<PAGE> 1
FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
- --------------------------------------------------------------------------------
For the fiscal year ended September 30, 1999
SMARTSOURCES.COM, INC.
(formerly Innovest Capital Sources Corporation,
Telco Communications, Inc. and Cody Capital Corporation)
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<S> <C> <C>
CO 000-18232 84-1073083
(Incorporation) (Commission Number) (IRS Number)
2030 Marine Drive 604-986-0889 V7P 1V7
Suite 100 Telephone number (Postal Code)
North Vancouver
(Address of principal
executive offices)
</TABLE>
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par
Value
Yes [x] No [ ] (Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 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 90 days.)
No [ ] (indicate by check mark whether if disclosure of delinquent filers
(ss.229.405) is not and will not to the best of Registrant's knowledge be
contained herein, in definitive proxy or information statements incorporated
herein by reference or any amendment hereto.)
Issuers revenue for its most recent fiscal year was $721,000.
As of September 30, 1999, the aggregate number of shares held by non-affiliates
was approximately 5,548,000 shares. Due to the limited market for the Company
securities, no estimate is being supplied herewith of the market value for such
securities.
As of September 30, 1999, the number of shares outstanding of the Registrant's
Common Stock was 11,563,200.
Exhibit Index is found on page 21.
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-KSB incorporates by reference
information from the Company's definitive Proxy Statement relating to its 2000
Annual Meeting of Stockholders.
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
HISTORY AND ORGANIZATION
Effective December 11, 1998, SmartSources.com, Inc. (the Company)
completed the acquisition of Nifco Investments Ltd. (Nifco Investments)
and Subsidiaries. The acquisition was effected by exchanging six million
shares of common stock for all outstanding shares of Nifco Investments.
In connection with the transaction, the stockholders of Nifco Investment
obtained control of the Company; accordingly, the transaction is
characterized as a reverse acquisition. As the Company had no material
amount of assets or liabilities, the transaction was accounted for as a
re-capitalization of Nifco Investments, rather than a business
combination. The capital structure presented in the accompanying
financial statements reflects the capital structure of the Company
subsequent to a 1 for 75 reverse stock split authorized on October 15,
1998 and the six million shares issued in connection with the merger.
Prior to the reverse acquisition described above, SmartSources.com Inc.
was known as Innovest Capital Sources Corporation which operated as a
development-stage company with no material amount of assets or
liabilities.
The company currently concentrates its activities in two lines of
business: Content Management and International Trade Software and
Services, and conducts its activities through four subsidiaries:
SmartSources.com Technologies Inc., IntelliTrade Inc., Origin Software
Corporation and Infer Technologies Inc. Nifco Investments is essentially
a holding company with no business activity.
BUSINESS OF ISSUER
The Company has two distinct business units:
1) Provider of content management software for Web applications
2) Provider of trade compliance software and trade consulting services
Historically, the Company's revenues were derived from the trade
division, however, the Company has recently shifted its focus to provide
web-based content management software solutions to businesses and
expects the majority of future revenues to be derived from this
division.
CONTENT MANAGEMENT
The Company's primary business focus going forward is its internet-based
content management technology known as kServer. The Company's mandate is
to develop and provide web-based solutions to communication and
knowledge management needs by applying kServer and other best-of-breed
technologies.
The Company's implementation strategies for its Content Management
business include:
- Design of innovative web-based knowledge management solutions
using its own and existing technology.
<PAGE> 4
- Establishment of partnerships with key value chain participants
to enable the creation of a "complete solution".
- Identification of and focus on carefully selected vertical
markets combining industry attractiveness and the Company's
ability to execute. The market segments the Company will focus on
include:
1. Travel and transportation
2. Financial services
3. Professional services
- Collaboration with customers to develop customized applications
uniquely suited to solve their knowledge management problems.
- Continual development of its technology base to extend its source
of advantage.
- Creation of an open platform, publishing and training to build a
network of kServer specialists that will promote the use and
potential of the Company's core technology.
The Company has spent the past 24 months developing this technology and
rolled out a commercial version of the product in the first quarter of
the fiscal year ended September 30, 2000. The kServer technology
provides a powerful way for companies to expand their customer base,
streamline knowledge delivery, leverage self-service data and
applications, and ultimately increase web-based revenues via a vast
network of affiliate sites. With kServer, companies can manage
relationships and automate content deployment across an unlimited number
of web sites and deliver personalized communication and highly targeted
applications to its web users.
Web sites and portals developed with the kServer technology, called
kSites, enable all authorized users to create, assemble, publish,
personalize and manage vital business information easily, in `real time'
and without any computer programming experience or knowledge. Through
the use of a unique, expert content-management system, businesses can
transform the Internet browser from a one-way viewer to a personalized,
two-way application interface.
Industry and Competitive Environment
The competitive online environment is driving companies to deploy
complex web sites that offer enhanced user experiences. These web sites
can contain hundreds of thousands of content-rich web pages, and this
content has been increasing in volume and complexity. In addition,
today's web sites must be updated frequently by numerous contributors
throughout an enterprise. Web teams find it difficult to manage the
increasing complexity, volume and variability of this content. At the
same time, the large number of web authoring tools and web application
servers has contributed to the increasing technological complexity
involved in developing and maintaining web sites. These trends have
created a need for content management solutions that can accommodate
this increasing volume of web content, leverage existing information
technology investments and allow more contributors to add content to a
web site.
<PAGE> 5
The market for content management solutions is rapidly emerging and is
characterized by intense competition. We expect existing competition and
competition from new market entrants to increase dramatically. A growing
number of companies are trying to provide web content management
solutions. In this market, new products are frequently introduced and
existing products are often enhanced. In addition, new companies, or
alliances among existing companies, may be formed that may rapidly
achieve a significant market position.
The Company competes with third party, content management solution
providers, primarily Vignette, and, to a lesser extent, with workgroup
solutions and content publishing application providers. It may face
increased competition from these providers in the future. Other
potential competitors include client/server software vendors currently
developing or improving existing products addressed to the Company's
market. Although the Company currently has partner relationships with a
number of companies that provide complementary products such as web
tools, enterprise document repositories and web servers, these partners
may introduce competitive products in the future. Other large software
companies, such as Microsoft and IBM, may also introduce competitive
products. Many of the Company's existing and potential competitors have
greater technical, marketing and financial resources than the Company.
Product Features
Multi-site
A big part of kServer's power is the ability to create thousands of
different sites, called kSites, very quickly without writing any html
and xml code. A template-based publishing environment and a visual page
builder allows site administrators to customize the look-and-feel of
each site. All kSites are built on top of a common knowledge base and
can easily share content between each other and establish content
syndication networks that allow for real-time content exchange.
Multi-user
kServer includes a collaborative authoring environment so that many
different users can work together on creating and managing content. All
users have their own accounts and can belong to any number of kSites.
Browser-based environment
All administrative and authoring functionality is delivered through a
browser. This means that users can collaborate from any computer
anywhere in the world without having to download and install desktop
applications.
Knowledge Base structures
All content in kServer is structured in user-designed content templates.
These templates force a content structuring methodology that gives
meaning or context to information. When large amounts of content is
stored in kServer this structure prevents "information overload" {ie.
what happens when there is too much information for it to be effectively
mined}.
Content syndication
Content can be shared between kSites and other kSites or external
databases or internet content. KSites can subscribe to specific content
and display that content in-line as if it were native to that kSite.
Built-in services
KServer makes it easy to solve web programming problems like e-commerce,
database access, and html and xml coding. Through the use of built-in
objects users can easily add external content or user e-commerce objects
to sell goods and services through their site.
<PAGE> 6
Sales, Marketing and Distribution
The Company markets and sells its kServer product primarily through a
direct sales force in North America. To date, it has licensed its
software to 2 customers: everdream Corporation and the NAFTA Institute.
The Company intends to significantly increase its sales and marketing
team in the year 2000 to coincide with the commercial release of the
kServer product.
To extend its market reach and increase sales opportunities, the Company
intends to establish relationships with leading technology partners and
IT service providers. To date, the Company has established a partnership
with First City Partners Group Inc. to assist in the sales of kServer to
certain government and international trade organizations.
INTERNATIONAL TRADE SOFTWARE AND SERVICES
Overview
The Company's trade division has historically focused on its proprietary
trade compliance technology called ORIGIN(TM), a windows-based software
system designed to automate the complex process of international trade
and customs compliance. ORIGIN(TM) is an expert system that contains a
knowledge base and determination engine to interpret NAFTA's Rules of
Origin.
The Company is also able to provide a full-range of international trade
consulting services to companies operating under NAFTA and other trade
regulatory requirements. It provides consulting services to over 50
clients such as Sun Microsystems, Mattel, Delco Remy, Lipton and
LeviStrauss & Company.
Clients of the trade division receive benefits such as:
- Management of the complete NAFTA process,
- Specific services such as classification of bills of materials,
- Review and evaluation of internal NAFTA qualification processes
to determine if there are any weaknesses in the processes.
Industry and Competitive Environment
NAFTA is by far one of the most comprehensive and complex trade
agreements in existence, with more than 1500 rules of origin regulating
its application. Companies have found that keeping up with NAFTA and
ensuring trade compliance is a major task costing them millions of
dollars in consulting fees and excess tariff rates.
The ORIGIN(TM) software is an expert system containing NAFTA's rules of
origin in its knowledge base. ORIGIN(TM) applies these complex rules to
a product's unique bill(s) of materials and produces all the necessary
documentation to prove compliance. Unlike other trade compliance
methods, ORIGIN(TM) automatically produces an audit trail to outline how
a product complied under NAFTA.
There are currently a number of companies and organizations that offer
NAFTA and trade compliance information and import/export information to
trade participants. These
<PAGE> 7
resources range from free access, pay-per-use, to monthly and annual
subscription-based services.
Both producers of competing software products, and non-software
producing organizations maintain the capacity to compete with the
Company on several different levels. The Internet represents a
fundamentally competitive medium with a reduced level of supply and
distribution constraints. Consequently there are numerous companies
providing various levels of trade information and services.
Product Features
The ORIGIN(TM) product line is made up of ORIGIN(TM)Basic,
ORIGIN(TM)Pro, ORIGIN(TM)Supplier, ORIGIN(TM)Customer,
ORIGIN(TM)Analyzer and ORIGIN(TM)STP.
Sales, Marketing and Distribution
Currently the Company's International Trade Division maintains a
continuous and comprehensive direct mail campaign informing select
manufacturers of the features and benefits of ORIGIN(TM) specific to
their industry needs and requirements. Target clients receive a
comprehensive ORIGIN(TM) kit outlining each application included in the
ORIGIN(TM) product line and how these applications can streamline their
trade compliance process. Each direct mail package includes an
ORIGIN(TM) brochure, product specifications, pricing sheet, CD-ROM
multimedia demonstration, and CD-ROM trial version of ORIGIN(TM). Each
package is followed up by one-on-one sales calls to ensure understanding
of the product and arrange real-time online software demonstrations.
Sales associates offer real-time online software demonstrations to
potential customers presenting first hand the benefits and features of
the ORIGIN(TM) software. The presentations accompanied, with a
conference call, walk the client through each step of the software's
function and illustrate to the users how ORIGIN(TM) could streamline
their specific trade compliance process.
All current sales and marketing are handled directly by an in-house
sales and marketing team. The Company is currently reviewing partnership
opportunities.
RESEARCH AND DEVELOPMENT
The Company continues to invest in research and development to enhance
the kServer and ORIGIN(TM) products. Research and development costs,
expensed were $374,700 and $38,400 for 1999 and 1998 respectively.
Product development expenditures are expected to increase substantially
in the future. As of September 30, 1999, approximately 8 employees were
engaged in research and development activities. Additional engineers
will be hired in the future to further research and development
activities.
PATENTS AND TRADEMARKS
The Company's success depends on its ability to maintain the proprietary
aspects of its technology and operate without infringing the proprietary
rights of others. It relies on a
<PAGE> 8
combination of trademarks, trade secrets and copyright law, and
contractual restrictions, to protect the proprietary aspects of its
technology. The Company seeks to protect the source code for its
software, documentation and other written materials under trade secret
and copyright laws. The Company does not currently have any issued
United States or foreign patents. Its license agreements impose certain
restrictions on its customers' ability to utilize the Company's
software. The Company also seeks to protect its intellectual property by
requiring employees and consultants with access to proprietary
information to execute confidentiality agreements with the Company and
by restricting access to its source code. There can be no assurance that
all employees or consultants have signed or could sign such agreements.
Due to rapid technological change, the Company believes that factors
such as the technological and creative skills of its personnel, new
product developments and enhancements to existing products are equally
important as the various legal protections of its technology to
establish and maintain a technology leadership position.
PERSONNEL
As of September 30,1999 the Company employed 22 full time employees.
ITEM 2. DESCRIPTION OF PROPERTY
The Company operates out of three offices located in Sunnyvale, California;
Vancouver, British Columbia and Toronto, Ontario. The Sunnyvale offices consist
of approximately 2,200 square feet of leased office space. The Company owns the
Vancouver office space, which is approximately 3400 square feet. There are
mortgages payable of approximately $428,000 collateralized by the Vancouver
office. The Toronto office space consists of 3200 square feet of leased office
space.
ITEM 3. LEGAL PROCEEDINGS
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded in the Over-The-Counter Market, and is
quoted on the Electronic Bulletin Board under the symbol "SSXX". Set forth below
are the high and low bid prices (which reflect prices between dealers and do not
include retail markup, markdown or commissions and may not represent actual
transactions) for each quarter since the reverse acquisition of Nifco on
December 11,1999.
<PAGE> 9
<TABLE>
<CAPTION>
PERIOD HIGH BID LOW BID
- ---------------------------------------------------------------------------
<S> <C> <C>
December 11,1998 to December 31,1999 $5 $3
January 1,1999 to March 31,1999 $6 $4.50
April 1,1999 to June 30,1999 $61/2 $4 5/8
July 1,1999 to September 30,1999 $5 $3 5/8
</TABLE>
As of December 27, 1999, there were approximately 254 stockholders of
record of the Company's common stock.
The closing bid and asked prices on December 27, 1999 were $5.06 and $5.19
respectively.
Sales of securities within the past three years without registration under the
Securities Act of 1933 ("1933 Act") were as follows:
1. December 1998: 6,000,000 shares of common stock were exchanged for all
of the outstanding capital stock of Nifco Synergy, a Canadian
corporation, which is now a wholly owned subsidiary of the Company. The
former Nifco Synergy stockholders are the holders of those shares. No
underwriter was involved in the transaction. The sales were made in
reliance upon the exemption from registration afforded by Section 4(2)
of the 1933 Act.
2. December 1998: 4,230,000 shares of common stock were sold for cash in
the aggregate amount of $42,300 without an underwriter to 10 investors.
The sales were made in reliance upon the exemption from registration
afforded by Section 4(2) of the 1933 Act and Rule 504 of Regulation D
thereunder.
3. May 1999: 500,000 shares of common stock were sold for cash in the
aggregate amount of $950,000 without underwriters to 1 investor. The
sale were made in reliance upon the exemption from registration
afforded by Section 4(2) of the 1933 Act and Rule 504 of Regulation D
thereunder.
4. September 1999: 144,900 shares of common stock were sold for cash in the
aggregate amount of $500,000 without underwriters to 3 investors. The
sales were made in reliance upon the exemption from registration
afforded by Section 4(2) of the 1933 Act and Rule 506 of Regulation D
thereunder.
DIVIDEND POLICY
Prior to the reverse acquisition of Nifco Investments on December 11,
1998, a dividend of $142,400 was paid to Nifco Investments shareholders.
Subsequent to December 11,1999 no dividends were paid by the Company. We
do not anticipate paying a cash dividend in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
- ------------------------------------ -----------------------------------
FISCAL YEARS
- ------------------------------------ ----------- ----------- -----------
1999 1998 1997
- ------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Revenues Earned 721,000 1,571,100 1,054,800
- ------------------------------------ ----------- ----------- -----------
Operating Expenses 1,971,500 995,900 1,020,500
- ------------------------------------ ----------- ----------- -----------
Operating Income(Expense) (1,250,500) 575,200 34,300
- ------------------------------------ ----------- ----------- -----------
Other Income(Expense):
- ------------------------------------ ----------- ----------- -----------
Administrative fees (52,400) (168,900) (430,700)
- ------------------------------------ ----------- ----------- -----------
Write-down in investment in - (103,400) (109,300)
joint venture
- ------------------------------------ ----------- ----------- -----------
Interest expense (50,300) (63,300) (49,800)
- ------------------------------------ ----------- ----------- -----------
Other income (13,000) 16,000 10,500
- ------------------------------------ ----------- ----------- -----------
INCOME(LOSS) BEFORE PROVISION FOR (1,366,200) 255,600 (545,000)
INCOME TAXES
- ------------------------------------ ----------- ----------- -----------
PROVISION FOR INCOME TAXES 693,400 (102,700) 214,800
- ------------------------------------ ----------- ----------- -----------
NET INCOME(LOSS) (672,800) 152,900 (330,200)
- ------------------------------------ ----------- ----------- -----------
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
- ------------------------------------ ----------- -----------
1999 1998
- ------------------------------------ ----------- -----------
<S> <C> <C>
Cash and cash equivalents 164,200 1,700
- ------------------------------------ ----------- -----------
Working capital 166,800 (14,900)
</TABLE>
<PAGE> 10
<TABLE>
- ------------------------------------ ----------- -----------
<S> <C> <C>
Total assets 2,956,900 1,426,700
- ------------------------------------ ----------- -----------
Long-term debt, less current 414,800 448,400
portion
- ------------------------------------ ----------- -----------
Total stockholders' equity (1,264,900) (2,225,700)
- ------------------------------------ ----------- -----------
</TABLE>
OPERATIONS ANALYSIS
During the year ended September 30, 1999 the Company had consolidated revenues
of $721,000, operating expenses of $1,971,500 and a net loss of $672,800.
Revenues decreased 54% from 1998 revenues of $1,571,100. The lower revenues are
primarily the result of the Company's shift in focus away from trade compliance
software and to the development of Kserver, its web-based content management
technology. Revenues for the trade division were down due to the non-recurrence
of one-time software development contracts that took place in fiscal 1998 with
Tradespace Technologies Corp. (Tradespace) and PMG Project Management Groupware
Inc. (PMG). In 1998 revenues from Tradespace and PMG accounted for 20% and 26%
of the Company's consolidated revenues, respectively, for a total of $722,700.
In 1997 revenues were $1,054,800, which is consistent with revenues for 1998
excluding the one-time software development contracts described above.
The Company will now be able to concentrate its efforts on increasing revenue
through new sales and marketing initiatives. In 1999 the Company hired a new
Vice-President of Sales and Marketing and a Vice-President of Business
Development. Furthermore, the Company is in the process of hiring additional
sales and marketing staff along with support staff, in order to enhance the
Company's profile and increase revenues.
Operating expenses increased 98% from operating expenses for 1998 of $995,900.
The increase in operating expenses is a result of continued Research and
Development costs for the K-Server line of products and higher payroll costs due
to the increased number of employees in all areas of the Company and hiring of
Senior Management. Also, the Company incurred higher professional fees -mainly
legal and accounting- subsequent to the reverse merger with a public company in
December 1999. In 1999 Research and Development Costs were of $374,700 and in
1998, they were of $38,400. Operating costs of $995,900 in 1998 were consistent
with 1997 operating costs of $1,020,500.
In 1999 the Company's interest expense decreased by $13,000 due to the reduced
long-term debt levels of the company.
As a result of the decrease in revenues and increase in operating costs outlined
above, the Company had a net loss of $672,800 in 1999. In 1998 the Company
reported net income of $152,900 and in 1997 it reported a loss of $330,200. The
net loss for 1999 was funded from proceeds from the issuance of additional
equity capital.
INCOME TAXES
As described in Note 3 to the financial statements, during 1995 and 1996, the
Company's subsidiary, Technologies, sold the rights to its primary software
product to Columbia Diversified Software Fund Limited Partnership (Columbia).
During 1999, it repurchased these rights. As described in Note 5, during the
same time frame, Technologies purchased and sold an interest in certain other
software rights. These transactions all included a significant non-cash
component that employed the issuance, receipt, and settlement of long-term
promissory notes. As described more fully in Notes 3 and 5 to the financial
statements, these
<PAGE> 11
notes were not recognized for financial reporting purposes. However, the notes
increased significantly the value assigned to the software rights in question
for tax reporting purposes in Canada.
Under Canadian tax law, the cost of software acquired can be written off in the
year of acquisition. Gains on sales of capital assets, including software
rights, are recognized over a maximum of five years, in annual increments equal
to the greater of the amount of cash received during the year or one-fifth of
the gain. Assigning a value to the software sales and purchases that includes
the promissory notes referred to above increases significantly both the tax
deductions taken by those purchasing the software and the gains recognized by
those selling.
