UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT No. 1 FORM 20-F
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XXX REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
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OF THE SECURITIES EXCHANGE ACT OF 1934
OR
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___ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
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___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ________
Commission File Number: _0-30610
SoftCare EC.com Inc.
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(Exact name of Registrant as specified in its charter)
British Columbia, Canada
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(Jurisdiction of incorporation or organization)
Suite 107, 980 West 1st Street, North Vancouver, British Columbia,
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Canada V7P 3N4
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(Address of principal executive offices)
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
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Common Shares, without par value
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(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common shares as of the close of the period covered by the annual
report. January 31, 2000: 14,550,028
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 12 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days. Yes No XXX
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Indicate by check mark which financial statement item the registrant has elected
to follow: Item 17 XXX Item 18
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Page 1 of 630
Index to Exhibits on Page 87
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SOFTCARE EC.COM INC.
TABLE OF CONTENTS
PART I
Page
Item 1. Description of Business 3
Item 2. Description of Property 47
Item 3. Legal Proceedings 48
Item 4. Control of Registrant 49
Item 5. Nature of Trading Market 50
Item 6. Exchange Controls and Other Limitations 52
Affecting Security Holders
Item 7. Taxation 54
Item 8. Selected Financial Data 66
Item 9. Management's Discussion and Analysis of
Financial Condition and Results of Operations 68
Item 10. Directors and Officers of Registrant 75
Item 11. Compensation of Directors and Officers 77
Item 12. Options to Purchase Securities from Registrant
or Subsidiaries 78
Item 13. Interest of Management in Certain Transactions 80
PART II
Item 14. Description of Securities to be Registered 82
PART III
Item 15. Defaults Upon Senior Securities 86
Item 16. Changes in Securities and Changes in Security
for Registered Securities 86
PART IV
Item 17. Financial Statements 86
Item 18. Financial Statements
Item 19. Financial Statements and Exhibits 87
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Introduction
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SoftCare EC.com Inc. (hereinafter also referred to as the "Company" or the
"Registrant") is a Canadian-based software company specializing in electronic
commerce ("EC") software and electronic data interchange ("EDI") solutions for
businesses. The Company was incorporated on March 30, 1981, under the laws of
the Province of British Columbia and was originally known as Burmac Energy
Corporation.
From the date of its incorporation to mid-1997, the Company was in the business
of exploring and developing natural resource properties. The Company was
inactive from mid-1997 until April 1999 when it entered into a share purchase
agreement ("Share Purchase Agreement") to acquire (the "Acquisition") all of the
issued and outstanding common shares of SoftCare Electronic Commerce Inc.
("Softcare"), a private company incorporated in British Columbia, Canada. The
Acquisition, which constituted a reverse takeover under the rules of the former
Vancouver Stock Exchange, was completed in June 1999. The name of the Company
was changed to SoftCare EC.com, Inc., effective June 10, 1999.
Upon completion of the Acquisition, the business of SoftCare became the
operational business for the Company. The Company's current business involves
the development, marketing, sale and support of its software products and
services.
The Company's head and principal office is located at Suite 107--980 West 1st
Street, North Vancouver, British Columbia, Canada V7P 3N4. The contact person is
Martyn Armstrong, President and Director. The telephone number is (604)
983-8083; the facsimile number is (604) 983-8056. The Company's registered and
records office is located at 2100-1111 West Georgia Street, Vancouver, British
Columbia, V7X 1K9 Canada.
The Company's authorized capital consists of 100,000,000 common shares without
par value. As of November 30, 1999, the Company had a total of 14,466,428 common
shares issued and outstanding. At the close of business on March 30, 2000, there
were 15,287,428 common shares issued and outstanding. Shares were issued upon
the conversion into common shares of the special warrants distributed pursuant
to the Acquisition and the Private Placement (the "Private Placement") of the
special warrants that
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completed concurrently with the Acquisition and upon the exercise of warrants.
1,000,000 of these shares were issued to the SESB Trust for employees of the
Company; however, these Trust shares will not be distributed to the employees
until certain sales performance targets are met.
The legal subsidiary and deemed acquiror, Softcare, originally had a fiscal year
end of May 31. Its annual consolidated financial statements were completed on
this basis for the years ended May 31, 1995 and May 31, 1996. On February 1,
1997, Softcare amalgamated with its holding company, Norgate Holdings Inc. and
changed its fiscal year end to December 31.
On June 30, 1999, the Board of Directors of the Company passed a resolution
changing the fiscal year end of the Company and of SoftCare to May 31, effective
May 31, 1999. It provided written notification to the British Columbia
Securities Commission ("BCSC") that it was changing its fiscal year end as such.
The BCSC accepted the change and requires that the Company's next annual audited
financial statements be for the year ended May 31, 2000, with comparatives for
the 5 months ended May 31, 1999 and 12 months ended December 31, 1998. All
subsequent consolidated financial statements will be for the years ending May 31
with comparative figures of the relevant prior period.
Subsequent to the reverse take-over transaction, the Company pursued the filing
of its Form 20F with the US Securities and Exchange Commission ("US SEC"). As it
only had 23 consecutive months of audited financial statements available
(February 1, 1997 to December 31, 1998), KPMG LLP was engaged to audit
Softcare's financial statements for the full 12 months ended December 31, 1997,
plus the 9 nine months ended September 30, 1999. The audited financial
statements presented in the Form 20F therefore cover 33 months, from January 1,
1997 to September 30, 1999.
The November 30, 1999 consolidated financial statements are for the 6-month
period (June 1, 1999 to November 30, 1999) then ended and were filed with the
BCSC as required by reporting entities. These consolidated financial statements
were included with the Form 20F because they were issued subsequent to the
September 30, 1999 financial statements and prior to the filing of the Form 20F.
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RECENT EVENTS
The following events occurred subsequent to the original filing of this document
on March 9, 2000:
$5.6 Million Special Warrant Financing
On March 30, 2000, the Company completed a Special Warrant financing raising
gross proceeds of $5,606,250. A total of 1,495,000 Special Warrants were placed
at a price of $3.75 per Special Warrant. Each Special Warrant is exercisable,
without further payment, into one Common Share and one half of a share purchase
warrant. Two such half share purchase warrants will entitle the holder to
purchase one additional Common Share at a price of $4.25 per share. Each unit is
subject to a hold period and may not be traded until July 29, 2000, with the
Warrant having to be exercised prior to its expiry date one year from the
closing date of the financing. If all of the warrants are exercised, the maximum
gross proceeds from the exercise of the Warrants would raise an additional
$3,176,875.
The proceeds from this Special Warrant financing will be used to advance the
implementation of the Company's long term business objectives. These objectives
include continuing to forge e-business relationships, enabling the Company to
further secure its position as a leader in the business to business e-commerce
vertical market place.
A copy of the Agency Agreement - Special Warrant Private Placement has been
incorporated in this document as Exhibit 6.C.
New Corporate Officer
On April 1, 2000, Ross Casabonne was appointed as Vice President of Latin
American business development.
Acquisition of Financial Management Group, LLC ("FMG")
On April 13, 2000, the Company completed the acquisition, subject only to
regulatory approval, of a 100 percent interest in Financial Management Group LLC
(FMG), a Nevada Limited Liability Company. FMG provides software solutions to
the credit counseling industry with its proprietary software, Credisolv. With
its purchase of FMG, the Company intends to create a Net Market Maker to operate
a credit counseling vertical portal. The acquisition of FMG is expected to
provide ongoing transaction fees to the Company. The Company intends to connect
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portal, a move which it believes will benefit customers of the Company's OpenEC
Credit Counseling Portal.
Details of the transaction are outlined in Schedule C, included with this
document, and in the purchase agreement, incorporated as Exhibit 6.D. in this
document.
The Company's common shares trade on the Canadian Venture Exchange
("CDNX")(formerly the Vancouver Stock Exchange, "VSE") under the symbol "SCE".
The Company's consolidated financial statements are stated in Canadian Dollars
("CDN$") and are prepared in accordance with Canadian Generally Accepted
Accounting Principles ("GAAP"), the application of which, in the case of the
Company, conforms in all material respects for the periods presented with U.S.
GAAP, except as noted in the notes to the financial statements included herein.
In this Registration Statement, unless otherwise specified, all dollar amounts
are expressed in Canadian Dollars. References in this document to "$" and "CDN$"
refer to Canadian dollars, unless otherwise specified; references to "U.S.$"
refer to U.S. dollars.
The Government of Canada permits a floating exchange rate to determine the value
of the Canadian Dollar against the U.S. Dollar ("U.S.$").
Table No. 1 sets forth the rate of exchange for the Canadian Dollar. For
purposes of this table, the rate of exchange means the noon buying rate in New
York City for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York. The table sets forth the
number of Canadian Dollars required under that formula to buy one U.S. Dollar.
The average rate means the average of the exchange rates on the last day of each
month during the period.
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Table No. 1
U.S. Dollar/Canadian Dollar
Average Close High Low
Six Months Ended 11/30/99 $1.73 $1.47 $1.51 $1.45
Six Months Ended 11/30/98 $1.77 $1.52 $1.58 $1.43
Nine Months Ended 9/30/99 $1.48 $1.47 $1.52 $1.45
Year Ended 12/31/98 $1.40 $1.46 $1.34 $1.42
Year Ended 12/31/97 $1.36 $1.38 $1.34 $1.38
Seven Months Ended 12/31/96 $1.36 $1.42 $1.33 $1.36
Year Ended 05/31/96 $1.35 $1.36 $1.37 $1.34
Year Ended 05/31/95 $1.37 $1.36 $1.41 $1.35
The value of the U.S. Dollar in relation to the Canadian Dollar was 1.44 as of
01/31/00. The value of the U.S. Dollar in relation to the Canadian Dollar was
1.45 as of 02/29/00.
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Background
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Incorporation Data
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The Company was incorporated under the laws of the Province of British Columbia
on March 30, 1981, under the name Burmac Energy Corporation. In February 1991,
the Company changed its name to Bus Holdings Corp.; the name was changed to
Savannah Ventures Ltd., effective November 17, 1997, and to International
Savannah Ventures Ltd., effective December 1, 1998. In June 1999, the Company
acquired all of the issued and outstanding shares of SoftCare. The name of the
Company was changed to SoftCare EC.com Inc., effective June 10, 1999. The
Company consolidated its share capital on a 7:1 basis effective as of February
7, 1991 and on a 6:1 basis effective as of December 1, 1998.
Historical Corporate Development
From the date of incorporation to mid-1997, the Company was involved in the
exploration and development of natural resource properties. In mid-1997, the
Company abandoned its mineral properties and began seeking alternate business
opportunities. The write-off of the Company's six mineral properties in
Indonesia and related deferred exploration costs occurred in fiscal 1998. In
June 1999, the Company's efforts to shift its business focus to electronic
commerce ("EC") culminated in the acquisition of SoftCare.
The Company carries on its business primarily through direct and indirect
subsidiaries. The subsidiaries of the Company are:
1. SOFTCARE ELECTRONIC COMMERCE INC. ("SoftCare"), a wholly owned
subsidiary, that resulted from the amalgamation, effective February 1,
1997, of Softcare Consulting Inc. and Norgate Holdings Inc. Norgate
Holdings Inc., incorporated November 30, 1989, and Softcare Consulting
Inc., incorporated December 11, 1989, were both private British
Columbia companies. The Company and Softcare carry on business from the
office at Suite 107-980 West 1st Street, North Vancouver, British
Columbia Canada V7P 3N4.
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2. SCEC HOLDINGS LTD. ("SCEC Holdings"), a wholly owned subsidiary of
SoftCare, incorporated on February 6, 1998, under the laws of the
Province of British Columbia, having an office at Suite 107-980 West
1st Street, North Vancouver, British Columbia V7P 3N4.
3. SCC HOLDINGS LTD. ("SCC Holdings"), a wholly owned subsidiary of
SoftCare, incorporated on June 13, 1995, under the laws of the Province
of British Columbia, having an office at Suite 107-980 West 1st Street,
North Vancouver, British Columbia V7P 3N4.
4. SOFTCARE ELECTRONIC COMMERCE (U.S.A.) INC. ("SoftCare U.S.A."), a
wholly owned subsidiary of SoftCare, incorporated on August 7, 1998,
under the laws of the State of Washington, having an office at 1022
North G Street Tacoma, Washington 98403.
The Company also owns 100 percent of Bus Holdings Corporation, a Company
incorporated under the laws of Anguilla. Bus Holdings Corporation is not
commercially active, has no assets or liabilities, and has been effectively
abandoned by the Company.
On April 13, 2000, the Company completed the acquisition of Financial Management
Group LLC ("FMG").
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Diagram of Legal Parent and Subsidiaries
SoftCare EC.com Inc. (1)
(a British Columbia corporation)
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SoftCare Electronic Commerce Inc.(2) Financial
(a British Columbia corporation) Management Group LLC
(6)(a Nevada LLC)
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SCEC Holdings Ltd. (3) SCC Holdings Ltd. (4) SoftCare Electronic
(a British Columbia (a British Columbia Commerce(U.S.A.)Inc.(5)
corporation) corporation (a Washington corporation)
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(1) On June 18, 1999, the Company acquired SoftCare and SoftCare's three
wholly owned subsidiaries namely, SCEC Holdings, SCC Holdings and
Softcare U.S.A.
(2) By Articles of Amalgamation dated February 1, 1997, Norgate Holdings
Inc. and SoftCare Consulting Inc. amalgamated and continued under the
name Softcare Electronic Commerce Inc.
(3) SCEC Holdings was incorporated on February 6, 1998 under laws of the
Province of British Columbia.
(4) SCC Holdings was incorporated on June 13, 1995 under the laws of the
Province of British Columbia.
(5) SoftCare U.S.A. was incorporated on August 7, 1998 under the laws of
the State of Washington.
(6) On April 13, 2000 the Company acquired, subject to regulatory approval,
Financial Management Group LLC, a Nevada limited liability corporation.
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Acquisition of SoftCare Electronic Commerce Inc.(SoftCare)
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Effective April 15, 1999, the Company entered into the Share Purchase Agreement
with SoftCare, the shareholders of SoftCare (the "SoftCare Shareholders") and
Sedun De Witt Capital Corporation ("SDW"). Under the terms of the Share Purchase
Agreement, the Softcare Shareholders agreed to sell all of the issued and
outstanding common shares in Softcare to the Company in exchange for 11,000,000
special warrants ("Special Warrants") issued by the Company. Each Special
Warrant was exercisable, for no additional consideration, into one common share
in the share capital of the Company.
Of the 11,000,000 Special Warrants, 10,000,000 were issued to the SoftCare
Shareholders and 1,000,000 Special Warrants were issued, in trust, to Martyn
Armstrong, the President of SoftCare and Wayne Zielke, the Chief Financial
Officer of SoftCare, as trustees (the "Trustees") for certain SoftCare employees
pursuant to a trust agreement. The Special Warrants were converted after the
British Columbia Securities Commission (the "Commission") issued a receipt, on
October 21, 1999, for the Company's Annual Information Form. The common shares
issued to Martyn Armstrong and Wayne Zielke as Trustees will not be distributed
to the employees until certain sales performance targets are achieved.
Under the rules and policies of the former Vancouver Stock Exchange (the "VSE"),
the Acquisition and the related transactions described in the Share Purchase
Agreement constituted a "reverse takeover" and were approved by the VSE.
Pursuant to the Share Purchase Agreement, the Company entered into the following
agreements:
1. A sponsorship agreement dated April 15, 1999 between the Company and
Canaccord Capital Corporation (the "Agent") setting out the terms upon
which the Agent agreed to provide member sponsorship services to the
Company.
2. A voluntary pooling agreement dated effective June 28, 1999 between the
Company, the SoftCare shareholders, SDW and Pacific Corporate Trust
Company. The pooling agreement outlined the conditions under which the
common shares of the Company received by the SoftCare shareholders upon
the exercise or deemed exercise of the Special Warrants were to be
restricted from trading on any stock exchange and the timing of the
release of these shares from the voluntary pool.
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3. A corporate advisory agreement made as of June 18, 1999 between the
Company and SDW pursuant to which it agreed to provide the Company with
certain corporate and advisory services. The Company agreed to pay SDW
a fee of $10,000 per month for a term of 12 months at which time the
agreement may be renewed.
4. An employment agreement dated April 15, 1999 between the Company and
Martyn Armstrong (the "Armstrong Employment Agreement"), pursuant to
which the Company employs Mr. Armstrong to act as President of the
Company and Mr. Armstrong receives from the Company a gross annual
salary of $220,000 per annum payable in equal monthly installments. The
Armstrong Employment Agreement has a three year term and is
automatically renewed thereafter from year to year, subject to the
ability of either the Company or Mr. Armstrong to decline to renew by
giving written notice thirty days prior to the renewal date. The
Armstrong Employment Agreement includes confidentiality provisions and
non-competition clauses. It can also be terminated by the Company upon
18 months written notice by the Company to Mr. Armstrong, or upon
payment of salary in lieu of such notice (see Item 11, Compensation of
Directors and Officers).
5. A corporate advisory agreement dated May 19, 1999 between the Company
and Golden Capital Securities Ltd. ("Golden") pursuant to which Golden
agreed to provide the Company certain corporate and advisory services
with respect to the Acquisition and the Company agreed to pay to Golden
the sum of $25,000 plus 16,666 special warrants (the "Golden Special
Warrants"), exercisable, without any additional consideration, into
16,666 common shares of the Company.
6. A finder's fee agreement dated May 19, 1999 between the Company and
Michael Townsend pursuant to which the Company agreed to issue 35,000
special warrants to Michael Townsend (the "Townsend Special Warrants")
exercisable, without any additional consideration, into 35,000 common
shares of the Company as a finder's fee upon the completion of the
Acquisition; and
7. Stock option agreements made between the Company and each of Martyn
Armstrong, Gregg Sedun, David De Witt, Wayne Zielke, and Doug
Sarkissian each dated June 18, 1999.
Concurrent with the closing of the Acquisition, the Company completed a brokered
private placement (the "Private Placement")
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with the Agent of 2,000,000 special warrants (the "Private Placement Special
Warrants") at $1.50 cash per Private Placement Special Warrant. Each Private
Placement Special Warrant was exercisable, for no additional consideration, into
a unit ("Unit"). Each Unit consisted of one share and one share purchase warrant
(a "Private Placement Warrant") which entitled the holder to purchase one
additional common share for $2.50 cash. The Private Placement Warrants are
non-transferable and expire on June 18, 2000. As at March 30, 2000, 591,600 of
the Private Placement Warrants had been exercised for net cash proceeds of
$1,479,000.
In order to complete the Private Placement, the Company entered into an agency
agreement (the "Agency Agreement") dated April 23, 1999 between the Company and
the Agent. Under the terms of the Agency Agreement, the Agent received a cash
commission of $167,670, plus 186,300 special warrants (the "Agent's Special
Warrants"), a sponsorship fee of $15,000 cash and a corporate finance fee of an
additional 10,000 Agent's Special Warrants. Each Agent's Special Warrant is
convertible, for no additional consideration, into a share purchase warrant
entitling the Agent to purchase one common share of the Company at $1.50 and
expires on June 18, 2000. As at March 30, 2000, 14,000 of these share purchase
warrants had been exercised for net cash proceeds of $21,000.
The Company completed the Acquisition and the Private Placement on June 18, 1999
(the "Closing Date").
Annual Information Form
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The Company filed an Annual Information Form ("AIF") for the fiscal period ended
June 30, 1999, with the British Columbia Securities Commission (the
"Commission") and received a receipt from the Commission on October 21, 1999.
After a receipt was issued for the Company's AIF, the Special Warrants and the
Private Placement Special Warrants were converted into common shares and Units
respectively. 10,000,000 common shares of the Company were issued to the
Softcare Shareholders and 1,000,000 common shares of the Company were issued to
the Trustees upon the conversion of the Special Warrants issued for the
Acquisition, 51,666 common shares of the Company were issued upon the conversion
of Special Warrants issued for services rendered and 2,000,000 Units, each
consisting of one common share of the Company and one Private Placement Warrant,
were issued upon conversion of the Private Placement Special Warrants.
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Pooling Agreement
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Under the terms of the Share Purchase Agreement, the common shares issued upon
the exercise or deemed exercise of the Special Warrants, other than those issued
to the Trustees in their role as trustees, are subject to the voluntary pooling
agreement ("Pooling Agreement"). The Pooling Agreement restricts the holders
from trading their shares in the Company on any stock exchange until such time
as they are released from the pool. Pursuant to the terms of the Pooling
Agreement, approximately 9,000,000 of the common shares are to be released on
the following basis: 10% will be released six months after completion of the
Acquisition, June 18, 1999, and 30% are to be released on each of 12, 24 and 36
months after the June 18, 1999. The balance of approximately 1,000,000 common
shares are to be released on the following basis: 25% are to be released on each
of six, 12, 18, and 24 months from June 18, 1999.
To March 30, 2000, 1,222,442 common shares have been released and are no longer
subject to the terms of the Pooling Agreement.
Loans
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Upon execution of the Share Purchase Agreement, the Company loaned SoftCare
$250,000 for SoftCare's business operations. The Company also agreed to loan
SoftCare, subject to VSE approval, an additional $250,000 for SoftCare's
business operations, within 60 days of the execution of the Share Purchase
Agreement. The loans were to be due and payable, together with accrued interest
at commercial prime lending rate plus 2% per annum, five business days after the
Closing Date, provided that Softcare could at its option, prior to the due date,
convert the loans into an additional 5% of the then outstanding shares of
SoftCare. In this event, all accrued interest would be converted into common
shares of SoftCare on the same date and at the same price per share as the
principal amount of the loan.
Because the Acquisition of Softcare has been completed, the terms of these loans
are no longer in force. They now remain as inter-company loans without repayment
terms.
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Escrow Shares
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As part of its consent to the Acquisition, the VSE agreed that 124,998
previously issued common shares of the Company could be released from certain
escrow provisions. These shares were released from escrow on June 18, 1999.
To March 30, 2000, no shares of the Company are held in escrow.
Options
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Under the terms of the Share Purchase Agreement, 197,557 options to acquire
additional common shares of SoftCare were exchanged for 800,000 options (the
"Company Options") to acquire common shares of the Company. The Company Options
are exercisable at a price of $1.50 per share and expire in April 2004. None of
the Company Options have been exercised to March 30, 2000.
The Company granted an additional 350,000 options, exercisable at $1.50 per
share, to certain directors, officers, employees and consultants of the Company.
A portion of the common shares issued upon the exercise of these options was
used to satisfy the distribution requirements of the VSE. On June 18, 1999,
250,000 options held by directors, officers and employees were exercised for
250,000 common shares of the Company. The remaining 100,000 options, held by a
consultant, were not exercised and were canceled by mutual consent on November
12, 1999.
In November 1999, 100,000 options were granted to a consultant with an exercise
price of $1.50 per share. Of these, 10,000 were exercised in February 2000. As
of March 30, 2000, 90,000 options remain unexercised.
In February 2000, 100,000 options were granted to a director with an exercise of
$3.90 per share. As of March 30, 2000 they all remain unexercised.
Also under the terms of the Share Purchase Agreement, the Company's board of
directors, other than Gregg Sedun, and the officers of the Company, resigned
their positions. To date, the Company's new board of directors is comprised of
Martyn Armstrong, President and Director, Wayne Zielke, Director, and Gregg
Sedun, Director. On February 1, 2000 Randall M. Pierson was appointed as an
additional director of the Company.
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Glossary
"EC" (Electronic Commerce) means the direct electronic interaction between two
computer applications, or between a person using a computer (typically a Web
Browser) and a computer (typically a server), where the interaction involves the
completion of a transaction or part of a transaction, and where the transaction
crosses enterprise boundaries (either business to business or business to
consumer).
"EDI" (Electronic Data Interchange) is a direct application to application
exchange of information, using well-defined, tightly specified message formats
and industry standards. It is usually completed using a store-and-forward
messaging system through an intermediary or Value Added Network ("VAN").
Traditional business to business transactions such as delivery of invoices, late
payment notices and purchase orders are carried out using EDI.
"IDE" (Internet Development Environment) is a software tool and an environment
that simplifies the development and deployment of Internet based applications.
"Legacy Applications" means applications that are significant to the operation
of a business, but which lack the features or ability to take advantage of
current technologies.
"Object Library" means a consolidation of the components of all developed
program code, which is to be shared and re-used by other software engineers.
"Portable", when used with respect to software code, means software code written
on a specific operating system and which can be used, without modification, in
different operating systems.
"SDK" (Software Developer's Kit) is a series of tools used by software
developers to assist in the integration of various product solutions. These
tools can include other products, documentation, sample programs and templates.
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BUSINESS
Business of SoftCare
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SoftCare was founded in 1989 by Martyn Armstrong, President of the Company, to
provide EDI software and services to businesses of all sizes. SoftCare, having
evolved from a small EDI consulting group to, in the early 1990s, an EDI
software vendor with approximately 140 customers across Canada, the United
States and Asia. More recently, SoftCare has adapted its experience and advanced
software engineering to focus on e-commerce.
In 1992, SoftCare developed and began marketing its first EDI product,
TradeLink, which enables the electronic transmission of business documents.
TradeLink has been installed in more than 150 companies in six countries. Some
of SoftCare's largest customers from around the world include:
o Credit Union Central of British Columbia, Canada (Canadian)
o Radio Shack, (a Division of InterTan Canada, Ltd.) (Canadian)
o Konings Warehouse Sysco (U.S.)
o Deluxe Electronic Payment Systems, Inc. (U.S.)
o Korean Development Bank (Korea)
o Korean Trade Network (Korea)
In July 1996, SoftCare entered into a Cooperation Agreement with TRW Inc., an
Ohio-based manufacturer of products and services for the automotive, space,
defense and information management markets. Pursuant to the Cooperation
Agreement, SoftCare developed and completed an Intranet and Internet electronic
commerce software product family for communications, message switching, e-mail,
fax, EDI, audit and service billing, known as Open|EC. The product was supplied
by TRW to ADFIAP Global Data Interchange Network (ANET), a Southeast Asian
communications network for approximately 78 banks and their customers.
After completion of the ANET contract in mid-1998, SoftCare was paid in full,
including a performance bonus totaling approximately $1.4 million. TRW
subsequently failed to continue to pursue the intended marketing and development
activities proposed in the Cooperation Agreement.
The Cooperation Agreement was terminated by SoftCare by a Notice of Termination
made pursuant to a provision of the Cooperation Agreement. Under the terms of
the Cooperation Agreement, the
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Termination Notice provides the party in breach a minimum of 30 days to cure the
breach. The 30-day period ended May 19, 1999, during which time TRW did not
respond. TRW and SoftCare have not pursued additional business opportunities
since that date.
After completion of the ANET project, SoftCare developed a new line of
electronic commerce software packaged as the Open|EC Electronic Commerce
Platform. Softcare began shipping this product in April 1999. It has been
installed in three customer sites.
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Electronic Commerce Software and Electronic Data Interchange
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Industry Overview
EC and EDI are integral elements of corporate interaction and communication in
today's global electronic marketplace. Companies interact daily with customers,
suppliers, trading partners and divisions that are both domestic and
international. These organizations increasingly need to exchange information and
require their computer systems to have the ability to effect the information
exchange.
Facilitating the exchange of electronic information between diverse computer
systems is a highly complex process. Computers running different software
programs, created by different vendors, at different times, for different
purposes, and in different languages, will not communicate unless specialized
software and systems are created that will allow seamless electronic interchange
to take place. This need to communicate between incompatible systems is being
answered through the implementation of new EC and EDI standards, software and
systems. EC essentially involves conducting business transactions electronically
using computers and telecommunication networks. EDI is an essential component of
EC that involves the electronic exchange of information in structured formats
that enable dissimilar systems to communicate accurately.
EC and EDI are important to large companies and have resulted in tremendous cost
and time efficiencies. Proponents and users of EDI range from small domestic and
multinational businesses, to large banking and financial institutions, retail
chains and the United States government.
The traditional focus of EDI programs has been the replacement of paper business
forms, such as purchase orders and invoices, with similar electronic forms. More
recently, the focus of EDI programs has been advancing to include more strategic
uses among multiple companies such as supply chain management, just-in-time
manufacturing, efficient customer response and vendor managed inventory. EDI is
no longer merely a mechanism to transmit electronic documents. Instead, EDI can
move information between computer systems allowing them to automatically perform
core business functions, both intra- and inter-company. The motivations to
implement EDI are compelling and include one-time data entry; reduced clerical
workload and elimination of paper
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records; rapid, accurate and secure exchange of business data; and reduced
operating and inventory carrying costs.
The Business to Business Electronic Commerce Industry
- -----------------------------------------------------
More and more businesses today are using the Internet as an electronic
communication highway, transferring corporate information quickly and
conveniently, both domestically and internationally, accessing industry data and
research while using the Internet to deliver solutions to customers
cost-effectively. The Internet's scope is broad, spanning the spectrum from
private intranets through shared extranets to the public Internet. The Internet
brings together customers, vendors, suppliers and employees in a way never
before possible. In short, the Internet efficiently connects valuable
information to the people who need it.
Electronic business communication presents abundant opportunities. Companies
around the world already buy and sell over the Internet. However, there are
challenges these companies face with this new electronic communication vehicle,
including problems with security, scalability and reliability. These problems
are real, but are surmountable by partnering with organizations who have the
ability to provide all of the benefits the Web has to offer, but also the
expertise to deploy measures that will ensure a safe and reliable Internet
experience for their clients. In addition, electronic business means much more
than e-commerce for leading edge companies. It also involves reinventing
business processes, redefining business models, changing corporate cultures and
establishing new levels of intimacy with suppliers and customers.
Electronic business offers the potential of increased profits by extending the
best benefits of internal information technology processes, simplified sharing
of critical data and lower organizational barriers, beyond a company's walls and
into the operations of its customers, suppliers and business partners.
Electronic business success requires, and is causing to occur, fundamental
changes in organizations, corporate behavior and business thinking, both inside
and outside the company. These changes are continuing to gain momentum.
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Industry Market Opportunities
1. Financial services - Because money is not a physical good, money and
all information regarding money can be moved around the Internet very
efficiently.
2. EC Software and services - The Company perceives a strong demand for
software and services that will enable existing companies to take
advantage of electronic commerce.
3. Development of Electronic Commerce Infrastructures - Applications that
allow companies to rapidly implement and manage electronic commerce
programs that connect customers, vendors, distribution channels as well
as internal company resources. Key applications include order
processing, purchasing, distribution, logistics and payments and cash
management.
4. Business to Business Electronic Commerce - The business to business ("B
to B") sectors of electronic commerce enable the building of electronic
business relationships between companies. This differs from the
business to consumer model in that it allows for a wider range of
business processes across different industries. These include EDI,
Electronic Funds Transfer, Online Catalogs, Order Entry, Order
Fulfillment and Order Management along with dissemination of a wide
range of business information to the distribution channel.
Industry Implementation
Most medium and smaller businesses have not incorporated EC and EDI systems into
their operations because of the complexity and high cost of setting up EDI
systems. The EDI Group, Ltd. estimates that, of the three million U.S. companies
with five or more employees, approximately 120,000 are using EDI. Forrester
Research, Inc. reported a similar finding that, of two million companies with
ten or more employees, 100,000 chose to implement EDI, leaving the remaining 1.9
million companies as potential EDI participants.1 To facilitate EDI use by these
smaller companies, software systems are needed which can automatically configure
and deliver accurate communications with a minimum of user attention. To date,
these solutions have been available only to large companies who can afford the
costs associated with
- ----------
1 Technology Forecast: 1997, Price Waterhouse World Firm Services BV, Inc.,
1997, at ss. 6.1 ("Electronic Commerce"), page 369.
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the custom design requirements. Additionally, there is a need for open systems
standards, low cost software solutions and companies with the expertise to
expand market acceptance rapidly for the small to mid-size company users.
Product Overview
- ----------------
SoftCare's products focus on EC and EDI, and are marketed as a suite of software
modules within the Company's Open|EC Electronic Commerce platform.
In recent years, technology and telecommunications infrastructures have become
potentially available and affordable for thousands of businesses worldwide that
could not previously benefit from the advantages of EC and EDI. The Company's
Open|EC products extend EDI business processes to non-EDI business partners,
allowing companies to conduct business to business electronic commerce,
regardless of whether one or both is enabled. Features of the Company's Open|EC
products, which are based on SoftCare's original EDI product and the Open|EC
project with TRW include:
Flexible solutions - Flexible solutions are those that will grow with the
company, are cost effective for entry level businesses, and can be upgraded to a
full-featured service, supporting thousands of customers and transactions.
Scaleable products - Products that are functional and will "scale" easily in
terms of capability of performing across a wide range of applications and
platforms, from stand alone entry level Web forms to high volume clearing house
operations, or value added networks.
Upgradeable technology - Products that are compatible and upgradeable to meet
changing product technology and customer demands, thereby providing an
opportunity for long-term cost savings.
Open systems technology - Products that are designed to run on a wide range of
industry standard hardware and software, including JAVA, COBA, OBI, XML, X12,
UNIX, Windows, and NT, providing maximum flexibility in the choice of operating
platforms.
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Open|EC - The Open Electronic Commerce Platform
The Open|EC Electronic Commerce Platform is software that integrates the
following EC products and technologies, allowing them to co-exist under common
management, audit and operations:
o EC Applications - Applications to conduct electronic business, orders,
catalogs, purchasing, etc.
o EC Clearing - Management, routing and controlling EC transactions
o EC Technologies - Web Servers, EC tools, security, payment systems, EDI,
Fax, etc.
o EC Integration - Tools and processes to integrate Legacy Applications and
third party services o Development Tools - IDE, Web Development, SDK and
Object Library
Technology Platform
- -------------------
Open|EC software components are primarily compatible with EC Application and EC
Clearing layers of EC products and technologies. The EC Applications level
software is marketed as vertical applications such as "Open|EC Retail Orders",
"Open|EC Warehouse Orders" and "Open|EC Buying Group Purchasing". The EC
Clearing layer software is marketed as the "Open|EC Electronic Commerce
Management Center". The EC Technology and EC Integration layer is a technical
infrastructure for rapid integration of best of breed and market leading
technologies, such as Microsoft and Netscape Internet Web servers. The Open|EC
development platform is Object Oriented, Java, C++, SQL and COBA. Supported
databases are SQL Server, Oracle, Sybase, SQL Anywhere, Access and ODBC. Initial
releases support the Microsoft NT and Unix Servers.
Open|EC - EC Applications
- -------------------------
The EC applications enable trading groups to conduct electronic business within
specific functional business processes. SoftCare initially defined three
business processes: Order Processing, Catalogs, and Purchasing. These
applications sit on the top of the Open|EC Electronic Commerce Platform and are
integrated with the EC Clearing. Each application can operate independently or
together as an integrated business EC solution. The applications being developed
are driven by customer specific implementation needs built on a base EC
Application Framework. The EC Application Framework allows for rapid custom
deployment and ongoing maintenance for each customer specific requirement.
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Applications in Retail and the Supply Chain
- -------------------------------------------
As most retailers have integrated EDI programs for larger volume purchasing from
their major suppliers, electronic business purchasing allows for the cost
effective expansion of electronic trading to all vendors. By leveraging the
existing EDI electronic business processes along with easy to deploy, cost
effective Web technology it is now possible to achieve the highest levels of EC
efficiencies.
System Features
o Single integration for all EC Technologies through existing EDI system
o Common security & access control for all EC Applications
o Reliable and secure using Open Electronic Commerce Standards and best
of breed EC technologies
o Simplifies development, integration and operations
o Common audit and management of all transactions through the EC Clearing
Center
o Every transaction is acknowledged
o Routing selects EDI to EDI, EDI to FAX or EDI to Web
o Validates trading partner and acts upon trading partner relationships
o Open platform to easily adopt any existing or new EC technology
o Single interface to legacy applications that use existing EDI System as
the single point of integration
o EC Clearing Center routes and converts EDI Transactions into Web or fax
transactions
o EDI destined transactions are switched to use the Internet or EDI VAN
o Web forms allow for non-EDI users to send and receive without complex
EDI technology
o Data Archive and Warehousing for expert reporting
o Common platform for any EC Application or customized system
Open|EC Application development tools enable customers to create their own
advanced Electronic Business applications. Open|EC has four turnkey electronic
business applications that can be run out of the box or used as a base for
customized development. Each application sits on the EC Platform and uses all
common services available in the system. These Java based applications can be
rapidly and widely deployed with centralized audit, control and security located
on the EC Platform.
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Future Developments
- -------------------
To date the Company has several EC user applications planned or in development.
Some of these projects include:
o Retail Centralized Purchasing
o Retail Buying Group
o Wholesale Distribution
o Business Catalog Sales
o Warehouse Logistics
o Centralized Credit Counseling and related services
These products will enable a subset of a customer's back-end applications to be
deployed on the Web to meet the specific needs of the trading partners. This
approach will allow a rapid deployment of software applications without
modifications to the customer's other software applications.
With the development of the Open|EC products, the Company believes it is
positioned to address the fundamental EC and EDI requirements of small and
medium sized businesses as well as the requirements of large multinational
businesses. In meeting small and medium business needs, the Open|EC suite
features flexible solutions, open systems technology and scaleable products with
high functionality and upgradeable technology. Access and security control have
also been addressed to allow access to EC Applications, data and services, as
well as the management of encryption and security.
Product Pricing
- ---------------
The Company prices its Open|EC products based on value proposition for each
installation. Tradelink EDI is sold on a price established by market forces.
The Company's typical per-customer revenue has ranged from $10,000 to $20,000
over the last three years. The Company's contract with TRW Inc. generated
revenue of approximately $1.3 million in fiscal 1997 and $100,000 in fiscal
1998.
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Marketing Strategy
- ------------------
Sales and Marketing Overview
The Company's sales and marketing strategy for its Open|EC product family, and
other EC and EDI products and services has been conducted through direct sales
and indirect Value Added Partners ("VAP") sales.
The marketing of direct sales has been conducted through association with and/or
hiring of marketing professionals with backgrounds in industries and networks
that open opportunities with qualified potential customers for the Open|EC
products.
The Company defines VAPs as strategic partners that integrate one or more of the
Company's Open|EC products into their own application software. The marketing of
VAP sales has been accomplished by means similar to direct sales.
Direct Sales
The Company expanded its direct sales force during the past two years. Senior
sales executives and support staff with strong industry knowledge and contacts
have been recruited and deployed regionally in strategic locations. These
locations included the Pacific Northwest of North America, the state of
California, the Midwest of United States, Southern United States, and Ontario,
Canada.
Target Market
The Company's target market is small and mid to large retailers and their supply
chain trading partners. This market is a substantial portion of the estimated
150,000 North American companies that have a substantial investment in EDI and
the integration to their legacy computer systems. In addition, the Company has
targeted consulting and counseling industries to provide a large user base with
enhanced common access to the services offered by companies in their field.
Valued Added Partners ("VAP")
VAPs are identified as companies in the field of system integration, application
software development, vertical software niches, telecommunications, Value Added
Networks and Internet service providers.
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The Company has been highly selective in its alliances with VAPs requiring each
of them to satisfy the following general criteria:
1. Ability to gain a leading share of their core market niches;
2. A similar long-term vision of the EC industry as it relates to their
customer base and application areas;
3. Ability to demonstrate the strategic positioning of the Open|EC product
set within their markets;
4. A commitment to market and support the Open|EC products within their
markets; and
5. A commitment to invest in the training and education required to
implement and support the Open|EC products.
To date the company's VAPs have integrated certain of the Company's products
into their software.
Revenues
- --------
The Company's revenues have been generated through product licensing fees and
software royalties:
1. Licensing fee - Licensing fees provide initial sale and ongoing revenue
from software maintenance, servicing, and upgrades. As a part of the
license, the Company offers a fixed price contract for the license fee
that spreads the fee over twelve months. The software is sold by user
blocks allowing for low cost pilot systems to be implemented for proof
of concept and providing an ongoing upgrade business.
2. Software Royalty - A royalty is a fee paid each time the software is
sold by an OEM that packages the Company's software into another
software product. The OEM private labels the software and sells, ships
and supports the product to its customers. OEM relationships have
generally had a life cycle of approximately three years and have tended
to be slow to generate revenue in the first year, with most revenue
earned in the second and third year.
3. Fee-for-use - A fee-for-use is a fee based on product usage and is
generally more profitable for the Company than the licensing fee
described above. An example of this fee model would be a transaction
with an EDI/EC outsourcing
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partner where SoftCare would provide the technology and implementation
and the partner would provide the service operations and marketing. The
resulting revenue stream would be split based on the business case.
Fee-for-use projects result in low short-term revenue in year one, with
continued growth the following years.
The Company's promotional efforts focus on EC and EDI for business to business
as opposed to business to consumer relationships. The Company's products have
been well accepted in the banking, distribution and retail industries. However,
these products are not industry specific or geography specific, and the Company
proposes to market its products horizontally into other industries and
vertically into other markets, such as retail and supply chains.
Non-Seasonal Business
- ---------------------
The Company's e-commerce business is not seasonal. Management is of the opinion
that the Company will generate revenue at all times of the year.
Impact of Renegotiation or Termination of Contracts
- ---------------------------------------------------
There is no aspect of the Company's business that may be affected in the current
financial year by re-negotiation or termination of contracts.
Patents, Trademarks and Copyrights
- ----------------------------------
In Canada, the Company has registered its business name "SoftCare". The Company
has also filed and received a trademark on the product name "Open|EC" in Canada
and the United States. TRW also has the right to use the "Open|EC" trademarks in
association with products developed under the Cooperation Agreements.
The Company has not filed a trademark application on the product name
"TradeLink" in Canada, the United States, or elsewhere and does not intend to do
so. The Company has not filed a trademark application in Canada or the United
States for its business name "SoftCare". A competitor of the Company has filed
for a trademark in the United States on the business name "SoftCare". The
Company believes that the competitor has never done business under the name
"SoftCare" and that the Company has a prior right to such name. However, the
Company may not be able to protect its business name through trademark
registrations in Canada and
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the United States, and until it files such registrations, must resort to its
common law rights from prior use of the name.
Consequently, the Company has not fully protected its rights to the "Open|EC"
product name, the "TradeLink" product name and the "SoftCare" business name. The
Company expects to be able to effect full protection of such rights, but there
is no assurance it will succeed. In the event the Company is forced to cease
using any of such names, it will be required to select new names for either its
products or its business, or both. Likely material consequences of changing such
names include loss of the Company's goodwill attached to the names and
additional expenses in re-labeling products, changing business forms and costs
and expenses incurred in disputes with third parties over rights to the names.
Competition
- -----------
The markets for EC and EDI software and services are highly competitive.
Existing companies are relatively young, with the leaders having become public
companies only within the last two to three years. Generally they each offer
different solutions to the marketplace. Some have chosen to serve a specific
vertical market, some offer proprietary as opposed to open solutions, however
the majority of them offer expensive and complex products only suitable for
large corporations. The demand and newly realized opportunity to serve small and
medium sized businesses throughout the world has been the focus of the Company.
At the same time, several other computer software companies have been looking to
provide EC and EDI solutions to this market. The company believes that its
competitive advantage has been with its ability to develop EC software that
provides significant functionality and scalability and that runs on a broad
range of computer operating systems.
Functionality and scalability are measured in part by the range of applications
and platforms on which an EDI/EC software product can run, or the range of other
software products to which it can "speak". A high-end product will have a common
technology capable of running across a large range of platforms. High
functionality and scalability require that the software's underlying code be
"portable" across a broad variety of other products. Better portability enhances
the agility and speed at which the software producer is capable of developing
and implementing products to meet rapidly changing customer needs and
technology. An EC/EDI product then may be considered reliable to the extent of
its relative functionality, scalability, and upgrade ability.
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Traditional EDI Market Competition
- ----------------------------------
Many competitors have been in the EDI market before the Internet explosion,
primarily in EDI Value Added Networks ("VAN"). Over the last several years the
EDI Software and Network industry has been going through gradual consolidation
primarily driven by the need for the EDI VANs to increase network traffic. Many
smaller EDI companies are now resellers, consultants and integrators using EDI
software from the VANs.
The Internet is a major challenge for EDI VAN companies because most of their
revenue is based on transaction fees from their propriety networks. These
companies are fighting the transition from providing expensive propriety network
services to providing software support on the Internet. Many VANs have addressed
the Internet issues by offering gateways to their network service, but the
transactions are still processed through the expensive propriety networks at
premium rates. Customers of the VANs have a common issue around the rising cost
of these propriety networks as compared to the flat rate pricing model of the
Internet. The VANs are under pressure to reduce fees and while they have
responded, they are also driving the cost of EDI Translation, Clearing and Web
Form software upwards to make up lost revenues.
The Company's primary competitors in the EDI market are GE Information Services,
Inc., Sterling Inc., Harbinger Corp. and St. Paul Software Inc.
Emerging EC Market Competition
- ------------------------------
The EC competition has been harder to specifically identify. Some businesses
have developed similar solutions for business to business electronic commerce as
the Company. Many of these companies provide a very basic framework built on top
of business to consumer electronic commerce technology. These solutions are
ineffective due to the inability to deal with the more complex requirements of
business process in B to B commerce. As a result, end user sites are paying
substantial money to further customize the offered solutions. Several
competitive companies have focused on building and implementing high end B to B
solutions within verticals such as order processing, but few are approaching the
market with true open solutions.
The Company's primary competitors in this market are Actra, a division of
Netscape Communications Corp., Order Trust L.L.C.,
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Data Dimensions, Inc., and Ironside Inc. along with many smaller alternative
technology companies and system integrators (see "Competition - Competitor
Companies").
Competitor Companies
- --------------------
The Company's competitors in the traditional EDI and emerging EC markets include
the following alternative technology companies and system integrators:
Netscape Communications Corp. (Actra)
Netscape Communications Corp. ("Netscape") develops open software to enable
commerce and secure information on the Internet and private networks. Through
Actra, its joint venture with GE Information Systems, Netscape has developed an
Internet commerce product, CommerceXpert, for building commerce systems for the
Internet or private networks. Netscape targets Fortune 1000 companies and
focuses its products on three major applications namely, corporate procurement,
online selling and customer information services.
Netscape's greatest strengths are its market presence, strong sales force and
well-defined partner program and business applications. Its weaknesses include
its reliance on integrators and its inflexibility as a result of size and the
very expensive start up costs for its products.
When compared to SoftCare, Netscape is at a different level primarily because of
their focus on Fortune 1000 companies and its desire to have organizations use
their Web Browsers to be the interface to the world.
Ironside Technologies Inc.
Ironside Technologies Inc. ("Ironside") develops Web-based, real-time order
entry and management systems for distributors and manufacturers. In January
1997, Ironside released its flagship Java-based software system. In 1999,
Ironside launched two additional products: a faster software product for
developing e-commerce Java applications; and a software toolkit for customizing
e-commerce transactions. All of Ironside's business applications are focused on
the sales side of business to business e-commerce, as opposed to the purchasing
side, and their target market is focused on mid-market manufacturers and
distributors.
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Ironside has the advantage of being the first company in the real-time order
entry and management systems market with actual operating sites. These sites
include online demonstrations that, although limited in scope, provide many good
examples of their software capabilities. Ironside does not have extensive market
presence and its products tend to be costly.
Open Market Inc.
Open Market Inc. ("Open Market") is a leading Internet commerce software
company. Open Market provides primarily Internet based solutions for large
retailers who trade with medium to large suppliers. Their products include their
flagship product, Transact, which is a full Internet commerce management system,
an Internet catalog called Live Commerce and a publishing product called Folio.
Open Market has offices in several countries around the world and employs more
than 400 individuals in development and marketing.
Open Market is an in-house operation. It is ahead of SoftCare in terms of sold
sites and the number and breadth of products for sale. However, Open Market's
market focus tends to be toward the Fortune 1000 companies of North America.
Broadvision Inc.
Broadvision Inc. ("Broadvision") is the leading supplier of computer software
solutions for large-scale, personalized business on the Internet. Broadvision
targets North American Fortune 1000 companies with multiple operational sites,
focuses its products on very large Intranets and extranets and has developed a
number of applications focused on information management, procurement and
selling. Broadvision is in a different market than Softcare. It has targeted
larger organizations that need to pull information together, their product costs
are initially very high and they use System Integrators extensively.
Ariba Technologies
Ariba Technologies ("Ariba") is a privately held corporation and the leader in
network commerce solutions for Operating Resource Management ("ORM"). Ariba
develops software that improves the acquisition and management of operating
resources. Its target market is large organizations or system integration groups
that wish to implement a solution for automating the internal processes of
organizations coupled with a method for connecting
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buyers with their suppliers. Although they have a well-defined market niche and
an impressive list of clients, Ariba's focus on a single software application
means they must always ensure that they provide the number one solution in the
ORM market.
Interworld
Interworld enables businesses to profit, grow and evolve in today's global
digital economy by providing high-end enterprise commerce solutions. Interworld
targets mid to large manufacturers, distributors and retailers who wish to
establish operations on the Internet. There are similarities between Interworld
and SoftCare. Neither company has a large number of system integrator or
reseller programs and both companies understand that integration is key.
ELCOM International
ElCOM International ("Elcom") develops and licenses automated procurement
software applications that enable companies to conduct interactive electronic
commerce. The majority of their earnings are based on a PC re-marketing
agreement, which allows them to re-market PC's using their Internet service
bureau ("elcom.com"). Unlike other technologies, elcom.com offers a full circle
electronic commerce solution, which will meet the full transaction cycle
requirements of business-to-business partners. Elcom also markets two
application software packages, PECOS Commerce Manager, which manages e-commerce
sales and PECOS Procurement Manager which manages purchases.
Elcom's strength lies in its base product, elcom.com, which has received a good
e-commerce industry rating from certain industry publications. In comparison to
SoftCare, Elcom is a much larger organization, has a more extensive list of
customers in a number of markets and has already written a number of software
applications. Elcom's application framework is rigid and its use of in-house
applications for security, settlement and encryption limits its flexibility.
SoftCare's software applications, however, are more flexible and allow it to
react to market changes faster.
Microforum
Microforum is an Internet web site developer and provides a broad range of
e-commerce services to a list of recognized North American based clients.
Microforum focuses on three products. The first is a storefront product called
IFRONTECS, which services
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on-line retail and distribution needs. Their other
products are focused on database marketing and web-site development by Internet
marketing. Microforum attracts a number of clients in different markets.
Microforum differs from SoftCare in that it is focused on Microsoft integration
and does not focus on the B to B market. Further, its focus on web-site
development and Internet marketing makes it a more diverse company than
SoftCare.
The Company's Competitive Advantage
- -----------------------------------
The Company's management believes it has been able to successfully compete with
competitors in the business-to-business e-commerce market. Its software
development has produced "recyclable" project components for electronic commerce
("EC") infrastructure projects as well as commercial off-the-shelf EC software
products. The same technology can be and has been used repeatedly as components
for large, medium and small projects in addition to being packaged and sold
off-the-shelf as a low-cost, highly functional EC management center. The Company
therefore perceives itself as considerably ahead of its competitors in this
market segment. All of the above competitors occupy different market spaces that
overlap the applications that the Company's software may ultimately be
applicable to.
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Risk Factors
- ------------
The following are specific risk factors that are relevant to the Company. Any
one or more of these events or occurrences could prevent the Company from
realizing its assets and discharging its liabilities through the normal course
of business. If this should occur, there may be an adverse affect on the value
or return on any investors' investment in the Company, including the loss of the
entire investment.
Limited Operating History
- -------------------------
The Company's internal marketing plan is based on a number of assumptions.
However, given that the Company has a limited operating history with its Open|EC
products upon which to base its revenue, manufacturing cost and expense
assumptions, these cannot be determined with any certainty. To the extent that
the Company's financial, budget, product development and market assumptions do
not bear out, the financial projections will vary from actual results of
operations. These variances may be material and may cause a delay in reaching
targeted sales and profit levels or a failure to achieve profitability at all.
If profitability is delayed, the Company may need to obtain additional financing
to sustain operations, to curtail or cease operations, or to seek a buyer for
its assets. Any of these events could adversely affect the value or return on
any investor's investment in the Company, including the loss of the entire
investment.
Highly Competitive Market
- -------------------------
The EDI/EC market is highly competitive and subject to rapid technological
change, evolving industry standards and customer demands, and regulatory
developments. The Company's competitors include large international companies
with significantly greater financial, management, manufacturing, technological,
marketing and distribution resource and customer bases than the Company, as well
as, in some cases, worldwide reputations and dominant market shares.
The existence of products of which the Company is not aware, or products that
may be developed in the future, may adversely affect the marketability of the
Company's products. There can be no assurance that existing and future
competitors will not offer products superior to or lower in price than those of
the Company, or that the Company's efforts to differentiate its
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products from competing products will prove successful. The Company's products
are expected to compete primarily on the basis of product performance,
convenience, cost benefit and functionality, but there is no assurance that
these attributes will enable the Company to compete effectively. Failure by the
Company to keep pace in its marketplace could lead to recurring financial losses
which could adversely affect the value of shareholders' investments.
New Products and Technological Change
- -------------------------------------
Rapidly changing technology, evolving industry standards, and the introduction
into the marketplace of new products and Web-enabled variations of popular
products characterize the market for the Company's products. The Company expects
that the continuing growth of companies connecting to the Internet will cause
the market to continue its rapid evolution. The Company's success will therefore
depend in part upon its ability to enhance its existing products and to
introduce new products and features to meet the expected changing customer
requirements and industry standards. There can be no assurance that the Company
will be successful in identifying, developing, manufacturing and marketing new
products or enhancing its existing products, either at all or quickly enough to
respond to the market and technology changes in step with the Company's
competitors. The Company's business would be adversely affected if it incurs
delays in developing and implementing new products or enhancements to its
existing products, as could happen due to insufficient capital and human
resources, product development difficulties and inaccurate assessments of market
changes. In addition, there can be no assurance that products or technologies
developed by others will not render the Company's products or technologies
non-competitive or obsolete. Delays in developing new products, or the
obsolescence of current products could lead to uncertainty as to the Company's
ability to maintain operations over the long term. Investors may see the value
of the Company and their interest therein, decline as a result.
Coding and Testing Procedures
- -----------------------------
The design and development of software code to ensure ease of maintenance, or
upgrade tasks is an important element in controlling future development costs.
Software code, particularly in new product introductions, can be susceptible to
error routines or "bugs" that can affect system performance. Effective
management and quality assurance/testing procedures
36
<PAGE>
may continue to provide the Company with high levels of serviceability to its
customer base. While the Company currently provides careful attention to design
and development when addressing these issues, this is not a future certainty.
The Company will need to continually develop and refine appropriate coding and
testing procedures to enhance the effectiveness of its product installations. To
the extent any coding errors or deficiencies are not uncovered during its
testing procedures, the Company's software products could fall short of it
customers' expectations. If this should occur and any errors or deficiencies not
corrected in a timely manner the company's product could lose market acceptance.
Uncertainty of Market Acceptance
- --------------------------------
To achieve its financial projections, the Company's Open|EC products must
achieve a significant degree of market acceptance, especially among larger
companies that will purchase the Open|EC enterprise products. The Company's
strategy in developing and marketing its Open|EC products relies upon its belief
that the new technology will enable EDI transactions to operate over open
systems such as the Internet with security equal to EDI transactions, yet at a
lower cost. Nonetheless, the Company must overcome historical perceptions as to
the lack of security of EDI conducted on the Internet. In addition, because
commerce on the Internet is a relatively new development, there has not been a
proven commitment to EC, and mass-market acceptance has not been reached to the
degree needed to reasonably predict future demands for EC products for use on
the Internet. Any of these factors could prevent the Company's products from
gaining a significant level of market acceptance. Without such acceptance in the
market, the Company may not realize the full potential of its assets or possible
financial gains on which investors rely to reap positive returns on their
investments.
Dependence on Distribution and Marketing Relationships
- ------------------------------------------------------
The Company's strategy for the development, production and commercialization of
Open|EC products is to enter into collaborations with various strategic
collaborators, licensors, licensees and others that market software products and
related services. The Company has entered into Value Added Integrator (VAI)
co-marketing, cooperation and other agreements with a number of such companies.
Many of these agreements are non-exclusive, and many of these other companies
have or will have similar agreements with the Company's competitors. The Company
believes that its success in penetrating markets for EDI and EC
37
<PAGE>
products and services depends in large part on its ability to maintain
relationships and to cultivate additional relationships as distribution channels
change. To the extent that the Company is not able to add to and maintain such
arrangements, it would face increased capital requirements to undertake such
activities at its own expense and might encounter significant delays in
introducing its products into certain markets or find that the development,
manufacture or sale of its products in such markets is adversely affected. To
the extent the Company is unable to deliver its products as a result of such
delays, the value of shareholders' interests would be adversely affected.
Reliance on Strategic Collaboration
- -----------------------------------
The Company's agreements with its strategic collaborators are complex. There may
be provisions within such agreements that give rise to disputes regarding the
rights and obligations of the parties. These and other possible disagreements
could lead to delays in research, development, or commercialization of certain
products, or could result in litigation or arbitration, which could be
time-consuming and expensive, and could have a material adverse effect on the
Company's business, financial condition, results of operations, and
relationships with its corporate partners. There can be no assurance that the
Company will be able to maintain or expand its relationships with its existing
collaborators or to replace its existing collaborators in the event any such
relationship were terminated. This reliance on parties external to the Company
also limits the shareholders' control over this aspect of the Company's business
plan.
Limited Product Base
- --------------------
While the Open|EC product is the Company's primary product focus, there can be
no assurance that the Company will be successful at developing or marketing its
Open|EC products as rapidly as projected. If Open|EC does not achieve market
acceptance, the Company may be required to develop alternative products,
however, it does not currently have alternative products that are readily
available for marketing and distribution at levels necessary to produce the
revenues projected for Open|EC. Accordingly, delays in developing an alternative
product line are likely and there can be no assurance that the new products
could be developed and distributed without need for additional capital or
rapidly enough to benefit from the expected rapid growth in the EDI/EC software
product markets. Failure by the Company to introduce
38
<PAGE>
new products would limit further growth potential and financial performance and,
in turn, shareholders' interests.
Lack of Uniformity in EDI/EC Standards
- --------------------------------------
An important strategy of the Company is based on its ability to sell Open|EC for
business-to-business EDI transactions and EC communications. EDI/EC utilizes
numerous standards in the Internet, VANs, EDI, Electronic Finance Payments, user
interface and security. It is critical that EDI/EC software producers utilize
standards that have wide acceptance in these markets. While the Company believes
the standards utilized in its products are recognized as widely accepted and are
most likely to achieve broad market acceptance on an international scale, there
can be no guarantee other standards will not achieve wider acceptance by major
vendors or official endorsement by an industry, trade or governmental
association or organization. Potential adverse consequences include the fact
that the Open|EC will not achieve market acceptance at the levels predicted and
that the Company will be required to develop EDI/EC software that utilizes other
standards, possibly resulting in increased research and development costs and
loss of sales revenues. Any of these factors would negatively affect the
financial results of the Company, leading to a decline in the investor's return
on investment.
Limited Manufacturing Experience
- --------------------------------
To be successful, the Company must be able to manufacture its products at
acceptable costs in compliance with contractual and regulatory requirements. The
Open|EC products are at an early stage of development and the Company has only
limited experience manufacturing these products. As the Company increases its
production of Open|EC products to meet expected demands, it may experience lower
than anticipated production yields or production constraints from time to time
that may adversely affect its ability to satisfy customer orders. Any sustained
inability to satisfy demand may have a material adverse effect on the Company's
business, financial condition, results of operations and its relationships with
its strategic collaborators. The possible inability to overcome these issues
could result in a marked financial decline in the Company's ongoing business,
and adversely affect shareholders' value.
39
<PAGE>
Dependence on Key Personnel
- ---------------------------
The Company's success is dependent on the services of a number of members of
senior management, particularly Martyn Armstrong, founder and the Company's
President. The experience of these individuals will be a key contributing factor
to the Company's continued success and growth. The loss of one or more of these
individuals could have a material adverse effect on the Company's operations and
business prospects. The Company presently carries key-man life insurance on the
life of Martyn Armstrong. This reliance of a few key people presents an inherent
risk to the value of the shares and the interests of the Company's shareholders.
Risks Associated with Management of Growth
- ------------------------------------------
To achieve its projected revenues and other targeted operating results, the
Company will be required to rapidly expand its systems, procedures, controls,
employee base and facilities. The success of the expansion plans will depend, in
part, upon the Company's ability to continue to attract, retain and motivate key
personnel. Failure to make the required expansions and upgrades could have a
material adverse effect on the Company's business, financial condition, results
of operations and relationships with its corporate partners. The Company's
results of operations will also be adversely affected if revenues do not
increase sufficiently to compensate for the increase in operating expenses
resulting from any expansion and there can be no assurance that any expansion
will be profitable or will not adversely affect the Company's results of
operations. To the extent the Company is not profitable or its results of
operations are adversely affected, shareholders' interests will also be
adversely affected.
Risks Associated with Intellectual Property
- -------------------------------------------
Company Technology: The Company's success is heavily dependent upon proprietary
technology. To protect its proprietary technology, it relies principally upon
copyright and trade secret protection. There can be no assurance that the steps
taken by the Company in this regard will be adequate to prevent misappropriation
or independent third-party development of its technology. Further, the laws of
certain countries in which the Company sells or will sell its products do not
protect software and intellectual property rights to the same extent as the laws
of Canada or the United States. The Company does not include in its software any
mechanism to prevent or inhibit unauthorized
40
<PAGE>
use, but generally requires the execution of an agreement that restricts copying
and use of its products. If unauthorized copying or misuse of the Company's
products were to occur to any substantial degree, its business and results of
operations could be materially adversely affected.
While the disclosure and use of the Company's proprietary technology, know-how
and trade secrets are generally controlled under agreements with the parties
involved, there can be no assurance that all confidentiality agreements will be
honored, that others will not independently develop similar or superior
technology, that disputes will not arise concerning the ownership of
intellectual property, or that dissemination of the Company's proprietary
technology, know-how and trade secrets will not occur.
Claims by Third Parties: Although the Company believes that its products and
technology do not infringe patents or other proprietary rights of third parties,
there can be no assurance that third parties will not claim that the Company's
current or future products infringe such rights of third parties. The Company
expects that software developers will increasingly be subject to such claims as
the number of products and competitors providing EDI/EC software and services
grows and overlaps occur. Any such claim, with or without merit, could result in
costly litigation or might require the Company or its strategic collaborators to
enter into royalty or licensing agreements in order to obtain a license to
continue to manufacture and market the affected products. There can be no
assurance that the Company or its strategic collaborators would prevail in any
such action or that any license (including licenses proposed by third parties)
would be made available on commercially acceptable terms, if at all. If the
Company becomes involved in litigation over proprietary rights, such action
could assume a substantial portion of its managerial and financial resources,
which could have a material adverse effect on the Company's business, financial
condition, results of operations and relationships with its strategic
collaborators. Shareholder value will be affected in a similar manner as a
result.
41
<PAGE>
Reliance on Third Party Vendors
The Company incorporates into its products certain software licensed to it by
other software developers. Any third-party software producer does not
necessarily give exclusivity. The Company attempts to take all reasonable steps
to protect itself from any material adverse consequences associated with using
third-party software, such as maintaining high product and customer
satisfaction.
The Company is dependent on suppliers for the database software and the
graphical user interface software used in its EDI products. Although the Company
believes that there are other sources for these products, any significant
interruption in the supply of either the database or graphical user interface
products could have a material adverse impact on the Company's sales unless it
can replace the functionality provided by these products.
Because the Company's products incorporate software developed and maintained by
third parties, it is also dependent to a certain extent upon such third parties'
abilities to enhance their current products, to develop new products on a timely
and cost-effective basis and to respond to emerging industry standards and other
technological changes. There can be no assurance that the Company would be able
to replace the functionality provided by the third-party software currently
offered in conjunction with the Company's products in the event that such
software becomes obsolete or incompatible with future versions of the Company's
products or is otherwise not adequately maintained or updated. The absence of,
or any significant delay in the replacement of, that functionality could have a
material adverse effect on the Company's sales, and shareholders' interests.
Board of Directors
With the exception of Mr. Sedun and Mr. Pierson, the Company's board of
directors lacks representation by individuals with public company experience.
With the exception of Mr. Armstrong, the Company's board of directors lacks
representation by individuals with experience in the various channels that the
Company is attempting to penetrate. The Company is in the process of inviting
qualified individuals to join its board of directors, however, there can be no
assurance that it will be able to attract qualified individuals who have
adequate time to commit to the affairs of the Company.
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<PAGE>
Foreign Exchange Risk
- ---------------------
The Company carries on a significant portion of its business outside Canada.
Virtually all of its sales outside of Canada are made in U.S. dollars and may be
affected by fluctuating foreign exchange rates. Any weakening in the value of
the U.S. dollar against the Canadian dollar would result in lower revenues for
the Company when stated in Canadian dollars. To the extent the Company continues
to present its financial statements in its domestic Canadian dollar currency
when a substantial amount of its revenues are earned in US dollars, foreign
exchange fluctuations will affect the reported profitability of the Company. Any
severe fluctuations will affect shareholder value.
Risks Associated with Penny Stock Classification
- ------------------------------------------------
The Company's common shares are subject to "penny stock" rules as defined in
1934 Securities and Exchange Act Rule 3151-1. The Commission has adopted rules
that regulate broker-dealer practices in connection with transactions in penny
stocks. Transaction costs associated with purchases and sales of penny stocks
are likely to be higher than those for other securities. Penny stocks generally
are equity securities with a price of less than U.S. $5.00 (other than
securities registered on certain national securities exchanges or quoted on the
NASDAQ system, provided that current price and volume information with respect
to transactions in such securities is provided by the exchange or system).
The penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction,
and monthly account statements showing the market value of each penny stock held
in the customer's account. The bid and offer quotations, and the broker-dealer
and salesperson compensation information, must be given to the customer orally
or in writing prior to effecting the transaction and must be given to the
customer in writing before or with the customer's confirmation.
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<PAGE>
In addition, the penny stock rules require that prior to a transaction in a
penny stock not otherwise exempt from such rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for the common shares in the United
States and shareholders may find it more difficult to sell their shares.
Government Regulation and Legal Uncertainties
- ---------------------------------------------
The Company is not currently subject to direct regulation by any governmental
agency other than laws and regulations generally applicable to businesses. It is
possible that a number of laws and regulations may be adopted in both the United
States and Canada with particular applicability to the Internet. Governments
have and may continue to enact legislation applicable to the Company in areas
such as content distribution, performance and copying, other copyright issues,
network security, encryption, the use of key escrow data, privacy protection,
caching of content by server products, electronic authentication or "digital"
signatures, illegal or obscene content, access charges and retransmission
activities. The applicability to the Internet of existing laws governing issues
such as property ownership, content, taxation, defamation and personal privacy
is also uncertain. Export or import restrictions, new legislation or regulation
or governmental enforcement of existing regulations may limit the growth of the
Internet, increase the Company's cost of doing business or increase it legal
exposure. To the extent any new government legislation becomes effective, this
could affect shareholder value due to the increased cost of conducting normal
business operations.
Year 2000 Disclosure
- --------------------
Year 2000 compliance was and continues to be an issue for virtually all
businesses whose computer systems and applications may require significant
hardware and software upgrades or modifications. Companies, including customers
of the Company, owning and operating such systems may plan to devote a
substantial portion of their information systems spending to fund such upgrades
and modifications, and divert spending otherwise allocated in their budgets for
new software and hardware.
44
<PAGE>
The Company completed a comprehensive in-house review of its software products.
The review identified the need for modifications, which were completed or were
in the process of being completed as of January 31, 2000.
Where practicable, the Company also undertook to mitigate any Year 2000 risks
with respect to the failure of its suppliers to be Year 2000 ready. In doing so,
it contacted its critical suppliers to determine if their operations and the
products and services they provide were Year 2000 compliant. Assurances were
provided to the Company in this regard that its critical suppliers were Year
2000 compliant. To date the Company has not experienced any Year 2000 problems
or issues with respect to either its own software products or that of its
suppliers, and does not expect this to be a significant risk to shareholders'
interests.
