
the laws of British Columbia (if any) will be subject to an
indefinite hold period in British Columbia unless an exemption
from the registration and prospectus requirements of the
Securities Act is available. Such an exemption may not be
available;
(c) the Company's subsidiaries (the "Subsidiaries"), if any, are valid
and subsisting corporations and in good standing under the laws of
the jurisdiction in which they were incorporated;
(d) the common shares of the Company are eligible for quotation on the
N.A.S.D. OTC Bulletin Board ("OTC");
(e) upon their issuance, the Shares (as defined below) will be validly
issued and outstanding fully paid and non-assessable common shares
of the Company registered as directed by the Purchaser, free and
clear of all trade restrictions (except as may be imposed by
operation of the applicable Securities Rules) and, except as may
be created by the Purchaser, liens, charges or encumbrances of any
kind whatsoever;
(f) upon their issuance, the Warrants (as defined below) will be
validly created, issued and outstanding, registered as directed by
the Purchaser, and, upon their issuance, the shares issued on the
exercise of the Warrants will be validly issued and outstanding
fully paid and non-assessable common shares of the Company
registered as directed by the Purchaser,
5
<PAGE> 6
and both will be free and clear of all trade restrictions (except
as may be imposed by operation of the applicable Securities Rules)
and, except as may be created by the Purchaser, liens, charges or
encumbrances of any kind whatsoever;
(g) the Company and its Subsidiaries, if any, hold all licenses and
permits that are required for carrying on their business in the
manner in which such business has been carried on and the Company
and its Subsidiaries, if any, have the corporate power and
capacity to own the assets owned by them and to carry on the
business carried on by them and they are duly qualified to carry
on business in all jurisdictions in which they carry on business;
(h) all prospectuses, exchange offering prospectuses, offering
memorandums, filing statements, information circulars, material
change reports, shareholder communications, press releases and
other disclosure documents of the Company including, but not
limited to, financial statements, contain no untrue statement of a
material fact as at the date thereof nor do they omit to state a
material fact which, at the date thereof, was required to have
been stated or was necessary to prevent a statement that was made
from being false or misleading in the circumstances in which it
was made;
(i) to the best of its knowledge, and except as publicly disclosed,
there are no material actions, suits, judgments, investigations or
proceedings of any kind whatsoever outstanding, pending or
threatened against or affecting the Company or its Subsidiaries,
if any, at law or in equity or before or by any Federal,
Provincial, State, Municipal or other governmental department,
commission, board, bureau or agency of any kind whatsoever and, to
the best of the Company's knowledge, there is no basis therefor;
(j) the Company has good and sufficient right and authority to enter
into this Agreement and complete its transactions contemplated
under this Agreement on the terms and conditions set forth herein;
and
(k) to the best of its knowledge, the execution and delivery of this
Agreement, the performance of its obligations under this Agreement
and the completion of its transactions contemplated under this
Agreement will not conflict with, or result in the breach of or
the acceleration of any indebtedness under, or constitute default
under, the constating documents of the Company or any indenture,
mortgage, agreement, lease, license or other instrument of any
kind whatsoever to which the Company is a party or by which it is
bound, or any judgment or order of any kind whatsoever of any
Court or administrative body of any kind whatsoever by which it is
bound.
6
<PAGE> 7
2. Subscription
2.1. The Purchaser hereby subscribes the subscription funds (the "Subscription
Funds") referred to below for and agrees to take up the units (a "Unit" or the
"Units") referred to below, where each Unit consists of one common share with a
par value of U.S. $0.001 in the capital stock of the Company (a "Share" or the
"Shares") and one-half of one non-transferable share purchase warrant (a
"Warrant" or the "Warrants"), at a price of U.S. $5.63 per Unit. Each whole
Warrant will entitle the Purchaser to subscribe for one additional common share
of the Company at a price of U.S. $5.63 per share at any time up to 5:00 p.m.
local time in Seattle, Washington on the first anniversary of the Closing Date,
and thereafter at a price of U.S. $6.75 per share at any time up to 5:00 p.m.
local time on the second anniversary of the Closing Date.