Revenue Canada is currently reviewing various software transactions, including
those to which Technologies was a party. The Company has submitted a proposed
settlement that would limit the amount of tax it must pay on the net gain from
these transactions to the net amount of cash received. Under the proposed
settlement, the Company would incur no additional tax liability beyond that
which was reported in prior years. As of December 20, 1999, a representative of
Revenue Canada has verbally agreed in substance to the terms of the proposed
settlement; and, accordingly, management estimates that no additional tax
liability will be incurred with respect to the transactions referred to above.
INTERNAL AND EXTERNAL SOURCES OF LIQUIDITY
During the year ended September 30, 1999, the Company's cash position increased
from $1,700 to $164,200. At September 30, 1999, the Company had a working
capital of $166,800 and a current ratio of 1.6 to 1. This is a significant
improvement as compared to September 30, 1998 when the Company had working
capital deficit of $14,900 and a current ratio of .97 to 1. The improvement in
the Company's working capital is due to the issuance of additional equity
capital during the year.
The net loss for the year ended September 30,1999 was $672,800. The Company's
primary source of liquidity and cash during the year was from the issuance of
equity capital. During 1999 the Company completed equity financing that resulted
in gross proceeds of $1,500,000. As a result of the financing, the number of
common shares issued and subscribed during the year increased from 6,688,300 to
11,563,200.
The Company's primary source of liquidity and cash during the year ended
September 30,1998 was from cash provided from operations. Net cash provided from
operating activities was $314,400, which was adequate to fund ongoing
operations.
The Company's ability to fund future operations is dependent upon the generation
of new sales and the raising of additional financing. During 1999, the Company
continued its plan to diversify its revenue base and reposition its operations
to take advantage of expected lucrative software markets, particularly the
knowledge management segment. It also hired a new chief operating officer and
chief financial officer, as well as other vital management personnel. In order
to provide working capital in 1999, the Company raised a $1.5 million of equity
capital. The Company plans to raise additional equity capital in fiscal 2000
sufficient to meet cash flow requirements, consistent with its business plan,
which is currently under development. Through December 20, 1999, the Company had
secured additional equity capital of $600,000 for the purpose of funding
operations in fiscal 2000.
The Company has not undertaken any material commitments for expenditures as of
September 30, 1999.
There are no legal or practical restrictions on the ability of the subsidiaries
to transfer funds to the parent company (Smartsouces.com).
<PAGE> 12
SIGNIFICANT ELEMENTS OF INCOME OR LOSS THAT DO NOT ARISE FROM THE COMPANY'S
CONTINUING OPERATIONS
Administrative fees
Administrative fees comprise management fees and a percentage of sales
from the Origin products paid to Columbia Diversified Software Fund
(Columbia) on a monthly basis as per the agreements that were current with
Columbia prior to May 1999. Effective May 1999 the Company is not liable
for further payments of administrative or any other fees to Columbia.
During 1999, administrative fees paid to Columbia were $52,400. In 1998
these fees were of $168,900 and in 1997, $430,700 were paid to Columbia.
Write-down in investment in joint venture
During fiscal 1996, the Company's subsidiary, Technologies, paid $393,100
to acquire a 40% interest in certain software rights. Another $1,637,900
of consideration was given in the form of a promissory note, but payment
of the note was contingent on the level of future revenues derived from
the investment. Under terms of a joint venture agreement between the
parties, Technologies appointed the seller as its exclusive agent to
maintain, develop, distribute, and market the software. Through September
30, 1998, Technologies had received essentially no revenue from the
venture. Accordingly, the investment was written down to its net
realizable value of $163,800.
Effective October 1, 1999, Nifco Synergy sold its interest in the software
for $163,800 cash and a $458,600 promissory note. Due to uncertainties
surrounding collection of the note receivable, the Company has not
recognized the note, and no gain or loss was recognized on the sale.
In 1999 the write-down in the investment described above did not have any
impact. In 1998 the cost of the write-down was of $103,400 and in 1997 it
was of $109,300.
REPURCHASE OF ORIGIN SOFTWARE RIGHTS AND ISSUANCE OF PREFERRED SHARES
In 1995 and 1996, The Company's subsidiary, Technologies, sold the rights to its
primary software product, ORIGIN, to Columbia Diversified Software Fund Limited
Partnership (Columbia) for $2,432,000 and $7,774,400 of notes receivable. For
accounting purposes, the substance of the ORIGIN sale was characterized as a
sale of a tax benefit. Under Canadian tax law, Columbia was immediately able to
write off the entire cost of the software and pass the benefit on to its limited
partners. Following the sale, the risks and rewards of ownership remained with
Technologies. Any future cash inflows to Technologies, either from collection of
principal and interest on the notes receivable or from profit sharing
arrangements, were wholly dependent on Technologies' continued efforts to
develop and market the software.
Due to uncertainties surrounding collection, Technologies did not recognize the
$7,774,400 notes receivable. Further, because of contingent issues related to
Revenue Canada's reviewing the value of the software and the related tax
deductions claimed by Columbia and its investors, recognition of revenue for the
$2,432,000 of cash received by Technologies
<PAGE> 13
was deferred.
Under an agreement signed in May 1999, the Company's subsidiary, Origin Software
Corporation (Origin Software), reacquired the rights to ORIGIN from Columbia.
Terms of the agreement are summarized as follows:
1. At closing in May 1999, Columbia transfers the software rights to
Origin Software in exchange for 11,670,400 class A preferred
shares and 5,000,000 class B preferred shares of Origin Software.
2. On October 1, 1999, Origin redeems the 11,670,400 class A shares
in exchange for a $7,774,400 note payable to Columbia.
3. On October 1, 1999, Columbia exchanges the $7,774,400 note from
Origin Software for the $7,774,400 of notes receivable from
Columbia that are held by Technologies.
4. At any time after October 1, 1999, Columbia may exercise an
option to exchange the 5 million class B shares of Origin
Software for an amount of common shares of the Company with
market value of Cdn $5 million (not to exceed 5 million common
shares reserved for the exchange), based on average trading price
during the fourteen-day period immediately prior to exercise. The
agreement requires that the common shares issued be freely
tradable, but 80% of the shares will be held in trust and
released ratably to Columbia over the following four years.
The repurchase agreement also includes a mutual release designed to insulate the
Company and Columbia against claims arising against either party.
The reacquisition of the software rights was accounted for using the Cdn $5
million (US $3.4 million) value of the Company's common shares that may be
issued to Columbia upon conversion of the Class B preferred shares. This amount
was reduced by the Cdn $3.7 million (US $2.5 million) of deferred gain, net of
Cdn $1.1 million (US $.7 million) of associated deferred tax assets. Because
Technologies did not recognize the $7,774,400 note receivable taken as
consideration when the software rights were sold to Columbia in 1995 and 1996,
no value was assigned to the Class A shares issued to ultimately settle this
note.
YEAR 2000 COMPLIANCE
The Year 2000 issue refers generally to the problems that some software may have
in determining the correct century for the year. For example, software with
date-sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in system failures
or erroneous results.
We have conducted a Year 2000 readiness review for the current and prior
versions of our products. The review includes:
- assessment;
- implementation, including remediation, upgrading and replacement of
non-compliant product versions;
- validation testing; and
- contingency planning.
We have completed all phases of our plan, with respect to the current and prior
versions of all of our products. As a result, the current and prior versions of
each of our products are Year 2000 compliant when configured and used in
accordance with the related documentation, and provided that the underlying
operating system of the host machine and any other software used with or in the
host machine or our products are also Year 2000 compliant.
<PAGE> 14
We have not tested our products on all platforms or all versions of operating
systems that our products currently support.
We have tested licensed software, shareware and freeware obtained from third
parties that is incorporated into our products or sold in conjunction with our
products, and have assurances from our vendors that this licensed software is
Year 2000 compliant. Despite our testing, our products may contain undetected
errors or defects associated with Year 2000 date functions. Known or unknown
errors or defects in our products could result in:
- delay or loss of revenue;
- diversion of development resources;
- damage to our reputation;
- increased service and warranty costs; or
- liability from our customers.
Accordingly, errors or defects in our products could seriously harm our
business.
Some commentators have predicted significant litigation regarding Year 2000
compliance issues, and we are aware of lawsuits against other software vendors.
Because of the unprecedented nature of this litigation, it is uncertain whether
or to what extent we will be affected by it.
Our internal systems include both our computer and network systems and other
systems. We have initiated an assessment of our most important computer and
network systems and expect to complete the assessment by December 1999. We have
not yet begun to assess the Year 2000 compliance of our other systems, but we
expect to complete this assessment by December 1999. To the extent that we are
not able to assess the technology provided by third-party vendors, we are
seeking assurances from them that their systems are Year 2000 compliant.
Although we are not currently aware of any material operational issues or costs
associated with preparing these systems for the Year 2000, we may experience
unanticipated problems and costs caused by undetected errors or defects in the
technology used in these systems.
We currently have only limited information concerning the Year 2000 compliance
status of our customers. As is the case with other similarly situated software
companies, if our current or future customers fail to achieve Year 2000
compliance or if they divert technology expenditures, especially technology
expenditures that were reserved for enterprise software, to address Year 2000
compliance problems, our business could be harmed.
We have funded our Year 2000 plan from available cash and have not separately
accounted for these costs in the past. To date, these costs have not been
material.
We may experience material problems and costs with Year 2000 compliance that
could harm our business.
We have not yet developed a contingency plan to address situations that may
result if we are unable to achieve Year 2000 readiness of our critical
operations and do not anticipate the need to do so. The cost of developing and
implementing a plan may itself be material. Finally, we are also subject to
external forces that might generally affect industry and commerce, such as
utility or transportation company Year 2000 compliance failures and related
service interruptions.
<PAGE> 15
ITEM 7. FINANCIAL STATEMENTS
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
SEPTEMBER 30, 1998 AND 1999
- --------------------------------------------------------------------------
PAGE
INDEPENDENT AUDITOR'S REPORT...........................................1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet.....................................................2
Statement of Operations...........................................3
Statement of Stockholders' Deficit................................4
Statement of Cash Flows...........................................5
Notes to Consolidated Financial Statements........................6
<PAGE> 16
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
SmartSources.com, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of SmartSources.com,
Inc. and Subsidiaries as of September 30, 1999, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for each of the
two years in the period then ended. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
SmartSources.com, Inc. and Subsidiaries as of September 30, 1999, and the
results of its operations and its cash flows for each of the two years in the
period then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company has reported a current year loss from
operations and has a net capital deficiency, which raises substantial doubt
about its ability to continue as a going concern. Management's plans regarding
those matters also are described in Note 11. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ MOSS ADAMS LLP
Bellingham, Washington
November 19, 1999, except for Note 12,
as to which the date is December 20, 1999
<PAGE> 17
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
September 30,
1999
-------------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 164,200
Trade accounts receivable, net of allowance
for doubtful accounts of $36,500 184,800
Prepaid expenses 94,800
-----------
Total current assets 443,800
CAPITALIZED SOFTWARE COSTS, net 1,550,500
PROPERTY AND EQUIPMENT, net 764,300
OTHER ASSETS 198,300
-----------
TOTAL ASSETS $ 2,956,900
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 140,000
Income tax payable 78,300
Current portion of long-term debt 58,700
-----------
Total current liabilities 277,000
LONG-TERM LIABILITIES
Due to stockholder 24,700
Long-term debt, net of current portion 414,800
Deferred tax liability 64,200
-----------
Total liabilities 780,700
-----------
COMMITMENTS AND CONTINGENCIES (NOTE 12)
MINORITY INTEREST 3,441,100
-----------
STOCKHOLDERS' DEFICIT
Common stock, no par value, 50 million shares
authorized, 11,563,200 shares outstanding 1,821,300
Accumulated other comprehensive income 124,500
Accumulated deficit (3,210,700)
-----------
Total stockholders' deficit (1,264,900)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,956,900
===========
</TABLE>
See accompanying notes to these consolidated financial statements. 2
- -------------------------------------------------------------------------------
<PAGE> 18
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1998 AND 1999
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, September 30,
1998 1999
------------- -------------
<S> <C> <C>
REVENUES EARNED $ 1,571,100 $ 721,000
OPERATING EXPENSES 995,900 1,971,500
------------- -------------
OPERATING INCOME (LOSS) 575,200 (1,250,500)
------------- -------------
OTHER INCOME (EXPENSE)
Administrative fees (168,900) (52,400)
Interest expense (63,300) (50,300)
Other income (expense) 16,000 (13,000)
Write-down of investment in joint venture (103,400) --
------------- -------------
(319,600) (115,700)
------------- -------------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 255,600 (1,366,200)
PROVISION FOR INCOME TAXES (102,700) 693,400
------------- ------------
NET INCOME (LOSS) $ 152,900 $ (672,800)
============= ============
BASIC EARNINGS (LOSS) PER SHARE $ 0.02 $ (0.07)
============= ============
DILUTED EARNINGS (LOSS) PER SHARE $ 0.02 $ (0.07)
============= ============
</TABLE>
See accompanying notes to these consolidated financial statements. 3
- -------------------------------------------------------------------------------
<PAGE> 19
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
YEARS ENDED SEPTEMBER 30, 1998 AND 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Common Stock Other Comprehensive
------------------------ Comprehensive Accumulated Income
Shares Amount Income Deficit (Loss) Total
---------- ----------- ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, September 30, 1997 6,688,300 $ 100 $ 35,100 $(2,483,600) $(2,448,400)
Net income -- -- -- 152,900 $ 152,900 152,900
Foreign currency translation
adjustment -- -- 224,300 -- 224,300 224,300
Income tax effect -- -- (89,700) -- (89,700) (89,700)
-----------
Total comprehensive income -- -- -- -- $ 287,500 --
===========
Dividends -- -- -- (64,800) (64,800)
----------- ----------- ----------- ----------- -----------
BALANCE, September 30, 1998 6,688,300 100 169,700 (2,395,500) (2,225,700)
Net loss -- -- -- (672,800) $ (672,800) (672,800)
Foreign currency translation
adjustment -- -- (68,500) -- (68,500) (68,500)
Income tax effect -- -- 23,300 -- 23,300 23,300
-----------
Total comprehensive loss -- -- -- -- $ (718,000) --
===========
Common stock issued 4,874,900 1,500,000 -- -- 1,500,000
Stock warrants issued for
compensation -- 277,100 -- -- 277,100
Forgiveness of related
party debt -- 44,100 -- --
44,100
Dividends -- -- -- (142,400) (142,400)
---------- ----------- ----------- ----------- -----------
BALANCE, September 30, 1999 11,563,200 $ 1,821,300 $ 124,500 $(3,210,700) $(1,264,900)
========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to these consolidated financial statements. 4
- --------------------------------------------------------------------------------
<PAGE> 20
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1998 AND 1999
- --------------------------------------------------------------------------------
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
September 30, September 30,
1998 1999
------------- -------------
<S> <C> <C>
CASH FROM OPERATING ACTIVITIES
Net income (loss) $ 152,900 $ (672,800)
Adjustments to reconcile net income (loss) to
net cash from operating activities
Depreciation and amortization 150,100 272,500
Loss on disposal of assets 1,700 40,500
Stock-based compensation -- 63,700
Realized (gains) losses on sale of investments 7,100 (10,400)
Deferred income taxes 78,700 (784,200)
Write-down of investment in joint venture 103,400 --
Changes in operating assets and liabilities
Trade accounts receivable (302,900) 229,400
Other assets (7,200) (39,000)
Accounts payable and other current liabilities 85,400 (63,700)
Income taxes payable and refundable (58,200) 65,500
Sale deposit 103,400 --
----------- -----------
Net cash flows from operating activities 314,400 (898,500)
----------- -----------
CASH FROM INVESTING ACTIVITIES
Purchase of property and equipment (46,600) (139,500)
Proceeds from sale of investments 180,400 86,900
Purchase of investments (16,600) --
Software costs capitalized (94,300) --
----------- -----------
Net cash flows from investing activities 22,900 (52,600)
----------- -----------
CASH FROM FINANCING ACTIVITIES
Repayment of note payable, net (59,100) (53,600)
Principal repayments of long-term debt (66,100) (64,800)
Repayment of advances from stockholder (156,500) (102,000)
Proceeds from issuance of common stock -- 1,500,000
Dividends (64,800) (142,400)
----------- -----------
Net cash flows from financing activities (346,500) 1,137,200
----------- -----------
EFFECT OF CHANGES IN EXCHANGE RATES (600) (23,600)
----------- -----------
NET CHANGE IN CASH (9,800) 162,500
CASH AND CASH EQUIVALENTS, beginning of year 11,500 1,700
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 1,700 $ 164,200
=========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Interest paid $ 63,300 $ 50,300
=========== ===========
Income taxes paid $ 82,300 $ 32,300
=========== ===========
</TABLE>
See accompanying notes to these consolidated financial statements. 5
- --------------------------------------------------------------------------------
<PAGE> 21
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTE 1 -- ORGANIZATION, REVERSE ACQUISITION, AND OPERATIONS
ORGANIZATION
SmartSources.com, Inc. (the Company) was incorporated in 1987 in the
State of Colorado as Cody Capital Corporation. The Company completed a
public offering in 1988. In 1989, it acquired Telco of Baton Rouge, Inc.,
which was merged into the Company, and the Company changed its name to
Telco Communications, Inc. In 1994, the Company filed for Chapter 11
bankruptcy protection. The Bankruptcy Court (the Court) subsequently
converted the status of the filing to Chapter 7 and appointed a Trustee
to manage the affairs of the Company.
In 1996, under direction of the Court, all authorized but unissued shares
were sold to an individual, and the Company emerged from bankruptcy with
no assets, liabilities, and subject to no claims or litigation. In 1997,
the Company name was changed to Innovest Capital Sources Corporation, and
control of the Company was obtained by Intrepid International, S.A., a
Panamanian corporation, through purchase of approximately 85% of the
Company's outstanding shares.
From the date of its emergence from bankruptcy on April 12, 1996 until
December 11, 1998, the date of the acquisition discussed below, the
Company operated as a development stage company. Prior to the
acquisition, the Company had no material amount of assets or liabilities.
REVERSE ACQUISITION
Effective December 11, 1998, the Company completed the acquisition of
Nifco Investments Ltd. (Nifco Investments) and Subsidiaries. The
acquisition was effected by exchanging six million shares of common stock
for all outstanding shares of Nifco Investments. In connection with the
transaction, the stockholders of Nifco Investment obtained control of the
Company; and, accordingly, the transaction is characterized as a reverse
acquisition. However, because the Company had no material amount of
assets or liabilities, the transaction was accounted for as a
recapitalization of Nifco Investments, rather than a business
combination. The capital structure presented in the accompanying
financial statements reflects the capital structure of the Company
subsequent to a one for 75 reverse stock split authorized on October 15,
1998 and the six million shares issued in connection with the
acquisition.
Concurrent with the acquisition, the Company name was changed to
SmartSources.com, Inc., and it adopted the September 30 fiscal year-end
of Nifco Investments.
OPERATIONS
Nifco Investments was incorporated in the province of British Columbia,
Canada in September 1998 for the purpose of holding all outstanding
shares of SmartSources.com Technologies, Inc. ((Technologies), formerly
Nifco Synergy Ltd.); Intelli Trade, Inc. (Intelli Trade); Infer
Technologies, Inc. (Infer Technologies); and Origin Software Corporation
(Origin Software).
Technologies is a British Columbia corporation organized in 1990.
Operations are located in Vancouver, British Columbia where it is engaged
in developing and marketing computer and internet-based knowledge
management software. Over the past five years, efforts have focused
primarily on international trade compliance applications, which help
businesses qualify for preferential tariff treatment under the North
American Free Trade Agreement (NAFTA).
Intelli Trade is a British Columbia corporation organized in 1994.
Operations are located in Toronto, Ontario, where it provides
international trade consulting services.
6
<PAGE> 22
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTE 1 -- ORGANIZATION, REVERSE ACQUISITION, AND OPERATIONS (CONTINUED)
Infer Technologies is a Delaware corporation organized in 1999 to exploit
the Company's knowledge-management applications software known as
kServer. Operations are located in Silicon Valley.
Origin Software is a British Columbia corporation organized in September
1998 to hold the rights to certain software products (see Note 3).
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The accompanying financial statements are
presented in accordance with U.S. generally accepted accounting
principles.
PRINCIPLES OF CONSOLIDATION AND MINORITY INTEREST -- The consolidated
financial statements of SmartSources.com, Inc. and Subsidiaries include
the accounts of its direct and indirect wholly-owned subsidiaries: Nifco
Investments, Inc.; SmartSources.com Technologies, Inc.; Intelli Trade,
Inc.; Infer Technologies, Inc.; and Origin Software Corporation. All
material intercompany accounts and transactions have been eliminated in
consolidation.
Minority interest represents the preferred stockholders' proportionate
share of the equity of Origin Software Corporation and Infer
Technologies, Inc. The Company owns all issued and outstanding common
stock of these subsidiaries, which represents 100% of voting rights.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Examples of
estimates subject to possible revision based upon the outcome of future
events include amortization and valuation of capitalized software costs,
depreciation of property and equipment, and income tax liabilities.
Actual results could differ from those estimates.