USA vs. Foreign Sales/Assets
- ----------------------------
Substantially all of the Company's operations, assets and employees are located
in Canada. For the six month period ended November 30, 1999, 34% of revenues
were derived from Canadian customers, 61% from customers in the United States
and 5% from customers in the rest of the world. For the nine-month period ended
September 30, 1999, 42% of revenues were derived from Canadian customers, 54%
from customers in the United States and 4% from the rest of the world. For the
years ended December 31, 1998 and 1997, 25% and 11% of revenues were derived
from Canadian customers, 74% and 86% from customers in the United States and 1%
and 3% from the rest of the world respectively.
Staffing
- --------
As of March 30, 2000, the Company had 25 full and part-time employees. Of these,
five employees serve in a management and administration capacity, two employees
serve in a sales and marketing capacity, fifteen employees serve in an
engineering capacity and two employees serve in an operations capacity. These
employees operate out of following three offices of the Company, located in
North Vancouver, British Columbia Pleasanton California and Tacoma, Washington:
45
<PAGE>
<TABLE>
<CAPTION>
- ---------------- -------------- -------------- -------------- -------------- --------------
Office Location Mgmt. & Sales & Engineering Operations Total
Admin Marketing
- ---------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
North Vancouver 6 0 15 2 23
Washington & 0 2 0 0 2
California
Totals: 6 2 15 2 25
== == == == ==
- ---------------- -------------- -------------- -------------- -------------- --------------
</TABLE>
The Company has four directors (of which two are officers of the Company). No
person is covered by a collective bargaining agreement.
46
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
- -------------------------------
Executive Offices
- -----------------
The Company occupies approximately 8,000 square feet of leased space in its
current headquarters at Suite 107, 980 West 1st Street, North Vancouver, British
Columbia V7P 3N4. The lease is held in the name of the Company's wholly owned
subsidiary, SCEC Holdings. The lease expires on March 31, 2003. A total of 23
employees operate out of this office. To accommodate future growth, the Company
has secured options for expansion within the business park at its current
location.
The Company also occupies (through its U.S. subsidiary, SoftCare U.S.A.)
approximately 500 square feet of space in Tacoma, Washington and 500 square feet
of space in Pleasanton California. The space is leased on a month-to-month
basis. As of April 13, 2000, the Company also occupies (through its purchase of
Financial Management Group LLC), approximately 1,000 square feet of office space
in Garden Grove, California.
Sales and installations are carried out by both an in-house team and by a
network of partners. The Company's partners include e-commerce service
providers, business application software companies and EDI consultants located
in Canada, the US and Korea. The company's engineering team comprises 60% of its
staff, with management, administration and operations personnel making up
another third of the company's staff. All of these employees are located in
North Vancouver, British Columbia, Canada. The company's in-house sales and
marketing team, which operates out of the Tacoma office, consists of one
employee.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- -------------------------
The Company does not know of any material, active or pending, legal proceedings
against them; nor is the Company involved as a plaintiff in any material
proceeding or pending litigation.
The Company does not know of any active or pending proceedings against anyone
that might materially adversely affect the Company.
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<PAGE>
ITEM 4. CONTROL OF REGISTRANT
The Registrant is a publicly owned Canadian corporation, the shares of which are
owned by Canadian residents, U.S. residents, and residents of other countries.
The Registrant is not controlled directly or indirectly by another corporation
or any foreign government, except as described below.
As of March 30, 2000, the Company was not aware of any person holding 10% or
more beneficial interest in the Registrant's outstanding stock other than those
persons described below.
Table No. 2 lists, as of March 30, 2000, Directors and Executive Officers who
beneficially own the Registrant's voting securities and the amount of the
Registrant's voting securities owned by the Directors and Executive Officers as
a group.
<TABLE>
<CAPTION>
Table No. 2
Shareholdings of Directors and Executive Officers
Title Name of Beneficial Amount and Nature of Percent of Ownership Percent of Class
of Class Owner Beneficial Ownership (1)(2) (2)
- -------- ------------------ -------------------- -------------------- ----------------
<S> <C> <C> <C> <C>
Common Martyn Armstrong 5,312,542(3) 34.8% 34.8%
691,426(3)
Common Wayne Zielke 3% 4.5%
665,417(4)
Common Gregg Sedun 4% 4.4%
264,873(3)
Common Douglas Sarkissian Less than 1% 1.7%
Common Randall M. Pierson 100,000(4) Less than 1% Less than 1%
Total Directors/Officers 7,034,258 43% 46%
</TABLE>
(1) This number of common shares includes currently exercisable stock
options and share purchase warrants owned by each beneficial holder. It
does not include common shares held by the beneficial holder as
trustee.
(2) Based on 15,287,428 common shares outstanding as of January 31, 2000.
(3) This number of common shares includes stock options to acquire an
additional 200,000 common shares.
(4) This number of common shares includes stock options to acquire an
additional 100,000 common shares.
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<PAGE>
ITEM 5. NATURE OF TRADING MARKET
- --------------------------------
The Company's common shares trade on the Canadian Venture Exchange ("CDNX") in
Vancouver, British Columbia, Canada, having the trading symbol "SCE" and CUSIP
#83402E109. Table No. 3 lists the volume of trading and high, low and closing
sales prices on the VSE for the Company's common shares.
Table No. 3
Canadian Venture Exchange
(formerly the Vancouver Stock Exchange)
Stock Trading Activity
Day's Day's Day's Day's
Volume High Low Close
03/30/00 17,600 $4.00 $3.65 $3.75
01/31/00 93,844 $4.20 $3.71 $3.84
12/30/99 40,100 $2.00 $1.75 $2.00
9/30/99 4,700 $1.80 $1.60 $1.70
6/30/99(2) 20,500 $1.87 $1.85 $2.25
12/31/98 400 $1.20 $1.20 $1.20
9/16/98 223 $0.72 $0.72 $0.72
6/30/98 16,667 $1.74 $1.74 $1.74
4/30/98(1) 417 $1.00 $1.00 $1.80
(1) The Company consolidated its share capital on a 6:1 basis effective as of
December 1, 1998. The trading history information has been adjusted to provide
for that consolidation.
(2) The Company's shares were halted for trading between March 2, 1999 and June
21, 1999 subject to the Reverse Takeover transaction and the broker-assisted
private placement being completed.
Price Fluctuations, Share Price Volatility
In recent years, securities markets in Canada have experienced a high level of
price and volume volatility, which have not necessarily been related to
operating performance or underlying asset values on prospects of such companies.
In particular, the Company's shares fluctuated from a low of $0.60 to a high of
50
<PAGE>
$2.52 during 1998, and during 1999, from a low of $1.10 in December 1999 to a
high of $6.75 in February 2000.
The Registrant's common shares are issued in registered form and the following
information is from the Registrant's registrar and transfer agent, Pacific
Corporate Trust Company, located in Vancouver, British Columbia, Canada at 830
625 Howe Street Vancouver BC V6C 3B8.
On March 30, 2000, the shareholders' list for the Registrant's common stock
showed 96 registered shareholders and 15,287,428 shares issued and outstanding.
Of these, 14 shareholders were U.S. residents, owning 127,949 shares
representing less than 1% of the issued and outstanding shares of common stock.
The Registrant has researched the indirect holdings by depositories and other
financial institutions and believes it has in excess of 300 "holders of record"
of its common shares.
Based on this research and other research into the indirect holdings of other
financial institutions, the Registrant believes that it has in excess of 300
beneficial owners of its common shares.
The Registrant is unaware of any active market in the United States for its
common shares. The Registrant's common shares are not registered to trade in the
United States in the form of American Depository Receipts (ADR's) or similar
certificates.
The Registrant has not declared any dividends for the last five years and does
not anticipate that it will do so in the foreseeable future. The present policy
of the Registrant is to retain future earnings for use in its operations and the
expansion of its business.
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<PAGE>
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
- --------------------------------------------------------------------------
There are no governmental laws, decrees or regulations in Canada relating
restrictions on the export or import of capital, or affecting the remittance of
interest, dividends or other payments to non-resident holders of the Company's
common shares. Any remittance of dividends to United States residents are,
however, subject to a 15% withholding tax (10% if the shareholder is a
corporation owning at least 10% of the common shares of the Company) pursuant to
Article X of the reciprocal treaty between Canada and the United States.
Except as provided in the Investment Canada Act, there are no limitations under
the laws of Canada, the Province of British Columbia or in the Articles of
Incorporation of the Company on the right of foreigners to hold or vote the
common shares of the Company. Management believes that in the case of the common
stock of the Company, there are no limitations on the rights of non-Canadians to
vote the Company's common shares.
The Investment Canada Act (the "ICA"), which became effective on June 30, 1985,
regulates the acquisition by non-Canadians of control of a Canadian business
enterprise. In effect, the ICA required review by Investment Canada, the agency
which administers the ICA, and approval by the Canadian government in the case
of an acquisition of control of a Canadian business by a non-Canadian where: (i)
in the case of acquisition (for example, through a share purchase or asset
purchase), the assets of the business are $5 million or more in value; or (ii)
in the case of an indirect acquisition (for example, the acquisition of the
foreign parent of the Canadian business) where the Canadian business has assets
of $50 million or more in value or if the Canadian business represents more than
50% of the assets of the original group and the Canadian business has assets of
$5 million or more in value. Review and approval are also required for the
acquisition or establishment of a new business in areas concerning "Canada's
cultural heritage or national identity" such as book publishing, film production
and distribution, television and radio, production and distribution of music,
and the oil and natural gas industry, regardless of the size of the investment.
In the context of the Company, in essence, three methods of acquiring control of
a Canadian business are regulated by the ICA: (i) the acquisition of all or
substantially all of the assets used in carrying on the Canadian business; (ii)
the
52
<PAGE>
acquisition, directly or indirectly, of voting shares of a Canadian corporation
carrying on the Canadian business; (iii) the acquisition of voting control of an
entity which controls, directly or indirectly, another entity carrying on a
Canadian business. An acquisition of a majority of the voting interests of an
entity, including a corporation, is deemed to be an acquisition of control under
the ICA. An acquisition of less than one-third of the voting shares of a
corporation is deemed not to be an acquisition of control. An acquisition of
less than a majority, but one-third or more, of the voting shares of a
corporation is presumed to be an acquisition of control unless it can be
established that on the acquisition the corporation is not, in fact, controlled
by the acquirer through the ownership of voting shares. For partnerships,
trusts, joint ventures or other unincorporated entities, an acquisition of less
than a majority of the voting interests is deemed not to be an acquisition of
control.
In 1988, the ICA was amended pursuant to the Free Trade Agreement dated January
2, 1988, between Canada and the United States to relax the restriction of the
ICA. As a result of these amendments, except where the Canadian business is in
the cultural, oil and gas, uranium, financial services or transportation
sectors, the threshold for direct acquisition of control by US investors and
other foreign investors acquiring control of a Canadian business from US
investors has been raised from $5 million to $150 million of gross assets, and
indirect acquisitions are not reviewable.
In addition to the foregoing, the ICA requires that all other acquisitions of
control of Canadian businesses by non-Canadians are subject to formal
notification to the Canadian government. These provisions require a foreign
investor to give notice in the required form, which notices are for information,
as opposed to review, purposes.
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ITEM 7. TAXATION
- ----------------
The following summary of the material Canadian federal income tax considerations
generally applicable in respect of the common stock reflects the Company's
opinion. The tax consequences to any particular holder of common stock will vary
according to the status of that holder as an individual, trust, corporation or
member of a partnership, the jurisdiction in which that holder is subject to
taxation, the place where that holder is resident and, generally, according to
that holder's particular circumstances. This summary is applicable only to
holders who are resident in the United States, have never been resident in
Canada, deal at arm's length with the Company, hold their common stock as
capital property and who will not use or hold the common stock in carrying on
business in Canada. Special rules, which are not discussed in this summary, may
apply to a United States holder that is an issuer that carries on business in
Canada and elsewhere.
This summary is based upon the provisions of the Income Tax Act of Canada and
the regulations there under (collectively, the "Tax Act" or "ITA")and the
Canada-United States Tax Convention (the "Tax Convention") as at the date of the
Registration Statement and the current administrative practices of Revenue
Canada, Taxation. This summary does not take into account provincial income tax
consequences.
This summary is not exhaustive of all possible income tax consequences. IT IS
NOT INTENDED AS LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER OF COMMON STOCK AND
SHOULD NOT BE SO CONSTRUED. EACH HOLDER SHOULD CONSULT HIS OWN TAX ADVISOR WITH
RESPECT TO THE INCOME TAX CONSEQUENCES APPLICABLE TO HIM IN HIS OWN PARTICULAR
CIRCUMSTANCES.
Based on management's independent review, they believe that the discussion
covers all material tax consequences.
Disposition of Common Shares
- ----------------------------
If a non-resident were to dispose of common shares of the Company to another
Canadian corporation which deals or is deemed to deal on a non-arm's length
basis with the non-resident and which, immediately after the disposition, is
connected with the Company (i.e., which holds shares representing more than 10%
of the voting power and more than 10% of the market value of all issued and
outstanding shares of the Company), the amount by which the fair market value of
any consideration (other than any shares of the purchaser corporation) exceeds
the paid-up capital
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<PAGE>
of the common shares sold will be deemed to be taxable as a dividend paid by the
purchasing corporation, either immediately or eventually by means of a deduction
in computing the paid-up capital of the purchasing corporation, and subject to
withholding taxes as described below.
Under the Tax Act, a gain from the sale of common shares by a non-resident will
not be subject to Canadian tax, provided the shareholder (and/or persons who do
not deal at arm's length with the shareholder) have not held a "substantial
interest" in the Company (25% or more of the shares of any class of the
Company's stock) at any time in the five years preceding the disposition.
Generally, the Tax Convention will exempt from Canadian taxation any capital
gain realized by the resident of the United States, provided that the value of
the common shares are not derived principally from real property situated in
Canada.
Dividend
- --------
In the case of any dividends paid to non-residents, the Canadian tax is withheld
by the Company, which remits only the net amount to the shareholder. By virtue
of Article X of the Tax Convention, the rate of tax on dividends paid to
residents of the United States is generally limited to 15% of the gross dividend
(or 5% in the case of certain corporate shareholders owning at least 10% of the
Company's voting shares). In the absence of the treaty provisions, the rate of
Canadian withholding tax imposed on non-residents is 25% of the gross dividend.
Stock dividends received by non-residents from the Company are taxable by Canada
as ordinary dividends to the extent of the increase in the paid-up capital of
the class of stock issued.
Where a holder disposes of common shares to the Company (unless the Company
acquired the common shares in the open market in the manner in which shares
would normally be purchased by any member of the public) a dividend will be
deemed to have been paid to the US holder equal to the amount by which the
consideration paid by the Company exceeds the paid-up capital of such stock and
the amount of such dividend will be subject to withholding tax as described
above.
Capital Gains
- -------------
A non-resident of Canada is not subject to tax under the ITA in respect of a
capital gain realized upon the disposition of a share of a class that is listed
on a prescribed stock exchange unless the share represents "taxable Canadian
property" to the holder thereof. A common share of the Company will be taxable
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<PAGE>
Canadian property to a non-resident holder if, at any time during the period of
five years immediately preceding the disposition, the non-resident holder,
persons with whom the non-resident holder did not deal at arm's length, or the
non-resident holder and persons with whom he/she did not deal at arm's length
owned 25% or more of the issued shares of any class or series of the Company. In
the case of a non-resident holder to whom shares of the Company represent
taxable Canadian property and who is resident in the United States, no Canadian
tax will be payable on a capital gain realized on such shares by reason of the
Tax Convention unless the value of such shares is derived principally from real
property situated in Canada or the non-resident holder previously held the
shares while resident in Canada. However, in such a case, certain transitional
relief under the Treaty may be available.
United States Federal Income Tax Consequences
- ---------------------------------------------
The following is a discussion of material United States Federal income tax
consequences, under the law, generally applicable to a US Holder (as defined
below) of common shares of the Company. This discussion does not address all
potentially relevant Federal income tax matters and it does not address
consequences peculiar to persons subject to special provisions of Federal income
tax law, such as those described below as excluded from the definition of a US
Holder. In addition, this discussion does not cover any state, local or foreign
tax consequences.
The following discussion is based upon the sections of the Internal Revenue Code
of 1986, as amended ("the Code"), Treasury Regulations, published Internal
Revenue Service ("IRS) rulings, published administrative positions of the IRS
and court decisions that are currently applicable, any or all of which could be
materially and adversely changed, possible on a retroactive basis, at any time.
In addition, the discussion does not consider the potential effects, both
adverse and beneficial, or recently proposed legislation which, if enacted,
could be applied, possibly on a retroactive basis, at any time. The following
discussion is for general information only and is not intended to be, nor should
it be construed to be, legal or tax advice to any holder or prospective holder
of common shares of the Company and no opinion or representation with respect to
the United States Federal income tax consequences to any such holder or
prospective holder is made. Accordingly, holders and prospective holders of
common shares of the Company should consult their own tax advisors about the
federal, state, local, and foreign tax consequences of purchasing, owning and
disposing of common shares of the Company.
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<PAGE>
This discussion is based on management's independent review and not the opinion
of counsel. Management believes that the discussion covers all material tax
consequences.
U.S. Holders
- ------------
As used herein, a ("U.S. Holder") includes a holder of common shares of the
Company who is a citizen or resident of the United States, a corporation created
or organized in or under the laws of the United States or of any political
subdivision thereof and any other person or entity whose ownership of common
shares of the Company is effectively connected with the conduct of a trade or
business in the United States. A U.S. Holder does not include persons subject to
special provisions of Federal income tax law, such as tax-exempt organizations,
qualified retirement plans, financial institutions, insurance companies, real
estate investment trusts, regulated investment companies, broker-dealers,
non-resident alien individuals or foreign corporations whose ownership of common
shares of the Company is not effectively connected with the conduct of a trade
or business in the United States and shareholders who acquired their shares
through the exercise of employee stock options or otherwise as compensation.
Distribution on Common Shares of the Company
- --------------------------------------------
U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to common shares of the Company are required to include in gross
income for United States Federal income tax purposes the gross amount of such
distributions to the extent that the Company has current or accumulated earnings
and profits, without reduction for any Canadian income tax withheld from such
distributions. Such Canadian tax withheld may be credited, subject to certain
limitations, against the U.S. Holder's United States Federal Income tax
liability or, alternatively, may be deducted in computing the U.S. Holder's
United States Federal taxable income by those who itemize deductions. (See more
detailed discussion at "Foreign Tax Credit" below). To the extent that
distributions exceed current or accumulated earnings and profits of the Company,
they will be treated first as a return of capital up to the U.S. Holder's
adjusted basis in the common shares and thereafter as gain from the sale or
exchange of the common shares. Preferential tax rates for long-term capital
gains are applicable to a U.S. Holder, which is an individual, estate or trust.
There are currently no preferential tax rates for long-term capital gains for a
US Holder that is a corporation.
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<PAGE>
Dividends paid on the common shares of the Company will not generally be
eligible for the dividends received deduction provided to corporations. A U.S.
Holder which is a corporation may, under certain circumstances, be entitled to a
70% deduction of the United States source portion of dividends received from the
Company (unless the Company qualifies as a "foreign personal holding company" or
a "passive foreign investment company", as defined below) if such U.S. Holder
owns shares representing at least 10% of the voting power and value of the
Company. The availability of this deduction is subject to several complex
limitations that are beyond the scope of this discussion.
A U.S. Holder will have a cost basis in the common shares equal to his or her
purchase price for U.S. federal income tax purposes
Foreign Tax Credit
- ------------------
A U.S. Holder who pays (or has withheld from distribution) Canadian income tax
with respect to the ownership of common shares of the Company may be entitled,
at the option of the U.S. Holder, to either a deduction or a tax credit for such
foreign tax paid or withheld. Generally, it will be more advantageous to claim a
credit because a credit reduces United States Federal income taxes on a
dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income
subject to tax. This election is made on a year-by-year basis and applies to all
foreign income taxes (or taxes in lieu of income tax) paid by (or withheld from)
the U.S. Holder during the year. There are significant and complex limitations
which apply to the credit, among which is the general limitation that the credit
cannot exceed the proportionate share of the U.S. Holder's United States income
tax liability that the U.S. Holder's foreign source income bears to his/her or
its application of this limitation. The various items of income and deduction
must be classified into foreign and domestic sources. Complex rules govern this
classification process. There are further limitations on the foreign tax credit
for certain types of income such as "passive income", "high withholding tax
interest", "financial services income", "shipping income", and certain other
classifications of income. The availability of the foreign tax credit and the
application of the limitations on the credit are fact specific and holders and
prospective holders of common shares of the Company should consult their own tax
advisors regarding their individual circumstances. No foreign tax credit is
allowed for any taxes paid or accrued with respect
58
<PAGE>
to the U.S.-source portion of any dividend received by such a 10%-shareholder
corporation. For individuals whose entire income from sources outside the United
States consisting of passive income, the total amount of creditable foreign
taxes paid or accrued during the taxable year does not exceed $300 ($600 in the
case of a joint return) and an election is made under section 904(j), the
limitation on credit does not apply.
Disposition of Common Shares of the Company
- -------------------------------------------
Subject to the discussion below of the consequences of the Company being treated
as a Passive Foreign Investment Company or a Foreign Investment Company, a U.S.
Holder will recognize gain or loss upon the sale of common shares of the Company
equal to the difference, if any, between (i) the amount of cash plus the fair
market value of any property received, and (ii) the shareholder's tax basis in
the common shares of the Company. This gain or loss will be capital gain or loss
if the common shares are capital assets in the hands of the U.S. Holder, which
will be a short-term or long-term capital gain or loss depending upon the
holding period of the U.S. Holder. Gains and losses are netted and combined
according to special rules in arriving at the overall capital gain or loss for a
particular tax year. Deductions for net capital losses are subject to
significant limitations. For U.S. Holders, which are individuals, any unused
portion of such net capital loss may be carried over to be used in later tax
years until such net capital loss is thereby exhausted. For U.S. Holders, which
are corporations (other than corporations subject to Subchapter S of the Code),
an unused net capital loss may be carried back three years from the loss year
and carried forward five years from the loss year to be offset against capital
gains until such net capital loss is thereby exhausted.
Other Considerations
- --------------------
In the following circumstances, the above sections of the discussion may not
describe the United States Federal income tax consequences resulting from the
holding and disposition of common shares of the Company.
Foreign Personal Holding Company
- --------------------------------
If at any time during a taxable year more than 50% of the total combined voting
power or the total value of the Company's outstanding shares is owned, actually
or constructively, by five or fewer individuals who are citizens or residents of
the United States and 60% or more of the Company's gross income for such year
was derived from certain passive sources (e.g. dividends,
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<PAGE>
interest, royalties and rents) the Company would be treated as a "foreign
personal holding company." In that event, U.S. Holders that hold common shares
of the Company would be required to include in gross income for such year their
allowable portions of such passive income to the extent the Company does not
actually distribute such income.
Foreign Investment Company
- --------------------------
If 50% or more of the combined voting power or total value of the Company's
outstanding shares are held, actually or constructively, by citizens or
residents of the United States, United States domestic partnerships or
corporations, or estates or trusts other than foreign estates or trusts (as
defined by the Code Section 7701(a)(31), and the Company is found to be engaged
primarily in the business of investing, reinvesting, or trading in securities,
commodities, or any interest therein, it is possible that the Company might be
treated as a "foreign investment company" as defined in Section 1298(b)(6) of
the Code, causing all or part of any gain realized by a U.S. Holder selling or
exchanging common shares of the Company to be treated as ordinary income rather
than capital gains.
Passive Foreign Investment Company
- ----------------------------------
As a foreign corporation with U.S. Holders, the Company could potentially be
treated as a passive foreign investment company ("PFIC"), as defined in Section
1296 of the Code, depending upon the percentage of the Company's assets, which
is held for the purpose of producing passive income A foreign corporation that
qualifies as a Controlled Foreign Corporation ("CFC") will not be treated as a
PFIC with respect to a shareholder during the portion of the shareholder's
holding period after December 31, 1997, during which the shareholder is a10%
U.S. shareholder and the corporation is a CFC. The PFIC provisions continue to
apply in the case of PFIC that is also a CFC with respect to the shareholders
that are less than 10% U.S. shareholders.
U.S. Information Reporting and Backup Withholding. Dividends are generally
subject to the information reporting requirements of the code. Dividends may be
subject to backup withholding at the rate of 31% unless the holder provides a
taxpayer identification number on a properly completed Form W-9 or otherwise
establishes an exemption.
The amount of any backup withholding will not constitute additional tax and will
be allowed as a credit against the United States Investor's federal income tax
liability.
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Filing of Information Returns. Under a number of circumstances, a United States
Investor acquiring shares of the Company may be required to file an information
return at the Internal Revenue Center where they are required to file their tax
returns with a copy to the Internal Revenue Service Center, Philadelphia, PA
19255. In particular, any United States Investor who becomes the owner, directly
or indirectly, of 10% of more of the shares of the Company will be required to
file such a return. Other filing requirements may apply, and United States
Investors should consult their own tax advisors concerning these requirements.
Certain United States income tax legislation contains rules governing PFICs,
which can have significant tax effects on U.S. Shareholders of foreign
corporations. These rules do not apply to non-U.S. shareholders. Section 1296 of
the Code defines a PFIC as a corporation that is not formed in the United States
and, for any taxable year, either (i) 75% or more of its gross income is
"passive income", which includes interest, dividends and certain rents and
royalties or (ii) the average percentage, by fair market value or, if the
Company is a controlled foreign corporation or makes an election, by adjusted
tax basis, of its assets that produce or are held for the production of "passive
income", is 50% or more.
A U.S. shareholder who holds stock in a foreign corporation during any year in
which such corporation qualifies as a PFIC is subject to U.S. Federal income
taxation under one of two alternative tax regimes at the election of each such
U.S. shareholder. The following is a discussion of such two alternative tax
regimes applied to such U.S. shareholders of the Company.
A U.S. shareholder who elects in a timely manner to treat the Company as a
Qualified Electing Fund ("QEF"), as defined in the Code (an "Electing U.S.
Shareholder"), will be subject, under Section 1293 of the Code, to current
federal income tax for any taxable year in which the Company qualifies as a PFIC
on his pro-rata share of the Company's (i) "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), which will be taxed as
long-term capital gain to the Electing U.S. Shareholder and (ii) "ordinary
earnings" (the excess of earnings and profits over net capital gain), which will
be taxed as ordinary income to the Electing U.S. Shareholder, in each case, for
the shareholder's taxable year in which (or with which) the Company's taxable
year ends, regardless of whether such amounts are actually distributed.
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The effective QEF election also allows the Electing U.S. Shareholder to (i)
generally treat any gain realized on the disposition of his common shares (or
deemed to be realized on the pledge of his common shares) as capital, (ii) treat
his share of the Company's net capital gain, if any, as long-term capital gain
instead of ordinary income, and (iii) either avoid interest charges resulting
from PFIC status altogether, or make an annual election, subject to certain
limitations, to defer payment of current taxes on his share of the Company's
annual realized net capital gain and ordinary earnings subject, however, to an
interest charge on the deferred taxes. If the Electing U.S. Shareholder is not a
corporation, such an interest charge would be treated generally as "personal
interest" that can be deducted only when it is paid or accrued.
The procedures a U.S. Shareholder must comply with in making an effective QEF
election will depend on whether the year of the election is the first year in
the U.S. Shareholder's holding period in which the Company is a PFIC. If the
U.S. Shareholder makes a QEF election in such first year, i.e. a timely QEF
election, then the U.S. Shareholder may make the QEF election by simply filing
the appropriate documentation at the time the U.S. Shareholder files its tax
return for such first year. If, however, the Company qualified as a PFIC in a
prior year during such shareholder's holding period, then in addition to filing
documents, the U.S. Shareholder must elect to recognize (i) (under the rules of
Section 1291 discussed below), any gain that he would otherwise recognize if the
U.S. Shareholder sold his stock on the application date or (ii) if the Company
is a controlled foreign corporation, and such shareholder so elects, his/her
allocable portion of the Company's post-1986 earnings and profits.
When a timely QEF election is made, if the Company no longer qualifies as a PFIC
in a subsequent year, normal code rules will apply. It is unclear whether a new
QEF election is necessary if the Company thereafter re-qualifies as a PFIC. U.S.
Shareholders should seriously consider making a new QEF election under those
circumstances.
If a U.S. Shareholder does not make a timely QEF election in the year in which
it holds (or is deemed to have held) the shares in question and the Company is a
PFIC, then special taxation rules under Section 1291 of the Code will apply to
(i) gains realized on disposition (or deemed to be realized by reason by of a
pledge) of his/her common shares and (ii) certain "excess distributions", as
specially defined, by the Company.
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Non-electing U.S. shareholders generally would be required to pro-rate all gains
realized on the disposition of his/her common shares and all excess
distributions over the entire holding period for the common shares. All gains or
excess distributions allocated to prior years of the U.S. Holder (other than
years prior to the first taxable year of the Company during such U.S. Holder's
holding period and beginning after January 1, 1987 for which it was a PFIC)
would be taxed at the highest tax rate for each such prior year applicable to
ordinary income. The Non-electing U.S. Shareholder also would be liable for
interest on the foregoing tax liability for each such prior year calculated as
if such tax liability had been due with respect to each such prior year. A
Non-electing US Shareholder that is not a corporation must treat this interest
charge as "personal interest" which, as discussed above, is partially or wholly
non-deductible. The balance of the gain or the excess distribution will be
treated as ordinary income in the year of the disposition or distribution, and
no interest charge will be incurred with respect to such balance.
If the Company is a PFIC for any taxable year during which a Non-electing U.S.
Shareholder holds common shares, then the Company will continue to be treated as
a PFIC with respect to such common shares, even if it is no longer by definition
a PFIC. A Non-electing U.S. Shareholder may terminate this deemed PFIC status by
electing to recognize a gain (which will be taxed under the rules discussed
above for Non-electing U.S. Shareholders) as if such common shares had been sold
on the last day of the last taxable year for which it was a PFIC.
Under Section 1291(f) of the Code, the Department of the Treasury has issued
proposed regulations that would treat as taxable certain transfers of PFIC stock
by Non-electing U.S. Shareholders that are generally not otherwise taxed, such
as gifts, exchanges pursuant to corporate reorganizations, and transfers at
death.
Because the Company's shares are "marketable" under section 1296(e), if the
Company is a PFIC with respect to a U.S. Investor, the U.S. Investor may elect
to mark the stock to market each year. In general, a PFIC shareholder who elects
under section 1296 to mark the marketable stock of a PFIC includes in income
each year an amount equal to the excess, if any, of the fair market value of the
PFIC stock as of the close of the taxable year over the shareholder's adjusted
basis in such stock. A shareholder is also generally allowed a deduction
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for the excess, if an, of the adjusted basis of the PFIC stock over the fair
market value as of the close of the taxable year. Deductions under this rule,
however, are allowable only to the extent of any net mark to market gains with
respect to the stock included be the shareholder for prior taxable years, While
the interest charge regime under the PFIC rules generally does not apply to
distributions from and dispositions of stock of a PFIC where the U.S. Investor
has elected to mark the stock to market, coordination rules for limited
application will apply in the case of a U.S investor that marks to market PFIC
stock later than the beginning of the shareholder's holding period for the PFIC
stock.
Certain special, generally adverse, rules will apply with respect to the common
shares while the Company is a PFIC whether or not it is treated as a QEF. For
example under Section 1297(b)(6) of the Code, a US Holder who uses PFIC stock as
security for a loan (including a margin loan) will, except as may be provided in
regulations, be treated as having made a taxable disposition of such stock.
Management believes that the Company was a PFIC for the year ended April 30,
1997.
The foregoing discussion is based on existing provisions of the Code, existing
and proposed regulations there under, and current administrative ruling and
court decisions, all of which are subject to change. Any such change could
affect the validity of this discussion. In addition, the implementation of
certain aspects of the PFIC rules requires the issuance of regulations which in
many instances have not been promulgated and which may have retroactive effect.
There can be no assurance any of these proposed regulations will be enacted or
promulgated and if so, the form they will take or the effect that they may have
on this discussion. Accordingly, and due to the complexity of the PFIC rules,
U.S. persons who are shareholders of the Company are strongly urged to consult
their own tax advisors concerning the impact of these rules on their investment
in the Company.
Controlled Foreign Corporation
If more than 50% of the voting power of all classes of stock or the total value
of the stock of the Company is owned, directly or indirectly, by citizens or
residents of the United States, United States domestic partnerships and
corporations or estates or trusts other than foreign estates or trusts, each of
whom own 10% or more of the total combined voting power of all classes of stock
of the Company or the total value of the stock of ("United
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States Shareholder") the Company then the Company could be treated as a
"controlled foreign corporation" under Subpart F of the Code. This
classification would effect many complex results including the required
inclusion by such United States shareholders in income of their pro rata shares
of "Subpart F income" (as specially defined by the Code) of the Company and the
Company's earnings invested in US property and earnings invested "excess passive
assets" (as specifically defined by the Code). In addition, under Section 1248
of the Code, gain from the sale or exchange of common shares of the Company by a
U.S. person who is or was a United States shareholder (as defined in the Code)
at any time during the five year period ending with the sale or exchange is
treated as ordinary dividend income to the extent of earnings and profits of the
Company attributable to the stock sold or exchanged. Because of the complexity
of Subpart F., and because it is not clear that the Company is a controlled
foreign corporation, a more detailed review of these rules is outside of the
scope of this discussion.
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ITEM 8. SELECTED FINANCIAL DATA
- -------------------------------
The selected financial data set forth for the six months ended November 30, 1999
and 1998 are derived from the Company's unaudited financial statements. The
selected financial data of the Company for the nine months ended September 30,
1999, and for the years ended December 31, 1998 and 1997 was derived from the
audited financial statements of the Company. The selected financial data set
forth for the seven months ended December 31, 1996 and for the years ended May
31, 1996 and May 31, 1995, are derived from the Company's unaudited financial
statements, not included herein.
Certain information in Table No. 4 was extracted from the more detailed
financial statements and related notes included herein and should be read in
conjunction with such financial statements and with the information appearing
under the heading ITEM 9., "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS".
The fiscal year end of the Company was changed from March 31, to May 31,
effective May 31, 1999. The fiscal year end of the deemed acquiror, SoftCare
Electronic Commerce Inc. was also changed to May 31, effective May 31, 1999.
Reference is made to Note 20 of the audited financial statements of the Company
included herein for a discussion of the differences between Canadian GAAP and
U.S. GAAP, and their effect on the Company's financial statements.
The Acquisition of SoftCare by the Company was completed at the close of
business on June 18, 1999. The Acquisition has been accounted for as a Reverse
Takeover transaction as of that date. The consolidated financial information in
Table 4 includes the results of operations of Softcare EC.com Inc. from June 19,
1999. All prior financial information presented is consolidated financial
information of SoftCare, which is considered to be the acquiring company for
accounting purposes.
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<TABLE>
<CAPTION>
Softcare EC. Com, Inc.
Table No. 4
Selected Financial Data
(CDN$ in 000, except per share data)
6 Months 6 Months 9 Months Year Year 7 Months Year Year
Ended Ended Ended Ended Ended Ended Ended Ended
Nov 30/99 Nov 30/98 Sept 30/99 Dec 31/98 Dec 31/97(1)Dec 31/96 May 31/96 May 31/95
------------ ------------ ----------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 439 $ 535 $ 682 $ 849 $ 1,997 $ 268 $ 604 $ 616
Net Earning (loss) $ (2,045) $ (484) $ (3,014) $ (1,131) $ 423 $ (288) $ (159) $ 5
Pro Forma Basic Earnings (Loss)
Per Share (2) $ (0.17) $ (0.05) $ (0.29) $ (0.13) $ 0.05 $ (0.04) $ (19.63) $ (0.66)
Dividends per Share $ - $ - $ - $ - $ - $ - $ - $ -
Weighted Average Number of 12,199,102 8,961,526 10,555,717 8,961,526 8,885,940 6,813,987 8,093 8,093
Shares, CDN GAAP (2)
Working Capital $ 2,060 $ 688 $ 2,492 $ 519 $ 1,753 $ (600) $ (236) $ (199)
Long Term Debt (4) $ 146 $ 210 $ 161 $ 204 $ 281 $ 348 $ 151 $ -
Shareholders' Equity CDN GAAP $ 2,072 $ 655 $ 2,491 $ 475 $ 1,606 $ (829) $ (316) $ (157)
Total Assets CDN GAAP $ 2,803 $ 1,182 $ 3,109 $ 1,035 $ 2,217 $ 417 $ 249 $ 217
Net Earnings (Loss) U.S. GAAP $ (2,066) $ (484) $ (3,035) $ (1,131) $ 423 $ (288) $ (159) $ 5
Pro Forma Basic Earnings (Loss)$ (0.18) $ (0.05) $ (0.31) $ (0.13) $ 0.05 $ (0.04) $ (19.63) $ (0.66)
Per Share, U.S. GAAP (2)(3)
Weighted Average Number of 11,199,102 8,961,526 9,925,679 8,961,526 8,885,940 6,813,987 8,093 8,093
Shares U.S. GAAP (2)(3)
Shareholders' Equity U.S. GAAP $ 2,072 $ 655 $ 2,491 $ 475 $ 1,606 $ (829) $ (316) $ (157)
Total Assets U.S. GAAP $ 2,803 $ 1,182 $ 3,109 $ 1,035 $ 2,217 $ 417 $ 249 $ 217
</TABLE>
(1) By Articles of Amalgamation dated February 1, 1997, Norgate Holdings Inc.
and SoftCare Consulting Inc. amalgamated and continued under the name SoftCare
Electronic Commerce Inc. from that date.
(2) Pro forma earnings (loss) per share calculations for the periods presented
give retroactive effect to the exercise of the 11,000,000 Special Warrants and
the issuance of Common shares on the June 18, 1999 Acquisition date. Stock
options and warrants in addition to those issued as a result of the Acquisition
are anti-dilutive for the period ended September 30, 1999 and the year ended
December 31, 1998, accordingly, pro forma fully diluted earnings (loss) per
share does not differ from pro forma basic earnings (loss) per share for the
periods presented. There were no options or warrants outstanding for the periods
ended December 31, 1997 and prior.
(3) Under U.S. GAAP, the weighted average number of shares used in the
calculation of pro forma basic and fully diluted earnings (loss) per share
exclude performance-based Common shares under the Company's Employee Share Bonus
Plan.
Under U.S. GAAP, the weighted average number of shares used in the calculation
of diluted earnings (loss) per share would be calculated by the treasury stock
method whereby it is assumed that proceeds received from the Company from the
exercise of dilutive securities are used to repurchase outstanding shares in the
market. As the effect of options and common share purchase warrants are
anti-dilutive, diluted loss per share does not differ from basic loss per share.
(4) Long Term Debt includes long-term debt, obligations under capital leases and
redeemable Class A Preference share obligations with a maturity greater than one
year. The current portion of these obligations, which is due in less than one
year, has not been included herein.
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ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATION
- ----------------------------------
The following discussion relates to the financial condition, changes in
financial condition and results of operations of the Company and its
subsidiaries SoftCare, SCEC Holdings, SCC Holdings and SoftCare U.S.A. for the
six months ended November 30, 1999 and 1998, the nine months ended September 30,
1999, and the years ended December 31, 1998 and 1997. The discussion should be
read in conjunction with the financial statements of the Company and related
notes included therein. The Company, its wholly owned subsidiary, SoftCare, and
SoftCare's wholly owned subsidiaries SCC Holdings, SCEC Holdings and Softcare
U.S.A. are also hereinafter for the purposes of this Item 9, collectively
referred to as the "Company" or the "Registrant."
The Company also owns 100 percent of Bus Holdings Corporation, an Anguilla
company. This company is not commercially active, has no assets or liabilities,
and has been effectively abandoned by the Company.
The Company develops and markets EC and EDI software that facilitates business
to business e-commerce. The Company's initial EDI product, TradeLink, developed
in 1992, enables the electronic transmission of business documents. The
Company's new line of electronic commerce software, packaged as Open|EC
Electronic Commerce Platform (the "Open|EC Platform") was completed in 1999. The
new Open|EC Platform facilitates business to business electronic transactions
using public networks and browser technology.
The Open|EC Product is the Company's primary product focus. The Company has
developed certain applications to support its Open|EC Platform and has
identified further applications for possible future development. While the
Company may develop these applications, there can be no assurance that such
products, once completed, will meet customer requirements, overall market
requirements, or that the products will perform in a satisfactory manner.
Six Months Ended November 30, 1999 and 1998
- -------------------------------------------
As of November 30, 1999, the Company had $147,394 in cash and cash equivalents
compared with $556,552 as of November 30, 1998. The Company's working capital at
the end of the six-month period was $2,059,852 compared with $687,690 as at
November 30, 1998. Short-term investments as at November 30, 1999, were
$2,206,674
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compared with $nil as at November 30, 1998. Capital assets, which represents net
book value of computer and testing equipment, computer software and office
equipment were $158,286 as at November 30, 1999 compared with $176,816 as at
November 30, 1998. The Company has a $150,000 revolving credit facility with
Toronto Dominion Bank, of which $155,000 was advanced ($5,000 in excess of its
limit) as at November 30, 1999 compared with $nil as at November 30, 1998.
Advances on the credit line are payable on demand and carry an interest rate at
the bank's prime lending rate plus 1.5%. As at November 30, 1999 and 1998, the
Company had not pledged any of its assets as security for the line of credit.
During the six-month period ended November 30, 1999, the Company issued
11,000,000 Special Warrants in exchange for all of the issued and outstanding
common shares of Softcare Electronic Commerce Inc. pursuant to the reverse
takeover agreement effective June 18, 1999, for net assets with an estimated
fair market value of $1,159,916. During the six-month period ended November 30,
1999, the Company also issued 2,000,000 Private Placement Special Warrants for
net proceeds after commissions and issuance costs of $2,720,000 cash, pursuant
to a broker-assisted private placement.
Nine Months Ended September 30, 1999
- ------------------------------------
As of September 30, 1999, the Company had $105,272 in cash and cash equivalents.
The Company's working capital at the end of the nine-month period was
$2,491,518. Short-term investments at September 30, 1999, were $2,501,281.
Capital assets, which represent net book value of computer and testing
equipment, computer software and office equipment were $160,214 at September 30,
1999. The Company has a $150,000 revolving credit facility with Toronto Dominion
Bank, of which $80,000 was advanced as at September 30, 1999. Advances on the
credit line are payable on demand and carry an interest rate at the bank's prime
lending rate plus 1.5%. As at September 30, 1999, the Company had not pledged
any of its assets as security for the line of credit.
During the nine-month period ended September 30, 1999, the Company issued
11,000,000 Special Warrants in exchange for all of the issued and outstanding
common shares of Softcare Electronic Commerce Inc. pursuant to the Acquisition
agreement effective June 18, 1999, for net assets with an estimated fair market
value of $1,159,916. During the nine-month period ended September 30, 1999, the
Company also issued 2,000,000 Special
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Warrants for net proceeds after commissions and issuance costs of $2,720,000
cash, pursuant to a broker-assisted private placement together with the noted
Special Warrants to Golden Securities and M. Townshend.
Years Ended December 31, 1998 and 1997
- --------------------------------------
The Company's cash and cash equivalent position at December 31, 1998 was
$487,198 compared to $977,672 at December 31, 1997. As at December 31, 1998, the
Company had working capital of $518,505, compared with working capital of
$1,783,472 at December 31, 1997. Capital assets, which represent net book value
of computer and testing equipment, computer software and office equipment were
$160,175 at December 31, 1998 compared with $132,562 at December 31, 1997. The
Company has a $150,000 revolving credit facility with Toronto Dominion Bank, of
which $25,000 was advanced as at December 31, 1998 and $52,602 as at December
31, 1997. Advances on the credit line are payable on demand and carry an
interest rate at the bank's prime lending rate plus 1.5%. As at September 30,
1999, the Company had not pledged any of its assets as security for the line of
credit.
During the year ended December 31, 1997, Norgate Holdings Inc. and SoftCare
Consulting Inc. amalgamated and continued under the name SoftCare Electronic
Commerce Inc. from February 1, 1997.
Results of Operations
- ---------------------
The Company generated revenue through product sales, services and maintenance
contracts. Product sales were derived through two alternative fee structures:
licensing fees and software royalties. Service and maintenance contracts are
generally entered into at the time a product sale is closed.
Sales of Tradelink, consulting and training fees and maintenance fees are due
upon receipt of the invoice. No extensions are offered. Terms of payment with
respect to the Company's Open|EC product are determined during contract
negotiations. Generally, the terms require a fee to be paid upon signing the
contract and the balance due upon completion of a successful installation.
Six Months Ended November 30, 1999 and 1998
- -------------------------------------------
Revenue for the six months ended November 30, 1999 was $439,438, compared with
$535,474 for the same period ended November 30, 1998, a decrease of
approximately 17.9%. The decrease in revenue was primarily due to a change in
its sales efforts from
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the Company's existing products towards its new Open E|C product which commenced
in June 1999. Sales of the new Open E|C product to November 30, 1999 were
approximately $30,000 since it was first marketed in June 1999.
Salaries and wages for the six months ended November 30, 1999 were $825,256,
compared with $383,416 for the same period ended November 30, 1998. The increase
was due to the Company's increased research and development efforts to complete
the initial Open E|C product set and to expand its marketing and sales efforts.
A comparison of the six-month period ended November 30, 1999 with the six months
ended November 30, 1998 reflects this trend, with an increase in salaries and
wages of 115.2%.
Other compensation relates to the estimated fair market value of options granted
to employees of the Company as consideration for services rendered during the
five months ended September 1999. Prior to and in anticipation of the
Acquisition transaction, options to acquire 246,946 common shares of Softcare
valued at $1,280,000 were granted to employees. These options were exercised on
the reverse take-over date for cash proceeds of $247 resulting in a charge to
income equal to the excess value of Common shares over cash received of
$1,279,753. During the period ended May 31, 1999, the Company recorded $418,220
of this charge, and the remainder during the six months ended November 30, 1999.
Selling expenses for the six months ended November 30, 1999 were $65,700,
compared with $149,294 for the same period ended November 30, 1998,
demonstrating an overall reduction in the Company's selling expenses of 56.0%.
The decrease reflects the Company's reduced sales efforts for its older
TradeLink EDI product set, as it focused on completing the development of its
initial Open E|C product set.
General and administrative expenses for the six months ended November 30, 1999
were $695,080, compared with $450,071 for the same period ended November 30,
1998. A comparison of the six-month period ended November 30, 1999 with the same
period ended November 30, 1998 shows an increase of 54.4%. The increase was
primarily due to the cost of increased administration and professional fees
required to investigate possible financing arrangements.
Depreciation and amortization for the six months ended November 30, 1999 was
$36,760 compared with $36,565 for the same period
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ended November 30, 1998. The increase reflects the Company's continuous
upgrading of its computer hardware, software and related equipment.
Nine Months Ended September 30, 1999
- ------------------------------------
Revenue for the nine months ended September 30, 1999 was $682,426 which
represents 80.3% of total revenue for the year ended December 31, 1998, of
$849,433. The increase in revenue was primarily due to revenue from initial
sales of the Company's new Open E|C product which commenced in June 1999.
During the nine months ended September 30, 1999, the Company did encounter
instances of delays in collecting a select few, larger than average receivables.
The delay in collection was due in part to staff turnover in both sales and
administrative positions responsible for the management of receivables. As these
positions were subsequently filled, the administrative structure of the Company
is now intact to enable more attention to the collection of its receivables.
Management has also since instituted more rigorous procedures, and devoted more
resources to monitor accounts, and to contact delinquent customers. The Company
also intends to maintain a more concrete policy of denying customer service
support to delinquent customers.
Salaries and wages for the nine months ended September 30, 1999 were $1,430,767,
an amount that exceeded the total for salaries and wages for the year ended
December 31, 1998 by $221,469. The increase was due to the Company's increased
development efforts to complete the initial Open E|C product set. Salaries and
wages are expected to grow in future periods as the Open E|C business continues
to grow.
Other compensation relates to the estimated fair market value of options granted
to employees of the Company as consideration for services rendered during the
five months ended September 1999. Prior to and in anticipation of the
Acquisition transaction, options to acquire 246,946 Common shares of Softcare
valued at $1,280,000 were granted to employees. These options were exercised on
the Acquisition date for cash proceeds of $247 resulting in a charge to income
equal to the excess value of Common shares over cash received of $1,279,753.
Selling expenses for the nine-month period ended September 30, 1999 totaled
$115,200. This reflects approximately 71.8% of total selling expenses for the
year ended December 31, 1998, reflecting a decrease in overall selling expenses
for the period
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ended September 30, 1999. The decrease reflects the Company's reduced sales
efforts for its older TradeLink EDI product set as it focused on completing the
development of its initial Open E|C product set.
At $804,697, general and administrative expenses for the nine months ended
September 30, 1999 already exceeded general and administrative costs for the
year ended December 31, 1998 by $267,486. The increase was primarily due to the
cost of administration and consulting required as a consequence of the Company's
investigation into financing alternatives and recruitment of executive and
management personnel.
Depreciation and amortization as at the nine months ended September 30, 1999 was
$56,211. This reflects approximately 73.1% of total depreciation and
amortization for the year ended December 31, 1998, of $76,887.
Fiscal Years Ended December 31, 1998 and 1997
- ---------------------------------------------
Revenue for the year ended December 31, 1998 was $849,433, compared with
$1,997,565 for the year ended December 31, 1997. The decrease in the period
revenue was primarily due to contract revenue of approximately $1,300,000 earned
in 1997 under the Co-operation Agreement with TRW, which was not repeated in
1998 due to the cancellation of the Co-operation Agreement. (The TRW contract
revenue was approximately $100,000 during the year ended December 31, 1998).
Salaries and wages increased to $1,209,298 at December 31, 1998, from $756,585
at December 31, 1997. The increase was due to the Company's increased sales,
marketing, and research and development efforts to complete the initial Open E|C
product set.
Selling expenses for the year ended December 31, 1998 were $160,476 compared
with $127,472 for the year ended December 31, 1997. The increase in 1998 was
primarily as a result of the Company's increased trade show participation and
advertising.
General and administrative expenses reduced from $627,100 for the year ended
December 31, 1997, to $537,211 for the year ended December 31, 1998. This was
primarily due to the decrease in administration and professional fees that were
incurred in 1997 as a result of moving the Company's head office to its North
Vancouver location and certain general financing costs incurred in preparation
of the common share private placement.
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Depreciation and amortization at December 31, 1998 was $76,887, compared with
$52,603 at December 31, 1997. This reflects the depreciation and amortization
expense of capital assets acquired in 1997 for a full year in 1998, plus
$104,500 of additional capital assets acquired in 1998.
Liquidity and Capital Resources
- -------------------------------
Because the Company has experienced negative cash flow from operations it has
had to rely on debt and equity financing for cash required for operations. The
Company's ability to achieve profitability and positive cash flow from
operations has been dependent upon numerous factors. These factors include its
ability to attract strategic corporate partners for the development, marketing,
distribution, and sale of its software products, the progress of its research
and development programs and its ability to protect its proprietary rights over
product names and trademarks. To date the Company has been able to achieve
certain milestones in its efforts to combat these dependant factors including
the registration of its trademark Open|EC, expanded sales force into the United
States, continued innovation from research and development and building contacts
and alliances with many potential strategic corporate partners.
As at November 30, 1999, the Company had cash and cash equivalents of $147,394
plus short-term investments of $2,206,674 invested in Government of Canada
Treasury Bills. The Company also has the potential to raise future capital
through the exercise of warrants, directors' stock options and agents' warrants.
To date it has received $125,000 upon the exercise of Private Placement Warrants
and $5,400 from the exercise of Agent's Warrants. However, there is no assurance
that the exercise of warrants will occur or that directors or agents will
exercise their options. Nevertheless, the Company believes that existing cash
and other working capital will be sufficient to carry out operations during the
next twelve months.
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ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
- -------------------------------------------------
Table No. 5 lists the names of the Directors of the Company as at March 30,
2000. The Directors have served in their respective capacities since their
election and will serve until the next Annual General Meeting or until a
successor is duly elected, unless the office is vacated in accordance with the
Articles/By-Laws of the Company.
Table No. 5 - Directors
Director's Name Age Date First
Elected or
Appointed
- -------------------- --- ----------
Martyn Armstrong (1) 43 June 1999
Wayne Zielke (1) 45 June 1999
Randall M. Pierson 54 February 2000
Gregg Sedun (1) 41 February 1997
(1) Also a member of the Audit Committee
Table No. 6 lists the names of the Executive Officers of the Company as at March
30, 2000. The Executive Officers are appointed by the Directors and serve until
the earlier of their resignation or removal with or without cause by the
Directors.
Table No. 6
Executive Officers
Name Age Title Date First Affiliated
Martyn Armstrong 43 President June 1999
Douglas Sarkissian 47 Secretary June 1999
Wayne Zielke 45 Chief Financial Officer June 1999
Sted Chen 33 VP, Engineering August 1993
Tim Winchester 53 VP, Sales January 1999
Ross Casabonne 49 VP, Latin American Business April 2000
Development
Michael Cobban 43 Manager, Client Services June 1994
No Director and/or Executive Officer has been the subject of any order,
judgment, or decree of any governmental agency or administrator or of any court
of competent jurisdiction, revoking or suspending for cause any license, permit
or other authority of such person or of any corporation of which he/she is a
Director and/or Executive Officer, to engage in the securities business or in
the sale of a particular security or
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temporarily or permanently restraining or enjoining any such person or any
corporation of which he is an officer or director from engaging in or continuing
any conduct, practice, or employment in connection with the purchase or sale of
securities, or convicting such person of any felony or misdemeanor involving a
security or any aspect of the securities business.
There are no family relationships between any two or more Directors or Executive
Officers. There are no material arrangements or understandings between any two
or more Directors or Executive Officers.
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ITEM 11. COMPENSATION OF OFFICERS AND DIRECTORS
- -----------------------------------------------
The Company has no formal plan or standard arrangements for compensating its
Directors for their service in their capacity as Directors other than the
granting of stock options; refer to ITEM 12. "OPTIONS TO PURCHASE SECURITIES
FROM REGISTRANT OR SUBSIDIARIES".
The Company also may grant stock options to Executive Officers and employees;
refer to ITEM 12. "OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR
SUBSIDIARIES".
Directors are entitled to reimbursement for reasonable travel and other
out-of-pocket expenses incurred in connection with attendance at meetings of the
Board of Directors. The Board of Directors may award special remuneration to any
Director undertaking any special services on behalf of the Company other than
services ordinarily required of a Director.
During the fiscal year ended December 31, 1999, the Company paid a total of
$280,761 to Directors/Officers of the Company for legal, accounting and advisory
services and $220,000 in salary.
No funds were set aside or accrued by the Company during Fiscal 1999 to provide
pension, retirement or similar benefits for Executive Officers or Directors.
The Company has no plans or arrangements in respect of remuneration received or
that may be received by Executive Officers of the Company in Fiscal 1999 to
compensate such officers in the event of termination of employment (as a result
of resignation, retirement, change of control) or a change of responsibilities
following a change of control, where the value of such compensation exceeds
U.S.$60,000 per Executive Officer, except that Martyn Armstrong is entitled to
18 months compensation for termination in lieu of notice.
Except for the stock option program discussed in ITEM #12, the Company has no
material bonus or profit sharing plans pursuant to which cash or non-cash
compensation is or may be paid to the Company's Executive Officers or Directors.
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ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
- -----------------------------------------------------------------------
Stock Options to purchase securities from the Company are granted to Directors
and Employees of the Company on terms and conditions acceptable to the
regulatory authorities in Canada, notably the Canadian Venture Exchange. Stock
options must be approved by the Company's shareholders at an Annual General
Meeting. The Company has no formal written stock option plan.
Under the Canadian Venture Exchange (formerly the Vancouver Stock Exchange)
guidelines, stock options for up to 10% of the number of issued and outstanding
common shares may be granted from time to time, provided that stock options in
favor of any one individual may not exceed 5% of the total issued and
outstanding common shares of the Company. No stock option granted under the
stock option program is transferable by the optionee other than by will or the
laws of descent and distribution, and each stock option is exercisable for a
maximum of five years only by such optionee, and only while the optionee remains
a director or employee of the Company.
The exercise price of all stock options granted under the stock option program
must be at least equal to the fair market value of such shares of common shares
for the 10 trading days on the CDNX as is applicable at the time, immediately
preceding the day on which the Directors granted and publicly announced the
stock options.
The names and titles of the Directors and Executive Officers of the Registrant
to whom outstanding stock options have been granted and the number of common
shares subject to such options are set forth in Table No. 7 as of March 30,
2000, as well as the number of options granted to Directors and all employees as
a group. The exercise price of the options is stated in Canadian Dollars.
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<TABLE>
<CAPTION>
Table No. 7
Stock Options Outstanding
Name Title No. Shares of Exercise Expiry Date
Common Stock Price
<S> <C> <C> <C> <C>
Martyn Armstrong President, Director 200,000 $1.50 04/15/2004
Wayne Zielke Director 200,000 $1.50 04/15/2004
Douglas Sarkissian Secretary 200,000 $1.50 04/15/2004
Gregg Sedun Director 100,000 $1.50 04/15/2004
David DeWitt Employee 100,000 $1.50 04/15/2004
Randall M. Pierson Director 100,000 $3.90 02/01/2005
Clive Massey Consultant 90,000 $1.50 11/15/2004
--
---------
Total Officers/Directors/Employees 990,000
=======
Total Officers/Directors (5 persons) 800,000
=======
Total Employees (2 persons) 190,000
=======
</TABLE>
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ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
- -------------------------------------------------------
None of the persons who were directors or officers of the Company at any time
during the Company's last fiscal year, the insiders of the Company or the
associates or affiliates of those persons has had any material interest, direct
or indirect, by way of beneficial ownership of securities or otherwise, except
for the following:
Pursuant to the Share Purchase Agreement, the Company entered into the Armstrong
Employment Agreement dated April 15, 1999 between the Company and Martyn
Armstrong. Pursuant to the Armstrong Employment Agreement the Company employs
Mr. Armstrong to act as President of the Company in consideration of which Mr.
Armstrong receives a gross annual salary of CDN$220,000 per annum payable in
equal monthly installments. The Armstrong Employment Agreement has a three year
term and is automatically renewed thereafter from year to year, subject to the
ability of either the Company or Mr. Armstrong to decline to renew by giving
written notice thirty days prior to the renewal date. The Armstrong Employment
Agreement includes confidential information, trade secrets and non-competition
clauses. The Armstrong Employment Agreement can be terminated by the Company
upon 18 months written notice by the Company to Mr. Armstrong, or upon payment
of salary in lieu of such notice.
In addition to the Armstrong Employment Agreement, the following agreements have
been entered into by the Company:
1. An employment agreement (the "Sedun Employment Agreement") dated April
12, 1999 with Gregg Sedun. Under the terms of the Sedun Employment
Agreement Mr. Sedun agreed to provide advice to SoftCare regarding
general corporate development, equity and debt financing and other
matters relating to the financial affairs of the Company. As
remuneration for those services Mr. Sedun received, in lieu of a salary
for the first five months of the term of the Sedun Employment
Agreement, options (the "SoftCare Options") to acquire 123,473 shares
in the capital of SoftCare at a nominal price per share. Any shares in
SoftCare acquired by Mr. Sedun upon the exercise of the SoftCare
Options were exchanged for common shares of the Company on the date the
Acquisition was completed;
2. An employment agreement dated April 12, 1999 with David De Witt;
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3. An employment agreement dated April 12, 1999 with Wayne Zielke; and
4. An employment agreement dated April 12, 1999 with Doug Sarkissian.
Other than as disclosed above, there have been no transactions which have
materially affected or will materially affect the Company in which any director,
executive officer, or beneficial holder of more than 10% of the outstanding
common shares, or any of their respective relatives, spouses, associates or
affiliates has had or will have any direct or material indirect interest.
Management believes the transactions referenced above were on terms at least as
favorable to the Company as the Company could have obtained from unaffiliated
parties.
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PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
- ---------------------------------------------------
The authorized capital of the Company consists of 100,000,000 shares of common
shares without par value. The Company has only one kind and class of shares and
there are no unusual rights or restrictions attached to that class. As of the
nine months ended September 30, 1999, the Company had a total of 1,414,762
common shares issued and outstanding. All of the issued common shares of the
Company are fully paid and are not subject to any future call or assessment.
The Company obtained a receipt from the British Columbia Securities Commission
for filing of its Annual Information Form effective October 21, 1999. As a
result of the delivery of this receipt, the Company has completed it prospectus
level disclosure requirements, subject to ongoing filing requirements with the
Vancouver Stock Exchange, arising out of the Acquisition that took place June
18, 1999. The hold period for common shares issued upon the exercise of the
Special Warrants, the 2,000,000 Private Placement Special Warrants, the Golden
Special Warrants and the Townshend Special Warrants issued on the private
placement and the share exchange was four months from the closing date of June
18, 1999. Therefore 2,000,000 common shares have been issued as free trading to
investors in exchange for the 2,000,000 Special Warrants issued on the Private
Placement. In addition, 10,000,000 common shares have been issued to former
shareholders subject to the agreed pooling arrangements in exchange for the
10,000,000 Special Warrants issued pursuant to the Acquisition agreement. The
35,000 Townsend Special Warrants and the 16,666 Golden Special Warrants issued
for services rendered, were exercised for an equivalent number of common shares
of the Company.
All of the authorized shares of common shares of the Company are of the same
class and, once issued, rank equally as to dividends, voting powers, and
participation in a distribution of assets. The holders of the common shares are
entitled to receive notice of all meetings of shareholders and to attend and
vote the shares at the meetings. Each common share carries with it the right to
one vote on all matters to be acted upon by the shareholders. Holders of common
shares are entitled to receive such dividends as may be declared from time to
time by the Board of Directors, in its discretion, out of funds legally
available thereof.
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Upon liquidation, dissolution or winding up of the Company, holders of common
shares are entitled to receive pro rata the assets of the Company, if any,
remaining after payments of all debts and liabilities. No shares have been
issued subject to call or assessment. There are no preemptive or conversion
rights and no provisions for redemption or purchase for cancellation, surrender,
or sinking or purchase funds.
Provisions as to the modification, amendment or variation of such shareholder
rights or provisions are contained in the Company Act of British Columbia ("the
Company Act"). Unless the Company Act or the Company's Articles or Memorandum
otherwise provide, any action to be taken by a resolution or the members may be
taken by an ordinary resolution by a vote of a majority or more of the shares
represented at the shareholders' meeting.
The Company's Articles and the Company Act contain provisions that require a
"special resolution" for effecting certain corporate actions. Such a "special
resolution" requires a three-quarters vote of shareholders rather than a simple
majority for passage. The principal corporate actions that require a "special
resolution" include:
a. Transferring the Company's jurisdiction from British Columbia to
another jurisdiction;
b. Giving financial assistance under certain circumstances:
c. Certain conflicts of interest by Directors;
d. Disposing of all or substantially all of the Company's undertakings;
e. Removing a Director before the expiration of his term of office;
f. Certain alterations of share capital;
g. Changing the Company name;
h. Altering any restrictions of the Company's business; and,
i. Certain reorganizations of the Company.
There are no restrictions on the repurchase or redemption of common shares of
the Company while there is any arrearage in the payment of dividends or sinking
fund installments.
The Company is not aware of any restrictions or limitations on the rights of
non-resident or foreign owners to hold, vote, or receive remittance on the
Company's securities, other than those discussed in ITEM 6., "EXCHANGE CONTROLS
AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS".
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Refer to ITEM 12. "OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT" for a
description of stock options and share purchase warrants.
The Company has not declared any dividends since incorporation and does not
anticipate that it will do so in the foreseeable future. The Company expects to
retain its earnings to finance further growth and, when appropriate, retire
existing debt. The directors of the Company will determine if and when dividends
should be declared and paid in the future based on the Company's financial
position at the relevant time. All of the common shares of the Company are
entitled to an equal share in any dividends declared and paid.
Escrowed Shares
- ---------------
Prior to the Acquisition the Company had issued a total of 124,998 "Performance
Shares" (as defined by the Canadian Venture Exchange, formerly the Vancouver
Stock Exchange) at a price of $0.01 per share, to the following three principals
of the Company: David DeWitt (41,666), Gregg Sedun (41,666) and Robert Thast
(41,666). A Director or prior Director of the Company is defined as a
"principal" of the Company, under the policies of the British Columbia
Securities Commission and the Canadian Venture Exchange (formerly the Vancouver
Stock Exchange).
The Performance Shares were issued under the terms of an escrow agreement which
provided that a holder of performance shares who ceases to be a principal, as
that term is defined in the Policies, is entitled to retain any performance
shares then held by him and is not obligated to transfer or surrender the shares
to the Company or to any other person. Upon death or bankruptcy, the shares are
to be held by the escrow agent for the person legally entitled to become the
registered owner of the shares.
On June 18, 1999, all 124,998 shares held in escrow were released to the
individuals noted above.
Pursuant to a trust agreement, the Company issued 1,000,000 Special Warrants in
trust to Martyn Armstrong, President and Director of the Company, and Wayne
Zielke, Chief Financial Officer and Director of the Company, as trustees for
certain SoftCare employees. The 1,000,000 Special Warrants were exercised into
1,000,000 common shares in November 1999. These shares will only be released to
certain employees upon the achievement of certain performance criteria
consistent with SoftCare's previous share incentive program. They are also
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<PAGE>
subject to additional pooling and transfer restrictions as are agreed to by
SoftCare and SDW.
Debt Securities to be Registered
- --------------------------------
Not applicable.
American Depository Receipts
- ----------------------------
Not applicable.
Other Securities to be Registered
- ---------------------------------
Not applicable.
85
<PAGE>
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
- ----------------------------------------
Not Applicable.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES
- --------------------------------------------------------------------------------
Not Applicable.
PART IV
ITEM 17. FINANCIAL STATEMENTS
- -----------------------------
The Company's financial statements are stated in Canadian Dollars (CDN$) and are
prepared in accordance with Canadian Generally Accepted Accounting Principles
(GAAP), the application of which, in the case of the Company, conforms in all
material respects for the periods presented with United States GAAP except as
noted in the notes to the financial statements. The value of the U.S. Dollar in
relationship to the Canadian Dollar is shown under ITEM 1 DESCRIPTION OF
BUSINESS, Table No. 1.
The financial statements as required under ITEM 17 are attached hereto and found
immediately following the text of this Registration Statement. The Company's
financial statements for the nine months ended September 30, 1999, and the
fiscal years ended December 31, 1998 and 1997 were audited by KPMG LLP,
independent Chartered Accountants. The report of KPMG LLP, is included herein
immediately preceding the financial statements.
The Company's unaudited financial statements for the six months ended November
30, 1999 are also included herein.
The Company's unaudited financial statements for the nine months ended February
29, 2000 are also included herein.
ITEM 18. FINANCIAL STATEMENTS
- -----------------------------
The Registrant has elected to provide financial statements pursuant to ITEM 17.
86
<PAGE>
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(A) The financial statements as required under ITEM 17 are attached hereto and
found immediately following the text of this Registration Statement. The
Auditors' Report of KPMG LLP, independent Chartered Accountants, for the audited
financial statements is included herein immediately preceding the audited
financial statements.
A-1.
Auditors' Report, dated December 2, 1999, on the consolidated balance
sheets as at September 30, 1999 and December 31, 1998 and the consolidated
statements of operations, shareholders' equity (deficit) and cash flows for
the nine months ended September 30, 1999, and for the years ended December
31, 1998 and 1997;
A-2.