2.2. The Purchaser has delivered the Subscription Funds for the Securities
subscribed for in the form of solicitor's trust cheque, certified cheque, bank
draft, money order or wire transfer payable to "Campney & Murphy In Trust" as
the solicitors for and on behalf of the Company. Campney & Murphy will be
entitled to release the Subscription Funds on the terms set forth in Article 5
of this Subscription Agreement.
3. Covenants, Agreements and Acknowledgments
3.1. The Purchaser covenants and agrees with the Company to hold and not sell,
transfer or in any manner dispose of the Shares comprising the Units or any
shares acquired on the exercise of the Warrants comprising the Units unless the
sale, transfer or disposition is made in accordance with all applicable
Securities Rules.
3.2. The Purchaser acknowledges and agrees that the Shares comprising the
Units and any shares acquired on the exercise of the Warrants comprising the
Units will be subject to such trade restrictions as may be imposed by operation
of the applicable Securities Rules, and the share certificate or certificates
representing the Shares comprising the Units and any shares acquired on the
exercise of the Warrants comprising the Units will bear such legends as may be
required by the applicable Securities Rules. The Purchaser further acknowledges
and agrees that it is the Purchaser's obligation to comply with the trade
restrictions in all of the applicable jurisdictions and the Company offers no
advice as to those trade restrictions.
3.3. The Purchaser acknowledges that:
(a) the Securities have not been registered under the U.S. Securities
Act and are "restricted securities" within the meaning of Rule 144
under the U.S. Securities Act and may only be resold in accordance
with the provisions of Regulation S under the U.S. Securities Act,
pursuant to registration under the U.S. Securities Act, or
pursuant to an available exemption from such registration. The
Purchaser understands that the Company has no obligation or
present intention of filing a registration statement under the
U.S. Securities Act in respect of the Securities;
7
<PAGE> 8
(b) hedging transactions involving the Securities may not be conducted
unless in compliance with the U.S. Securities Act;
(c) there may be material tax consequences to the Purchaser of an
acquisition or disposition of Securities. The Company gives no
opinion and makes no representation with respect to the tax
consequences to the Purchaser under United States, state, local or
foreign tax law of the Purchaser's acquisition or disposition of
such securities;
(d) the certificates evidencing the Securities issued in this
subscription will bear a legend in substantially the following
form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND
MAY BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED OR ASSIGNED
ONLY (i) TO THE COMPANY; (ii) OUTSIDE THE UNITED STATES IN
ACCORDANCE WITH REGULATION S UNDER THE 1933 ACT; (iii) IN
ACCORDANCE WITH RULE 144 UNDER THE 1933 ACT; OR (iv) IN A
TRANSACTION THAT IS OTHERWISE EXEMPT FROM REGISTRATION UNDER THE
1933 ACT AND APPLICABLE STATE SECURITIES LAWS, PROVIDED, PRIOR TO
ANY SUCH SALE, TRANSFER OR ASSIGNMENT, THE COMPANY SHALL HAVE
RECEIVED AN OPINION OF COUNSEL IN FORM ACCEPTABLE TO THE COMPANY,
THAT NO VIOLATION OF SUCH REGISTRATION PROVISIONS WOULD RESULT
FROM ANY PROPOSED TRANSFER OR ASSIGNMENT. HEDGING TRANSACTIONS
INVOLVING THE SECURITIES REPRESENTED HEREBY MAY NOT BE CONDUCTED
UNLESS IN COMPLIANCE WITH THE U.S. SECURITIES ACT.";
(e) the Company is required to refuse to register any transfer of the
Securities not made in accordance with the provisions of the
Regulation S under the U.S. Securities Act, pursuant to
registration under the U.S. Securities Act, or pursuant to an
available exemption from such registration; and
(f) any person who exercised a Warrant will be required to provide to
the Company either:
(i) written certification that it is not a U.S. Person
and that such Warrant is not being exercised within
the United States or on behalf of, or for the
account or benefit of, a U.S. Person; or
(ii) a written opinion of counsel or other evidence
satisfactory to the Company to the effect that the
Warrants and the
8
<PAGE> 9
common shares issuable on the exercise of the
Warrants have been registered under the 1933 Act and
applicable state securities laws or are exempt from
registration thereunder.