REVENUE RECOGNITION -- The Company recognizes revenue in accordance with
American Institute of Certified Public Accountants Statement of Position
(SOP) 97-2, Software Revenue Recognition, and SOP 98-9, Modification of
SOP 97-2 with Respect to Certain Transactions. Revenue from packaged
software products is recognized when shipped. Maintenance and
subscription revenue is recognized ratably over the contract period.
Revenue attributable to significant support is based on the price charged
for the undelivered elements and is recognized ratably over the related
product's life cycle.
Revenues from fixed-price service contracts and software development
contracts requiring significant production, modification, or
customization are recognized using the percentage-of-completion method.
Revenue from service contracts that are based on time incurred is
recognized as work is performed.
CASH AND CASH EQUIVALENTS -- All highly liquid investments, with a
maturity of three months or less at the time of purchase, are considered
to be cash equivalents.
ACCOUNTS RECEIVABLE -- The Company extends credit to customers on an
unsecured basis. Management establishes allowances for doubtful accounts
based on evaluation of historical and current payment trends as well as
consideration of specific collection issues that may require additional
specific allowances.
CAPITALIZED SOFTWARE AND RESEARCH AND DEVELOPMENT COSTS -- Costs incurred
prior to establishing the technological feasibility of software products
are charged to research and development expense. Research and development
expense incurred during fiscal 1998 and 1999 was $38,400 and $374,700,
respectively. Costs incurred once technological feasibility has been
established, but prior to release of product to customers, are
capitalized and amortized on a product-by-product basis. Annual
amortization is the greater of the amount computed using (a) the ratio
that current gross revenues for a product bear to total current and
estimated future revenues or (b) the straight-line method over the
remaining estimated economic life of the product. Management periodically
compares unamortized costs to net realizable value and writes off any
excess.
7
<PAGE> 23
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
It is reasonably possible that estimates of future gross revenues, the
remaining economic useful life of the products, or both will be
significantly revised. As a result, the carrying amount of the
capitalized software costs may be reduced materially in the near term.
PROPERTY AND EQUIPMENT -- Property and equipment is recorded at cost.
Depreciation is computed using straight-line and accelerated methods over
estimated useful lives of the assets. Estimated useful lives by major
asset category are as follows: Buildings and improvements - 20 years,
computer equipment and software four to ten years, furniture and fixtures
- five years.
INTANGIBLE ASSETS -- Costs of perfecting and protecting patents and
trademarks are capitalized and amortized using the straight-line method
over 20 years. No expense was incurred in 1998. Amortization expense for
1999 was $1,400.
VALUATION OF LONG-LIVED ASSETS -- The Company periodically reviews
long-lived assets, including identifiable intangible assets, whenever
events or changes in circumstances indicate that the carrying amount of
an asset may be impaired and not recoverable. Adjustments are made if the
sum of the expected future undiscounted cash flows is less than the
carrying amount.
INCOME TAXES -- Income taxes are provided for the tax effect of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes. Deferred taxes are recognized for
differences between the basis of assets and liabilities for financial
statement and income tax purposes. Deferred tax assets and liabilities
represent the future tax consequences of those differences, which will
either be taxable or deductible when the assets or liabilities are
settled. Amounts are computed using enacted tax rates.
FOREIGN CURRENCY TRANSLATION -- Assets and liabilities of Canadian
operations, where the functional currency is the local currency, are
translated into U.S. dollars at current exchange rates. Revenues and
expenses are translated using average exchange rates prevailing during
the year. Foreign currency translation adjustments are reported as a
component of accumulated other comprehensive income.
EARNINGS PER SHARE -- Basic earnings per share amounts are computed based
on the weighted average number of shares outstanding during the period
after giving retroactive effect to stock dividends, stock splits and
mergers accounted for as poolings of interests. Diluted earnings per
share are computed by determining the number of additional shares that
are deemed outstanding due to stock options and other potentially
dilutive share equivalents using the treasury stock method.
SEGMENT INFORMATION -- The Company reports segment information in
accordance with SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information. SFAS No. 131 requires that reportable segments
be designated using a management approach, which relies on the internal
organization used by management for making operating decisions and
assessing performance. SFAS No. 131 also requires certain disclosures
about products and services, geographic areas, and major customers.
NEW ACCOUNTING STANDARD -- In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. Among other provisions, SFAS No. 133
requires that entities recognize all derivatives as either assets or
liabilities in the balance sheet and measure those financial instruments
at fair value. Accounting for changes in fair value is dependent on the
use of the derivatives and whether such use qualifies as hedging
activity. The new standard, as amended, becomes effective for the Company
in fiscal 2001 and management is currently assessing the impact, if any,
it may have on financial position and results of operations.
8
<PAGE> 24
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTE 3 -- CAPITALIZED SOFTWARE COSTS AND REPURCHASE OF SOFTWARE RIGHTS
CAPITALIZED SOFTWARE COSTS
Information related to capitalized software costs is as follows:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Balance, beginning of year $ 114,100 $ 111,400
Costs capitalized 94,300 1,614,600
Amortization expense (85,800) (181,000)
Foreign currency translation adjustment (11,200) 5,500
----------- -----------
Balance, end of year $ 111,400 $ 1,550,500
=========== ===========
Cost $ 244,700 $ 1,874,800
Less accumulated amortization (133,300) (324,300)
----------- -----------
$ 111,400 $ 1,550,500
=========== ===========
</TABLE>
REPURCHASE OF SOFTWARE RIGHTS
In 1995 and 1996, the Company's subsidiary, Technologies, sold the rights
to its primary software product, ORIGIN, to Columbia Diversified Software
Fund Limited Partnership (Columbia) for $2,432,000 and $7,774,400 of
notes receivable. For accounting purposes, the substance of the ORIGIN
sale was characterized as a sale of a tax benefit. Under Canadian tax
law, Columbia was immediately able to write off the entire cost of the
software and pass the benefit on to its limited partners. Following the
sale, the risks and rewards of ownership remained with Technologies. Any
future cash inflows to Technologies, either from collection of principal
and interest on the notes receivable or from profit sharing arrangements,
were wholly dependent on Technologies' continued efforts to develop and
market the software.
Due to uncertainties surrounding collection, Technologies did not
recognize the $7,774,400 notes receivable. Further, because of contingent
issues related to Revenue Canada's reviewing the value of the software
and the related tax deductions claimed by Columbia and its investors,
recognition of revenue for the $2,432,000 of cash received by
Technologies was deferred.
Under an agreement signed in May 1999, the Company's subsidiary, Origin
Software Corporation (Origin Software), reacquired the rights to ORIGIN
from Columbia. Terms of the agreement to be followed are summarized as
follows:
1. At closing in May 1999, Columbia transfers the software rights to
Origin Software in exchange for 11,670,400 class A preferred
shares and 5,000,000 class B preferred shares of Origin Software.
2. On October 1, 1999, Origin Software redeems the 11,670,400 class A
shares in exchange for a $7,774,400 note payable to Columbia.
3. On October 1, 1999, Columbia exchanges the $7,774,400 note from
Origin Software for the $7,774,400 of notes receivable from
Columbia that are held by Technologies.
4. At any time after October 1, 1999, Columbia may exercise an option
to exchange the 5 million class B shares of Origin Software for an
amount of common shares of the Company with market value of Cdn $5
million (not to exceed 5 million common shares reserved for the
exchange), based on average trading price during the fourteen-day
period immediately prior to exercise. The agreement requires that
the common shares issued are to be freely tradable, but 80% of the
shares will be held in trust and released ratably to Columbia over
the following four years.
9
<PAGE> 25
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTE 3 -- CAPITALIZED SOFTWARE COSTS AND REPURCHASE OF SOFTWARE RIGHTS
(CONTINUED)
The repurchase agreement also includes a mutual release designed to
insulate the Company and Columbia against claims arising against either
party.
The reacquisition of the software rights was accounted for using the Cdn
$5 million (US $3.4 million) value of the Company's common shares that
may ultimately be issued to Columbia upon conversion of the Class B
preferred shares. This amount was reduced by the Cdn $3.7 million (US
$2.5 million) of deferred gain, net of Cdn $1.1 million (US $.7 million)
of associated deferred tax assets. Because Technologies did not recognize
the $7,774,400 note receivable taken as consideration when the software
rights were sold to Columbia in 1995 and 1996, no value was assigned to
the Class A shares issued to ultimately settle this note.
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
Land $ 210,800
Buildings and improvements 416,200
Computer equipment and software 345,400
Furniture and fixtures 94,900
-----------
1,067,300
Less accumulated depreciation (303,000)
-----------
$ 764,300
===========
</TABLE>
Depreciation expense in fiscal 1998 and 1999 was $64,300 and $90,100,
respectively.
NOTE 5 -- INVESTMENT IN JOINT VENTURE
During fiscal 1996, the Company's subsidiary, Technologies, paid $393,100
to acquire a 40% interest in certain software rights. Another $1,637,900
of consideration was given in the form of a promissory note, but payment
of the note was contingent on the level of future revenues derived from
the investment. Under terms of a joint venture agreement between the
parties, Technologies appointed the seller as its exclusive agent to
maintain, develop, distribute, and market the software. Through September
30, 1998, Technologies had received essentially no revenue from the
venture. Accordingly, the investment was written down to its net
realizable value of $163,800.
Effective October 1, 1999, Technologies sold its interest in the software
for $163,800 cash and a $458,600 promissory note. Due to uncertainties
surrounding collection of the note receivable, the Company has not
recognized the note, and no gain or loss was recognized on the sale.
NOTE 6 -- NOTE PAYABLE AND LONG-TERM DEBT
NOTE PAYABLE
The Company's subsidiary, Technologies, had a line of credit facility
with a Canadian bank that allowed for borrowing up to $170,100. In
September 1999, the borrowing agreement expired, and the Company elected
not to renew the facility.
10
<PAGE> 26
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTE 6 -- NOTE PAYABLE AND LONG-TERM DEBT (CONTINUED)
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1999
---------
<S> <C>
Note payable to a Canadian bank in monthly installments of $4,400 plus
interest at prime plus 1.25%, collateralized by general assets of
Technologies, due August 2000. $ 44,400
Mortgage payable to a Canadian bank in monthly installments of $1,700
including interest at 8.75%, collateralized by real estate of
Technologies and assignment of rents, guaranteed by the majority
stockholder, due in 2011. 155,500
Mortgages payable to two Canadian finance companies in aggregate monthly
installments of $2,200, including interest at rates of 7% and 9%,
collateralized by real estate of Technologies and guaranteed by the
majority stockholder, due January 2001 and June 2002. 273,600
---------
Total debt 473,500
Less current portion (58,700)
---------
Long-term portion $ 414,800
=========
Long-term debt matures as follows:
Year Ending
September 30,
-----------------
2000 $ 58,700
2001 118,200
2002 165,900
2003 9,900
2004 10,800
Thereafter 110,000
---------
$ 473,500
=========
</TABLE>
The obligations identified above are denominated in Canadian currency.
Under the terms of its loan agreements with the bank, Technologies is
subject to various covenants. Subsequent to year end, the bank released
the Company from its requirement to maintain certain financial ratios and
reduced the frequency of certain financial reporting requirements.
NOTE 7 -- INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Current benefit (expense)
U.S. $ -- $ --
Canadian (24,000) (90,800)
Deferred benefit (expense)
U.S. -- 90,200
Canadian (78,700) 784,200
Change in valuation allowance -- (90,200)
--------- ---------
$(102,700) $ 693,400
========= =========
</TABLE>
11
<PAGE> 27
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTE 7 -- INCOME TAXES (CONTINUED)
Net income (loss) before income taxes consist of the following:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
U.S. operations $ -- $ (294,800)
Canadian operations 255,600 (1,071,400)
----------- -----------
$ 255,600 $(1,366,200)
=========== ===========
</TABLE>
The total tax provision differs from the amount computed using the U.S.
federal statutory income tax rate as follows:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Income tax at 34% statutory rate $ (86,900) $ 464,500
Nondeductible expenses -- (10,000)
Net losses of foreign subsidiaries -- (364,300)
Benefit of foreign tax settlement -- 778,000
Excess tax payable in foreign jurisdictions (15,800) (84,600)
Change in valuation allowance -- (90,200)
----------- -----------
$ (102,700) $ 693,400
=========== ===========
</TABLE>
The benefit of foreign tax settlement for 1999 reflects the effects of
the proposed settlement described in Note 12. Under the settlement, the
Company's income tax liability associated with the purchase and sale for
certain software rights described in Notes 3 and 5 is limited to the cash
portion of those transactions. The benefit received represents an
adjustment to previously recorded deferred income tax liabilities
associated with those transactions.
Tax effects of temporary differences that give rise to deferred tax
assets (liabilities) are as follows:
<TABLE>
<CAPTION>
1999
---------
<S> <C>
Assets
Net operating loss carryforwards $ 370,800
Research and development costs 128,600
Other 5,800
---------
505,200
---------
Liabilities
Depreciation (78,600)
Foreign currency translation adjustment (64,200)
---------
(142,800)
---------
Valuation allowance (426,600)
---------
Net deferred tax liability $ (64,200)
=========
</TABLE>
The Company believes uncertainty exists surrounding realization of
certain deferred tax assets. Accordingly, it has recorded a $426,600
valuation allowance to reduce deferred tax assets to an amount that will
more likely than not be realized.
For tax purposes the Company has unused U.S. and Canadian net operating
losses available for carryforward of $232,200 and $729,700, respectively.
The U.S. losses expire in 2019, and the Canadian losses expire in 2006.
Under existing laws, undistributed earnings of foreign subsidiaries are
not subject to U.S. tax until distributed as dividends. Currently, the
Company's foreign subsidiaries have no undistributed earnings. In the
event such earnings exist, they would be considered indefinitely
reinvested, and the Company would provide no deferred income taxes on
such amounts.
12
<PAGE> 28
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTE 8 -- EARNINGS PER SHARE
The numerators and denominators of basic and diluted earnings per share
are as follows:
<TABLE>
<CAPTION>
1998 1999
---------------- ------------
<S> <C> <C>
Numerator - Net income (loss) as reported $ 152,900 $ (672,800)
================ ============
Denominator - Weighted average number of shares outstanding 6,688,300 10,084,200
Effect of dilutive securities -- --
---------------- ------------
Diluted weighted average number of shares outstanding 6,688,300 10,084,200
================ ============
Basic earnings (loss) per share $ 0.02 $ (0.07)
================ ============
Diluted earnings (loss) per share $ 0.02 $ (0.07)
================ ============
</TABLE>
As described in Note 10, during 1999 the Company granted stock options
and warrants to purchase up to 2,069,000 shares, and its subsidiaries
issued preferred shares with exchange rights for up to 5,011,400 common
shares. These shares were not included in computing diluted earnings per
share because their effects were antidilutive.
NOTE 9 -- MINORITY INTEREST
Minority interest represents the preferred stockholders' proportionate
share of equity of Origin Software Corporation and Infer Technologies,
Inc. as follows:
<TABLE>
<CAPTION>
1999
----------
<S> <C>
Class A preferred stock (Origin Software Corporation) $ --
Class B redeemable, exchangeable preferred stock
(Origin Software Corporation) 3,407,000
Class A convertible, exchangeable preferred stock
(Infer Technologies, Inc.) 34,100
----------
$3,441,100
==========
</TABLE>
ORIGIN SOFTWARE CORPORATION (ORIGIN SOFTWARE) PREFERRED STOCK AND SHARE
EXCHANGE AGREEMENT
In connection with the repurchase of software rights discussed in Note 3,
the board of directors of the Company's subsidiary, Origin Software,
authorized the creation of two classes of preferred stock.
Class A preferred stock has no par value, 20 million shares are
authorized and 11,670,400 shares have been issued for the sole purpose of
repurchasing the software rights referred to above. The shares are
nonvoting, and holders of the shares are entitled to 3% cumulative
dividends. Effective October 1, 1999, all outstanding shares were
redeemed. As described in Note 3, no value was assigned to these shares.
Class B preferred stock has a Cdn $1 par value, 20 million shares are
authorized and 5,000,000 shares have been issued. The shares are
nonvoting, are redeemable at the option of the holder for Cdn $1 per
share, and have a liquidation preference of Cdn $1 per share. In the
event the holder requires the Company to redeem all or a portion of the
shares, the Company may pay for the redemption by issuing a promissory
note. The terms of such a note are not specified and would be subject to
negotiation.
Concurrent with the authorization and issuance of the Class B preferred
stock, Origin Software and the Company entered into a Share Exchange
Agreement (the Agreement) with Columbia Diversified Software Fund Limited
Partnership (Columbia), the holder of the shares and seller of the
software rights discussed in Note 3. Under the Agreement, subsequent to
October 1, 1999, Columbia has the right to exchange all or part of the
Class B preferred shares for an amount of common shares of the Company
with market value of Cdn $5 million (not to exceed 5 million common
shares reserved for the exchange), based on average trading price during
the fourteen-day period immediately prior to exercise. Common shares
issued are to be freely tradable, but 80% of the shares will be held in
trust and released ratably to Columbia over the following four years.
13
<PAGE> 29
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTE 9 -- MINORITY INTEREST (CONTINUED)
INFER TECHNOLOGIES, INC. (INFER TECHNOLOGIES) PREFERRED STOCK AND
STOCK-BASED COMPENSATION
Effective July 15, 1999, the board of directors of the Company's
subsidiary, Infer Technologies, authorized the issuance of 7,500 shares
of $0.01 par value Class A preferred stock. The shares are nonvoting and
have a liquidation preference of $100 per share. Holders have the right
to convert each preferred share into 100 common shares of Infer
Technologies. Holders also have the right to exchange each preferred
share for approximately 18 shares of the Company's common stock.
Concurrent with authorization of the preferred stock, Infer Technologies
entered into a subscription agreement to sell to its chief engineer all
Class A shares for $0.01 per share. The subscription rights accrue
ratably over 24 months at 312.5 shares per month. As the rights accrue,
the Company recognizes stock-based compensation using the intrinsic value
method, based on the difference between the $0.01 sales price and the
market value of the 18 shares of common stock of the Company for which
each preferred share can be exchanged. During 1999, the Company
recognized $34,100 of stock-based compensation related to this
arrangement.
NOTE 10 -- CAPITAL STOCK
COMMON STOCK
The Company has a single class of no par value common stock. Authorized
shares total 50 million. The capital structure presented in the
accompanying financial statements reflects the capital structure of the
Company subsequent to a one for 75 stock split authorized on October 15,
1998 and the six million shares issued in connection with the acquisition
discussed in Note 1. Prior to completion of the acquisition in the first
quarter of fiscal 1999, Nifco Investments, Inc. paid $142,400 of cash
dividends to its majority stockholder. The dividends paid in both 1998
and 1999 were based on equity as reported under accounting principles
generally acceptable in Canada, which differs substantially from equity
as reported under U.S. generally accepted accounting principles.
During fiscal 1999, the Company issued or was committed to issue
4,874,900 shares for total proceeds received of $1.5 million. Subsequent
to year-end, the Company was in the process of raising capital through
issuance of additional shares.
At September 30, 1999, a total of 5,000,000, common shares are reserved
to honor the exchange rights of holders of the Class B preferred shares
of Origin Software, though the number of shares that will ultimately be
issued to honor such rights may be significantly less than the total
shares reserved. Another 2,080,400 common shares are reserved to honor
outstanding stock warrants, grants made under the Company's stock
incentive compensation plan, and the exchange rights of holders of the
Class A preferred shares of Infer Technologies.
STOCK WARRANTS
Effective August 24, 1999, the Company issued one million stock purchase
warrants that entitle holders to purchase an equal number of common
shares at prices ranging from $4.00 to $6.00 per share. The warrants
expire August 2002. The warrants were issued at no cost in connection
with the Company entering into a sales representation agreement with
First City Partners Group, Inc. (First City). Under the agreement, First
City will represent the Company as a sales and marketing agent for its
line of software products and facilitate mergers and acquisitions with
compatible enterprises.
Effective September 29, 1999, the Company issued another 150,000 warrants
that entitle holders to purchase an equal number of shares at $5.00 per
share. The warrants expire August 2001. The warrants were issued at no
cost in connection with the Company entering into a consulting agreement
with Level Jump Asset Management, Inc. (Level Jump). Under the agreement,
Level Jump will assist and advise the Company with respect to mergers and
acquisitions, capital structuring, and the placement of new debt and
equity issues.
14
<PAGE> 30
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTE 10 -- CAPITAL STOCK (CONTINUED)
As required by SFAS No. 123, Accounting for Stock-Based Compensation,
the Company has applied the fair value method to account for issuance of
the warrants. The Company used the Black-Scholes option pricing model to
compute estimated fair value of the warrants, based on the following
assumptions:
Risk-free interest rate 6.0%
Price volatility 27.7%
Average expected life of warrants -- First City 2.0 years
Average expected life of warrants -- Level Jump 1.3 years
Total compensation cost computed for the warrants issued to First City
is $247,500. The cost is being recognized ratably over the three-year
term of the warrants. Total cost computed for the warrants issued to
Level Jump is $29,600. As the term of the agreement with Level Jump is
only six months and uncertainty exists surrounding the amount and timing
of future issuances or mergers and acquisitions arising from the
agreement, the cost has been recognized currently.