Unaudited interim consolidated balance sheets as at November 30, 1999 and
May 31, 1999 and the interim consolidated statements of operations and
deficit and cash flows for the six months ended November 30, 1999 and 1998.
A-3
Unaudited interim consolidated balance sheets as at February 29, 2000 and
May 31, 1999 and the interim consolidated statements of operations and
deficit and cash flows for the nine months ended February 29, 2000 and
February 28, 2000.
(B) Exhibits: THE FOLLOWING EXHIBITS ARE INCLUDED BY REFERENCE TO
---------------------------------------------------
THE REGISTRATION STATEMENT ON FORM 20-F FILED
---------------------------------------------
MARCH 9, 2000
-------------
1. Certificate of Incorporation dated March 30, 1981/ Company Articles
Certificate of Amalgamation Dated February 1, 1997/ Company Articles
a. Certificate of Name Change Dated February 7, 1991
b. Certificate of Name Change Dated November 17, 1997
c. Certificate of Name Change Dated December 1, 1998
d. Certificate of Name Change Dated June 10, 1999
e. Certificate of Good Standing Dated June 18, 1999
2. Instruments defining the rights of holders of equity or debt securities
being registered.
--- Refer to Exhibit No. 1 ---
3. Material Contracts:
a. Corporate Advisory Fee Agreement between International Savannah Ventures
Ltd. and Golden Capital Securities Ltd., dated May 19, 1999
b. Finder's Fee Agreement between Michael Townsend and International
Savannah Ventures Ltd. dated 5/19/99
c. Sponsorship Agreement between Canaccord Capital Corporation,
International Savannah Ventures Ltd. and SoftCare Electronic Commerce
Inc., dated 6/1/99
d. Corporate Advisory Agreement between Sedun De Witt Capital Corp. and
SoftCare EC.com Inc., 6/18/99
e. Agency Agreement between International Savannah Ventures Ltd. and
Canaccord Capital Corporation, dated 4/23/99
f. Offering Memorandum dated 5/20/99
g. Letter Agreement dated 3/5/99
h. Share Purchase Agreement dated 4/15/99
i. Voluntary Pooling Agreement dated 6/28/99
4. Foreign Patents: Not Applicable
5. Diagram of Parent and Subsidiaries (incorporated in Item 1)
6. Other Documents
a. Minutes of a Meeting of the Directors, held 6/14/99
b. Form 27, Material Change Report, dated 6/2/99
THE FOLLOWING EXHIBITS ARE INCLUDED HEREIN:
6. Other Documents - continued
c. Consent of Auditors
d. Agency Agreement-Special Warrant Private Placement 500
e. Share Purchase Agreement, dated April 14, 2000 539
f. Form 27, Material Change Report dated, 2/24/00 622
g. Form 27, Material Change Report, dated 3/3/00 627
88
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of Section 12g of the Securities Exchange Act of
1934, the Registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this amended Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
SoftCare EC.com Inc.
Registrant
Dated: April 28, 2000 By: /s/ Martyn Armstrong
-------------- --------------------
Martyn Armstrong
President/Director
<PAGE>
A-1
Consolidated Financial Statements of
Softcare EC.com inc.
(formerly International Savannah Ventures Ltd.)
September 30, 1999
<PAGE>
Auditors' ReporT
To the Directors of Softcare EC.com Inc.
We have audited the consolidated balance sheets of Softcare EC.com Inc.
(formerly International Savannah Ventures Ltd.) as at September 30, 1999 and
December 31, 1998 and the consolidated statements of operations, shareholders'
equity (deficit) and cash flows for the nine months ended September 30, 1999 and
the years ended December 31, 1998 and 1997. 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 Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at September 30,
1999 and December 31, 1998 and the results of its operations and its cash flows
for the nine months ended September 30, 1999 and the years ended December 31,
1998 and 1997, in accordance with Canadian generally accepted accounting
principles.
Significant differences between Canadian and United States accounting principles
are explained and quantified in note 20 to the consolidated financial
statements.
KPMG LLP
Chartered Accountants
Vancouver, Canada
December 2, 1999, except as to Note 22(b) which is as of February 24, 2000
<PAGE>
<TABLE>
<CAPTION>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
1999 1998
---------------- ---------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 105,272 $ 487,198
Accounts receivable, net of allowance for
doubtful accounts of $40,000 (1998 - $22,902) 280,977 166,210
Short term investments 2,501,281 -
Inventory 5,000 19,670
Prepaid expenses 6,362 27,087
Investment tax credits receivable (note 7) 50,231 174,607
---------------- ---------------
2,949,123 874,772
Capital assets (note 8) 160,214 160,175
---------------- ---------------
$ 3,109,337 $ 1,034,947
================ ===============
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness (note 9) $ 80,000 $ 25,000
Accounts payable and accrued liabilities 173,636 118,785
Current portion of long-term debt (note 10) 40,200 40,200
Current portion of capital lease obligation (note 11) 35,481 41,977
Current portion of redeemable Class A preference shares (note 12) 30,000 30,000
Deferred revenue 98,288 100,305
---------------- ---------------
457,605 356,267
Long-term debt (note 10) 23,450 53,600
Obligations under capital leases (note 11) 45,225 35,102
Redeemable Class A preference shares (note 12) 92,500 115,000
Shareholders' equity:
Warrants (note 13) 3,680,316 -
Share capital (note 14) 4,640,804 2,012,059
Unearned Employee Stock Bonus Plan (note 14(d)) (1,279,975) -
Deficit (4,550,588) (1,537,081)
---------------- ---------------
2,490,557 474,978
Commitments (notes 10, 11, 12 and 15)
Uncertainty due to the Year 2000 Issue (note 21)
Subsequent events (note 22)
---------------- ---------------
$ 3,109,337 $ 1,034,947
================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Consolidated Statements of Operations
Nine months ended September 30, 1999 and years ended December 31, 1998 and 1997
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Revenue:
Software sales $ 447,625 $ 584,154 $ 1,777,791
Consulting services 81,185 117,658 146,222
Training services 19,019 9,708 6,862
Maintenance fees 134,597 137,913 66,690
-------------- -------------- --------------
682,426 849,433 1,997,565
Expenses:
Salaries and wages 1,430,767 1,209,298 756,585
Other compensation (note 14(b)) 1,279,753 - -
Selling 115,200 160,476 127,472
General and administrative 804,697 537,211 627,100
Depreciation 56,211 76,887 52,603
-------------- -------------- --------------
3,686,628 1,983,872 1,563,760
-------------- -------------- --------------
Earnings (loss) from operations (3,004,202) (1,134,439) 433,805
Other income (expense)
Interest income 13,162 42,246 26,912
Interest expense (22,467) (38,821) (43,715)
-------------- -------------- --------------
(9,305) 3,425 (16,803)
-------------- -------------- --------------
Earnings (loss) before income tax recovery (3,013,507) (1,131,014) 417,002
Income tax recovery - - 5,749
-------------- -------------- --------------
Net earnings (loss) $ (3,013,507) $ (1,131,014) $ 422,751
============== ============== ==============
Earnings (loss) per share (note 5) $ (0.29) $ (0.13) $ 0.05
============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Softcare Ec.com inc.
(formerly International Savannah Ventures Ltd.)
Consolidated Statements of Shareholders' Equity (Deficit)
Nine months ended September 30, 1999 Years ended December 31, 1998 and 1997
Share Capital Warrants Unearned
------------------------ --------------------- Employee Total
Common Stock Shareholders'
Shares Amount Shares Amount Bonus Plan Deficit Equity (Deficit)
----------- ----------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 405 $ 134 - $ - - $ (828,818) $ (828,684)
Issuance of shares on amalgamation 8,098,579 - - - - - -
Issuance of shares for cash on private
placement, net of costs of $68,125 842,294 2,011,875 - - - - 2,011,875
Share purchase options exercised for cash 20,248 50 - - - - 50
Net earnings - - - - - 422,751 422,751
----------- ----------- ---------- ---------- ---------- ----------- -----------
Balance, December 31, 1997 8,961,526 2,012,059 - - - (406,067) 1,605,992
Net loss - - - - - (1,131,014) (1,131,014)
----------- ----------- ---------- ---------- ---------- ----------- -----------
Balance, December 31, 1998 8,961,526 2,012,059 - - - (1,537,081) 474,978
Issuance of shares to employee in lieu of
cash compensation for services rendered 38,470 29,545 - - - - 29,545
Issuance of shares for services (note 14(b)) 1,000,006 1,280,000 - - - - 1,280,000
Issuance of shares to Employee Stock
Bonus Plan (note 14(b)) 999,998 1,280,000 - - (1,279,975) - 25
Adjustments to effect June 18, 1999 reverse
take-over accounting:
Elimination of common share capital of
Softcare (11,000,000) - - - - - -
Issued common share capital of EC.com 1,391,428 - - - - - -
Issuance of Special Warrants on acquisition
to shareholders of Softcare (note 13) - - 11,000,000 1,159,916 - - 1,159,916
Issuance of Special Warrants for services
rendered (note 13) - - 51,666 66,132 - - 66,132
Warrants issued in private placement, net of
costs of $321,223 (note 13) - - 2,000,000 2,678,777 - - 2,678,777
Issuance of agents Special Warrants (note 13) - - 196,300 41,223 - - 41,223
Issuance costs on reverse take-over - - - (265,732) - - (265,732)
Share purchase options exercised for cash
(note 14(b)) 23,334 39,200 - - - - 39,200
Net loss - - - - - (3,013,507) (3,013,507)
----------- ----------- ---------- ---------- ---------- ----------- -----------
Balance, September 30, 1999 1,414,762 $ 4,640,804 13,247,966 $3,680,316 (1,279,975) $(4,550,588) $ 2,490,557
=========== =========== ========== ========== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Consolidated Statements of Cash Flows
Nine months ended September 30, 1999 and years ended December 31, 1998 and 1997
1999 1998 1997
----------------- --------------- ---------------
<S> <C> <C> <C>
Cash provided by (used in):
Operations:
Net earnings (loss) $ (3,013,507) $ (1,131,014) $ 422,751
Items not affecting cash:
Depreciation 56,211 76,887 52,603
Common stock issued for services 1,309,298 - -
Changes in non-cash working capital:
Accounts receivable 333,750 802,498 (812,181)
Inventory 14,670 1,189 643
Prepaid expenses 263,501 1,569 18,238
Investment tax credit receivable 124,376 (85,908) (88,699)
Accounts payable and accrued liabilities (49,628) 39,809 (220,181)
Deferred revenue (2,017) 779 (4,020)
----------------- --------------- ---------------
Net cash used in operating activities (963,346) (294,191) (630,846)
Investing:
Purchase of capital assets (56,250) (104,500) (65,759)
Purchase of short term investments (2,501,281) - -
----------------- --------------- ---------------
Net cash used in investing activities (2,557,531) (104,500) (65,759)
Financing:
Redemption of Class A preference shares (22,500) (30,000) (30,000)
Repayment of long-term debt (30,150) (40,200) (40,200)
Increase in capital lease obligations 3,627 6,019 15,369
Share purchase options exercised for cash 39,200 - 50
Acquisition of shares - - (871)
Common stock issued for cash 272 - 2,011,875
Warrants issued for cash on private placement,
net of costs of $280,000 (note 13(c)) 2,720,000 - -
Warrant on reverse take-over, net of costs of
$199,600 (note 2) 373,502 - -
Increase (decrease) in bank indebtedness 55,000 (27,602) (354,346)
----------------- --------------- ---------------
Net cash provided by (used in) financing activities 3,138,951 (91,783) 1,601,877
----------------- --------------- ---------------
Increase (decrease) in cash and cash equivalents (381,926) (490,474) 905,272
Cash and cash equivalents, beginning of period 487,198 977,672 72,400
----------------- --------------- ---------------
Cash and cash equivalents, end of period $ 105,272 $ 487,198 $ 977,672
================= =============== ===============
Supplemental disclosure of non-cash financing and investing activities:
Issuance of warrants on reverse take-over for
non-cash working capital (note 2) $ 586,814 $ - $ -
Issuance of warrants on private placement for
financing services rendered $ 41,223 $ - $ -
Issuance of warrants on reverse take-over for
services rendered $ 66,132 $ - $ -
Interest paid $ 22,467 $ 38,821 $ 43,715
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Notes to Consolidated Financial Statements, page 1
Nine months ended September 30, 1999 and years ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
1. Operations:
The Company was incorporated pursuant to the Company Act of the Province of
British Columbia on March 30, 1981. The Company changed its name from
International Savannah Ventures Ltd. to Softcare EC.com Inc. ("EC.com") on
June 10, 1999 prior to the reverse take-over as described in note 2. In
conjunction with this transaction, the Company changed its fiscal year end
from March 31 to May 31. Prior to the reverse take-over, the Company had
been involved in mining exploration.
EC.com and its subsidiaries develop and market Electronic Data Interchange
(EDI) software primarily to retailers, financial and public institutions,
utilities, pharmaceuticals and wholesalers across Canada, the United States
and Asia. The Company also develops and markets e-commerce software,
providing licences and support services to both domestic and international
markets.
The Company has experienced operating losses and negative cash flows from
operations and has had to rely on debt and equity financing for cash
requirements for operations. The Company's ability to achieve profitability
and positive cash flows from operations will depend upon its ability to
attract strategic corporate partners for development, marketing,
distribution, and sale of its products and on the results of its research
and development activities.
As at September 30, 1999, the Company had cash and cash equivalents of
$105,272 and short-term investments of $2,501,281. Management believes that
the Company has sufficient cash and other working capital to carry out its
operations during the next twelve months.
2. Reverse take-over:
On June 18, 1999, EC.com completed an agreement with the shareholders of
SoftCare Electronic Commerce Inc. ("Softcare") pursuant to which EC.com
issued 11,000,000 Special Warrants to acquire all the issued and
outstanding common shares of Softcare (note 13). At the date of
acquisition, EC.com had no substantive operations. As a result of this
transaction, the former shareholders of Softcare acquired 88.8 percent of
the Company as a group. Softcare is considered the accounting acquirer for
financial statement purposes. In conjunction with this transaction,
Softcare changed its fiscal year-end from December 31 to May 31.
The acquisition has been accounted for as a reverse take-over using the
purchase method, and accordingly, for financial statement reporting
purposes, the net assets of Softcare have been included in the balance
sheet at book values, and the net assets of EC.com have been recorded at
fair market value at the date of acquisition. The historical shareholders'
equity gives effect to the shares issuable to the shareholders of Softcare
upon exercise of the 11,000,000 Special Warrants. The consolidated
operations of the Company for the years ended December 31, 1998 and 1997
are those of Softcare and its subsidiaries and exclude the accounts of
EC.com. The results of EC.com were included from the date of acquisition,
June 18, 1999.
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Notes to Consolidated Financial Statements, page 2
Nine months ended September 30, 1999 and years ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
2. Reverse take-over (continued):
The cost of the acquisition is estimated at the fair value of the net
assets of EC.com acquired on June 18, 1999 and consists of:
Cash $ 73,102
Accounts receivable 448,517
Prepaid expenses 242,776
Cash advances to Softcare 500,000
Accounts payable (104,479)
--------------
$ 1,159,916
=============
3. Significant accounting policies:
(a) Basis of presentation:
These consolidated financial statements include the accounts of EC.com
and its wholly-owned subsidiary Softcare, and Softcare's wholly owned
subsidiaries, SCC Holdings Ltd., SCEC Holdings Ltd. and SoftCare
Electronic Commerce (U.S.A.) Inc., collectively referred to as "the
Company".
EC.com also owns 100 percent of Bus Holdings Corporation, an Anguilla
company. This company is not commercially active, has no assets or
liabilities and has been effectively abandoned by the Company.
All intercompany balances and transactions have been eliminated on
consolidation.
The audited financial statements have been prepared in Canadian dollars
in accordance with generally accepted accounting principles in Canada
and generally conform with those established in the United States,
except as explained in note 20.
(b) Use of estimates:
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities and
reported amounts of revenues and expenses during the reporting period.
Significant areas requiring the use of estimates include estimating the
recoverability of accounts receivable and investment tax credits
receivable and valuing equity instruments. Actual results could differ
from these estimates.
(c) Cash and cash equivalents:
Cash and cash equivalents includes short-term investments with an
initial term of 90 days or less.
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Notes to Consolidated Financial Statements, page 3
Nine months ended September 30, 1999 and years ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
3. Significant accounting policies (continued):
(d) Short term investments:
Short term investments are carried at the lower of cost or market and
consist of investments in term deposits.
(e) Revenue recognition:
The Company's revenue recognition policy conforms to the Statement of
Position 97-2, Software Revenue Recognition, issued by the American
Institute of Certified Public Accountants. A software arrangement
entered into by the Company may encompass multiple elements, including
the software license, consulting, training and annual maintenance fees.
The total fee for a multiple element arrangement is allocated to each
element based upon its fair value. Fair value is established through
the Company's policy to charge to customers the same price as when the
element is sold separately. Unspecified upgrades or enhancements of the
Company's products are considered maintenance and are recognized over
the contract period. Revenue from sales made to re-sellers is
recognized after the third-party sale occurs and the revenue is
determinable. Consulting services offered by the Company are not
considered essential to the functionality of the software arrangement.
As a result, consulting and training revenues are recognized as the
work is performed. Maintenance contract revenue is deferred and
recognized over the respective contract periods.
Revenue from direct product sales is recognized when the product has
been delivered, as no significant obligations remain, fees are fixed
and determinable, collectibility is probable, and persuasive evidence
of an arrangement exists.
If sales of products are contingent upon successful installation and
subsequent customer acceptance, revenue is recognized upon customer
acceptance.
(f) Inventory:
Inventory is valued at the lower of cost or net realizable value.
(g) Capital assets:
Capital assets are recorded at cost and depreciated using the declining
balance method at the following annual rates:
Computer and testing equipment 30%
Computer software 100%
Office equipment 20%
Office furniture 20%
Display booths 30%
Leasehold improvements Term of lease
Computer equipment acquired under capital leases is depreciated on a
straight-line basis over its estimated economic life of approximately
three years.
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Notes to Consolidated Financial Statements, page 4
Nine months ended September 30, 1999 and years ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
3. Significant accounting policies (continued):
(h) Translation of foreign currencies:
Monetary assets and liabilities denominated in foreign currencies have
been translated into Canadian dollars at the rate of exchange
prevailing at the balance sheet date and non-monetary items are
translated at rates of exchange in effect when the assets are acquired
or obligations incurred. Revenue and expense items are translated at
the average rate of exchange for the period. Foreign exchange gains and
losses are included in income.
The temporal method has been used to translate integrated foreign
subsidiary operations.
(i) Refundable investment tax credits:
Refundable investment tax credits resulting from eligible Scientific
Research and Experimental Development expenditures are recorded as a
reduction of related costs in the period in which they are incurred.
(j) Research and development costs:
Research costs are expensed as incurred. Development costs are charged
to expense as incurred unless the development project meets the
criteria under generally accepted accounting principles for deferral
and amortization. The Company has not deferred any development costs to
date.
(k) Impairment of long-lived assets:
The Company monitors the recoverability of long-lived assets, including
capital and intangible assets based upon estimates using factors such
as future asset utilization, business climate and future non-discounted
cash flows expected to result from the use of the related assets or to
be realized on sale. The Company's policy is to write down assets to
their net recoverable amount in the period when it is likely that the
carrying amount of asset will not be recovered.
(l) Employee Stock Bonus Plan
Equity instruments contributed to the Plan by the Company are recorded
at their estimated market value at the date of their contribution and
are recorded as a credit in shareholders' equity. A contra equity
account is recognized until allocations to participants are considered
compensation expense.
Compensation expense is recognized in the period when it is likely that
performance criteria will be met and the equity instruments allocated
to participants will be released. Common shares held by the employee
stock bonus plan trust are considered to be issued and outstanding for
the purpose of calculating basic and fully diluted earnings per share.
4. Adoption of new accounting standard:
The Company adopted CICA Handbook Section 1540, Cash Flow Statements for
the period ended September 30, 1999. The provisions were applied
retroactively with reclassification of prior period financial statement
items. Under Section 1540, non-cash investing and financing activities are
excluded from the statement of cash flows and are disclosed as
supplementary information to the Consolidated Statements of Cash Flows.
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Notes to Consolidated Financial Statements, page 5
Nine months ended September 30, 1999 and years ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
5. Earnings (loss) per share:
Basic earnings (loss) per share computations are based on the weighted
average number of shares outstanding during the period.
In accordance with the reverse take-over agreement (note 2), EC.com issued
11,000,000 Special Warrants, each of which is exercisable for one Common
share. No Common shares were issued to effect the transaction. The Special
Warrants were exercised for Common shares subsequent to September 30, 1999
(note 22). Generally accepted accounting principles require that earnings
(loss) per share, for periods prior to a reverse take-over transaction, be
calculated using the number of common shares issued by the legal parent
(EC.com) to effect the transaction.
Proforma earnings per share calculations below, for the years presented,
give retroactive effect to the exercise of the 11,000,000 Special Warrants
and the issuance of the Common shares at the reverse take-over transaction
date:
<TABLE>
<CAPTION>
Years ended
Nine months ended -------------------------------
September 30, December 31, December 31,
-------------- -------------- -------------
1999 1998 1997
-------------- -------------- -------------
<S> <C> <C> <C>
Proforma basic earnings (loss) per Common
share (note 3(l)) $ (0.29) $ (0.13) $ 0.05
Weighted average number of Common
shares used in proforma basic earnings
(loss) per share calculation 10,555,717 8,961,526 8,885,940
============== ============== =============
</TABLE>
900,000 (1998 - 90,000) stock options and 2,247,966 (1998 - Nil) warrants,
in addition to 11,000,000 warrants issued as a result of the reverse
take-over, (notes 13 and 14) are anti-dilutive for the period ended
September 30, 1999 and the year ended December 31, 1998, accordingly,
proforma fully diluted earnings (loss) per share does not differ from
proforma basic earnings (loss) per share for the periods presented. There
were no options or warrants outstanding for the period ended December 31,
1997.
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Notes to Consolidated Financial Statements, page 6
Nine months ended September 30, 1999 and years ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
6. Financial instruments:
(a) Fair value disclosures:
The carrying value of cash and cash equivalents, accounts receivable,
short-term investments, investment tax credits receivable, bank
indebtedness and accounts payable and accrued liabilities approximate
their fair values due to the relatively short periods to maturity of
the instruments. The carrying value of long-term debt approximates fair
value due to variable market interest rates being charged on
outstanding balances. The carrying value of capital lease obligations
approximates fair value as the effective interest rate on this
instrument approximates current market rates.
Due to the related party nature of the redeemable Class A preferred
share obligation and absence of a secondary market, it is not practical
to estimate its fair value.
(b) Foreign currency risk:
The Company operates internationally, which gives rise to the risk that
cash flows may be adversely impacted by exchange rate fluctuations.
The Company's operations are in the field of supplying electronic
commerce computer software licenses and support services to domestic
and international markets. Many of its customers are outside of Canada
and therefore a significant percentage of its revenues are derived
from, and are paid in, U.S. dollars. As at September 30, 1999 and
December 31, 1998, the Company held cash of $94,222 (US $61,263) and
$483,610 (US $314,892), respectively and accounts receivable of
$141,631 (US $102,313) and $83,627 (US $51,189), respectively.
The Company has not entered into contracts for foreign exchange hedges.
(c) Credit risk:
To reduce credit risk, management performs ongoing credit evaluations
of its customers' financial condition. The company maintains reserves
for potential credit losses.
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Notes to Consolidated Financial Statements, page 7
Nine months ended September 30, 1999 and years ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
7. Investment tax credits receivable:
Management has estimated the refundable investment tax credits relating to
the Company's eligible scientific research and experimental development
pursuant to the Canadian Income Tax Act. The refundable taxes have been
recorded as a reduction of the Company's wages expense and are as follows:
September 30, December 31,
1999 1998
------------- -------------
1997 $ 43,610 $ 88,699
1998 6,621 85,908
------------- -------------
$ 50,231 $ 174,607
============= =============
Any final adjustments between the amounts recorded and the amounts
ultimately realized will be recorded in the year they occur. During the
year, the Company provided an allowance of $124,376 against investment tax
credits receivable previously recorded due to increased uncertainty
regarding the technical eligibility of a particular project.
8. Capital assets:
September 30,
1999
Accumulated Net book
Cost amortization value
------------ ----------- ------------
Computer and testing equipment $ 290,530 $ 176,133 $ 114,397
Computer software 54,164 50,807 3,357
Office equipment 20,418 10,895 9,523
Office furniture 36,560 16,053 20,507
Display booths 21,755 15,711 6,044
Leasehold improvements 9,122 2,736 6,386
------------ ----------- ------------
$ 432,549 $ 272,335 $ 160,214
============ =========== ============
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Notes to Consolidated Financial Statements, page 8
Nine months ended September 30, 1999 and years ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
8. Capital assets (continued):
December 31,
1998
Accumulated Net book
Cost amortization value
------------ ----------- ------------
Computer and testing equipment $ 235,349 $ 135,840 $ 99,509
Computer software 54,164 45,532 8,632
Office equipment 21,868 9,233 12,635
Office furniture 36,560 12,590 23,970
Display booth 21,755 14,080 7,675
Leasehold improvements 9,122 1,368 7,754
------------ ----------- ------------
$ 378,818 $ 218,643 $ 160,175
============ =========== ============
Included in computer testing equipment are assets acquired under a capital
lease having a net book value of $77,298 at September 30, 1999 (December
31, 1998 - $73,761).
9. Bank indebtedness:
The Company has a revolving line of credit with a Canadian chartered bank
for $150,000 of which $80,000 was advanced as at September 30, 1999
(December 31, 1998 - $25,000). Advances on the credit line are payable on
demand and carry an interest rate at the bank's prime lending rate plus
1.5%. As at September 30, 1999, the Company had not pledged any of its
assets as security for the line of credit, however, the bank reserves the
right to request security at any time.
10. Long-term debt:
The Company has a bank loan agreement with the Business Development Bank of
Canada.
The bank loan bears interest at 4% over the bank's prime rate and is
secured by substantially all of the Company's assets. Principal repayments
on the bank loan of approximately $3,350 are due in September 1999 and in
each of the following 19 months. The agreement contains certain covenants
that impose limitations restricting the Company's dividend-paying ability
and changes in ownership.
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Notes to Consolidated Financial Statements, page 9
Nine months ended September 30, 1999 and years ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
11. Obligations under capital leases:
The following is a schedule of future minimum capital lease obligation
payments ending September 30:
2000 $ 47,304
2001 31,847
2002 15,651
2003 5,128
2004 3,847
-------------
103,777
Less amount representing interest (23,071)
-------------
Present value of minimum lease payments 80,706
Less current portion (35,481)
-------------
$ 45,225
=============
12. Redeemable Class A preference shares:
Authorized:
225,000 Class A preference non-voting shares with a par value of $1 each
Number of Class A
preference shares Amount
----------------- -------------
Balance, December 31, 1997 175,000 $ 175,000
Redemption of shares for cash (30,000) (30,000
------- -------------
Balance, December 31, 1998 145,000 145,000
Redemption of shares for cash (22,500) (22,500
------- -------------
Balance, September 30, 1999 122,500 122,500
Less current portion (30,000) (30,000
------- -------------
92,500 $ 92,500
======= =============
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Notes to Consolidated Financial Statements, page 10
Nine months ended September 30, 1999 and years ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
12. Redeemable Class A preference shares (continued):
Under an agreement between the Company and one of its shareholders, the
Class A Preference shares are redeemed each month for cash consideration of
between $nil and $10,000 based upon the Company's gross quarterly sales.
The Company has been making the required redemption payments at par value,
but may at any time accelerate the redemption payments. The shares are
convertible into common voting shares should the Company default on the
required redemption payments.
Holders of the Class A Preference shares receive a cumulative dividend
calculated at the bank prime interest rate on the outstanding redemption
value of the shares. The cumulative dividends have been recorded in
interest expense.
13. Warrants:
Prior to January 1, 1999, no share purchase or other warrants were issued
or outstanding. During the period ended September 30, 1999, the Company
issued the following share purchase and special warrants for cash and other
consideration:
<TABLE>
<CAPTION>
Number of 1999
Warrants Amount
----------- -------------
<S> <C> <C>
Warrants outstanding at December 31, 1997 and 1998 - $ -
Warrants issued:
Special Warrants issued on acquisition (a) 11,000,000 1,159,916
Special Warrants issued for services rendered (b) 51,666 66,132
Warrants issued in private placement, net of costs (c) 2,000,000 2,678,777
Agent's Special Warrants (d) 196,300 41,223
Issuance costs on reverse take-over - (265,732)
----------- -------------
Warrants outstanding at September 30, 1999 $ 3,680,316
=========== =============
</TABLE>
(a) EC.com issued 11,000,000 Special Warrants in exchange for all of the
issued and outstanding Common shares of Softcare pursuant to a reverse
take-over agreement effective, June 18, 1999 (note 2). The gross value
of $1,159,916 assigned to these warrants on issuance represents the
estimated fair market value of net assets acquired (note 2). Each of
the Special Warrants is exercisable for one Common share of the Company
without any additional consideration.
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Notes to Consolidated Financial Statements, page 11
Nine months ended September 30, 1999 and years ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
13. Warrants (continued):
Of the 11,000,000 Special Warrants issued, 10,000,000 were issued to
the existing shareholders of Softcare. The Common shares so issued upon
exercise of these warrants are subject to a voluntary pooling agreement
which restricts the transfer or sale of the shares.
The remaining 1,000,000 Special Warrants were issued to the Softcare
Employee Stock Bonus Plan Trust ("SESB Trust") to provide Employee
Bonus Shares upon exercise of such warrants. Two of the Directors of
the Company are also the Trustees of the Trust and may only release
such shares from the Trust to employees in accordance with regulatory
approval and certain performance criteria established (note 14(d)).
(b) The Company also issued 51,666 Special Warrants as a finder's fee and
corporate advisory fee upon completion of the above reverse take-over.
Each of the warrants are exercisable, without any additional
consideration, for one Common share of the Company. The value of the
services, $66,132, is included in the issuance costs related to the
reverse take-over.
(c) The Company issued 2,000,000 Special Warrants for gross proceeds of
$3,000,000 cash pursuant to a broker-assisted private placement. Costs
incurred to effect the private placement include a commission and other
costs totalling $280,000 and 196,300 agent warrants issued valued at
$41,223 (note 13(d)) resulting in net proceeds of the offering of
$2,678,777. Each Special Warrant is exercisable, at no additional cost,
into one Common share and one Share Purchase Warrant, which is
transferable upon regulatory approval. The equity component of the
Special Warrant offering was valued, net of costs, at $2,518,050. The
value assigned to the underlying share purchase warrants of the Special
Warrants offering was valued, net of costs, at $160,727. Both amounts
are included in warrants as a separate component of shareholders'
equity.
Each Share Purchase Warrant received upon exercise of a Special Warrant
is exercisable for a period of one year from June 18, 1999, and entitle
the holder to purchase one Common share at a price of $2.50 cash until
June 18, 2000 at which time they will expire. Notwithstanding the
foregoing, if at any time before the expiry date, the Common shares of
the Company trade on any securities exchange over a period of ten
consecutive trading days at a weighted average price of not less than
$3.00 per Common share, then at the option of the Company, any Share
Purchase Warrant not exercised within 30 days of written notice to the
holder by the Company will expire.
(d) The Company issued 196,300 Agent's Special Warrants as part of an
agency agreement with respect to the above brokered private placement
of 2,000,000 Special Warrants. Each Agent's Special Warrant is
exercisable, without any additional consideration, for one Agent's
Warrant. Each Agent's Warrant is exercisable for one Common share of
the Company at $1.50 cash per share for a period of one year from June
18, 1999. One half of the Agent's Warrants and/or shares are subject to
resale restrictions which expire three months from the date the shares
are released from hold periods. The estimated value of the warrants,
$41,223, is included in issuance costs related to the private
placement.
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Notes to Consolidated Financial Statements, page 12
Nine months ended September 30, 1999 and years ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
14. Share capital:
(a) Authorized:
100,000,000 (December 31, 1998 - 100,000,000) Common voting shares
without par value.
(b) Issued and outstanding Common shares:
Prior to and in anticipation of the reverse take-over transaction (note
2), options to acquire 1,000,006 Common shares of Softcare valued at
$1,280,000 were granted to employees. The options were only exercisable
concurrent with the completion of any reverse take over, sale or other
disposition of the shares of the Company that occurs on or before
September 30, 1999, their expiry date. The options were granted in lieu
of salary and were given in exchange for general financing services to
be performed over a five month period ending September 11, 1999. These
options were exercised on the reverse take-over date for cash proceeds
of $247. The excess value of Common shares over cash received has been
recorded as compensation expense in the consolidated financial
statements. Furthermore, 999,998 Common shares also valued at
$1,280,000 were issued to the SESB Trust (note 13(a)) for cash proceeds
of $25. These shares were exchanged for Special Warrants (note 13(a)).
23,334 stock options held by a former Director and a former Officer
were exercised into 23,334 Common shares at a price of $1.68 cash per
Common share during the nine months ended September 30, 1999.
(c) Stock options:
<TABLE>
<CAPTION>
Number of Exercise Expiry
Options Price Date
---------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 and 1998 90,000 $1.68 May, 2002 and
January, 2003
Options granted:
Granted to directors and employees
of Softcare 444,503 $6.07 April, 2004
Granted to directors, officers,
employees and consultants 1,150,000 $1.50 April, 2004 and
June, 2000
Softcare options cancelled on reverse
take-over (i) (197,557) $(6.07)
Options exercised (ii) and (b) (586,946) $1.50 - 1.68
---------- ------------- ---------------
Balance, September 30, 1999 900,000
==========
</TABLE>
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Notes to Consolidated Financial Statements, page 13
Nine months ended September 30, 1999 and years ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
14. Share capital (continued):
(c) Stock options (continued):
(i) 800,000 stock options, exercisable at a price of $1.50 cash per
Common share, were granted to Directors of the Company in exchange
for 197,557 stock options of Softcare on June 18, 1999 as part of
reverse take-over agreement (note 2). The stock options expire in
April, 2004. None of these options were exercised during the
period ended September 30, 1999. 250,000 stock options were
granted to officers, directors, and a consultant on June 18, 1999.
Each option was exercisable at a price of $1.50 per Common share.
100,000 stock options, exercisable at a price of $1.50 cash per
Common share, were granted to an individual pursuant to a
consulting agreement. The stock option agreement expires in
January, 2000 or earlier if the consulting contract is terminated
prior to that date. None of these options were exercised during
the period.
(ii) 340,000 stock options, exercisable at prices between $1.50 and
$1.68 cash per Common share, were exercised during the nine months
ended September 30, 1999. 316,666 were exercised for common shares
of Softcare and exchanged for Special Warrants.
(d) Employee Stock Bonus Plan:
The Company established a non-leveraged Employee Stock Bonus Plan (the
"Plan") in 1999 covering directors, officers and employees who have
completed six months or more service with the Company. Prior to the
reverse take-over transaction (note 2) 999,998 Common shares of
Softcare were contributed to the Plan for $25 cash. These shares were
exchanged for 999,998 Special Warrants of the Company which are
exercisable into 999,998 Common Shares of the Company. As at September
30, 1999, 187,030 Special Warrants which are exercisable into 187,030
Common shares of the Company valued at $1.28 per share, were allocated
to employees. Release of these shares to employees are subject to the
Company meeting a revenue target of $4,000,000. No compensation expense
has been recognized in the accounts as it is not likely that
performance criteria established for the release of these shares will
be met. Vesting terms of participant allocated shares are determined by
the Board of Directors but is generally contingent on revenue targets,
and for certain employees, also sales quotas, being achieved.
15. Commitments:
The Company leases its premises and certain automobile equipment. The
minimum lease commitments under these operating lease agreements and other
contractual obligations of the Company for the next five years ending
September 30 are as follows:
2000 $ 226,090
2001 110,267
2002 108,324
2003 54,162
2004 -
-------------
$ 498,843
=============
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Notes to Consolidated Financial Statements, page 14
Nine months ended September 30, 1999 and years ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
16. Income taxes:
At September 30, 1999, for Canadian tax purposes, the Company has
approximately $2,851,000 of non-capital losses available for income tax
purposes to reduce taxable income of future years and $7,500 of investment
tax credits available to offset future federal income taxes payable that
expire as follows:
Non-capital Investment
Losses tax credits
------------- -------------
May 31, 1999 $ - $ 1,000
May 31, 2000 - 4,000
May 31, 2002 - 2,500
May 31, 2003 131,000 -
May 31, 2005 940,500 -
May 31, 2006 830,000 -
May 31, 2007 949,500 -
------------- -------------
$ 2,851,000 $ 7,500
============= =============
The potential income tax benefits relating to these losses and tax balances
have not been recognized in the accounts.
17. Related party transactions:
Shareholders of the Company provide legal, accounting and advisory services
to the Company. In 1999, the Company paid $280,761 (year-ended December 31,
1998 - $66,169) for these services which were charged to general and
administrative expense, of which $31,092 is included in accounts payable
and accrued liabilities.
18. Segmented information:
Substantially all of the Company's operations, assets and employees are
located in Canada. In the period ended September 30, 1999, revenues were
derived 42% from Canada, 54% from the United States and 4% from the rest of
the world. In the year ended December 31, 1998 revenues were derived 25%
(1997 - 11%) from Canada, 74% (1997 - 86%) from the United States and 1%
(1997 - 3%) from the rest of the world.
Major customers, representing 10% or more of total sales, include:
1999 1998 1997
------------ ------------ ------------
Customer A $ 97,000 $ - $ -
Customer B 83,000 - -
Customer C 75,000 - -
Customer D - 145,000 1,400,000
============ ============ ============
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Notes to Consolidated Financial Statements, page 15
Nine months ended September 30, 1999 and years ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
19. Comparative figures:
Certain comparative figures have been reclassified to conform with the
financial statement presentation for the current year.
20. United States generally accepted accounting principles:
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in Canada ("Canadian GAAP"),
which differ in certain respects with accounting principles generally
accepted in the United States ("U.S. GAAP"). Material measurement
differences to these consolidated financial statements are as follows:
Consolidated Statements of Operations:
Nine months ended September 30, 1999 with comparative figures for the years
ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
----------------- --------------- ---------------
<S> <C> <C> <C>
Net earnings (loss) in accordance with
Canadian GAAP $ (3,013,507) $ (1,131,014) $ 422,751
Effects of differences in accounting for:
Compensation expense(i) (21,000) - -
----------------- --------------- ---------------
Net earnings(loss) (3,034,507) (1,131,014) 422,751
Loss per share (ii) $ (0.31) $ (0.13) $ 0.05
Weighted average number of shares
Outstanding under U.S. GAAP 9,925,679 8,961,526 8,885,940
================= =============== ===============
</TABLE>
(i) Compensation expense:
For United States GAAP purposes, the Company has elected under
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") to continue to apply the
intrinsic value based method of accounting for stock-based compensation
under APB 25 "Accounting for Stock Issued to Employees". Under the
intrinsic value based method, stock compensation is the excess, if any,
of the quoted market value of the stock at the measured date of the
grant over the amount an optionee must pay to acquire the stock.
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Notes to Consolidated Financial Statements, page 16
Nine months ended September 30, 1999 and years ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
20. United States generally accepted accounting principles (continued):
(i) Compensation expense (continued):
Under United States GAAP, the issue of stock options to non-employees
is accounted for under SFAS 123. The fair value of the stock options
granted to non-employees during the nine months ended September 30,
1999 was estimated using the Black-Scholes option-pricing model and the
following weighted-average assumptions: dividend yield 0.0%, expected
volatility 70%, risk-free interest rate 5.5% and expected average
option term of 3.5 years. The fair value of the options granted was
$0.09 per option. Accounting for the non-employee options on this basis
would result in recording additional compensation expense and
additional paid-up capital of $21,000 (December 31, 1998 - $Nil;
December 31, 1997 - $Nil).
(ii)Earnings (loss) per share:
Proforma earnings (loss) per share gives retroactive effect, for the
years presented, to the exercise of the 11,000,000 Special Warrants and
issuance of Common shares related to the reverse take-over (notes 2 and
22). The Special Warrants are considered to be residual equity
securities. Under U.S. GAAP, the weighted average number of shares used
in the calculation of proforma basic and fully diluted EPS exclude
performance based Common shares under the Company's Employee Stock
Bonus Plan (note 14(d)).
Under U.S. GAAP, the weighted average number of shares used in the
calculation of diluted earnings (loss) per share would be calculated by
the treasury stock method whereby it is assumed that proceeds received
from the Company from the exercise of dilutive securities are used to
repurchase outstanding shares in the market. As the effect of options
and common share purchase warrants are anti-dilutive, diluted loss per
share does not differ from basic loss per share.
21. Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using Year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Notes to Consolidated Financial Statements, page 17
Nine months ended September 30, 1999 and years ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
22. Subsequent events:
(a) The Company obtained a Receipt, effective October 21, 1999, from the
British Columbia Securities Commission for filing of its Annual
Information Form. As a result, the Company has completed its prospectus
level disclosure requirements, subject to on-going filing requirements
with the Vancouver Stock Exchange, arising from the reverse take-over
that took place June 18, 1999 (note 2). The holding period for shares
issued on the private placement (note 13(c)) and the share exchange
(note 13(a)) is reduced from twelve months to four months from the
closing date of June 18, 1999. Therefore 2,000,000 Common shares have
been issued as free trading to investors in exchange for the 2,000,000
Special Warrants issued on the private placement (note 13(c)). In
addition, 10,000,000 Common shares have been issued on October 21, 1999
to former shareholders and 1,000,000 Common shares were issued to the
SESB Trust in exchange for the 11,000,000 Special Warrants issued
pursuant to the reverse take-over agreement (note 13(a)). A further
51,666 Special Warrants issued for services rendered were exercised for
an equivalent number of Common shares of the Company.
(b) On February 24, 2000, the Company entered into a letter of intent to
acquire Financial Management Group LLC (a Nevada LLC), a company which
provides software solutions to the credit counseling industry in the
United States. The Company intends to purchase from the shareholder of
Financial Management Group LLC ("FMG") all of the issued and
outstanding common shares in FMG for total consideration of 100,000
Common shares of the Company. The shares will be placed in trust
pursuant to a voluntary pooling agreement and will not be released to
the vendor for a period of two years. The vendor will also receive an
additional 95,000 Common shares of the Company, subject to the same
pooling agreement , upon the successful development and completion of a
new asset called the OpenEC Credit Counseling Portal ("OCC Portal"). If
the new OCC Portal achieves recurring revenue of US$300,000 per month,
an additional 55,000 Common shares of the Company will be issued to the
vendor. If the new OCC Portal achieves recurring revenue of
US$1,000,000 per month, a further 50,000 Common shares of the Company
will be issued to the vendor. The shares to be issued based on revenue
targets are not subject to any pooling agreement.
(c) During the period from October 1, 1999 to February 24, 2000, the
Company received gross proceeds of $1,450,000 from the exercise of
warrants.
<PAGE>
A-2
Interim Consolidated Financial Statements of
SOFTcARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Six Months ended November 30, 1999
(Unaudited)
<PAGE>
<TABLE>
<CAPTION>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Interim Consolidated Balance SheetNovember 30, 1999 and May 31,1999 (Unaudited)
November 30, May 31,
1999 1999
(unaudited) (audited)
-------------- --------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 147,394 $ 141,637
Accounts receivable, net of allowance for
doubtful accounts of $40,000 (May 31, 1999 - $23,917) 228,204 252,376
Short term investments 2,206,674 -
Inventory 5,000 5,000
Prepaid expenses 6,991 5,080
Investment tax credits receivable (note 4) 50,231 50,231
-------------- --------------
2,644,494 454,324
Capital assets (note 5) 158,286 129,492
-------------- --------------
$ 2,802,780 $ 583,816
============== ==============
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness $ 155,000 $ 155,000
Accounts payable and accrued liabilities 224,472 283,228
Advance from proposed acquiror (note 2) - 250,000
Current portion of long-term debt (note 6) 40,200 40,200
Current portion of capital lease obligations (note 7) 29,777 35,102
Current portion of redeemable Class A preference shares (note 8) 30,000 30,000
Deferred revenue 105,193 91,115
-------------- --------------
584,642 884,645
Long-term debt (note 6) 16,750 36,850
Obligations under capital leases (note 7) 41,969 24,332
Redeemable Class A preference shares (note 8) 87,500 102,500
-------------- --------------
730,861 1,048,327
-------------- --------------
Shareholders' equity:
Special warrants (note 9) 283,239 -
Share capital (note 10) 6,758,128 3,321,604
Additional paid-in capital 1,279,753 1,279,753
Deferred stock compensation (note 10 (d)) - (861,533)
Unearned Employee Stock Bonus Plan (note 10(d)) (1,279,975) (1,279,975)
Deficit (4,969,226) (2,924,360)
-------------- --------------
2,071,919 (464,511)
Uncertainty due to the Year 2000 Issue (note 11)
-------------- --------------
$ 2,802,780 $ 583,816
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Interim Consolidated Statement of Operations and Deficit
Six months ended November 30, 1999 and 1998 (Unaudited)
1999 1998
--------------- ---------------
Revenue:
Software sales $ 280,992 $ 344,073
Consulting services 48,709 91,083
Training services 7,454 5,523
Maintenance fees 88,042 95,795
Interest income 14,241 -
--------------- ---------------
439,438 535,474
Expenses:
Salaries and wages 825,256 383,416
Other compensation (note 10(b)) 861,533 -
Selling 65,700 149,294
General and administrative 695,055 450,071
Amortization 36,760 36,565
--------------- ---------------
2,484,304 1,019,346
--------------- ---------------
Net loss (2,044,866) (483,872)
Deficit, beginning of period (2,924,360) (873,234)
--------------- ---------------
Deficit, end of period $ (4,969,226) $ (1,357,106)
=============== ===============
Earnings (loss) per share (note 12) $ (0.17) $ (0.05)
=============== ===============
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Interim Consolidated Statement of Cash Flows
Six months ended November 30, 1999 and 1998 (Unaudited)
1999 1998
--------------- ---------------
<S> <C> <C>
Cash flow from operating activities:
Net earnings (loss) $ (2,044,866) $ (483,872)
Items not involving cash:
Depreciaton and amortization 36,760 36,565
Common stock issued for services 861,533 -
Changes in non-cash operating working capital:
Accounts receivable 472,689 (94,743)
Inventory - 4,708
Prepaid expenses 240,865 (15,338)
Investment tax credit receivable (34,608)
Accounts payable and accrued liabilities (413,235) 21,387
Deferred revenue 14,078 20,432
--------------- ---------------
Net cash used in operating activities (832,176) (545,469)
Cash flow from investing activities:
Purchase of capital assets (65,554) (54,502)
Purchase of short term investments (2,206,674) -
--------------- ---------------
Net cash used in investing activities (2,272,228) (54,502)
Cash flow from financing activities:
Redemption of Class A preference shares (15,000) (15,000)
Decrease in long-term debt (20,100) (20,100)
Increase in capital lease obligations 12,312 11,295
Share purchase options exercised for cash 39,200 -
Common stock issued for cash 247 -
Warrants issued for cash on private placement,
net of costs of $280,000 (note 9(c)) 2,720,000 -
Warrants issued on reverse take-over, net of costs
of $199,600 (note 2) 373,502 -
--------------- ---------------
Net cash provided by (used in) financing activities 3,110,161 (23,805)
--------------- ---------------
Increase (decrease) in cash and cash equivalents 5,757 (623,776)
Cash and cash equivalents, beginning of period 141,637 1,180,328
--------------- ---------------
Cash and cash equivalents, end of period $ 147,394 $ 556,552
=============== ===============
Supplemental disclosure of non-cash financing
and investing activities:
Issuance of warrants on reverse take-over for
non-cash working capital (note 2) $ 586,814 $ -
Issuance of warrants on private placement for
financing services rendered $ 41,223 $ -
Issuance of warrants on reverse take-over for
services rendered $ 66,132 $ -
Interest expense $ 15,513 $ 17,161
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 1
Six months ended November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
1. Operations:
The Company was incorporated pursuant to the Company Act of the Province of
British Columbia on March 30, 1981. The Company changed its name from
International Savannah Ventures Ltd. to SoftCare EC.com Inc. ("EC.com") on
June 10, 1999 prior to the reverse take-over as described in note 2. In
conjunction with this transaction, the Company changed its fiscal year end
from March 31 to May 31. Prior to the reverse take-over, the Company had
been involved in mining exploration.
EC.com and its subsidiaries develop and market Electronic Data Interchange
(EDI) software primarily to retailers, financial and public institutions,
utilities, pharmaceuticals and wholesalers across Canada, the United States
and Asia. The Company also develops and markets e-commerce software,
providing licenses and support services to both domestic and international
markets.
The Company has experienced operating losses and negative cash flows from
operations and has had to rely on debt and equity financing for cash
requirements for operations. The Company's ability to achieve profitability
and positive cash flows from operations will depend upon its ability to
continue to attract strategic corporate partners for development, marketing
and distribution, and sale of its products and on the results of its
research and development activities.
As at November 30, 1999, the Company had cash and cash equivalents of
$147,394 and short-term investments of $2,206,674. Management believes that
the Company has sufficient cash and other working capital to carry out its
operations during the next twelve months.
2. Reverse take-over:
On June 18, 1999, EC.com completed an agreement with the shareholders of
SoftCare Electronic Commerce Inc. ("SoftCare") pursuant to which EC.com
issued 11,000,000 Special Warrants to acquire all the issued and
outstanding common shares of SoftCare (note 9). At the date of acquisition,
EC.com had no substantive operations. As a result of this transaction, the
former shareholders of SoftCare acquired 88.8 percent of the Company as a
group. SoftCare is considered the accounting acquirer for financial
statement purposes. In conjunction with this transaction, Softcare changed
its fiscal year-end from December 31 to May 31.
The acquisition has been accounted for as a reverse take-over using the
purchase method, and accordingly, for financial statement reporting
purposes, the net assets of SoftCare have been included in the balance
sheet at book values, and the net assets of EC.com have been recorded at
fair market value at the date of acquisition. The historical shareholders'
equity give effect to the shares issuable to the shareholders of Softcare
upon exercise of the 11,000,000 Special Warrants. The consolidated
operations of the Company for the six months ended November 30, 1998 are
those of SoftCare and its subsidiaries and exclude the accounts of EC.com.
The results of EC.com were included from the date of acquisition, June 18,
1999.
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 2
Six months ended November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
2. Reverse take-over (continued):
The cost of the acquisition is estimated at the fair value of the net
assets of EC.com acquired on June 18, 1999 and consists of:
Cash $ 73,102
Accounts receivable 448,517
Prepaid expenses 242,776
Cash advances to SoftCare 500,000
Accounts payable (104,479)
--------------
$ 1,159,916
=============
3. Significant accounting policies:
(a) Basis of presentation:
These consolidated financial statements include the accounts of EC.com
and its wholly-owned subsidiary SoftCare, and SoftCare's wholly owned
subsidiaries, SCC Holdings Ltd., SCEC Holdings Ltd. and SoftCare
Electronic Commerce (U.S.A.) Inc., collectively referred to as "the
Company".
EC.com also owns 100 percent of Bus Holdings Corporation, an Anguilla
company. This company is not commercially active, has no assets or
liabilities and has been effectively abandoned by the Company.
All intercompany balances and transactions have been eliminated on
consolidation.
The audited financial statements have been prepared in Canadian dollars
in accordance with generally accepted accounting principles in Canada
and generally conform with those establish in the United States, except
as explained in note 14.
(b) Use of estimates:
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities and
reported amounts of revenues and expenses during the reporting period.
Significant areas requiring the use of estimates include estimating the
recoverability of accounts receivable and investment tax credits
receivable and valuing equity instruments. Actual results could differ
from these estimates.
(c) Cash and cash equivalents:
Cash and cash equivalents includes short-term investments with an
initial term of 90 days or less.
(d) Short term investments:
Short term investments are carried at the lower of cost or market and
consist of investments in term deposits.
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 3
Six months ended November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
3. Significant accounting policies (continued):
(e) Revenue recognition:
The Company's revenue recognition policy conforms to the Statement of
Position 97-2, Software Revenue Recognition, issued by the American
Institute of Certified Public Accountants. A software arrangement
entered into by the Company may encompass multiple elements, including
the software product, consulting, training and annual maintenance fees.
The fee of a multiple element arrangement is allocated to each element
based upon its fair value. Fair value is established through the
Company's policy to charge to customers the same price as when the
element is sold separately. Unspecified upgrades or enhancements of the
Company's products are considered maintenance and are recognized over
the contract period. Revenue from sales made to re-sellers is
recognized after the third-party sale occurs and the revenue is
determinable. Consulting services offered by the Company are not
considered essential to the functionality of the software arrangement.
As a result, consulting and training revnues are recognized as the work
is performed. Maintenance contract revenue is deferred and recognized
over the respective contract periods.
Revenue from direct product sales is recognized when the product has
been delivered, as no significant obligations remain, fees are fixed
and determinable, collectibility is probable, and persuasive evidence
of an arrangement exists.
If sales of products are contingent upon successful installation and
subsequent customer acceptance, revenue is recognized upon customer
acceptance.
(f) Inventory:
Inventory is valued at the lower of cost or net realizable value.
(g) Capital assets:
Capital assets are recorded at cost and depreciated using the declining
balance method at the following annual rates:
Computer and testing equipment 30%
Computer software 100%
Office equipment 20%
Office furniture 20%
Display booths 30%
Leasehold improvements Term of lease
Computer equipment acquired under capital leases is depreciated on a
straight-line basis over its estimated economic life of approximately
three years.
(h) Translation of foreign currencies:
Monetary assets and liabilities denominated in foreign currencies have
been translated into Canadian dollars at the rate of exchange
prevailing at the balance sheet date and non-monetary items are
translated at rates of exchange in effect when the assets are acquired
or obligations incurred. Revenue and expense items are translated at
the average rate of exchange for the period. Foreign exchange gains and
losses are included in income.
The temporal method has been used to translate integrated foreign
subsidiary operations.
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 3a
Six months ended November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
3. Significant accounting policies (continued):
(i) Refundable investment tax credits:
Refundable investment tax credits resulting from eligible Scientific
Research and Experimental Development expenditures are recorded as a
reduction of related costs in the period in which they are incurred.
(j) Research and development costs:
Research costs are expensed as incurred. Development costs are charged
to expense as incurred unless the development project meets the
criteria under generally accepted accounting principles for deferral
and amortization. The Company has not deferred any development costs to
date.
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 4
Six months ended November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
3. Significant accounting policies (continued):
(k) Impairment of long-lived assets:
The Company monitors the recoverability of long-lived assets, including
capital and intangible assets based upon estimates using factors such
as future asset utilization, business climate and future non-discounted
cash flows expected to result from the use of the related assets or to
be realized on sale. The Company's policy is to write down assets to
their net recoverable amount in the period when it is likely that the
carrying amount of asset will not be recovered.
(l) Employee Stock Bonus Plan
Equity instruments contributed to the Plan by the Company are recorded
at their estimated market value at the date of their contribution and
are recorded as a credit in shareholders' equity. A contra equity
account is recognized until allocations to participants are considered
compensation expense.
Compensation expense is recognized in the period when it is likely that
performance criteria will be met and the equity instruments allocated
to participants will be released.
4. Investment tax credits receivable:
Management has estimated and filed for refundable investment tax credits
relating to the Company's eligible scientific research and experimental
development pursuant to the Canadian Income Tax Act. The refundable taxes
have been recorded as a reduction of the Company's wages expense and are as
follows:
November 30, May 31,
1999 1998
------------ ------------
1997 $ 43,610 $ 43,610
1998 6,621 6,621
------------ ------------
$ 50,231 $ 50,231
============ ============
Any adjustments between the amounts recorded and the amounts ultimately
realized will be recorded in the year they occur.
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 5
Six months ended November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
5. Capital assets:
<TABLE>
<CAPTION>
November 30, May 31,
1999 1999
----------------------------------------- ------------
Accumulated Net book Net book
Cost amortization value value
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Computer and testing equipment $ 292,815 $ 185,811 $ 107,004 $ 78,429
Computer software 62,253 51,647 10,606 5,035
Office equipment 20,418 11,307 9,111 10,347
Office furniture 36,560 16,785 19,775 21,972
Display booth 21,755 16,047 5,708 6,715
Leasehold improvements 9,122 3,040 6,082 6,994
---------- ------------ ----------- ------------
$ 442,923 $ 284,637 $ 158,286 $ 129,492
========== ============ =========== ============
</TABLE>
6. Long-term debt:
The Company has a bank loan agreement with the Business Development Bank of
Canada. The agreement contains certain covenants that impose limitations
restricting the Company's dividend-paying ability and changes in ownership.
The bank loan is repayable with variable interest at 4% over the bank's
prime rate and is secured by substantially all of the Company's assets.
Royalties are also payable to the Bank based on the Company's gross sales.
Principal repayments of $3,350 are due each month. The agreement contains
certain covenants that impose limitations restricting the Company's
dividend-paying ability and changes in ownership.
7. Obligations under capital leases:
The following is a schedule of future minimum lease obligation payments
ending November 30, 199 and May 31, 1999:
November 30, May 31,
------------ ------------
1999 1999
2000 41,513 39,397
2001 30,870 19,018
2002 12,831 8,234
2003 5,128 -
2004 2,564 -
------------ ------------
92,906 66,649
Less amount representing interest (21,160) (7,215)
------------ ------------
Present value of minimum lease payments 71,746 59,434
Less current portion (29,777) (35,102)
------------ ------------
$ 41,969 $ 24,332
============ ============
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 6
Six months ended November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
8. Redeemable Class A preference shares:
Authorized:
225,000 Class A preference non-voting shares with a par value of $1 each
1999 1999
Number Amount
--------- ------------
Balance, May 31 132,500 $ 132,500
Redemption of shares for cash (15,000) (15,000)
--------- ------------
Balance, November 30 117,500 117,500
Less current portion (30,000)
--------- ------------
$ 87,500
========= ============
Under an agreement between the Company and one of its shareholders, the
Class A Preference shares are redeemed each month for cash consideration of
between $nil and $10,000 based upon the Company's gross quarterly sales.
The Company has been making redemption payments of $2,500 each month but
may at any time accelerate the redemption payments. The shares are
convertible into common voting shares should the Company default on the
required redemption payments.
9. Special Warrants:
During the period ended November 30, 1999, the Company issued the following
special warrants for cash and other consideration:
<TABLE>
<CAPTION>
Number of 1999
Warrants Amount
------------ -------------
<S> <C> <C>
Special Warrants issued on acquisition (a) 11,000,000 $ 1,159,916
Special Warrants issued for services rendered (b) 51,666 66,132
Warrants issued in private placement, net of costs (c) 2,000,000 2,678,777
Agent's Special Warrants (d) 196,300 41,223
Issuance costs on reverse take-over (265,732)
------------ -------------
13,247,966 $ 3,680,316
Special Warrants exercised for Common Shares,
net of issuance costs (a) (10,000,000) 812,895
Special Warrants exercised for Common Shares (b) (51,666) (66,132)
Special Warrants exercised for Common Shares,
net of issuance costs (c) (2,000,000) (2,518,050)
------------ -------------
Warrants outstanding, November 30, 1999 3,196,300 $ 283,239
============ =============
</TABLE>
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 7
Six months ended November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
9. Special Warrants (continued):
At November 30, 1999 Special Warrants outstanding consisted of:
<TABLE>
<CAPTION>
<S> <C> <C>
Special Warrants issued on acquisition (a) 1,000,000 $ 81,289
Share purchase warrants issued in
private placement, net of costs (c) 2,000,000 2,160,727
Agent's Special Warrants (d) 196,300 41,223
------------ -------------
3,196,300 $ 283,239
============ =============
</TABLE>
(a) The Company issued 11,000,000 Special Warrants in exchange for all of
the issued and outstanding common shares of Softcare Electronic
Commerce Inc. pursuant to the reverse takeover agreement effective,
June 18, 1999 (Note 2). Each of the Special Warrants is exercisable for
one common share, without any additional consideration.
Of the 11,000,000 warrants issued, 10,000,000 were issued to the
existing shareholders of Softcare pursuant to the reverse takeover
transaction. During the period, each of these 10,000,000 warrants was
exercised for one common share of the Company. The common shares so
issued are subject to a voluntary pooling agreement, which restricts
the transfer or sale by the holders.
The remaining 1,000,000 warrants were issued to the SESB Trust to
provide for Employee Bonus Shares upon exercise of such warrants. Two
of the Directors of the Company are also the Trustees of the Trust and
may only release such shares from the Trust to employees in accordance
with regulatory approval and certain performance criteria established
(note 10(d)).
(b) The Company issued 51,666 Special Warrants as a finder's fee and
corporate advisory fee upon completion of the reverse takeover. Each of
the warrants has been exercised, without any additional consideration,
for one common share of the Company. The value of the services,
$66,132, is included in the issuance costs related to the reverse
take-over.
(c) The Company issued 2,000,000 Special Warrants for gross proceeds of
$3,000,000 cash pursuant to a broker-assisted private placement. Costs
incurred to effect the private placement include a $280,000 commission
and 196,300 agent warrants issued valued at $41,223 (note 9(d))
resulting in net proceeds of the offering of $2,678,777. During the
period, each Special Warrant was exercised, at no additional cost, into
one Common share and one Share Purchase Warrant, which is transferable
upon regulatory approval. The equity component of the Special Warrant
offering was valued, net of costs, at $2,518,050 and is included in
other paid-in capital as a separate component of shareholder's equity.
The value assigned to the underlying warrants of the Special Warrants
offering was valued, net of costs, at $160,727 and is included in
warrants as a separate component of shareholders' equity.
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 8
Six months ended November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
9. Special Warrants (continued):
Each Share Purchase Warrant received upon exercise of a Special Warrant
is exercisable for a period of one year from June 18, 1999, and entitle
the holder to purchase one Common share at a price of $2.50 cash until
June 18, 2000 at which time they will expire. Notwithstanding the
foregoing, if at any time before the expiry date, the Common shares of
the Company trade on any securities exchange over a period of ten
consecutive trading days at a weighted average price of not less than
$3.00 per Common share, then at the option of the Company, any Share
Purchase Warrant not exercised within 30 days of written notice to the
holder by the Company will expire.
(d) The Company issued 196,300 Agent's Special Warrants as part of an
agency agreement with respect to the brokered private placement of
2,000,000 Special Warrants. Each Agent's Special Warrant has been
exercised, without any additional consideration, for one Agent's
Warrant. Each Agent's Warrant is exercisable for one common share of
the Company at $1.50 cash per share for a period of one year from June
18, 1999. One half of the Agent's Warrants and/or shares are subject to
resale restrictions which expire three months from the date the shares
become tradable free from hold periods. The estimated value of the
warrants, $41,223, is included in issuance costs related to the private
placement.
10. Share capital:
(a) Authorized:
100,000,000 common voting shares without par value.
(b) Issued and outstanding Common shares:
<TABLE>
<CAPTION>
Number of
common shares Amount
------------- -----------
<S> <C> <C>
Balance, December 31,1998 8,961,526 $ 2,012,059
Issuance of shares to an employee for services rendered 38,470 29,545
Issuance of shares to Employee Stock Bonus
Plan (note 10(d)). 999,998 1,280,000
----------- -----------
Balance, May 31, 1999 9,999,994 3,321,604
----------- -----------
Issuance of shares for services rendered 1,000,006 1,280,000
Adjustments to effect June 18, 1999 reverse
takeover accounting (note 2):
Issued share capital of
SoftCare Electronic Commerce Inc. (11,000,000)
Issuance of share capital of the Company 1,391,428
Issuance of shares for exercise of stock options 23,334 39,200
----------- -----------
Issuance of shares for exercise of Special Warrants 12,051,666 3,397,077
Balance, November 30, 1999 13,466,428 $ 8,037,881
=========== ===========
</TABLE>
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 9
Six months ended November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
10. Share capital (continued):
Prior to and in anticipation of the reverse take-over transaction (note
2), options to acquire 1,000,006 Common shares of SoftCare valued at
$1,280,000 were granted to employees. The options were only exercisable
concurrent with the completion of any reverse take over, sale or other
disposition of the shares of the Company that occurred on or before
September 30, 1999, their expiry date. The options were granted in lieu
of salary and were given in exchange for general financing services to
be performed over a five month period ended September 11, 1999. These
options were exercised on June 14, 1999 for cash proceeds of $247. The
excess value of Common shares over cash received has been recorded as
compensation expense in the consolidated financial statements.
Furthermore, 999,998 Common shares also valued at $1,280,000 were
issued to the SESB Trust (note 9(a)) for cash proceeds of $25. These
shares were exchanged for Special Warrants (note 9(a)).
23,334 stock options held by a former Director and a former Officer
were exercised into 23,334 Common shares at a price of $1.68 cash per
Common share during the six months ended November 30, 1999.
(c) Stock options:
<TABLE>
<CAPTION>
Number of Exercise Expiry
Options Price Date
----------- ------------- ----------------
<S> <C> <C> <C>
Balance, November 30, 1998 90,000 $1.68 May, 2002 and
January, 2003
Options exercised (33,333) $1.68
----------- ------------- ----------------
Balance, May 31, 1999 56,667
Options granted:
Granted to directors and employees
of SoftCare 444,503 $6.07 April, 2004
Granted to directors, officers,
employees and consultants 1,150,000 $1.50 April, 2004 and
November, 2004
SoftCare options cancelled on reverse
take-over (i) (197,557) $(6.07)
Options exercised (ii) and (b) (553,613) $1.50 - 1.68
----------- ------------- ----------------
Balance, November 30, 1999 900,000
===========
</TABLE>
(i) 800,000 stock options, exercisable at a price of $1.50 cash per
Common share, were granted to Directors of the Company in exchange
for 197,557 stock options of SoftCare on June 18, 1999 as part of
reverse take-over agreement (note 2). The stock options expire in
April, 2004. None of these options were exercised during the
period ended November 30, 1999. 250,000 stock options were granted
and exercised by officers, directors, and a consultant on June 18,
1999. Each option was exercisable at a price of $1.50 per Common
share.
100,000 stock options, exercisable at a price of $1.50 cash per
Common share, were granted to an individual pursuant to a
consulting agreement. The stock option agreement expires in
November, 2004 or earlier if the consulting contract is terminated
prior to that date. None of these options were exercised during
the period.
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 9a
Six months ended November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
10. Share capital (continued):
(ii) 306,667 stock options, exercisable at prices between $1.50 and
$1.68 cash per Common share, were exercised during the six months
ended November 30, 1999. 283,333 were exercised for common shares
of SoftCare and exchanged for Special Warrants.
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 10
Six months ended November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
10. Share capital (continued):
(d) Employee Stock Bonus Plan:
The Company established a non-leveraged Employee Stock Bonus Plan (the
"Plan") in 1999 covering directors, officers and employees who have
completed six months or more service with the Company. Prior to the
reverse take-over transaction (note 2) 999,998Common shares of SoftCare
were contributed to the Plan for $25 cash. These shares were exchanged
for 999,998Special Warrants of the Company which are exercisable into
1,000,000 Common Shares of the Company. As at November 30, 1999,
187,030 Special Warrants which are exercisable into 187,030 Common
shares of the Company valued at $1.28 per share, were allocated to
employees. Release of these shares to employees are subject to the
Company meeting a revenue target of $4,000,000. No compensation expense
has been recognized in the accounts as it is not likely that
performance criteria established for the release of these shares will
be met.
Vesting terms of participant allocated shares are determined by the
Board of Directors but is generally contingent on revenue targets, and
for certain employees, also sales quotas, being achieved.
11. Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using Year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
12. Earnings (loss) per share:
Basic earnings (loss) per share computations are based on the weighted
average number of shares outstanding during the period.