3.4. The Company covenants and agrees with the Purchaser to file any documents
necessary to be filed under the applicable Securities Rules with respect to this
subscription within the required time.
4. [Intentionally left blank]
5. Closing
5.1. The Completion of the subscription contemplated under this Agreement
shall occur on or before October 4, 1999 or such later date agreed to in writing
by the parties hereto (the "Closing Date").
No later than the Closing Date, the Company shall deliver a treasury order (the
"Treasury Order") to its transfer agent sufficient to cause the transfer agent
to issue to the Purchaser a share certificate or certificates representing the
Shares and the Company shall issue a warrant certificate or certificates
representing the Warrants comprising the Units as provided for below by the
Purchaser.
5.2. The Purchaser and the Company hereby mutually agree that upon the Company
advising Campney & Murphy that the Company is in a position to satisfy the
closing conditions set forth in paragraph 5.1 and upon:
(a) the Company's transfer agent giving written confirmation to
Campney & Murphy that it has received the Treasury Order, will
prepare the share certificates representing the Shares and will
deliver such certificates to Campney & Murphy for delivery to the
Purchaser, or to the direction of the Purchaser; and
(b) the Company advising Campney & Murphy that it is holding the
warrant certificate for immediate delivery to, or to the direction
of, the Purchaser;
Campney & Murphy is irrevocably authorized and directed by the parties hereto to
release and deliver the Subscription Funds, together with any accrued interest
thereon, to the Company or for use as directed by the Company without prior
notice to, consent of or action by the Purchaser or the Company and that Campney
& Murphy can rely and act on this irrevocable direction as if it was a party to
this Agreement.
6. General
6.1. For the purposes of this Agreement, time is of the essence.
6.2. The parties hereto shall execute and deliver all such further documents
and instruments and do all such acts and things as may, either before or after
the execution of
9
<PAGE> 10
this Agreement, be reasonably required to carry out the full intent and meaning
of this Agreement.
6.3. This Agreement shall be subject to, governed by and construed in
accordance with the laws of Nevada.
6.4. This Agreement may not be assigned by either party hereto.
6.5. This Agreement may be signed by the parties in as many counterparts as
may be deemed necessary, each of which so signed shall be deemed to be an
original, and all such counterparts together shall constitute one and the same
instrument. A copy of this Agreement transmitted by facsimile shall be treated
and relied upon for all purposes by any person as an originally signed copy.
IN WITNESS WHEREOF the parties have executed this written Agreement effective as
of the Effective Date.
WESTERN FOOD DISTRIBUTORS, INC.