STOCK OPTION INCENTIVE COMPENSATION PLAN
Effective June 21, 1999, the Company adopted the 1999 Stock Incentive
Compensation Plan (the Plan). Under the Plan, the Company may make
grants of incentive stock options, nonqualified stock options, and stock
awards to employees, officers, directors and consultants of the Company
and its subsidiaries for an amount of common shares equal to 10% of
issued and outstanding shares, not to exceed 550,000 shares. The Company
has granted 919,000 options, and it is in the process of amending the
Plan in order to ratify the options issued in excess of the amount
authorized under the plan. The exercise price of incentive stock options
and nonqualified stock options can be no less than the fair value of the
Company's common stock on the date of grant. The maximum term of options
is ten years; and, unless otherwise modified by the Plan administrator,
they vest over four years. Options granted to senior management during
1999 vest over two years.
A summary of the status of the Plan during 1999 is as follows:
<TABLE>
<CAPTION>
Weighted-
Number Average
Of Shares Exercise Price
--------- --------------
<S> <C> <C>
Options outstanding at September 30, 1998
Granted 929,000 $ 5.50
Exercised -- --
Forfeited (10,000) 5.50
-------- --------
Options outstanding at September 30, 1999 919,000 $ 5.50
======== ========
Options exercisable at September 30, 1999 -- $ --
======== ========
</TABLE>
A summary of stock options outstanding at September 30, 1999 is as
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- -----------------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
-------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 5.50 919,000 9.75 years $ 5.50 -- $ --
</TABLE>
15
<PAGE> 31
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTE 10 -- CAPITAL STOCK (CONTINUED)
The Company applies the provision of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations to account for
its stock-based awards. Accordingly, costs for employee stock options or
issuance of shares is measured as the excess, if any, of the fair value
of the Company's common stock at the measurement date over the amount
the employee must pay to acquire the stock. No compensation expense was
recognized for grants of awards under the Plan in 1999.
SFAS No. 123, Accounting for Stock-Based Compensation, requires
disclosure of the pro forma effect of applying the fair value method of
accounting for stock options. For disclosure purposes, the Company uses
the Black-Scholes option-pricing model to compute estimated fair value,
based on the following assumptions:
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
Risk-free interest rate 6.0 %
Dividend yield rate -- %
Price volatility 27.7 %
Weighted average expected life of options 4.5 years
</TABLE>
Total estimated compensation expense calculated using the Black-Scholes
option-pricing model for 1999 is $416,900, net of tax, of which $30,800
has been allocated to 1999 and the balance of which will be allocated to
future years. Pro forma net loss and earnings (loss) per share amounts
for 1999 are as follows:
<TABLE>
<CAPTION>
1999
----------
<S> <C>
Pro forma net loss $ (703,600)
==========
Pro forma basic earnings (loss) per share $ (0.07)
==========
Pro forma diluted earnings (loss) per share $ (0.07)
==========
</TABLE>
NOTE 11 -- NON-CASH TRANSACTIONS
As described in Note 3, during 1999, the Company's subsidiary, Origin
Software Corporation, issued five million shares of Class B preferred
stock valued at $3,407,000 to repurchase certain software rights. The
capitalized cost of the software rights was reduced by $2,540,900 of
deferred revenue related to the previous sale of the rights in 1995 and
1996, and increased by $748,500 of deferred income tax assets, net of a
valuation allowance, related to the deferred revenue.
As described in Note 10, in August 1999, the Company issued one million
stock warrants in connection with its entering into a sales
representation agreement. As a result of the issuance, the Company
recorded $247,500 of deferred sales commission expense.
As described in Note 5, during 1999, the Company sold its interest in a
joint venture and recognized a $98,300 sale deposit received in 1998 in
computing the gain or loss on the sale.
During 1999, the Company's majority stockholder forgave a $44,100
obligation for advances made and compensation accrued in prior years.
The forgiveness was credited to common stock.
16
<PAGE> 32
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
GOING CONCERN, LIQUIDITY AND OPERATIONS
The Company incurred an operating loss and had negative cash flows from
operations in 1999. At September 30, 1999, it had a stockholders' deficit
of $1,264,900.
During 1999, the Company continued its plan to diversify its revenue base
and reposition its operations to take advantage of expected lucrative
software markets, particularly the knowledge management segment. It also
hired a new chief operating officer and chief financial officer, as well
as other vital management personnel. In order to provide working capital
in 1999, the Company raised a $1.5 million of equity capital. The Company
plans to raise additional equity capital in fiscal 2000 sufficient to
meet cash flow requirements, consistent with its business plan, which is
currently under development. Through December 20, 1999, the Company had
secured additional equity capital of $600,000 for the purpose of funding
operations in fiscal 2000.
CANADIAN TAX IMPLICATIONS OF SALE AND PURCHASE OF SOFTWARE RIGHTS
As described in Note 3, during 1995 and 1996, the Company's subsidiary,
Technologies, sold the rights to its primary software product to Columbia
Diversified Software Fund Limited Partnership (Columbia). During 1999, it
repurchased these rights. As described in Note 5, during the same time
frame, Technologies purchased and sold an interest in certain other
software rights. These transactions all included a significant noncash
component that employed the issuance, receipt, and settlement of
long-term promissory notes. As described more fully in Notes 3 and 5,
these notes were not recognized for financial reporting purposes.
However, the notes increased significantly the value assigned to the
software rights in question for tax reporting purposes in Canada.
Under Canadian tax law, the cost of software acquired can be written off
in the year of acquisition. Gains on sales of capital assets, including
software rights, are recognized over a maximum of five years, in annual
increments equal to the greater of the amount of cash received during the
year or one-fifth of the gain. Assigning a value to the software sales
and purchases that includes the promissory notes referred to above
increases significantly both the tax deductions taken by those purchasing
the software and the gains recognized by those selling.
Revenue Canada is currently reviewing various software transactions,
including those to which Technologies was a party. The Company has
submitted a proposed settlement that would limit the amount of tax it
must pay on the net gain from these transactions to the net amount of
cash received. Under the proposed settlement, the Company would incur no
additional tax liability beyond that which was reported in prior years.
As of December 20, 1999, a representative of Revenue Canada had verbally
agreed in substance to the terms of the proposed settlement; and,
accordingly, management estimates that no additional tax liability will
be incurred with respect to the transactions referred to above.
OPERATING LEASES
The Company obtains the use of certain office facilities and equipment
under terms of operating lease agreements. Future minimum lease payments
are as follows:
<TABLE>
<CAPTION>
Year Ending
September 30,
-------------
<S> <C>
2000 $ 29,100
2001 21,100
2002 10,900
---------
$ 61,100
=========
</TABLE>
Intelli Trade leases its office under an annual renewable lease currently
requiring monthly payments of $3,200. Total lease expense was $58,300 and
$73,000 in 1998 and 1999, respectively.
17
<PAGE> 33
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTE 12 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
COST SHARING AND ROYALTY AGREEMENT
During fiscal 1996, Technologies entered into a technology and
applications development project agreement (the Project Agreement) with a
not-for-profit organization (the Organization) that serves to disburse
funds on behalf of the Canadian Minister of Industry. Funds are provided
as part of a cost sharing arrangement designed to facilitate development
of Canada's communications infrastructure. Under terms of the Project
Agreement, Technologies is reimbursed for a portion of costs incurred to
develop advanced network technologies and applications. At September 30,
1999, the project was complete and a total of $236,400 had been received
from the Organization.
Subsequent to completion of the project, Technologies is obligated to pay
a 3% royalty to the Organization based on sales of products whose
development was funded under the Project Agreement. Total royalties to be
paid are limited to the lesser of twice the amount of funding received or
the amount of royalties accruing during the period September 1997 through
March 2001. At September 30, 1999, no material revenues had been
generated from the related products and no liability for royalties was
accrued.
SALES REPRESENTATION AGREEMENT
As discussed in Note 10, in August 1999, the Company issued one million
stock purchase warrants in connection with entering into a sales
representation agreement with First City Partners Group, Inc. (First
City). Under the agreement, First City will represent the Company as a
sales and marketing agent for its line of software products and
facilitate mergers and acquisitions with compatible enterprises. The term
of the agreement is five years, with four automatic renewal terms of five
years each. In addition to the issuance of warrants mentioned above, the
Company is required to pay a 10% commission on the value of each contract
entered into with a candidate provided by First City. Commissions are due
at the time of execution of each contract and payable under terms of the
contracts.
NOTE 13 -- RELATED PARTIES
The Company is affiliated through common ownership with the following
entities:
TRADESPACE TECHNOLOGIES CORPORATION (TRADESPACE)
Tradespace is a Delaware corporation operating in Vancouver, British
Columbia where it develops software applications related to electronic
barter and trade.
PMG PROJECT MANAGEMENT GROUPWARE INC. (PMG)
PMG is a British Columbia corporation operating in Vancouver, British
Columbia where it develops and markets software applications to assist
school districts with centralized purchasing and inventory control. In
January 1999, the Company's majority shareholder sold his interest in
PMG.
SYNERGY STRATEGY INC. (SYNERGY STRATEGY)
Synergy Strategy is a British Columbia corporation organized to contract
with a U.S. company to market financial information services technology
in Mexico.
Sales to affiliates in 1998 and 1999 totaled $722,700 and $89,700,
respectively.
18
<PAGE> 34
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTE 14 -- CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents, and accounts receivable. The Company places its temporary
cash investments with major financial institutions. Balances may at
times exceed federally insured limits. The Company extends credit to
customers based on evaluation of customers' financial condition and
credit history. Collateral is generally not required. Customers include
Canadian and U.S. entities engaged in international trade and software
development in North America. Three customers accounted for 56% of
accounts receivable at September 30, 1999.
NOTE 15 -- SEGMENT AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
SEGMENT INFORMATION
The Company's primary operations consist of the development and sale of
trade compliance software products to entities subject to the North
American Free Trade Agreement. Other services include international
trade consulting and software engineering contracts. Management assesses
the operations of its software sales and engineering activities and its
consulting activities as separate segments. The following tables and
schedules summarize certain information about these segments.
<TABLE>
<CAPTION>
1998
--------------------------------------------------------
Software Sales
and Development
-------------------------- International
International Trade
Trade kServer Consulting Total
------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
External revenues $ 1,219,200 $ -- $ 351,900 $ 1,571,100
Intersegment revenues 9,300 -- 16,200 25,500
Interest expense 62,200 -- 1,100 63,300
Depreciation and amortization 147,600 -- 2,500 150,100
Income tax expense 90,700 -- 12,000 102,700
Segment profit 100,200 -- 52,700 152,900
Expenditures for segment assets 38,500 -- 8,100 46,600
</TABLE>
<TABLE>
<CAPTION>
1999
--------------------------------------------------------
Software Sales
and Development
-------------------------- International
International Trade
Trade kServer Consulting Total
------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
External revenues $ 222,900 $ 119,200 $ 378,900 $ 721,000
Intersegment revenues 134,500 -- 6,200 140,700
Interest expense 48,700 200 1,100 49,900
Depreciation and amortization 265,300 200 7,000 272,500
Income tax expense (benefit) (693,400) -- -- (693,400)
Segment profit (loss) (288,600) (97,900) (52,100) (438,600)
Segment assets 2,593,500 6,300 132,200 2,732,000
Expenditures for segment assets 137,100 1,400 1,000 139,500
Software rights acquired for stock 1,614,600 -- -- 1,614,600
</TABLE>
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Total revenues for reportable segments $ 1,596,600 $ 861,700
Less intersegment revenues (25,500) (140,700)
----------- -----------
Consolidated total $ 1,571,100 $ 721,000
=========== ===========
Total income (loss) before tax for reportable segments $ 255,600 $(1,132,000)
Corporate headquarters expenses -- (234,200)
----------- -----------
Consolidated total $ 255,600 $(1,366,200)
=========== ===========
</TABLE>
19
<PAGE> 35
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTE 15 -- SEGMENT AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS (CONTINUED)
<TABLE>
<S> <C>
Total assets for reportable segments $ 2,732,000
Corporate headquarters assets 368,400
Elimination of intersegment receivables (143,500)
------------
Consolidated total $ 2,956,900
============
</TABLE>
GEOGRAPHIC INFORMATION
Following is a summary of revenues and long-lived assets related to the
respective countries in which the Company operates. Revenues are
attributed to countries based on location of customers.
<TABLE>
<CAPTION>
1998 1999
---------- ----------------------------
Long-Lived
Revenues Revenues Assets
---------- ---------- -----------
<S> <C> <C> <C>
Canada $ 636,000 $ 418,200 $2,313,600
United States 935,100 302,800 1,200
---------- ---------- ----------
Total $1,571,100 $ 721,000 $2,314,800
========== ========== ==========
</TABLE>
MAJOR CUSTOMERS
In 1998, revenues from two related parties, Tradespace Technologies
Corporation and PMG Project Management Groupware, Inc. (PMG), accounted
for 20% and 26% of the Company's consolidated revenues respectively. In
1999, PMG and Delco Remy America, Inc. (Delco Remy) each accounted for
12% of consolidated revenues. Revenues from these customers were earned
in the Company's software sales and development segment, with the
exception of Delco Remy, for which revenues were earned in the
international trade consulting segment.
NOTE 16 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of cash and cash equivalents, accounts receivable and
payable, and other current liabilities approximate their carrying
amounts. The fair value of the amount due to stockholder approximates its
carrying amount because of the short-term nature of the financial
instrument. The fair value of long-term debt approximate their carrying
amount because the instruments bear interest at rates similar to the
Company's incremental borrowing rate.
20
<PAGE> 36
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required by this item with respect to the change in the
Company's principal independent accountants from Green & McElreath to Moss Adams
LLP, effective January 28, 1999, has been previously reported in the Company's
Current Report on Form 8-K dated January 28, 1999.
PART III
Pursuant to Instruction E.3. to Form 10-KSB, the information in Items 9-12 is
incorporated by reference from the Company's definitive proxy statement which
will be filed with the Commission pursuant to Regulation 14A on or about January
15, 1999. If such proxy statement is not filed by such date, this Form 10-KSB
will be amended to include Items 9-12 on or about January 15, 1999.
ITEM 13. EXHIBITS AND REPORTS
(a) Exhibits
Number Description
- ------ -----------
3.01 Articles of Incorporation
3.02 Bylaws of the Company
10.01 Employment Agreement between Nathan Nifco and SmartSources.com Inc.,
dated November 30, 1998.
10.02 Management Consulting Agreement between Michael Forster and
SmartSources.com Inc., dated July 20, 1999.
10.03 Management Consulting Agreement between Darryl Cardey and
SmartSources.com Technologies Inc., dated September 1, 1999
10.04 Subscription Agreement between Peter Rive and Infer Technologies Inc.
dated July 15, 1999.
10.05 Sales Representation Agreement between First City Partners Group Inc.
and SmartSources.com Inc. dated August 24th, 1999.
10.06 Warrants with First City Partners dated August 24th, 1999.
10.07 Joint Venture Agreement between Familyware Products Inc. and Nifco
Synergy Ltd., dated April 29, 1996.
10.08 Registered Copy of Mortgage for Strata Lot 1, LMS2241, between the
Royal Bank of Canada and Nifco Synergy Ltd. dated January 1, 1996.
10.09 Registered Copy of Mortgage for Strata Lot 1, LMS2241, between Lock
Investments Ltd. and Nifco Synergy Ltd. dated February 26, 1996.
10.10 Registered Copy of Mortgage for Strata Lot 6, LMS2241, between Guild
Properties Inc. and Nifco Synergy Ltd. dated June 9, 1997.
10.11 Warrant agreement with Level Jump Asset Management, Inc dated
September 29, 1999.
10.12 Software acquisition agreement between Nifco Synergy Ltd. and EMC
Communications, dated October 1, 1998.
11.01 Statement of Computation of Per Share Earnings.
21.01 Subsidiaries of the Registrant.
(b) REPORTS ON FORM 8-K
1.0 Share Exchange Agreement by and among Columbia Diversified Software
Fund Limited Partnership and SmartSources.com, Inc. and Origin
Software Corporation, dated May 19, 1999. Filed as Exhibit to the
Company's Current Report on Form 8-K dated March 30, 1999.
2.0 Software Acquisition Agreement by and among Columbia Diversified
Software Fund Limited Partnership and Origin Software Corp. and Nifco
Synergy Ltd., dated January 1, 1999. Filed as exhibit to the Company's
Report on Form 8-K dated March 30, 1999.
3.0 Change in Registrants Fiscal year. Filed as exhibit to the Company's
Report on Form 8-K dated January 28, 1999.
<PAGE> 37
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SMARTSOURCES.COM INC.
By: /s/ NATHAN NIFCO December 28, 1999
-----------------------------------------
Nathan Nifco, Chief Executive Officer and
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on the dates indicated below.
By: /s/ NATHAN NIFCO December 28, 1999
-----------------------------------------
Nathan Nifco, Chief Executive Officer and
Chairman of the Board
By: /s/ DARRYL CARDEY December 28, 1999
-----------------------------------------
Darryl Cardey, Chief Financial Officer
By: /s/ MICHAEL FORSTER December 28, 1999
-----------------------------------------
Michael Forster, President,
Chief Operating Officer, and Director
By: /s/ CHARLES KELLY December 28, 1999
-----------------------------------------
Charles Kelly, Director
By: /s/ GERALD WITTENBERG December 28, 1999
-----------------------------------------
Gerald Wittenberg, Director
By: /s/ NORMAN MILLER December 28, 1999
------------------------------------------
Norman Miller, Director
<PAGE> 1
RECEIVED FILED
DEC 9, 10 52 AM '87 DEC -8 1987
DEPARTMENT OF STATE STATE OF COLORADO
STATE OF COLORADO DEPARTMENT OF STATE
EXHIBIT 3.01
ARTICLES OF INCORPORATION
OF
CODY CAPITAL CORPORATION
The undersigned natural person, who is more than eighteen years of age,
hereby establishes a corporation pursuant to the Statutes of Colorado and
adopts the following Articles of Incorporation:
FIRST: The name of the corporation is CODY CAPITAL CORPORATION.
SECOND: The corporation shall have perpetual existence.
THIRD: (a) Purposes. The nature, objects and purposes of the business to
be transacted shall be as follows:
(i) The seeking out and completion of a merger with or acquisition
of other companies or businesses.
(ii) To transact all lawful business for which corporations may be
incorporated pursuant to the Colorado Corporation Code, as amended.
FOURTH: (a) The aggregate number of shares which the corporation shall
have authority to issue is 50,000,000 shares of common stock having a par value
of $.001 per share.
(b) Each shareholder of record shall have one vote for each share of stock
standing in his or her name on the books of the corporation and entitled to
vote, except in the election of directors, he or she shall have the right to
vote such number of shares for as many persons as there are directors to be
elected. Cumulative voting shall not be permitted in the election of directors
or otherwise.
(c) At all meetings of shareholders, one-third of the shares entitled to
vote at such meeting, represented in person or by proxy, shall constitute a
quorum.
(d) The shareholders, by vote or concurrence of a majority of the
outstanding shares of the corporation, or any class or series thereof, entitled
to vote on the subject matter, may take any action which, except for this
Article, would require a two-thirds vote under the Colorado Corporation Code,
as amended.
(e) No shareholder of the corporation shall have any preemptive or other
right to subscribe for any additional unissued or treasury shares of stock or
for other securities of any class, or for rights, warrants or options to
purchase stock, or for scrip, or for securities of any kind convertible into
stock or carrying stock purchase warrants or privileges.
1
<PAGE> 2
(f) The board of directors may from time to time distribute to the
shareholders in partial liquidation, out of stated capital or capital surplus
of the corporation, a portion of its assets, in cash or property, subject to
the limitations contained in the statutes of Colorado and these Articles of
Incorporation.
FIFTH: The number of directors of the corporation shall be fixed by the bylaws
and shall not be less than three nor more than nine. Three directors shall
constitute the initial board of directors. The names and addresses of the
initial directors are as follows:
Hans H. Richter
5143 South Jamaica Way
Aurora, Colorado 80111
Christoph P. P. Muller
c/o Red Lion Inn
Boulder Canyon Highway 119
Boulder, Colorado 80302
R. Michael Jackson
143 Union Boulevard, Suite 900
Lakewood, Colorado 80228
SIXTH: The address of the initial registered office of the corporation is
5143 South Jamaica Way, Aurora, Colorado 80111.
The name of its initial registered agent at such address is Hans H.
Richter.
The corporation may conduct part or all of its business in any other part
of Colorado, of the United States or of the world. It may hold, purchase,
mortgage, lease and convey real and personal property in any of such places.
SEVENTH: The following legend will be placed on each share certificate
issued by the corporation, unless registered under applicable securities laws,
to restrict the transferability of the corporation's shares:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933. The shares have been acquired for investment and
may not be sold, transferred. pledged or hypothecated in the absence of an
effective registration statement for the shares under the Securities Act of
1933, or an opinion of counsel to the company that registration is not required
under said Act."