In accordance with the reverse take-over agreement (note 2), EC.com issued
11,000,000 Special Warrants, each of which is exercisable for one Common
share. No Common shares were issued to effect the transaction. The Special
Warrants were exercised for Common shares in November 1999. Generally
accepted accounting principles require that earnings (loss) per share, for
periods prior to a reverse take-over transaction, be calculated using the
number of common shares issued by the legal parent (EC.com) to effect the
transaction on the date it occurred.
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Notes to Consolidated Financial Statements, page 11
Six months ended November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
12. Earnings (loss) per share (continued):
Proforma earnings per share calculations below, for the years presented,
give retroactive effect to the exercise of the 11,000,000 Special Warrants
and the issuance of the Common shares at the reverse take-over transaction
date:
Six months Six months
Ended Ended
November 30, November 30,
1999 1998
------------ ------------
Proforma basic loss per Common
share (note 3(l)) $ (0.17) $ (0.05)
Weighted average number of Common
shares used in proforma basic loss
per share calculation 12,199,102 8,961,526
========== ==========
900,000 (1998 - 90,000) stock options and 2,196,300 (1998 - nil) warrants
in addition to those 1,000,000issued as a result of the reverse take-over
(notes 9 and 10) are anti-dilutive for the six-months periods ended
November 30, 1999 and, accordingly, proforma fully diluted loss per share
does not differ from proforma basic loss per share for the periods
presented.
13. Adoption of new accounting standard:
The Company adopted CICA Handbook Section 1540, Cash Flow Statements for
the period ended November 30. The provisions were applied retroactively
with restatement of prior period financial statements. Under Section 1540,
non-cash investing and financing activities are excluded from the statement
of cash flows and are disclosed as supplementary information to the
Consolidated Statements of Cash Flows.
14. United States generally accepted accounting principles:
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in Canada ("Canadian GAAP"),
which differ in certain respects with accounting principles generally
accepted in the United States ("U.S. GAAP"). Material measurement
differences to these consolidated financial statements are as follows:
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Notes to Consolidated Financial Statements, page 12
Six months ended November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
14. United States generally accepted accounting principles (continued):
Consolidated statement of operations:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) in accordance with
Canadian GAAP $ (2,044,866) $ (483,872)
Effects of differences in accounting for:
Compensation expense(i) (21,000) -
--------------- ---------------
Net income (loss) $ (2,065,866) $ (483,872)
Loss per share (ii) $ (0.18) $ (0.05)
Weighted average number of shares
Outstanding under U.S. GAAP 11,199,102 8,961,524
=============== ===============
</TABLE>
(i) Compensation expense:
For United States GAAP purposes, the Company has elected under
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") to continue to apply the
intrinsic value based method of accounting for stock-based compensation
under APB 25 "Accounting for Stock Issued to Employees". Under the
intrinsic value based method, stock compensation is the excess, if any,
of the quoted market value of the stock at the measured date of the
grant over the amount an optionee must pay to acquire the stock.
Under United States GAAP, the issue of stock options to non-employees
is accounted for under SFAS 123. The fair value of the stock options
granted to non-employees during the six months ended November 30, 1999
was estimated using the Black-Scholes option-pricing model and the
following weighted-average assumptions: dividend yield 0.0%, expected
volatility 70%, risk-free interest rate 5.5% and expected average
option term of 3.5 years. The fair value of the options granted was
$0.09 per option. Accounting for the non-employee options on this basis
would result in recording additional compensation expense and
additional paid-up capital of $21,000 (November 30, 1998 - $Nil).
(ii)Earnings (loss) per share:
Proforma earnings (loss) per share gives retroactive effect, for the
periods presented, to the exercise of the 11,000,000 Special Warrants
and issuance of Common shares related to the reverse take-over (notes
2). The Special Warrants are considered to be residual equity
securities. Under U.S. GAAP, the weighted average number of shares used
in the calculation of proforma basic and fully diluted EPS exclude
performance based Common shares under the Company's Employee Stock
Bonus Plan (note 10(d)).
Under U.S. GAAP, the weighted average number of shares used in the
calculation of diluted earnings (loss) per share would be calculated by
the treasury stock method whereby it is assumed that proceeds received
from the Company from the exercise of dilutive securities are used to
repurchase outstanding shares in the market. As the effect of options
and common share purchase warrants are anti-dilutive, diluted loss per
share does not differ from basic loss per share.
<PAGE>
A-3
Interim Consolidated Financial Statements of
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Nine Months ended February 29, 2000
(Unaudited)
<PAGE>
<TABLE>
<CAPTION>
SOFTCARE Ec.COM INC.
(Formerly International Savannah Ventures Ltd.)
Interim Consolidated Balance Sheet
February 29, 2000 and May 31, 1999
February 29, May 31,
2000 1999
(unaudited) (audited)
-------------- --------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,272,862 $ 141,637
Accounts receivable, net of allowance for
doubtful accounts of $35,577 (May 31, 1999 - $23,917) 178,967 252,376
Note receivable 36,803 -
Short term investments 1,561,931 -
Inventory 5,000 5,000
Prepaid expenses 3,186 5,080
Investment tax credits receivable (note 4) 174,607 50,231
-------------- --------------
3,233,356 454,324
Capital assets (note 5) 209,974 129,492
-------------- --------------
$ 3,443,330 $ 583,816
============== ==============
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness $ - $ 155,000
Accounts payable and accrued liabilities 173,596 283,228
Advance from proposed acquiror (note 2) - 250,000
Current portion of long-term debt (note 6) 40,200 40,200
Current portion of capital lease obligations (note 7) 32,450 35,102
Current portion of redeemable Class A preference shares (note 8) 30,000 30,000
Deferred revenue 101,670 91,115
-------------- --------------
377,916 884,645
Long-term debt (note 6) 6,700 36,850
Obligations under capital leases (note 7) 39,246 24,332
Redeemable Class A preference shares (note 8) 80,000 102,500
-------------- --------------
503,862 1,048,327
-------------- --------------
Shareholders' equity:
Special warrants (note 9) 151,467 -
Share capital (note 10) 9,684,653 3,321,604
Additonal paid-in capital - 1,279,753
Unearned Employee Stock Bonus Plan (note 10(d)) (1,279,975) (1,279,975)
Deferred compensation expense - (861,533)
Deficit (5,616,677) (2,924,360)
-------------- --------------
2,939,468 (464,511)
Uncertainty due to the Year 2000 Issue (note 11)
-------------- --------------
$ 3,443,330 $ 583,816
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SOFTCARE Ec.COM INC.
(Formerly International Savannah Ventures Ltd.)
Interim Consolidated Statement of Operations and Deficit
Nine months ended February 29, 2000 and February 28, 1999 (Unaudited)
2000 1999
-------------- --------------
Revenue:
Software sales $ 315,620 $ 493,328
Consulting services 62,602 122,041
Training services 9,454 20,023
Maintenance fees 127,322 128,838
Interest income 47,112 2,410
-------------- --------------
562,110 766,640
Expenses:
Salaries and wages 1,166,103 769,231
Other compensation (note 10(b)) 861,533 -
Selling 90,428 164,687
General and administrative 1,082,674 625,339
Amortization 53,689 56,715
-------------- --------------
3,254,427 1,616,062
-------------- --------------
Net loss (2,692,317) (849,422)
Deficit, beginning of period (2,924,360) (873,234)
-------------- --------------
Deficit, end of period $ (5,616,677) $ (1,722,656)
============== ==============
Earnings (loss) per share (note 12) $ (0.19) $ (0.09)
============== ==============
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Interim Consolidated Statement of Cash Flows
Nine months ended February 29, 2000 and February 28, 1999 (Unaudited)
2000 1999
-------------- --------------
<S> <C> <C>
Cash flow from operating activities:
Net earnings (loss) $ (2,692,317) $ (849,422)
Items not involving cash:
Amortization 53,689 56,715
Common stock issued for services 861,533 -
Changes in non-cash operating working capital:
Accounts receivable 521,926 (83,519)
Note receivable (36,803) -
Inventory - 4,708
Prepaid expenses 244,670 (48,224)
Investment tax credit receivable (124,376) (50,108)
Accounts payable and accrued liabilities (464,111) 27,545
Deferred revenue 10,555 3,137
-------------- --------------
Net cash used in operating activities (1,625,234) (939,168)
Cash flow from investing activities:
Purchase of capital assets (134,171) (47,887)
Purchase of short term investments (1,561,931) -
-------------- --------------
Net cash used in investing activities (1,696,102) (47,887)
Cash flow from financing activities:
Increase (decrease) in bank indebtedness (155,000) 160,000
Redemption of Class A preference shares (22,500) (22,500)
Decrease in long-term debt (30,150) (30,150)
Increase in capital lease obligations 12,262 2,660
Share purchase options exercised for cash 54,200 -
Common stock issued for cash 1,500,247 -
Warrants issued for cash on private placement,
net of costs of $280,000 (note 9(c)) 2,720,000 -
Warrants issued on reverse take-over, net of costs
of $199,600 (note 2) 373,502 -
-------------- --------------
Net cash provided by (used in) financing activities 4,452,561 110,010
-------------- --------------
Increase (decrease) in cash and cash equivalents 1,131,225 (877,045)
Cash and cash equivalents, beginning of period 141,637 1,180,328
-------------- --------------
Cash and cash equivalents, end of period $ 1,272,862 $ 303,283
-------------- --------------
Supplemental disclosure of non-cash financing and investing activities:
Issuance of warrants on reverse take-over for
non-cash working capital (note 2) $ 586,814 $ -
Issuance of warrants on private placement for
financing services rendered $ 41,223 $ -
Issuance of warrants on reverse take-over for
services rendered $ 66,132 $ -
Interest expense $ 19,415 $ 20,252
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 1
Nine months ended February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
1. Operations:
The Company was incorporated pursuant to the Company Act of the Province of
British Columbia on March 30, 1981. The Company changed its name from
International Savannah Ventures Ltd. to SoftCare EC.com Inc. ("EC.com") on
June 10, 1999 prior to the reverse take-over as described in note 2. In
conjunction with this transaction, the Company changed its fiscal year end
from March 31 to May 31. Prior to the reverse take-over, the Company had
been involved in mining exploration.
EC.com and its subsidiaries develop and market Electronic Data Interchange
(EDI) software primarily to retailers, financial and public institutions,
utilities, pharmaceuticals and wholesalers across Canada, the United States
and Asia. The Company also develops and markets e-commerce software,
providing licenses and support services to both domestic and international
markets.
The Company has experienced operating losses and negative cash flows from
operations and has had to rely on debt and equity financing for cash
requirements for operations. The Company's ability to achieve profitability
and positive cash flows from operations will depend upon its ability to
continue to attract strategic corporate partners for development, marketing
and distribution, and sale of its products and on the results of its
research and development activities.
As at February 29, 2000, the Company had cash and cash equivalents of
$1,272,862 and short-term investments of $1,561,931. Management believes
that the Company has sufficient cash and other working capital to carry out
its operations during the next twelve months.
2. Reverse take-over:
On June 18, 1999, EC.com completed an agreement with the shareholders of
SoftCare Electronic Commerce Inc. ("SoftCare") pursuant to which EC.com
issued 11,000,000 Special Warrants to acquire all the issued and
outstanding common shares of SoftCare (note 9). At the date of acquisition,
EC.com had no substantive operations. As a result of this transaction, the
former shareholders of SoftCare acquired 88.8 percent of the Company as a
group. SoftCare is considered the accounting acquirer for financial
statement purposes. In conjunction with this transaction, Softcare changed
its fiscal year-end from December 31 to May 31.
The acquisition has been accounted for as a reverse take-over using the
purchase method, and accordingly, for financial statement reporting
purposes, the net assets of SoftCare have been included in the balance
sheet at book values, and the net assets of EC.com have been recorded at
fair market value at the date of acquisition. The historical shareholders'
equity give effect to the shares issuable to the shareholders of Softcare
upon the exercise of the 11,000,000 Special Warrants. The consolidated
operations of the Company for the nine months ended February 28, 1999 are
those of SoftCare and its subsidiaries and exclude the accounts of EC.com.
The results of EC.com were included from the date of acquisition, June 18,
1999.
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 2
Nine months ended February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
2. Reverse take-over (continued):
The cost of the acquisition is estimated at the fair value of the net
assets of EC.com acquired on June 18, 1999 and consists of:
Cash $ 73,102
Accounts receivable 448,517
Prepaid expenses 242,776
Cash advances to SoftCare 500,000
Accounts payable (104,479)
--------------
$ 1,159,916
==============
3. Significant accounting policies:
(a) Basis of presentation:
These consolidated financial statements include the accounts of EC.com
and its wholly-owned subsidiary SoftCare, and SoftCare's wholly owned
subsidiaries, SCC Holdings Ltd., SCEC Holdings Ltd. and SoftCare
Electronic Commerce (U.S.A.) Inc., collectively referred to as "the
Company".
EC.com also owns 100 percent of Bus Holdings Corporation, an Anguilla
company. This company is not commercially active, has no assets or
liabilities and has been effectively abandoned by the Company.
All intercompany balances and transactions have been eliminated on
consolidation.
The audited financial statements have been prepared in Canadian dollars
in accordance with generally accepted accounting principles in Canada
and generally conform with those establish in the United States, except
as explained in note 14.
(b) Use of estimates:
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities and
reported amounts of revenues and expenses during the reporting period.
Significant areas requiring the use of estimates include estimating the
recoverability of accounts receivable and investment tax credits
receivable and valuing equity instruments. Actual results could differ
from these estimates.
(c) Cash and cash equivalents:
Cash and cash equivalents includes short-term investments with an
initial term of 90 days or less.
(d) Short term investments:
Short term investments are carried at the lower of cost or market and
consist of investments in term deposits.
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 3
Nine months ended February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
3. Significant accounting policies (continued):
(e) Revenue recognition:
The Company's revenue recognition policy conforms to the Statement of
Position 97-2, Software Revenue Recognition, issued by the American
Institute of Certified Public Accountants. A software arrangement
entered into by the Company may encompass multiple elements, including
the software license, consulting, training and annual maintenance fees.
The total fee of a multiple element arrangement is allocated to each
element based upon its fair value. Fair value is established through
the Company's policy to charge to customers the same price as when the
element is sold separately. Unspecified upgrades or enhancements of the
Company's products are considered maintenance and are recognized over
the contract period. Revenue from sales made to re-sellers is
recognized after the third-party sale occurs and the revenue is
determinable. Consulting services offered by the Company are not
considered essential to the functionality of the software arrangement.
As a result, consulting and training revenues are recognized as the
work is performed. Maintenance contract revenue is deferred and
recognized over the respective contract periods.
Revenue from direct product sales is recognized when the product has
been delivered, as no significant obligations remain, fees are fixed
and determinable, collectibility is probable, and persuasive evidence
of an arrangement exists.
If sales of products are contingent upon successful installation and
subsequent customer acceptance, revenue is recognized upon customer
acceptance.
(f) Inventory:
Inventory is valued at the lower of cost or net realizable value.
(g) Capital assets:
Capital assets are recorded at cost and depreciated using the declining
balance method at the following annual rates:
Computer and testing equipment 30%
Computer software 100%
Office equipment 20%
Office furniture 20%
Display booths 30%
Leasehold improvements Term of lease
Computer equipment acquired under capital leases is depreciated on a
straight-line basis over its estimated economic life of approximately
three years.
(h) Translation of foreign currencies:
Monetary assets and liabilities denominated in foreign currencies have
been translated into Canadian dollars at the rate of exchange
prevailing at the balance sheet date and non-monetary items are
translated at rates of exchange in effect when the assets are acquired
or obligations incurred. Revenue and expense items are translated at
the average rate of exchange for the period. Foreign exchange gains and
losses are included in income.
The temporal method has been used to translate integrated foreign
subsidiary operations.
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 4
Nine months ended February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
3. Significant accounting policies (continued):
(i)Refundable investment tax credits:
Refundable investment tax credits resulting from eligible Scientific
Research and Experimental Development expenditures are recorded as a
reduction of related costs in the period in which they are incurred.
(j)Research and development costs:
Research costs are expensed as incurred. Development costs are charged
to expense as incurred unless the development project meets the
criteria under generally accepted accounting principles for deferral
and amortization. The Company has not deferred any development costs to
date.
(k)Impairment of long-lived assets:
The Company monitors the recoverability of long-lived assets, including
capital and intangible assets based upon estimates using factors such
as future asset utilization, business climate and future non-discounted
cash flows expected to result from the use of the related assets or to
be realized on sale. The Company's policy is to write down assets to
their net recoverable amount in the period when it is likely that the
carrying amount of asset will not be recovered.
(l) Employee Stock Bonus Plan
Equity instruments contributed to the Plan by the Company are recorded
at their estimated market value at the date of their contribution and
are recorded as a credit in shareholders' equity. A contra equity
account is recognized until allocations to participants are considered
compensation expense.
Compensation expense is recognized in the period when it is likely that
performance criteria will be met and the equity instruments allocated
to participants will be released.
4. Investment tax credits receivable:
Management has estimated and filed for refundable investment tax credits
relating to the Company's eligible scientific research and experimental
development pursuant to the Canadian Income Tax Act. The refundable taxes
have been recorded as a reduction of the Company's wages expense and are as
follows:
February 29, May 31,
2000 1999
------------ ------------
$ 174,607 $ 50,231
============ ============
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 5
Nine months ended February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
4. Investment tax credits receivable (continued):
Any adjustments between the amounts recorded and the amounts ultimately
realized will be recorded in the year they occur.
During the period ended May 31, 1999, the Company provided an allowance of
$124,376 against the investment tax credits receivable. During the nine
months ended February 29, 2000, the Company reinstated $124,376 of
investment tax credits receivable following an assessment of the Company's
claim by the governing agency supporting the receipt by the Company of the
entire claim. The refundable taxes reduced the Company's wages expense in
the same period.
5. Capital assets:
<TABLE>
<CAPTION>
February 29, May 31,
2000 1999
-------------------------------------------- ------------
Accumulated Net book Net book
Cost amortization value value
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Computer and testing equipment $ 310,998 $ 198,806 $ 112,192 $ 78,429
Computer software 110,119 52,905 57,214 5,035
Office equipment 22,986 11,924 11,062 10,347
Office furniture 36,560 17,884 18,676 21,972
Display booth 21,755 16,551 5,204 6,715
Leasehold improvements 9,122 3,496 5,626 6,994
------------- ------------ ----------- ------------
$ 511,540 $ 301,566 $ 209,974 $ 129,492
============= ============ =========== ============
</TABLE>
6. Long-term debt:
The Company has a bank loan agreement with the Business Development Bank of
Canada. The agreement contains certain covenants that impose limitations
restricting the Company's dividend-paying ability and changes in ownership.
The bank loan is repayable with variable interest at 4% over the bank's
prime rate and is secured by substantially all of the Company's assets.
Royalties are also payable to the Bank based on the Company's gross sales.
Principal repayments of $3,350 are due each month. The agreement contains
certain covenants that impose limitations restricting the Company's
dividend-paying ability and changes in ownership.
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 6
Nine months ended February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
7. Obligations under capital leases:
The following is a schedule of future minimum lease obligation payments
ending February 29, 2000 and May 31, 1999:
February 29, May 31,
2000 1999
------------ -------------
2000 $ - $ 39,397
2001 38,508 19,018
2002 28,721 8,234
2003 8,137 -
2004 5,128 -
2005 1,282 -
------------ -------------
81,776 66,649
Less amount representing interest (10,080) (7,215)
------------ -------------
Present value of minimum lease payments 71,696 59,434
Less current portion (32,450) (35,102)
------------ -------------
$ 39,246 $ 24,332
============ =============
8. Redeemable Class A preference shares:
Authorized:
225,000 Class A preference non-voting shares with a par value of $1 each
Number of Class A
preference shares Amount
----------------- -------------
Balance, May 31, 1998 162,500 $ 162,500
Redemption of shares for cash (22,500) (22,500)
------------ -------------
Balance, February 28, 1999 140,000 140,000
Redemption of shares for cash (7,500) (7,500)
------------ -------------
Balance, May 31, 1999 132,500 132,500
Redemption of shares for cash (22,500) (22,500)
------------ -------------
Balance, February 29, 2000 110,000 110,000
Less current portion (30,000) (30,000)
------------ -------------
80,000 $ 80,000
============ =============
Under an agreement between the Company and one of its shareholders, the
Class A Preference shares are redeemed each month for cash consideration of
between $nil and $10,000 based upon the Company's gross quarterly sales.
The Company has been making redemption payments of $2,500 each month but
may at any time accelerate the redemption payments. The shares are
convertible into common voting shares should the Company default on the
required redemption payments.
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 7
Nine months ended February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
9. Special Warrants:
During the period ended February 29, 2000, the Company issued the following
special warrants for cash and other consideration:
<TABLE>
<CAPTION>
Number of 2000
Warrants Amount
------------ ------------
<S> <C> <C>
Special Warrants issued on acquisition (a) 11,000,000 $ 1,159,916
Special Warrants issued for services rendered (b) 51,666 66,132
Warrants issued in private placement, net of costs (c) 2,000,000 2,678,777
Agent's Special Warrants (d) 196,300 41,223
Issuance costs on reverse take-over (265,732)
------------ ------------
13,247,966 $ 3,680,316
Special Warrants exercised for Common Shares,
net of issuance costs (a) (11,000,000) (894,184)
Special Warrants exercised for Common Shares (b) (51,666) (66,132)
Special Warrants exercised for Common Shares,
net of issuance costs (c) (2,000,000) (2,518,050)
Share Purchase Warrants issued on exercise of Special
Warrants (c) 2,000,000 -
Share Purchase Warrants exercised for
Common Shares (591,600) (47,543)
Agent's Special Warrants exercised for
Common Shares (14,000) (2,940)
------------ ------------
Warrants outstanding, February 29, 2000 1,590,700 $ 151,467
============ ============
At February 29, 2000 warrants outstanding consisted of:
Share Purchase Warrants, net of costs (c) 1,408,400 $ 113,184
Agent's Special Warrants (d) 182,300 38,283
------------ ------------
1,590,700 $ 151,467
============ ============
</TABLE>
(a) The Company issued 11,000,000 Special Warrants in exchange for all of
the issued and outstanding common shares of Softcare Electronic
Commerce Inc. pursuant to the reverse takeover agreement effective,
June 18, 1999 (Note 2). Each of the Special Warrants is exercisable for
one common share, without any additional consideration.
Of the 11,000,000 warrants issued, 10,000,000 were issued to the
existing shareholders of Softcare pursuant to the reverse takeover
transaction. During the period, each of these 10,000,000 warrants was
exercised for one common share of the Company. The common shares so
issued are subject to a voluntary pooling agreement, which restricts
the transfer or sale by the holders.
The remaining 1,000,000 warrants were issued to the SESB Trust to
provide for Employee Bonus Shares upon exercise of such warrants. Two
of the Directors of the Company are also the Trustees of the Trust and
may only release such shares from the Trust to employees in accordance
with regulatory approval and certain performance criteria established
(note 10(d)).
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 8
Nine months ended February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
9. Special Warrants (continued):
(b)The Company issued 51,666 Special Warrants as a finder's fee and
corporate advisory fee upon completion of the reverse takeover. Each of
the warrants has been exercised, without any additional consideration,
for one common share of the Company. The value of the services,
$66,132, is included in the issuance costs related to the reverse
take-over.
(c) The Company issued 2,000,000 Special Warrants for gross proceeds of
$3,000,000 cash pursuant to a broker-assisted private placement. Costs
incurred to effect the private placement include a $280,000 commission
and 196,300 agent warrants issued valued at $41,223 (note 9(d))
resulting in net proceeds of the offering of $2,678,777. During the
period, each Special Warrant was exercised, at no additional cost, into
one Common share and one Share Purchase Warrant, which is transferable
upon regulatory approval. The equity component of the Special Warrant
offering was valued, net of costs, at $2,518,050 and is included in
other paid-in capital as a separate component of shareholder's equity.
The value assigned to the underlying warrants of the Special Warrants
offering was valued, net of costs, at $160,727 and is included in
warrants as a separate component of shareholders' equity.
Each Share Purchase Warrant received upon exercise of a Special Warrant
is exercisable for a period of one year from June 18, 1999, and entitle
the holder to purchase one Common share at a price of $2.50 cash until
June 18, 2000 at which time they will expire. Notwithstanding the
foregoing, if at any time before the expiry date, the Common shares of
the Company trade on any securities exchange over a period of ten
consecutive trading days at a weighted average price of not less than
$3.00 per Common share, then at the option of the Company, any Share
Purchase Warrant not exercised within 30 days of written notice to the
holder by the Company will expire. During the period ended February 29,
2000, 591,600 of these Share Purchase Warrants were exercised for
591,600 Common shares of the Company.
(d) The Company issued 196,300 Agent's Special Warrants as part of an
agency agreement with respect to the brokered private placement of
2,000,000 Special Warrants. Each Agent's Special Warrant has been
exercised, without any additional consideration, for one Agent's
Warrant. Each Agent's Warrant is exercisable for one common share of
the Company at $1.50 cash per share for a period of one year from June
18, 1999. One half of the Agent's Warrants and/or shares are subject to
resale restrictions which expire three months from the date the shares
become tradable free from hold periods. The estimated value of the
warrants, $41,223, is included in issuance costs related to the private
placement. During the period ended February 29, 2000, 14,000 Agent's
Warrants were exercised for 14,000 Common shares of the Company.
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 9
Nine months ended February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
10. Share capital:
(a) Authorized:
100,000,000 common voting shares without par value.
(b) Issued and outstanding Common shares:
<TABLE>
<CAPTION>
Number of
common shares Amount
------------- -----------
<S> <C> <C>
Balance, December 31, 1998 8,961,526 $ 2,012,059
Issuance of shares to an employee for services rendered 38,470 29,545
Issuance of shares to Employee Stock Bonus
Plan (note 10(d)). 999,998 1,280,000
----------- -----------
Balance, May 31, 1999 9,999,994 3,321,604
----------- -----------
Issuance of shares for services rendered 1,000,006 1,280,000
Adjustments to effect June 18, 1999 reverse
takeover accounting (note 2):
Issued share capital of
SoftCare Electronic Commerce Inc. (11,000,000)
Issuance of share capital of the Company 1,391,428
Issuance of shares for exercise of stock options 33,334 54,200
----------- -----------
Issuance of shares for exercise of Special Warrants 13,051,666 3,478,366
Issuance of shares for exercise of Share Purchase
Warrants 591,600 1,526,543
Issuance of shares for exercise of Agent's Warrants 14,000 23,940
Balance, February 29, 2000 15,082,028 $ 9,684,653
=========== ===========
</TABLE>
Prior to and in anticipation of the reverse take-over transaction (note
2), options to acquire 1,000,006 Common shares of SoftCare valued at
$1,280,000 were granted to employees. The options were only exercisable
concurrent with the completion of any reverse take over, sale or other
disposition of the share of the Company that occurred on or before
September 30, 1999, their expiry date. The options were granted in lieu
of salary and were given in exchange for general financing services to
be performed over a five month period ended September 11, 1999. These
options were exercised on the June 14, 1999 for cash proceeds of $247.
The excess value of Common shares over cash received has been recorded
as compensation expense in the consolidated financial statements.
Furthermore, 999,998 Common shares also valued at $1,280,000 were
issued to the SESB Trust (note 9(a)) for cash proceeds of $25. These
shares were exchanged for Special Warrants (note 9(a)).
During the nine months ended February 29, 2000, 23,334 stock options
held by a former Director and a former Officer were exercised into
23,334 Common shares at a price of $1.68 cash per Common share, and
10,000 stock options held by a consultant were exercised into 10,000
Common shares at a price of $1.50 cash per Common share.
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 10
Nine months ended February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
10. Share capital (continued):
(c) Stock options:
<TABLE>
<CAPTION>
Number of Exercise Expiry
Options Price Date
---------- ------------ --------------------
<S> <C> <C> <C>
Balance, February 28, 1999 90,000 $1.68 May, 2002 and
January, 2003
Options exercised (33,333) $1.68
---------- ------------ --------------------
Balance, May 31, 1999 56,667
Options granted:
Granted to directors and employees
of SoftCare 444,503 $6.07 April, 2004
Granted to directors, officers,
employees and consultants 1,350,000 $1.50- April 2004, November
3.90 2004, February 2005
SoftCare options cancelled on reverse
take-over (i) (197,557) $(6.07)
Options cancelled (i) (100,000) $1.50
Options exercised (i) (ii) and (b) (563,613) $1.50 - 1.68
---------- ------------ --------------------
Balance, February 29, 2000 990,000
==========
</TABLE>
(i) 800,000 stock options, exercisable at a price of $1.50 cash per
Common share, were granted to Directors of the Company in exchange
for 197,557 stock options of SoftCare on June 18, 1999 as part of
reverse take-over agreement (note 2). The stock options expire in
April, 2004. None of these options were exercised during the
period ended November 30, 1999. 250,000 stock options were granted
and exercised by officers, directors, and a consultant on June 18,
1999. Each option was exercisable at a price of $1.50 per Common
share. On February 1, 2000, 100,000 stock options, exercisable at
a price of $1.50 cash per Common share, were granted to a Director
of the Company. These stock options expire February, 2005. None of
these options were exercised during the period ended February 29,
2000.
100,000 stock options, exercisable at a price of $1.50 cash per
Common share, were granted to an individual pursuant to a
consulting agreement. These options were not exercised and were
cancelled by mutual consent. A further 100,000 stock options,
exercisable at a price of $1.50 per Common share, were granted to
a consultant. The stock option agreement expires in November, 2004
or earlier if the consulting contract is terminated prior to that
date. 10,000 of these options were exercised on February 15, 2000.
(ii) 306,667 stock options, exercisable at prices between $1.50 and
$1.68 cash per Common share, were exercised during the six months
ended November 30, 1999. 283,333 were exercised for common shares
of SoftCare and exchanged for Special Warrants.
<PAGE>
SOFTCARE EC.COM INC.
(Formerly International Savannah Ventures Ltd.)
Notes to Interim Consolidated Financial Statements, page 11
Nine months ended February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
10. Share capital (continued):
(d) Employee Stock Bonus Plan:
The Company established a non-leveraged Employee Stock Bonus Plan (the
"Plan") in 1999 covering directors, officers and employees who have
completed six months or more service with the Company. Prior to the
reverse take-over transaction (note 2) 999,998 Common shares of
SoftCare were contributed to the Plan for $25 cash. These shares were
exchanged for 999,998 Common shares of the Company which are
exercisable into 999,998 Common Shares of the Company. As at February
29, 2000, 187,030 Special Warrants which are exercisable into 187,030
Common shares of the Company, valued at $1.28 per share, were allocated
to employees. Release of these shares to employees are subject to the
Company meeting a revenue target of $4,000,000. No compensation expense
has been recognized in the accounts as it is not likely that
performance criteria established for the release of these shares will
be met.
Vesting terms of participant allocated shares are determined by the
Board of Directors but is generally contingent on revenue targets, and
for certain employees, also sales quotas, being achieved.
11. Uncertainty due to the Year 2000 Issue:
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable 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 the date 1999 to
represent something other than a date. The Company has made all reasonable
efforts to ensure the Company is not vulnerable to problems related to the
Year 2000 Issue. 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 Company, including those related to customers, suppliers, or
other third parties have been fully resolved.
12. Earnings (loss) per share:
Basic earnings (loss) per share computations are based on the weighted
average number of shares outstanding during the period.
In accordance with the reverse take-over agreement (note 2), EC.com issued
11,000,000 Special Warrants, each of which is exercisable for one Common
share. No Common shares were issued to effect the transaction. The Special
Warrants were exercised for Common shares in November 1999. Generally
accepted accounting principles require that earnings (loss) per share, for
periods prior to a reverse take-over transaction, be calculated using the
number of common shares issued by the legal parent (EC.com) to effect the
transaction on the date it occurred.
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Notes to Consolidated Financial Statements, page 12
Nine months ended February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
12. Earnings (loss) per share (continued):
Proforma earnings per share calculations below, for the years presented,
give retroactive effect to the exercise of the 11,000,000 Special Warrants
and the issuance of the Common shares at the reverse take-over transaction
date:
Nine months Nine months
Ended Ended
February 29, February 28,
2000 1999
------------ ------------
Proforma basic loss per Common
share (note 3(l) ) $ (0.19) $ (0.09)
Weighted average number of Common
shares used in proforma basic loss
per share calculation 14,227,491 8,961,526
========== ==========
990,000 stock options (note 10) and 1,590,700 warrants (note 9) are
anti-dilutive for the nine-months periods ended February 29, 2000 and,
accordingly, proforma fully diluted loss per share does not differ from
proforma basic loss per share for the periods presented.
13. Adoption of new accounting standard:
The Company adopted CICA Handbook Section 1540, Cash Flow Statements for
the period ended February 29. The provisions were applied retroactively
with restatement of prior period financial statements. Under Section 1540,
non-cash investing and financing activities are excluded from the statement
of cash flows and are disclosed as supplementary information to the
Consolidated Statements of Cash Flows.
14. United States generally accepted accounting principles:
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in Canada ("Canadian GAAP"),
which differ in certain respects with accounting principles generally
accepted in the United States ("U.S. GAAP"). Material measurement
differences to these consolidated financial statements are as follows:
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Notes to Consolidated Financial Statements, page 13
Nine months ended February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
14. United States generally accepted accounting principles (continued):
Consolidated statement of operations:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Net income (loss) in accordance with
Canadian GAAP $ (2,692,317) $ (849,422)
Effects of differences in accounting for:
Compensation expense(i) (21,000) -
-------------- --------------
Net income (loss) $ (2,713,317) $ (849,422)
Loss per share (ii) $ (0.20) $ (0.05)
Weighted average number of shares
Outstanding under U.S. GAAP 13,227,491 8,961,524
============== ==============
</TABLE>
(i) Compensation expense:
For United States GAAP purposes, the Company has elected under
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") to continue to apply the
intrinsic value based method of accounting for stock-based compensation
under APB 25 "Accounting for Stock Issued to Employees". Under the
intrinsic value based method, stock compensation is the excess, if any,
of the quoted market value of the stock at the measured date of the
grant over the amount an optionee must pay to acquire the stock.
Under United States GAAP, the issue of stock options to non-employees
is accounted for under SFAS 123. The fair value of the stock options
granted to non-employees during the nine months ended February 29, 2000
was estimated using the Black-Scholes option-pricing model and the
following weighted-average assumptions: dividend yield 0.0%, expected
volatility 70%, risk-free interest rate 5.5% and expected average
option term of 3.5 years. The fair value of the options granted was
$0.09 per option. Accounting for the non-employee options on this basis
would result in recording additional compensation expense and
additional paid-up capital of $21,000 (February 28, 1999 - $Nil).
(ii)Earnings (loss) per share:
Proforma earnings (loss) per share gives retroactive effect, for the
periods presented, to the exercise of the 11,000,000 Special Warrants
and issuance of Common shares related to the reverse take-over (notes
2). The Special Warrants are considered to be residual equity
securities. Under U.S. GAAP, the weighted average number of shares used
in the calculation of proforma basic and fully diluted EPS exclude
performance based Common shares under the Company's Employee Stock
Bonus Plan (note 10(d)).
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
Notes to Consolidated Financial Statements, page 14
Nine months ended February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
14. United States generally accepted accounting principles (continued):
Under U.S. GAAP, the weighted average number of shares used in the
calculation of diluted earnings (loss) per share would be calculated by
the treasury stock method whereby it is assumed that proceeds received
from the Company from the exercise of dilutive securities are used to
repurchase outstanding shares in the market. As the effect of options
and common share purchase warrants are anti-dilutive, diluted loss per
share does not differ from basic loss per share.
15. Subsequent events:
On March 29, 2000, the Company issued 1,459,000 special warrants at a price
of $3.75 per Special Warrant pursuant to a broker-assisted private
placement. Each Special Warrant was immediately exercised, for no
additional consideration, into a unit consisting of a share and one-half of
a share purchase warrant. Each whole share purchase warrant entitles the
holder to purchase one common share of the Company at a price of $4.25 per
share. In consideration for the services to be provided by the Agents, the
Company has agreed to pay the Agents a cash commission of 8% of the gross
proceeds of the sale of the Special Warrants plus Agents' Warrants equal to
10% of the number of Special Warrants sold. Each Agent's Warrant is
exercisable for one common share for $3.75 per share.
The Company reached an agreement to acquire a 100% interest of Financial
Management Group LLC on April 13, 2000. To facilitate this transaction, the
Company immediately issued 100,000 common shares of the Company. The shares
will be placed in trust pursuant to a voluntary pooling agreement and will
not be released to the vendor for a period of two years. The vendor will
also receive an additional 95,000 Common shares of the Company, subject to
the same pooling agreement, upon the successful development and completion
of a new asset called the OpenEC Credit Counselling Portal ("OCC Portal").
If the new OCC Portal achieves recurring revenue of US$300,000 per month,
an additional 55,000 Common shares of the Company will be issued to the
vendor. If the new OCC Portal achieves recurring revenue of US$1,000,000
per month, a further 50,000 Common shares of the Company will be issued to
the vendor. The shares to be issued based on revenue targets are not
subject to any pooling agreement.
Subsequent to February 29, 2000, between March 1, 2000 and April 25, 2000,
205,400 common shares were issued on the exercise of 205,400 Share Purchase
Warrants at a price of $2.50 per common share. During the same period,
12,200 common shares were issued on the exercise of 12,200 Agent's Warrants
at a price of $1.50 per Common Share.
Accountants' Consent
The Board of Director
Softcare EC.com Inc.
We consent to the use of our auditors' report dated December 2, 1999, except as
to note 22(b) which is as of February 24, 2000, on the consolidated balance
sheets of Softcare EC.com Inc. as at September 30, 1999 and December 31, 1998,
and the consolidated statements of operations, shareholders' equity (deficit),
and cash flows for the nine months ended September 30, 1999 and the years ended
December 31, 1998 and 1997 included in the registration statement on Amendment
No. 1 Form 20-F filed with the Securities and Exchange Commission on May 1,
2000.
KPMG LLP (signed)
Chartered Accountants
Vancouver, Canada
May 1, 2000
Exhibit 99- 6d
- --------------------------------------------------------------------------------
Agency Agreement - Special Warrant Private Placement
- --------------------------------------------------------------------------------
THIS AGREEMENT dated for reference March 3, 2000, is made
BETWEEN
AND SOFTCARE EC.COM INC., Suite 107 - 980 West 1st Street, North
Vancouver, British Columbia, V7P 3N4
(the "Issuer");
AND CANACCORD CAPITAL CORPORATION, 2200 - 609 Granville Street,
Vancouver, British Columbia, V7Y 1H2
AND RESEARCH CAPITAL CORPORATION, Suite 564 - 1055 Dunsmuir Street,
Vancouver, British Columbia, V7X IL4
AND HAYWOOD SECURITIES INC., 1100 - 400 Burrard Street, Vancouver,
British Columbia, V6C 3A6
(individually, an "Agent" and collectively, the "Agents").
WHEREAS:
A. The Issuer wishes to privately place with purchasers up to 1,495,000 Special
Warrants at a price of $3.75 per Special Warrant;
B. The Issuer wishes to appoint the Agents to distribute the Special Warrants,
and the Agents are willing to accept such appointment on the terms and
conditions of this Agreement;
THE PARTIES to this Agreement therefore agree:
1. DEFINITIONS
In this Agreement and the Recitals hereto:
(a) "Administration Fee" means the fee to be paid to the Lead
Agent by the Issuer in consideration of the Lead Agent's
services in connection with the coordination and review of the
Private Placement and the review of the subsequent
qualification of the distribution of any of the Issuer's
securities resulting from the Private Placement, by way of an
AIF, exchange offering prospectus or prospectus;
(b) "Agents' Fee" means the commission which is set out in this
Agreement and which is payable by the Issuer to the Agents in
consideration of the services performed by the Agents under
this Agreement;
<PAGE>
-2-
(c) "Agents' Special Warrants" means the special warrants of the
Issuer to be issued as part of the Agents' Fee as set out in
this Agreement which have the terms provided in this Agreement
and in the certificates representing such special warrants;
(d) "Agents' Warrants' means the share purchase warrants of the
Issuer which will be issued upon the exercise or deemed
exercise of the Agents' Special Warrants and which have the
terms provided in this Agreement and the certificates
representing such share purchase warrants;
(e) "Agents' Warrant Shares" means the previously unissued common
shares in the capital of the Issuer, as presently constituted,
which will be issued upon the exercise of the Agents'
Warrants;
(f) "AIF" has the meaning defined in the B.C. Policy and the
Alberta AIF Rules;
(g) "Alberta Act" means the Securities Act, (Alberta) S.A. 1981,
c. S-6. 1, as amended;
(h) "Alberta AIF Rules" means Alberta Securities Commission Rule
45-501 and Companion Policy) 45-501 CP;
(i) "Alberta Commission" means the Alberta Securities Commission;
(j) "Applicable Legislation" means the B.C. Act and the Alberta
Act, together with the regulations and rules made and
promulgated thereunder and all administrative policy
statements, blanket orders and rulings, notices, and other
administrative directions issued by the Commission,
(k) "B.C. Act" means the Securities Act (British Columbia),
R.S.B.C. 1996, as amended;
(l) "B.C. Blanket Order" means Blanket Order and Ruling #98/7, or
any successor instrument issued by the B.C. Commission;
(m) 'B.C. Commission" means the British Columbia Securities
Commission;
(n) "B.C. Policy. means British Columbia's Local Policy Statement
3-27, or any successor instrument, issued by the B.C.
Commission;
(o) "B.C. Rules" means the rules made under the B.C. Act;
(p) "CDNX Policies" means the rules and policies of the Canadian
Venture Exchange;
(q) "Closing" means a day or days Special Warrants are issued to
the Purchasers;
(r) "Commissions" means the B.C. Commission and the Alberta
Commission;
(s) "Corporate Finance Shares" means the 25,000 common shares in
the capital of the Issuer to be issued to the Lead Agent by
the Issuer upon the exercise of the Corporate Finance Special
Warrants;
(t) "Corporate Finance Special Warrants" means the special
warrants of the Issuer to be issued to the Lead Agent as set
out in this Agreement in consideration of corporate finance
and structuring services provided by the Lead Agent and which
have the terms provided in this Agreement and the certificates
representing such special warrants;
(u) "Current AIF" has the meaning defined in the B.C. Policy;
(v) "Distribution" means the proposed issuance of Shares and
Warrants to the holders of the Special Warrants on the deemed
exercise of the Special Warrants, the proposed issuance of the
Agents' Warrants to holders of the Agents' Special Warrants on
the deemed exercise of the Agents' Special Warrants, and the
proposed issuance of Corporate Finance Shares on the deemed
exercise of the Corporate Finance Special Warrants,
<PAGE>
-3-
(w) "Eligibility Date" means the date on which the Issuer receives
confirmation of filing of its AIF from the Alberta Commission
and is in a position to deliver a certificate in the form
contemplated by the Alberta AIF Rules to the Agent, upon the
distribution of the Shares and Warrants which underlie the
Special Warrants;
(x) "Exchange" means the Canadian Venture Exchange;
(y) "Exemptions" means the exemptions from the prospectus
requirements under section 74(2)(4) of the B.C. Act and
sections 107(l)(d) of the Alberta Act;
(z) "Filing Deadline" means the date the Private Placement
documentation is required to be filed with the Exchange, or
any extension thereof;
(aa) "Final Closing" means the last closing under the Private
Placement;
(bb) "First Closing" means the first closing under the Private
Placement;
(cc) "Lead Agent" means Canaccord Capital Corporation;
(dd) "Material Change" has the meaning defined in the Applicable
Legislation;
(ee) "Material Fact" has the meaning defined in the Applicable
Legislation;
(ff) "Private Placement' means the offering of the Special Warrants
on the terms and conditions of this Agreement;
(gg) "Purchasers" means the purchasers of Special Warrants pursuant
to the Private Placement;
(hh) "Qualifying Issuer" has the meaning defined in the B.C.
Blanket Order and the Alberta AIF Rules;
(ii) "Regulation S" means Regulation S promulgated under the
Securities Act of 1933 (United States), as amended;
(jj) "Regulatory Authorities" means the Commissions and the
Exchange;
(kk) "Release Date" means:
(i) if the Purchaser is resident in British Columbia, that
day which falls four months from the Closing;
(ii) if the Purchaser is resident in Alberta, the
Eligibility Date or, if the Eligibility Date has
occurred before that day which falls four months from
the Closing, that day which falls four months from the
Closing;
(ll) "Securities' means the Special Warrants, the Shares, the
Warrants, the Warrant Shares, the Agents' Special Warrants,
the Agents' Warrants, the Agents' Warrant Shares, the
Corporate Finance Special Warrants and the Corporate Finance
Shares;
(mm) "Shares" means the previously unissued common shares in the
capital of the Issuer, as presently constituted, which will be
issued upon the exercise or deemed exercise of the Special
Warrants;
(nn) "Special Warrants" means the special warrants of the Issuer to
be offered by the Issuer pursuant to this Agreement having the
terms provided in this Agreement and the certificates
representing such special warrants and the Special Warrant
Indenture;
<PAGE>
-4-
(oo) "Special Warrant Indenture" means an indenture between the
Trustee and the Issuer providing for the issuance of Special
Warrants, satisfactory in form and substance to the Agents;
(pp) "Trustee' means Pacific Corporate Trust Company;
(qq) "Warrants" means the share purchase warrants of the Issuer
which will be issued upon the exercise or deemed exercise of
the Special Warrants and which have the terms provided in this
Agreement and the certificates representing such share
purchase warrants;
(rr) "Warrant Indenture" means an indenture between the Trustee and
the Issuer providing for the issuance of Warrants,
satisfactory in form and substance to the Agents; and
(ss) "Warrant Shares" means the previously unissued common shares
in the capital of the Issuer, as presently constituted, which
will be issued upon the exercise of the Warrants.
2. APPOINTMENT OF AGENTS
The Issuer appoints the Agents as its exclusive agent and the Agents accept the
appointment and agree to act as the exclusive agents of the Issuer to use their
commercially reasonable efforts to find and introduce to the Issuer potential
purchasers to purchase up to 1,495,000 Special Warrants, at a price of $3.75 per
Special Warrant, by way of private placement under the Exemptions.
2.2 The rights and obligations of the Agents under this Agreement, including but
not limited to the right and obligation to offer the Special Warrants and the
entitlement to the Agents' Fee, will be several (as distinguished from joint)
rights and obligations for each Agent.
2.3 Except as otherwise specifically provided in this Agreement, the rights and
obligations of the Agents will be divided in the proportions in which the Agents
participate in the Private Placement.
2.4 The Agents will participate in the Private Placement as follows:
Canaccord Capital Corporation 739,000 Special Warrants
Research Capital Corporation 426,000 Special Warrants
Haywood Securities Inc. 330,000 Special Warrants
2.5 This Agreement will be construed in relation to each Agent as if separate
agreements had been made between the Issuer and each Agent.
3. SPECIAL WARRANTS
3.1 The Special Warrants will be issued and registered in the names of the
Purchasers or their nominees.
3.2 Each Special Warrant will entitle the holder to acquire one Share and one
half of one Warrant, without further payment, on the exercise or deemed exercise
of the Special Warrant.
3.3 Each Special Warrant may be exercised by the holder in whole or in part at
any time after the Closing on which the Special Warrant was issued. All
unexercised Special Warrants will be deemed to be exercised on that day which is
the earlier of:
(a) 330 days from the Closing on which such Special Warrants were
issued; and
<PAGE>
-5-
(b) the fifth business day after the Release Date.
3.5 Upon exercise or deemed exercise, the Special Warrants will be automatically
cancelled and will have no further force or effect.
3.6 The Special Warrants will be non-transferable.
3.7 The Special Warrant Indenture will contain, among other things, provisions
for the appropriate adjustment in the class and number of Shares and Warrants
and the exercise price of Warrants issued upon exercise or deemed exercise of
the Special Warrants upon the occurrence of certain events, including any
subdivision, consolidation or reclassification of the Issuer's common shares,
the payment of stock dividends and the amalgamation of the Issuer.
3.8 The issuance of the Special Warrants will not restrict or prevent the Issuer
from obtaining any other financing, or from issuing additional securities or
rights prior to the deemed exercise of the Special Warrants.
4. WARRANTS
4.1 The Warrants will be issued under the Warrant Indenture and registered
in the name of the Purchasers or their nominees.
4.2 The right to purchase a Warrant Share under a Warrant may be exercised at
any time until the close of business on the day which is 12 months from the date
of issue of the Special Warrant under which such Warrant was issued to the
holder.
4.3 One whole Warrant will entitle the holder, on exercise, to purchase one
Warrant Share at a price of $4.25 per Warrant Share.
4.4 The Warrants will be non-transferable.
4.5 The Warrant Indenture will, among other things, include provisions for the
appropriate adjustment in the class, number and price of the Warrant Shares
issued upon exercise of the Warrants upon the occurrence of certain events,
including any subdivision, consolidation or reclassification of the Issuer's
common shares, the payment of stock dividends and the amalgamation of the
Issuer.
4.6 The issue of the Warrants will not restrict or prevent the Issuer from
obtaining any other financing, or from issuing additional securities or rights,
during the period within which the Warrants may be exercised.
5. AGENTS' FEE
5.1 In consideration of the services performed by the Agents under this
Agreement, the Issuer agrees to pay to the Agents on each Closing an Agents' Fee
consisting of:
(a) a cash payment equal to 8% of the gross proceeds received by
the Issuer from the sale of the Special Warrants on such
Closing (the "Cash Payment"); and
(b) that number of Agents' Special Warrants which is equal to 10%
of the number of Special Warrants sold on such Closing.
5.2 The gross Cash Payment will be distributed amongst the Agents as
follows:
(a) 6% of the gross Cash Payment will be paid to the Lead Agent;
<PAGE>
-6-
(b) the remainder of the gross Cash Payment will be divided
amongst the Agents in the proportions in which the Agents
participate in the Private Placement.
5.3 The Agents' Special Warrants will have the same terms and conditions as the
Special Warrants except that instead of entitling the holder to acquire one
Share and one half of a Warrant, each Agents' Special Warrant will entitle the
holder to acquire one Agents' Warrant, without further payment, on the exercise
or deemed exercise of an Agents' Special Warrant and the Agents' Special
Warrants will be registered in the name of the Agents or such other party or
parties as the Agents may reasonably request.
5.4 The Agents' Warrants will have the same terms and conditions as the
Warrants, except that:
(a) the Agents' Warrants will be non-transferable except as
permitted by the B.C. Act and any order granted by the
Commissions;
(b) the Agents' Warrants will entitle the Agents, on exercise, to
purchase one Agents' Warrant Share at a price of $3.75
per Warrant Share; and
(c) the Agents' Warrants and Agents' Warrant Shares will be
registered in the name of the Agents or such other party or
parties as the Agents may reasonably request.
5.5 The Issuer agrees not to place a U.S. securities law restrictive legend
on the certificates representing the Agents' Special Warrants, the Agents'
Warrants or the Agents' Warrant Shares.
5.6 The Issuer will also pay the Lead Agent, on completion or cancellation of
the Private Placement, the Administration Fee, in an amount to be determined by
the Lead Agent not exceeding $7,000, in the aggregate, plus G.S.T. for the Lead
Agent's services.
5.7 In connection with the Private Placement, the Issuer agrees to issue
Corporate Finance Special Warrants convertible at no cost to 25,000 Corporate
Finance Shares to the Lead Agent on the Final Closing.
6. OFFERING RESTRICTIONS
6.1 The Agents will only sell the Special Warrants to persons who represent
themselves as being persons:
(a) purchasing as principal or persons who are deemed by law or
discretionary order to be purchasing as principal;
(b) qualified to purchase the Special Warrants, the Shares and the
Warrants under the Exemptions; and
(c) who are not U.S. Persons, or in the United States (which terms
herein shall have the meanings defined in Regulation S).
6.2 The Agents agree that at the time any buy order for the Special Warrants is
placed by clients of the Agents, the buyer will be outside the United States, or
the Agents and all persons acting on their behalf will reasonably believe that
the buyer is outside the United States, and neither the Agents nor any person
acting on their behalf will have knowledge that such transaction has been
pre-arranged with a buyer in the United States.
6.3 Neither the Issuer, the Agents, nor any of their respective affiliates, nor
any person acting on behalf of any of the foregoing, will offer or sell any of
the Securities to U.S. Persons or in the United States, or undertake any
activity for the purpose of, or that could reasonably be expected to have the
effect of, conditioning the market for the Securities in the United States.
6.4 The Private Placement has not been and will not be advertised in any way.
<PAGE>
-7-
6.5 No selling or promotional expenses will be paid or incurred in connection
Placement, except for professional services or for services performed by a
registered dealer.
7. SUBSCRIPTIONS
The Agents will use their best efforts to obtain from each Purchaser introduced
by the Agents, and deliver to the Issuer, on or before the Filing Deadline duly
completed and signed subscriptions in the form attached as Schedule "A" or in
such other form consented to by the Issuer and the Agents and executed by the
Purchaser.
8. FILINGS WITH THE REGULATORY AUTHORITIES
8.1 The Issuer will forthwith give to the Exchange written notice of the terms
of this Agreement and the proposed Private Placement and all other information
required by the CDNX Policies (the "Notice").
8.2 The Issuer will forthwith provide the Agents and their solicitor with a copy
of the Notice, and, forthwith on receipt, a copy of the preliminary and final
letters of acceptance of the Notice from the Exchange.
8.3 The Issuer will file all required documents, pay all required filing fees
and undertake any other actions required by the CDNX Policies in order to obtain
the approval of the Exchange to the Private Placement.
8.4 Within 10 days of each Closing of the Private Placement, the Issuer will:
(a) file with the Commissions any report required to be filed by
the Applicable Legislation in connection with the
Private Placement, in the required form; and
(b) provide the Agents' solicitor with copies of the report or
reports.
9. CLOSINGS
9.1 In this Section:
(a) "Certificates" means the certificates representing the Special
Warrants sold and the Agents Special Warrants and the
Corporate Finance Special Warrants to be issued on a Closing
in the names and denominations reasonably requested by the
Agents or the Purchasers, as the case may be; and
(b) "Proceeds" means the gross proceeds of the sale of Special
Warrants on a Closing, less:
(i) the Cash Payment;
(ii) the Administration Fee;
(iii) the reasonable expenses of the Agents in connection
with the Private Placement which have not been paid
by the Issuer;
(iv) any amount which has been attached by garnishing
order or other form of attachment; and
(v) any amount paid directly to the Issuer by purchasers
in connection with the Private Placement.
<PAGE>
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9.2 The Issuer and the Agents will cause the Closing to take place in one or
more closings however, the Final Closing will occur within five business days
after the date of the final letter of acceptance of the Exchange for the Private
Placement or such longer period as is agreed to by the Issuer and the Agents.
9.3 The Issuer will, on each Closing, issue and deliver the Certificates to the
Agents, or at the Agents' request, to the Purchasers, against payment of:
(a) 40% of the Proceeds (the "Escrowed Funds") to the Trustee to
be held in accordance with the Special Warrant Indenture and
the Trustee shall pay the same and any interest accrued
thereon to the Issuer on the earlier of the Eligibility Date
or 12 months from Closing; and
(b) the balance of the Proceeds to the Issuer.
9.4 If the Issuer has satisfied all of its material obligations under this
Agreement, the Agents will, on each Closing, pay the Proceeds to the Issuer and
the Trustee, as appropriate, against delivery of the Certificates.
9.5 The Issuer will endorse the Certificates, and the certificates representing
any Shares, Warrants, Warrant Shares, Agents' Warrants, Agents' Warrant Shares
and Corporate Finance Shares issued prior to the earlier of the Release Date and
the expiry of the hold period prescribed by the Applicable Legislation, with a
statement that:
(a) the securities represented by the certificate are subject to a
hold period and may not be traded in British Columbia or
Alberta until the expiry of the hold period except as
permitted by the Applicable Legislation; and
(b) specifies the date the hold period expires, being as follows:
(i) in British Columbia, being four months from each Closing;
and
(ii) in Alberta, 12 months from each Closing for the Shares
and Warrant Shares and 18 months from each Closing for the
Special Warrants and Warrants or, if the Eligibility Date has
occurred prior to the exercise of the Special Warrants, four
months from each Closing.
10. CONDITIONS OF CLOSINGS
10.1 The obligations of the Agents on each Closing will be conditional upon
the following:
(a) on each Closing the Issuer will have delivered to the Agents
and their solicitor a favourable opinion of the Issuer's
solicitor dated as of the date of such Closing, in a form
acceptable to the Agents and their solicitor as to all legal
matters reasonably requested by the Agents relating to the
business of the Issuer and the creation, issuance and sale of
the Securities;
(b) on each Closing, the Issuer will have delivered to the Agents
and their solicitor such certificates of its officers and
experts who may have assisted in the preparation of the
Offering Memorandum, if any, comfort letters or opinions of
its auditors, and other documents relating to the Private
Placement or the affairs of the Issuer as the Agents or their
solicitor may reasonably request; and
(c) each representation and warranty of the Issuer which is
contained in this Agreement continues to be true, and the
Issuer has performed or complied with all of its covenants,
agreements and obligations under this Agreement.
<PAGE>
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10.2 Each Closing and the obligations of the Issuer and the Agents to
complete the issue and sale of the Securities are subject to:
(a) receipt of all required regulatory approval for or acceptance
of the Private Placement; and
(b) the removal or partial revocation of any cease trading order
or trading suspension made by any competent authority to the
extent necessary to complete the Private Placement.
11. MATERIAL CHANGES
The Issuer agrees that if, between the date of this Agreement and five days
after the Release Date, a Material Change, or a change in a Material Fact
occurs, the Issuer will:
(a) as soon as practicable notify the Agents in writing, setting
forth the particulars of such change;
(b) as soon as practicable, issue and file with the Regulatory
Authorities a press release that is authorized by a senior
officer disclosing the nature and substance of the change;
(c) as soon as practicable file with the Commissions the report
required by the applicable securities legislation and in any
event no later than 10 days after the date on which the change
occurs;
(d) provide copies of that press release, when issued, and that
report, when filed, to the Agents and their solicitor;
(e) amend the Prospectus, if any, to reflect the change, provided
it has first obtained the approval of the Agents to the form
and substance of the amendment, such approval not to be
unreasonably withheld, and
(f) if an amendment is prepared to the Prospectus, if any, file
such amendment with each of the Commissions in the time
limited by the Applicable Legislation, and provide the Agents
without charge with as many commercial copies of such
amendment as it may reasonably require.
12. ANNUAL INFORMATION FORM
12.1 The Issuer has filed a Current AIF in British Columbia and therefore,
as long as the requirements of the B.C. Blanket Order are met, Purchasers who
are resident in British Columbia will have the shortened hold period provided in
the B.C. Policy.
12.2 The Issuer will use its best efforts to fide an AIF in Alberta and to have
the Eligibility Date occur within 120 days immediately following the date of
Closing and to otherwise comply with the Alberta AIF Rules in order to permit
Purchasers who are resident in Alberta to have the shortened hold period
provided therein.
12.3 In the event that an AIF is filed in Alberta, the Issuer will promptly
notify the Agents of the receipt of the confirmation of filing its AIF issued by
the Alberta Commission and will provide the Agents with:
(a) a copy of the AIF which has been filed with the Alberta
Commission; and
(b) a copy of the certificate required by the Alberta AIF Rules.
12.4 If the Eligibility Date does not occur by the first business day 120 days
immediately following the Closing, then the Issuer will continue to use its best
efforts to have the Release Date for Securities held by Purchasers resident in
Alberta occur prior to the date which is 330 days after the Closing.
<PAGE>
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13. TERMINATION
13.1 The Agents may terminate their obligations under this Agreement by
notice in writing to the Issuer at any time before the Final Closing if;
(a) an adverse Material Change, or an adverse change in a Material
Fact relating to any of the Securities, occurs or is
announced by the Issuer;
(b) there is an event, accident, governmental law or regulation or
other occurrence of any nature which, in the opinion of the
Agents, seriously affects or will seriously affect the
financial markets, or the business of the Issuer or its
subsidiaries, if any, or the ability of the Agents to perform
its obligations under this Agreement, or a Purchaser's
decision to purchase the Special Warrants;
(c) following a consideration of the history, business, products,
property or affairs of the Issuer or its principals and
promoters, or of the state of the financial markets in
general, or the state of the market for the Issuer's
securities in particular, the Agents determine, in their sole
discretion, that it is not in the interest of the Purchasers
to complete the purchase and sale of the Special Warrants,
(d) the Securities cannot, in the opinion of the Agents, be
marketed due to the state of the financial markets, or the
market for the Special Warrants in particular;
(e) an enquiry or investigation (whether formal or informal) in
relation to the Issuer, or the Issuer's directors, officers or
promoters, is commenced or threatened by an officer or
official of any competent authority;
(f) any order to cease, halt or suspend trading (including an
order prohibiting communications with persons in order to
obtain expressions of interest) in the securities of the
Issuer prohibiting or restricting the Private Placement or the
Distribution is made by a competent regulatory authority and
that order is still in effect;
(g) the Issuer is in breach of any material term of this
Agreement; or
(h) the Agents determine that any of the representations or
warranties made by the Issuer in this Agreement is false or
has become false.
13.2 The Agents' obligations hereunder will terminate if the Exchange does not
issue its final letter of acceptance, subject only to usual post-Closing filings
with the Exchange, of the Private Placement within 90 days of the reference date
of this Agreement, unless otherwise agreed in writing by the Agents.
13.3 In addition to the other termination rights of the Agents, the Agents may
terminate their obligations under this Agreement with respect to the
Distribution at anytime prior to the Release Date if:
(a) an adverse Material Change, or an adverse change in a Material
Fact relating to any of the Securities, occurs or is
announced by the Issuer,
(b) an enquiry or investigation (whether formal or informal) in
relation to the Issuer, or the Issuer's directors, officers or
promoters, is commenced or threatened by an officer or
official of any competent authority,
(c) any order to cease trading (including an order prohibiting
communications with persons in order to obtain expressions of
interest) in the securities of the Issuer is made by a
competent regulatory authority and that order is still in
effect;
(d) the Issuer is in breach of any material term of this
Agreement; or
<PAGE>
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(e) the Agents determine that any of the representations or
warranties made by the Issuer in this Agreement is false or
has become false.
14. WARRANTIES, REPRESENTATIONS AND COVENANTS
14.1 The Issuer warrants and represents to and covenants with the Agents
that:
(a) the Issuer and its subsidiaries, if any, are valid and
subsisting corporations duly incorporated and in good standing
under the laws of the jurisdiction in which they are
incorporated, continued or amalgamated;
(b) the Issuer and its subsidiaries, if any, are duly registered
and licenced to carry on business in the jurisdictions in
which they carry on business or own property where so required
by the laws of that jurisdiction;
(c) the authorized and issued capital of the Issuer are as dis-
closed to the Exchange and the outstanding shares of the
Issuer are fully paid and non-assessable;
(d) the Issuer will reserve or set aside sufficient shares in its
treasury to issue the Shares, the Warrant Shares, the Agent's
Warrant Shares and the Corporate Finance Shares and all such
shares will be duly and validly issued as fully paid and
non-assessable;
(e) except as qualified by the disclosure in all prospectuses,
filing statements, annual information forms, including the
Issuer's Current AIF, and press releases filed with the
Commissions or the Exchange, or the Offering Memorandum, if
any, (the "Disclosure Record") the Issuer is the beneficial
owner of the properties, business and assets or the interests
in the properties, business or assets referred to in the
Disclosure Record, all agreements by which the Issuer holds an
interest in a property, business or assets are in good
standing according to their terms and the properties are in
good standing under the applicable laws of the jurisdictions
in which they are situated;
(f) the Disclosure Record, subscription form and all other written
or oral representations made by the Issuer to a Purchaser or
potential Purchaser in connection with the Private Placement
will be accurate in all material respects and will omit no
fact, the omission of which will make such representations
misleading or incorrect;
(g) the financial statements contained in the Offering Memorandum,
if any, filed with the Commissions or supplied by the Issuer
to the Agents in connection with the Private Placement have
been prepared in accordance with Canadian generally accepted
accounting principles, accurately reflect the financial
position and all material liabilities (accrued, absolute,
contingent or otherwise) of the Issuer, and its subsidiaries,
if any, as of the date thereof, and no adverse material
changes in the financial position of the Issuer have taken
place since the date thereof, save in the ordinary course of
the Issuer's business;
(h) the Issuer has complied and will comply fully with the
requirements of all applicable corporate and securities laws
and administrative policies and directions, including, without
limitation, the Applicable Legislation in relation to the
issue and trading of its securities and in all matters
relating to the Private Placement and the Distribution;
(i) there is not presently, and will not be until the closing of
the Distribution, any Material Change or change in any
Material Fact relating to the Issuer which has not been or
will not be fully disclosed to the Agents;
(j) the issue and sale of the Securities by the Issuer and the
Agents does not and will not conflict with, and does not and
will not result in a breach of, any of the terms of its
incorporating documents or any agreement or instrument to
which the Issuer is a party;
<PAGE>
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(k) neither the Issuer nor any of its subsidiaries is a party to
any actions, suits or proceedings which could materially
affect its business or financial condition, and to the best of
the Issuer's knowledge no such actions, suits or proceedings
are contemplated or have been threatened which are not
disclosed in the Disclosure Record;
(l) there are no judgments against the Issuer or any of its
subsidiaries, if any, which are unsatisfied, nor are there any
consent decrees or injunctions to which the Issuer or any of
its subsidiaries, if any, is subject;
(m) this Agreement has been or will be by the First Closing, duly
authorized by all necessary corporate action on the part of
the Issuer, and the Issuer has full corporate power and
authority to undertake the Private Placement, qualify the
Prospectus, if any, and undertake the Distribution and file an
AIF;
(n) the Issuer is an "exchange issuer" within the meaning of the
B.C. Act and a "reporting issuer" in British Columbia and
Alberta and is not in default of any of the requirements of
the Applicable Legislation or any of the administrative
policies or notices of the Regulatory Authorities;
(o) no order ceasing, halting or suspending trading in securities
of the Issuer nor prohibiting the sale of such securities has
been issued to and is outstanding against the Issuer or its
directors, officers or promoters or against any other
companies that have common directors, officers or promoters
and no investigations or proceedings for such purposes are
pending or threatened;
(p) the Issuer satisfies and will satisfy all necessary
requirements under the Exemptions in order to permit the sale
of the Special Warrants to Purchasers who are qualified to
purchase the Special Warrants under the Exemptions, pursuant
to this Private Placement;
(q) except as disclosed in the Disclosure Record or otherwise to
the Regulatory Authorities, no person has any right, agreement
or option, present or future, contingent or absolute, or any
right capable of becoming such a right, agreement or option,
for the issue or allotment of any unissued shares in the
capital of the Issuer or its subsidiaries, if any, or any
other security convertible into or exchangeable for any such
shares, or to require the Issuer or its subsidiaries, if any,
to purchase, redeem or otherwise acquire any of the issued and
outstanding shares in its capital;
(r) the Issuer and its subsidiaries, if any, have filed all
federal, provincial, local and foreign tax returns which are
required to be filed, or have requested extensions thereof,
and have paid all taxes required to be paid by them and any
other assessment, fine or penalty levied against them, to the
extent that any of the foregoing is due and payable, except
for such assessments, fines and penalties which are currently
being contested in good faith,
(s) the Issuer and its subsidiaries, if any, have established on
their books and records reserves which are adequate for the
payment of all taxes not yet due and payable and there are no
liens for taxes on the assets of the Issuer or its
subsidiaries, if any, except for taxes not yet due, and there
are no audits of any of the tax returns of the Issuer or its
subsidiaries, if any, which are known by the Issuer's
management to be pending, and there are no claims which have
been or may be asserted relating to any such returns which, if
determined adversely, would result in the assertion by any
governmental agency of any deficiency which would have a
material adverse effect on the properties, business or assets
of the Issuer or its subsidiaries, if any;
(t) the Issuer owns or possesses adequate rights to use all
material patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and
other intellectual property necessary for the business of the
Issuer now conducted and proposed to be conducted, without any
conflict with or infringement of the rights of others. The
Issuer has received no communication alleging that the Issuer
has violated or, by conducting its business as proposed, would
violate any of the patents, trademarks, service marks, trade
names,
<PAGE>
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copyrights or trade secrets or other proprietary rights of any
other person or entity. Neither the execution or delivery of
this Agreement nor the carrying on of the business of the
Issuer by the employees of the Issuer, nor the conduct of the
business of the Issuer will conflict with or result in a
breach of the terms, conditions, or provisions of or
constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated,
(u) other than the Agents, no person, firm or corporation acting
or purporting to act at the request of the Issuer is entitled
to any brokerage, agency or finder's fee in connection with
the transactions described herein;
(v) the certifications in Appendix I are true and correct and will
be true and correct as of the date of the Closing;
(w) the Issuer is, and will be at Closing, a Qualifying Issuer;
and
(v) the warranties and representations in this Section are true
and correct and will remain so as of the Final Closing and
upon the completion of the Distribution.