Per: /s/ Doug McLeod
---------------------------
Authorized Secretary
10
<PAGE> 11
TO BE COMPLETED BY THE PURCHASER:
A. Name and Address (Note: Cannot be a U.S. Address) The name and address (to
establish the Purchaser's jurisdiction of residence for the purpose of
determining the applicable Securities Rules) of the purchaser (the "Purchaser")
is as follows:
Savoy Holdings Limited
---------------------------------
Name
Suite 2B - Mansion House
---------------------------------
Street Address
143 Main Street
---------------------------------
Gibraltar
---------------------------------
Country
B. Registration Instructions (Note: Cannot be a U.S. Address) The name and
address of the person in whose name the Purchaser's Securities are to be
registered is as follows (if the name and address is the same as was inserted in
paragraph A above, then insert "N/A"):
N/A
---------------------------------
Name
---------------------------------
Street Address
---------------------------------
City and Province
---------------------------------
Country
---------------------------------
Postal Code
11
<PAGE> 12
C. Delivery Instructions (Note: Cannot be a U.S. Address) The name and address
of the person to whom the certificates representing the Purchaser's Securities
referred to in paragraph A above are to be delivered is as follows (if the name
and address is the same as was inserted in paragraph A above, then insert
"N/A"):
N/A
---------------------------------
Name
---------------------------------
Street Address
---------------------------------
City and Province
---------------------------------
Country
---------------------------------
Postal Code
D. Subscription Amount. The Minimum is Cdn. $97,000 if the Purchaser is a
resident (as per the address inserted in paragraph A above) of British Columbia,
Alberta, Manitoba, New Brunswick, Prince Edward Island, Newfoundland or an
International Jurisdiction, or Cdn. $150,000 if the Purchaser is a resident of
Saskatchewan, Ontario, Quebec or Nova Scotia:
Subscription Funds: U.S. $5,254,479
Number of Units: 933,300 Units (where each Unit consists
of one share and one-half of one share
purchase warrant. Each whole share
purchase warrant will entitle the
Purchaser to subscribe for one
additional common share of the Company
on the terms set forth in paragraph 2.1
of this Subscription Agreement).
Note: The number of Units must equal the Subscription Funds
divided by price of U.S. $5.63 per Unit.
12
<PAGE> 13
TO BE COMPLETED AND SIGNED BY THE PURCHASER:
SAVOY HOLDINGS LIMITED
Name of the "Purchaser" - use the name inserted in paragraph A above.
Per:
/s/
---------------------------------
Signature of Purchaser
Director
---------------------------------
Title (if applicable)
13
<PAGE> 1
Exhibit 16.1
David E. Coffey, Certified Public Accoutant
3651 Lindell Road, Suite H
Las Vegas, Nevada 89103
March 6, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read the section entitled "Item 14 Change in Accountants" in the
Registration Statement on Form 10 of Blue Zone, Inc. and I am in agreement with
the statements contained therein.
Sincerely,
/s/ David Coffey C.P.A.
.
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
- ------------------------------------- ----------------------------------- ------------------------------------
<S> <C> <C>
Name Jurisdiction of Organization Percent Owned by the Registrant
- ------------------------------------- ----------------------------------- ------------------------------------
Blue Zone Productions Ltd. British Columbia, Canada 100%
- ------------------------------------- ----------------------------------- ------------------------------------
Blue Zone Entertainment Inc. British Columbia, Canada *
- ------------------------------------- ----------------------------------- ------------------------------------
Blue Zone International Inc. Barbados *
- ------------------------------------- ----------------------------------- ------------------------------------
</TABLE>
- ------------
* 100% owned by Blue Zone Productions Ltd.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1999 JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<CASH> 4,079,869 891 12,375
<SECURITIES> 0 0 0
<RECEIVABLES> 97,600 0 5,834
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 4,359,254 1,449 19,313
<PP&E> 544,263 61,369 56,831
<DEPRECIATION> 118,667 20,912 31,052
<TOTAL-ASSETS> 4,784,850 41,906 83,381
<CURRENT-LIABILITIES> 595,677 52,714 66,835
<BONDS> 0 0 0
0 0 0
0 5 5
<COMMON> 21,538 7 7
<OTHER-SE> 4,167,635 (10,820) 16,534
<TOTAL-LIABILITY-AND-EQUITY> 4,784,850 41,906 83,381
<SALES> 883,137 774,830 342,120
<TOTAL-REVENUES> 883,137 774,830 342,120
<CGS> 0 0 0
<TOTAL-COSTS> 370,803 144,419 51,759
<OTHER-EXPENSES> 1,934,665 663,299 304,984
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 23,984 1,592 0
<INCOME-PRETAX> (1,422,331) (32,888) (14,623)
<INCOME-TAX> 0 (4,431) 2,431
<INCOME-CONTINUING> (1,422,331) (28,457) (17,054)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (1,422,331) (28,457) (17,054)
<EPS-BASIC> (0.09) 0 0
<EPS-DILUTED> (0.09) 0 0
</TABLE>