In addition, the board of directors is authorized to impose any
restriction on the sale, pledge, transfer or other disposition of shares of the
corporation by the shareholders which, in its sole discretion, is necessary or
desirable for the corporation, including, but not limited to, those restrictions
<PAGE> 3
necessary to enable the corporation to comply with state and federal securities
laws.
EIGHTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the corporation, and the same
are in furtherance of and not in limitation or exclusion of the powers
conferred by law.
(a) Contracts with directors, etc. No contract or other transaction
between the corporation and one or more of its directors or any other
corporation, firm, association or entity in which one or more of its directors
are directors or officers or are financially interested shall be either void or
voidable solely because of such relationship or interest or solely because such
directors are present at the meeting of the board of directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction or
solely because their votes are counted for such purpose if: (i) the fact of
such relationship or interest is disclosed or known to the board of directors
or committee which authorizes, approves or ratifies the contract or transaction
by a vote or consent sufficient for the purpose without counting the votes or
consents of such interested directors; or (ii) the fact of such relationship or
interest is disclosed or known to the shareholders entitled to vote and they
authorize, approve or ratify such contract or transaction by vote or written
consent; or (iii) the contract or transaction is fair and reasonable to the
corporation. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or a committee
thereof which authorizes, approves or ratifies such contract transaction.
(b) Indemnification of directors, etc. The corporation shall indemnify, to
the extent permitted by law, any director, officer, agent, fiduciary or
employee of the corporation against any claim, liability or expense arising
against or incurred by such person as a result of actions reasonably taken by
him at the direction of the corporation. The corporation shall further have the
authority to the full extent permitted by law to indemnify its directors,
officers, agents, fiduciaries and employees against any claim, liability or
expense arising against or incurred by them in all other circumstances and to
maintain insurance providing such indemnification.
(c) Negation of equitable interests in shares or rights. The corporation
shall be entitled to treat the registered holder of any shares of the
corporation as the owner thereof for all purposes, including all rights
deriving from such shares, and shall not be bound to recognize any equitable or
other claim to, or interest in such shares, or rights deriving from such
shares, on the part of any other person, including but without limiting the
generality hereof, a purchaser, assignee or transferee of such shares or rights
deriving from such shares, unless and until such purchaser, assignee,
transferee or other person becomes the registered holder of such shares,
whether or not the corporation shall have either actual or constructive notice
of the interest.
3
<PAGE> 4
of such purchaser, assignee, transferee or other person. The purchaser,
assignee or transferee of any of the shares of the corporation shall not be
entitled; to receive notice of the meetings of the shareholders; to vote at
such meetings; to examine a list of the shareholders; to be paid dividends or
other sums payable to shareholders; or to own, enjoy and exercise any other
property or rights deriving from such shares against the corporation, until
such purchaser, assignee or transferee has become the registered holder of such
shares. Notwithstanding the foregoing, the directors may recognize as record
owners shareholders who have been certified as such pursuant to the procedures
required by the Colorado Corporation Code, the corporation's bylaws, and the
board of directors.
NINTH: The name and address of the incorporator is:
R. Michael Jackson
143 Union Boulevard, Suite 900
Lakewood, Colorado 80228
DATED the 8 day of December, 1987.
/s/ R. MICHAEL JACKSON
---------------------------------
Incorporator
VERIFICATION
STATE OF COLORADO )
) ss.
COUNTY OF JEFFERSON )
I, Sheryl Thomson, a notary public, hereby certify that on the 8th day of
December, 1987, personally appeared before me R. Michael Jackson, who being by
me R. Michael Jackson, who being by me first duly sworn, declared that he is
the person who signed the foregoing document as incorporator and that the
statements therein contained are true.
My commission expires: 10-25-88
Sheryl Thompson
---------------------------------
Notary Public
4
<PAGE> 5
Change of Name FILED
RECEIVED APR 11 1989
1989 APR 11 AM 11:21 STATE OF COLORADO
SECRETARY OF STATE DEPARTMENT OF STATE
STATE OF COLORADO
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
Cody Capital Corporation
A Colorado Corporation
Pursuant to the provisions of the Colorado Corporations Act, the
Corporation adopted an amendment to the Articles of Incorporation filed with the
Secretary of State of Colorado.
1) The name of the Corporation is Cody Capital Corporation.
2) The following amendments were adopted by the shareholders of the
Corporation on March 15, 1989, in the manner prescribed by the Colorado
Corporations Act:
The shareholders authorized to change the name of the Company from "Cody
Capital Corporation" to "TELCO COMMUNICATIONS, INC."
3) The number of voting shares outstanding was 2,061,000 and 1,457,000
outstanding shares were represented at the meeting.
4) All 1,457,000 outstanding shares of the Corporation represented at the
meeting voted for the amendment, none voted against.
CODE CAPITAL CORPORATION
By:
---------------------------
President
---------------------------
Secretary
<PAGE> 6
CHANGE OF NAME FILER COPY
MAIL TO: SECRETARY OF STATE For office use only 002
CORPORATIONS SECTION
1560 BROADWAY, SUITE 200
DENVER, CO 80202
(303) 894-2251
FAX (303) 894-2242
MUST BE TYPED
FILING FEE: $25.00 SECRETARY OF STATE
MUST SUBMIT TWO COPIES
-------------------------
ARTICLES OF AMENDMENT
PLEASE INCLUDE A TYPED TO THE
SELF-ADDRESSED ENVELOPE ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is Telco Communications, Inc.
SECOND: The following amendment to the Articles of Incorporation was adopted on
January 15, 1997, as prescribed by the Colorado Business Corporation Act, in
the manner marked with an X below:
No shares have been issued or Directors Elected - Action by
Incorporators
- -----
No shares have been issued but Directors Elected - Action by
Directors
- -----
Such amendment was adopted by the board of directors where shares have
been issued and shareholder action was not required.
- -----
Such amendment was adopted by a vote of the shareholders. The number
X of shares voted for the amendment was sufficient for approval.
- -----
THIRD: If changing corporate name, the new name of the corporation is INNOVEST
CAPITAL SOURCES CORPORATION.
FOURTH: The manner, if not set forth in such amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the
amendment shall be effected, is as follows:
If these amendments are to have a delayed effective date, please list that
date: __________________________________________
(Not to exceed ninety (90) days from the date of filing)
----------------------------------------
Signature /s/
------------------------------
Title President
------------------------------
Revised 7/95
<PAGE> 7
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
INNOVEST CAPITAL SOURCES CORPORATION
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
First: the name of the Corporation is Innovest Capital Sources
Corporation
Second: The following amendment to the Articles of Incorporation was
adopted on July 11, 1995 as prescribed by the Colorado
Corporation Code, in the following manner:
[X] Such Amendment was adopted by vote of the shareholders. The number of
shares voted for the amendment was sufficient for approval.
The Common Stock of the Corporation shall have a par value of No Par.
Third: In all other respects, the Articles as originally filed remain in
full force and effect as stated.
We, the undersigned, being the President and Secretary of this Corporation
do make and file these Articles of Amendment, for the purpose of Amending the
Articles of Incorporation as originally filed pursuant to the Colorado
Corporation Code, and accordingly have set our hand hereunto this day in
certification thereof: August 31, 1997.
/s/ MILLER L. MAYS /s/ KARL E. RODRIGUEZ
- ------------------------ -----------------------------
Miller L. Mays, III Karl E. Rodriguez
President, Director Secretary/Treasurer, Director
<PAGE> 8
FILER COPY
MAIL TO: SECRETARY OF STATE For office use only 002
CORPORATIONS SECTION
1560 BROADWAY, SUITE 200
DENVER, CO 80202
(303) 894-2251
FAX (303) 894-2242
MUST BE TYPED
FILING FEE: $25.00
MUST SUBMIT TWO COPIES 19981203188 M
-------------------------
$ 40.00
SECRETARY OF STATE
11-16-1998 11:41:35
ARTICLES OF AMENDMENT
PLEASE INCLUDE A TYPED TO THE
SELF-ADDRESSED ENVELOPE ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is Innovest Capital Sources
SECOND: The following amendment to the Articles of Incorporation was adopted on
October 15, 1998, as prescribed by the Colorado Business Corporation Act, in
the manner marked with an X below:
No shares have been issued or Directors Elected - Action by
Incorporators
- -----
No shares have been issued but Directors Elected - Action by
Directors
- -----
Such amendment was adopted by the board of directors where shares have
been issued and shareholder action was not required.
- -----
Such amendment was adopted by a vote of the shareholders. The number
X of shares voted for the amendment was sufficient for approval.
- -----
THIRD: If changing corporate name, the new name of the corporation is
SmartSources.com, Inc.
FOURTH: The manner, if not set forth in such amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the
amendment shall be effected, is as follows:
If these amendments are to have a delayed effective date, please list that
date: __________________________________________
(Not to exceed ninety (90) days from the date of filing)
----------------------------------------
Signature /s/ KARL E. RODRIGUEZ
------------------------------
Title Karl E. Rodriquez, Secretary
------------------------------
(COL. - 1901 - 11/9/85) Revised 7/95
<PAGE> 1
EXHIBIT 3.02
BYLAWS
OF
TELCO COMMUNICATIONS, INC.
I.
SHAREHOLDERS
Section 1. Place of Holding Meetings.
All meetings of shareholders shall be held at the principal
business office of the corporation in New Orleans, Louisiana, or at
such other place as may be specified in the notice of the meeting.
Section 2. Annual Election of Directors.
The annual meeting of shareholders for the election of directors,
and the transaction of other business, shall be held at 2:00 p.m.,
on the second Tuesday of June of each year, or the first business
day thereafter when such day is a generally observed business
holiday, beginning with the year 1997.
Section 3. Voting.
A. On demand of any shareholder, the vote for directors, or on any
question before a meeting, shall be by ballot. All elections
shall be had by plurality, and all questions decided by majority,
of the votes cast except as otherwise provided by the articles by
bylaws.
B. At each meeting of shareholders, a list of the shareholders
entitled to vote, arranged alphabetically and certified by the
Secretary, showing the number and class of shares held by each
such shareholder on the record date for the meeting, shall be
produced on the request of any shareholder.
Section 4. Quorum.
Except as provided in the next section hereof, any number of
shareholders, together holding at least a majority of the
outstanding shares entitled to vote thereat, who are present in
person or represented by proxy at any meeting, constitute a quorum
for the transaction of business despite the subsequent withdrawal or
refusal to vote of any shareholder.
- 1 -
<PAGE> 2
Section 5. Adjournment of Meeting
If less than a quorum is in attendance at any time for which
a meeting is called, the meeting may, after the lapse of at least
half an hour, be adjourned by a majority in interest of the
shareholders present or represented and entitled to vote thereat.
If notice of such adjourned meeting is sent to the shareholders
entitled to vote at the meeting, stating the purpose or purposes
of the meeting and the previous meeting failed for lack of
quorum, then any number of shareholders, present in person or
represented by proxy, and together holding at least one-fourth of
the outstanding shares entitled to vote thereat, constitute a
quorum at the adjourned meeting.
Section 6. Special Meetings: How Called
Special meetings of the shareholders for any purpose or
purposes may be called by the president or by any two directors.
Section 7. Notice of Shareholders' Meetings
Written or printed notice, stating the place and time of any
meeting, and, if a special meeting, the general nature of the
business to be considered, shall be given to each shareholder
entitled to vote thereat, at his last known address, at least ten
(10) days before the meeting in the case of an annual meeting and
five (5) days before the meeting in the case of a special
meeting. Any irregularity in the notice of an annual meeting held
at the corporation's principal business office at the time
prescribed in Section 2 of this Article I., shall not affect the
validity of the meeting or any action taken thereat.
II.
DIRECTORS
Section 1. Number of Directors.
The number of directors of the company is not less than
three (3) nor more than seven (7) except that when all of the
outstanding shares are held of record by fewer than three
shareholders, then there need only as many directors as there are
shareholders.
Section 2. Place of Holding Meetings.
Meetings of the directors, regular or special, may be held
at any place, within or outside Louisiana, as the board may
determine. Meetings
-2-
<PAGE> 3
of the directors may be attended telephonically, provided all
attending directors certify the minutes of the meeting in writing.
Section 3. First Meeting.
The first meeting of each newly elected board of directors
shall be held immediately following the annual meeting of
shareholders, and no notice of such meeting shall be necessary to
the newly elected directors in order legally to constitute the
meeting, provided a quorum is present; or they may meet at such
time and place as fixed by the consent in writing of all of the
directors, or by notice given by the majority of the remaining
directors. At the first meeting, or at any subsequent meeting
called for the purpose, the directors shall elect the officers of
the corporation.
Section 4. Regular Directors' Meeting.
Regular meetings of the directors shall be held at least
semi-annually, and may be designated by the directors.
Section 5. Special Directors' Meeting: How Called.
Special meetings of the directors may be called at any time by
the board of directors or by the executive committee, if one be
constituted, by vote at a meeting, or by the president, or in
writing, with or without a meeting, by a majority of the directors
or of the members of the executive committee. Special meetings may
be held at such place or places within or outside Louisiana as may
be held at such place as may be designated in the notice thereof.
Section 6. Notice of Special Directors' Meetings.
Notice of the place and time of every special meeting of the
board of directors shall be delivered to each director, or sent to
him by telegraph or by mail, or by facsimile machine, or by leaving
the same at his residence or usual place of business, at least two
(2) days before the date of the meeting.
Section 7. Quorum.
At all meetings of the board, a majority of the directors in
office and qualified to act constitute a quorum for the transaction
of business, and the action of a majority of the directors present
at any meeting at which a quorum is present is the action of the
board of directors, unless the occurrence of a greater proportion
is required for such action by law, the articles or these bylaws.
"If a quorum is not present at any meeting of
<PAGE> 4
directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the
meeting, until a quorum is present. If a quorum be present, the
directors present may continue to act by vote of a majority of a
quorum until adjournment, notwithstanding the subsequent
withdrawal of enough directors to leave less than a quorum or the
refusal of any directors present to vote.
Section 8. Remuneration to Directors.
Directors, as such, shall not receive any stated salary for
their services, but by resolution of the board, expenses of
attendance, if any, and except as to salaried officers or
employees of the corporation or an affiliated company, a fixed
fee may be allowed to directors for attendance at each regular or
special meeting of the board or of any committee thereof; but
this Section does not preclude any director from serving the
corporation in any other capacity and receiving compensation
therefor.
Section 9. Powers of Directors.
The board of directors has the management of the business of
the corporation, and subject to any restrictions imposed by law,
the articles or these bylaws, may exercise all the powers of the
corporation. Without prejudice to such general powers, the
directors have the following specific powers:
(a) From time to time, to devolve the powers and duties of
any officer upon any other person for the time being.
(b) To confer upon any officer the power to appoint,
remove and suspend, and fix and change the compensation
of, subordinate officers, agents and factors.
(c) To determine who shall be entitled to vote, or to
assign and transfer any shares of stock, bonds,
debentures or other securities of other corporations
held by this corporation.
(d) To delegate any of the powers of the board to any
standing or special committee or to any officer or
agent (with power to subdelegate) upon such terms as
they deem fit.
Section 10. Resignations.
The resignation of a director shall take effect on receipt
thereof by the president or secretary, or on any later date, not
more than thirty (30) days after such receipt, specified therein.
-4-
<PAGE> 5
III.
COMMITTEES
Section 1. Executive Committee
The board of directors may delegate the day-to-day
managerial functions of the company to an executive committee
delegating whatever powers to said committee which the board in
its discretion may deem fit to so delegate. If an executive
committee is appointed, the president shall be a member, and two
(2) other members of the board of directors shall likewise be
members, and the committee shall have all of the powers of the
board when the board is not in session, except the power to
declare dividends, make or alter bylaws, fill vacancies on the
board or the executive committee, or change the membership of the
executive committee.
Section 2. Minutes of Meetings of Committees.
Any committees designated by the board shall keep regular
minutes of their proceedings, and shall report the same to the
board when required, but no approval by the board of any action
properly taken by a committee shall be required.
Section 3. Procedure
If the board fails to designate the chairman of a
committee, the president, if a member, shall be chairman. Each committee shall
meet at such times as it shall determine, and at any time on call of the
chairman. A majority of a committee constitutes a quorum, and the committee may
take action either by vote of a majority of the members present at any meeting
at which there is a quorum or by written concurrence of a majority of the
members. In case of absence or disqualification of a member of a committee at
any meeting thereof, the qualified members present, whether or not they
constitute a quorum, may unanimously appoint a director to act in place of the
absent or disqualified member. The board has power to change the members of any
committee at any time, to fill vacancies and to discharge any committee at any
time.
IV.
OFFICERS
Section 1. Titles.
-5-
<PAGE> 6
The officers of the corporation shall be a president, one or
more vice presidents, a treasurer, a secretary, and such other
officers as may, from time to time, be elected or appointed by
the board. Any two officers may be combined in the same person,
and none need be a director.
Section 2. Chairman of the Board.
The Chairman shall, when present, preside at all meetings of
any directors and shareholders.
Section 3. President.
The president is the chief executive officer, with general
management of the corporation's business and power to make
contracts in the ordinary course of business; shall see that all
orders and resolutions of the board are carried into effect and
direct the other officers in the performance of their duties; has
power to execute all authorized instruments; and shall generally
perform all acts incident to the office of president; or which
are authorized or required by law, or which are incumbent upon
him under the provisions of the articles and these bylaws.
Section 3. Vice President.
Each vice president shall have such powers, and shall
perform such duties, as shall be assigned to him by the directors
or by the president, and, in the order determined by the board,
shall, in the absence or disability of the president, perform
his duties and exercise his powers.
Section 4. Treasurer.
The treasurer has custody of all funds, securities,
evidences of indebtedness and other valuable documents of the
corporation. He shall receive and give, or cause to be given,
receipts and acquittances for moneys paid in on account of the
corporation, shall pay out of the funds on hand all just debts of
the corporation of whatever nature, when due. He shall enter, or
cause to be entered, in books of the corporation to be kept for
that purpose, full and accurate accounts of all moneys received
and paid out on the account of the corporation, and, whenever
required by the president or the directors, he shall render a
statement of his accounts. He shall keep or cause to be kept such
books as will show a true record of the expenses, gains, losses,
assets and liabilities of the corporation; and he shall perform
all of the other duties incident to the office of the treasurer.
If required by the board, he shall give the corporation a bond
for the faithful discharge of his duties and for restoration to
the corporation, upon
-6-
<PAGE> 7
termination of his tenure, of all property of the corporation under
his control.
Section 5. Secretary.
The secretary shall give, or cause to be given, notice of all
meetings of shareholders, directors and committees, and all other
notices required by law or by these bylaws, and in the case of his
absence or refusal or neglect to do so, any such notice may be given
by the shareholders or directors upon whose request the meeting is
called as provided in these bylaws. He shall record all the
proceedings of the meetings of the shareholders, of the directors,
and of committees in a book to be kept for that purpose. Except as
otherwise determined by the directors, he has charge of the original
stock books, transfer books and stock ledgers, and shall act as
transfer agent in respect to the stock and other securities issued
by the corporation. He has custody of the seal of the corporation,
and shall affix it to all instruments requiring it; and he shall
perform such other duties as he may be assigned by him by the
directors or the president.
Section 6. Assistants.
Assistant secretaries or treasurers shall have such duties as may
be delegated to them by the secretary and treasurer respectively.
V.
CAPITAL STOCK
Section 1. Certificates of Stock.
Certificates of stock, numbered, with the seal of the corporation
affixed, signed by the president or a vice president, and the
treasurer or secretary, shall be issued to each shareholder,
certifying the number of shares owned by him in the corporation. If
the stock certificates are countersigned by a transfer agent and a
registrar, the signatures of the corporate officer may be facsimile.
Section 2. Lost Certificates.
A new certificate of stock may be issued in place of any
certificate therefore issued by the corporation, alleged to have
been lost, stolen, mutilated or destroyed, or mailed and not
received, and the directors may in their discretion require the
owner of the replaced certificate to give the corporation a bond,
unlimited as to stated amount, to indemnify the company against any
claim which may be made against it on account of
- 7 -
<PAGE> 8
the replacement of the certificate or any payment made or other
action taken in respect thereof.
Section 3. Transfer of Shares.
Shares of stock of the corporation are transferable only on
its books, by the holders thereof in person or by their duly
authorized attorneys or legal representatives, and upon such
transfer, the old certificates shall be surrendered to the person
in charge of the stock-transfer records, by whom they shall be
canceled, and new certificates shall thereupon be issued. A
record shall be made of each transfer, and whenever a transfer is
made for collateral security, and not absolutely, it shall be so
expressed in the entry of the transfer. The board may make
regulations concerning the transfer of shares, and may in their
discretion authorize the transfer of shares from the names of
deceased person whose estates are not administered, upon receipt
of such indemnity as they may require.
Section 4. Record Dates.
The board may fix a record date for determining shareholders
of record for any purpose, such date to be not more than sixty
(60) days and, if fixed for the purpose of determining
shareholders entitled to notice of and to vote at a meeting, nor
more than ten (10) days, prior to the date of the action for
which the date is fixed.