14.2 The Agents warrant and represent to the Issuer that each of the Agents:
(a) is a valid and subsisting corporation under the law of the
jurisdiction in which it was incorporated;
(b) is a broker registered under the Applicable Legislation;
(c) is a member in good standing of the Exchange; and
(d) will sell the Special Warrants in compliance with the
Applicable Legislation.
15. EXPENSES, OF AGENTS
15.1 The Issuer will pay all of the expenses of the Private Placement, the AIF
and the Distribution and all the expenses reasonably incurred by the Agents in
connection with the Private Placement, the AIF and the Distribution including,
without limitation, the reasonable fees and expenses of the solicitor for the
Agents.
15.2 The Issuer will pay the expenses referred to in the previous Subsection
even if the transactions contemplated by this Agreement are not completed or
this Agreement is terminated, unless the failure of acceptance or completion or
the termination is the result of a breach of this Agreement by the Agents.
15.3 The Agents may, from time to time, render accounts for its expenses in
connection with the Private Placement, the AIF and the Distribution to the
Issuer for payment on or before the dates set out in the accounts.
15.4 The Issuer authorizes the Agents to deduct their reasonable expenses in
connection with the Private Placement from the proceeds of the Private Placement
and any advance payments made by the Issuer, including expenses for which an
account has not yet been rendered.
16. GARNISHING ORDERS
16.1 If at any time, up to and including the Final Closing, the Agents receive a
garnishing order or other form of attachment purporting to attach or garnish a
part or all of the sale price of any of the Securities, the Agents will be free
to pay the amount purportedly attached or garnished into court.
<PAGE>
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16.2 Any payment by the Agents into court pursuant to a garnishing order will be
deemed to have been received by the Issuer as payment by the Agents against the
sale price of the Securities to the extent of the amount paid, and the Issuer
will be bound to issue and deliver the Securities proportionately to the amount
paid by the Agents.
16.3 The Agents will not be bound to ascertain the validity of any garnishing
order or attachment, or whether in fact it attaches any moneys held by the
Agents, and the Agents will be free to act with impunity in replying to any
garnishing order or attachment.
16.4 The Issuer will release, indemnify and save harmless the Agents in respect
of all damages, costs, expenses or liability arising from any acts of the Agents
under this Section.
17. INDEMNITY
17.1 The Issuer will indemnify the Agents and each of the Agents' agents,
directors, officers and employees (individually, an "Indemnified Party" and
collectively, the "Indemnified Parties") and save them harmless against all
losses, claims, damages or liabilities:
(a) existing by reason of an untrue statement contained in the
Disclosure Record, subscription agreement or other written or
oral representation made by the Issuer to a Purchaser or
potential Purchaser in connection with the Private Placement,
or in the Prospectus or in the AIF or other written or oral
representation made by the Issuer in connection with the
Distribution, or by reason of the omission to state any fact
necessary to make such statements or representations not
misleading (except for information and statements supplied by
and relating solely to the Agent);
(b) arising directly or indirectly out of any order made by any
regulatory authority, based upon an allegation that any such
untrue statement, representation or omission exists (except
information and statements supplied by and relating solely to
the Agent), that trading in or distribution of any of the
Securities is to cease;
(c) resulting from the failure by the Issuer to obtain the
requisite regulatory approval to the Private Placement or
confirmation of filing the AIF unless the failure to obtain
such approval is the result of a breach of this Agreement by
the Agents;
(d) resulting from any failure by the Issuer to file the Offering
Memorandum, if required by the Applicable Legislation, or
Prospectus, or an amendment or supplement to either of them;
(e) resulting from the breach by the Issuer of any of the terms of
this Agreement;
(f) resulting from any representation or warranty made by the
Issuer herein not being true or ceasing to be true;
(g) if the Issuer fails to issue and deliver the certificates
representing the Securities in the form and denominations
satisfactory to the Agents at the time and place required by
the Agents with the result that any completion of a sale of
the Securities does not take place; or
(h) if, following the completion of a sale of any of the
Securities, a determination is made by any competent authority
setting aside the sale, unless that determination arises out
of an act or omission by the Agents.
17.2 If any action or claim is brought against an Indemnified Party in respect
of which indemnity may be sought from the Issuer pursuant to this Agreement, the
Indemnified Party will promptly notify the Issuer in writing.
<PAGE>
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17.3 The Issuer will assume the defence of the action or claim, including the
employment of counsel and the payment of all expenses.
17.4 The Indemnified Party will have the right to employ separate counsel, and
the Issuer will pay the reasonable fees and expenses of such counsel.
17.5 The indemnity provided for in this Section will not be limited or otherwise
affected by any other indemnity obtained by the Indemnified Party from any other
person in respect of any matters specified in this Agreement and will continue
in full force and effect until all possible liability of the Indemnified Parties
arising out of the transactions contemplated by this Agreement has been
extinguished by the operation of law.
17.6 If indemnification under this Agreement is found in a final judgment (not
subject to further appeal) by a court of competent jurisdiction not to be
available for reason of public policy, the Issuer and- the Indemnified Parties
will contribute to the losses, claims, damages, liabilities or expenses (or
actions in respect thereof) for which such indemnification is held unavailable
in such proportion as is appropriate to reflect the relative benefits to and
fault of the Issuer, on the one hand, and the Indemnified Parties on the other
hand, in connection with the matter giving rise to such losses, claims, damages,
liabilities or expenses (or actions in respect thereof). No person found liable
for a fraudulent misrepresentation (within the meaning of applicable securities
laws) will be entitled to contribution from any person who is not found liable
for such fraudulent misrepresentation.
17.7 To the extent that any Indemnified Party is not a party to this Agreement,
the Agents will obtain and hold the right and benefit of this section in trust
for and on behalf of such Indemnified Party.
18. ASSIGNMENT AND SELLING GROUP PARTICIPATION
18.1 The Agents will not assign this Agreement or any of its rights under this
Agreement or, with respect to the Securities, enter in to any agreement in the
nature of an option or a sub-option unless and until, for each intended
transaction, the Agents have obtained the consent of the Issuer, and any
required notice has been given to and accepted by the Regulatory Authorities.
18.2 The Agents may offer selling group participation in the normal course of
the brokerage business to selling groups of other licensed dealers, brokers and
investments dealers, who may or who may not be offered part of the Agents' Fee.
19. NOTICE
19.1 Any notice under this Agreement will be given in writing and must be
delivered, sent by facsimile transmission or mailed by prepaid post and
addressed to the party to which notice is to be given at the address indicated
above, or at another address designated by the party in writing.
19.2 If notice is sent by facsimile transmission or is delivered, it will be
deemed to have been given at the time of transmission or delivery.
19.3 If notice is mailed, it will be deemed to have been received 48 hours
following the date of mailing of the notice.
19.4 If there is an interruption in normal mail service due to strike, labour
unrest or other cause at or prior to the time a notice is mailed the notice will
be sent by facsimile transmission or will be delivered.
<PAGE>
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20. TIME
Time is of the essence of this Agreement and will be calculated in accordance
with the provisions of the Interpretation Act (British Columbia).
21. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations, warranties, covenants and indemnities of the Issuer and the
Agents contained in this Agreement will survive the Final Closing.
22. LANGUAGE
This Agreement is to be read with all changes in gender or number as required by
the context.
23. ENUREMENT
This Agreement enures to the benefit of and is binding on the parties to this
Agreement and their successors and permitted assigns.
24. HEADINGS
The headings in this Agreement are for convenience of reference only and do not
affect the interpretation of this Agreement.
25. COUNTERPARTS
This Agreement may be executed in two or more counterparts and may be delivered
by facsimile transmission, each of which will be deemed to be an original and
all of which will constitute one agreement, effective as of the reference date
given above.
<PAGE>
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26. LAW
This Agreement is governed by the law of British Columbia, and the parties
hereto irrevocably attorn and submit to the jurisdiction of the courts of
British Columbia with respect to any dispute related to this Agreement.
This document was executed and delivered as of the date given above:
The common seal of )
SOFTCARE EC.COM INC. )
was hereunto affixed in the presence of: )
)
- --------------------------------------------)
Authorized Signatory ) c/s
)
- --------------------------------------------)
Authorized Signatory )
)
The common seal of )
CANACCORD CAPITAL CORPORATION )
was hereunto affixed in the )
presence of: )
)
- --------------------------------------------)
Authorized Signatory ) c/s
)
- --------------------------------------------)
Authorized Signatory )
)
The common seal of )
RESEARCH CAPITAL CORPORATION )
was hereunto affixed in the )
presence of: )
)
- --------------------------------------------)
Authorized Signatory ) c/s
)
- --------------------------------------------)
Authorized Signatory )
)
The common seal of )
HAYWOOD SECURITIES INC. )
was hereunto affixed in the )
presence of: )
)
- --------------------------------------------)
Authorized Signatory ) c/s
)
- --------------------------------------------)
Authorized Signatory )
<PAGE>
APPENDIX I - CERTIFICATION BY ISSUER
The Issuer certifies that:
(a) the distribution of Special Warrants to the Purchaser pursuant
to this Private Placement will be made by the Issuer in a
security of its own issue;
(b) the Issuer is and will be at the Closing, a Qualifying Issuer;
(c) the Issuer has filed or prior to Closing will have filed a
Current AIF together with all supporting documents as set out
in the B.C. Policy or its Former Policy (as that term is
defined in the B.C. Blanket Order);
(d) the Issuer has and will have filed all documents that are
required to be filed under the continuous disclosure
provisions of the B.C. Act and the B.C. Rules, including
annual and interim financial information and annual reports,
press releases disclosing material changes and material change
reports;
(e) the Issuer has not and will not have made a substantial
transaction (as that term is used in the B.C. Policy) since
its Current AIF, unless the Issuer has filed a material change
report in compliance with section 5.14 of the B.C. Policy or
an amended AIF in compliance with section 4.12 of the Former
Policy; and
(f) the Executive Director of the B.C. Commission has not advised
the Issuer in writing that its securities are not eligible for
the shorter hold period provided for in the B.C. Blanket
Order.
<PAGE>
SCHEDULE "A"
SPECIAL WARRANT
PRIVATE PLACEMENT SUBSCRIPTION AGREEMENT
THIS AGREEMENT dated for reference March 3, 2000
BETWEEN
-----------------------------------------------------------------------
-----------------------------------------------------------------------
"Purchaser")
AND SOFTCARE EC.COM INC., Suite 107 - 980 West 1st Street, North
Vancouver, British Columbia, V7P 3N4
(the "Issuer").
Subject and pursuant to the terms set out in Appendix III attached hereto, the
Purchaser hereby irrevocably subscribes for, and on Closing will purchase from
the Issuer the following securities at the following price:
Special Warrants;
---------------------------
$3.75 per Special Warrant for a total purchase price of $______________
NUMBER OF SECURITIES IN THE ISSUER HELD EITHER DIRECTLY OR INDIRECTLY:__________
The Purchaser hereby directs the Issuer to issue, register and deliver the
certificates representing the Special Warrants as follows:
Registration Instructions: Delivery Instructions:
- ------------------------------ ------------------------------
Name to appear on certificate Name and account reference, if applicable
- ------------------------------ ------------------------------
Account reference, if applicable Contact Name
- ------------------------------ ------------------------------
Address Address
- ------------------------------ ------------------------------
Telephone Number)
EXECUTED by the Purchaser this __________day of _________, 2000.
WITNESS:
- ------------------------------ ------------------------------
Signature of Witness Signature of individual
(if Purchaser is an individual)
- ------------------------------ ------------------------------
Name of Witness Authorized Signatory
(if Purchaser is not an individual)
- ------------------------------ -----------------------------
Address of Witness Name of Purchaser (please print)
- ------------------------------ -----------------------------
Name of Authorized Signatory
(please print)
- ------------------------------ ------------------------------
Address of Purchaser
(residence if an individual)
ACCEPTED this ________ day of ___,2000.
- ------------------------------
SOFTCARE EC.COM INC.
Per:
- ------------------------------
Authorized Signatory
<PAGE>
APPENDIX I(A)
CERTIFICATION BY FOREIGN PORTFOLIO MANAGER
The undersigned is purchasing securities of Softcare EC.Com Inc. (the "Issuer").
The undersigned hereby certifies that:
(a) it is purchasing securities of the Issuer on behalf of managed
accounts over which it has absolute discretion as to
purchasing and selling, and in respect of which it receives no
instructions from any person beneficially interested in such
accounts or from any other person;
(b) it carries on the business of managing the investment
portfolios of clients through discretionary authority granted
by those clients (a "portfolio manager" business)
in_________________________________ [jurisdiction], and it is
permitted by law to carry on a portfolio manager business in
that jurisdiction;
(c) it was not created solely or primarily for the purpose of
purchasing securities of the Issuer;
(d) the total asset value of the investment portfolios it manages
on behalf of clients is not less than $20,000,000 (Cdn);
(e) it does not believe, and has no reasonable grounds to believe,
that any resident of British Columbia 6i a beneficial interest
in any of the managed accounts for which it is purchasing; and
(f) the Issuer has provided it with a list of the directors,
senior officers and other insiders of the Issuer, and the
persons that carry on investor relations activities for the
Issuer (which list is attached as Schedule 'A" to this
Appendix), and it does not believe, and has no reasonable
grounds to believe, that any of those persons has a beneficial
interest in any of the managed accounts for which it is
purchasing, except as follows:
--------------------------------------------------------------
--------------------------------------------------------------
(name of insider(s) or person(s) carrying on investor
relations activities for the Issuer that have a beneficial
interest in an account)
The undersigned acknowledges that it is bound by the provisions of the British
Columbia Securities Act including, without limitation, sections 87 and 111
concerning the filing of insider reports and reports of acquisitions. Dated at
__________________, this _____________day of ___________, 2000.
-------------------------------
Name of Purchaser - please print)
-------------------------------
Authorized Signature)
-------------------------------
Official Capacity - please print)
------------------------------
please print name of individual
whose signature appears above,
if different from printed above.)
<PAGE>
SCHEDULE "A" TO APPENDIX I(A)
The following is a list of the directors, senior officers and other insiders of
the Issuer and persons carrying on investor relations activities for the Issuer:
Name Relation to Issuer
Martyn A. Armstrong President and Director
Gregg J. Sedun Director
Wayne D. Zielke Director
Randall M. Pierson Director
Douglas Sarkissian Secretary
<PAGE>
APPENDIX I(B)
CORPORATE PLACEE REGISTRATION FORM
Where subscribers to a private placement are not individuals, the following
information about the placee be provided.
This Form will remain on file with the Exchange, therefore the corporation or
other entity (the "Company") need only file it once, and it will be referenced
for all subsequent private placements in which it participates. If any of the
information provided in this Form changes, the Company must notify the Exchange
prior to participating in further placements with Exchange listed companies.
1. Name of Company:
------------------------------------------------------------------
2. Address of Company's Head Office:
------------------------------------------------------------------
------------------------------------------------------------------
3. Jurisdiction of Incorporation:
------------------------------------------------------------------
4. (a) If the Company will be purchasing securities as principal,
please check the box and include the names and
addresses of persons having a greater than 10% beneficial
interest in the Company:
------------------------------------------------------------------
5. The undersigned acknowledges that it is bound by the provisions of
the British Columbia Securities Act including, without limitation,
section 87 and 111 concerning the filing of insider reports and
reports of acquisitions.
6. For Companies which are B.C. reporting issuers:
If the Company will be purchasing as a portfolio manager, please
check the [ ] box and complete the Additional Undertaking and
Certification set out below.
Additional Undertaking and Certification - Portfolio Manager
If the undersigned is a portfolio manager purchasing as agent for accounts that
are fully managed by it, the undersigned acknowledges that it is bound by the
provisions of the Securities Act (British Columbia) (the "Act"), and undertakes
to comply with all provisions of the Act relating to ownership of, and trading
in, securities including, without limitation, the filing of insider reports and
reports pursuant to Section 111 of the Act.
If the undersigned carries on business as a portfolio manager in a jurisdiction
outside of Canada, the undersigned certifies that:
<PAGE>
-2-
(a) it is purchasing securities of the Issuer on behalf of managed
accounts over which it has absolute discretion as to
purchasing and selling, and in respect of which it receives no
instructions from any person beneficially interested in such
accounts or from any other person;
(b) it carries on the business of managing the investment
portfolios of clients through discretionary authority granted
by those clients (a "portfolio manager" business)
in____________________________ [jurisdiction], and it is
permitted by law to carry on a portfolio manager business in
that jurisdiction;
(c) it was not created solely or primarily for the purpose of
purchasing securities of the Issuer;
(d) the total asset value of the investment portfolios it manages
on behalf of clients is not less than $20,000,000;
(e) it does not believe, and has no reasonable grounds to believe,
that any resident of British Columbia has a beneficial
interest in any of the managed accounts for which it is
purchasing; and
(f) it has no reasonable grounds to believe, that any of the
directors, senior officers and other insiders of the Issuer,
and the persons that carry on investor relations activities
for the Issuer has a beneficial interest in any of the managed
accounts for which it is purchasing.
Dated at _____________________, this ______day of __________________, 2000.
-------------------------------
(Name of Purchaser - please print)
-------------------------------
(Authorized Signature)
-------------------------------
(Official Capacity - please print)
-------------------------------
(please print name of individual
whose signature appears above,
if different from name of purchaser
printed above.)
<PAGE>
APPENDIX II(A)
This is the form required under section 135 of the Rules and, if applicable, by
an order issued under section 76 of the Securities Act.
FORM 20A (IP)
Securities Act
Acknowledgement of Individual Purchaser
1. I have agreed to purchase from Softcare EC.Com Inc. (the "Issuer")
_________________________Special Warrants (the "Securities") of the
Issuer, each Special Warrant is exchangeable at no additional cost for
one common share (a "Share") and one half of one share purchase warrant
(a "Warrant") of the Issuer. One whole Warrant will entitle the holder
to purchase an additional common share of the Issuer at a price of
$4.25 per share for a period of one year. The Issuer will use its best
efforts to file an annual information form in Alberta to qualify the
distribution of the Shares and the Warrants.
2. I am purchasing the Securities as principal and, on closing of the
agreement of purchase and sale, I will be the beneficial owner of the
Securities.
3. I [circle one] have/have not received an offering memorandum describing
the Issuer and the Securities.
4. I acknowledge that:
(a) no securities commission or similar regulatory authority has
reviewed or passed on the merits of the Securities, AND
(b) there is no government or other insurance covering the
Securities, AND
(c) I may lose all of my investment, AND
(d) there are restrictions on my ability to resell the Securities
and it is my responsibility to find out what those
restrictions are and to comply with them before selling the
Securities, AND
(e) I will not receive a prospectus that the British Columbia
Securities Act (the "Act") would otherwise require be given to
me because the Issuer has advised me that it is relying on a
prospectus exemption, AND
(f) because I am not purchasing the Securities under a prospectus,
I will not have the civil remedies that would otherwise be
available to me, AND
(g) the Issuer has advised me that it is using an exemption from
the requirement to sell through a dealer registered under the
Act, except purchases referred to in paragraph 5(g), and as a
result I do not have the benefit of any protection that might
have been available to me by having a dealer act on my behalf.
5. I also acknowledge that: [circle one]
(a) I am purchasing Securities that have an aggregate acquisition
cost of $97,000 or more, OR
(b) my net worth, or my net worth jointly with my spouse at the
date of the agreement of purchase and sale of the security, is
not less than $400,000, OR
<PAGE>
-2-
(c) my annual net income before tax is not less than $75,000, or
my annual net income before tax jointly with my spouse is not
less than $125,000, in each of the two most recent calendar
years, and I reasonably expect to have annual net income
before tax of not less than $75,000 or annual net income
before tax jointly with my spouse of not less than $125,000 in
the current calendar year, OR
(d) I am registered under the Act, OR
(e) I am a spouse, parent, brother, sister or child of a senior
officer or director of the Issuer, or of an affiliate of the
Issuer, OR
(f) I am a close personal friend of a senior officer or director
of the Issuer, or of an affiliate of the Issuer, OR
(g) I am purchasing securities under section 128(c) ($25,000 -
registrant required) of the Rules, and I have spoken to a
person [Name of registered person:
_________________________________(the "Registered Person")]
who has advised me that the Registered Person is registered to
trade or advise in the Securities and that the purchase of the
Securities is a suitable investment for me.
6. If I am an individual referred to in paragraph 5(b), 5(c), or 5(d), I
acknowledge that, on the basis of information about the Securities
furnished by the Issuer, I am able to evaluate the risks and merits of
the Securities because: [circle one]
(a) of my financial, business or investment experience, OR
(b) I have received advice from a person [Name of adviser:
__________________(the "Adviser")] who has advised me that the Adviser
is:
(i) registered to advise, or exempted from the requirement
to be registered to advise, in respect of the
Securities, and
(ii) not an insider of, or in a special relationship with,
the Issuer.
The statements made in this report are true.
DATED______________________________,2000
-----------------------------------
Signature of Purchaser
-----------------------------------
Name of Purchaser
-----------------------------------
-----------------------------------
Address of Purchaser
<PAGE>
APPENDIX III
1. DEFINITIONS
1.1 In this Agreement, which includes the cover page and all of the Appendices,
the following words have the following meanings unless otherwise indicated:
(a) "1933 Act' means the Securities Act of 1933 (United States of
America), as amended;
(b) "Agency Agreement" means the agency agreement between the
Agents and the Issuer dated for reference March 3, 2000;
(c) "Agents" means Canaccord Capital Corporation, Research Capital
Corporation and Haywood Securities Inc. or one of their
sub-agents;
(d) "AIF" has the meaning defined in the B.C. Policy and the
Alberta AIF Rules;
(e) "Alberta Act" means the Securities Act, (Alberta) S.A. 1981,
c. S-6. 1, as amended;
(f) "Alberta AT Rules" means Alberta Securities Commission Rule
45-501 and Companion Policy 45-501 CP;
(g) "Alberta Commission" means the Alberta Securities Commission;
(h) "Applicable Legislation" means the B.C. Act and the Alberta
Act together with the regulations and rules made and
promulgated thereunder and all administrative policy
statements, blanket orders and rulings, notices, and other
administrative directions issued by the Commissions;
(i) "B.C. Act" means the Securities Act, (British Columbia)
R.S.B.C. 1996, as amended,
(j) "B.C. Blanket Order" means Blanket Order and Ruling #98/7, or
any successor instrument, issued by the B.C. Commission;
(k) "B. C. Commission' means the British Columbia Securities
Commission;
(l) "B.C. Policy' means British Columbia's Local Policy Statement
3-27, or any successor instrument, issued by the B.C.
Commission;
(m) "B.C. Rules" means the rules made under the B.C. Act;
(n) "CDNX Policies" means the rules and policies of the Canadian
Venture Exchange;
(o) "Closing" means the day Special Warrants are issued to the
Purchaser;
(p) "Commissions' means the B.C. Commission and the Alberta
Commission;
(q) "Current AIF has the meaning defined in the B.C. Policy;
(r) "Distribution" means the proposed issuance of Shares and
Warrants to the holders of the Special Warrants on the deemed
exercise of the Special Warrants;
(s) "Eligibility Date' means the date on which the Issuer receives
confirmation of filing of its AIF from the Alberta Commission
and is in a position to deliver a certificate in the form
<PAGE>
contemplated by the Alberta AIF Rules to the Agent, upon the
distribution of the Shares and Warrants which underlie the
Special Warrants;
(t) "Exchange" means the Canadian Venture Exchange;
(u) "Exemptions" means the exemptions from the prospectus
requirements under section 74(2)(4) of the B.C. Act and
section 107(l)(d) of the Alberta Act;
(v) "Filing Deadline" means the date the Private Placement
documentation is required to be filed with the Exchange, or
any extension thereof;
(w) "Final Closing" means the last closing under the Private
Placement;
(x) "Private Placement" means the offering of the Special Warrants
on the terms and conditions of the Agency Agreement;
(y) "Qualifying Issuer" has the meaning defined in the B.C.
Blanket Order and the Alberta AI Rules;
(z) "Regulation S" means Regulation S promulgated under the 1933
Act;
(aa) "Regulatory Authorities" means the Commissions and the
Exchange;
(bb) "Release Date" means:
(i) if the Purchaser is resident in British Columbia,
that day which falls four months from the Closing;
(ii) if the Purchaser is resident in Alberta, the Eligibility
Date or, if the Eligibility Date has occurred before that day
which falls four months from the Closing, that day which falls
four months from the Closing;
(cc) "Securities" means the Special Warrants, the Shares, the
Warrants and the Warrant Shares;
(dd) "Shares" means the previously unissued common shares in the
capital of the Issuer, as presently constituted, which will be
issued upon the exercise or deemed exercise of the Special
Warrants;
(ee) "Special Warrants" means the special warrants of the Issuer to
be offered by the Issuer pursuant to the Private Placement and
which have the terms provided in this Agreement and in the
certificates representing such special warrants and the
Special Warrant Indenture,
(ff) "Special Warrant Indenture* means the indenture made between
the Trustee and the Issuer providing for the issuance of
Special Warrants, satisfactory in form and substance to the
Agents;
(gg) "Trustee" means Pacific Corporate Trust Company;
(hh) "Warrants" means the share purchase warrants of the Issuer,
which will be issued upon the exercise or deemed exercise of
the Special Warrants and which have the terms provided in this
Agreement and the certificates representing such share
purchase warrants and the Warrant Indenture;
(ii) "Warrant Indenture" means the indenture made between the
Trustee and the Issuer providing for the issuance of Warrants,
satisfactory in form and substance to the Agents; and
<PAGE>
-3-
(jj) "Warrant Shares" means the previously unissued common shares
in the capital of the Issuer, as presently constituted, which
will be issued on exercise of the Warrants.
1.2 In this Agreement, the following terms have the meanings defined in
Regulation "S": "Directed Selling Efforts", "Foreign Issuer', "Substantial U.S.
Market Interest", "U.S. Person" and 'United States".
2. PURCHASE AND SALE OF SPECIAL WARRANTS
2.1 The Purchaser was introduced to the Issuer by the Agents under the terms of
the Agency Agreement.
2.2 The Special Warrants will be issued under the Special Warrant Indenture and
registered in the name of the purchasers or their nominees.
2.3 Each Special Warrant will on exercise or deemed exercise entitle the holder
to acquire one Share and one half of one Warrant without further payment or
action on the part of the holder.
2.4 The Special Warrants may be exercised by the holder in whole or in part at
any time after the Closing. Any unexercised Special Warrants will be deemed to
be exercised on that day which is the earlier of:
(a) 330 days from the Closing on which such Special Warrants were
issued; and
(b) the fifth business day after the Release Date.
2.5 Upon exercise or deemed exercise, the Special Warrants will be automatically
cancelled and will have no further force or effect.
2.6 Subject to the Applicable Legislation and the CDNX Policies, the Special
Warrants will be non-transferable.
2.7 The Special Warrant Indenture will contain, among other things, provisions
for the appropriate adjustment in the class and number of the Shares and
Warrants and the exercise price of Warrants issued upon exercise or deemed
exercise of the Special Warrants upon the occurrence of certain events,
including any subdivision, consolidation or reclassification of the common
shares of the Issuer, the payment of stock dividends and the amalgamation of the
Issuer.
2.8 The issue of the Special Warrants will not restrict or prevent the Issuer
from obtaining any other financing, or from issuing additional securities or
rights prior to the deemed exercise of the Special Warrants.
2.9 The Issuer has filed a Current AIF in British Columbia and therefore,
as long as the requirements of the B.C. Blanket Order are met, the Purchaser, if
resident in British Columbia, will have the shortened hold period provided in
the B.C. Policy.
2.10 The Issuer will use its best efforts to fide an AIF in Alberta and to have
the Eligibility Date occur within 120 days immediately following the date of
Closing and to otherwise comply with the Alberta AIF Rules in order to permit
the Purchaser, if resident in Alberta, to have the shortened hold period
provided therein.
2.11 If the Eligibility Date does not occur within the 120 days immediately
following the Closing, the Issuer will continue to use its best efforts to have
the Release Date for Securities held by Purchasers resident in Alberta occur
prior to the date which is 330 days after the Closing.
<PAGE>
3. WARRANTS
3.1 The Warrants will be issued under the Warrant Indenture and registered in
the name of the purchasers or their nominees.
3.2 The right to purchase a Warrant Share under a Warrant may be exercised at
any time until the dose of business on the day which is 12 months from the date
of issue of the Special Warrant under which such Warrant was issued to the
holder.
3.3 One whole Warrant will entitle the holder, on exercise, to purchase one
Warrant Share at a price of $4.25 per Warrant Share.
3.4 The Warrants will be non-transferable.
3.5 The certificates representing the Warrants will, among other things, include
provisions for the appropriate adjustment in the class, number and price of the
Warrant Shares issued upon exercise of the Warrants upon the occurrence of
certain events, including any subdivision, consolidation or reclassification of
the Issuer's common shares, the payment of stock dividends and the amalgamation
of the Issuer.
3.6 The issue of the Warrants will not restrict or prevent the Issuer from
obtaining any other financing, or from issuing additional securities or rights,
during the period within which the Warrants may be exercised.
4. WARRANTIES AND DISCLAIMER
4.1 The Purchaser acknowledges, represents, warrants and covenants to and with
the Issuer that, as at the date given above and at the Closing:
(a) no prospectus has been filed by the Issuer with the
Commissions in connection with the issuance of the Special
Warrants, the issuance is exempted from the prospectus
requirements of the Applicable Legislation and that:
(i) the Purchaser is restricted from using most of the
civil remedies available under the Applicable
Legislation;
(ii) the Purchaser may not receive information that would
otherwise be required to be provided to him under the
Applicable Legislation; and
(iii) the Issuer is relieved from certain obligations that
would otherwise apply under the Applicable
Legislation;
(b) the Purchaser, wherever resident, is:
(i) purchasing sufficient Special Warrants so that the
aggregate acquisition cost of the Special Warrants to
the Purchaser is not less than $97,000, the Purchaser
is not a corporation, partnership, trust, fund,
association, or any other organized group of persons
created solely, or used primarily, to permit the
purchase of the Special Warrants (or other similar
purchases) by a group of individuals whose individual
share of the aggregate acquisition cost of the
Special Warrants is less than $97,000, and the
Purchaser is either:
<PAGE>
-5-
(A) purchasing the Special Warrants as principal
and no other person, corporation, firm or
other organization will have a beneficial
interest in the Special Warrants; or
(B) if not purchasing the Special Warrants as
principal, is
(I) duly authorized to enter into this
subscription and to execute all
documentation in connection with the
purchase on behalf of each beneficial
purchaser, it being acknowledged that
the Issuer may in the future be required
by law to disclose on a confidential
basis to securities regulatory
authorities the identity of each
beneficial purchaser of Special Warrants
for whom the Purchaser may be acting;
and is
(a) a trust company, insurance
company or financial institution
that has been authorized to do
business under the Financial
Institutions Act (British
Columbia);
(b) an adviser who manages the
investment portfolio of clients
through discretionary authority
granted by one or more clients
and who is registered as a
portfolio manager under the B.C.
Act or is exempt from such
registration;
(c) a trust company or insurer,
authorized under the laws of a
province or territory of Canada
other than British Columbia to
carry on business in such
province or territory;
(d) a portfolio manager registered or
exempt from registration under
the laws of a province or
territory of Canada other than
British Columbia; or
(e) a portfolio manager in a
jurisdiction other than Canada
and has provided the Issuer with
a certification as set out in
Appendix I(A) or if a corporation
Appendix I(B), the certifications
made therein being repeated to
the Issuer and the Agents herein;
and it is purchasing the Special Warrants as
an agent or trustee for accounts that are My
managed by it, and the aggregate acquisition
cost of the Special Warrants purchased for
all the accounts managed by it is not less
than $97,000; or
(II) is acting as agent for one or more
disclosed principals, each of which
principals is purchasing as a
principal for its own account, not
for the benefit of any other person,
and not with a view to the resale or
distribution of all or any of the
Special Warrants and each of which
principals complies with Subsection
4.1(b)(i) hereof;
(c) if resident in Alberta, the Purchaser is:
(i) purchasing sufficient Special Warrants such that the
aggregate acquisition cost of the Special Warrants to
the Purchaser is not less than $97,000, and the
Purchaser is:
(A) an individual;
<PAGE>
-6-
(B) a corporation, syndicate, partnership or
other form of unincorporated organization
which pre-existed the offering of the
Special Warrants and has a bona fide purpose
other than investment in the Special
Warrants; or
(C) a corporation, syndicate, partnership or
other form of unincorporated organization
created to permit an investment in the
Special Warrants, where the individual share
of the aggregate acquisition cost for each
participant is not less than $97,000;
AND
(ii) the Purchaser is either
(A) purchasing the Special Warrants as principal
and no other person, corporation, firm or
other organization will have a beneficial
interest in the Special Warrants; or
(B) if not purchasing the Special Warrants as
principal, is:
(I) duly authorized to enter into this
Subscription Agreement and to
execute all documentation in
connection with the purchase on
behalf of each beneficial purchaser,
it acknowledges that the Issuer may
in the future be required by law to
disclose on a confidential basis to
securities regulatory authorities
the identity of each beneficial
purchaser of Special Warrants for
whom it may be acting; and is
(a) trading for accounts My
managed by it and is a
trust corporation trading
as trustee or an agent, a
portfolio manager trading
as an agent, or a person or
company trading as an agent
that, except for an
exemption under the Alberta
Act or the rules
thereunder, is required to
be registered as a
portfolio manager; or
(b) acting as agent for one or
more disclosed principals,
each of which principals is
purchasing as a principal
for its own account, not
for the benefit of any
other person, and not with
a view to the resale or
distribution of all or any
of the Special Warrants and
each of which principals
complies with Subsection
4.1(c)(i) hereof;
(d) to the best of the Purchaser's knowledge, the Special Warrants
were not advertised;
(e) no person has made to the Purchaser any written or oral
representations:
(i) that any person will resell or repurchase the
Securities;
(ii) that any person will refund the purchase price of the
Special Warrants;
(iii) as to the future price or value of any of the
Securities; or
(iv) that the Securities will be listed and posted for
trading on a stock exchange or that application has
been made to list and post the Securities for trading
on a stock exchange, other than the Exchange;
<PAGE>
(f) this subscription has not been solicited in any other manner
contrary to the Applicable Legislation or the 1933 Act;
(g) the Purchaser is not a "control person" of the Issuer as
defined in the Applicable Legislation, will not become a
"control person' by virtue of this purchase of any of the
Securities, and does not intend to act in concert with any
other person to form a control group of the Issuer;
(h) the offer was not made to the Purchaser when he was in the
United States and at the time the Purchaser's buy order was
made to the Agents, the Purchaser was outside the United
States;
(i) the Purchaser is at arm's length (as that term is customarily
defined) with the Issuer;
(j) the Purchaser acknowledges that the Securities have not been
registered under the 1933 Act and may not be offered or sold
in the United States unless registered under the 1933 Act and
the securities laws of all applicable states of the United
States or an exemption from such registration requirements is
available, and that the Issuer has no obligation or present
intention of filing a registration statement under the 1933
Act in respect of the Special Warrants, the Shares or the
Warrants;
(k) the Purchaser is not a U.S. Person;
(l) the Purchaser is not and will not be purchasing Special
Warrants for the account or benefit of any U.S. Person;
(m) the Purchaser (or others for whom it is contracting hereunder)
has been advised to consult its own legal and tax advisors
with respect to applicable resale restrictions and tax
considerations, and it (or others for whom it is contracting
hereunder) is solely responsible for compliance with
applicable resale restrictions and applicable tax legislation;
(n) the Purchaser has no knowledge of a "material fact" or
"material change" (as those terms are defined in the
Applicable Legislation) in the affairs of the Issuer that has
not been generally disclosed to the public, save knowledge of
this particular transaction;
(o) the offer made by this subscription is irrevocable (subject to
the Purchaser's right to withdraw his subscription and to
terminate his obligations as set out in this Agreement) and
requires acceptance by the Issuer and approval of the
Exchange;
(p) the Purchaser has the legal capacity and competence to enter
into and execute this Agreement and to take all actions
required pursuant hereto and, if the Purchaser is a
corporation it is duly incorporated and validly subsisting
under the laws of its jurisdiction of incorporation and all
necessary approvals by its directors, shareholders and others
have been given to authorize execution of this Agreement on
behalf of the Purchaser,
(q) the entering into of this Agreement and the transactions
contemplated hereby will not result in the violation of any of
the terms and provisions of any law applicable to, or the
constating documents of, the Purchaser or of any agreement,
written or oral, to which the Purchaser may be a part or by
which he is or may be bound,
(r) this Agreement has been duly executed and delivered by the
Purchaser and constitutes a legal, valid and binding agreement
of the Purchaser enforceable against the Purchaser;
(s) the Purchaser has been independently advised as to the
applicable hold period imposed in respect of the Securities by
securities legislation in the jurisdiction in which the
Purchaser resides and confirms that no representation has been
made respecting the applicable hold
<PAGE>
-8-
periods for the Securities and is aware of the risks and other
characteristics of the Securities and of the fact that the
Purchaser may not be able to resell the Securities except in
accordance with the applicable securities legislation and
regulatory policies;
(t) the Purchaser, and any beneficial purchaser for whom the
Purchaser is acting, is resident in the province or
jurisdiction set out on the cover page of this Agreement;
(u) the Purchaser is capable of assessing the proposed investment
as a result of the Purchaser's financial experience or as a
result of advice received from a registered person other than
the Issuer or any affiliates thereof;
(v) if required by applicable securities legislation, policy or
order or by any securities commission, stock exchange or other
regulatory authority, the Purchaser will execute, deliver,
file and otherwise assist the Issuer in filing, such reports,
undertakings and other documents with respect to the issue of
the Securities as may be required;
(w) the Purchaser acknowledges that the Agents will receive a
commission from the Issuer in connection with this Private
Placement;
(x) the Purchaser acknowledges that the offering of securities
under this Private Placement is restricted to purchasers in
Canada that are resident in British Columbia and Alberta only,
and in such other jurisdictions outside of Canada and the
United States, where such securities may be lawfully offered
for sale; and
(y) the Purchaser agrees that the above representations,
warranties and covenants in this subsection will be true and
correct both as of the execution of this subscription and as
of the day of Closing.
4.2 The foregoing representations, warranties and covenants are made by the
Purchaser with the intent that they be relied upon by the Issuer and the Agents
in determining its suitability as a purchaser of Special Warrants, and the
Purchaser hereby agrees to indemnify the Issuer and the Agents against all
losses, claims, costs, expenses and damages or liabilities which any of them may
suffer or incur as a result of reliance thereon. The Purchaser undertakes to
notify the Issuer and the Agents immediately of any change in any
representation, warranty or other information relating to the Purchaser set
forth herein which takes place prior to the Closing.
4.3 The Issuer represents and warrants that, as of the date given above and at
the Closing:
(a) the Issuer and its subsidiaries, if any, are valid and
subsisting corporations duly incorporated and in good standing
under the laws of the jurisdiction in which they are
incorporated, continued or amalgamated,
(b) the Issuer and its subsidiaries, if any, are duly registered
and licenced to carry on business in the jurisdictions in
which they carry on business or own property where required
under the laws of that jurisdiction;
(c) the authorized and issued capital of the Issuer is as
disclosed to the Exchange, and the outstanding shares of the
Issuer are fully paid and non-assessable;
(d) the Issuer will reserve or set aside sufficient shares in its
treasury to issue the Shares on exercise or deemed exercise of
the Special Warrants and the Warrant Shares on exercise of the
Warrants and such common shares, on receipt of full payment
therefor, will be duly and validly issued as fully paid and
non-assessable;
<PAGE>
(e) except as qualified by the disclosure in all prospectuses,
filing statements, annual information forms, including the
Issuer's Current AIF, and press releases filed with either of
the Regulatory Authorities or the Offering Memorandum, if any,
(the "Disclosure Record"), the Issuer is the beneficial owner
of the properties, business and assets or the interests in the
properties, business or assets referred to in the Disclosure
Record, all agreements by which the Issuer holds an interest
in a property, business or assets are in good standing
according to their terms, and the properties are in good
standing under the applicable laws of the jurisdictions in
which they are situated;
(f) the Disclosure Record, subscription form and all other written
or oral representations made by the Issuer to the Purchaser in
connection with the Private Placement is and will be accurate
in all material respects and does and will omit no fact, the
omission of which does or will make such representations
misleading or incorrect;
(g) the financial statements contained in the Offering Memorandum,
if any, or most recently filed with the Commissions have been
prepared in accordance with Canadian generally accepted
accounting principles, accurately reflect the financial
position and all material liabilities (accrued, absolute,
contingent or otherwise) of the Issuer as of the date thereof,
and no adverse material changes in the financial position of
the Issuer have taken place since the date thereof, save in
the ordinary course of the Issuer's business;
(h) the Issuer has complied and will comply fully with the
requirements of all applicable corporate and securities laws
and administrative policies and directions, including, without
limitation, the Applicable Legislation in relation to the
issue and trading of its securities and in all matters
relating to the Private Placement and the Distribution;
(i) there is not presently, and will not be until the dosing of
the Distribution, any material change, as defined in the
Applicable Legislation, relating to the Issuer or change in
any material fact, as defined in the Applicable Legislation,
relating to any of the Securities which has not been or will
not be fully disclosed in accordance with the requirements of
the Applicable Legislation and the CDNX Policies;
(j) the issue and sale of the Securities by the Issuer and the
Agents does not and will not conflict with, and does not and
will not result in a breach of, any of the terms of the
Issuer's incorporating documents or any agreement or
instrument to which the Issuer is a party;
(k) neither the Issuer nor any of its subsidiaries is a party to
any actions, suits or proceedings which could materially
affect its business or financial condition, and to the best of
the Issuer's knowledge no such actions, suits or proceedings
are contemplated or have been threatened except as disclosed
in the Disclosure Record;
(l) there are no judgments against the Issuer or any of its
subsidiaries, if any, which are unsatisfied, nor are there any
consent decrees or injunctions to which the Issuer or any of
its subsidiaries, if any, is subject;
(m) this Agreement has been or will be by the Closing, duly
authorized by all necessary corporate action on the part of
the Issuer, and the Issuer has full corporate power and
authority to undertake the Private Placement, and undertake
the Distribution;
(n) the Issuer is not in default of any of the requirements of the
Applicable Legislation or any of the administrative policies
or notices of the Regulatory Authorities
(o) the Issuer is a "reporting issuer" within the meaning of the
B.C. Act and the Alberta Act;
<PAGE>
-10-
(p) no order ceasing or suspending trading in securities of the
Issuer nor prohibiting the sale of such securities has been
issued to and is outstanding against the Issuer or its
directors, officers or promoters or against any other
companies that have common directors, officers or promoters
and no investigations or proceedings for such purposes are
pending or threatened;
(q) the Issuer satisfies and will satisfy all necessary
requirements under the Exemptions in order to permit the sale
of the Special Warrants to Purchasers who are qualified to
purchase the Special Warrants under the Exemptions, pursuant
to this Private Placement;
(r) except as disclosed in the Disclosure Record or otherwise to
the Regulatory Authorities no person has any right, agreement
or option, present or future, contingent or absolute, or any
right capable of becoming such a right, agreement or option,
for the issue or allotment of any unissued shares in the
capital of the Issuer or its subsidiaries, if any, or any
other security convertible into or exchangeable for any such
shares, or to require the Issuer or its subsidiaries, if any,
to purchase, redeem or otherwise acquire any of the issued and
outstanding shares in its capital;
(s) the Issuer and its subsidiaries, if any, have filed all
federal, provincial, local and foreign tax returns which are
required to be filed, or have requested extensions thereof,
and have paid all taxes required to be paid by them and any
other assessment, fine or penalty levied against them, to the
extent that any of the foregoing is due and payable, except
for such assessments, fines and penalties which are currently
6eing contested in good faith;
(t) the Issuer and its subsidiaries, if any, have established on
their books and records reserves which are adequate for the
payment of all taxes not yet due and payable and there are no
liens for taxes on the assets of the Issuer or its
subsidiaries, if any, except for taxes not yet due, and there
are no audits of any of the tax returns of the Issuer or its
subsidiaries, if any, which are known by the Issuer's
management to be pending, and there are no claims which have
been or may be asserted relating to any such tax returns
which, if determined adversely, would result in the assertion
by any governmental agency of any deficiency which would have
a material adverse effect on the properties, business or
assets of the Issuer or its subsidiaries, if any;
(u) the Issuer owns or possesses adequate rights to use all
material patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and
other intellectual property necessary for the business of the
Issuer now conducted and proposed to be conducted, without any
conflict with or infringement of the rights of others. The
Issuer has received no communication alleging that the Issuer
has violated or, by conducting its business as proposed, would
violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights
of any other person or entity. Neither the execution or
delivery of this Agreement nor the carrying on of the business
of the Issuer by the employees of the Issuer, nor the conduct
of the business of the Issuer will conflict with or result in
a breach of the terms, conditions, or provisions of or
constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated;
(v) other than the Agents, no person, firm or corporation acting
or purporting to act at the request of the Issuer is entitled
to any brokerage, agency or finder's fee in connection with
the transactions described herein;
(w) the certifications in Appendix IV are true and correct and
will be true and correct as of the date of the Closing; and
(x) the Issuer is, and will be at Closing, a Qualifying Issuer.
4.4 The representations and warranties contained in this Section will
survive the Closing.
<PAGE>
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4.5 Both the Issuer and the Purchaser acknowledge that the Agents is acting as
agent in this transaction and the Purchaser hereby acknowledges that all
warranties, conditions, representations or stipulations, whether express or
implied and whether arising hereunder or under prior agreement or statement or
by statute or at common law are expressly those of the Issuer, other than those
relating solely to the Agents. The Purchaser acknowledges that no information or
representation concerning the Issuer has been provided to the Purchaser by the
Issuer or the Agents other than those contained in this Agreement and the
Disclosure Record and that the Purchaser is relying entirely upon this Agreement
and the Disclosure Record. Any information given or statement made is given or
made without liability or responsibility howsoever arising on the part of the
Agents. No person in the employment of, or acting as agent of, the Agents has
any authority to make or give any representation or warranty whatsoever in
relation to the Issuer or the Special Warrants. Any information given or
statement made is given or made without liability or responsibility howsoever
arising on the part of the Agents, and the Issuer and the Purchaser hereby
release the Agents from any claims that may arise in respect thereof.
5. WITHDRAWAL OF SUBSCRIPTION AND CONTRACTUAL RIGHTS
The Purchaser reserves the right to withdraw this subscription and to terminate
its obligations hereunder at any, time before Closing if the Agents terminates
its obligations with respect to the Private Placement under the Agency Agreement
and hereby appoints the Agents as its agent for the purpose of notifying the
Issuer of the withdrawal or termination of this subscription.
6. CLOSING
6.1 The Closing will take place within five business days of approval of the
Private Placement by the Exchange, unless otherwise agreed between the Issuer
and the Agents. The Purchaser acknowledges that, although Special Warrants may
be issued to other purchasers under the Private Placement concurrently with the
Closing, there may be other sales of Special Warrants under the Private
Placement, some or all of which may close after the Closing. The Purchaser
further acknowledges that there is a risk that insufficient funds may be raised
on the Closing to fund the Issuer's objectives described in the Offering
Memorandum, if any, and that further closings may not take place after the
Closing.
6.2 On or before the Filing Deadline, the Purchaser will deliver to the Issuer
or the Agents this subscription form, duly executed, and payment in full for the
total price of the Special Warrants to be purchased by the Purchaser.
6.3 At Closing, the Issuer will deliver to the Agents the certificates
representing the Special Warrants purchased by the Purchaser registered in the
name of the Purchaser or its nominee against payment of:
(a) 40% of the Proceeds (the "Escrowed Funds") to the Trustee to
be held in accordance with the Special Warrant Indenture and
the Trustee shall pay the same and any interest accrued
thereon to the Issuer on the earlier of the Eligibility Date
or 12 months from Closing; and
(b) the balance of the Proceeds to the Issuer.
6.4 Prior to the Filing Deadline, the Purchaser will deliver to the Issuer:
(a) a fully executed Form 20A (IP) in the form set out in Appendix
II(A), if required under the applicable Exemption;
(b) if the Purchaser is a "portfolio manager" in a jurisdiction
other than Canada, a fully executed certification in the form
set out in Appendix I(A) or Appendix I(B), as appropriate; and
<PAGE>
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(c) if the Purchaser is not an individual, a Corporate Placee
Registration Form (the "Form") as set out in Appendix I(B),
unless the' Form is already on file with the Exchange and the
Exchange has been advised of any changes in the information
provided in the Form, prior to the Purchaser participating in
the Private Placement.
6.5 The Closing is subject to the Issuer having filed an AIF in British Columbia
and having obtained and delivered a copy of the confirmation of filing the AIF
from the B.C. Commission to the Agents.
7. HOLD PERIOD
7.1 The Purchaser acknowledges that the Securities will be subject to
restrictions on resale until such time as:
(a) the appropriate "hold periods' have been satisfied, which:
(i) for residents of British Columbia, is at least four
months from the date of issue of the Special Warrants;
and
(ii) for residents of Alberta, is:
(A) with respect to the Shares and Warrant Shares at
least 12 months from the date of issue of the
Special Warrants; and
(B) with respect to the Special Warrants and the
Warrants at least 18 months from the date of
issue of the Special Warrants;
or, if the Eligibility Date has occurred prior to the
exercise of the Special Warrants, four months from the
date of issue of the Special Warrants;
(b) a further statutory exemption is available to the investor
and, if such trade takes place within one year of Closing, the
prior consent of the Exchange is obtained (unless the Release
Date has occurred); or
(c) an appropriate discretionary order is obtained pursuant to
applicable securities laws.
7.3 The certificates representing the Securities will bear a legend denoting the
restrictions on transfer imposed by the Applicable Legislation. The Purchaser
agrees to sell, assign or transfer the Securities only in accordance with the
requirements of applicable securities laws and such legends.
7.4 If resident in Alberta, the Purchaser acknowledges that they are required to
file a first trade report prepared in accordance with Form 21 within 10 days of
the first trade in any of the Securities with the Alberta Commission.
8. MISCELLANEOUS
8.1 The Purchaser hereby irrevocably authorizes the Agents, in their sole
discretion:
(a) to act as the Purchaser's representative at the Closing, to
receive certificates for Special Warrants subscribed for, the
certifications in Appendix IV and the certificate required by
the Alberta AIF Rules and to execute in its name and on its
behalf all closing receipts and documents required; and
<PAGE>
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(b) to waive, in whole or in part, any representations,
warranties, covenants or conditions for the benefit of the
Purchaser contained herein or in any agreement or document
ancillary or related thereto.
8.2 The Purchaser hereby authorizes the Issuer to correct any minor errors in,
or complete any minor information missing from the Certification by Foreign
Portfolio Manager (Appendix I(A)), Corporate Placees Registration Form (Appendix
I(B)) or the Form 20A (1P) (Appendix II(A)) which has been executed by the
Purchaser and delivered to the Issuer.
8.3 The Issuer and the Agents will be entitled to rely on delivery by facsimile
machine of an executed copy of this subscription, and acceptance by the Issuer
of such facsimile copy will be equally effective to create a valid and binding
agreement between the Purchaser and the Issuer in accordance with the terms
hereof
8.4 Without limitation, this subscription and the transactions contemplated
hereby are conditional upon and subject to the Issuer receiving the Exchange's
approval of this subscription and the transactions contemplated hereby.
8.5 This agreement is not assignable or transferable by the parties hereto
without the express written consent of the other party hereto.
8.6 Time is of the essence of this Agreement and will be calculated in
accordance with the provisions of the Interpretation Act (British Columbia).
8.7 Except as expressly provided in this Agreement and in the agreements,
instruments and other documents contemplated or provided for herein, this
Agreement contains the entire agreement between the parties with respect to the
Securities and there are no other terms, conditions, representations or
warranties whether expressed, implied, oral or written, by statute, by common
law, by the Issuer, by the Agents, or by anyone else.
8.8 The parties to this Agreement may amend this Agreement only in writing.
8.9 This Agreement enures to the benefit of and is binding upon the parties to
this Agreement and their successors and permitted assigns.
8.10 A party to this Agreement will give all notices to or other written
communications with the other party to this Agreement concerning this Agreement
by hand or by registered mail addressed to the address given above.
8.11 This Agreement is to be read with all changes in gender or number as
required by the context.
8.12 This Agreement will be governed by and construed in accordance with the
laws of British Columbia, and the parties hereto irrevocably attorn and submit
to the jurisdiction of the courts of British Columbia with respect to any
dispute related to this Agreement.
END OF APPENDIX III
<PAGE>
APPENDIX IV - CERTIFICATION BY ISSUER
The Issuer certifies that:
(a) the distribution of Special Warrants to the Purchaser pursuant
to this Private Placement will be made by the Issuer in a
security of its own issue;
(b) the Issuer is and will be at the Closing, a Qualifying Issuer;
(c) the Issuer has filed or prior to Closing will have filed a
Current AIF together with all supporting documents as set out
in the B.C. Policy or its Former Policy (as that term is
defined in the B.C. Blanket Order);
(d) the Issuer has and will have filed all documents that are
required to be filed under the continuous disclosure
provisions of the B.C. Act and the B.C. Rules, including
annual and interim financial information and annual reports,
press releases disclosing material changes and material change
reports;
(e) the Issuer has not and will not have made a substantial
transaction (as that term is used in the B.C. Policy) since
its Current AIF, unless the Issuer has filed a material change
report in compliance with section 5.14 of the B.C. Policy or
an amended AIF in compliance with section 4.12 of the Former
Policy; and
(f) the Executive Director of the B.C. Commission has not advised
the Issuer in writing that its securities are not eligible for
the shorter hold period provided for in the B.C. Blanket
Order.
Exhibit 99- 6e
SHARE PURCHASE AGREEMENT
SOFTCARE EC.COM, INC. and FINANCIAL MANAGEMENT GROUP (FMG)
February 2000
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS
1.1 Defined Terms
ARTICLE II. ASSETS TO BE CONVEYED
2.1 Assets
2.1.1 Receivables
2.1.2 Contracts
2.1.3 Warranties
2.1.4 Claims
2.1.5 Promotional Materials and Intangibles
2.1.6 Personal Property
2.1.7 Real Property
2.1.8 Records
2.1.9 Inventory
2.2 Excluded Assets
ARTICLE Ill. ASSUMPTION OF LIABILITIES
3.1 Liabilities Assumed
3.2 Liabilities Not Assumed
ARTICLE IV. PURCHASE PRICE AND PAYMENT
4.1 Total Consideration and Terms
4.2 Contingent Payments
4.3 Allocation
ARTICLE V. PRORATIONS AND ADJUSTMENTS
5.1 Working Capital Adjustment
5.2 Proration
ARTICLE VI. RELATED AGREEMENTS AT CLOSING
6.1 Non-competition
6.2 Employment of Certain Shareholders
6.3 Options to Purchase Shares of Buyer
ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS
7.1 Organization
7.2 Authorization
7.3 No Breach
7.4 Governmental Authorizations
7.5 Consents
7.6 Title to Assets
7.7 Condition of Personal Property
7.8 Condition of Real Property
7.9 Contracts
7.10 Employees
7.11 Employee Benefit Plans
<PAGE>
7.12 Litigation
7.13 Taxes
7.14 Compliance with Laws
7.15 Insolvency Proceedings
7.16 Patents, Trademarks, Copyrights
7.17 Financial Statements; Absence of Undisclosed Liabilities
7.18 Absence of Certain Changes or Events
7.19 Sufficiency of Assets
7.20 Environmental Protection
7.21 Insurance
7.22 Brokers' Fees
7.23 No Other Agreements to Sell the Assets
7.24 Transactions with Certain Persons
7.25 Accounts Receivable
7.26 Inventory
7.27 Investment
7.28 No Misleading Statements
ARTICLE VIII. REPRESENTATIONS AND WARRANTIES OF BUYER
8.1 Organization
8.2 Authorization
8.3 No Breach
8.4 Litigation
ARTICLE IX. PRE-CLOSING OBLIGATIONS
9.1 Financial Information
9.2 Consents
9.3 Confidentiality
9.4 Access
9.5 Employee Matters
9.6 Operations Prior to Closing
9.7 Adverse Developments
9.8 Administrative Violations
9.9 Bulk Sales Act
9.10 Removal of Restrictions
9.11 HSR Act Notification
ARTICLE X. CONDITIONS PRECEDENT
10.1 Mutual Conditions
10.1.1 Governmental Consents
10.1.2 Absence of Litigation
10.2 Conditions to Buyer's Obligation
10.2.1 Representations and Warranties
10.2.2 Compliance with Conditions
10.2.3 No Material Adverse Development
10.2.4 Closing Documents
10.2.5 Third Party Consents
10.2.6 Estoppel Certificates
10.2.7 Settlement of Claims
10.3 Conditions to Seller's Obligation
10.3.1 Representations and Warranties
10.3.2 Compliance with Conditions
10.3.3 Payment
10.3.4 Closing Documents
ARTICLE XI. CLOSING
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<PAGE>
11.1 Closing Date
11.2 Performance at Closing
11.2.1 Sellers and the Shareholders' Deliveries
11.2.2 Buyer's Deliveries
11.2.3 Other Documents and Acts
ARTICLE XII. POST-CLOSING OBLIGATIONS
12.1 Indemnification
12.1.1 Buyer's Right to Indemnification
12.1.2 Seller's Right to Indemnification
12.1.3 Conduct of Proceedings
12.1.4 Right of Offset
12.1.5 Limits on and Conditions of Indemnification; Threshold
and Cap
12.1.6 Purchase Price Adjustment
12.2 Post-Closing Access
12.3 Post-Closing Tax Covenant
12.4 Failure to Obtain Consents
ARTICLE XIII. DEFAULT AND REMEDIES; DAMAGE
13.1 Termination by Seller Upon Buyer's Default
13.2 Termination by Buyer Upon Seller's Default
13.3 Breach and Opportunity to Cure
13.4 Seller's Remedies
13.5 Buyer's Remedies
13.6 Damage
13.6.1 Risk of Loss
13.7 Legal Actions
13.8 Failure to Obtain Consents
ARTICLE XIV. GENERAL PROVISIONS
14.1 Expenses
14.2 Notices
14.3 Attorneys' Fees
14.4 Survival of Representations Warranties and Indemnification Rights
14.5 Exclusive Dealings
14.6 Waiver
14.7 Assignment
14.8 Entire Agreement
14.9 Counterparts
14.10 Construction
14.11 Schedules and Exhibits
14.12 Severability
14.13 Choice of Law
14.14 Counsel
14.15 Public Statements
14.16 Arbitration
Voluntary Pooling Agreement
Business Protection Agreements for Ross Casabonne and Cherlynne Casabonne
including Form of Non competition Agreements and Form of Employment Agreements,
Attachment BPA Section 12;
Seller's Representation Opinion
Buyer's Counsel Opinion, Sellers Confirmation Certificate, Power of Attorney
Jerry Smith Patagonia Corp.
Schedule 2.1.2 Contracts
Schedule 2.1.5 Intangible Property
Schedule 2.1.6 Personal Property
Schedule 2.1.7 Real Property
Schedule 3.1 (b) Long Term Bank Debt (See Financial Statements attached)
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<PAGE>
Schedule 7.1 Seller's Addresses and Places of Business
Schedule 7.6(a) Exceptions to Title to Assets
Schedule 7.6(b) Permitted Liens
Schedule 7.8(b) Real Property Exceptions
Schedule 7.8(c) Lease Agreements
Schedule 7.1 0(b) Labor Agreements
Schedule 7.11 Employee Plans
Schedule 7.12 Litigation
Schedule 7.13 Taxes
Schedule 7.17 Financial Statements (See attached statements and attachments)
Schedule 7.18 Changes or Events
Schedule 7.20 Environmental Compliance
Schedule 7.21 Insurance Policies
Schedule 7.24 Transactions with Certain Persons
This Share Purchase Agreement (the "Agreement") is made and entered on February
14, 2000 (the "Contract Date"), by and between Patagonia Corp. a company
incorporated in Turks & Caicos With registered office at P.O. Box 290 Charter
House, the Centre, Leeward Highway, Providenciales, British West Indies,
("Seller"), Ross Casabonne and Cherlynne Casabonne Jointly and Severally
(hereinafter called "Casabonne") and Financial Management Group LLC a Nevada LLC
authorized to do business in the State of California of 12399 Lewis Street,
Suite 201 Garden Grove California 92840 and Financial Marketing Group LLC a
California LLC or registration of Financial Management Group LLC (together the
"Company") and Softcare EC.com, Inc. a British Columbia corporation or such
assignee that is a subsidiary of Softcare EC.com, Inc. as Softcare EC.com, Inc.
may in Its discretion provide ("Buyer") with an address at 107 980 West 1st
Street, North Vancouver British Columbia, Canada, V7P 3N4, and where Patagonia
Corp is sometimes called a "Shareholders".
BACKGROUND:
Casabonne manages a business the shares of which are owned by the Seller. The
business involves servicing credit counseling businesses in the United States of
America and elsewhere. Based upon warranties and representations contained in
this Agreement, the Buyer has agreed to purchase all of the shares in the
Company from the Seller with the purpose of obtaining the cashflows of the
Company currently and to develop and install, operate and market a vertical
portal on the Internet for the credit counseling industry (the "Creditsolv
Vertical Portal") ("collectively the "Business"). It is intended that Casabonne
will apply full time efforts in the employ of the Buyer or a subsidiary thereof
as the Buyer determines is appropriate to develop and implement the Creditsolv
Vertical Portal in a timely manner. The peculiar marketing skills and history of
Casabonne and their organization with the Company are an essential element of
the basis for this Agreement. Seller and the Shareholders desire to sell and
assign to Buyer and Buyer desires to purchase and acquire from Seller
substantially all of the shares of the Company and all of the property and
assets used or held for use in the operation of the Business upon the terms set
forth in this Agreement (the "Transaction"). Accordingly, in consideration of
the foregoing and of the mutual promises, covenants, and conditions set forth
below, the parties agree as follows:
ARTICLE 1.
DEFINITIONS
1.1 DEFINED TERMS. As used herein, the following terms shall have the following
meanings:
"ACTIVE CUSTOMER CONTRACTS" shall have the meaning set forth in SECTION 7.9.
"ADJUSTMENT DATE" shall have the meaning set forth in SECTION 5.2.
"ADMINISTRATIVE VIOLATION" shall have the meaning set forth in SECTION 9.8.
"AGGREGATE FAIR MARKET VALUE" shall have the meaning set forth in SECTION 4.3.
"AGREEMENT" shall have the meaning set forth in the Preamble.
"APPLICABLE STOCK PRICE" shall have the meaning set forth in SECTION 4.2.
"ASSETS" shall have the meaning set forth in SECTION 2.1.
4
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"ASSUMED DEBT" shall have the meaning set forth in SECTION 3.1 (b).
"ASSUMED LIABILITIES" shall have the meaning set forth in SECTION 3.1.
"BALANCE SHEET" shall mean the balance sheet of Seller, as of the date
indicated thereon, together with the notes thereto, prepared in accordance with
GAAP or as otherwise agreed in writing by the CFO of the Buyer as regards GAAP
applicability.
"BUSINESS" shall have the meaning set forth in the Background.
"BUYER" shall have the meaning set forth in the Preamble.
"BUYER INDEMNITEES" shall have the meaning set forth in SECTION 12.1.1.
"BUYER STOCK" shall have the meaning set forth in SECTION 4.1.
"CASH PAYMENT" shall have the meaning set forth in SECTION 4.1.
"CLOSING" shall have the meaning set forth in SECTION 3.1
"CLOSING DATE" shall have the meaning set forth in SECTION 11.1.
"CLOSING DATE ADJUSTMENTS" shall have the meaning set forth in SECTION 5.2.
"CLOSING DATE STOCK PRICE" shall have the meaning set forth in SECTION 4.2.
"CLOSING WORKING CAPITAL" shall have the meaning set forth in Section 5.1.2.
"CODE' shall mean the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
"CONTINGENT PAYMENT" shall have the meaning set forth in SECTION 4.2.
"CONTINGENT PAYMENT DATE" shall have the meaning set forth in SECTION 4.2.
"CONTINGENT PAYMENT DATE STOCK PRICE" shall have the meaning set forth
in SECTION 4.2.
"CONTRACT DATE" shall have the meaning set forth in the Preamble.
"CONTRACTS" shall have the meaning set forth in SECTION 2.1.2.
"COVENANTS" shall have the meaning set forth in SECTION 6. 1.
"CUSTOMER CONTRACT" shall have the meaning set forth in Section 2.1.2.
"EMPLOYEE PLAN" shall have the meaning set forth in SECTION 7.11.
"EMPLOYMENT AGREEMENTS" shall have the meaning set forth in SECTION 6.2.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ESTIMATED CLOSING DATE WORKING CAPITAL" shall have the meaning set forth in
SECTION 5.1.1.
"ENVIRONMENTAL LAWS" shall mean all foreign, federal, state, local or municipal
laws, rules, orders, regulations, statutes, ordinances, codes, legally binding
decrees or other requirement of any governmental agency (including, without
limitation, common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of the environment or of human health
relating to handling of or exposure to any kind of hazardous substance,
gasoline, or petroleum (including crude oil or any fraction thereof) or
petroleum products, polychlorinated biphenyls, ureaformaldehyde insulation,
asbestos or asbestos-containing materials, pollutants, contaminants,
radioactivity, and any other materials or substances of any kind, whether solid,
liquid, or gas, and whether or not any such substance is defined as hazardous
under any law, that is regulated pursuant to any law or that could give rise to
liability under any law, as has been, is now, or may at any time hereafter be,
in effect.
"EXCLUDED ASSETS" shall mean those assets not included among the Assets
purchased, as listed in SECTION 2.2.
"EXERCISE PRICE" shall have the meaning set forth in SECTION 4.1.
"FINANCIAL STATEMENTS" shall have the meaning set forth in SECTION 7.17.
"GAAP" shall mean United States generally accepted accounting principles
consistently applied.
"HIRED EMPLOYEES" shall have the meaning set forth in SECTION 9.5.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvement Act of 1976,
as amended.
"INDEMNIFIED PARTY" shall have the meaning set forth in SECTION 12.1.3.
"INDEMNITOR" shall have the meaning set forth in SECTION 12.1.3.
"INSURANCE POLICIES" shall have the meaning set forth in SECTION 7.21.
"INTANGIBLE PROPERTY" shall have the meaning set forth in SECTION 2.1.8.
"INTEREST EXPENSE" shall mean, with respect to any entity, for any period, the
sum (without duplication) of (i) the interest expense of such entity and its
subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP, including, without limitation, (a) any amortization of debt discount;
(b) the net cost under any interest rate protection agreement, future, option,
swap, cap, or other interest rate hedge or arrangement (including any
amortization of discounts); (c) the interest portion of any deferred payment
obligation; (d) all commissions, discounts, and other fees and charges owed with
respect to letters of credit, bankers' acceptance financing, or similar
facilities; and (e) all accrued interest,
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and (ii) the interest component of any capitalized lease obligations paid or
accrued by such person and its subsidiaries during such period as determined on
a consolidated basis in accordance with GAAP.
"INVENTORY" shall have the meaning set forth in SECTION 2. 1.10.
"IRS" shall mean the United States Internal Revenue Service.
HIT PRODUCTS AND SERVICES" shall have the meaning set forth in SECTION 12.1.1.
"LEASE AGREEMENTS" shall have the meaning set forth in SECTION 7.8.
"LEASE CONSENTS" shall have the meaning set forth in Section 9.2.
"LETTER OF CREDIT" shall have the meaning set forth in SECTION 4. 1.
"LIENS" shall have the meaning set forth in SECTION 7.6.
"MAXIMUM AMOUNT" shall have the meaning set forth in SECTION 4.2.
"MINIMUM WORKING CAPITAL" shall have the meaning set forth in SECTION 5.1.
"NET INCOME" shall mean, with respect to any entity, for any period, the
aggregate net income (or loss) of such entity and its subsidiaries for such
period on a consolidated basis, determined in accordance with GAAP; provided
that there shall be excluded therefrom, without duplication, (i) gains and
losses from any sale of assets or abandonments or reserves relating thereto, and
the related tax effects according to GAAP; (ii) items classified as
extraordinary or non-recurring gains and losses, and the related tax effects
according to GAAP; (iii) the net income (or loss) of any other entity acquired
in a pooling of interests transaction accrued prior to the date it becomes a
subsidiary of such first referred to entity or is merged or consolidated with it
or any of its subsidiaries; (iv) the net income of any subsidiary of such entity
to the extent that the declaration of dividends or similar distributions by that
subsidiary of that income is restricted by contract, operation of law, or
otherwise; and (v) the net income of any other entity, other than a subsidiary,
except to the extent of the lesser of (a) dividends or distributions paid to
such first referred to entity or its subsidiary by such entity and (b) the net
income of such entity (but in no event less than zero), and the net loss of such
entity shall be included only to the extent of the aggregate investment of the
first referred to entity or a consolidated subsidiary of such entity.
"NON-CASH CHARGES" shall mean, with respect to any entity, for any period, the
aggregate depreciation, amortization, and other non-cash expenses of such entity
and its subsidiaries reducing the Net Income of such entity and its subsidiaries
for such period, determined on a consolidated basis in accordance with GAAP
(excluding any such charges constituting an extraordinary or non-recurring
item).
"NON-CONSENTED CONTRACT" shall have the meaning set forth in SECTION 12.4.
"NOTE" shall have the meaning set forth in SECTION 4.1.
"OPTION AMOUNT" shall have the meaning set forth in SECTION 4. 1.
"OPTIONS" shall have the meaning set forth in SECTION 4.1.
"PAYMENT AT CLOSING" shall have the meaning set forth in SECTION 4.1.
"PAYMENT DATE" shall have the meaning set forth in SECTION 5.2.
"PERIOD ONE" shall have the meaning set forth in SECTION 4.2.
"PERMITTED CORRECTIVE ACTION" shall mean action to correct or repair a problem
with a product or service that was previously provided to a customer pursuant to
a Customer Contract, where such correction or repair is provided in the ordinary
course of business and without the unreimbursed expenditure of more than a DE
MINIMIS amount of funds (other than payroll) or commitment of a material amount
of resources.
"PERIOD TWO" shall have the meaning set forth in SECTION 4.2.
"PERMITTED LIENS" shall have the meaning set forth in SECTION 7.6.
"PERSON" shall mean any individual, corporation, partnership, Limited Liability
Company, joint venture, association, joint-stock company, trust, unincorporated
organization, labor union or governmental authority.
"PERSONAL PROPERTY" shall have the meaning set forth in SECTION 2.1.6.
"POST-CLOSING ESCROW" shall have the meaning set forth in SECTION 12.1.4.
"PRE-CLOSING TAXES" shall have the meaning set forth in SECTION 3.2.
"REAL PROPERTY" shall have the meaning set forth in SECTION 2.1.7.
"RECORDS" shall have the meaning set forth in SECTION 2.1.9.
"REQUIRED CONSENT" shall have the meaning set forth in SECTION 10.2.5.
"SHARE" or "SHARES" means all of the issued and outstanding shares in the
capital of the Company and more particularly XXX common shares free and clear
of all encumbrances, charges, liens, claims or limitation that would affect the
transfer of all rights with respect thereto to the Buyer;
"SELLER" shall have the meaning set forth in the Preamble.
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"SELLER INDEMNITEES" shall have the meaning set forth in SECTION 12.1.2.
"SHAREHOLDER" shall have the meaning set forth in the Preamble.
"TAX" or "TAXES" shall mean all federal, state, local, and foreign taxes, net or
gross income, gross receipts, sales, use, transfer, franchise, employment,
excise, stamp, personal property, real property, social security, unemployment,
disability, registration, value added, estimated, alternative or add-on minimum
taxes, or any other taxes of any kind whatsoever, (whether imposed directly or
through withholding), including any interest, additions to tax, or penalties
applicable thereto, imposed by any Tax authority, whether as a primary obligor
or as a result of being a "transferor" (within the meaning of Section 6901 of
the Code and any corresponding state and local law) of another person.
"TAX RETURNS" shall mean all federal, state, local, and foreign tax returns,
declarations, statements, reports, schedules, forms, and information returns and
any amendments thereto.
"TOTAL CONSIDERATION" shall have the meaning set forth in SECTION 4. 1.
"TRANSACTION" shall have the meaning set forth in the Background.
"WORKING CAPITAL" shall mean, with respect to accounting principles, current
assets less current liabilities excluding owners' compensation liabilities, and
the current portion of long-term debt.
"YEAR 2000 CONDITIONS" shall have the meaning set forth in Section 12.1.1.
ARTICLE 11.
SHARES AND ASSETS TO BE CONVEYED
2.1 Shares and related Assets. On the Closing Date, subject to and in reliance
upon the covenants, representations, warranties, and agreements set forth
herein, and subject to the terms and conditions contained herein (including
without limitation the terms and conditions of Section 12.4 regarding Seller's
obligation to obtain any consent deemed by the Buyer to be reasonably necessary
to confirm that the change in ownership of the Company is acceptable to material
parties to business with the Company), Seller shall sell, assign, transfer and
deliver to Buyer and Buyer shall purchase from Seller, all of the issued and
outstanding Shares in the Company while ensuring that all of the assets used or
held for use in the operation of the Business, other than Excluded Assets,
including without limitation, the following are maintained in the Company
(collectively, the "Assets"):
2.1.1 RECEIVABLES. All accounts and notes receivable (whether current or non-
current), refunds, deposits, prepayments, or prepaid expenses.
2.1.2 CONTRACTS. All rights of Seller and/or Company or others for the benefit
of the Business including, without limitation, those rights under (a) all
agreements, contracts, or leases described on SCHEDULE 2.1.2; (b) such other
contracts, agreements, or leases entered into by Seller and/or Company (i) with
the written consent of Buyer, or (ii) in the ordinary course of business and
consistent with past practice, between the date hereof and the Closing Date,
that (x) are approved in writing by Buyer, (y) are new contracts for provision
of products or services to customers of Seller and/or Company (such contracts,
generally, "Customer Contracts"), or (z) do not impose obligations on Buyer for
the payment of money in amounts in excess of three thousand dollars USF for any
one contract or fifteen thousand dollars USF in the aggregate (the contracts,
agreements, and leases described in clauses (a) and (b) are collectively
referred to as the "Contracts") and always provided that those Contracts that
provide payables and those Contracts that provide receivables offset each other
such that net position of the Company at the closing is a positive number taking
as well into consideration any doubtful accounts on both sides of the ledger.
2.1.3 WARRANTIES. All rights under or pursuant to all warranties,
representations, and guarantees made by suppliers in connection with the Assets
or services furnished to Seller and/or Company, to the extent such warranties,
representations, and guarantees (i) are not required by Seller to fulfill its
obligations under this Agreement and (ii) are assignable.
2.1.4 CLAIMS. All claims, causes of action, choses in action, rights of recovery
and rights of set-off of any kind relating to the Shares, Assets or the Assumed
Liabilities, against any Person, including, without limitation, any liens,
security interests, pledges or other rights to payment or to enforce payment in
connection with products delivered or services provided by Seller and/or Company
on or prior to the Closing Date.
2.1.5 PROMOTIONAL MATERIALS AND INTANGIBLES. All of Company's or its affiliates'
rights in the copyrights, patents, trademarks, trade names, slogans, logos,
service marks, computer software, magnetic media, data processing files, systems
and programs, business lists, trade secrets, sales and
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operating plans of the Business and all goodwill of the Business, and other
similar intangible property rights used or held for use in the Business and for
clarity but not so as to limit the generality of the foregoing, the credit
counseling software, the technical specifications for the credit counseling
software package, the design for the Creditsolv Vertical Portal, including but
not limited to the intangible property identified on SCHEDULE 2.1.5 (the
"Intangible Property").
2.1.6 PERSONAL PROPERTY. All the fixed and tangible personal property used or
held for use in the operation of the Business including, but not limited to, the
equipment, hardware, software, furnishings, and vehicles listed on SCHEDULE
2.1.6 together with any replacements, improvements, or additions thereto made
between the Contract Date and the Closing Date (the "Personal Property").
2.1.7 REAL PROPERTY. All right, title and interest in the real property used or
held for use or necessary in the operation of the Business and owned, leased, or
licensed by Seller, Company and its affiliates, as described in SCHEDULE 2.1.7,
or acquired for the benefit of the Business by Company or Seller or its
affiliates with the written consent of Buyer between the Contract Date and
Closing Date (the "Real Property").
2.1.8 RECORDS. All records, including but not limited to all books of account,
customer lists, supplier lists, computer programs and software, employee
personnel files, engineering data, purchase orders, service logs, consultants'
reports, budgets, marketing data, financial reports and projections, and sales,
operating, and business plans, relating to or used in the Business and not
pertaining solely to Seller's internal corporate affairs (the "Records").
2.1.9 INVENTORY. All inventory held by Company for resale, and all of Company's
raw materials, works in process, finished products, wrapping, supply, and
packaging items, in each case wherever the same may be located (collectively,
"Inventory"). 2.2 EXCLUDED ASSETS. It is understood and agreed that the
following assets shall not be among the Assets retained in the Company pursuant
to this Agreement: NONE
ARTICLE Ill.
ASSUMPTION OF LIABILITIES
3.1 LIABILITIES. Upon the terms and subject to the conditions contained herein,
at the closing of the Transaction (the "Closing"), Buyer confirms that the
Company shall be responsible for the following obligations of Company (the
"Assumed Liabilities"):
(a) to the extent reflected in the Balance Sheet of Company as of the Closing
Date, Company's accounts payable, deferred income, accrued expenses (excluding
deferred compensation of any Shareholder), and to the extent included in the
calculation of Working Capital used in the Balance Sheet, Company's shortterm
debt (to be paid by Buyer when due) and without limiting the generality of the
foregoing the following matters are specifically acknowledged and agreed upon:
(1) that current assets (generally for this purpose being cash + accounts
receivable (being only receivables for software installed and services, support
and maintenance delivered up to the Closing Date) + loans receivable + prepaid
expenses all according to GAAP) less current liabilities (generally for this
purpose being accounts payable + loans payable + payroll liabilities + Wells
Fargo business line of credit but specifically excluding contingent liability on
Company books of $25,000 for wrongful dismissal claim) (and excluding deferred
salaries payable to Casabonnes) be equal to deferred salaries but not less than
$30,OOOUSF and not greater than $45,OOOUSF; (ii) should the previously noted
wrongful dismissal claim result in payment being due in any amount such amount
will be paid by the Seller or Casabonnes in cash or offset of salaries or by
reduction in the consideration payable by the Buyer for the purchase;
(b) long-term bank debt of Company, as listed in SCHEDULES 3.1 (b), including
the current portion of such debt, in an amount up to ten thousand US dollars
($1O,OOOUSFunds) (the "Assumed Debt"), which may, at Buyer's discretion and
subject to requisite consents, be paid by Buyer at Closing; provided that any
fees, expenses, or penalties payable to the lender arising as a result of such
repayment of the Assumed Debt shall be paid by Seller, and that the parties
shall take all necessary action prior to the Closing date to release Seller and
the Shareholders from any obligations, including guarantees, with respect to the
Assumed Debt; and further that the Seller shall reimburse the Buyer for such
Assumed Debt within 90 days of the date of closing;
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(c) the liabilities arising and accruing after and relating exclusively to the
operation of the Business by Buyer after the Closing under the Contracts
described in Section 2.1.2 above or of which the benefits are made available to
Company and
(d) the obligation to perform Permitted Corrective Action with respect to
services and products provided by Seller, prior to Closing, pursuant to Customer
Contracts hereunder or of which the benefits are made available to Buyer by
Seller in accordance with Section 12.4.
3.2 LIABILITIES NOT ASSUMED. Other than as specified above, Company shall not
assume or undertake to pay, satisfy, or discharge any of Seller's liabilities,
obligations, commitments, or responsibilities not expressly acknowledged by
Buyer in this Agreement, including without limitation:
(a) all liabilities and obligations relating to operation of the Business or
ownership or use of the Assets arising and accruing in respect of periods prior
to the Closing;
(b) all liabilities and obligations arising under the Employee Plans, except to
the extent otherwise expressly provided in Section 7.11 or other provisions of
this Agreement;
c) all liabilities and obligations for fees and expenses incurred by or on
behalf of Seller and/or Company in connection with the transactions contemplated
by this Agreement, except to the extent that Buyer has specifically agreed to
assume responsibility for such fees and expenses in this Agreement or any other
written instrument;
(d) all liabilities arising out of or relating to the Excluded Assets including,
without limitation, all Taxes of the Seller and/or Company for periods ending on
or prior to the Closing Date and for periods beginning prior to and ending after
the Closing Date to the extent such Taxes are attributable to the portion of
such period ending on the Closing Date, ("Pre-Closing Taxes");
(e) all liabilities and obligations for which Seller has expressly assumed
responsibility pursuant to this Agreement; and
(f) all liabilities and obligations relating to former employees of Seller
and/or Company no longer employed by Seller and/or Company as of the close of
business on the Closing Date.
ARTICLE IV.
PURCHASE PRICE AND PAYMENT
4.1 TOTAL CONSIDERATION AND TERMS. The aggregate consideration for the Shares to
be purchased by Buyer hereunder and for the Covenants (the "Total
Consideration") will, subject to adjustments as provided in Sections 3 and 4.2
and Article V, consist of:
(a) subject to applicable regulatory approvals and securities laws applicable to
the Buyer, Seller and/or Company and Casabonne, issue and allot 100,000 common
shares in the capital of the Buyer to the Seller (the 'First Shares"). The First
Shares will be issued subject to a hold period of two years from the date of
issuance such hold period to be specified in a pooling agreement exhibited to
this Agreement and to specify the terms affecting both these shares and any
other shares issued pursuant to other terms of this Agreement. If the required
regulatory approvals or securities laws prohibit or otherwise impair the
issuance of the First Shares then the parties will take all reasonable steps
resolve any such limitations and
(b) upon establishment of the First Stage of the Creditsolv Vertical Portal
(First Stage means completion of the basic E-services package) to the reasonable
satisfaction of the Buyer and subject to applicable regulatory approvals and
securities laws applicable to the Buyer, Seller and/or Company and Casabonne,
the issuance to the Seller of a further 95,000 common shares of the Buyer (the
"Second Shares"). The Second Shares will similarly be subject to a hold period
of two years from the date of the issuance of the First Shares or the issuance
of the Second Shares which ever is acceptable to the applicable regulatory
authorities PLUS a completion bonus of US$12,000 upon confirmation by Buyer of
satisfactory completion of design of Creditsolv Vertical Portal;
(c) upon the Creditsolv Vertical Portal itself generating US300,000 dollars in
any month in confirmed contracted enforceable recurring monthly revenues, and
subject to applicable regulatory approvals and securities laws applicable to the
Buyer, Seller and/or Company and Casabonne, the issuance to the Seller of a
further 55,000 common shares of the Buyer (the "Third Shares"). The Third Shares
will not be subject to a hold period unless required by regulatory authorities.
(d) upon the Creditsolv Vertical Portal itself generating US1,000,000 dollars in
any month in confirmed contracted enforceable recurring monthly revenues, and
subject to applicable regulatory approvals and securities laws applicable to the
Buyer, Seller and/or Company and Casabonne, the issuance to the
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Seller of a further 50,000 common shares of the Buyer (the "Fourth Shares"). The
Fourth Shares will not be subject to a hold period unless required by regulatory
authorities.
(e) deferred salaries for Casabonnes referenced in Section 3 and elsewhere are
to amount to not less than $30,000 and not more than $45,000 depending upon
adjustments provided for in this agreement and shall be paid as to $30,000 on
the Closing Date and to a maximum of $7,500 on June 1, 2000 and the balance on
August 1, 2000.
4.2 VALUATION AND IRS INDEMNITY. Buyer and Seller agree that the aggregate fair
market value of the Shares (the "Aggregate Fair Market Value") based on
Company's/Seller's Financial Statements for the period ending FEBRUARY 29, 2000
would be as attached hereto as Exhibit C. Buyer MAY file with income Tax Return
for the tax year in which the Closing occurs, EITHER IN CANADA OR THE USA AS THE
BUYER DETERMINES, IF USA containing the information agreed upon by the parties
pursuant to the immediately preceding sentence as updated due to any changes to
Working Capital or to any changes by Seller between now and Closing, which shall
be agreed to by Buyer and Seller prior to filing. THE SELLER HAS REPRESENTED it
and its principal(s) is/are not resident(s) of the USA and accordingly is/are
not filing IRS returns. Seller and Casabonne (arising out of and in part
consideration for the employment of Casabonne by the Buyer) indemnify and save
the Buyer harmless from any and all claims, costs, damages, expenses whatsoever
that may accrue or be assessed or awarded against Buyer or the Company in
relation to the Seller's tax situation. All the terms of the indemnities in this
Agreement shall apply to this particular indemnity. Buyer agrees to report the
purchase of the Shares, and Seller agrees to report the sale of such Shares on
all applicable foreign, federal, state, and local Tax Returns in a manner
consistent with the information agreed upon by the parties pursuant to this
Section and contained in its forms. Buyer and Seller agree that if there is an
increase or decrease in the Purchase Price after the taxable year that includes
the Closing Date as a result of an adjustment pursuant to Section 4.1, 4.2 or
12.1 of this Agreement, then the Seller's amount realized with respect to, and
the buyer's cost of, the Assets shall be allocated by the Buyer and Seller in a
manner that is consistent with the information agreed upon by the parties
pursuant to this Section and in accordance with the regulations issued under the
Code. In such an event, Buyer shall file a supplemental share acquisition
statement that is consistent with the information agreed upon by the parties
pursuant to the immediately preceding sentence with its respective income Tax
Return for the taxable year in which the increase or decrease, as the case may
be, is properly taken into account. Notwithstanding any other provision of this
Agreement, the provisions of this Section 4.2 shall survive the Closing without
limitation.
ARTICLE V.
PRORATIONS AND ADJUSTMENTS
5.1 WORKING CAPITAL ADJUSTMENT.
(a) At Closing, Seller shall deliver to Buyer a certificate certifying its best
good-faith estimate of the amount of Seller's aggregate Working Capital as of
the Closing Date on a consolidated basis (the "Estimated Closing Date Working
Capital"). In the event that the Estimated Closing Date Working Capital is less
than the amount of Working Capital reflected on the Balance Sheet adjusted as
provided for in this Agreement and provided to Buyer by Seller (the "Minimum
Working Capital"), the Total Consideration will be reduced on a
dollar-for-dollar basis in an amount equal to such deficiency.
(b) Within sixty (60) business days after Closing, Buyer shall conduct or have
conducted its expense an audit of the Company and Business sufficient to
determine Working Capital as of the close of business on the day immediately
preceding the Closing Date (the "Closing Working Capital"), and shall deliver a
statement of the Closing Working Capital to Seller. If (i) Closing Working
Capital exceeds Estimated Closing Date Working Capital, then Buyer shall pay to
Seller an amount equal to such excess, and (ii) Estimated Closing Date Working
Capital exceeds Closing Working Capital, then Seller shall pay Buyer an amount
equal to such excess, in either case within ten (10) business days after the
delivery of the statement of Closing Working Capital to Seller, together with
interest thereon from the Closing Date to the date of payment at the prime rate
of interest as published in the Money Rates column of the Eastern Edition of the
Wall Street Journal (or the average of such rates if more than one rate is
indicated) as of the Closing Date. If Closing Working Capital is equal to
Estimated Closing Working Capital, then neither Buyer nor Seller shall owe any
amount to the other Party pursuant to this section. 5.2 Proration. The operation
of the Business and the income and normal operating expenses, including without
limitation assumed liabilities and prepaid expenses, attributable thereto
through 11:59 p.m. of the
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day prior to the Closing Date (the "Adjustment Date") shall be for the account
of Buyer and thereafter for the account of Buyer. Expenses for goods or services
received both before and after the Adjustment Date, interest expenses, Taxes and
assessments, power and utilities charges, and rents and similar prepaid and
deferred items shall be prorated between Seller and Buyer as of the Adjustment
Date (the "Closing Date Adjustments"). All special assessments and similar
charges or liens imposed in respect of any period of time through the Adjustment
Date, whether payable in installments or otherwise, shall be the responsibility
of Seller, and amounts payable with respect to such special assessments, charges
or liens in respect of any period of time after the Adjustment Date shall be the
responsibility of Buyer, and such charges shall be adjusted as required
hereunder. Three (3) days prior to the Closing Date, Seller shall estimate all
apportionments pursuant to this Article V and shall deliver a statement of its
estimates to Buyer (which statement shall set forth in reasonable detail the
basis for those estimates). At the Closing, Buyer shall pay to Seller, or Seller
shall pay to Buyer, as the case may be, the net amount due as a result of the
estimated apportionments (excluding any item that is in dispute). By ninety (90)
days after the Closing Buyer shall deliver to Seller a statement of any
adjustments to Seller's estimate of the apportionments, and Buyer shall pay to
Seller, or Seller shall pay to Buyer, as the case may be, any amount due as a
result of the adjustment (or, if there is any dispute, the undisputed amount).
If Seller disputes Buyer's determinations, or if at any time after delivery of
Buyer's statement of determinations, either party determines that any item
included in the apportionments is inaccurate, or that an additional item should
be included in the apportionments, the party shall confer with regard to the
Matter and an appropriate adjustment and payment shall be made as agreed upon by
the parties (or, if they are unable to resolve the matter, they shall select a
firm of independent certified public accountants to resolve the matter, whose
decision on the matter shall be binding and whose fees and expenses shall be
borne equally by the parties). If the amount of Taxes for any period that begins
before and ends after the Closing Date, which are to be prorated pursuant to
this Section, are not known three days prior to the Closing Date, then the
amount of such Taxes will be estimated as of such date. If the amount of such
Taxes is not known by sixty days after the Closing Date, once the amount of such
Taxes is known, Buyer shall pay to Seller, or Seller shall pay to Buyer, as the
case may be, the net amount due as a result of the actual apportionment of such
Taxes. All amounts due pursuant to this subsection that are not paid on the
Closing Date or the Payment Date shall bear interest until paid at a rate per
annum equal to generally prevailing prime interest rate (as reported by The Wall
Street Journal) plus five percent (5%). For purposes of this Agreement, in the
case of Taxes that are payable with respect to any period that begins before and
ends after the Closing Date, the portion of such Taxes payable for the period
ending on the Closing Date shall be (a) in the case of any Tax based upon or
measured by income, and in the case of sale or use tax, the amount which would
be payable if the taxable year ended as of the end of the Closing Date and (b)
in the case of any other Tax, such as property, the amount of such tax for the
entire period multiplied by a fraction, the numerator of which is the number of
days in the period ending on the Closing Date and the denominator of which is
the number of days in the entire period.
ARTICLE VI.
RELATED AGREEMENTS AT CLOSING
6.1 NON-COMPETITION. As further consideration of the agreements set forth herein
and sale by Seller of the Assets, at the Closing, Seller and Casabonne shall
enter into a Business Protection Agreement and related Employment Agreement with
Buyer in the form attached hereto (collectively, the "Covenants"). The Covenants
shall become effective as of the Closing Date and shall continue in effect for a
period equal to the longer of: (i) one (1) year from the termination of the
Covenantor's employment with Buyer but at least and (ii) two (2) years after the
Closing Date.
6.2 EMPLOYMENT OF CASABONNE. At Closing, Buyer will enter into two-year
employment agreements, in the form attached hereto (collectively, the
"Employment Agreements"), with (i) Ross Casabonne, pursuant to which Ross
Casabonne will serve as sales manager of Buyer's Creditsolv Vertical Portal
development team and international marketing sales representative, for a base
salary of US$1 0,000 per month plus US$600.00 per month car allowance together
with commissions and bonuses and (ii) Cherlynne Casabonne will serve as design
and sales executive of the Buyer's Creditsolv Vertical Portal development team,
for a base salary of US$8,000 per month plus US$600.00 per month car allowance
as well as bonuses.
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ARTICLE VII.
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS
Seller and Casabonne make the following representations and warranties, all of
which have been relied upon by Buyer in entering into this Agreement and, except
as otherwise specifically provided, all of which shall be true and correct at
Closing.
7.1 ORGANIZATION. Seller is a corporation duly organized, validly existing and
in good standing under the laws of the Turks & Caicos and is duly qualified to
do business in, and is in good standing under, the laws of that jurisdiction and
has full power and authority to own the Assets and to conduct the Business as
currently conducted and proposed to be conducted and to enter into and perform
this Agreement. The address of Seller's chief executive offices, all of Seller's
additional places of business, and the locations of all tangible personal
property included in the Assets are listed in SCHEDULE 7.1. Except as set forth
in Schedule 7.1, during the past five (5) years, Seller has not been known by or
used any corporate, partnership, fictitious, or other name in the conduct of the
Business or in connection with the use or operation of the Assets.
Company is a corporation duly organized, validly existing and in good standing
under the laws of the state of Nevada and is duly qualified to do business in,
and is in good standing under, the laws of that California and has full power
and authority to own, lease, and operate the Assets and to conduct the Business
as currently conducted and proposed to be conducted and to enter into and
perform this Agreement. The address of Company's chief executive offices, all of
Company's additional places of business, and the locations of all tangible
personal property included in the Assets are listed in
SCHEDULE 7.1. Except as set forth in Schedule 7.1, during the past five (5)
years, Company has not been known by or used any corporate, partnership,
fictitious, or other name in the conduct of the Business or in connection with
the use or operation of the Assets.
7.2 AUTHORIZATION. The execution and delivery of this Agreement by Seller and
Company has been duly authorized by all necessary corporate action on its part.
Seller and Company will deliver evidence of such authorization at Closing. This
Agreement has been duly executed by Seller and Company and delivered to Buyer
and constitutes the legal, valid and binding obligation of Seller and Company,
enforceable against Seller and Company in accordance with its terms, except as
limited by laws affecting the enforcement of creditors' rights generally or
equitable principles.
7.3 NO BREACH. None of (i) the execution, delivery and performance of this
Agreement by Seller and Company, (ii) the consummation of this Agreement and all
other documents or instruments related thereto or executed in connection
therewith or in contemplation of the Transaction, or (iii) Seller's and
Company's compliance with the terms and conditions hereof will, with or without
the giving of notice or the lapse of time or both, conflict with, breach the
terms and conditions of, constitute a default under, or violate Seller's or
Company's certificate of incorporation or bylaws; any judgment, decree, order,
injunction, agreement, lease, or other instrument to which Seller and/or
Company is a party or by which Seller and/or Company is legally bound; or any
law, rule, or regulation applicable to Seller and/or Company, the Assets, or the
operation of the Business.
7.4 GOVERNMENTAL AUTHORIZATIONS. There are no licenses, permits, or other
authorizations used or necessary to lawfully operate the Business in the manner
and to the full extent as now operated except city and county business licenses.
7.5 CONSENTS. Assuming the truth and completeness of the representations and
warranties of Buyer contained in this Agreement, no consent, approval, or
authorization of, or designation, declaration or filing with, any governmental
authority or other third party is required with respect to Seller's and/or
Company's or any Shareholder's execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for consent to
assign any of the Contracts, as reflected herein.
7.6 TITLE TO ASSETS. Except as set forth on SCHEDULE 7.6(a), Seller and/or
Company has good and marketable title to the Assets, in the case of owned
Assets, and a valid leasehold interest, in the case of leased Assets, in each
case free and clear of all debts, liens, charges, security interests, mortgages,
deeds of trust, pledges, judgments, trusts, adverse claims, liabilities,
collateral assignments, leases, easements, covenants, encumbrances, and other
impairments of title ("Liens"), other than as set forth on Schedule 7.6(a). At
Closing, Seller shall convey to Buyer good and marketable title to the Shares
free and clear of all Liens other than those set forth on Schedule 7.6(b)
("Permitted Liens").
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7.7 CONDITION OF PERSONAL PROPERTY. The Personal Property listed on SCHEDULE
2.1.6 constitutes all of the personal property that is used, held by the Company
or others for use in, or necessary to operate the Business as now operated. The
Personal Property is in good operating condition and repair (reasonable wear and
tear excepted), is performing satisfactorily, is not in need of repair, has been
properly maintained in accordance with the manufacturers' recommendations and
industry practices, is available for immediate use and is otherwise sufficient
to permit the Business to operate as now operated.
7.8 CONDITION OF REAL PROPERTY (Including Leases under negotiation)
(a) The Real Property listed on SCHEDULE 2.1.7 constitutes all the real property
used by Company or others in connection with the operation of the Business.
Seller does not own any Real Property.
(b) Except as set forth on SCHEDULE 7.8(b), neither Seller, any Shareholder, nor
any affiliate thereof owns or has owned any Real Property that is or has been
used or held for use in conjunction with the Business. Except as set forth on
SCHEDULE 7.8(b), all Real Property that is being or has been used in conjunction
with the Business has been leased Real Property.
(c) The leased Real Property is leased at the rates and for terms ending on the
dates shown on SCHEDULE 7.8(c) pursuant to the agreements described in SCHEDULE
2.1.2 (the "Lease Agreements"), which are the sole and complete agreements
concerning Seller's and/or Company's use of the leased premises. Each Lease
Agreement is legal, valid, binding, enforceable, and in full force and effect.
Neither Seller, Company nor any other party is in default, violation, or breach
in any respect under any Lease Agreement, and no event has there occurred and is
there continuing an event that constitutes or, with notice or the passage of
time or both, would constitute a default, violation, or breach thereunder. No
amount payable under any Lease Agreement is past due. Seller and/or Company has
not received any notice of a default, offset, or counterclaim under any Lease
Agreement or any other communication asserting non-compliance with any Lease
Agreement. Company has the exclusive right to use and occupy the premises leased
under each Lease Agreement. Company enjoys peaceful and undisturbed possession
of the premises leased by Company under each Lease Agreement. Except as set
forth on SCHEDULE 7.8(c), the Lease Agreements are free and clear of all Liens,
except for lessors' interests in the leases. Company has delivered to Buyer,
true and complete copies of the Lease Agreements, together, in the case of any
subleases or similar occupancy agreements, with copies of all overleases.
(d) All utilities that are required for the full and complete occupancy and use
of the Real Property for the purposes for which such properties are presently
being used by Company, including without limitation electric, water, sewer,
telephone, and similar services, have been connected and are in good working
order. By the Closing Date, Company will have paid all charges for such
utilities, including without limitation any "tie-in' charges or connection fees,
except for those charges that will not become due until after the Closing Date
and that are to be prorated between Seller and Buyer pursuant to Article V.
7.9 CONTRACTS. The Contracts are all of the agreements (i) currently in effect
to which Company is a party, and (ii) necessary to operate the Business as it is
presently operated. Subject to Seller receiving consent to assign those
Contracts for which such consent is required, the Contracts are assignable to
Buyer on terms and conditions no less favorable than those in effect on the date
hereof. Each Contract is in full force and effect and is unimpaired by any acts
or omissions of Company, Seller's and/or Company's employees, agents, officers,
directors or shareholders. Company has complied in all material respects with
all Contracts to be purchased by Buyer by virtue of the Agreement, and there has
not occurred as to any Contract any default by Company or any event that, with
notice or the lapse of time or otherwise, could become a default by Company.
Company has not granted or been granted any waiver or forbearance with respect
to any of the Contracts. To the best knowledge of Seller and/or Company, there
has not occurred as to any Contract any default by any other party thereto or
any event that, with notice or the lapse of time or at the election of any
person other than Company, could become a default by such party. Those Contracts
whose stated duration extends beyond the Closing Date will, at Closing, be in
full force and effect and will be unimpaired by any acts or omissions of Seller
and/or Company, Seller's and/or Company's agents, employees, officers, directors
or shareholders. Schedule 2.1.2 lists all contracts to which Company is a party
for the benefit of the Business other than those described in Section 2.1.2(b).
Schedule 2.1.2 also indicates which Contracts (of those that are available)
require consent of any other party in order to be assigned to Buyer. Customer
Contracts under which products or services have been ordered but either have not
yet been delivered or were delivered within 30 days prior to the date hereof
("Active Customer Contracts") are also designated on Schedule 2.1.2. Except for
certain Customer Contracts, Seller and/or Company has provided to Buyer true and
correct copies of all 13
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written Contracts, as modified to date, or true and complete memoranda
describing the terms of all oral Contracts, and all liabilities and obligations
under such Contracts can be ascertained from such copies or memoranda. All of
the Customer Contracts of which copies have not been provided to Buyer, and
which are in effect or as to which any provision or liability survives, contain
or are subject to terms and conditions providing no materially greater benefit,
obligation, or liability than as set forth in the forms of customer contracts
included as Exhibit F, without material addition or alteration. The Contracts as
amended through the date of this Agreement will not be modified without Buyer's
written consent, which consent shall not be unreasonably withheld.
7.10 EMPLOYEES.
(a) Seller and/or Company has furnished to Buyer a true and complete list of all
persons employed by Seller and/or Company in conjunction with the Business, each
such person's compensation and bonus arrangements and the Employee Plans listed
in SCHEDULE 7.11, if any, applicable to each such person, and the allocation of
Options to each such person, if any, as determined by Seller and/or Company.
Seller and/or Company is not a party to any agreement or arrangement, written or
oral, with salaried or non-salaried employees except as described in such
information provided to Buyer or in SCHEDULE 7.11 or included among the
Contracts. Seller and/or Company has no knowledge that any employee identified
to Buyer currently plans to terminate employment, whether by reason of the
transactions contemplated by this Agreement or otherwise.
(b) Except as disclosed in SCHEDULE 7.1 0(b), Seller and/or Company is not a
party to or subject to any Contract with any labor organization, nor has Seller
and/or Company agreed to recognize any union or other collective bargaining
unit, nor has any union or other collective bargaining unit been certified as
representing any of Seller's and/or Company's employees. Seller and/or Company
has no knowledge of any organizational effort currently being made or threatened
by or on behalf of any labor union with respect to employees of Company. There
are no unfair labor practice charges pending or, to the best of Seller's and/or
Company's knowledge, threatened against Company; there are no pending or
threatened strikes, arbitration proceedings involving labor matters or other
labor disputes affecting Company or the Business; and Company has not
experienced any strikes, work stoppages or other significant labor difficulties
of any nature in the past two (2) years.
7.11 EMPLOYEE BENEFIT PLANS. SCHEDULE 7.11 sets forth a true and complete list
of each employee or retiree benefit or compensation plan within the meaning of
Section 3(3) of ERISA, or compensation, bonus, incentive, deferral, equity
based, severance, termination, retention, change in control, employment,
consulting or other similar program, agreement, arrangement, trust or other
funding arrangement, whether or not subject to the provisions of ERISA, to which
Company is bound or that is or has been established or maintained or in respect
of which Company has ever had any obligation to contribute (each, an "Employee
Plan"). Except pursuant to an Employee Plan, Company has no fixed or contingent
liability or obligation to or in respect of any current or former employee,
consultant or director of Company or any beneficiary or dependent of any such
person, including, without limitation, in respect of pension or thrift benefits
or payments, individual or supplemental pension benefits or payments or
compensation arrangements, contributions to hospitalization or other health,
life or other welfare benefits, incentive benefits or payments, bonus benefits
or payments or vacation, sick leave, disability and termination benefits or
payments, including workers' compensation. No trade or business (whether or not
incorporated) is or has been as of any date within the preceding six (6) years
treated as a single employer together with Company pursuant to Section 414 of
the Code. Company has not incurred or does not reasonably expect to incur
(either directly or indirectly, including as a result of any indemnification
obligation) any liability that could become a liability of Buyer or, following
the Closing, remain a liability of the Business under or pursuant to Title I or
IV of ERISA or the penalty, excise tax or joint and several liability provisions
of the Code relating to employee benefit plans and, to the best knowledge of
Seller and/or Company, no event, transaction or condition has occurred or exists
which could result in any such liability. Each of the Employee Plans has been
operated and administered in all respects in accordance with all applicable
laws, including but not limited to ERISA and the Code. It is expressly
understood that buyer is not assuming any obligation of Company under or with
respect to any Employee Plan, including without limitation any obligation to pay
any fee, tax, or charge in respect of any Employee Plan arising as a result of
the Transaction or of termination or cancellation of any Employee Plan.
7.12 LITIGATION. Except as set forth on SCHEDULE 7.12, there is no unsatisfied
judgment outstanding and no litigation, proceeding, claim or investigation of
any nature pending or, to Seller's and/or Company's best knowledge, threatened
against Company, any Shareholder, or any of the Assets which might 14
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adversely affect the continued operation of the" Business or impair the value of
the Assets or which might adversely affect Company's ability to perform in
accordance with the terms of this Agreement. Company has no knowledge of any
facts that could reasonably result in any such proceedings. With respect to each
matter set forth therein, Schedule 7.12 sets forth a description of the forum
for the matter, the parties thereto and the type and amount of relief sought.
7.13 TAXES. Except as set forth on SCHEDULE 7.13:
(a) Company and Seller have duly filed IN THE ORDINARY COURSE OF BUSINESS with
the appropriate Tax authorities all Tax Returns required to be filed by it on or
prior to the date hereof, and such Tax Returns are true, complete, and correct
in all material respects. Company and Seller have paid in full all Taxes that
accrue or are payable by Company and Seller in respect of taxable periods that
end on or before the Closing Date and
(ii) in respect of any taxable period that begins before the Closing Date and
ends thereafter, to the extent that such Taxes are attributable to the portion
of such period ending on the Closing Date, except to the extent (i) such Taxes
are to be prorated under Section 5.2 of this Agreement or (ii) the amount of
such Taxes are included in the Calculation of Working Capital pursuant to
Section 5.1 of this Agreement. All Taxes that Company and Seller has been
required to collect or withhold have been duly collected or withheld and, to the
extent required when due, have been or will be (prior to the Closing Date) duly
paid to the proper Tax authority, excluding current payroll taxes which will be
paid by the Seller at the appropriate time;
(b) There is no audit or other matter in controversy with respect to any Taxes
due and owing by Company and/or Seller, and there is no Tax deficiency or claim
assessed or, to the best of the Company's and/or Sellers' knowledge, proposed or
threatened (whether orally or in writing) against Company and/or Seller;
(c) No claim has ever been made by an authority in a jurisdiction where Company
and/or Seller does not file Tax Returns that Seller is or may be subject to
taxation by that jurisdiction;
(d) There are no liens for Taxes (other than for current Taxes not yet due and
payable) on the Assets;
Company and Seller has paid in full or discharged all Taxes the nonpayment of
which would result in a lien or other encumbrance on the Assets in the hands of
the Buyer, excepting in each case such Taxes as will not be due until after the
Closing Date.
7.14 COMPLIANCE WITH LAWS. Seller, Company and Casabonne have complied in all
material respects with, and are not in violation of any federal, state, or local
laws, regulations, or orders (including any applicable statutes, ordinances, or
codes relating to zoning and land use, health and sanitation, environmental
protection, occupational safety, and the use of electrical power) affecting the
Shares, Assets or the Business. Without limiting the generality of the
foregoing:
(a) Seller and Company have, in the conduct of the Business, complied in all
material respects with all applicable laws, rules and regulations relating to
the employment of labor, including those concerning wages, hours, equal
employment opportunity, collective bargaining, pension and welfare benefit
plans, and the payment of Social Security and similar taxes, and Company and
Seller are not liable for any arrearages of wages or any tax penalties due to
any failure to comply with any of the foregoing.
(b) All reports, tax returns, and other documents required to be filed by
Company and Seller or, to the extent related to the Business or the Shares or
Assets, by all Shareholders, with any governmental authorities have been filed.
All information contained in the foregoing documents is true, complete and
accurate in all material respects.
7.15 INSOLVENCY PROCEEDINGS. Neither Company or Seller nor the Shares or Assets
are the subject of any pending or threatened insolvency proceedings of any
character, including without limitation bankruptcy, receivership,
reorganization, composition, or arrangement with creditors, voluntary or
involuntary. Company or Seller has not made an assignment for the benefit of
creditors or taken any action in contemplation of or which would constitute a
valid basis for the institution of any such insolvency proceedings. After giving
effect to the Transaction, Company (i) will have sufficient capital to carry on
its business and transactions, (ii) will be able to pay its debts as they mature
or become due, and (iii) will own assets the fair value of which will be greater
than the sum of all liabilities (including contingent liabilities) of Company
not specifically assumed by Buyer pursuant to the terms of this Agreement.
Company and Seller are not insolvent nor will it become insolvent as a result of
entering into this Transaction.
7.16 PATENTS, TRADEMARKS, COPYRIGHTS. All Intangible Property and all rights
therein, including registrations and applications to register or renew the
registrations of any of the foregoing, currently used to promote or identify the
Business or otherwise used in connection with the Business, are listed or
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described on SCHEDULE 2.1.7. The Intangible Property is either owned or validly
licensed by Company, and SCHEDULE 2.1.7 identifies which Intangible Property is
so owned and which is licensed, and if licensed, the royalties paid thereon and
the parties paid thereunder. Company and Seller do not have any knowledge, nor
has Company or Seller or Casabonne received any notice to the effect that its
use of any of the Intangible Property may be or are claimed to infringe on the
right of another. Company, Seller and Casabonne have no knowledge of any
infringement or unlawful or unauthorized use of such Intangible Property. The
Business does not infringe any copyright, patent, trademark, trade name, service
mark, or other similar right of any third party. Except as reflected in the
Contracts, Company has not sold, licensed, or otherwise disposed of any
Intangible Property to any person or entity and Company has not agreed to
indemnify any person or entity for any patent, trademark, or copyright
infringement. SCHEDULE 2.1.7 lists all of the Intangible Property which has been
duly registered with, filed in or issued by, as the case may be, the United
States Patent and Trademark Office and United States Copyright Office or other
filing offices, domestic or foreign.
7.17 FINANCIAL STATEMENTS; ABSENCE OF UNDISCLOSED LIABILITIES. Seller and
Casabonne have furnished Buyer with the financial statements listed or described
on SCHEDULE 7.17 (the "Financial Statements"). The year-end Financial
Statements:
(i) have been prepared in accordance with GAAP on a consistent basis throughout
the periods involved and as compared with prior periods and (ii) fairly and
accurately reflect the financial condition and the results of operations and
cash flows of the Business as of the dates and for the periods indicated. The
monthly and other interim Financial Statements, including the Balance Sheet of
Seller as of the Closing Date: (i) except as set forth on SCHEDULE 7.17, have
been prepared in accordance with GAAP on a consistent basis throughout the
periods involved (except to the extent noted thereon) and on a basis consistent
with the year-end Financial Statements; and (ii) fairly and accurately reflect
the financial condition and the results of operations and cash flows of the
Business as of the dates and for the periods indicated in all material respects.
Except as reflected in the Financial Statements or otherwise disclosed to Buyer
in writing, no event has occurred since the preparation of the most recent
Financial Statements that would make such Financial Statements misleading in any
respect. Except as set forth on SCHEDULE 7.17, the Business has no material
liabilities except for liabilities and obligations (a) reflected or reserved for
on the most recent interim Financial Statements provided to Buyer or (b) that
have arisen since the date of such Financial Statements in the ordinary course
of the operation of the Business and consistent with past practice of Company
(all of which are liabilities similar in type to those reflected on such
Financial Statements).
7.18 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date the interim Financial
Statements provided to Buyer were prepared, except as disclosed on SCHEDULE
7.18, there has not been any:
(a) as of the date hereof, material adverse change in the operations, condition
(financial or otherwise), assets, or liabilities of Company or the Business;
(b) except for normal periodic increases in the ordinary course of business
consistent with past practice, increase in the compensation payable or to become
payable by Company to any of its officers, employees, or agents, (ii) bonus,
incentive compensation, service award, or other like benefit granted, made or
accrued, contingently or otherwise, for or to the credit of any of officer,
employee, or agent of Company and/or Seller, (iii) employee welfare, pension,
retirement, profit-sharing or similar payment or arrangement made or agreed to
by Company and/or Seller for any officer, employee, or agent of Company except
pursuant to the existing plans and arrangements described in the Schedules
hereto, or (iv) new employment agreement to which Seller is a party,
(c) addition to or modification of the Employee Plans of Company, arrangements
or practices affecting employees other than (i) contributions made for 1999 in
accordance with the normal practices of Company or (ii) the extension of
coverage to other employees who became eligible after the date of the most
recent Financial Statements provided to Buyer;
(d) sale, assignment, or transfer of any material assets of Company other than
in the ordinary course;
(e) cancellation of any indebtedness or waiver of any rights of substantial
value to Company (other than accounts receivable), whether or not in the
ordinary course of business;
(f) amendment, cancellation, or termination of any Contract, license, or other
instrument material to
Company or the Business;
(g) capital expenditure or commitments for capital expenditures or the execution
of any lease by Company involving payments in excess of Fifty Thousand Dollars
($50,000) in the aggregate;
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(h) failure to operate the Business in the ordinary course so as to use
reasonable efforts to preserve the Business intact, to keep available the
services of all officers, employees, or agents of Company, and to preserve the
goodwill of Company's suppliers, customers, and others having business relations
with Company;
(i) change in accounting methods or practices by Company;
(j) revaluation by Company of any of the Assets, including without limitation,
writing off notes, inventory, or accounts receivable (other than, in the case of
accounts receivable, in the ordinary course of business and so as not to exceed
Company's reserve for bad debt as reflected in Company's most recent balance
sheet);
(k) damage, destruction, or loss (whether or not covered by insurance) adversely
affecting the Business or any of the Assets; or
(l) indebtedness incurred by Company for borrowed money or commitment to borrow
money entered into
by Company, or any loans made or agreed to be made by Company.
- --REMOVED--7.19. SUFFICIENCY OF ASSETS. The Assets are sufficient to operate the
business as it is now operated.
7.20 ENVIRONMENTAL PROTECTION. Except as set forth on Schedule 7.20: (i) Company
is, and at all times has been, in compliance in all material respects with all
Environmental Laws. There are no consent decrees, consent orders, judgments,
judicial or administrative orders, agreements with, or liens by, any
governmental agency or quasi-governmental entity relating to any Environmental
Laws that regulate, obligate, or bind Company. Neither Company nor Seller nor
Casabonne have released any person from any claim under any Environmental Laws
or waived any rights concerning any environmental condition. Company has given
all material notices and warnings, made all material reports, and has kept and
maintained all material records required by," and in compliance in all material
respects with, all Environmental Laws.
7.21 INSURANCE. SCHEDULE 7.21 contains an accurate and complete description of
all policies of property, fire, and casualty, product liability, workers'
compensation, errors and omissions and other forms of insurance held by the
Company ("INSURANCE POLICIES"). True, correct and complete copies of such
Insurance Policies have been made available to Buyer. All policies listed on
SCHEDULE 7.21 (i) are valid, outstanding, and enforceable policies, (ii) provide
coverage for the Assets and the operations of the Business for all material
risks normally insured against by an entity carrying on the same business as
Company, and (iii) will not terminate or lapse by reason of the Transaction. The
Company has not received (i) any notice of cancellation of any policy described
in this Section or refusal of coverage thereunder, (ii) any notice that any
issuer of such policy has filed for protection under applicable bankruptcy laws
or is otherwise in the process of liquidating or has been liquidated, or (iii)
any other notice that such policies are no longer in full force or effect or
that the issuer of any such policy is no longer willing or able to perform its
obligations thereunder. The Insurance Policies shall not be assigned to Buyer.
7.22 BROKERS' FEES. No broker, finder, investment banker or other person or
entity is entitled to any brokerage fee, finders' fee or other commission for
which Buyer could become liable in connection with the Transactions based upon
arrangements made by Company or any Shareholder.
7.23 NO OTHER AGREEMENTS TO SELL THE SHARES OR ASSETS. None of Seller, Company
or Casabonnes are subject to any commitment or legal obligation, absolute or
contingent, other than to Buyer, to sell, assign, transfer, or effect a sale of
any of the Shares or any Assets, to effect any merger, consolidation,
liquidation, dissolution, or other reorganization of Company, or to enter into
any agreement or cause the entering into of an agreement with respect to any of
the foregoing.
7.24 TRANSACTIONS WITH CERTAIN PERSONS. Except as set forth on SCHEDULE 7.24, no
officer, director, or employee of Company and/or Seller nor any member of any
such person's immediate family is presently, or within the past year has been, a
party to any transaction with Company and/or Seller, including without
limitation, any contract, agreement, or other arrangement (a) providing for the
furnishing of services by, (b) providing for the rental of real or personal
property from, or (c) otherwise requiring payments to (other than for services
as officers, directors, or employees of Company) any such person or corporation,
partnership, trust, or other entity in which any such person has an interest as
a shareholder, officer, director, trustee, or partner. Furthermore, except as
set forth on SCHEDULE 7.24, Company has no liability or obligation to make any
payment on behalf of or for the benefit of any of the Shareholders, or any
officer, director, or employee of Seller or any such person's immediate family
that is not directly related to, and in furtherance of, the Business. 17
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7.25 ACCOUNTS RECEIVABLE. The amount of accounts receivable, unbilled invoices,
and other debts due or recorded in the records and books of account of Company
as being due to Company as of the Closing Date will be, subject to the reserves
reflected on the interim Financial Statements and except for accounts receivable
required to be written off due to the insolvency of a debtor of Company, good
and collectible in full in the ordinary course of business and in any event not
later than: (i) in the case of accounts receivable for sales of its products,
the dates for payment in the current payment schedule used and (ii) in the case
of all other accounts, one hundred (100) days after the Closing Date; and to the
knowledge of the Shareholders and Seller's and/or Company, none of such accounts
receivable or other debts is subject to any counterclaim or set-off except to
the extent of any such reserve. Since the date of the interim Financial
Statements, Company has not made any change in its credit policies nor has it
materially deviated from its credit policies.
7.26 INVENTORY. Each item of Inventory reflected on the Financial Statements (a)
is owned by Company free and clear of all encumbrances, except for Permitted
Liens and purchase money liens arising from accounts payable reflected on the
Financial Statements, (b) exists in salable condition, and (c) has a book value
as reflected on the Financial Statements of the lesser of Company's actual cost
for such item of Inventory and the wholesale price for such item of Inventory as
of the date of the Financial Statements.
7.27 INVESTMENT. Seller, Company and Casabonne (i) understands that the Shares
of Buyer Stock to be issued pursuant hereto have not been, and will not be,
registered under the Securities Act of 1933, as amended, (the "Securities Act")
or under any state securities laws, and are being offered and sold in reliance
upon federal and state exemptions for transactions not involving any public
offering, (ii) is acquiring Buyer Stock solely for its or his own account for
investment purposes, and not with a view to the distribution thereof; it is
acknowledged that the shares of the Buyer trade in Canada on the Canadian
Venture Exchange and that regulatory restrictions apply and that the residence
of the shareholders of the Seller may affect the potential for jurisdictional
claims by other securities regulators; (iii) is a sophisticated investor with
knowledge and experience in business and financial matters, (iv) has received
certain information concerning Buyer and has had the opportunity to obtain
additional information as desired in order to evaluate the merits and the risks
inherent in receiving Buyer Stock, and (v) is able to bear the economic risk and
lack of liquidity inherent in holding Buyer Stock.
7.28 NO MISLEADING STATEMENTS. No statement made by Seller to Buyer and no
information provided or to be provided by Seller to Buyer pursuant to this
Agreement or in connection with the negotiations covering the Transaction,
contains or will contain any untrue statement of a material fact or omits or
will omit a material fact necessary in order to make such statements or
information not misleading.
ARTICLE VIII.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer makes the following representations and warranties, all of which have been
relied upon by Seller in entering into this Agreement and, except as otherwise
specifically provided, all of which shall be true and correct as of Closing.
8.1 ORGANIZATION. Buyer is a corporation duly organized, validly existing, and
in good standing, under the laws of the Province of British Columbia, and is
duly qualified to do business in the Province of British Columbia as well as the
State of Washington.
8.2 AUTHORIZATION. The execution and delivery of this Agreement by Buyer has
been duly authorized by all necessary corporate action on the part of Buyer.
Evidence of such authorizations shall be delivered to Seller at Closing. This
Agreement has been duly executed by Buyer and delivered to Seller and
constitutes a valid and binding agreement of Buyer, enforceable in accordance
with its terms.
8.3 NO BREACH. None of (i) the execution, delivery and performance of this
Agreement by Buyer, (ii) the consummation of the Transaction, or (iii) Buyer's
compliance with the terms and conditions hereof will, with or without the giving
of notice or the lapse of time or both, conflict with, breach the terms and
conditions of, constitute a default under, or violate Buyer's articles of
incorporation, bylaws, any judgment, decree, order, agreement, lease or other
instrument to which Buyer is a party or by which Buyer is legally bound, on any
law, rule or regulation applicable to Buyer.
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8.4 LITIGATION. There is no action, suit, investigation or other proceeding
pending or, to Buyer's best knowledge, threatened which may adversely affect
Buyer's ability to perform in accordance with the terms of this Agreement, and
Buyer is unaware of any facts which could reasonably result in any such
proceeding.
ARTICLE IX.
PRE-CLOSING OBLIGATIONS
The parties covenant and agree as follows with respect to the period prior to
the Closing Date:
9.1 FINANCIAL INFORMATION. Between the date hereof and the Closing Date, Company
and Seller shall furnish Buyer with monthly financial statements within fifteen
(15) days after the end of each calendar month, and with such additional data
concerning the financial condition of the Business as are prepared by Company
and Seller in the ordinary course of business, in the same form as the Financial
Statements contained in SCHEDULE 7.17.
9.2 CONSENTS. Company and Seller shall use its reasonable best efforts to obtain
the consents of the other contracting parties as needed to the change in control
of Contracts requiring such consent, which, for Contracts listed on SCHEDULE
2.1.2, are indicated therein. Two weeks from the date hereof, Seller shall
inform Buyer of the status of such efforts to obtain the consents, including the
number and nature of responses to Seller's requests for such consents.
9.3 CONFIDENTIALITY. Each party agrees that any and all information learned or
obtained by it from the other (and that is not otherwise public or known in the
information technology industry) shall be confidential and agrees not to
disclose any such information to any person whatsoever other than as is
necessary for the purpose of effecting the Transaction or as otherwise required
by law.
9.4 ACCESS. Between the date hereof and the Closing Date, Seller shall give,
upon prior notice, Buyer or representatives of Buyer (including underwriters,
lenders, consultants, attorneys, accountants, and investors) reasonable access
to the Company and Assets and to the books and records of Seller and Company
relating to the Business. It is expressly understood that, pursuant to this
Section, Buyer, at its sole expense, shall be entitled to make such audits of
the Business' financial records as Buyer may desire, so long as the same do not
unreasonably interfere with Seller's operation of the Business. Any such
investigations on the part of the Buyer shall in no way relieve the Seller,
Company and Casabonne of responsibility for the continuing truth and full
disclosure all of representations, warranties conditions and covenants contained
in this Agreement and its exhibits, recitals and schedules.
9.5 EMPLOYEE MATTERS.
(a) Seller has provided to Buyer an accurate list of all current employees of
Company together with a description of the terms and conditions of their
respective employment and their duties as of the date of this Agreement. Seller
shall promptly notify Buyer of any changes that occur prior to Closing with
respect to such information.
(b) Buyer may extend offers of employment to all employees of Seller (such
employees as accept such offers of employment are hereinafter referred to as the
"Hired Employees"), which offers shall be on terms and conditions that Buyer
shall determine in its sole discretion. Seller waives any claims against Buyer
or any of the Hired Employees arising from such employment, including without
limitation any claims arising from any employment agreement or non-compete
agreement. Seller shall cooperate with, and use its best efforts to assist,
Buyer in its efforts to secure satisfactory employment arrangements with the
Hired Employees to whom Buyer makes offers of employment.
(c) Nothing contained in this Agreement shall confer upon any employee of
Company any right with respect to continued employment by Buyer, nor shall
anything herein interfere with the right of Buyer to terminate the employment of
any of the Hired Employees at any time, with or without cause or restrict Buyer
in the exercise of its independent business judgment in modifying any of the
terms and conditions of the employment of the Hired Employees.
(d) Seller shall be solely responsible for all of the Employee Plans and all
obligations and liabilities thereunder. Buyer shall not assume any of the
Employee Plans or any obligation or liability thereunder. Nonetheless, Buyer
shall accord each Hired Employee full credit for the time such Hired Employee
was continuously employed by Seller prior to Closing.
(e) No provision of this Agreement shall create any third party beneficiary
rights in any Hired Employee, any beneficiary or dependent thereof, or any
collective bargaining representative thereof, with respect to
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the compensation, terms and conditions of employment and benefits that may be
provided to any Hired Employee by Buyer or under any benefit plan which Buyer
may maintain.
9.6 OPERATIONS PRIOR TO CLOSING. Between the date of this Agreement and the
Closing Date:
(a) Seller and Company shall operate the Business in the normal and usual
manner, consistent with past practice, and shall conduct the Business only in
the ordinary course. To the extent consistent with such operations, Seller shall
use its best efforts to: (i) keep available for Buyer the services and number of
Seller's present employees reasonably necessary for the operation of the
Business; (ii) preserve Company's present customers and business relations;
(iii) continue to make expenditures and engage in activities designed to promote
the Business; (iv) continue making capital expenditures in accordance with the
capital expenditure budget for the Business and otherwise consistent with past
practices of Company; and (v) undertake to collect the accounts receivable in
accordance with Company's normal and customary collection practices.
(b) Company and Seller shall, subject to Section 13.6, maintain the Assets in
their present condition (reasonable wear and tear in normal use excepted).
(c) Company and Seller shall maintain its books and records in the usual and
ordinary manner, on a basis consistent with prior
periods.
(d) Seller and/or Company shall comply with all laws, rules, ordinances and
regulations applicable to it, to the Shares and Assets and to the Business.
(e) Seller and/or Company shall perform all Contracts without default and shall
pay all of Company's accounts payable in a timely manner; provided, however,
that Company may dispute, in good faith, any alleged obligation of Company.
(f) Company shall not, without the express written consent of Buyer which shall
not be unreasonably withheld, and which shall be deemed given in the event Buyer
has not responded to a written request therefor within ten (10) days: (i) sell
or agree to sell or otherwise dispose of any of the Assets (A) other than in the
ordinary course of business, and (B) unless such Assets are replaced prior to
Closing by assets of equal or greater worth, quality, and utility; (ii)
acquiesce in any infringement, unauthorized use or impairment of the Intangible
Property; (iii) enter into any employment contract on behalf unless the same is
terminable at will and without penalty; or (iv) enter into any other contract,
lease, or agreement that will be binding on Buyer after Closing.
(g) Company shall not, without the express written consent of Buyer, which shall
not be unreasonably withheld, (i) enter into any new loan agreement, credit
facility, line of credit, or other credit agreement or arrangement or (ii) agree
to any modification of the material terms of any existing loan, credit facility,
line of credit, or other credit agreement or arrangement, including without
limitation the maximum principal amount thereof.
9.7 ADVERSE DEVELOPMENTS. Company shall promptly notify Buyer of any unusual or
materially adverse developments that occur prior to Closing with respect to the
Assets or the operation of the Business; provided, however, that Seller's
compliance with the disclosure requirements of this Section 9.7 shall not
relieve Seller of any obligation with respect to any representation, warranty,
or covenant of Seller in this Agreement or waive any condition to Buyer's
obligations under this Agreement.
9.8 ADMINISTRATIVE VIOLATIONS. If Seller and/or Company receives any finding,
order, complaint, citation or notice prior to the Closing Date that states that
any aspect of the Business' operations violates any rule or regulation of any
governmental authority (an "Administrative Violation"), including without
limitation any rule or regulation concerning environmental protection or the
employment of labor, Seller and/or Company shall promptly notify Buyer of the
Administrative Violation, remove or correct the Administrative Violation, and be
responsible for the payment of all costs associated therewith, including any
fines or back pay that may be assessed.
- --REMOVED--9.9 BULK SALES ACT. Seller Company and Casabonne agree to indemnify,
defend, and hold Buyer harmless against any claims, liabilities, costs, or
expenses, including reasonable attorney's fees buyer may incur as a result of
the failure to comply with the bulk sales provisions of the Uniform Commercial
Code or similar laws.
9.10 REMOVAL OF RESTRICTIONS. Seller, Company and Casabonne agree to take such
action as necessary prior to Closing to remove all restrictions on the rights or
abilities of the Seller and Casabonne to enter into and perform their
obligations hereunder and under the Covenants and Employment Agreements,
including but not limited to rescission of provisions in the governing documents
of Seller and Company and any agreements among Casabonne prohibiting activities
by Casabonne in competition with
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Seller or Company or that require any Casabonne or other person to devote his
full-time efforts to work on behalf of Seller.
9.11 HSR ACT NOTIFICATION. Seller to assist and cooperate with Buyer as
necessary to file, within five business days after the date hereof, all
necessary filings required under the HSR Act with respect to the Transaction.
ARTICLE X.
CONDITIONS PRECEDENT
10. 1 MUTUAL CONDITIONS. The obligation of Seller, Company, Casabonne and Buyer
to consummate this Agreement is subject to the satisfaction of each of the
following conditions:
10.1.1 GOVERNMENTAL CONSENTS. All governmental consents required for the
consummation of the Transaction, if any, shall have been obtained, including but
not limited to the expiration or earlier termination of the waiting period under
the HSR Act.
10.1.2 ABSENCE OF LITIGATION. As of the Closing Date, no action, claim, suit or
proceeding seeking to enjoin, restrain, or prohibit the consummation of the
Transaction shall be pending before any court or governmental authority;
provided, however, that this condition may not be invoked by a party if any such
action, suit, or proceeding was solicited or encouraged by, or instituted as a
result of any act or omission of, such party.
10.2 CONDITIONS TO BUYER'S OBLIGATION. In addition to satisfaction of the mutual
conditions contained in Section 10.1, the obligation of Buyer to consummate this
Agreement is subject to the satisfaction of each of the following conditions:
10.2.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Seller, Company and Casabonne to Buyer shall be true, complete, and correct in
all material respects as of the Closing Date with the same force and effect as
if then made.
10.2.2 COMPLIANCE WITH CONDITIONS. All of the terms, conditions and covenants to
be complied with or performed by Seller, Company and Casabonne on or before the
Closing Date shall have been timely complied with and performed in all material
respects.
10.2.3 NO MATERIAL ADVERSE DEVELOPMENT. No material adverse development shall
have occurred with respect to the Business that results in a significant
impairment to the ability of Buyer to operate the Business as it is currently
and contemplated to be operated or represents a substantial impairment of the
aggregate value of the Business or Shares or Assets being conveyed.
10.2.4 CLOSING DOCUMENTS. Seller, Company and Casabonne shall deliver to Buyer
all of the closing documents specified in Section 11.2.1, all of which documents
shall be dated as of the Closing Date, duly executed, and in a form customary in
the state where the Assets are located and reasonably acceptable to Buyer.
10.2.5 THIRD PARTY CONSENTS. Seller shall have obtained the Required Consents,
as defined below, and, subject to Section 12.4, all other consents as indicated
on Schedule 2.1.2, such that Buyer will enjoy all of the rights and privileges
of Seller under the Contracts subject only to the same obligations as are
binding on Seller and/or Company thereunder, pursuant to the present terms
thereof. "Required Consents" for purposes hereof include consents to the
assignment of (i) the Contracts identified by Buyer on SCHEDULE 2.1.2 as
required; and (ii) a sufficient number of remaining Active Customer Contracts
requiring consent to assignment such that the Active Customer Contracts to be
assigned at Closing (whether or not requiring consent to such assignment)
represent, in the aggregate, 90% of the total revenue value of products ordered
or work ongoing under all Active Customer Contracts.
10.2.6 ESTOPPEL CERTIFICATES. Seller/Company shall have obtained such fee
owner's consents and mortgagee's estoppel and non-disturbance agreements with
respect to the lease agreements for the leased premises used in the Business as
are reasonably requested by Buyer not less than thirty (30) days prior to the
Closing Date.
10.2.7 SETTLEMENT OF CLAIMS. Seller, Company and Casabonne shall have settled
any and all claims that affect or concern the Shares or Assets.
10.3 CONDITIONS TO SELLER'S OBLIGATION. In addition to satisfaction of the
mutual conditions contained in Section 10.1, the obligation of Seller, Company
and Casabonne to consummate this Agreement is subject to satisfaction of each of
the following conditions:
10.3.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Buyer to Seller shall be true, complete, and correct in all material respects as
of the Closing Date with the same force-_ and effect as if then made.
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10.3.2 COMPLIANCE WITH CONDITIONS. All of the terms, conditions, and covenants
to be complied with or performed by Buyer on or before the Closing Date shall
have been timely complied with and performed in all material respects.
10.3.3 PAYMENT. Buyer shall document to Seller the consideration as provided in
Article IV.
10.3.4 CLOSING DOCUMENTS. Buyer shall deliver to Seller all the closing
documents specified in Section 11.2.2, all of which documents shall be dated as
of the Closing Date, duly executed, and in a form customary in transactions of
this type and reasonably satisfactory to Seller.
ARTICLE XI.
CLOSING
11.1 CLOSING DATE. Provided the other conditions to the parties' obligations to
close are satisfied, the Closing hereunder shall occur on April 10, 2000 (the
"Closing Date") The Closing shall be effective as of 11:59 p.m. on the Closing
Date. The Closing shall take place at the offices of Buyer's counsel in
Vancouver British Columbia commencing at 10:00 a.m. on the Closing Date. If, as
of the Closing Date, any condition precedent described in Article X has not been
satisfied, the party that is entitled to require that such condition be
satisfied may (in its sole discretion) notify the other party of the absence of
such condition precedent at or before the Closing and simultaneously therewith
postpone the Closing until a date ten (10) days after all such conditions have
been (or are able to be) performed, and such postponed date shall constitute the
new Closing Date for all purposes hereunder.
11.2 PERFORMANCE AT CLOSING. The following documents shall be executed and
delivered at Closing:
11.2.1 SELLER'S, COMPANY'S AND CASABONNE'S DELIVERIES. Seller, Company and
Casabonne shall deliver to Buyer:
(a) A certificate executed by Seller, Casabonne and Company attesting to
Seller's compliance with the matters set forth in Sections 10.2.1, 10.2.2, and
10.2.7 together with certified copies of (i) the Certificate of Incorporation of
Seller and Company and (ii) appropriate evidence of Seller's and Company's
authorization to enter into and consummate this Agreement;
(b) Certificates evidencing the transfer of the Shares to the Buyer;
(c) One or more evidence of consents of third parties as required to Buyer all
of the Contracts or making available to Buyer the benefits of such Contracts in
accordance with Section 12.4 including the Records and the Intangible Property,
(d) The certificate specified in Section 5.1;
(e) The statement of Estimated Closing Date Working Capital;
(f) The Covenants;
(g) The Employment Agreements;
- --REMOVED--(h) An executed affidavit, dated not more than thirty (30) days prior
to the Closing Date, in accordance with Code Section 1445(b)(2) and Treasury
Regulation section 1.1445-2(b), which statement certifies that Seller is not a
foreign person and sets forth Seller's name, identification number, and address.