Section 5. Transfer Agents, Registrars.
The board may appoint and remove one or more transfer agents
and registrars for any class of stock. If such appointments are
made, the transfer agents shall effect original issuances of
stock certificates and transfers of shares, record and advise the
corporation and keep the stock, transfer and other pertinent
records; and the registrar shall prevent over-issues by
registering and countersigning all stock certificates issued. A
transfer agent and registrar may be identical. The transfer agent
and registrars, when covered with the company as obligees by an
indemnity bond substantially in a form, and issued by a surety
company, approved by the corporation's general counsel and
providing indemnity unlimited in stated amount, or in form and
amount and signed by a surety approved by the board, and upon
receipt of an appropriate affidavit and indemnity agreement, may
(a) countersign, register and deliver, in place of any stock
certificate alleged to have been lost, stolen, destroyed or
mutilated, or to have been mailed and not received, a replacement
certificate for the same number of shares, and make any payment,
credit, transfer, issuance, conversion or exchange to which the
holder may be entitled in respect of
-8-
<PAGE> 9
such replaced certificate, without surrender thereof for
cancellation, and (b) effect transfers of shares from the names
of deceased persons whose estates (not exceeding $1,000.00 in
gross asset value) are not administered.
VI.
MISCELLANEOUS PROVISIONS
Section 1. Corporate Seal.
The corporate seal is circular in form, and contains the
name of the corporation and the words "SEAL, LOUISIANA". The seal
may be used by causing it, or a facsimile thereof, to be
impressed or affiliated or otherwise reproduced.
Section 2. Checks, Drafts, Notes.
All checks, drafts, other orders for the payment of money,
and notes or other evidences of indebtedness, issued in the name
of the corporation, shall be signed by such officer or officers,
agent or agents of the corporation and in such manner as shall,
from time to time, be determined by the board.
Section 3. Notice.
Whenever any notice is required by these bylaws to be given,
personal notice is not meant unless expressly so stated; any
notice is sufficient if given by depositing the same in a mail
receptacle in a sealed postage paid envelope addressed to the
person entitled thereto at this last known address as it appears
on the day of such mailing.
Section 4. Waiver of Notice.
Whenever any notice of the time, place or purpose of any
meeting of shareholders, directors or committee is required by
law, the articles or these bylaws, a waiver thereof in writing,
signed by the person or persons entitled to such notice and filed
with the records of the meeting before or after the holding
thereof, or actual attendance at the meeting of shareholders in
person or by proxy or at the meeting of directors or committee in
person, is equivalent to the giving of such notice except as
otherwise provided by law.
-9-
<PAGE> 10
VII.
AMENDMENTS
The shareholders or the directors, by affirmative vote of a majority of
those present or represented, may, at any meeting, amend or alter any of the
bylaws; subject, however, to the right of the shareholders to change or repeat
any bylaws made or amended by the directors.
THUS DONE AND SIGNED the 12th day of June, 1996.
/s/ MILLER L. MAYS
--------------------------------
President/CEO
ATTEST:
/s/ KARL RODRIQUEZ
- -------------------------------
Secretary
-10-
<PAGE> 1
10.01
THIS EMPLOYMENT AGREEMENT MADE THE 30TH DAY OF NOVEMBER, 1998.
BETWEEN:
SMARTSOURCES.COM INC.
A COLORADO COMPANY HAVING ITS
REGISTERED OFFICE AT #100-2030 MARINE DRIVE
NORTH VANCOUVER, B.C. V7P 1V7
(HEREINAFTER REFERRED TO AS THE "COMPANY")
OF THE FIRST PART
AND:
NATHAN NIFCO, BUSINESSMAN,
OF 2220 MATHERS AVENUE
WEST VANCOUVER, BRITISH COLUMBIA, V7V 2H5
(HEREINAFTER REFERRED TO AS THE "EMPLOYEE")
OF THE SECOND PART
WHEREAS THE EMPLOYEE IS A SHAREHOLDER IN AND A DIRECTOR OF THE COMPANY, AND THE
COMPANY DESIRES TO EMPLOY THE EMPLOYEE, AND THE EMPLOYEE DESIRES TO BE EMPLOYED
BY THE COMPANY, AS CHIEF EXECUTIVE OFFICE AND CHAIRMAN OF THE BOARD OF DIRECTORS
OF THE COMPANY;
AND WHEREAS THE PARTIES HERETO ARE DESIROUS OF ENTERING INTO A FORMAL EMPLOYMENT
CONTRACT PURSUANT TO THE TERMS AND CONDITIONS HEREINAFTER SET OUT;
NOW THEREFORE WITNESSETH THAT IN CONSIDERATION OF THE EMPLOYMENT AND OF THE
PREMSISES HEREIN, AND IN CONSIDERATION OF THE COVENANTS AND AGREEMENTS
HEREINAFTER CONTAINED, THE PARTIES HERETO MUTUALLY COVENANT AND AGREE AS
FOLLOWS:
1. THE COMPANY SHALL EMPLOY AND THE EMPLOYEE SHALL SERVE IN THE EMPLOYMENT OF
THE COMPANY AS ITS CHIEF EXECUTIVE OFFICE AND CHAIRMAN OF THE BOARD OF
DIRECTOR FROM THE DATE OF THE HEREIN AGREEMENT, UNTIL HIS EMPLOYMENT SHALL
BE TERMINATED AS PROVIDED HEREIN.
2. AS AT THE COMMENCEMENT OF THE EMPLOYEE'S EMPLOYMENT WITH THE COMPANY, THE
EMPLOYEE'S REMUNERATION SHALL BE A FIXED SALARY OF TWO HUNDRED TWENTY
THOUSAND CANADIAN DOLLARS ($220,000) PER ANNUM PAYABLE IN MONTHLY INCREMENTS
OF EIGHTEEN THOUSAND THREE HUNDRED THIRTY THREE CANADIAN DOLLARS AND THIRTY
THREE CENTS (C$18,333.33) ON SUCH DAY DURING EACH MONTH THAT THE COMPANY
SHALL, IN ITS SOLE DISCRETION, SELECT. IN ADDITION TO THE EMPLOYEE'S FIXED
SALARY, THE EMPLOYEE SHALL BE ENTITLED TO A BONUS TO BE PAID AT THE END OF
EACH FISCAL YEAR OF THE COMPANY FOR SO LONG AS THE EMPLOYEE IS EMPLOYED BY
THE COMPANY, WHICH BONUS SHALL BE IN AMOUNT TO BE DETERMINED AT THE
DISCRETION OF THE DIRECTORS OF THE COMPANY BUT WHICH SHALL BE NOT LESS THAT
TEN (10%) PERCENT OF THE EMPLOYEE'S SALARY IN THAT FISCAL YEAR.
3. THE EMPLOYEE SHALL BE RESPONSIBLE FOR:
<PAGE> 2
(a) OVERSEEING AND DIRECTING THE COMPANY AND ITS AFFILIATES AND THE CARRYING
OUT OF ALL OF ITS EXECUTIVE DUTIES;
(b) SETTING UP THE BUSINESS POLICIES AND DIRECTIONS OF THE COMPANY AND ITS
AFFILIATES;
(c) MANAGING KEY OFFICERS OF THE COMPANY AND ITS AFFILIATES; AND
(d) OVERSEEING THE DEVELOPMENT OF STRATEGIC PARTNERSHIPS AND MAJOR
CONTRACTUAL AGREEMENTS ON BEHALF OF THE COMPANY AND ITS AFFILIATES.
THE EMPLOYEE SHALL FURTHER HAVE THE AUTHORITY TO MAKE THE USUAL
CONTRACTS NECESSARY FOR CARRYING ON THE BUSINESS OF THE COMPANY AND ITS
AFFILIATES IN THE ORDINARY COURSE, INCLUDING AUTHORITY TO ORDER GOODS
REQUIRED FOR THE BUSINESS OF THE COMPANY AND ITS AFFILIATES, AND TO MAKE
CONTRACTS FOR THE SALES OF THE GOODS OF THE COMPANY AND ITS AFFILIATES,
AND FOR MAINTENANCE AND REPAIRS REQUIRED UPON OR IN CONNECTION WITH THE
PROPERTY OF THE COMPANY OR ITS AFFILIATES.
4. THE EMPLOYEE SHALL DEVOTE SUCH WORKING TIME AND ATTENTION TO HIS DUTIES AS
EMPLOYEE OF THE COMPANY AS MAY BE REASONABLY REQUIRED BUY THE COMPANY SO AS
TO FAITHFULLY AND DILIGENTLY SERVE AND ENDEAVOR TO PROMOTE AND FURTHER THE
INTEREST OF THE COMPANY AND ITS AFFILIATES. THE COMPANY ACKNOWLEDGES AND
AGREES THAT THE EMPLOYEE WILL BE FREE TO ENTER INTO ANY OTHER BUSINESS
ARRANGEMENTS AND EMPLOYMENT OPPORTUNITIES AS WELL AS SERVING AS AN EMPLOYEE
OF THE COMPANY SO LONG AS ANY SUCH ARRANGEMENTS OR EMPLOYMENT OPPORTUNITIES
DO NOT DIRECTLY CONFLICT WITH THE INTERESTS OF THE COMPANY OR ITS
AFFILIATES.
5. THE EMPLOYEE'S EMPLOYMENT HEREUNDER MAY BE TERMINATED AS FOLLOWS:
(a) IN THE EVENT THAT THE EMPLOYEE FAILS TO DEVOTE ANY WORKING TIME OR
ATTENTION TO HIS DUTIES AS EMPLOYEE OF THE COMPANY, THEN HIS EMPLOYMENT
CAN BE TERMINATED AT ANY TIME BY THE COMPANY HERETO GIVING THE EMPLOYEE
ONE YEAR WRITTEN NOTICE TO THAT EFFECT; OR
(b) AT ANY TIME BY THE EMPLOYEE PROVIDING THE COMPANY WITH ONE YEAR WRITTEN
NOTICE TO THAT EFFECT.
6. DURING THE EMPLOYEE'S EMPLOYMENT WITH THE COMPANY, AND FOR A PERIOD OF ONE
YEAR AFTER THE TERMINATION OF HIS EMPLOYMENT WITH THE COMPANY, THE EMPLOYEE
SHALL NOT WITHIN THE GEOGRAPHICAL BOUNDARIES OF CANADA:
(a) DIRECTLY OR INDIRECTLY, EITHER PERSONALLY OR AS AN EMPLOYEE, PARTNER,
MANAGER, DIRECTOR, OFFICE, AGENT OR OTHERWISE, OR BY MEANS OF ANY
CORPORATE OR OTHER DEVICE, UNDERTAKE OR ENGAGE IN A BUSINESS RELATING TO
INTERNATIONAL TRADE LOGISTICS AND TRADE COMPLIANCE (THE "BUSINESS"); OR
(b) DIRECTLY OR INDIRECTLY, LEND MONEY TO OR INVEST MONEY IN ANY PARTY,
PROPRIETORSHIP, PARTNERSHIP, FIRM OR BODY CORPORATE THAT IS DIRECTLY OR
INDIRECTLY IN COMPETITION WITH THE COMPANY OR ITS AFFILIATES; OR
<PAGE> 3
(c) USE OR DISCLOSE TO ANYONE ANY INFORMATION CONCERNING ANY OF THE BUSINESS
OF THE COMPANY OR ITS AFFILIATES WHICH MAY HAVE BEEN ACQUIRED BY THE
EMPLOYEE DURING OR IN THE COURSE OF OR AS AN INCIDENT TO HIS EMPLOYMENT
HEREUNDER.
7. IN THE EVENT OF A BREACH OR THREATENED BREACH OF ANY OF THE COVENANTS
HEREIN, THE COMPANY SHALL, IN ADDITION TO ALL OTHER REMEDIES AVAILABLE AT
LAW OR EQUITY, BE ENTITLED TO INJUNCTIVE RELIEF RESTRAINING SUCH BREACH OR
THREATENED BREACH.
8. THE COMPANY AGREES TO CONTINUE TO MAINTAIN AND PAY FOR THE FOLLOWING
EMPLOYEE BENEFITS FOR THE EMPLOYEE FOR THE DURATION OF HIS EMPLOYMENT WITH
THE COMPANY:
(a) A DISCRETIONARY EXPENSE ACCOUNT IN THE AMOUNT OF FIFTEEN THOUSAND
CANADIAN DOLLARS (C$15,000.00) PER ANNUM WHICH DISCRETIONARY EXPENSES
SHALL BE REIMBURSED TO THE EMPLOYEE ON AN ONGOING BASIS NOT LATER THAN
THIRTY DAYS FORM THE DATE THAT THE EMPLOYEE SHALL SUBMIT RECEIPTS TO THE
COMPANY EVIDENCING SUCH EXPENSES.
(b) PREMIUMS FOR MEDICAL, EXTENDED MEDICAL AND DENTAL PLANS;
(c) LONG-TERM DISABILITY INSURANCE;
(d) MEMBERSHIP FEES (INCLUDING INITIATION OR INITIAL FEES) IN THE
RECREATIONAL FACILITY OF THE EMPLOYEE'S CHOOSING; AND
(e) AN ALLOWANCE FOR ATTENDANCE AT PROFESSIONAL DEVELOPMENT SEMINARS IN THE
AMOUNT OF FIFTEEN THOUSAND CANADIAN DOLLARS (C$15,000.00) PER ANNUM.
9. THE COMPANY OR ITS AFFILIATES WILL FURTHER GRANT TO THE EMPLOYEE A STOCK
PURCHASE OPTION WHEREBY THE EMPLOYEE WILL BE GRANTED AN OPTION TO PURCHASE
FUTURE SHARES IN THE ISSUED CAPITAL OF THE COMPANY OR ITS AFFILIATES, ALL IN
ACCORDANCE WITH ANY STOCK OPTION PLAN OR PROGRAM SET UP BY THE COMPANY OR
ITS AFFILIATES FOR THE BENEFIT OF THE KEY OFFICERS OF THE COMPANY OR ITS
AFFILIATES. THE COMPANY COVENANTS TO EXERT ITS BEST EFFORTS TO OBTAIN AND
SECURE STOCK OPTIONS FOR THE EMPLOYEE IN ANY PUBLIC COMPANY WHICH THE
COMPANY IS AFFILIATED.
10. THE EMPLOYEE SHALL BE PROVIDED WITH A CAR, PARKING AND GAS ALLOWANCE OF FIVE
HUNDRED CANADIAN DOLLARS (C$500.00) PER MONTH, AND THE EMPLOYEE SHALL BE
REIMBURSED FOR ALL TRAVELLING AND OTHER EXPENSES ACTUALLY AND PROPERLY
INCURRED BY HIM IN CONNECTION WITH THE CARRYING OUT OF HIS OBLIGATIONS
HEREIN, AND FOR ALL SUCH EXPENSES HE SHALL FURNISH STATEMENTS AND VOUCHERS
TO THE COMPANY.
11. IN EACH FISCAL YEAR, THE EMPLOYEE SHALL BE ENTITLED TO RECEIVE SIX (6) WEEKS
VACATION TIME IN ANY ONE YEAR, AND HIS VACATIONS SHALL BE TAKEN AT SUCH TIME
AS THE DIRECTORS MAY, FROM TIME TO TIME DETERMINE.
12. THIS AGREEMENT CONTAINS ALL THE TERMS AND CONDITIONS RELATING TO THE
EMPLOYMENT OF THE EMPLOYEE AS THE CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF
THE BOARD OF DIRECTORS OF THE COMPANY AND SUPERSEDES ALL PREVIOUS AGREEMENTS
RELATED THERETO. ANY FURTHER AMENDMENT OR VARIATION HEREOF SHALL BE VALID
ONLY IF IT IS IN WRITING AND SIGNED BY ALL THE PARTIES HERETO.
<PAGE> 4
13. THIS AGREEMENT SHALL REMAIN IN EFFECT FOR A PERIOD OF FIVE (5) YEARS FROM
THE DATE OF EXECUTION OF THE AGREEMENT. ON THE EXPIRY OF THE AGREEMENT THE
EMPLOYMENT OF THE EMPLOYEE WITH THE COMPANY MAY BE RENEWED BY MUTUAL
AGREEMENT FOR A FURTHER TERM OF FIVE (5) YEARS AND THE TERMS OF THIS
AGREEMENT SHALL BE DEEMED TO CONTINUE ON THE SAME BASIS FOR THE DURATION OF
THE RENEWED TERM SAVE AND EXCEPT WITH REGARD TO THE EMPLOYEE'S ANNUAL SALARY
AND THE EMPLOYEE'S BENEFITS ALL AS SET OUT IN PARAGRAPHS 8, 9 AND 10, ALL OF
WHICH SHALL BE SUBJECT TO FUTURE AGREEMENTS BETWEEN THE COMPANY AND THE
EMPLOYEE.
14. ANY NOTICE TO BE GIVEN TO ANY PARTY HERETO SHALL BE GIVEN BY DELIVERING THE
SAME, OR BY MAILING THE SAME IN CANADA BY PREPAID FIRST CLASS MAIL, TO SUCH
PARTY AT THE PARTY'S ADDRESS SET OUT ABOVE OR AT ANY OTHER ADDRESS OF WHICH
SUCH SHALL GIVE WRITTEN NOTICE TO THE OTHER PARTIES HERETO ANY NOTICE SO
GIVEN BY MAIL SHALL BE DEEMED TO BE GIVEN ON THE SECOND BUSINESS DAY AFTER
IT WAS MAILED.
15. IF ANY PROVISION OF THIS AGREEMENT OR ANY PART THEREOF SHALL TO ANY EXTENT
BE FOUND AND DETERMINED TO BE INVALID, OR UNENFORCEABLE, IT SHALL BE
SEVERABLE FROM THIS AGREEMENT AND THE REMAINDER OF THIS AGREEMENT SHALL BE
CONSTRUED AS IF THE INVALID PROVISION OR PART THEREOF HAD BEEN DELETED FROM
THIS AGREEMENT.
16. THIS AGREEMENT AND ALL MATTERS ARISING HEREUNDER SHALL BE INTERPRETED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE PROVINCE OF BRITISH COLUMBIA.
17. THIS AGREEMENT SHALL ENURE TO THE BENEFIT OF AND BE BINDING UPON THE PARTIES
AND THEIR RESPECTIVE HEIRS, EXECUTORS, ADMINISTRATORS, SUCCESSORS AND
PERMITTED ASSIGNS.
18. IN THIS AGREEMENT THE SINGULAR INCLUDES THE PLURAL AND VICE-VERSA; THE
MASCULINE INCLUDES THE FEMININE AND VICE-VERSA; ANY REFERENCE TO A PARTY
INCLUDES THAT PARTY'S HEIRS, EXECUTORS, ADMINISTRATORS AND PERMITTED
ASSIGNS, AND IN THE CASE OR A CORPORATION, ITS SUCCESSORS AND PERMITTED
ASSIGNS.
IN WITNESS WHEREOF THE PARTIES HERETO ENTERED INTO THIS AGREEMENT ON THE DATE
HEREINBEFORE SET OUT.
SMARTSOUCES.COM INC.
- -------------------------
BY ITS AUTHORIZED SIGNATORY
SIGNED, SEALED AND DELIVERED BY
NATHAN NIFCO
IN THE PRESENCE OF:
- ------------------------------
SIGNATURE
- ------------------------------
NAME
- ------------------------------
ADDRESS
- ------------------------------
OCCUPATION
------------------------------
NATHAN NIFCO
<PAGE> 1
10.02
July 20, 1999
PERSONAL AND CONFIDENTIAL
Mr. Michael Forster
#400 - 601 W. Cordova Street
Vancouver, B.C. V6B 1G1
Dear Michael:
Re: Management Consulting Agreement
The purpose of this letter is to make you an offer of
Management Consulting on the following terms and
conditions:
1) Position: President, COO, and Director
2) Salary:$140,000 USD per annum
3) Term: This Management Consulting agreement is for a
period of two years, ending August 31, 2001.
4) Stock Options: Smartsources.com will grant 150,000
company options at the allowable price as dictated
by rules of the NASD and SEC.
5) Termination: In the event you wish to terminate
this agreement, you will provide the Company with
reasonable notice. In the event that the Company
wishes to terminate this agreement, it shall be
obligated to provide you with not less than eight
months notice or pay in lieu thereof.
6) Position Review: Smartsources.com will review the
performance and contribution of Michael Forster in
the first 6 months of this contract and if the
performance is deemed positive will update the
position to CEO.
<PAGE> 2
Page 2
7) Conditions Precedent: The obligations of both
parties to this agreement will be subject to the
following:
- The Company will receive $2,000,000 million USD in
interim financing as currently contemplated.
- Michael Forster will stay as a director of Mercury
for a period of time.
- Michael Forster receives nomination to the
Smartsources.com Board of Directors as soon as
possible.
If you are in agreement with the term and conditions set
out in this letter, please sign and return a copy to us.
We look forward to continue our relationship with you at
Smartsources.com.