(i) An opinion of Seller's and Company's Counsel OR SUCH OTHER AUTHORITY
ACCEPTABLE TO COUNSEL FOR THE BUYER substantially in the form set forth in
Exhibit G, subject to customary qualifications AND ACCEPTABLE TO COUNSEL FOR THE
BUYER.
11.2.2 BUYER'S DELIVERIES. Buyer shall deliver to Seller:
(a) A certified copies of legended certificates and the applicable pooling
agreements to be delivered to the Transfer Agent of the Buyer for holding the
Buyer's Shares to be delivered according to the intent of this Agreement. A
certificate executed by Buyer attesting to Buyer's compliance with the matters
set forth in Sections 10.3.1 and 10.3.2, together with certified copies of (i)
the Certificate of Incorporation of Buyer and (ii) appropriate evidence of
Buyer's authorization to enter into and consummate this Agreement.
(b) An opinion of Buyer's Counsel relating to the matters described in and
substantially in the form set forth in Exhibit H, subject to customary
qualifications.
11.2.3 OTHER DOCUMENTS AND ACTS. The parties will also execute such other
documents and perform such other acts, before and after the Closing Date, as may
be necessary for the complete implementation and consummation of this Agreement.
ARTICLE XII.
POST-CLOSING OBLIGATIONS
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The parties covenant and agree as follows with respect to the period subsequent
to the Closing Date:
12.1 INDEMNIFICATION.
12.1.1 BUYER'S RIGHT TO INDEMNIFICATION.
(a) Seller, Company and Casabonne, jointly and severally, undertake and agree to
indemnify, defend by counsel reasonably acceptable to Buyer, and hold harmless
Buyer, its subsidiaries, affiliates, successors and assigns and their respective
directors, officers, employees, shareholders, representatives, and agents
(hereinafter referred to collectively as "Buyer Indemnitees") from and against
and in respect of any and all losses, costs, liabilities, claims, obligations,
diminution in value and expenses, including reasonable attorneys' fees, incurred
or suffered by a Buyer Indemnitee arising from (i) the claims of third parties
with respect to operation of the Business or ownership of the Assets prior to
Closing not expressly assumed by Buyer pursuant to this Agreement or otherwise
consented to by Buyer in writing; (ii) a breach, misrepresentation, or other
violation of any of Seller's, Company's or Casabonne's covenants, warranties, or
representations contained in this Agreement; (iii) all liabilities of Seller,
Company or Casabonne or the Business not expressly assumed by Buyer pursuant to
this Agreement or otherwise consented to by Buyer in writing; (iv) all liens,
charges, or encumbrances on any of the Shares or Assets which are not expressly
permitted by this Agreement or otherwise consented to by Buyer in writing; (v)
all Administrative Violations and alleged Administrative Violations occurring
prior to Closing; and (vi) any breach or default by Seller, Company or Casabonne
under any Contract prior to Closing; and (vii) non-compliance with any Year 2000
Condition, as defined below, including but not limited to third party claims
arising therefrom (except to the extent that such non-compliance with a Year
2000 Condition can be remedied through Permitted Corrective Action). The
foregoing indemnity is intended by Seller, Company and Casabonne to cover all
acts, suits, proceedings, claims, demands, assessments, adjustments, costs, and
expenses with respect to any and all of the specific matters in this indemnity
set forth.
(b) For purposes hereof, the following are "Year 2000 Conditions": (i) that all
data-processing hardware, systems, software, and stored data included among the
Assets and all hardware products that have been sold and services that have been
provided in conjunction with the Business (collectively, the "IT Products and
Services") include and incorporate all systems and software solutions necessary
or appropriate to address and accommodate Year 2000 computer systems issues;
(ii) that, where applicable, the IT Products and Services have been tested and
are fully capable of providing accurate results using data having date ranges
spanning the twentieth and twenty-first centuries; and (iii) that, without
limiting the generality of clauses (i) and (ii) of this Section, the IT Products
and Services are able to (A) manage and manipulate data involving all dates from
the twentieth and twenty-first centuries without functional or data abnormality
related to such dates, (B) manage and manipulate data involving all dates from
the twentieth and twenty-first centuries without inaccurate results related to
such dates, (c) have user interfaces and data fields formatted to distinguish
between dates from the twentieth and twenty-first centuries, and (D) represent
all data related to include indications of the millennium, century, and decade
as well as the actual year.
12.1.2 SELLER'S RIGHT TO INDEMNIFICATION. Buyer undertakes and agrees to
indemnify, defend by counsel reasonably acceptable to Seller, and hold harmless
Seller, Company and Casabonne, its subsidiaries, affiliates, successors and
assigns and their respective directors, officers, employees, shareholders,
representatives, and agents (hereinafter referred to collectively as "Seller
Indemnitees") against any and all losses, costs, liabilities, claims,
obligations, and expenses, including reasonable attorneys' fees, incurred or
suffered by a Seller Indemnitee arising from (i) the operation of the Business
or ownership of the Shares or Assets after Closing, including Permitted
Corrective Action with respect to products or services delivered by Seller
pursuant to a Customer Contract prior to Closing; (ii) a breach,
misrepresentation, or other violation of any of Buyer's covenants, warranties
and representations contained in this Agreement; (iii) all liabilities under the
Contracts to the extent specifically assumed by
Buyer pursuant to this Agreement; and (iv) any breach or default by Buyer under
any Contract after Closing. The foregoing indemnity is intended by Buyer to
cover all acts, suits, proceedings, claims, demands, assessments, adjustments,
costs, and expenses with respect to any and all of the specific matters in this
indemnity set forth.
12.1.3 CONDUCT OF PROCEEDINGS. If any claim or proceeding covered by the
foregoing agreements to indemnify and hold harmless shall arise, the party who
seeks indemnification (the "Indemnified Party") shall give written notice
thereof to the other party (the "Indemnitor") promptly after the Indemnified
Party
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learns of the existence of such claim or proceeding; provided, however, that the
Indemnified Party's failure to give the Indemnitor prompt notice shall not bar
the Indemnified Party's right to indemnification unless such failure has
materially prejudiced the Indemnitor's ability to defend the claim or
proceeding. The Indemnitor shall have the right to employ counsel reasonably
acceptable to the Indemnified Party to defend against any such claim or
proceeding, or to compromise, settle or otherwise dispose of the same, if the
Indemnitor deems it advisable to do so, all at the expense of the Indemnitor;
provided that the Indemnitor shall not have the right to control the defense of
any such claim or proceeding unless it has acknowledged in writing its
obligation to indemnify the Indemnified Party fully from all liabilities
incurred as a result of such claim or proceeding and then and periodically
thereafter provides the Indemnified Party with reasonably sufficient evidence of
the ability of the Indemnitor to satisfy any such liabilities. The parties will
fully cooperate in any such action, and shall make available to each other any
books or records useful for the defense of any such claim or proceeding. If the
Indemnitor fails to acknowledge in writing its obligation to defend against or
settle such claim or proceeding within twenty (20) days after receiving notice
thereof from the Indemnified Party (or such shorter time specified in the notice
as the circumstances of the matter may dictate), the Indemnified Party shall be
free to dispose of the matter, at the expense of the Indemnitor, in any way in
which the Indemnified Party deems to be in its best interest.
12.1.4 RIGHT OF OFFSET. Each of Buyer, Seller, Company and Casabonne shall have
the right to offset against amounts in the aggregate owing to the other amounts
owing to such party pursuant to this Article XII. In such case, Buyer's right of
offset under this Section shall also apply to the Post-Closing Escrow, and
Seller shall take such action as necessary under the terms of the Post-Closing
Escrow to make such amount available to Buyer.
12.1.5 LIMITS ON AND CONDITIONS OF INDEMNIFICATION; THRESHOLD AND CAP.
- --REMOVED--Notwithstanding any other provision hereof, no Idemnified Party shall
be entitled to make a claim against an Indemnitor in respect of any breach of
this Agreement except to the extent that the aggregate amount of such damages
exceeds the amount of ten thousand dollars ($10,000).
Notwithstanding any other provision of the Agreement, (i) the total
indemnity obligation of either Seller or Buyer shall be limited to the amount of
the Total Consideration paid by Buyer hereunder, and (ii) the total indemnity
obligation hereunder required to be paid by Casabonne shall be limited to the
sum of (A) the shares of Buyer Stock delivered by Buyer that have been received
and still held by Seller, valued at the fair market value of such shares as of
the date issued by Buyer; plus (B) the amount received by such Shareholder in an
arm's length, bona fide sale of such shares to a third party that is not
affiliated with the Seller or any Shareholder; provided, that if such sale was
not in an arm's length, bona fide transaction with a non-affiliated third party,
then the indemnity amount for such selling Shareholder in respect of such shares
shall be the fair market value of the shares sold as of the date of such sale;
plus (C) the amount paid under employment contracts of the Casabonne.
12.1.6 PURCHASE PRICE ADJUSTMENT. The parties agree to treat all payments made
under Sections 12.1.1 and 12.1.2 as adjustments to the Purchase Price for Tax
purposes.
12.2 POST-CLOSING ACCESS. Each party agrees that it will cooperate with and make
available to the other party, during normal business hours and upon reasonable
notice, all books and records which are necessary or useful in connection with
any Tax inquiry, audit, investigation, or dispute, any litigation or
investigation or any other matter requiring any such books and records,
information or employees for any reasonable business purpose. The party
requesting any such books and records, information or employees shall bear all
of the out-of-pocket costs and expenses reasonably incurred in connection with
providing such books and records, information or employees. All information
received pursuant to this Section 12.2 shall be kept confidential by the party
receiving it. If Buyer or Seller is required by legal process or operation of
law to disclose any confidential information, it shall provide the other party
with prompt written notice of such request so that such other party may seek an
appropriate protective order.
12.3 POST-CLOSING TAX COVENANT. Seller, Company and Casabonne shall, jointly and
severally, pay after the Closing any Pre-Closing Taxes that have given rise to,
or could give rise to any, lien or encumbrance on the Shares or Assets in the
hands of the Buyer
12.4 FAILURE TO OBTAIN CONSENTS. If any Contract requires the consent of a third
party in order to assign it to Buyer and such consent has not been obtained by
the Closing Date (a "Non-Consented Contract"), then Seller (i) shall use its
reasonable best efforts to make available to Buyer the benefits that arise after
the Closing Date under the Non-Consented Contract, and (ii) shall continue after
the Closing Date to use its reasonable best efforts to obtain such consent. To
the extent that Seller has made available to Buyer the benefits that arise after
the Closing Date under a Non-Consented Contract, Buyer
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<PAGE>
shall assume Seller's obligations that arise under the Non-Consented Contract
after the Closing Date, whether or not any such benefits are actually received
by Buyer.
ARTICLE XIII.
DEFAULT AND REMEDIES; DAMAGE
13.1 TERMINATION BY SELLER UPON BUYER'S DEFAULT. This Agreement may be
terminated by Seller and the purchase and sale of the Shares abandoned, if
Seller is not then in material default, upon written notice to Buyer, upon the
occurrence of any of the following:
(a) If on the date that would otherwise be the Closing Date (subject to the
right of Buyer to cure provided in Section 13.3 hereof) any of the conditions
precedent to the obligations of Seller set forth in this Agreement have not been
satisfied in all material respects or waived in writing by Seller.
(b) If there shall be in effect on the date that would otherwise be the Closing
Date any judgment, decree, or order that would prevent or make unlawful the
Closing.
(c) If the Closing shall not have occurred by April 15, 2000.
13.2 TERMINATION BY BUYER UPON SELLER'S DEFAULT. This Agreement may be
terminated by Buyer and the purchase and sale of the Shares and Assets
abandoned, if Buyer is not then in material default, upon written notice to
Seller, upon the occurrence of any of the following:
(a) If on the date that would otherwise be the Closing Date (subject to the
right of Seller to cure provided in Section 13.3 hereof) any of the conditions
precedent to the obligations of Buyer set forth in this Agreement have not been
satisfied in all material respects or waived in writing by Buyer.
(b) If there shall be in effect on the date that would otherwise be the Closing
Date any judgment, decree or order that would prevent or make unlawful the
Closing.
(c) If the Closing shall not have occurred by April 15, 2000.
13.3 BREACH AND OPPORTUNITY TO CURE. If either party believes the other to be in
default hereunder, the non-defaulting party shall provide the defaulting party
with notice specifying in reasonable detail the nature of such default. If such
default has not been cured by the earlier of: (i) the Closing Date, or (ii)
within thirty (30) days after delivery of such notice, then the party giving
such notice may (x) extend the Closing Date under Section 11.1 (but no such
extension shall constitute a waiver of such non defaulting party's right to
terminate as a result of such default), (y) exercise the remedies available to
such party pursuant to Section 13.4 or 13.5, subject to the right of the other
party to contest such action through appropriate proceedings AND/OR (z)
terminate this Agreement.
13.4 SELLER'S REMEDIES. If this Agreement is terminated by Seller or Casabonne
as a result of a material breach of this Agreement by Buyer, and Seller and
Casabonne are not in material breach of this Agreement, then the payment to
Seller of One Hundred fifty THOUSAND USDollars (US$150,000) shall be liquidated
damages and shall constitute full payment and the exclusive remedy for any
damages suffered by Seller. Seller and Buyer agree in advance that actual
damages would be difficult to ascertain and that the amount of the payment to be
made to Seller pursuant to this Section is a fair and equitable amount to
reimburse Seller for damages sustained due to Buyer's breach of this Agreement.
Seller waives all claims to damages arising from any termination of this
Agreement except for liquidated damages under the circumstances set forth in the
first sentence of this Section.
13.5 BUYER'S REMEDIES. The parties recognize that if, prior to Closing, Seller
breaches this Agreement and refuses to perform under the provisions of this
Agreement, monetary damages alone would not be adequate to compensate Buyer for
its injury. Buyer shall therefore be entitled, in addition to any other remedies
that may be available (including but not limited to the provisions of Section
12.1 (relating to Indemnification)), to obtain specific performance of the terms
of this Agreement prior to Closing. If any action is brought by Buyer to enforce
this Agreement prior to Closing, Seller shall waive the defense that there is an
adequate remedy at law. Following the Closing, Buyer shall be entitled, in
addition to any other remedies that may be available, to seek specific
performance of the terms of this Agreement if such remedy is available at
equity. In the event Buyer elects to terminate this Agreement as a result of
Seller's default instead of seeking specific performance, Buyer shall be
entitled to recover Buyer's damages but such damages shall be limited in quantum
to the value determined by arbitration based upon the cost of the development
work and a reasonable profit on the CreditSovl portal value.
13.6 DAMAGE.
13.6.1 RISK OF LOSS. The risk of loss or damage to the Shares and Assets shall
be upon Seller at all times prior to the Closing, and upon Buyer from and after
the Closing. In the event of loss or damage prior to Closing, Seller shall
promptly notify Buyer thereof and shall repair, replace, and restore the lost or
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<PAGE>
damaged property to its former condition as soon as possible. If such repair,
replacement, and restoration has not been completed prior to the Closing Date,
Buyer may, at its option:
(a) elect to terminate this Agreement, but only if the failure to repair,
replace and restore the lost or damaged Asset continues for a period in excess
of sixty (60) days from the Closing Date without consideration of this Section
13.6;
(b) elect to consummate the Transaction on the Closing Date in which event
Seller shall pay to Buyer the amount necessary to restore the lost or damaged
Asset to its former condition and against such obligation shall assign to Buyer
all of Seller's rights under any applicable insurance policies; or
(c) elect to postpone the Closing Date until a date within fifteen (15) business
days after Seller gives written notice to Buyer of completion of the repair,
replacement, and restoration of such lost or damaged Asset. If, after the
expiration of that extension period, the lost or damaged property has not been
adequately repaired, replaced, or restored, Buyer may terminate this Agreement,
and the parties shall be released and discharged from any further obligation
hereunder.
13.7 LEGAL ACTIONS. If, prior to the Closing Date, any action, suit, or
proceeding shall have been instituted by or before any court or other
governmental authority to enjoin, restrain, or prohibit the consummation of the
Transaction, the Closing may be adjourned at the option of either party, for a
period of up to ninety (90) days, and if, at the end of such period, the action,
suit, or proceeding shall not have been favorably resolved, either party may, by
written notice to the other, terminate this Agreement; provided, however, that
if such action, suit, or proceeding shall have been solicited or encouraged by,
or instituted as a result of any act or omission of, Seller or Buyer, then such
party shall not have any right of adjournment or termination pursuant to this
Section In the event of termination pursuant to this Section, the parties shall
be released and discharged from any further obligation hereunder.
13.8 FAILURE TO OBTAIN CONSENTS. Buyer's sole remedy (assuming that Seller has
satisfied its obligations under this Agreement, including its obligation under
Section 9.2 to use its reasonable best efforts to obtain all necessary consents
and its obligation under Section 12.4 to use its reasonable best efforts to make
the benefits of the Non-Consented Contracts available to Buyer) for Seller's
failure to obtain sufficient numbers of consents within the time period provided
herein shall be to elect whether or not to proceed with the Closing hereunder,
and in no event shall Buyer be entitled to collect damages from Seller, whether
or not a Closing takes place hereunder.
ARTICLE XIV.
GENERAL PROVISIONS
14.1 EXPENSES. Except as otherwise provided herein, all expenses involved in the
preparation and consummation of this Agreement shall be borne by the party
incurring the same whether or not the Transaction is consummated. All recording
costs for instruments of transfer, and all stamp, sales, use and transfer taxes
shall be paid by Seller or Casabonne.
14.2 NOTICES. All notices, requests, demands, and other communications
pertaining to this Agreement shall be in writing and shall be deemed duly given
when delivered personally (which shall include delivery by Federal Express or
other nationally recognized, reputable overnight courier service that issues a
receipt or other confirmation of delivery) to the party for whom such
communication is intended, or three (3) business days after the date mailed by
certified or registered U.S. mail, return receipt requested, postage prepaid,
addressed as follows:
(a) If to Seller, Company or Casabonne:
Ross Casabonne
Financial Management Group LLC Patagonia Corp.
12399 Lewis Street Suite 201 at address set out above.
Garden Grove California USA 92840
(b) If to Buyer:
Mr. Martyn Armstrong
Softcare Electronic Commerce Inc.
107 980 West 1st Street
North Vancouver British Columbia Canada V7P 3N4
26
<PAGE>
Copy to Douglas Alan Sarkissian 307 1497 Marine Drive, West Vancouver BC V7T 1B8
Any party may change its address for notices by notice to the others given
pursuant to this Section.
14.3 ATTORNEYS' FEES. If either party initiates any litigation against the other
party involving this Agreement, the prevailing party in such action shall be
entitled to receive reimbursement from the other party for all reasonable
attorneys' fees and other costs and expenses incurred by the prevailing party in
respect of that litigation, including any appeal, and such reimbursement may be
included in the judgment or final order issued in that proceeding.
14.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION RIGHTS. The
several representations and warranties of the parties contained herein, and the
parties' respective indemnification rights pursuant to Section 12.1, shall
survive the Closing for a period of twelve (12) months, at which time the same
shall expire (except for claims asserted during such twelve-month); provided,
however, that representations and warranties with respect to title,
authorization, and environmental matters shall survive in perpetuity and the
representation with respect to Taxes shall survive the Closing until Ninety days
after the applicable statute of limitations.
14.5 EXCLUSIVE DEALINGS. For so long as this Agreement remains in effect,
neither Seller Company or Casabonne, its officers, directors, employees, any
person acting on Seller's behalf, shall, directly or indirectly, solicit or
initiate any offer from, or conduct any negotiations with, any person other than
Buyer or Buyer's assignee(s) concerning the acquisition of the Shares, Assets or
the Business.
14.6 WAIVER. Unless otherwise specifically, agreed in writing to the contrary:
(i) the failure of any party at any time to require performance by any other of
any provision of this Agreement shall not affect such party's right thereafter
to enforce the same; (ii) no waiver by any party of any default by any other
shall be valid unless in writing and acknowledged by an authorized
representative of the non-defaulting party, and no such waiver shall be taken or
held to be a waiver by such party of any other preceding or subsequent default;
and (iii) no extension of time granted by any party for the performance of any
obligation or act by any other party shall be deemed to be an extension of time
for the performance of any other obligation or act hereunder.
14.7 ASSIGNMENT. No party may assign its rights or obligations hereunder without
the prior written consent of the other parties except: (i) Buyer may assign its
rights and obligations to a corporation, partnership, or other business entity
that controls, is controlled by, or is under common control with Buyer, and (ii)
Buyer may make a collateral assignment of its rights under this Agreement to any
lender that provides funds to Buyer for the acquisition of the Shares, Assets or
operation of the Business.
14.8 ENTIRE AGREEMENT. This Agreement and the Exhibits and Schedules hereto
(which are incorporated by reference herein) constitute the entire agreement
between the parties with respect to the subject matter hereof and referenced
herein, supersede and terminate any prior agreements between the parties
(written or oral). This Agreement may not be altered or amended except by an
instrument in writing signed by the party against whom enforcement of any such
change is sought. 1
4.9 COUNTERPARTS. This Agreement may be signed in any number of counterparts
with the same effect as if the signatures on each such counterpart were on the
same instrument.
14.10 CONSTRUCTION. The Section headings of this Agreement are for convenience
only and in no way modify, interpret or construe the meaning of specific
provisions of the Agreement. As used herein, the neuter gender shall also denote
the masculine and feminine, and the masculine gender shall also denote the
neuter and feminine, where the context so permits.
14.11 SCHEDULES AND EXHIBITS. The Schedules and Exhibits to this Agreement are a
material part of this Agreement.
14.12 SEVERABILITY. If any one or more of the provisions contained in this
Agreement should be found invalid, illegal, or unenforceable in any respect, the
validity, legality, and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. Any illegal or
unenforceable term shall be deemed to be void and of no force and effect only to
the minimum extent necessary to bring such term within the provisions of
applicable law and such term, as so modified, and the balance of this Agreement
shall then be fully enforceable.
14.13 CHOICE OF LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without regard to the
choice of law rules utilized in that jurisdiction.
14.14 COUNSEL. Each party has been or has had the opportunity of being
represented by its own counsel and advisors in connection with the negotiation
and preparation of this Agreement and,
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<PAGE>
consequently, each party hereby waives the application of any rule of law that
would otherwise be applicable in connection with the interpretation of this
Agreement, including but not limited to any rule of law to the effect that any
provision of this Agreement shall be interpreted or construed against the party
whose counsel drafted that provision.
14.15 PUBLIC STATEMENTS. Neither Seller, Company nor Casabonne shall, without
the prior written approval of the Buyer, make any press release or other public
announcement concerning the transactions contemplated by this Agreement except
to the extent that either party shall be so obligated by law, in which case the
other party shall be so advised and the parties shall use their best efforts to
cause a mutually agreeable release or announcement to be issued.
14.16 ARBITRATION. Notwithstanding anything herein to the contrary, in the event
that there shall be a dispute among the parties after the Closing arising out of
or relating to this Agreement, including without limitation the indemnities
provided in Section 12.1, or the breach thereof, the parties agree that such
dispute shall be resolved by final and binding arbitration in San Francisco
California administered by the American Arbitration Association in accordance
with its rules for commercial arbitration then in effect or such other
procedures as the parties may agree to prior to the Closing. Any award issued as
a result of such arbitration shall be final and binding between the parties
thereto, and shall be enforceable by any court having jurisdiction over the
party against whom enforcement is sought. The fees and expenses of such
arbitration (including reasonable attorneys' fees) or any action to enforce an
arbitration award shall be paid by the party that does not prevail in such
arbitration.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
by a respective duly authorized officer as of the date first written above.
Softcare EC.com, Inc.
/s/ Wayne Zielke
- -------------------------------------------------------
Per: Wayne Zielke, CFO
Ross Casabonne:
-------------------------------------
Cherlynne Casabonne: /s/ Cherlynne Casabonne
-------------------------------------
Patagonia Corp.
/s/ Jerry Smith
- -------------------------------------------------------
Per:
Financial Management Group LLC
/s/
- --------------------------------------------------------
Per:
Financial Marketing Group LLC
/s/ 4/10/00
- --------------------------------------------------------
Per:
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<PAGE>
VOLUNTARY POOLING AGREEMENT
---------------------------
THIS AGREEMENT DATED FOR REFERENCE THE 10th DAY OF APRIL 2000.
BETWEEN Patagonia Corp., a company incorporated under the laws of Turks
and Caicos and having its registered off ice at P.O. Box 290
Charter House, the Centre, Leeward Highway, Providenciales,
British West Indies;
(the "Pooled Shareholder")
AND: Softcare EC.com, Inc., a company incorporated under the laws of
British Columbia and having offices at 107 980 West 1st Street,
North Vancouver, British Columbia, V7P 3N6; ("Softcare")
AND: PACIFIC CORPORATE TRUST COMPANY, having an office at 830 - 625
Howe Street, Vancouver, British Columbia, V6C 3B8;
(the "Trustee")
WHEREAS the Pooled Shareholder is desirous of placing in a pool certain shares
in the capital of Softcare, being in respect of the Pooled Shareholder the
number of shares set out in Schedule "A" hereto attached (the "Softcare
Shares"), upon and subject to the terms and conditions hereinafter more
particularly set out;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the premises
and in consideration of the sum of Ten Dollars ($10) now paid by the parties
hereto, each to the other, the receipt and sufficiency of which is hereby
acknowledged, and in further consideration of the mutual covenants and
conditions hereinafter contained, the parties hereto agree (the "Agreement") as
follows:
1. In this Agreement:
(a) "Exchange" shall mean the Vancouver Stock Exchange;
(b) "Issue Date" shall mean the day the Pooled Shareholder is issued the
applicable shares;
(c) "Termination Date" means the date this Agreement is terminated in
accordance with paragraph 5;
2. The Pooled Shareholder hereby agrees with the Trustee that it will deliver or
cause to be delivered to the Trustee certificates for their Softcare Shares as
set out in the said Exhibit A. These shares are to be held by the Trustee and
released, subject to early termination of the pooling restrictions of the
Softcare Shares as are applicable in accordance with paragraph 5. The Share
Purchase Agreement between the Pooled Shareholder and Softcare inter alia with
respect to the Creditsolv Vertical Portal an extract from which is attached (the
"Credit Agreements) identifies those Softcare Shares defined in the Credit
Agreement and as are specified in Exhibit A to this Agreement.
3. The Pooled Shareholder is entitled to a letter or receipt from the Trustee
stating the number of Softcare Shares represented by certificates held for that
Pooled Shareholder by the Trustee subject to the terms of this Agreement, but
such letter or receipt shall not be assignable.
4. Upon receipt by the Trustee of a statutory declaration authorized by the
Board of Directors of Softcare that the terms for release such Shares as are
specified therein the Trustee shall cause such declaration to be forwarded to
the last know address of the Pooled Shareholder. If no response to such delivery
is received within 20 business days of confirmed delivery then the Trustee shall
release the shares noted as the case may be. If a dispute is raised by the
Pooled Shareholder then the Trustee shall be a liberty to submit such dispute to
the parties for resolution. The Trustee shall retain such shares until such time
as the Trustee shall receive direction by sufficient authority (in the
discretion of the Trustee to accept) to enable it to release or maintain pooling
restrictions on such shares.
5. The terms and provisions of this Agreement may not be amended or modified and
the Pooled Shareholder will not sell, deal in, assign, or transfer in any manner
whatsoever or agree to sell, deal in
29
<PAGE>
assign or transfer in any manner whatsoever any of the Softcare Shares or
beneficial ownership of or any interest in them and, except with the written
consent of the full Board of Directors of Softcare. The Trustee shall not accept
or acknowledge any transfer, assignment, declaration of trust or any other
document evidencing a change in legal or beneficial ownership of or any interest
in the Softcare Shares, except as may be required by reason of the death or
bankruptcy of a Pooled Shareholder, in which case the Softcare Shares of that
Pooled Shareholder subject to this Agreement shall be transferred to the person
or persons, firm or corporation who thus become legally entitled thereto,
provided however that this Agreement shall continue to apply to those Softcare
Shares and shall bind the transferee.
6. This Agreement shall terminate on the date (the "Termination Date") which is
the earlier of:
(a) Two years from the date of this pooling agreement, or
(b) the date a written notice, signed by authority of written
resolution of the Board of Directors of Softcare is delivered to
the Trustee instructing the Trustee that the Agreement is to be
terminated and that certificates representing the balance of the
Softcare Shares then held by the Trustees are to be released to
the Pooled Shareholder.
7. This Agreement shall enure to the benefit of and be binding upon the parties
hereto and each of their heirs, executors, administrators, successors and
permitted assigns.
8. This Agreement may be executed in several parts in the same form and such
part as so executed shall together constitute one original agreement, and such
parts, if more than one, shall be read together and construed as if all the
signing parties hereto had executed one copy of this Agreement.
9. The parties hereto agree that in consideration of the Trustee agreeing to act
as Trustee as aforesaid, the Pooled Shareholder do hereby covenant and agree
from time to time and at all times hereinafter well and truly to save, defend,
and keep harmless and fully indemnify the Trustee, its successors and assigns,
from and against all loss, costs, charges, damages and expenses which the
Trustee, its successors or assigns, may at any time or times hereafter bear,
sustain, suffer or be put to for or by reason or on account of its acting as
Trustee pursuant to this Agreement.
10. It is further agreed by and between the parties hereto and, without
restricting the foregoing indemnity, that in case proceedings should hereafter
be taken in any Court respecting the shares hereby pooled, the Trustee shall not
be obliged to defend any such action or submit its rights to the Court until it
shall have been indemnified by other good and sufficient security in addition to
the indemnity hereinbefore given against costs of such proceedings.
11. It is further agreed by and between the parties hereto that this Agreement
shall be construed in accordance with the laws of the Province of British
Columbia.
IN WITNESS WHEREOF the Pooled Shareholder and the Trustee have executed the
presents as from the day and year first above written
Softcare EC.com, Inc.
/s/ Wayne Zielke
- ------------------------------------------
Per: Wayne Zielke, CFO
Patagonia Corp.
/s/ Jerry Smith POA
- ------------------------------------------
Per:
Pacific Corporate Trust Company
- ------------------------------------------
Per: Authorized Signatory
30
<PAGE>
Exhibit A to Pooling Agreement
ARTICLE IV.
PURCHASE PRICE AND PAYMENT
4.1 TOTAL CONSIDERATION AND TERMS. The aggregate consideration for the Shares to
be purchased by Buyer hereunder and for the Covenants (the "Total
Consideration") will, subject to adjustments as provided in Section 4.2 and
Article V, consist of:
(a) subject to applicable regulatory approvals and securities laws applicable to
the Buyer, Seller and/or Company and Casabonne, issue and allot 100,000 common
shares in the capital of the Buyer to the Seller (the "First Shares"). The First
Shares will be issued subject to a hold period of two years from the date of
issuance such hold period to be specified in a pooling agreement exhibited to
this Agreement and to specify the terms affecting both these shares and any
other shares issued pursuant to other terms of this Agreement. If the required
regulatory approvals or securities laws prohibit or otherwise impair the
issuance of the First Shares then the parties will take all reasonable steps
resolve any such limitations and failing a satisfactory resolution the First
Shares will be canceled and the Shares returned by the Buyer to the Seller. and
(b) upon establishment of the first stage of the Creditsolv Vertical Portal
(completion of the E-services package) to the reasonable satisfaction of the
Buyer and subject to applicable regulatory approvals and securities laws
applicable to the Buyer, Seller and/or Company and Casabonne, the issuance to
the Seller of a further 95,000 common shares 61 the Buyer (the "Second Shares").
The Second Shares will similarly be subject to a hold period of two years from
the date of the issuance of the First Shares or the issuance of the Second
Shares which ever is acceptable to the applicable regulatory authorities plus a
$USF12,000;
(c) upon the Creditsolv Vertical Portal itself generating US300,000 dollars in
any month in contracted enforceable recurring monthly revenues, and subject to
applicable regulatory approvals and securities laws applicable to the Buyer,
Seller and/or Company and Casabonne, the issuance to the Seller of a further
55,000 common shares of the Buyer (the "Third Shares").
(d) upon the Creditsolv Vertical Portal itself generating US1,000,000 dollars in
any month in contracted enforceable recurring monthly revenues, and subject to
applicable regulatory approvals and securities laws applicable to the Buyer,
Seller and/or Company and Casabonne, the issuance to the Seller of a further
50,000 common shares of the Buyer (the "Fourth Shares").
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<PAGE>
BUSINESS PROTECTION AGREEMENT
Ross Casabonne
In consideration of employment by Softcare EC.com, Inc., a British Columbia
corporation or its subsidiaries, affiliates, joint venturers, successors or
assigns (collectively referred to in this Agreement as "Employer"), Ross
Casabonne ("Employee") agrees as follows:
1. Services
Employee has been engaged by Employer to perform the duties (this term is used
interchangeably with the term "Services") generally described in the Employment
Agreement ("Employment Agreement") that is referred to in Schedule 1 and
attached to this Business Protection Agreement ("Agreement"). Employee
understands that during his/her employment the scope of the Services may change,
and that Employer may from time to time add to or amend Schedule 1 as needed to
ensure that it accurately describes the scope of the Services Employee has been
engaged to provide to Employer. Employee understands and agrees that while
Employer will endeavor to keep Schedule 1 current, Employer's failure to include
in Schedule 1 a particular task or aspect of work actually delivered by the
Employee shall not be construed as excluding such task or aspect of work from
this Agreement. Accordingly, Employee agrees that for the purposes of this
Agreement, the term Services shall mean not only the services described in
Schedule 1 (which is attached hereto and incorporated herein by this reference),
including any amendments by Employer, but also any additional task or work
actually performed by Employee for Employer.
2. Disclosure and Assignment to Employer
Employee will disclose immediately and assign to Employer, or to any other
person designated in writing by Employer, all inventions, discoveries and
improvements, patentable or unpatentable, made, conceived or first reduced to
practice by Employee, alone or jointly with others, during his/her employment,
which inventions or improvements:
(a) are made, conceived or first reduced to practice in the performance of
Services assigned to or undertaken by the Employee as a part of such employment,
or
(b) are made, conceived or first reduced to practice with the material use
of the Employer's time, material, facilities, or funds, or
(c) make material use of any trade secrets, know how, or other confidential
information of the Employer's with which Employee comes into contact, or
(d) relate to any investigations or obligations undertaken by the Employer,
the details of which the Employee became aware of because of this employment, or
(e) relate to investigations or obligations undertaken by the Employer
which are being performed at the location of Employee's employment and regarding
which the Employee has any access or information whatsoever.
All such inventions, discoveries and improvements ("Inventions") will be the
sole and exclusive property of Employer. Employee hereby disclaims any and all
interest in such Inventions and agrees not to take or do any act or to authorize
any other person to take or do any act that could reasonably be expected to
impair Employer's rights therein.
Employee and Employer understand and agree that the provisions of this Agreement
requiring assignment of Inventions to the Employer do not apply to any invention
which qualifies fully under the provisions of California Labor Code Section 2870
(attached hereto as Exhibit A, and incorporated herein by this reference).
Employee will advise the Company promptly in writing of any inventions that
Employee believes meet the criteria in California Labor Code Section 2870 and
not otherwise disclosed on Exhibit A (which is attached hereto and incorporated
herein by this reference).
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<PAGE>
3. Perfection of Rights, Title and Interest, and Obtaining of Patent
Employee will, during his/her employment for Employer and thereafter, perform at
the request and expense of Employer all lawful acts and execute, acknowledge and
deliver all instruments deemed necessary or desirable by Employer to vest in
Employer the entire right, title and interest in the Inventions referenced
above, and to enable Employer to properly prepare, file and prosecute
applications for and obtain and defend patents of the United States and of
foreign countries, as well as reissues, renewals and extensions thereof, and to
obtain and record title to such applications and patents, so that Employer shall
be the sole and absolute owner thereof in any and all countries in which it may
desire patent or like protection.
4. Work for Hire
To the extent not otherwise covered by the provisions above, Employee agrees
that all creative work, including without limitation designs, drawings,
specifications, techniques, models, and processes, prepared or originated by
Employee during or within the scope of employment, whether or not subject to
protection under federal copyright or other law ('Works"), constitutes work made
for hire, all rights to which are owned by Employer; and, in any event, employee
hereby assigns to Employer all right, title and interest, whether by way of
copyright, trade secret, or otherwise, in all such Works, whether or not subject
to protection by copyright or other law.
5. Need for Employer Protection.
Employee recognizes and acknowledges that:
(a) In the course of performing his/her duties for Employer, he/she will
have access to Confidential Information (as defined below), the ownership and
confidential status of which are highly important to Employer. Employee also
acknowledges that except as otherwise specifically provided for in this
Agreement such Confidential Information is and shall continue to be the
exclusive and permanent property of Employer, whether or not prepared in whole
or in part by Employee, and whether or not disclosed or entrusted to Employee in
connection with his/her duties for Employer. Confidential Information shall not
be deemed disclosed to the public due to its being disclosed to Employee or to
any past, present, or potential employees of Employer.
(b) Employer has a vital and substantial interest in maintaining the
confidentiality of its Confidential Information, in maintaining a stable work
force, in continuing its relationships with its Business Contacts, in remaining
in business, and in avoiding or minimizing any disruption of, damage or
impairment to, or interference with its business.
c) The Confidential Information and Business Contacts that Employee will
obtain as a result of his/her employment hereunder is special and unique to
Employer, and a breach by Employee of any of the terms and covenants of this
Agreement will result in irreparable and continuing harm to Employer for which
there will be no adequate remedy at law and for which the injury could not be
adequately compensated by money damages.
6. Confidential Information
As used in this Agreement, the term "Confidential Information" shall mean any
information of Employer (including any parent, subsidiary, joint venturer,
predecessor, successor, or otherwise affiliated corporation, partnership or
other business enterprise, hereinafter collectively referred to as the
"Company"), whether or not in written form, which has not been previously
disclosed or otherwise made generally available to the public at large by the
Company and which is either (1) designated or treated by the Company as
confidential or proprietary or as a trade secret or (2)
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the Employee knows or should know is considered confidential by the Company.
Consistent with the definition set forth above, the term "Confidential
Information" shall include, but is not limited to, documents or other
information related to the Company's: manufacturing processes; business plans;
specifications, designs, schematics, drawings, formulae, processes, compositions
and material formulations; current products or technology; computer programs;
plant facilities; operations; sales; price information; new products or
technology which are under or being considered for development; distribution
network; source of supplies or raw materials; production techniques; costs;
specialized requirements or preferences of the Company's customers, inventions,
discoveries, or improvements; methods of conducting or obtaining business,
including methods of marketing, customer acquisition and development; non-public
lists of actual or prospective clients, customers, suppliers, vendors or
investors provided to Employee by Employer or developed or learned by Employee
while employed by Employer (collectively "Business Contacts"); corporate plans
or manuals; software and data; finances; legal affairs; labor or other reports;
current or future business opportunities; relationships and/or terms with third
party companies; the terms of Employer's agreements with Business Contacts; and
other information marked, designated and/or treated by the Company as
confidential.
Employee understands that Employer uses products and services supplied by third
parties in the course of its business ("Third Party, Products") and that these
products and services and the manner in which they are used by Employer are
necessary to the success of the Employer's business. Employee acknowledges that
the selection, arrangement, location, combination, and distribution of Third
Party Products and the manner in which they are used or deployed by Employer in
the course of its business constitutes Employer Confidential Information and
that all such information is subject to the terms of this Agreement.
7. Third Party Information
Employee understands that in order for the Employer to use Third Party Products,
a third party may provide the Employer with information that such third party
deems proprietary and that may be subject to protection under trade secret,
copyright and other laws, and that, as a condition to such disclosure, the third
party may place restrictions on how the Employer may use the Third Party
Products and any related information. During the course of his/her employment by
Employer, Employee will have access to the Third Party Products and related
information and understands that his/her failure to comply with such
restrictions could subject the Employer to liability and damage the Employer's
business. Employee therefore agrees that all information regarding Third Party
Products shall be deemed Confidential Information and that Employee shall not
use or disclose any such information for any purpose other than for the benefit
of the Employer without the Employer's prior written consent. Employee further
agrees that Employer shall own all right, title and interest in and to such
information and all Inventions and Works based on, using or related to the third
party products, services or information, and hereby transfers, assigns and
conveys to Employer all rights he/she may have therein.
8. Additional Protections
Employee understands that he/she may have access to information that does not
meet the definition of Confidential Information, but is nevertheless protected
from unauthorized use by copyright, patent, and other laws and that most
Confidential Information, including, but not limited to, any documents and
information regarding pricing, costs, and the specialized requirements of
Company's customers, also constitutes Company Trade Secrets. Employee
acknowledges that the fact such information is not Confidential Information does
give Employee
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<PAGE>
any right or license to use such information or limit the other protections
available to the Company for such information under statute or common law.
Employee acknowledges that his/her position with Employer is such that he/she
will have access to important and sensitive information that is unique to
Employer regarding Employer's business, including without limitation its
strategies for designing and delivering communications services, identifying
markets for services, selecting and building sites for communications
facilities, developing and introducing services, selecting business partners and
Third Party Products, targeting and exploiting business opportunities, and
pricing services. Employee acknowledges that all such information is critical to
Employer's success, constitutes Confidential Information and Trade Secret, and
gives Employer an advantage over its competitors. Employee understands that such
information would be extremely valuable to a competitor since it would permit
the competitor to anticipate and potentially pre-empt Employer's future business
plans and that such disclosure would seriously damage Employer's business.
Employee further acknowledges that if he/she were to be employed by any person
(other than Employer) to perform services similar to those described in Schedule
1 he/she could not provide such services without being influenced by information
obtained or created by Employee in the course of performing his/her duties for
Employer. Accordingly, Employee agrees that he/she will not, during the term of
his/her employment by Employer and for a period of one year thereafter, enter
into any agreement with any person to provide services that would place Employee
in a position in which Employee's knowledge of Employer's Confidential
Information and Trade Secrets could influence Employee's actions or otherwise be
used for the benefit of any such person.
9. Scope of Employer Protection
Employer is or expects to be a multi-national concern that conducts or expects
to conduct business throughout the world. In his/her employment with Employer,
Employee may perform services in more than one city, county, state or country,
and may gain access to Confidential Information that pertains not only to the
specific area in which Employee lives and/or works but also to other cities,
counties, states and countries in which Employer does business. The parties
acknowledge that due to the character of Employer's business, a geographic
restriction on this Agreement would not adequately protect Employer's legitimate
business interests. The Employer protections stated herein are intended to
protect Employer to the fullest extent possible in all of the cities, counties,
states, and countries in which Employer does business. Employer and Employee
expressly acknowledge and agree that each of the Employer protections stated
herein is intended to be as broad as may be permitted under the provisions of
applicable law. Employer and Employee further acknowledge and agree that if any
of the protections herein are deemed unenforceable, the unenforceability of any
one or more Employer protections stated herein (or any portion thereof), shall
not affect the enforceability of any other protection (or portion thereof)
stated herein.
10. Nondisclosure of Confidential Information
Employee shall hold all Confidential Information in a fiduciary capacity and
shall exercise the highest degree of care in safeguarding Confidential
Information against loss, theft, or other inadvertent disclosure, and shall take
all steps reasonably necessary to maintain the confidentiality thereof. Employee
shall not, directly or indirectly, either during the term of his/her employment
(except as required in the course of the performance of her/his duties), or at
any time after her/his employment is terminated for any reason:
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(a) disclose or furnish to any person, corporation or other entity, or use
in his/her own or in any other person's business, any Confidential Information;
(b) utilize any such Confidential Information for the gain, advantage, or
profit of anyone other than Employer; or
(c) take advantage of any business opportunity which, because of
Confidential Information obtained in Employee's employment capacity or as a
result of his/her employment, Employee knows the Company may or is likely to
consider. If Employee is served with any subpoena or other compulsory judicial
or administrative process calling for production of Confidential Information,
Employee will immediately notify Employer in order that the Company may take
such action as it deems necessary to protect its interests.
11. Non-solicitation of Employees/Contractors
a) Unless Employee receives the prior express written consent of the
Employer, Employee shall not during the term of Employee's employment and for
one year after termination of his/her employment, induce or attempt to induce,
directly or by assisting others, any person who is in the employment of, or is
providing services to, the Employer to leave such employment or business
relationship.
(b) If Employee violates Section 1 above, then at the sole election of
Employer, Employee shall pay to Employer an amount equal to one year's salary
and benefits for each such identified employee (this being an amount reflective
of the costs to the Employer to train such person. This remedy, if elected by
Employer, shall be in addition to any other remedies provided to Employer under
this Agreement or by law.
12. Non-Provision of Services to Business Contacts
(a) Unless Employee receives the prior, express, written consent of
Employer, Employee shall not, during the term of Employee's employment and for
one year after termination of her/his employment, solicit [or accept], or
attempt to solicit [or accept], directly or by assisting others, any work,
services, goods, or other business from any of Business Contacts of Employer (as
defined above) or solicit or entice any Business Contact to discontinue,
terminate, cancel or revoke its contractual relationship with the company. This
protection is in addition to, and not a substitute for, the protections
contained in Section 10.
(b) If Employee violates this Section above, then at the sole election of
Employer, Employee shall pay to Employer fifty percent (50%) of the actual fees
billed or billable to such Business Contacts during that period of time. This
remedy, if elected by Employer, shall be in addition to any other remedies
provided to Employer under this BPA or by law.
13. Delivery of Models and Other Materials
During or after his/her employment for Employer, Employee will deliver
immediately to Employer upon its request all models, drawings, maps, plans,
reports, memoranda, diaries, notes, records, plats, blueprints, sketches,
letters, manuals, documents, chemicals, biological materials and all other
writings, graphic records and materials made or compiled by, or delivered or
made available to, or otherwise obtained by him/her, containing or relating to
any inventions, discoveries and improvements which the Employee is required to
disclose under this Agreement, or with respect to any other trade secrets or
other confidential information, knowledge or data designated by Employer which
Employee has obtained as the result of
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his/her employment. Employee will retain no excerpts, notes, photographs,
reproductions or copies or recorded storage media of any kind of any such
material.
14. List of Inventions Not Subject to This Agreement
Employee attaches as Schedule 2 to this Agreement, a list and description of all
patented and unpatented inventions (including those for which patent
applications are pending), which he/she has made, conceived or first reduced to
practice prior to his/her employment by Employer. Employee acknowledges and
agrees that she/he was given an ample opportunity to prepare Schedule 2 and that
Schedule 2 lists all inventions, discoveries and improvements that Employee may
later claim to be excluded from this Agreement. By executing this Agreement
Employee represents and warrants that except as listed on Schedule 2, he/she has
not made, conceived, or reduced any invention to practice prior to his/her
employment by Employer. Employee acknowledges and agrees that except for
inventions excluded under Section 2, all other inventions he/she makes,
conceives, or reduces to practice while he/she is employed by Employer,
including without limitation any modifications or improvements to the inventions
listed in Schedule 2, are subject to this Agreement and shall be the property of
Employer.
Notice: Schedule 2 contains the only pre-employment inventions, discoveries and
improvements that Employee may claim to be excluded from this Agreement.
Employee may not add inventions, discoveries or improvements to Schedule 2 that
were developed before his/her employment after he/she executes this Agreement or
after the termination of his/her employment with Employer. However, during
Employee's employment Employer may add inventions, discoveries and improvements
that Employee discloses to Employer pursuant to Section 2 as having been
developed by Employee entirely on his/her own time if they were developed
without using Employer's equipment, supplies, facilities, or trade secret
information, or are not otherwise subject to this Agreement. Except for such
additions, Employee hereby waives any right to claim that any inventions,
discoveries or improvements not listed on Schedule 2 are excluded from this
Agreement.
Employee understands that Employer is relying on the accuracy of the information
provided in Schedule 2 and the truthfulness of representations Employee has made
in Sections 2, 14, 15 and 16 and that Employer would not continue Employee's
employment or utilize any of the inventions, discoveries and improvements or
other works developed by Employee if Employer believed them to be false.
Employee further understands that Employer would suffer substantial damage if it
utilized inventions, discoveries and improvements or works made by Employee
during his/her employment and Employee later claimed or a court determined that
such inventions were excluded from this Agreement or not Employees property.
Therefore, to the extent that Employee later claims or a court determines that
any inventions, discoveries, improvements or works made by Employee but not
listed or otherwise excluded under Section 2, is excluded from this Agreement or
not Employer's property, you (the Employee) hereby grant to Employer a
perpetual, royalty free, irrevocable license to make, have made, use and sell
the inventions, discoveries, improvements and works.
15. Disclosure of Prior Restrictions
Employee understands that Employer is not employing Employee in order to obtain
any information that is the property of any previous employers or any other
person or entity for whom Employee has performed services. Employee represents
that he/she is not currently subject to any restriction that would prevent or
limit Employee from carrying out his/her duties for Employer. Employee further
represents that he/she will not disclose or provide any
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information to Employer (a) relating to any inventions, discoveries, or
improvements excluded from this Agreement which Employer shall not be free to
use without restriction or (b) which, if used by Employer, would cause Employer
to infringe or violate the rights of any person, including without limitation,
Employee.
16. Other Legal Rights of Employer
The rights and duties of Employer and Employee under this Agreement are in
addition to, and not in lieu of, those rights and duties afforded to and imposed
upon them by law, or at equity. The parties acknowledge that although a
condition of continued employment, this Agreement does not constitute a contract
of employment, nor does it entitle Employee to employment for any specific term.
All of Employer's employees are employees "at-will" unless specifically provided
otherwise by written agreement signed by Employee and Employer's President.
17. Breach
In the event of breach of any of the terms or covenants contained in this
Agreement, Employee agrees that Employer shall be entitled to temporary and/or
permanent injunctive relief upon a showing that Employee has breached this
Agreement without proof of actual damage and without posting a bond therefore,
against the Employee and any of the Employee's partners, agents, employers or
employees, or any persons acting for or with the Employee, and/or an order of
temporary specific performance enforcing this Agreement, and any other temporary
and/or permanent remedies provided to Employer by applicable law. Such temporary
and/or permanent relief shall remain in effect until the matter in dispute is
permanently resolved or longer as determined by a Court of competent
jurisdiction.
18. Severability of Provisions
The provisions of this Agreement are severable, and if any provision hereof is
held invalid or unenforceable the remaining provision of this Agreement shall
not be affected thereby.
19. Successors, Heirs, Assignees or Nominees
This Agreement shall inure to the benefit of and be binding upon Employer, its
successors, assigns or nominees and also upon Employee, his/her estate, heirs
and assigns. Employee's contractual obligations under this Agreement are
personal and neither Employee's rights or obligations under this Agreement may
be assigned or transferred. Employer's rights and obligations, however, may be
assigned or transferred.
20. Waiver
No provision of this Agreement may be waived by either party, except by a
writing signed by that party. The waiver of any portion of this Agreement with
respect to any person or invention shall be construed narrowly and shall not
affect the right of the party granting the waiver to enforce any other provision
of this Agreement or to enforce any provision of this Agreement with respect to
any other person or invention.
21. California Law to Be Applied
The interpretation of and performance under this Agreement shall be governed by
the laws of the State of California, without giving effect to its choice of law
principles.
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22. Attorney Fees
In the event of default under this Agreement, the defaulting party shall
reimburse the nondefaulting party for all costs and expenses reasonably incurred
by the non-defaulting party in connection with the default, including without
limitation, attorney fees. In addition, the prevailing party in any suit or
action to enforce this Agreement, or any term hereof, shall be entitled to
recover all its costs and expenses incurred in connection with such suit or
action, including, without limitation, reasonable attorneys' fees, arbitration
costs, and other legal costs incurred at all levels and proceedings.
23. Venue/Jurisdiction
Venue for any action hereunder shall lie in the Superior Court of Orange County,
California (the "Venue"), provided that, if Employer simultaneously brings suit
against Employee and/or a subsequent employer of Employee in the Venue and
within one or more other jurisdictions, venue will also be proper in the other
jurisdiction or jurisdictions. Both parties waive the right to change such venue
and hereby consent to the jurisdiction of such courts for all potential claims
under this Agreement.
24. Term of this Agreement
This Agreement shall continue until no longer applicable. For example, by their
stated terms the non-solicitation and non-provision of services provisions apply
during the term and for one year after termination of Employee's employment.
Also, for example, the non-disclosure obligations set forth in Sections 5-10 of
this Agreement will continue beyond the term of employment of Employee and until
the covered information is released to the public by Employer.
NOTICE TO EMPLOYEE
This agreement may require transfer to your Employer of certain inventions and
may impact your ability to perform services in the future. You may wish to
consult your legal counsel for advice concerning your rights and obligations.
This agreement is entered into by the parties hereto freely and without coercion
and with their full knowledge of its present future legal effect.
X /s/Wayne Zielke April 10/2000
--------------------------------- ------------------------------
Employer Signature Date
X /s/ Ross Casabonne April 10/2000
--------------------------------- ------------------------------
Employee Signature Date
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Schedule 1 to Business Protection Agreement
Description of Services to be provided by Employee and Countries Served by
Employer
See Employment Agreement attached hereto for Services listed
Jurisidictions:
Canada
United States of America
Argentina
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Exhibit A - California Labor Code Section 2870
Employment Agreements; Assignment of Rights
"(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision in an Employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision the provision is against the public
policy of this state and is unenforceable."
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Schedule 2 to Business Protection Agreement
List of Inventions Not Subject to this Agreement
NONE
/s/
- -----------(initial)
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Schedule 1 to Business Protection Agreement
Ross Casabonne
And as Exhibit to Share Purchase Agreement
of Financial Management Group LLC
THIS AGREEMENT made the 1st day of April 2000
BETWEEN: SOFTCARE EC.com, Inc. a corporation incorporated under the laws
of British Columbia with business offices located at 107 980 West
1st Street, North Vancouver, British Columbia, Canada, V7P 3N4
(the "Employer")
AND: Ross Casabonne, of 12399 Lewis Street, Suite 201 Garden Grove
California 92840
(the "Employee")
WHEREAS:
A. The Employer is engaged in the business of ENGINEERING, DESIGN
IMPLEMENTATION AND MARKETING OF COMPUTER PROGRAMS and BUSINESS SOLUTIONS
FOR ELECTRONIC COMMERCE (the "Business"); and
B. The involvement of the Employee is important to the Employer in the
provision of credit services by establishing a vertical portal and the
Employee has entered into an agreement as part of a transaction to vend a
credit counselling business associated with the Employee to the Employer;
NOW THEREFORE in consideration of the premises and the agreements herein
contained and other good and valuable consideration the receipt and sufficiency
of which are hereby acknowledged, the parties hereby agree as follows:
1. Employment
The Employer hereby agrees to employ the Employee as VP Latin American Business
Development and VP Business Development/Financial Services of the Employer
reporting to the President or persons he designates, and the Employee hereby
accepts such employment with the Employer on the terms and subject to the
conditions herein set forth.
2. Duties
Subject to instructions that may be received from time to time by the Employee
from the President and Vice President the Employer, the Employee shall do the
following:
i. serve the Employer faithfully;
ii. observe all policies of the Employer and perform all services
normally associated with the position to the best of his ability;
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iii devote all of his normal working time and attention to such
duties as may be assigned to her by the Employer;
iv. carry out all lawful instructions given to her by the Employer;
and
v. endeavour to further the best interests of the Employer generally.
3. Term
The term of this agreement shall be for two years commencing on the date hereof,
unless terminated earlier pursuant to the provisions of paragraph 8 hereof. The
term shall be automatically renewed thereafter from year to year subject to the
ability of either party to decline to renew by notice in writing to the other
given at least thirty (30) days prior to any renewal date.
4. Annual Salary
For all services rendered by the Employee pursuant to this agreement, the
Employee shall receive a gross annual salary, subject to lawful and normal
withholdings and deductions, of US$120,000 per annum payable in equal monthly
instalments in arrears. The annual salary shall be subject to annual review by
the board of directors.
5. Business Expenses
The Employer agrees to reimburse the Employee periodically for all reasonable
ordinary and necessary business expenses actually and properly incurred by the
Employee in the performance of his duties under this agreement. The Employee
shall provide budgets that are pre approved and then substantiate expenses with
vouchers and statements in respect of all such expenses.
6. Vacation
The Employee shall be entitled to three weeks of paid vacation for each
consecutive twelve month period in which he is employed by the Employer pursuant
to this agreement, the timing of such vacation to be mutually agreed upon
between the Employee and the Employer; however, generally notice of vacation
will be given 30 days prior to the proposed taking thereof.
7. Other Remuneration
The Employee will be paid the following commissions based upon revenues
generated by the Creditsolv Vertical Portal for which the Employee was hired to
develop, implement and market:
A one percent commission on gross revenues generated exclusively
through the Creditsolv Portal while employed and to last for a maximum
of five years; plus
For each customer introduced to the Creditsolv Portal by the Employee
while employed by the Employer a five percent commission on gross
revenue generated by that client through the Creditsolv Portal in the
first year; three percent in years 2 and 3 and one percent in years 4
and 5 with no commission payable in respect of that client after year
5.
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For each customer introduced to the Company other than to the
Creditsolv Portal which is dealt with above, the Employee while
employed by the Employer shall be paid a normal company commission
including sharing of commissions where several parties efforts are
involved in closing and receipt of payment for such new customer.
In addition to the share consideration paid to Patagonia Corp. in acquiring the
Creditsolv Software by virtue of the acquisition of Financial Management Group
LLC and Financial Marketing Group LLC, the Employee shall be entitled to receive
a USF$75,000 bonus upon annual revenues of the Employer generally attaining $US1
1,000,000 by May 31, 2001. If revenues fall short of the goal in the subject
time frame then this obligation shall terminate.
Employee shall receive a car allowance equal to $US600 per month.
8. Termination and Compensation at Termination
Notwithstanding anything herein contained to the contrary, the employment of the
Employee shall terminate in the following manner and the Employee shall be
compensated as indicated:
a. Termination by the Employer
This agreement and the employment of the Employee hereunder may be
terminated effective at any time for cause by the Employer giving notice in
writing of such termination to the Employee. As used herein, "cause" shall
include, without limitation, gross misconduct, gross negligence or
incompetence by the Employee in performing his duties hereunder, the
commission by the Employee of an act of theft, dishonesty, embezzlement or
vandalism against the Employer or any of its subsidiaries or the conviction
of the Employee for any crime except minor traffic offences. If this
agreement and the employment of the Employee hereunder is so terminated by
the Employer in its discretion, pursuant to this clause, the Employee shall
continue to accrue and receive his said annual salary and bonus to the date
of termination, subject to such adjustments as may be appropriate
considering the basis for termination (for example but not necessarily
limited to setoffs for theft).
b. Termination by Mutual Agreement
This agreement and the employment of the Employee hereunder may be
terminated by mutual agreement in writing of the parties hereto in which
event the Employee shall continue to accrue and receive his said annual
salary to the agreed date of termination. Notwithstanding any other
provision of this Agreement, if the Employee leaves the employment of the
Employer of his own accord while commissions provided for in this Agreement
are otherwise continuing to be payable, then in order to allow the Employer
to attract alternative staff to replace the voluntarily departing Employee,
commissions remaining due
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<PAGE>
or coming due for the balance of the term provided for in this Agreement
shall be reduced by TWENTY FIVE percent with the Employer retaining the
balance remaining.
c. Termination by Death, Bankruptcy or Insolvency
This agreement and the employment of the Employee hereunder shall be
terminated by the death of the Employee or if the Employee shall become and
remain physically or mentally incapable of performing substantially the
essential functions of the job with or without reasonable accommodation. No
salary shall accrue or be paid thereafter. The Employee shall be entitled
to participate in any disability insurance program, if any, subscribed to
by the Employer.
d. Termination by Notice
This agreement and the employment of the Employee hereunder shall terminate
without cause upon SIX month's notice from the earlier of June 1, 2001 or
six months from the date that the Creditsolv Portal is operational, by the
Employer to the Employee. Employer, at its option, may require the Employee
terminate forthwith upon payment of an amount equal to salary that the
Employee would have been entitled to receive for such period, including
provisions being made for benefits, bonuses and stock options during the
noted period. SESB Trust plan participation, if any, and restrictions
therein would continue to apply to all unvested trust stock.
9. Notices
Whenever this agreement requires or permits any consent, approval, notice,
request or demand from one party to the other, the consent, approval, notice,
request or demand must be in writing (including, without limitation, telex or
telecopy communications) to be effective and shall be deemed to have been given
on the earlier of receipt or the fifth day after it is enclosed in an envelope,
addressed to the party to be notified, at the address set out for that party
above (or such other address as may have been designated by written notice),
properly stamped, sealed and deposited in the Canadian mail system. Any consent,
approval, notice, request or demand aforesaid if delivered, telexed or
telecopied shall be deemed to have been given on the date of such delivery,
telexed or telecopied transmission. Any such delivery shall be sufficient, inter
alia, if left with a person resident in the house at the above address of the
Employee in the case of the Employee and a receptionist at the above address of
the Employer or to the Secretary in the case of the Employer. The Employer or
the Employee may change its or his address for service, from time to time, by
notice given in accordance with the foregoing.
9. Entire Agreement
This agreement taken together with the terms of any Business Protection
Agreement between the Employee and the Employer constitutes the entire
understanding between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous agreement, understandings, negotiations
and discussions, whether oral or written, of the parties.
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<PAGE>
10. Applicable Law
Whether pursuant to court proceedings or otherwise, the rights and obligations
of the parties under and pursuant to this agreement shall be construed under and
governed by the laws of the State of California.
11. Assignment
Neither the rights nor the obligations under this agreement shall be assigned or
otherwise disposed of without the prior written consent of the non-assigning
party, except that the Employer may assign this agreement to any successor
corporation without such consent.
12. Binding Agreement
Subject to the provisions hereof, this agreement shall be binding upon and shall
enure to the benefit of the parties hereto and upon their respective heirs,
legal representative, successors and permitted assigns.
13. Waivers and Consents
One or more consents to or waivers of any breach of a term or provision of this
agreement by either party shall not be construed as a consent to or waiver of a
subsequent breach of the same term or provision, nor shall it be considered a
consent to or waiver of any other then existing or subsequent breach of a
different term or provision. The consent or waiver by either party to or of any
act by the other party requiring such consent or waiver shall be deemed not to
waive or render unnecessary consent to or waiver of any subsequent similar act.
No custom or practice of either party shall constitute a waiver of either
party's rights to insist upon strict compliance with the terms and provisions
hereof.
14. Severability
If any term or provision of this agreement shall be or shall become illegal or
unenforceable, the remaining terms and provisions shall nevertheless be valid,
binding, and subsisting.
15. Survival of Covenants
The provisions of paragraph 9 shall survive termination of the employment of the
Employee under this agreement.
16. Headings
The insertion of headings is for convenience of reference only and shall not
affect the construction or interpretation of this
agreement.
IN WITNESS WHEREOF this agreement is executed by the parties as of the date
first above written.
THE CORPORATE SEAL of the Employer )
was hereunto affixed in the presence of: )
/s/ Wayne Zielke ) C/S
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SIGNED, SEALED AND DELIVERED )
by the Employee in the presence of: )
)
/s/ ) -------------------------------
------------------------------------------- ) Ross Casabonne
Signature of Witness )
Name: )
----------------------------------
Address )
-------------------------------)
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BUSINESS PROTECTION AGREEMENT
Cherlynne Casabonne
In consideration of employment by Softcare EC.com, Inc., a British Columbia
corporation or its subsidiaries, affiliates, joint venturers, successors or
assigns (collectively referred to in this Agreement as "Employer"), Cherlynne
Casabonne ("Employee") agrees as follows:
1. Services
Employee has been engaged by Employer to perform the duties (this term is used
interchangeably with the term "Services") generally described in the Employment
Agreement ("Employment Agreement") that is referred to in Schedule 1 and
attached to this Business Protection Agreement ("Agreement"). Employee
understands that during his/her employment the scope of the Services may change,
and that Employer may from time to time add to or amend Schedule 1 as needed to
ensure that it accurately describes the scope of the Services Employee has been
engaged to provide to Employer. Employee understands and agrees that while
Employer will endeavor to keep Schedule 1 current, Employer's failure to include
in Schedule 1 a particular task or aspect of work actually delivered by the
Employee shall not be construed as excluding such task or aspect of work from
this Agreement. Accordingly, Employee agrees that for the purposes of this
Agreement, the term Services shall mean not only the services described in
Schedule 6 1 (which is attached hereto and incorporated herein by this
reference), including any amendments by Employer, but also any additional task
or work actually performed by Employee for Employer.
2. Disclosure and Assignment to Employer
Employee will disclose immediately and assign to Employer, or to any other
person designated in writing by Employer, all inventions, discoveries and
improvements, patentable or unpatentable, made, conceived or first reduced to
practice by Employee, alone or jointly with others, during his/her employment,
which inventions or improvements:
(a) are made, conceived or first reduced to practice in the performance of
Services assigned to or undertaken by the Employee as a part of such employment,
or
(b) are made, conceived or first reduced to practice with the material use
of the Employer's time, material, facilities, or funds, or
(c) make material use of any trade secrets, know how, or other confidential
information of the Employer's with which Employee comes into contact, or
(d) relate to any investigations or obligations undertaken by the Employer,
the details of which the Employee became aware of because of this employment, or
(e) relate to investigations or obligations undertaken by the Employer
which are being performed at the location of Employee's employment and regarding
which the Employee has any access or information whatsoever. All such
inventions, discoveries and improvements ("Inventions") will be the sole and
exclusive property of Employer. Employee hereby disclaims any and all interest
in such Inventions and agrees not to take or do any act or to authorize any
other person to take or do any act that could reasonably be expected to impair
Employer's rights therein.
Employee and Employer understand and agree that the provisions of this Agreement
requiring assignment of Inventions to the Employer do not apply to any invention
which qualifies fully under the provisions of California Labor Code Section 2870
(attached hereto as Exhibit A, and incorporated herein by this reference).
Employee will advise the Company promptly in writing of any inventions that
Employee believes meet the criteria in California Labor Code Section 2870 and
not otherwise disclosed on Exhibit A (which is attached hereto and Incorporated
herein by this reference).
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3. Perfection of Rights, Title and Interest, and Obtaining of Patent
Employee will, during his/her employment for Employer and thereafter, perform at
the request and expense of Employer all lawful acts and execute, acknowledge and
deliver all instruments deemed necessary or desirable by Employer to vest in
Employer the entire right, title and interest in the Inventions referenced
above, and to enable Employer to properly prepare, file and prosecute
applications for and obtain and defend patents of the United States and of
foreign countries, as well as reissues, renewals and extensions thereof, and to
obtain and record title to such applications and patents, so that Employer shall
be the sole and absolute owner thereof in any and all countries in which it may
desire patent or like protection.
4. Work for Hire
To the extent not otherwise covered by the provisions above, Employee agrees
that all creative work, including without limitation designs, drawings,
specifications, techniques, models, and processes, prepared or originated by
Employee during or within the scope of employment, whether or not subject to
protection under federal copyright or other law ("Works"), constitutes work made
for hire, all rights to which are owned by Employer; and, in any event, employee
hereby assigns to Employer all right, title and interest, whether by way of
copyright, trade secret or otherwise, in all such Works, whether or not subject
to protection by copyright or other law.
5. Need for Employer Protection.
Employee recognizes and acknowledges that:
(a) In the course of performing his/her duties for Employer, he/she will
have access to Confidential Information (as defined below), the ownership and
confidential status of which are highly important to Employer. Employee also
acknowledges that except as otherwise specifically provided for in this
Agreement such Confidential Information is and shall continue to be the
exclusive and permanent property of Employer, whether or not prepared in whole
or in part by Employee, and whether or not disclosed or entrusted to Employee in
connection with his/her duties for Employer. Confidential Information shall not
be deemed disclosed to the public due to its being disclosed to Employee or to
any past, present, or potential employees of Employer.
(b) Employer has a vital and substantial interest in maintaining the
confidentiality of its Confidential Information, in maintaining a stable work
force, in continuing its relationships with its Business Contacts, in remaining
in business, and in avoiding or minimizing any disruption of, damage or
impairment to, or interference with its business.
(c) The Confidential Information and Business Contacts that Employee will
obtain as a result of his/her employment hereunder is special and unique to
Employer, and a breach by Employee of any of the terms and covenants of this
Agreement will result in irreparable and continuing harm to Employer for which
there will be no adequate remedy at law and for which the injury could not be
adequately compensated by money damages.
6. Confidential Information
As used in this Agreement, the term "Confidential Information" shall mean any
information of Employer (including any parent, subsidiary, joint venturer,
predecessor, successor, or otherwise affiliated corporation, partnership or
other business enterprise, hereinafter collectively referred to as the
"Company"), whether or not in written form, which has not been previously
disclosed or
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otherwise made generally available to the public at large by the Company and
which is either (1) designated or treated by the Company as confidential or
proprietary or as a trade secret or (2) the Employee knows or should know is
considered confidential by the Company. Consistent with the definition set forth
above, the term "Confidential Information" shall include, but is not limited to,
documents or other information related to the Company's: manufacturing
processes; business plans; specifications, designs, schematics, drawings,
formulae, processes, compositions and material formulations; current products or
technology; computer programs; plant facilities; operations; sales; price
information; new products or technology which are under or being considered for
development; distribution network; source of supplies or raw materials;
production techniques; costs; specialized requirements or preferences of the
Company's customers, inventions, discoveries, or improvements; methods of
conducting or obtaining business, including methods of marketing, customer
acquisition and development; non-public lists of actual or prospective clients,
customers, suppliers, vendors or investors provided to Employee by Employer or
developed or learned by Employee while employed by Employer (collectively
"Business Contacts"); corporate plans or manuals; software and data; finances;
legal affairs; labor or other reports; current or future business opportunities;
relationships and/or terms with third party companies; the terms of Employer's
agreements with Business Contacts; and other information marked, designated
and/or treated by the Company as confidential. Employee understands that
Employer uses products and services supplied by third parties in the course of
its business ("Third Party Products") and that these products and services and
the manner in which they are used by Employer are necessary to the success of
the Employer's business. Employee acknowledges that the selection, arrangement,
location, combination, and distribution of Third Party Products and the manner
in which they are used or deployed by Employer in the course of its business
constitutes Employer Confidential Information and that all such information is
subject to the terms of this Agreement.
7. Third Party Information
Employee understands that in order for the Employer to use Third Party Products,
a third party may provide the Employer with information that such third party
deems proprietary and that may be subject to protection under trade secret,
copyright and other laws, and that, as a condition to such disclosure, the third
party may place restrictions on how the Employer may use the Third Party
Products and any related information. During the course of his/her employment by
Employer, Employee will have access to the Third Party Products and related
information and understands that his/her failure to comply with such
restrictions could subject the Employer to liability and damage the Employer's
business. Employee therefore agrees that all information regarding Third Party
Products shall be deemed Confidential Information and that Employee shall not
use or disclose any such information for any purpose other than for the benefit
of the Employer without the Employer's prior written consent. Employee further
agrees that Employer shall own all right, title and interest in and to such
information and all Inventions and Works based on, using or related to the third
party products, services or information, and hereby transfers, assigns and
conveys to Employer all rights he/she may have therein.
8. Additional Protections
Employee understands that he/she may have access to information that does not
meet the definition of Confidential Information, but is nevertheless protected
from unauthorized use by copyright, patent, and other laws and that most
Confidential Information, including, but not limited to, any documents and
information regarding pricing, costs, and the specialized requirements of
Company's customers, also constitutes Company Trade Secrets. Employee
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<PAGE>
acknowledges that the fact such information is not Confidential Information does
give Employee any right or license to use such information or limit the other
protections available to the Company for such information under statute or
common law. Employee acknowledges that his/her position with Employer is such
that he/she will have access to important and sensitive information that is
unique to Employer regarding Employer's business, including without limitation
its strategies for designing and delivering communications services, identifying
markets for services, selecting and building sites for communications
facilities, developing and introducing services, selecting business partners and
Third Party Products, targeting and exploiting business opportunities, and
pricing services. Employee acknowledges that all such information is critical to
Employer's success, constitutes Confidential Information and Trade Secret, and
gives Employer an advantage over its competitors. Employee understands that such
information would be extremely valuable to a competitor since it would permit
the competitor to anticipate and potentially pre-empt Employer's future business
plans and that such disclosure would seriously damage Employer's business.
Employee further acknowledges that if he/she were to be employed by any person
(other than Employer) to perform services similar to those described in Schedule
1 he/she could not provide such services without being influenced by information
obtained or created by Employee in the course of performing his/her duties for
Employer. Accordingly, Employee agrees that he/she will not, during the term of
his/her employment by Employer and for a period of one year thereafter, enter
into any agreement with any person to provide services that would place Employee
in a position in which Employee's knowledge of Employers Confidential
Information and Trade Secrets could influence Employee's actions or otherwise be
used for the benefit of any such person.
9. Scope of Employer Protection
Employer is or expects to be a multi-national concern that conducts or expects
to conduct business throughout the world. In his/her employment with Employer,
Employee may perform services in more than one city, county, state or country,
and may gain access to Confidential Information that pertains not only to the
specific area in which Employee lives and/or works but also to other cities,
counties, states and countries in which Employer does business. The parties
acknowledge that due to the character of Employer's business, a geographic
restriction on this Agreement would not adequately protect Employer's legitimate
business interests. The Employer protections stated herein are intended to
protect Employer to the fullest extent possible in all of the cities, counties,
states, and countries in which Employer does business.
Employer and Employee expressly acknowledge and agree that each of the Employer
protections stated herein is intended to be as broad as may be permitted under
the provisions of applicable law. Employer and Employee further acknowledge and
agree that if any of the protections herein are deemed unenforceable, the
unenforceability of any one or more Employer protections stated herein (or any
portion thereof), shall not affect the enforceability of any other protection
(or portion thereof) stated herein.
10. Nondisclosure of Confidential Information
Employee shall hold all Confidential Information in a fiduciary capacity and
shall exercise the highest degree of care in safeguarding Confidential
Information against loss, theft, or other inadvertent disclosure, and shall take
all steps reasonably necessary to maintain the confidentiality thereof. Employee
shall not, directly or indirectly, either during the term of his/her
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employment (except as required in the course of the performance of her/his
duties), or at any time after her/his employment is terminated for any reason:
(a) disclose or furnish to any person, corporation or other entity, or use
in his/her own or in any other person's business, any Confidential Information;
(b) utilize any such Confidential Information for the gain, advantage, or
profit of anyone other than Employer; or
(c) take advantage of any business opportunity which, because of
Confidential Information obtained in Employee's employment capacity or as a
result of his/her employment, Employee knows the Company may or is likely to
consider.
If Employee is served with any subpoena or other compulsory judicial or
administrative process calling for production of Confidential Information,
Employee will immediately notify Employer in order that the Company may take
such action as it deems necessary to protect its interests.
11. Non-solicitation of Employees/Contractors
(a) Unless Employee receives the prior express written consent of the
Employer, Employee shall not during the term of Employee's employment and for
one year after termination of his/her employment, induce or attempt to induce,
directly or by assisting others, any person who is in the employment of, or is
providing services to, the Employer to leave such employment or business
relationship.
(b) If Employee violates Section 1 above, then at the sole election of
Employer, Employee shall pay to Employer an amount equal to one year's salary
and benefits for each such identified employee (this being an amount reflective
of the costs to the Employer to train such person. This remedy, if elected by
Employer, shall be in addition to any other remedies provided to Employer under
this Agreement or by law.
12. Non-Provision of Services to Business Contacts
(a) Unless Employee receives the prior, express, written consent of
Employer, Employee shall not, during the term of Employee's employment and for
one year after termination of her/his employment, solicit [or accept], or
attempt to solicit [or accept], directly or by assisting others, any work,
services, goods, or other business from any of Business Contacts of Employer (as
defined above) or solicit or entice any Business Contact to discontinue,
terminate, cancel or revoke its contractual relationship with the company. This
protection is in addition to, and not a substitute for, the protections
contained in Section 10.
(b) If Employee violates this Section above, then at the sole election of
Employer, Employee shall pay to Employer fifty percent (50%) of the actual fees
billed or billable to such .Business Contacts during that period of time. This
remedy, if elected by Employer, shall be in addition to any other remedies
provided to Employer under this BPA or by law.
13. Delivery of Models and Other Materials
During or after his/her employment for Employer, Employee will deliver
immediately to Employer upon its request all models, drawings, maps, plans,
reports, memoranda, diaries, notes, records, plats, blueprints, sketches,
letters, manuals, documents, chemicals, biological materials and all other
writings, graphic records and materials made or compiled by, or delivered or
made available to, or otherwise obtained by him/her, containing or relating to
any inventions, discoveries and improvements which the Employee is required to
disclose under this Agreement, or with respect to any other trade secrets or
other confidential information.
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knowledge or data designated by Employer which Employee has obtained as the
result of his/her employment. Employee will retain no excerpts, notes,
photographs, reproductions or copies or recorded storage media of any kind of
any such material.
14. List of Inventions Not Subject to This Agreement
Employee attaches as Schedule 2 to this Agreement, a list and description of all
patented and unpatented inventions (including those for which patent
applications are pending), which he/she has made, conceived or first reduced to
practice prior to his/her employment by Employer. Employee acknowledges and
agrees that she/he was given an ample opportunity to prepare Schedule 2 and that
Schedule 2 lists all inventions, discoveries and improvements that Employee may
later claim to be excluded from this Agreement. By executing this Agreement
Employee represents and warrants that except as listed on Schedule 2, he/she has
not made, conceived, or reduced any invention to practice prior to his/her
employment by Employer. Employee acknowledges and agrees that except for
inventions excluded under Section 2, all other inventions he/she makes,
conceives, or reduces to practice while he/she is employed by Employer,
including without limitation any modifications or improvements to the inventions
listed in Schedule 2, are subject to this Agreement and shall be the property of
Employer.
Notice: Schedule 2 contains the only pre-employment inventions, discoveries and
improvements that Employee may claim to be excluded from this Agreement.
Employee may not add inventions, discoveries or improvements to Schedule 2 that
were developed before his/her employment after he/she executes this Agreement or
after the termination of his/her employment with Employer. However, during
Employee's employment Employer may add inventions, discoveries and improvements
that Employee discloses to Employer pursuant to Section 2 as having been
developed by Employee entirely on his/her own time if they were developed
without using Employers equipment, supplies, facilities, or trade secret
information, or are not otherwise subject to this Agreement. Except for such
additions, Employee hereby waives any right to claim that any inventions,
discoveries or improvements not listed on Schedule 2 are excluded from this
Agreement.
Employee understands that Employer is relying on the accuracy of the information
provided in Schedule 2 and the truthfulness of representations Employee has made
in Sections 2, 14, 15 and 16 and that Employer would not continue Employee's
employment or utilize any of the inventions, discoveries and improvements or
other works developed by Employee if Employer believed them to be false.
Employee further understands that Employer would suffer substantial damage if it
utilized inventions, discoveries and improvements or works made by Employee
during his/her employment and Employee later claimed or a court determined that
such inventions were excluded from this Agreement or not Employer's property.
Therefore, to the extent that Employee later claims or a court determines that
any inventions, discoveries, improvements or works made by Employee but not
listed or otherwise excluded under Section 2, is excluded from this Agreement or
not Employer's property, you (the Employee) hereby grant to Employer a
perpetual, royalty free, irrevocable license to make, have made, use and sell
the inventions, discoveries, improvements and works.
15. Disclosure of Prior Restrictions
Employee understands that Employer is not employing Employee in order to obtain
any information that is the property of any previous employers or any other
person or entity for whom Employee has performed services. Employee represents
that he/she is not currently subject to any restriction that would prevent or
limit Employee from carrying out his/her duties
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for Employer. Employee further represents that he/she will not disclose or
provide any information to Employer (a) relating to any inventions, discoveries,
or improvements excluded from this Agreement which Employer shall not be free to
use without restriction or (b) which, if used by Employer, would cause Employer
to infringe or violate the rights of any person, including without limitation,
Employee.
16. Other Legal Rights of Employer
The rights and duties of Employer and Employee under this Agreement are in
addition to, and not in lieu of, those rights and duties afforded to and imposed
upon them by law, or at equity. The parties acknowledge that although a
condition of continued employment, this Agreement does not constitute a contract
of employment, nor does it entitle Employee to employment for any specific term.
All of Employer's employees are employees "at-will" unless specifically provided
otherwise by written agreement signed by Employee and Employer's President.
17. Breach
In the event of breach of any of the terms or covenants contained in this
Agreement, Employee agrees that Employer shall be entitled to temporary and/or
permanent injunctive relief upon a showing that Employee has breached this
Agreement without proof of actual damage and without posting a bond therefore,
against the Employee and any of the Employee's partners, agents, employers or
employees, or any persons acting for or with the Employee, and/or an order of
temporary specific performance enforcing this Agreement, and any other temporary
and/or permanent remedies provided to Employer by applicable law. Such temporary
and/or permanent relief shall remain in effect until the matter in dispute is
permanently resolved or longer as determined by a Court of competent
jurisdiction.
18. Severability of Provisions
The provisions of this Agreement are severable, and if any provision hereof is
held invalid or unenforceable the remaining provision of this Agreement shall
not be affected thereby.
19. Successors, Heirs, Assignees or Nominees
This Agreement shall inure to the benefit of and be binding upon Employer, its
successors, assigns or nominees and also upon Employee, his/her estate, heirs
and assigns. Employee's contractual obligations under this Agreement are
personal and neither Employee's rights or obligations under this Agreement may
be assigned or transferred. Employer's rights and obligations, however, may be
assigned or transferred.
20. Waiver
No provision of this Agreement may be waived by either party, except by a
writing signed by that party. The waiver of any portion of this Agreement with
respect to any person or invention shall be construed narrowly and shall not
affect the right of the party granting the waiver to enforce any other provision
of this Agreement or to enforce any provision of this Agreement with respect to
any other person or invention.
21. California Law to Be Applied
The interpretation of and performance under this Agreement shall be governed by
the laws of the State of California, without giving effect to its choice of law
principles.
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22. Attorney Fees
In the event of default under this Agreement, the defaulting party shall
reimburse the nondefaulting party for all costs and expenses reasonably incurred
by the non-defaulting party in connection with the default, including without
limitation, attorney fees. In addition, the prevailing party in any suit or
action to enforce this Agreement, or any term hereof, shall be entitled to
recover all its costs and expenses incurred in connection with such suit or
action, including, without limitation, reasonable attorneys' fees, arbitration
costs, and other legal costs incurred at all levels and proceedings.
23. Venue/Jurisdiction
Venue for any action hereunder shall lie in the Superior Court of Orange County,
California (the "Venue"), provided that, if Employer simultaneously brings suit
against Employee and/or a subsequent employer of Employee in the Venue and
within one or more other jurisdictions, venue will also be proper in the other
jurisdiction or jurisdictions. Both parties waive the right to change such venue
and hereby consent to the jurisdiction of such courts for all potential claims
under this Agreement.
24. Term of this Agreement
This Agreement shall continue until no longer applicable. For example, by their
stated terms the non-solicitation and non-provision of services provisions apply
during the term and for one year after termination of Employee's employment.
Also, for example, the non-disclosure obligations set forth in Sections 5-10 of
this Agreement will continue beyond the term of employment of Employee and until
the covered information is released to the public by Employer.
NOTICE TO EMPLOYEE
This agreement may require transfer to your Employer of certain inventions and
may impact your ability to perform services in the future. You may wish to
consult your legal counsel for advice concerning your rights and obligations.
This agreement is entered into by the parties hereto freely and without coercion
and with their full knowledge of its present future legal effect.
X /s/Wayne Zielke April 10/2000
--------------------------------- ------------------------------
Employer Signature Date
X /s/ Cherlynne Casabonne April 10/2000
--------------------------------- ------------------------------
Employee Signature Date
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Schedule 1 to Business Protection Agreement
Description of Services to be provided by Employee and Countries Served
by Employer
See Employment Agreement for Services
Canada
United States of America
Argentina
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Exhibit A - California Labor Code Section 2870
Employment Agreements; Assignment of Rights
"(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision in an Employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision the provision is against the public
policy of this state and is unenforceable."
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Schedule 2 to Business Protection Agreement
List of Inventions Not Subject to this Agreement
NONE
- -----------(initial)
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Schedule 1 to Business Protection Agreement
Cherlynne Casabonne
And as Exhibit to Share Purchase Agreement
of Financial Management Group LLC
THIS AGREEMENT made the 1st day of April 2000
BETWEEN: SOFTCARE EC.com, Inc. a corporation incorporated under the laws
of British Columbia with business offices located at 107 980 West
1st Street, North Vancouver, British Columbia, Canada, V7P 3N4
(the "Employer")
AND: Cherlynne Casabonne, of 12399 Lewis Street, Suite 201 Garden
Grove California 92840
(the "Employee")
WHEREAS:
C. The Employer is engaged in the business of ENGINEERING, DESIGN
IMPLEMENTATION AND MARKETING OF COMPUTER PROGRAMS and BUSINESS SOLUTIONS
FOR ELECTRONIC COMMERCE (the "Business"); and
D. The involvement of the Employee is important to the Employer in the
provision of credit services by establishing a vertical portal and the
Employee has entered into an agreement as part of a transaction to vend a
credit counselling business associated with the Employee to the Employer;
NOW THEREFORE in consideration of the premises and the agreements herein
contained and other good and valuable consideration the receipt and sufficiency
of which are hereby acknowledged, the parties hereby agree as follows:
1. Employment
The Employer hereby agrees to employ the Employee as Director Product Design and
Operations/Financial Services of the Employer reporting to the Vice President of
Engineering or as assigned by the President, and the Employee hereby accepts
such employment with the Employer on the terms and subject to the conditions
herein set forth.
2. Duties
Subject to instructions that may be received from time to time by the Employee
from the President and Vice President the Employer, the Employee shall do the
following:
i. serve the Employer faithfully;
ii. observe all policies of the Employer and perform all services
normally associated with the position to the best of
his ability;
iii devote all of her normal working time and attention to such
duties as may be assigned to her by the Employer;
iv. carry out all lawful instructions given to her by the Employer;
and
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v. endeavour to further the best interests of the Employer generally.
3. Term
The term of this agreement shall be for two years commencing on the date hereof,
unless terminated earlier pursuant to the provisions of paragraph 8 hereof. The
term shall be automatically renewed thereafter from year to year subject to the
ability of either party to decline to renew by notice in writing to the other
given at least thirty (30) days prior to any renewal date.
4. Annual Salary
For all services rendered by the Employee pursuant to this agreement, the
Employee shall receive a gross annual salary, subject to lawful and normal
withholdings and deductions, of US$96,000 per annum payable in equal monthly
instalments in arrears. The annual salary shall be subject to annual review by
the board of directors.
5. Business Expenses
The Employer agrees to reimburse the Employee periodically for all reasonable
ordinary and necessary business expenses actually and properly incurred by the
Employee in the performance of his duties under this agreement. The Employee
shall provide budgets that are pre approved and then substantiate expenses with
vouchers and statements in respect of all such expenses.
6. Vacation
The Employee shall be entitled to three weeks of paid vacation for each
consecutive twelve month period in which he is employed by the Employer pursuant
to this agreement, the timing of such vacation to be mutually agreed upon
between the Employee and the Employer; however, generally notice of vacation
will be given 30 days prior to the proposed taking thereof.
7. Other Remuneration
In addition to the share consideration paid to Patagonia Corp. in acquiring the
Creditsolv Software by virtue of the acquisition of Financial Management Group
LLC and Financial Marketing Group LLC, the Employee shall be entitled to receive
USF$30,000 bonus upon annual revenues of the Employer generally attaining
$US11,000,000 by May 31, 2001. If revenues fall short of the goal in the subject
time frame then this obligation shall terminate.
Employee shall receive a car allowance equal to $US600 per month.
8. Termination and Compensation at Termination
Notwithstanding anything herein contained to the contrary, the employment of the
Employee shall terminate in the following manner and the Employee shall be
compensated as indicated:
a. Termination by the Employer
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This agreement and the employment of the Employee hereunder may be
terminated effective at any time for cause by the Employer giving notice in
writing of such termination to the Employee. As used herein, "cause" shall
include, without limitation, gross misconduct, gross negligence or
incompetence by the Employee in performing his duties hereunder, the
commission by the Employee of an act of theft, dishonesty, embezzlement or
vandalism against the Employer or any of its subsidiaries or the conviction
of the Employee for any crime except minor traffic offences. If this
agreement and the employment of the Employee hereunder is so terminated by
the Employer in its discretion, pursuant to this clause, the Employee shall
continue to accrue and receive his said annual salary and bonus to the date
of termination, subject to such adjustments as may be appropriate
considering the basis for termination (for example but not necessarily
limited to setoffs for theft).
b. Termination by Mutual Agreement
This agreement and the employment of the Employee hereunder may be
terminated by mutual agreement in writing of the parties hereto in which
event the Employee shall continue to accrue and receive his said annual
salary to the agreed date of termination. Notwithstanding any other
provision of this Agreement, if the Employee leaves the employment of the
Employer of his own accord while commissions provided for in this Agreement
are otherwise continuing to be payable, then in order to allow the Employer
to attract alternative staff to replace the voluntarily departing Employee,
commissions remaining due or coming due for the balance of the term
provided for in this Agreement shall be reduced by TWENTY FIVE percent with
the Employer retaining the balance remaining.
c. Termination by Death, Bankruptcy or Insolvency
This agreement and the employment of the Employee hereunder shall be
terminated by the death of the Employee or if the Employee shall become and
remain physically or mentally incapable of performing substantially the
essential functions of the job with or without reasonable accommodation. No
salary shall accrue or be paid thereafter. The Employee shall be entitled
to participate in any disability insurance program, if any, subscribed to
by the Employer.
d. Termination by Notice
This agreement and the employment of the Employee hereunder shall terminate
without cause upon SIX month's notice from the Employer or, at its option,
upon payment of an amount equal to salary that the Employee would have been
entitled to receive for such period, including provisions being made for
benefits, bonuses and stock options, during the noted period. Any SESB
Trust plan restrictions would continue to apply to all unvested trust
stock.
9. Notices
Whenever this agreement requires or permits any consent, approval, notice,
request or demand from one party to the other, the consent, approval, notice,
request or demand must be in writing (including, without limitation, telex or
telecopy communications) to be effective and shall be deemed to have been given
on the earlier of receipt or the fifth
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<PAGE>
day after it is enclosed in an envelope, addressed to the party to be notified,
at the address set out for that party above (or such other address as may have
been designated by written notice), properly stamped, sealed and deposited in
the Canadian mail system. Any consent, approval, notice, request or demand
aforesaid if delivered, telexed or telecopied shall be deemed to have been given
on the date of such delivery, telexed or telecopied transmission. Any such
delivery shall be sufficient, inter alia, if left with a person resident in the
house at the above address of the Employee in the case of the Employee and a
receptionist at the above address of the Employer or to the Secretary in the
case of the Employer. The Employer or the Employee may change its or his address
for service, from time to time, by notice given in accordance with the
foregoing.
10. Entire Agreement
This agreement taken together with the terms of any Business Protection
Agreement between the Employee and the Employer constitutes the entire
understanding between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous agreement, understandings, negotiations
and discussions, whether oral or written, of the parties.
11. Applicable Law
Whether pursuant to court proceedings or otherwise, the rights and obligations
of the parties under and pursuant to this agreement shall be construed under and
governed by the laws of the State of California.
12. Assignment
Neither the rights nor the obligations under this agreement shall be assigned or
otherwise disposed of without the prior written consent of the non-assigning
party, except that the Employer may assign this agreement to any successor
corporation without such consent.
13. Binding Agreement
Subject to the provisions hereof, this agreement shall be binding upon and shall
enure to the benefit of the parties hereto and upon their respective heirs,
legal representative, successors and permitted assigns.
14. Waivers and Consents
One or more consents to or waivers of any breach of a term or provision of this
agreement by either party shall not be construed as a consent to or waiver of a
subsequent breach of the same term or provision, nor shall it be considered a
consent to or waiver of any other then existing or subsequent breach of a
different term or provision. The consent or waiver by either party to or of any
act by the other party requiring such consent or waiver shall be deemed not to
waive or render unnecessary consent to or waiver of any subsequent similar act.
No custom or practice of either party shall constitute a waiver of either
party's rights to insist upon strict compliance with the terms and provisions
hereof.
15. Severability
63
<PAGE>
If any term or provision of this agreement shall be or shall become illegal or
unenforceable, the remaining terms and provisions shall nevertheless be valid,
binding, and subsisting.
16. Survival of Covenants
The provisions of paragraph 9 shall survive termination of the employment of the
Employee under this agreement.
17. Headings
The insertion of headings is for convenience of reference only and shall not
affect the construction or interpretation of this agreement.
IN WITNESS WHEREOF this agreement is executed by the parties as of the date
first above written.
THE CORPORATE SEAL of the Employer )
was hereunto affixed in the presence of: )
) C/S
/s/Wayne Zielke )
- --------------------------------------- )
SIGNED, SEALED AND DELIVERED )
by the Employee in the presence of: )
)
) ------------------------------
-------------------------------------- ) Cherlynne Casabonne
Signature of Witness )
Name: )
---------------------------- )
Address )
----------------------------- )
64
<PAGE>
To Softcare EC.com, Inc.
April 10, 2000
We are the principals or otherwise fully informed of the affairs of the Seller,
Patagonia Corp. and the Companies, Financial Management Group LLC (Nevada) and
Financial Marketing Group LLC (California). We have been advised to employ legal
advisors and to the extent we felt necessary we have done so in the preparation
and delivery of this certificate. We provide this certificate pursuant to the
Agreement.
We have considered such questions of law and examined such statutes and
regulations, corporate records, certificates and other documents and have made
such other examinations, searches and investigations as we have considered
necessary for the purpose of the certification hereinafter confirmed and we
understand the personal legal and financial responsibilities placed upon and our
consequent potential liabilities to the Buyer arising from such
responsibilities. In such examination, we have assumed the genuineness of all
signatures and the authenticity of all documents submitted to us as originals
and the conformity to original documents of all documents submitted to us as
certified or as photocopies.
Based on and subject to the foregoing, we certify that:
1. Financial Management Group LLC (Nevada) and Financial Marketing Group LLC
(California) collectively called FMG herein are both LLC; companies duly
incorporated and validly existing under the laws of Nevada and California
respectively. FMG is in good standing with respect to the filing of annual
reports with the secretary of state for each jurisdiction and both are duly
licensed to carry on business in the jurisdiction in which that carry on
business.
2. FMG has all requisite corporate power and authority to conduct the business
now carried on by it, and to own its property and assets as described in
the Agreement and FMG has all requisite corporate power and authority to
enter into and to perform its obligations under the Agreement.
3. All necessary steps and corporate action and proceedings have been taken to
authorize the execution and delivery of the Agreement by FMG.
4. To the best of our knowledge, neither the execution and delivery of, nor
the performance of its obligations under the Agreement by FMG will conflict
with or constitute a breach or default under the constating documents of
FMG or any commitment, agreement or other instrument to which FMG is a
party or by which it is bound.
5. To the best of our knowledge, at the present time there are no claims,
judgement, actions, suits, litigation, proceedings or investigations,
actual, pending or threatened against FMG which might materially affect any
business, properties, assets, prospects or conditions, financial or
otherwise, of FMG or which could result in any material liability to FMG.
6. One hundred percent of the authorized capital of Financial Management Group
LLC is vested in Patagonia Corp. (a Turks and Caico company) and all such.
65
<PAGE>
interest is validly authorized, created, allotted, issued and outstanding,
and is fully paid for and non-assessable, as at the date hereof.
7. One hundred percent of the authorized capital of Financial Marketing Group
LLC is vested in Patagonia Corp. (a Turks and Caicos company) and all such
interest is validly authorized, created, allotted, issued and outstanding,
and is fully paid for and non-assessable, as at the date hereof.
8. Subject to the foregoing, all necessary steps and corporate action and
proceedings have been taken to effect the valid transfer of the 100%
interests of both Financial Management Group LLC and Financial Marketing
Group LLC to the Buyer as contemplated under the Agreement. The Buyer is
the registered owner of the 100% interests in both Financial Management
Group LLC and Financial Marketing Group LLC on the books and records of
both Financial Management Group LLC and Financial Marketing Group LLC.
We certify the foregoing to be true knowing that we incur personal
responsibility to Softcare EC.com, Inc. for any damages it suffers in the event
that the representations herein and in the Agreement are 'Untrue such that the
material consequences of the transaction contemplated in the Agreement are
detrimentally affected by such untrue representations.
Signed:
--------------------------- ---------------------------
Ross Casabonne Cherlynne Casabonne
66
<PAGE>
Douglas Alan Sarkissian
B.Comm. LL.B. (Hons)
Barrister & Solicitor
307 1497 Marine Drive
West Vancouver, British Columbia V71 I B8
Telephone (604) 926-7776
Facsimile (604) 926-3780
e-mail [email protected]
Patagonia Corp.
Ross Casabonne
Cherlynne Casabonne
Dear Mesdames/Sirs:
We are the solicitors the Buyer. We provide this opinion pursuant to the
Agreement. We have acted as counsel for the Buyer in connection with the
negotiation, execution and completion of the Agreement.
All capitalized terms used herein and not otherwise defined shall have the
meaning ascribed to such terms in the Agreement.
We have considered such questions of law and examined such statutes and
regulations, corporate records, certificates and other documents and have made
such other examinations, searches and investigations as we have considered
necessary for the purpose of the opinion hereinafter expressed. In such
examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all documents submitted to us as certified or as
photocopies.
Based on and subject to the foregoing, we are of the opinion that:
1. The Buyer is a company duly incorporated and validly existing under the
laws of the Province of British Columbia. The Buyer is in good standing
with respect to the filing of annual reports with the British Columbia
Registrar of Companies.
2. The Buyer has all requisite corporate power and authority to enter into and
to perform its obligations under the Agreement.
3. All necessary steps and corporate action and proceedings have been taken
to authorize the execution and delivery of the Agreement by the Buyer.
4. To the best of our knowledge, neither the execution and delivery of, nor
the performance of its obligations under the Agreement by the Buyer will
conflict with or constitute a breach of or default under the constating
documents of the Buyer or any commitment, agreement or other instrument to
which the Buyer is a party or by which it is bound.
67
<PAGE>
5. To the best of our knowledge, there are no claims, judgements, actions,
suits, litigation, proceedings or investigations, actual, pending or
threatened against the Buyer which might materially affect any business,
properties, assets, prospects or conditions, financial or otherwise, of the
Buyer or which could result in any material liability to the Buyer.
The opinion expressed is subject to the qualification that enforceability of the
Agreement may be limited by applicable bankruptcy, insolvency or other laws
affecting creditors' rights generally, and that equitable remedies such as the
remedies of specific performance or injunction are in the discretion of the
court from which they are sought.
Yours truly,
/s/ Doug Sarkissian
Doug Sarkissian
68
<PAGE>
Casabonnes' Confirmation Certificate
Certificate of Confirmation
Pursuant to the Share Purchase Agreement made effective as of the 10th day of
April 2000 (the "Agreement") between Patagonia Corp., Financial Management Group
an Ross and Cherlynne Casabonne (collectively the "Principals"), SoftCare
EC.com., Inc ("SoftCare"), the Principals hereby jointly and severally confirm
to the Softcare that the representations and warranties of the Principals
contained in the Agreement or contained in any certificates or documents
delivered by either of them pursuant to the Agreement are true and correct in
every respect as of the Time of Closing of the Agreement being 4 o'clock p.m.
local time in Vancouver, B.C. on the l0th day of April 2000. Dated at North
Vancouver, BC this 10th day of April, 2000.
/s/ Ross Casabonne
- --------------------------------------------------
/s/ Cherlynne Casabonne
- --------------------------------------------------
69
<PAGE>
NOTES FOR FILE Date 10/4/2000
Schedule of calculation refferred to in 3.1 of the Agreement.
Based on the Balance Sheet of FMG on March 31, 2000 the April 10, 2000 closing
calculations would be as follows:
Closing
March 31, 2000 April 10, 2000(note 1)
1) Total Assets excluding
Intangible Assets:
- Current Assets $ 126,135
- Fixed Assets 38,368
Less: Accounts Receivable
Adjustment for
sales after Closing ( 84,250)
2) Concord Credit Renewal fee for 2000
Due June 2000 29,500
Total Acquired $ 109,753
3) Total Liabilities (156,938)
- M. Karpel Loan 15,552
- Contingent Liability 25,000
- Deferred Salary 45,000
Total Assumed ( 71,386)
4) Surplus/Commissions Payable $ 38,367
=========
Note 1) Final closing calculations to be determined within 60 days closing.
<PAGE>
Financial Management Group LLC
Accounts Receivable Schedule
as of February 29, 2000
Open Balance Payment Schedule Balance
Customer Invoice # @ 1/1/00 January February @2/29/00
AAA Fair Credit 1999 16,800 5,600 2,900 8,400.00
2507 4,800 4,800.00
3001 4,800 4,800.00
Customer Total 26,400 18,000.00
Agency Credit Counseling 2520 18,700 18,700.00
3002 4,800 4,800.00
Customer Total 23,500 23,500.00
CC&DC 1994 7,100 7,100 0.00
2000 3,600 3,600.00
3003 3,600 3,600.00
Customer Total 14,300 7,200.00
Concord Credit 29,500 29,500.00
Customer Total 29,500 29,500.00
Consumer Credit Counseling (No. Coast)
5 21,900 14,600 7,300 0.00
2011-1 3,600 3,600.00
3044 3,600 3,600.00
Customer Total 29,100 7,200.00
Consumer Credit Services 1250 27,089.50 5,000 22,089.50
3005 3,600 3,600.00
Customer Total 30,689.50 25,689.50
Family Debt Arbitration 1890 7,800 2,600 5,200.00
3006 3,600 3,600.00
Customer Total 11,400 0 2,600 8,800.00
TOTAL 164,889.50 20,200.00 24,800.00 119,889.50
Per b/s @ 29/2/00 120,739.50
----------
Immaterial. 850.00
==========
<PAGE>
Financial Management Group
Bank Statement 1/26/00 through 2/23/00
(Confidential Bank Statement Omitted)
<PAGE>
FINANCIAL MANAGEMENT GROUP, LLC
Trial Balance
As of March 31, 2000
Mar 31, '00
------------------
Debit Credit
------------------
Checking 5,391.72
Accounts Receivable 114,439.50
Employee Advance 250.00
Loans Receivable 1,000.00
Loans to Officers 3,275.11
Prepaid Rent 1,455.00
Security Deposits 800.00
Undeposited Funds 0.00
Equipment 33,038.18
Furniture 5,330.00
Intangible Assets 88,047.25
Accounts Payable 34,886.81
Deferred Salaries Payable 45,000.00
Direct Deposit. Liabilities 5,925.77
Loan Payable - M. Karpel 15,551.50
Loan Payable - Patagonia 15,000.00
Loans from Officers 0.00
Payroll Liabilities 6,003.26
Prepaid Receivables 0.00
Sales, Tax Payable 0.00
WF Business Line 9,571.80
Contingent Liabilities 25,000.00
Capital Contribution 79,115.00
Opening Bal Equity 0.00
Retained Earnings 11,645.18
Consulting 51,689.50
Customer Support 38,780.00
Licensing 38,050.00
Reimbursed Expenses 1,000.00
Software Sales 41,400.00
Training 5,000.00
Advertising 223.00
Auto: Gas/Fuel 704.11
Auto:Insurance 1,358.93
Auto:Lease 5,342.68
Auto:Maintenance/Repair 222.00
Auto:Parking & Tolls 307.25
Auto:Registration 266.00
Bank Service Charges 351.23
Bookkeeping 3,455.43
Computer Services 959.70
Contract Labor 1,010.00
Dues/Subscriptions 343.67
Entertainment 1,097.52
Equipment Lease 1,609.83
Gifts 520.40
Graphic Design 70.04
Insurance: Health 740.44
Insurance: Liability 249.24
Insurance: Life 1,204.20
Interest Expense 16.80
Internet 486.57
Late Fees 5.00
Legal 5,696.25
Licenses/Fees 68.00
Maintenance/Repairs:Copier 404.06
Meals/Meetings 4,886.08
Medical 6,119.98
Office Supplies & Expenses 2,967.95
Officer salary 36,000.00
Payroll 31,468.51
Payroll Service Expenses 80.01
Payroll Tax Expense 5,330.24
Postage & Delivery 351.05
Reimbursed Expenses 4,118.42
Rent 6,945.00
<PAGE>
FINANCIAL MANAGEMENT GROUP, LLC
Trial Balance
As of March 31, 2000
Mar 31, '00
------------------
Debit Credit
----- ------
Resident Agent Fees 250.00
Software 288.70
Telephone/Paging 4,161.41
Travel:Airfare 4,688.92
Travel:Car Rental 1,726.74
Travel:Hotels/Lodging 7,058.87
Travel:Meals 3,335.90
Travel:Parking/Tips 307.45
Void Checks 0.00
----- ------
411,214.72 411,214.72
<PAGE>
FINANCIAL. MANAGEMENT GROUP, LLC
Unpaid Bills Detail
As of March 31, 2000
Type Date Num Due Date Aging Open Balance
- ------- ------ --------- -------- ----- ------------
2000 COPIER
Bill 3/15/2000 14268 3/25/2000 6 404.06
------------
Total 2000 COPIER 404.06
AIRBORNE EXPRESS
Bill 1/21/2000 W6882455 1/31/2000 60 9.00
Bill 2/22/2000 W9609132 3/3/2000 28 44.10
Bill 2/29/2000 X3475483 3/10/2000 21 38.50
Bill 3/13/2000 X6648714 3/23/2000 8 14.79
Bill 3/30/2000 X8851953 4/9/2000 87.73
------------
Total AIRBORNE EXPRESS 194.12
ALEX FALAS
Bill 3/27/2000 Reimb 4/6/2000 81.25
------------
Total ALEX FALAS 81.25
AMERICAN EXPRESS
Bill 2/10/2000 1/00 2/20/2000 40 5,391.91
Bill 3/15/2000 3/00 3/25/2000 6 3,791.25
------------
Total AMERICAN EXPRESS 9,183.16
AP-CITYVIEW I ABBEY
Bill 3/22/2000 4/00 4/1/2000 1,455.00
------------
Total AP-CITYVIEW I ABBEY 1,455.00
CHERLYNNE
Bill 3/20/2000 Expense Rep 3/30/2000 1 3,592.33
------------
Total CHERLYNNE 3,592.33
CHRISTIE PARKER & HALE, LLP
Bill 10/5/1999 F300 10/15/1999 168 1,262.00
------------
Total CHRISTIE, PARKER & HALE. LLP 1,262.00
CITY OF GAREDEN GROVE
Bill 3/28/2000 BUSTAX 4/7/2000 68.00
------------
Total CITY OF GAREDEN GROVE 68.00
CYNTHIA CONRAD
Bill 3/30/2000 3/00 4/9/2000 907.04
so 3/31/2000 592 4/10/2000 750.00
------------
Total CYNTHIA CONRAD 1,737.84
DELL FINANCIAL SERVICES
Bill 3/15/2000 334M 3/25/2000 6 206.79
------------
Total DELL FINANCIAL SERVICES 206.79
FARM BUREAU HEALTH INSURANCE PROGRAM
Bill 3/21/2000 4/1-4/30 3/31/2000 64.27
Bill 3/21/2000 000597742 3/31/2000 101.12
------------
Total FARM BUREAU HEALTH INSURANCE PROGRAM 225.39
FARMERS INSURANCE
Bill 3/6/2000 MERC 3/16/2000 15 254.70
------------
Total FARMERS INSURANCE 254.70
FASTPOINT COMMUNICATION INC.
Bill 3/13/2000 2NDQrtr 3/23/2000 8 479.85
------------
Total FASTPOINT COMMUNICATIONS, INC. 479.85
<PAGE>
FINANCIAL MANAGEMENT GROUP, LLC
Unpaid Bills Detail
As of March 31, 2000
Type Date Num Due Date Aging Open Balance
- ------- ------ --------- -------- ----- ------------
FEDERAL EXPRESS
Bill 3/21/2000 7-910-001.73 3/31/2000 13.13
Bill 3/21/2000 79102MOD 4/6/2000 64.48
------------
Total FEDERAL EXPRESS 77.61
GOLOB, BRAGIN & SASSOE
Bill 8/2/1999 11574 8/12/1999 232 685.79
Bill 9/15/1999 11272 8/25/1999 188 22.86
Bill 10/21/1999 11744 11/10/1999 142 11.08
Bill 1/19/2000 1/29/2000 62 11.08
Bill 2/29/2000 12125 3/10/2000 21 23.25
------------
Total GOLOB, BRAGIN & SASSOE 754.08
GRAFIXWEST
Bill 3/30/200 00-5665 4/9/2000 70.04
------------
Total GRAFIXWEST 70.04
GRAY CARY WARE FREIDENRICH, LLP
Bill 1/8/2000 10058697 1/18/2000 73 1,470.42
Bill 3/30/2000 40088741 4/9/2000 124.00
------------
Total GRAY CARY WARE FREIDENRICH, LLP 1,470.42
JACKSON NATIONAL LIFE
Bill 2/13/2000 2/00 2/23/2000 37 496.80
------------
Total JACKSON NATIONAL LIFE 496.80
JAQUAR CREDIT
Bill 3/22/2000 4/00 4/1/2000 781.43
------------
Total JAQUAR CREDIT 781.43
KIMCO STAFFING
Bill 9/15/1999 520406-2 9/25/1999 188 5,500.00
------------
Total KIMCO STAFFING 5,500.00
MBNA
Bill 2/22/2000 200 3/3/2000 28 2,745.34
------------
Total MBNA 2,745.34
NEXTEL
Bill 101 1/00 -53.46
Bill 36MM 2/00 3/116/2000 15 325.79
------------
Total NEXTEL 275.33
NEXTLINK
Bill 3/6/2000 2/00 3/1 6/2000 15 68.00
Bill 3/18/2000 3/00 3/28/2000 3 68.00
------------
Total NEXTLINK 136.00
PACBELL-home #s
Bill 3/6/2000 7147717862 3/16/2000 15 18.16
Bill 3/6/2000 7147717724 3/16/2000 15 268.11
------------
Total PACBELL - home #s 286.27
PACIFIC BELL
Bill 3/2/2000 71470=00 3MZ200D 19 197.37
Bill 3/28/2000 7147032100 4/7/2000 215.42
------------
Total PACIFIC BELL 412.79
PARAGON ACCEPTANCE CORP.
Bill 3/22/2000 4100 4/1/2000 554.24
------------
Total PARAGON ACCEPTANCE CORP. 554.24
<PAGE>
Reconciliation Report 3/18/2000
Checking account reconciled for the period ending 02/23/2000
Cleared Transactions
Previous Balance 12,430.15
Cleared Checks and Payments 40 Items -43,752-13
Cleared Deposits and Other Credits 6 Items 62,850.00
Cleared Balance 31,529.02
Uncleared Transactions
Uncleared Checks and Payments 4 Items -5,511.00
Uncleared Deposits and Other Credits 1 Item 650.00
New Transactions
Account Balance as of 02/23/2000 (statement closing date) 26,667.02
New Checks and Payments 21 Items -23,544.70
New Deposits and Other Credits 0 items 0.00
Ending Account Balance 3,122.32
<PAGE>
Attachment
The below noted items are exempt pursuant to paragraph 12 - "Non Provision of
Services to Business Contacts" (page 36) of the Business Protection Agreement,
on the earlier of June 1, 2001 or six months from the date that the CrediSolv
Portal is operational.
David Jones, Genus Credit Management, In Charge Institute, Concord Credit,
Profina
Bernardo Dancel, Amerix Corporation
David Palmieri, CCCS of Central Indiana
Shane Brown, Credit Guard of America
MMI and its affiliates
NNS and its affiliates
Len Thiede, Vanco Credit Services Argentina, The Exxel Group and its affiliate
companies, Argencard, Razzetto-Lopez-Rodriguez C6rdoba and Associates, Buenos
Aires Bureau, Hynet and all other business contacts in such country
ASI Industry, Themeware Corporation
<PAGE>
<PAGE>
Smallwood Trust Company Ltd
Licensed Professional Trustees
Facsimile: (1 649) 9415625 P.O. Box 290
Telephone: (I 649 9413521 Caribbean Place
e-mail: [email protected] Leeward Highway Providenciales
Turks & Caicos Islands
Transmission by Facsimile
To : Jerry Smith From : Heidi C. Reinebeck
Company : Date : 11 April, 2000
Facsimile : 604 926 3780 Pages : 2 including cover
Cc : 714 703 2101
RE: POWER OF ATTORNEY FOR PATAGONIA CORP.
-----------------------------------------
Dear Jerry,
Attached please find the requested Power Of Attorney.
I hope that it meets with your approval.
Yours sincerely,
Heidi
Ref: 2939
This message is intended only for the use of the individual or entity to which
it IS addressed and may contain information but is privileged confidential and
exempt from disclosure under applicable law. If you are not the intended
recipient or employee or agent responsible for delivering the message to the
recipient, please notify us.
<PAGE>
POWER OF ATTORNEY
Patagonia Corp. of Providenciales Turks & Caicos Islands (the "Principal")
hereby constitutes and appoints Jerry D. Smith c/o Covenant Group Inc., 18818
Teller Avenue, Suite #250, Irvine, CA 92612 to be the Principal's true and
lawful Attorney (the "Attorney") in the Principal's name and on the Principal's
behalf limited to the following -
To sign and deliver the following documents:
Share Purchase Agreement
(between Softcare EC.Com, Inc. and Financial Management Group LLC),
Voluntary Poling Agreement including Exhibit A,
Schedule Of Calculation Of Financials Accounts Receivable Schedule,
Wells Fargo Bank Statements,
FMG Trial Balance,
FMG Unpaid Bills Detail,
Reconciliation Report
And The Principal Declares That
1) all and every of the acts, deeds and things done by the Attorney for the
aforesaid purposes shall be good, valid and effectual as if the same had
been signed and delivered, given, made or done by the Principal and the
Principal undertakes at all and any times hereafter to ratify and confirm
whatsoever the Attorney shall lawfully do -or cause to be done by virtue of
this Power of Attorney
2) this Power of Attorney shall be irrevocable for the purposes aforesaid.
3) this Power of Attorney shall be governed by and construed in all and any
respects in accordance with the laws of the Turks & Caicos Islands.
Dated this 11th day of April, 2000
for and on behalf of NMS Ltd.
as Director of Patagonia Corp.
- ----------------------------------- ------------------------------
Terrance Adams Heidi C. Reinebeck
Operations Manager Officer
SIGNATURE GUARANTEED
In the presence of RBC DOMINION SECURITIES
PER:--------------------------------------
ATTORNEY
<PAGE>
Schedule 2.1.2 Contracts
Licensing Agreements:
License No. Date Customer
-----------------------------------------
CCDCSL Oct 12, 1999 Consumer Credit and Debt Counselling Inc. NJ
N/A Nov 5, 1999 AAA Fair Credit Foundation
FL-PR-01-01 June 21, 199 Concord Credit, la Funcatcion Hispana de
Credito a Nevada
DFAML1 Oct 11, 1999 Family Debt Arbitration and Counseling, Inc.
1002 Jan 25, 2000 Consumer Credit and Debt Counseling, Inc. NC
Schedule 2.1.5 Intangible Property
Creditsolv Software
Goodwil
Schedule 2.1.6 Personal Property (see financial statements) as well as
listing provided to Wayne Zeilke
Schedule 2.1.7 Real Property
Lease of premises in Los Angeles California, see lease
provided to Wayne Zeilke
Schedule 3.1(b) Long Term Bank Debt (see attached financial statements and
working papers
Schedule 7.1 Seller's Addresses and Places of Business: No others
Schedule 7.6(a) Exceptions to Title to Assets: see financial statements
otherwise no exceptions
Schedule 7.6(b) Permitted Liens: see financial statements otherwise no
exceptions
Schedule 7.8(b) Real Property Exceptions: lease of offices
Schedule 7.8(c) Lease Agreements: lease of offices being negotiated by Wayne
Zielke
Schedule 7.10(b) Labor Agreements: no exceptions
Schedule 7.11 Employee Plans: no exceptions
Schedule 7.12 Litigation: none applicable
Schedule 7.13 Taxes: no exceptions
Schedule 7.17 Financial Statements: see attached financial statements and
working papers
Schedule 7.18 Changes or Events: no exceptions or changes altering
representations
Schedule 7.20 Environmental Compliance: no exceptions
Schedule 7.21 Insurance Policies: no insurance policies
schedule 7.24 Transactions with Certain Persons: no non arms length
exceptions
71
<PAGE>
Equipment/Furniture that is owned and not leased $37,540
2 Maple Top Desks 1700
2 Marble Top Desks 1200
1 Wood L-shaped desk 150
4 Secretary Desks (black) 300
1 Binding Machine 500
I Trade Show Booth 3700
9 Ceiling Speakers for Office Music 270
1 Copy Machine 5000
2 Round Glass Mini Conference Tables 200
2 Laptops 4200
4 Computers (paid for) 5200 1 ($2260) is a powerful
workstation for design in
Access and 1 used at house
1 Laser Fax with scanner 2500 (original cost $3,500 9 months
ago-Casabonnes were never
reimbursed for 1
2 Laser Printers 1500
1 Executive Leather Chair 100
4 Leather Chairs Conf. Table 400
2 Solid Mable BookShelves 6' 700
3 Phones for non networked capability 300
1 Glass end table for reception 25
2 Black Vertical File Cabinets 100
8 Computer operator chairs 320 (2 used at house for work in
evenings) 75 45
1 Oak bookshelf 75
1 2 drawer lateral file cabinet 45
2 Glass Book Shelf 500
1 Display Case reception 65
I Black book/storage case with doors fc 85
I Refrigerator 100
I CD writer 250
1 Workstation to hold computer 50
1 Workstation to hold computer $50
1 Phone System 1000(was over $5,000 when we bought
it new
2 Leather chairs for guests rec. 100
2 Leather chairs for exec office guests 100
I Mini filing cabinet used for fax 30
4 Motivational Pictures 150
1 Memory for laptop 415
I Color Printer 395
I Disk Drive for GA System 1390
I Sony VAIO Port 225
Software: Microsoft Visual Studio, 4200 (this is a conservative figure
but would take hours to find receipts) RoboHelp, Access 2000, Microsoft Office
2000 Premium Edition, Microsoft Office 2000 Dev. Edition, Mailers Software -
Zip Finder, Laplink, SOL Server, Microsoft Project Seagate Crystal Reports
Intangible Assets
CrediSolv Code $88,047.00
(actual programming paid for code plus subsequent modifications, ongoing
enhancements, upgrades and additions of modules and functionality)
$60,000.00
This does not include actual dollars spent for design, testing, etc. - if we are
to add salaries paid to perform these tasks, an additional $60,000 plus should
be added. These are also hard dollars that have been spent to make the CrediSolv
package the leader In "Mission Critical Software" for the "Credit Counseling
Industry". (This was not included because we never had to value our package).
Credisolv offers the most complete functionality while is the most user friendly
and flexible software package marketed/sold in the Credit Counseling industry.
With only 6 months in the market, and very little marketing, it has sold 7
packages and it is considered the leader in the industry
CrediSolv has an enrollment module, client service module, accounting module
which allow agencies to take client's money in and pay out to creditors either
through the check printing process or via EFT. It has two EFT modules built in
which allow an agency to choose which EFT vendor they want to transmit through.
It has an automatic invoicing system to bill creditors. The package has multiple
reports built in to assist the agency In their client analysis, counselor
productivity analysis and financial.
Exhibit 99- 6f
This is the form of a material change report required under Section 85(l) of the
Securities Act.
FORM 27
BRITISH COLUMIBIA SECURITIES ACT
MATERIAL CHANGE REPORT UNDER SECTION 85(l) OF THE ACT
NOTE: This form is intended as a guideline. A letter or other document may be
used if the substantive requirements of this form are complied with.
NOTE: Every report required to be filed under Section 85(l) of the Act shall
be sent to the Commission in an envelope addressed to the Commission
and marked "Continuous Disclosure".
NOTE: WHERE THIS REPORT IS FILED ON A CONFIDENTIAL BASIS PUT AT THE BEGINNING
OF THE REPORT IN BLOCK CAPITALS "CONFIDENTIAL - SECTION 85", AND
EVERYTHING THAT IS REQUIRED TO BE FILED SHALL BE PLACED IN AN ENVELOPE
ADDRESSED TO THE SECRETARY OF THE COMMISSION MARKED "CONFIDENTIAL".
Item 1. Reporting Issuer
State the full name and address of the principal office in Canada of
the reporting issuer:
Softcare EC.Com, Inc. (the "Company")
Suite 107 - 980 West 1st Street
North Vancouver, BC V7P 3N4
Item 2. Date of Material Change
February 24, 2000
Item 3. Press Release
The Press Release dated February 24, 2000 was disseminated and
forwarded to the Canadian Venture Exchange by the Company.
A copy of the Press Release is attached as Schedule "A".
Item 4. Summary of Material Change
The Company announced the acquisition of FMG Consulting, a Nevada LLC
(Financial Management Group).
Item 5. Full Description of Material Change
Supplement the summary required under item 4 with the disclosure which
should be sufficiently complete to enable a reader to appreciate the
significance of the
-1-
<PAGE>
material change without reference to other material. Management is in
the best position to determine what facts are significant and must
disclose those facts in a meaningful manner. See also item 7.
The description of the significant facts relating to the material
change will therefore include some or all of the following: dates,
parties, terms and conditions, description of any assets, liabilities
or capital affected, purpose, financial or dollar values, reasons for
the change, and a general comment on the probable impact on the
reporting issuer or its subsidiaries. Specific financial forecasts
would not normally be required to comply with this form.
The above list merely described examples of some of the facts which may
be significant The list is not intended to be inclusive or exhaustive
of the information required in any particular situation.
For a full description of the material change, see Schedule "A".
Item 6. Reliance on Section 85(2) of the Act
If the report is being filed on a confidential basis in reliance of
Section 85(2) of the Act, state the reasons for such reliance.
INSTRUCTION:
Refer to Section 85(3) of the Act concerning continuing obligations in
respect of reports filed pursuant to this subsection.
Not Applicable.
Item 7. Omitted Information
In certain circumstances where a material change has occurred and a
material change report has been or is about to be filed but s. 85(3) of
the Act will no longer be relied upon, a reporting issuer may
nevertheless believe one or more significant facts otherwise required
to be disclosed in the material change report should remain
confidential and not be disclosed or not be disclosed in full detail in
the material change report.
State whether any information has been omitted on this basis and
provide the reasons for any such omission in sufficient detail to
permit the Commission to exercise its discretion pursuant to s. 169(3)
of the Act.
The reasons for the omission may be contained in a separate letter
filed as provided in section 153 of the Securities Rules.
Not Applicable.
-2-
<PAGE>
Item 8. Senior Officers
The following Senior Officer of the Company is available to answer
questions regarding this report:
Martyn A. Armstrong, President
Suite 107 - 980 West 1st Street
North Vancouver, BC V7P 3N4
Phone: (604)983-8083
Item 9. Statement of Senior Officer
The foregoing accurately discloses the material change referred to
herein.
Dated at North Vancouver, BC, this 28th day of February, 2000.
SOFTCARE EC.COM INC,
Per:
"Martyn A. Armstrong"
-----------------------------------
Martyn A. Armstrong
President and Director
-3-
<PAGE>
SCHEDULE "A"
(COMPANY LETTERHEAD)
Shares Issued: 14,466,428
Fully Diluted: 17,562,728
Symbol: SCE-CDNX
NR-00-09
SCHEDULE "A"
SOFTCARE EC.COM ANNOUNCES THE ACQUISITION OF
FINANCIAL MANAGEMENT GROUP LTD.
- Company to Expand Business-to-Business Portal Expertise -
North Vancouver, British Columbia, February 24, 2000 - SoftCare EC.Com, Inc.
("SoftCare"), www.soffcare.com, announces the acquisition of FMG Consulting, a
Nevada LLC (Financial Management Group). This acquisition will strengthen both
SoftCare and FMG's ability to provide their customers with leading edge
technologies.
FMG provides software solutions to the credit counseling industry in the United
States. FMG's proprietary software, Credisolv, is the leading software in the
industry designed to help credit counseling organizations eliminate
administrative burden, generate cost savings, and improve productivity. The
purchase of FMG will allow SoftCare to create a Net Market Maker to operate a
credit counseling vertical portal. This venture will provide ongoing transaction
fees to SoftCare. In addition, this portal will be connected to SoftCare's
Payment Portal to produce value-added benefits to customers of the Creditsolv
credit counseling portal.
FMG founders, Ross and Cherlynne Casabonne will continue at the Company to
further design, develop, market and implement the Creditsolv credit counseling
portal. Their wealth of experience in the credit counseling industry will
provide a valuable asset and contribute significantly to the success of the
Creditsolv credit counseling portal.
"The U.S. credit counseling industry with its myriad of administrative documents
is perfectly matched to the benefits of SoftCare's OpenEC (R) Business
Relationship Management Center for the transmission of documents and services
over the internet," said Martyn Armstrong, President and CEO of SoftCare EC.com.
"With our experience in transaction processing, we will have the ability to
streamline processing of documents, reduce costs, and increase efficiency. With
FMG, we see the distinct opportunity to expand our B2B portal expertise into
new vertical markets."
Currently, there are over 2,500 credit counseling agencies nationwide with an
average of over 1,500 clients per agency. These organizations require a solution
for the transmission of services and documents. Driving the growth of the credit
counseling industry is the anticipated new bankruptcy laws to be introduced in
the United States. Under the revised law, the new rules will require consumers
who file for bankruptcy to undergo an evaluation and/or credit counseling before
they can declare bankruptcy. The need to have a network of providers to
accommodate the high demand from consumers will trigger the creation of a new
breed of providers. SoftCare EC.com anticipates that these providers will come
from the independent bankruptcy attorneys, independent accountants and
bookkeepers, independent tax preparers and large chains of tax preparing
organizations. The ability to streamline the processing of documents that occurs
monthly between the debtor, agency and creditor is key to reducing the
administrative burden.
Completion of the transaction is subject to execution of definitive
documentation, financing and all regulatory approvals. In order to facilitate
this transaction, SoftCare will issue 300,000 common shares, based on the
following schedule: 100,000 shares are transferred immediately. 95,000 shares
are transferred upon completion of the first phase of the Creditsolv Credit
Counseling Portal. 55,000 shares are issuable upon the Creditsolv Credit
Counseling Portal itself generating an additional $US 300,000 in recurring
<PAGE>
monthly revenue to the Company. The additional 50,000 shares are issuable when
recurring monthly revenues generated by the portal achieve $US 1,000,000.
About SoftCare
SoftCare develops business relationship management software allowing companies
to conduct business-to-business e-commerce and the creation of B2B industry
portals. Our e-business management software is open and scaleable allowing for
the integration with existing and future technologies, lowering operating costs
and streamlining the supply chain while delivering benefits to all your business
e-trading relationships.
On Behalf of the Board of Directors
Clive Massey
Investor Relations
For More Information Contact:
Clive Massey Joanna Longo
SoftCare EC.Com Inc. The Equicom Group Inc.
604 983 8083 tel 416 815 0700 tel
604 983 8056 fax 416 815 0080 fax
[email protected] [email protected]
SoftCare EC.com, Inc. Suite 107-980 West 1st Str, North Vancouver, BC V7P 3N4
Tel: (604) 983-8083 Fax: (604) 983-8056 Toll Free: 1-888-SOFTCARE
www.softcare.com
Statement for use under securities laws generally in Canada, the United States
and elsewhere, and particularly under the USA Private Securities Litigation
Reform Act of 1995: Some information in this release that involves SoftCare's
expectations, beliefs, hopes, plans, intentions or strategies regarding the
future are forward-looking statements that involve risks and uncertainties. All
forward-looking statements included in this release are based upon information
available to SoftCare as of the date of the release, and we assume no obligation
to update any such forward-looking statement. These statements are not
guarantees of future performance and actual results could differ materially from
our current expectations. Factors that could cause or contribute to such
differences include, but are not limited to, delays in development or shipment
of new versions of the Creditsolv Credit Counseling application, lack of market
acceptance of the Creditsolv Credit Counseling Portal or other new products or
services; inability to continue to develop competitive new products and services
on a timely basis; introduction of new products or services by major
competitors; and our ability to attract and retain qualified employees.
Exhibit 99- 6g
This is the form of a material change report required under Section 85(l) of the
Securities Act.
FORM 27
BRITISH COLUMIBIA SECURITIES ACT
MATERIAL CHANGE REPORT UNDER SECTION 85(l) OF THE ACT
NOTE: This form is intended as a guideline. A letter or other document may be
used if the substantive requirements of this form are complied with.
NOTE: Every report required to be filed under Section 85(l) of the Act shall
be sent to the Commission in an envelope addressed to the Commission
and marked "Continuous Disclosure".
NOTE: WHERE THIS REPORT IS FILED ON A CONFIDENTIAL BASIS PUT AT THE BEGINNING
OF THE REPORT IN BLOCK CAPITALS "CONFIDENTIAL - SECTION 85", AND
EVERYTHING THAT IS REQUIRED TO BE FILED SHALL BE PLACED IN AN ENVELOPE
ADDRESSED TO THE SECRETARY OF THE COMMISSION MARKED "CONFIDENTIAL".
Item 1. Reporting Issuer
State the full name and address of the principal office in Canada of
the reporting issuer:
Softcare EC.Com Inc. (the "Company")
Suite 107 - 980 West 1st Street
North Vancouver, BC V7P 3N4
Item 2. Date of Material Change
March 3, 2000
Item 3. Press Release
The Press Release dated March 3, 2000 was disseminated and forwarded to
the Canadian Venture Exchange by the Company.
A copy of the Press Release is attached as Schedule "A".
Item 4. Summary of Material Change
The Company announced it has signed an engagement letter with Canaccord
Capital Corporation pursuant to which Canaccord Capital Corporation,
Haywood Securities Inc. and Research Capital Corporation will offer to
sell upto 1.3 million special warrants at a price of $3.75 per special
warrant.
-1-
<PAGE>
Item 5. Full Description of Material Change
Supplement the summary required under item 4 with the disclosure which
should be sufficiently complete to enable a reader to appreciate the
significance of the material change without reference to other
material. Management is in the best position to determine what facts
are significant and must disclose those facts in a meaningful manner.
See also item 7.
The description of the significant facts relating to the material
change will therefore include some or all of the following: dates,
parties, terms and conditions, description of any assets, liabilities
or capital affected, purpose, financial or dollar values, reasons for
the change, and a general comment on the probable impact on the
reporting issuer or its subsidiaries. Specific financial forecasts
would not normally be required to comply with this form.
The above list merely described examples of some of the facts which may
be significant The list is not intended to be inclusive or exhaustive
of the information required in any particular situation.
For a full description of the material change, see Schedule "A",
Item 6. Reliance on Section 85(2) of the Act
If the report is being filed on a confidential basis in reliance of
Section 85(2) of the Act, state the reasons for such reliance.
INSTRUCTION:
Refer to Section 85(3) of the Act concerning continuing obligations in
respect of reports filed pursuant to this subsection.
Not Applicable.
Item 7. Omitted Information
In certain circumstances where a material change has occurred and a
material change report has been or is about to be filed but s. 85(3) of
the Act will no longer be relied upon, a reporting issuer may
nevertheless believe one or more significant facts otherwise required
to be disclosed in the material change report should remain
confidential and not be disclosed or not be disclosed in full detail in
the material change report.
State whether any information has been omitted on this basis and
provide the reasons for any such omission in sufficient detail to
permit the Commission to exercise its discretion pursuant to s. 169(3)
of the Act.
The reasons for the omission may be contained in a separate letter
filed as provided in section 153 of the Securities Rules.
Not Applicable.
-2-
<PAGE>
Item 8. Senior Officers
The following Senior Officer of the Company is available to answer
questions regarding this report:
Martyn A. Armstrong, President
Suite 107 - 980 West 1st Street
North Vancouver, BC V7P 3N4
Phone: (604) 983-8083
Item 9. Statement of Senior Officer
The foregoing accurately discloses the material change referred to
herein.
Dated at North Vancouver, BC, this l4th day of March, 2000.
SOFTCARE EC.COM INC,
Per:
"Martyn A. Armstrong"
-----------------------------------
Martyn A. Armstrong
President and Director
-3-
<PAGE>
SCHEDULE "A"
(COMPANY LETTERHEAD)
Shares Issued: 15,062,028
Fully Diluted: 17,562,728
Symbol; SCE-CDNX
NR-00-10
SoftCare Announces Brokered Private Placement
North Vancouver, British Columbia, March 3, 2000 - SoftCare EC.Com (CDNX:
"SCE"), www.softcare.com, is pleased to announce that it has signed an
engagement letter with Canaccord Capital Corporation pursuant to which Canaccord
Capital Corporation, Haywood Securities Inc. and Research Capital Corporation
(the "Agents") will offer and sell to investors up to 1,300,000 special warrants
(the "Special Warrants"), at a price of $3.75 per Special Warrant, for estimated
gross proceeds of $4,875,000. Each Special Warrant is exercisable, for no
additional consideration, into a unit consisting of a share and one-half of a
share purchase warrant. Each whole share purchase warrant (a "Warrant") entitles
the holder to purchase one common share of the Company at a price of $4.25 per
share for one year from the day (the "Offering Day") on which the Agents offer
and sell the Special Warrants. If all of the Warrants are exercised, the maximum
gross proceeds from the exercise of the Warrants will be $2,762,500.
In consideration for the services to be provided by the Agents, the Company has
agreed to pay the Agents a cash commission equal to 8% of the gross proceeds of
the sale of the Special Warrants plus that number of share purchase warrants
(the Agents' Warrants) equal to 10% of the number of Special Warrants sold. Each
Agents' Warrant will entitle the Agents to purchase one common share of the
Company at a price of $3.75 per share for a period of one year from the Offering
Day. The Agents have also been granted the option to solicit and accept
subscriptions for up to an additional 195,000 Special Warrants.
The private placement is subject to regulatory approval from, and will be
completed in accordance with the rules of, the Canadian Venture Exchange.
About SoftCare
SoftCare develops business relationship management software allowing companies
to conduct business-to-business e-commerce and the creation of B2B industry
portals. Our e-business management software is open and scaleable allowing for
the integration with existing and future technologies, lowering operating costs
and streamlining the supply chain while delivering benefits to all your business
e-trading relationships.
On Behalf of the Board of Directors,
Martyn Armstrong, President & CEO
For More Information Contact:
Clive Massey Joanna Longo
SoftCare EC.Com Inc. The Equicom Group Inc.
604 983 8083 tel 416 815 0700 tel
604 983 8056 fax 416 815 0080 fax
[email protected] [email protected]
SoftCare EC.com, Inc. Suite 107-980 West 1st Str, North Vancouver, BC V7P 3N4
Tel: (604) 983-8083 Fax: (604) 983-8056 Toll Free: 1-888-SOFTCARE
www.softcare.com
SoftCare EC.Com, Inc. relies on litigation protection for statements that are
not historical facts but are forward-looking statements involving known and
unknown risks and uncertainties that could cause actual results to vary
materially.
<PAGE>