Sincerely,
SMARTSOURCES.COM
/s/ Nathan Nifco
CHIEF EXECUTIVE OFFICER, DIRECTOR
---------------------------------
---------------------------------
MICHAEL J. FORSTER
<PAGE> 1
10.03
THIS AGREEMENT dated for reference the September 1, 1999.
BETWEEN:
SMARTSOURCES.COM TECHNOLOGIES INC., a body corporate duly
incorporated pursuant to the laws of the Province of British
Columbia and having it registered and records office at Suite
100, 2030 Marine Drive, NorthVancouver, British Columbia,
("Smartsources")
OF THE FIRST PART
AND: Darryl Cardey.
Vancouver , British Columbia
("Cardey ")
OF THE SECOND PART
WHEREAS:
A. Smartsources is in the business of developing and licensing
internet technology and trade related software
B. Cardey provides independent consulting services to technology
companies who wish to enhance their profile among the investment
and financial community.
C. Smartsources desires to engage Cardey services as herein defined;
D. Cardey desires to render professional services in its field of
expertise in relation to Smartsources mandate as a technology
company which develops and licenses internet software.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of
the mutual covenants and agreements herein contained, the parties
hereto agree as follows:
1.0 DEFINITIONS
1.1 In this Agreement:
(1) "the Services" means all of the obligations of Cardey referred to
in paragraph 2.1.
2.0 SERVICES TO BE PROVIDED BY CARDEY MANAGEMENT CORP.
(1) For the term of this Agreement, Cardey shall standby and be
available to advise and assist Smartsources in its financial and
operational activities and assume the role of Chief Financial
officer .
3.0 COMPENSATION
(1) Smartsources shall pay to Cardey monthly fee of $9,166,plus
applicable taxes
<PAGE> 2
3.2 Cardey shall provide Smartsources with an invoice for each
monthly payment.
3.3 Cardey shall be granted 100,000 stock options .
4.0 NON-EXCLUSIVITY
(1) During the term of this Agreement, Cardey may engage in other
business activities, provided such business activities do not
conflict with Cardey's obligations to provide the Services.
Notwithstanding the foregoing, Cardey., its directors, officers
or employees will not provide any services or be an employee of
any company that is in competition with Smartsources.
5.0 CARDEY
(1) Cardey represents and warrants to Smartsources that Cardey has
the necessary expertise to perform the Services.
6.0 TERM
6.1 The term of this Agreement shall commence on the 1st day of
September , 1999 .
7.0 TERMINATION
7.1 Either party may terminate this agreement by giving 90 day
written notice to the other party.
8.0 GENERAL PROVISIONS
(1) Cardey shall not assign its rights and obligations under this
Agreement without the prior written approval of Smartsources,
which approval may be withheld. Smartsources may assign its
rights and obligations under this Agreement.
8.2 Time shall be of the essence hereof.
(1) This Agreement shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the
laws of the Province of British Columbia, Canada, without regard
for its conflict of laws rules. By executing this Agreement, each
party irrevocably attorns to the jurisdiction of the courts of
the Province of British Columbia, Canada which courts shall have
exclusive jurisdiction over the validity, interpretation and
enforcement of this Agreement.
<PAGE> 3
(2) Notices shall be delivered to each party at the addresses for
each party set out on page 1 of this Agreement or as may be
amended from time to time in writing.
(3) This Agreement may be executed in counterparts which together
shall constitute one and the same document.
(4) If any provision in this Agreement is invalid, illegal or
unenforceable in any respect in any jurisdiction, the validity,
legality and enforceability of such provision will not be
affected or impaired in any other jurisdiction and the validity,
legality and enforceability of the remaining provisions contained
herein will not in any way be affected or impaired thereby,
unless in either case as a result of such determination this
Agreement would fail in its essential purpose.
(5) A waiver of any of the terms and conditions hereof shall not be
construed as a general waiver by either party, and such party
shall be free to reinstate any such term or condition, with or
without notice to the other party.
(6) This Agreement and the schedule attached hereto, embody the
entire agreement and understanding between the parties and
supersedes all prior agreements and understandings relating to
the subject matter hereof. No term of this Agreement may be
changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which
enforcement of the change is sought.
<PAGE> 4
(7) All the terms of this Agreement shall be binding upon and enure
to the benefit of and be enforceable by the respective heirs,
executors, successors and assigns of the parties hereto.
(8) Whenever the singular or masculine or neuter is used in this
Agreement, the same will be construed as meaning the plural,
feminine, body politic or body corporate and vice versa where the
context or the parties hereto so require.
IN WITNESS WHEREOF the parties have hereunto set their hands and
seals on this 1st day of September of 1999.
Smartsources.com Technologies by its )
authorized signatories: )
)
)
Michael Forster )
- ------------------------------------------
Authorized Signatory )
)
)
- ------------------------------------------
Authorized Signatory )
/s/ Darryl Cardey )
)
)
)
- ------------------------------------------
Authorized Signatory )
)
)
- ------------------------------------------
Authorized Signatory )
)
<PAGE> 1
10.04
SUBSCRIPTION AGREEMENT
Infer Technologies, Inc.
2030 Marine Drive, Suite 100
North Vancouver, British Columbia
Canada
Gentlemen:
1. Subscription. Infer Technologies, Inc., a Delaware corporation (the
"Company"), is offering to sell to the undersigned up to 7,500 shares (the
"Shares") of the Company's Class A Convertible Exchangeable Preferred Stock,
$.01 par value per share (the "Class A Preferred Stock"), at the price of $.01
per share, in increments of 312.5 Shares per month for a period of 24 months,
commencing July 15th, 1999. The undersigned, as a prospective purchaser (the
"Purchaser"), intending to be legally bound, hereby irrevocably subscribes for
and agrees to purchase the number of Shares of the Class A Preferred Stock, as
indicated below, at the price of $.01 per Share, for the total subscription
price set forth below (the "Subscription Price"), upon the terms and conditions
set forth in this Subscription Agreement (including Schedule 1 hereto).
Total number of Shares to be purchased: 7,500
Total Subscription Price ($.01 per Share): US$75.00
2. Payment of Subscription Price. Purchaser agrees to pay the
Subscription Price for the purchase of the Class A Preferred Stock by tendering
a check to the Company.
3. Schedule 1. By execution and delivery of this Subscription Agreement,
the Purchaser agrees to be bound by all of the terms and conditions of Schedule
1 attached hereto and made a part hereof.
4. Acknowledgment. The Purchaser acknowledges that his investment in the
Shares is subject to dilution with respect to any equity subsequently sold by
the Company other than up to $200,000 in additional securities sold to
SmartSources.com, Inc. and that in connection with this purchase,
SmartSources.com, Inc. has made no representations or warranties to the
Purchaser that it would sell or spin-off the Company or publicly offer the
Company's securities.
5. Repurchase. In the event that Purchaser resigns as an employee of the
Company or any of its affiliates at any time within three years from the date
hereof, upon 60 days prior written notice, the Company shall have the option for
a period of 90 days to repurchase all of the
<PAGE> 2
Shares or any securities convertible or exchangeable for the Shares owned by the
Purchaser at such date at the price of $2.00 per Share from the date of issuance
until the first anniversary of the date of issuance, $3.50 from the date of
issuance until the second year from the date of issuance, and $5.50 from the
date of issuance until the third year from the date of issuance. The Company
shall have the right to register the transfer of the Shares upon the stock
transfer records of the Company upon the mailing of a check in the amount of the
repurchase price to the Purchaser at the address shown in the Company's records.
Certificates representing the Shares shall bear appropriate legends referencing
this section and restricting transferability pursuant to applicable securities
laws.
The undersigned has executed this Agreement effective as of July ____,
1999.
/s/ Peter Rive
------------------------------
Peter Rive
This subscription is accepted
as of July _____, 1999.
INFER TECHNOLOGIES, INC.
By: /s/ Sokhie Puar
---------------------------
Sokhie Puar
Vice President
<PAGE> 1
10.05
SALES REPRESENTATION AGREEMENT
BETWEEN
SmartSources.com, Inc.
AND
First City Partners Group, Inc.
THIS AGREEMENT, is made between SmartSources.com, Inc. (referred to herein as
SSXX) and First City Partners Group, Inc. (referred to herein as FCPG) on this
23rd day of August, 1999 in Philadelphia, Pennsylvania.
WHEREAS, SSXX has expressed an interest in marketing its line of products and
expanding its business throughout the United States of America (U.S.) and in
other parts of the world; and,
WHEREAS, FCPG through its principals has experience in such marketing, and in
arranging mergers and acquisitions between firms, in the U.S. and other
countries; and
WHEREAS, SSXX wishes to have FCPG represent SSXX as its sales and marketing
agent for its line of products in the U.S. and foreign countries with U.S.
Government Agencies, state and local government agencies, foreign government
agencies, and with private sector firms, and to seek mergers and acquisitions
with compatible firms to expand its business, through connections FCPG has
established and may establish in the future;
NOW, THEREFORE, the parties agree to establish this agency relationship in
consideration of the following;
FCPG will present to SSXX at the time this agreement is executed a list of firms
and individuals which are considered by FCPG, and which have been identified and
discussed with SSXX, to be potential clients, acquisition candidates or merger
partners, for consideration under this agreement. This initial list of
candidates will be amended and expanded periodically in writing. It is
acknowledged by SSXX that FCPG has expended substantial time and effort to
develop this list of candidates, that they are compatible with SSXX business
objectives, and that FCPG can reasonably be expected to produce some or all of
these candidates for SSXX consideration, provided, however, that there is no
guarantee that all of these candidates will be willing to enter negotiations,
and that SSXX has the absolute right to approve or disapprove any future
business relationships therefrom. FCPG will continue to expend significant time
and its best efforts to bring to the attention of SSXX similar compatible firms
and individuals during the term of this agreement, provided that FCPG makes no
guarantee that it can do so and SSXX reserves the absolute right to accept or
reject any such candidates offered by FCPG.
<PAGE> 2
IN CONSIDERATION of the substantial time and effort already undertaken by FCPG
to produce certain candidates for SSXX business relationships, and to induce
FCPG to continue to expend significant time and its best efforts to identify
additional candidates for SSXX, SSXX agrees to issue to FCPG at the time of
execution of this agreement one million warrants for SSXX stock according to the
following schedule:
1. Five Hundred Thousand (500,000) warrants exercisable at a price of Four US
Dollars (US$4.00) for a period of three (3) years; and
2. Two Hundred Fifty Thousand (250,000) warrants exercisable at a price of Five
US Dollars (US$5.00) for a period of three (3) years; and
3. Two Hundred Fifty Thousand (250,000) warrants exercisable at a price of Six
US Dollars (US$6.00) for a period of three (3) years.
In the event that FCPG does not deliver any proposed contracts within one (1)
year after execution of this contract, any warrants not exercised by FGPG will
be returned to SSXX.
All such securities issued shall be subject to the rules and regulations of the
Securities and Exchange Commission of the United States of America.
SSXX agrees to pay to FCPG a commission of Ten percent (10%) of the value of
each contract executed with a candidate provided by FCPG.
Commissions due at the execution of each contract and payable according to the
terms and conditions of each contract.
SSXX will present to FCPG a list, from time to time, of names of firms and
individuals that SSXX considers to be house accounts and FCPG will not receive a
commission on sales to those firms.
THIS AGREEMENT will be in effect for five years with four (4) automatic
renewable five-year terms for an additional 20 years; provided, however, that
this agreement cannot be canceled until the first full five-year term has been
completed. Either party may then cancel any subsequent five-year renewal period
with a one-year written notice. This notice must be delivered to the other party
at their stated place of business by U.S. Registered Mail.
/s/ NATHAN NIFCO /s/ LEONARD J BERWICK
- ---------------------------- ------------------------
NATHAN NIFCO LEONARD J BERWICK
CHARMAN & CEO CHAIRMAN CEO
SMARTSOURCES.COM INC. FIRST CITY PARTNERS GROUP, INC.
<PAGE> 1
10.06
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED
UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
STOCK PURCHASE WARRANT
This Stock Purchase Warrant (this "Warrant"), dated August 24, 1999, is
issued to FIRST CITY PARTNERS GROUP, INC. (the "Holder"), by SMARTSOURCES.COM,
INC., a Colorado corporation (the "Company").
1. Purchase of Shares. Subject to the terms and conditions hereinafter
set forth, the Holder is entitled, upon surrender of this Warrant at the
principal office of the Company (or at such other place as the Company shall
notify the holder hereof in writing), to purchase from the Company 250,000 fully
paid and non-assessable shares of Common Stock, $.01 par value (the "Common
Stock"), of the Company (as adjusted pursuant to Section 7 hereof, the "Shares")
for the purchase price specified in Section 2 below.
2. Purchase Price. The purchase price for the Shares is $6.00 per share.
Such price shall be subject to adjustment pursuant to Section 7 hereof (such
price, as adjusted from time to time, is herein referred to as the "Warrant
Price").
3. Exercise Period. This Warrant is exercisable in whole or in part at
any time from the date hereof through August 24, 2002.
4. Method of Exercise. While this Warrant remains outstanding and
exercisable in accordance with Section 3 above, the Holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by surrender of this Warrant, together with a duly executed copy of the
form of Exercise Notice attached hereto, to the Secretary of the Company at its
principal offices, and the payment to the Company of an amount equal to the
aggregate purchase price for the number of Shares being purchased.
5. Certificates for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued as soon as practicable thereafter, and in any event
within thirty (30) days of the delivery of the subscription notice.
6. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Common Stock, free
from all preemptive rights with respect thereto, which will be sufficient to
permit the exercise of this Warrant for the full number of Shares specified
herein. The Company further covenants that such Shares, when issued pursuant to
the exercise of this Warrant, will be duly and validly issued, fully paid and
non-assessable and free from all taxes, liens and charges with respect to the
issuance thereof.
7. Adjustment of Warrant Price and Number of Shares. The number and kind
of securities purchasable upon exercise of this Warrant and the Warrant Price
shall be subject to adjustment from time to time as follows:
(a) Stock Dividends, Subdivisions, Combinations and Other Issuances.
If the Company shall at any time prior to the expiration of this Warrant
subdivide its Common Stock, by stock split or otherwise, combine its Common
Stock or issue additional shares of its Common Stock as a dividend with respect
to any shares of its Common Stock, the number of Shares issuable on the exercise
of this Warrant shall forthwith be proportionately
<PAGE> 2
increased in the case of a subdivision or stock dividend and proportionately
decreased in the case of a combination. Appropriate adjustments shall also be
made to the purchase price payable per share, but the aggregate purchase price
payable for the total number of Shares purchasable under this Warrant (as
adjusted) shall remain the same. Any adjustment under this Section 7(a) shall
become effective at the close of business on the date the subdivision or
combination becomes effective or as of the record date of such dividend, or, in
the event that no record date is fixed, upon the making of such dividend.
(b) Reclassification, Reorganization, Merger, Sale or Consolidation.
In the event of any reclassification, capital reorganization or other change in
the Common Stock of the Company (other than as a result of a subdivision,
combination or stock dividend provided for in Section 7(a) above) or in the
event of a consolidation or merger of the Company with or into, or the sale of
all or substantially all of the properties and assets of the Company, to any
person, and in connection therewith consideration is payable to holders of
Common Stock in cash, securities or other property, then as a condition of such
reclassification, reorganization or change, consolidation, merger or sale,
lawful provision shall be made, and duly executed documents evidencing the same
shall be delivered to the Holder, so that the Holder shall have the right at any
time prior to the expiration of this Warrant to purchase, at a total price equal
to that payable upon the exercise of this Warrant immediately prior to such
event, the kind and amount of cash, securities or other property receivable in
connection with such reclassification, reorganization or change, consolidation,
merger or sale, by a holder of the same number of shares of Common Stock as were
exercisable by the Holder immediately prior to such reclassification,
reorganization or change, consolidation, merger or sale. In any such case,
appropriate provisions shall be made with respect to the rights and interest of
the Holder so that the provisions hereof shall thereafter be applicable with
respect to any cash, securities or property deliverable upon exercise hereof.
Notwithstanding the foregoing, (i) if the Company merges or consolidates with,
or sells all or substantially all of its property and assets to, any other
person, and consideration is payable to holders of Common Stock in exchange for
their Common Stock in connection with such merger, consolidation or sale which
consists solely of cash, or (ii) in the event of the dissolution, liquidation or
winding up of the Company, then the Holder shall be entitled to receive
distributions on the date of such event on an equal basis with holders of Common
Stock as if this Warrant had been exercised immediately prior to such event,
less the Warrant Price. Upon receipt of such payment, if any, the rights of the
Holder shall terminate and cease, and this Warrant shall expire. In case of any
such merger, consolidation or sale of assets, the surviving or acquiring person
and, in the event of any dissolution, liquidation or winding up of the Company,
the Company shall promptly, after receipt of this surrendered Warrant, make
payment by delivering a check in such amount as is appropriate (or, in the case
of consideration other than cash, such other consideration as is appropriate) to
such person as it may be directed in writing by the Holder surrendering this
Warrant.
(c) Certain Distributions. In case the Company shall fix a record
date for the making of a dividend or distribution of cash, securities or
property to all holders of Common Stock (excluding any dividends or
distributions referred to in Sections 7(a) or 7(b) above, the number of Shares
purchasable upon an exercise of this Warrant after such record date shall be
adjusted to equal the product obtained by multiplying the number of Shares
purchasable upon an exercise of this Warrant immediately prior to such record
date by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such distribution, and the denominator of which shall be
the Warrant Price immediately prior to such distribution, less the fair market
value per Share, as determined by the Holder, of the cash, securities or
property so distributed. Such adjustment shall be made successively whenever any
such distribution is made and shall become effective on the effective date of
distribution.
8. Pre-Exercise Rights. Prior to exercise of this Warrant, the Holder
shall not be entitled to any rights of a shareholder with respect to the Shares,
including without limitation, the right to vote such Shares, receive preemptive
rights or be notified of shareholder meetings, and the Holder shall not be
entitled to any notice or other communication concerning the business or affairs
of the Company.
9. Restricted Securities. The Holder understands that this Warrant and
the Shares purchasable hereunder constitute "restricted securities" under the
federal securities laws and are being, or will be, acquired from the Company in
transactions not involving a public offering and accordingly may not, under such
laws and applicable regulations, be resold or transferred without registration
under the Securities Act of 1933, as amended, or
<PAGE> 3
an applicable exemption from registration. In this connection, the Holder
acknowledges that Rule 144 of the Securities and Exchange Commission is not now,
and may not in the future be, available for resales of the Shares purchased
hereunder. The Holder further acknowledges that the Shares and any other
securities issued upon exercise of this Warrant shall bear a legend
substantially in the form of the legend appearing on the face hereof.
10. Investment Purpose. The Holder represents and warrants to the
Company that the Warrants and Shares are acquired for investments purposes only
and are not acquired with a view to, or for sale in connection with, any
distribution.
11. Successors and Assigns. This Warrant may not be assigned without the
prior written consent of the Company.
12. Governing Law. This Warrant shall be governed by the laws of the
State of Colorado, excluding the conflicts of laws provisions thereof.
SMARTSOURCES.COM, INC.
By: /s/ Darryl Cardey
------------------------------------------
Darryl Cardey
Chief Financial Officer
<PAGE> 4
EXERCISE NOTICE
Dated _________, ____
The undersigned hereby irrevocably elects to exercise the Stock Purchase
Warrant, dated August 24, 1999, issued by SmartSources.com, a Colorado
corporation (the "Company") to the undersigned to the extent of purchasing
___________ shares of Common Stock and hereby makes payment of $_________ in
payment of the aggregate Warrant Price of such Shares.
FIRST CITY PARTNERS GROUP, INC.
By:
-----------------------------------
<PAGE> 5
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED
UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
STOCK PURCHASE WARRANT
This Stock Purchase Warrant (this "Warrant"), dated August 24, 1999, is
issued to FIRST CITY PARTNERS GROUP, INC. (the "Holder"), by SMARTSOURCES.COM,
INC., a Colorado corporation (the "Company").
1. Purchase of Shares. Subject to the terms and conditions hereinafter
set forth, the Holder is entitled, upon surrender of this Warrant at the
principal office of the Company (or at such other place as the Company shall
notify the holder hereof in writing), to purchase from the Company 250,000 fully
paid and non-assessable shares of Common Stock, $.01 par value (the "Common
Stock"), of the Company (as adjusted pursuant to Section 7 hereof, the "Shares")
for the purchase price specified in Section 2 below.
2. Purchase Price. The purchase price for the Shares is $5.00 per share.
Such price shall be subject to adjustment pursuant to Section 7 hereof (such
price, as adjusted from time to time, is herein referred to as the "Warrant
Price").
3. Exercise Period. This Warrant is exercisable in whole or in part at
any time from the date hereof through August 24, 2002.
4. Method of Exercise. While this Warrant remains outstanding and
exercisable in accordance with Section 3 above, the Holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by surrender of this Warrant, together with a duly executed copy of the
form of Exercise Notice attached hereto, to the Secretary of the Company at its
principal offices, and the payment to the Company of an amount equal to the
aggregate purchase price for the number of Shares being purchased.
5. Certificates for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued as soon as practicable thereafter, and in any event
within thirty (30) days of the delivery of the subscription notice.
6. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Common Stock, free
from all preemptive rights with respect thereto, which will be sufficient to
permit the exercise of this Warrant for the full number of Shares specified
herein. The Company further covenants that such Shares, when issued pursuant to
the exercise of this Warrant, will be duly and validly issued, fully paid and
non-assessable and free from all taxes, liens and charges with respect to the
issuance thereof.
7. Adjustment of Warrant Price and Number of Shares. The number and kind
of securities purchasable upon exercise of this Warrant and the Warrant Price
shall be subject to adjustment from time to time as follows:
(a) Stock Dividends, Subdivisions, Combinations and Other Issuances.
If the Company shall at any time prior to the expiration of this Warrant
subdivide its Common Stock, by stock split or otherwise, combine its Common
Stock or issue additional shares of its Common Stock as a dividend with respect
to any shares of its Common Stock, the number of Shares issuable on the exercise
of this Warrant shall forthwith be proportionately increased in the case of a
subdivision or stock dividend and proportionately decreased in the case of a
combination. Appropriate adjustments shall also be made to the purchase price
<PAGE> 6
payable per share, but the aggregate purchase price payable for the total number
of Shares purchasable under this Warrant (as adjusted) shall remain the same.
Any adjustment under this Section 7(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective or as of
the record date of such dividend, or, in the event that no record date is fixed,
upon the making of such dividend.
(b) Reclassification, Reorganization, Merger, Sale or Consolidation.
In the event of any reclassification, capital reorganization or other change in
the Common Stock of the Company (other than as a result of a subdivision,
combination or stock dividend provided for in Section 7(a) above) or in the
event of a consolidation or merger of the Company with or into, or the sale of
all or substantially all of the properties and assets of the Company, to any
person, and in connection therewith consideration is payable to holders of
Common Stock in cash, securities or other property, then as a condition of such
reclassification, reorganization or change, consolidation, merger or sale,
lawful provision shall be made, and duly executed documents evidencing the same
shall be delivered to the Holder, so that the Holder shall have the right at any
time prior to the expiration of this Warrant to purchase, at a total price equal
to that payable upon the exercise of this Warrant immediately prior to such
event, the kind and amount of cash, securities or other property receivable in
connection with such reclassification, reorganization or change, consolidation,
merger or sale, by a holder of the same number of shares of Common Stock as were
exercisable by the Holder immediately prior to such reclassification,
reorganization or change, consolidation, merger or sale. In any such case,
appropriate provisions shall be made with respect to the rights and interest of
the Holder so that the provisions hereof shall thereafter be applicable with
respect to any cash, securities or property deliverable upon exercise hereof.
Notwithstanding the foregoing, (i) if the Company merges or consolidates with,
or sells all or substantially all of its property and assets to, any other
person, and consideration is payable to holders of Common Stock in exchange for
their Common Stock in connection with such merger, consolidation or sale which
consists solely of cash, or (ii) in the event of the dissolution, liquidation or
winding up of the Company, then the Holder shall be entitled to receive
distributions on the date of such event on an equal basis with holders of Common
Stock as if this Warrant had been exercised immediately prior to such event,
less the Warrant Price. Upon receipt of such payment, if any, the rights of the
Holder shall terminate and cease, and this Warrant shall expire. In case of any
such merger, consolidation or sale of assets, the surviving or acquiring person
and, in the event of any dissolution, liquidation or winding up of the Company,
the Company shall promptly, after receipt of this surrendered Warrant, make
payment by delivering a check in such amount as is appropriate (or, in the case
of consideration other than cash, such other consideration as is appropriate) to
such person as it may be directed in writing by the Holder surrendering this
Warrant.
(c) Certain Distributions. In case the Company shall fix a record
date for the making of a dividend or distribution of cash, securities or
property to all holders of Common Stock (excluding any dividends or
distributions referred to in Sections 7(a) or 7(b) above, the number of Shares
purchasable upon an exercise of this Warrant after such record date shall be
adjusted to equal the product obtained by multiplying the number of Shares
purchasable upon an exercise of this Warrant immediately prior to such record
date by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such distribution, and the denominator of which shall be
the Warrant Price immediately prior to such distribution, less the fair market
value per Share, as determined by the Holder, of the cash, securities or
property so distributed. Such adjustment shall be made successively whenever any
such distribution is made and shall become effective on the effective date of
distribution.
8. Pre-Exercise Rights. Prior to exercise of this Warrant, the Holder
shall not be entitled to any rights of a shareholder with respect to the Shares,
including without limitation, the right to vote such Shares, receive preemptive
rights or be notified of shareholder meetings, and the Holder shall not be
entitled to any notice or other communication concerning the business or affairs
of the Company.
9. Restricted Securities. The Holder understands that this Warrant and
the Shares purchasable hereunder constitute "restricted securities" under the
federal securities laws and are being, or will be, acquired from the Company in
transactions not involving a public offering and accordingly may not, under such
laws and applicable regulations, be resold or transferred without registration
under the Securities Act of 1933, as amended, or an applicable exemption from
registration. In this connection, the Holder acknowledges that Rule 144 of the
Securities and Exchange Commission is not now, and may not in the future be,
available for resales of the Shares
<PAGE> 7
purchased hereunder. The Holder further acknowledges that the Shares and any
other securities issued upon exercise of this Warrant shall bear a legend
substantially in the form of the legend appearing on the face hereof.
10. Investment Purpose. The Holder represents and warrants to the
Company that the Warrants and Shares are acquired for investments purposes only
and are not acquired with a view to, or for sale in connection with, any
distribution.
11. Successors and Assigns. This Warrant may not be assigned without the
prior written consent of the Company.
12. Governing Law. This Warrant shall be governed by the laws of the
State of Colorado, excluding the conflicts of laws provisions thereof.
SMARTSOURCES.COM, INC.
By: /s/ Darryl Cardey
-----------------------------------------
Darryl Cardey
Chief Financial Officer
<PAGE> 8
EXERCISE NOTICE
Dated _________, ____
The undersigned hereby irrevocably elects to exercise the Stock Purchase
Warrant, dated August 24, 1999, issued by SmartSources.com, a Colorado
corporation (the "Company") to the undersigned to the extent of purchasing
___________ shares of Common Stock and hereby makes payment of $_________ in
payment of the aggregate Warrant Price of such Shares.
FIRST CITY PARTNERS GROUP, INC.
By:
---------------------------------
<PAGE> 9
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED
UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
STOCK PURCHASE WARRANT
This Stock Purchase Warrant (this "Warrant"), dated August 24, 1999, is
issued to FIRST CITY PARTNERS GROUP, INC. (the "Holder"), by SMARTSOURCES.COM,
INC., a Colorado corporation (the "Company").
1. Purchase of Shares. Subject to the terms and conditions hereinafter
set forth, the Holder is entitled, upon surrender of this Warrant at the
principal office of the Company (or at such other place as the Company shall
notify the holder hereof in writing), to purchase from the Company 500,000 fully
paid and non-assessable shares of Common Stock, $.01 par value (the "Common
Stock"), of the Company (as adjusted pursuant to Section 7 hereof, the "Shares")
for the purchase price specified in Section 2 below.
2. Purchase Price. The purchase price for the Shares is $4.00 per share.
Such price shall be subject to adjustment pursuant to Section 7 hereof (such
price, as adjusted from time to time, is herein referred to as the "Warrant
Price").
3. Exercise Period. This Warrant is exercisable in whole or in part at
any time from the date hereof through August 24, 2002.
4. Method of Exercise. While this Warrant remains outstanding and
exercisable in accordance with Section 3 above, the Holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by surrender of this Warrant, together with a duly executed copy of the
form of Exercise Notice attached hereto, to the Secretary of the Company at its
principal offices, and the payment to the Company of an amount equal to the
aggregate purchase price for the number of Shares being purchased.
5. Certificates for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued as soon as practicable thereafter, and in any event
within thirty (30) days of the delivery of the subscription notice.
6. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Common Stock, free
from all preemptive rights with respect thereto, which will be sufficient to
permit the exercise of this Warrant for the full number of Shares specified
herein. The Company further covenants that such Shares, when issued pursuant to
the exercise of this Warrant, will be duly and validly issued, fully paid and
non-assessable and free from all taxes, liens and charges with respect to the
issuance thereof.
7. Adjustment of Warrant Price and Number of Shares. The number and kind
of securities purchasable upon exercise of this Warrant and the Warrant Price
shall be subject to adjustment from time to time as follows:
(a) Stock Dividends, Subdivisions, Combinations and Other Issuances.
If the Company shall at any time prior to the expiration of this Warrant
subdivide its Common Stock, by stock split or otherwise, combine its Common
Stock or issue additional shares of its Common Stock as a dividend with respect
to any shares of its Common Stock, the number of Shares issuable on the exercise
of this Warrant shall forthwith be proportionately increased in the case of a
subdivision or stock dividend and proportionately decreased in the case of a
combination. Appropriate adjustments shall also be made to the purchase price
<PAGE> 10
payable per share, but the aggregate purchase price payable for the total number
of Shares purchasable under this Warrant (as adjusted) shall remain the same.
Any adjustment under this Section 7(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective or as of
the record date of such dividend, or, in the event that no record date is fixed,
upon the making of such dividend.
(b) Reclassification, Reorganization, Merger, Sale or Consolidation.
In the event of any reclassification, capital reorganization or other change in
the Common Stock of the Company (other than as a result of a subdivision,
combination or stock dividend provided for in Section 7(a) above) or in the
event of a consolidation or merger of the Company with or into, or the sale of
all or substantially all of the properties and assets of the Company, to any
person, and in connection therewith consideration is payable to holders of
Common Stock in cash, securities or other property, then as a condition of such
reclassification, reorganization or change, consolidation, merger or sale,
lawful provision shall be made, and duly executed documents evidencing the same
shall be delivered to the Holder, so that the Holder shall have the right at any
time prior to the expiration of this Warrant to purchase, at a total price equal
to that payable upon the exercise of this Warrant immediately prior to such
event, the kind and amount of cash, securities or other property receivable in
connection with such reclassification, reorganization or change, consolidation,
merger or sale, by a holder of the same number of shares of Common Stock as were
exercisable by the Holder immediately prior to such reclassification,
reorganization or change, consolidation, merger or sale. In any such case,
appropriate provisions shall be made with respect to the rights and interest of
the Holder so that the provisions hereof shall thereafter be applicable with
respect to any cash, securities or property deliverable upon exercise hereof.
Notwithstanding the foregoing, (i) if the Company merges or consolidates with,
or sells all or substantially all of its property and assets to, any other
person, and consideration is payable to holders of Common Stock in exchange for
their Common Stock in connection with such merger, consolidation or sale which
consists solely of cash, or (ii) in the event of the dissolution, liquidation or
winding up of the Company, then the Holder shall be entitled to receive
distributions on the date of such event on an equal basis with holders of Common
Stock as if this Warrant had been exercised immediately prior to such event,
less the Warrant Price. Upon receipt of such payment, if any, the rights of the
Holder shall terminate and cease, and this Warrant shall expire. In case of any
such merger, consolidation or sale of assets, the surviving or acquiring person
and, in the event of any dissolution, liquidation or winding up of the Company,
the Company shall promptly, after receipt of this surrendered Warrant, make
payment by delivering a check in such amount as is appropriate (or, in the case
of consideration other than cash, such other consideration as is appropriate) to
such person as it may be directed in writing by the Holder surrendering this
Warrant.
(c) Certain Distributions. In case the Company shall fix a record
date for the making of a dividend or distribution of cash, securities or
property to all holders of Common Stock (excluding any dividends or
distributions referred to in Sections 7(a) or 7(b) above, the number of Shares
purchasable upon an exercise of this Warrant after such record date shall be
adjusted to equal the product obtained by multiplying the number of Shares
purchasable upon an exercise of this Warrant immediately prior to such record
date by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such distribution, and the denominator of which shall be
the Warrant Price immediately prior to such distribution, less the fair market
value per Share, as determined by the Holder, of the cash, securities or
property so distributed. Such adjustment shall be made successively whenever any
such distribution is made and shall become effective on the effective date of
distribution.
8. Pre-Exercise Rights. Prior to exercise of this Warrant, the Holder
shall not be entitled to any rights of a shareholder with respect to the Shares,
including without limitation, the right to vote such Shares, receive preemptive
rights or be notified of shareholder meetings, and the Holder shall not be
entitled to any notice or other communication concerning the business or affairs
of the Company.
9. Restricted Securities. The Holder understands that this Warrant and
the Shares purchasable hereunder constitute "restricted securities" under the
federal securities laws and are being, or will be, acquired from the Company in
transactions not involving a public offering and accordingly may not, under such
laws and applicable regulations, be resold or transferred without registration
under the Securities Act of 1933, as amended, or an applicable exemption from
registration. In this connection, the Holder acknowledges that Rule 144 of the
Securities and Exchange Commission is not now, and may not in the future be,
available for resales of the Shares
<PAGE> 11
purchased hereunder. The Holder further acknowledges that the Shares and any
other securities issued upon exercise of this Warrant shall bear a legend
substantially in the form of the legend appearing on the face hereof.
10. Investment Purpose. The Holder represents and warrants to the
Company that the Warrants and Shares are acquired for investments purposes only
and are not acquired with a view to, or for sale in connection with, any
distribution.
11. Successors and Assigns. This Warrant may not be assigned without the
prior written consent of the Company.
12. Governing Law. This Warrant shall be governed by the laws of the
State of Colorado, excluding the conflicts of laws provisions thereof.
SMARTSOURCES.COM, INC.
By: /s/ Darryl Cardey
-----------------------------------------
Darryl Cardey
Chief Financial Officer
<PAGE> 12
EXERCISE NOTICE
Dated _________, ____
The undersigned hereby irrevocably elects to exercise the Stock Purchase
Warrant, dated August 24, 1999, issued by SmartSources.com, a Colorado
corporation (the "Company") to the undersigned to the extent of purchasing
___________ shares of Common Stock and hereby makes payment of $_________ in
payment of the aggregate Warrant Price of such Shares.
FIRST CITY PARTNERS GROUP, INC.
By:
------------------------------------
<PAGE> 1
EXHIBIT 10.07
JOINT VENTURE AGREEMENT
THIS AGREEMENT made as of the 29th day of April, 1996.
BETWEEN:
FAMILYWARE PRODUCTS INC., a company
formed under the laws of Canada
(hereinafter referred to as "FamilyWare")
AND:
NIFCO SYNERGY LTD., a company formed under
the laws of the Province of British Columbia
(hereinafter referred to as "Nifco")
WHEREAS pursuant to a software acquisition agreement between the parties hereto
made as of even date herewith (the "Acquisition Agreement"), FamilyWare agreed
to sell and Nifco agreed to purchase from FamilyWare an undivided 40% ownership
interest in certain computer software (the "Work") as more particularly set out
in the Acquisition Agreement;
AND WHEREAS the parties hereto wish to enter into a joint venture agreement to
better exploit the Work, and to further explore certain synergies and business
opportunities available to the parties hereto with respect to the Work, and
with respect to other aspects of the computer software business;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the premises
and the mutual covenants herein contained the parties hereto covenant and agree
as follows:
1. Definitions.
1.0 For the purposes of this Agreement, the following terms shall have the
meanings herein;
"Act of Insolvency" means that a party, other than for a re-organization:
(i) institutes proceedings for its winding-up, liquidation, or
dissolution or consents to the filing of any petition with respect
<PAGE> 2
2.
thereto or files a petition seeking reorganization, readjustment,
arrangements, composition or similar relief under any Canadian or
other applicable law or consents to the filing of any such petition
or to the appointment of a receiver, liquidator, trustee or similar
officer of itself or any part of its property or makes an assignment
for the benefit of creditors or is unable, or admits in writing its
inability, to pay its debts as they become due or otherwise
acknowledges its insolvency or is deemed for the purposes of any
applicable law to be insolvent or voluntarily suspends transaction of
its usual business or any action is taken by such party in
furtherance of any of the aforesaid purposes or if such party takes
any action pursuant to the Winding-Up Act, or
(ii) if a court having jurisdiction enters a decree or order for its
winding up, liquidation or dissolution or adjudges it to be insolvent
or enters a decree or order which remains in force, undischarged or
unstayed, for a period of 20 days or more approving, as properly
filed, a petition seeking reorganization, readjustment, arrangement,
composition or similar relief for any such party under any Canadian
or other applicable law, or the appointment of any receiver,
liquidator, trustee or similar officer of any such party or all or
any part of its property, or
(iii) if any application is made with respect to it under the Companies'
Creditors Arrangement Act (Canada) or similar or replacement
legislation or if a proceeding is instituted for its winding up or a
petition in bankruptcy is presented against it under a bankruptcy or
similar act and such application, proceeding or petition is not
dismissed, stayed or withdrawn within 20 days after such party has
notice or knowledge of the institution thereof
"AGREEMENT" means this Agreement and any Schedule annexed thereto.
"BUSINESS DAY" means any day between the hours of 8:00 a.m. and 5:00 p.m.
Vancouver time, other than a Saturday, Sunday or statutory holiday observed in
the City of Vancouver in the Province of British Columbia.
"BUSINESS" means the promotion, use, demonstration, duplication and distribution
of the Work for the purpose of earning income and all activities related or
incidental thereto.
"CLOSING" means the date of closing which is to be agreed upon by the parties,
but shall in no event be later than April 15, 1996.
<PAGE> 3
3.
"DERIVATIVE" means any Software in any manner derived in whole or in part from
the FamilyWare Software, and any Improvements, Enhancements, Modifications or
Updates thereto.
"FAMILYWARE" means FamilyWare Products Inc., a company incorporated under the
laws of [the Province of British Columbia note - see p. 1].
"FAMILYWARE SOFTWARE" means the application Software, Modules and Work listed
and described in Schedule "A" hereto.
"IMPROVEMENT" means any part, or combination of parts, of Modifications,
Products, Updates, Derivatives, Enhancements or Modules, or any method of using
or manufacturing any of the foregoing, the use of which affects Products or the
Work in anyway, including one or more of the following ways:
i. reduces production cost;
ii. improves performance;
iii. increases service life;
iv. broadens applicability;
v. increases marketability;
vi. improves appearance; or
vii. correct errors.
"MODIFICATION" means any alterations or translations to the Work to meet local
needs or to satisfy customers, including any Updates or Enhancements or
Derivatives.
"MODULE" means independent Software which can perform independent discreet
functions or can be added onto other Software or hardware.
"NET SALES" means that percentage of all gross revenues billed and collected
from the sale, licensing, technical support and maintenance of the Work
including consulting revenues, which is equal to the Ownership Percentage as
defined in this agreement. Net Sales shall be reduced to allow for, (1)
customer add on charges including shipping, packaging and handling, (2)
returned merchandise, (3) marked-down and price adjusted merchandise, (4)
customer discounts, (5) taxes, inclusive of sales, value added, goods and
services and similar taxes, and (6) allowances for bad debts and anticipated
product returns for defective merchandise.
"OWNERSHIP PERCENTAGE" means the percentage of ownership interest of Nifco in
the Work calculated in accordance with the provisions of the Software Agreement.
<PAGE> 4
4.
"PRODUCT(S)" means good manufactured in connection with the use of all or some
of the Work.
"PROMISSORY NOTE" shall be as set forth.
"PURCHASE PRICE" means the price Nifco shall pay FamilyWare, for its Ownership
Percentage of the Work.
"SOFTWARE" means a computer algorithm or program designed to solve a problem,
perform a function or perform a particular type of process in association with
a computer or microcomputer.
"SOURCE CODE" means the counterpart human readable version of every Module of
the Software required to be performed hereunder in machine readable object
code, and being capable, upon compilation, of being translated into machine
executable object code.
"SOURCE MATERIALS" means the Source Code and System Design Specifications,
logic diagram, and all other relevant documentation relating to the Work.
"SYSTEM DESIGN SPECIFICATIONS" means those technical specifications for the
Software developed or to be developed by FamilyWare for the purpose of
enabling any person reasonably skilled in software design, analysis or
programming to maintain and further develop the Software, including all
Derivatives.
"UPDATE" means any new release of Software which is made to modify an existing
Module for the purpose of adding new features or data to a Module or for the
purpose of correcting errors in a Module.
"WORK" means:
(a) the FamilyWare Software, and all Derivatives, Modules and Products
thereto;
(b) all trademarks, patents, copyrights, intellectual property,
applications and pending applications, routines and subroutines, and
all documentation in existence prior to or after the date hereof
relating thereto;
(c) all documentation, training and marketing materials in support of the
FamilyWare Software, and the business plan for the development,
marketing and distribution of the FamilyWare Software; and
<PAGE> 5
5.
(d) all contracts, agreements and arrangements outstanding or pending
with respect to the licensing, sale, support, maintenance,
distribution or manufacturing of any of the above.
1.1 HEADINGS. The division of this Agreement into Sections and the insertion
of recitals and headings are for convenience of reference only and shall not
affect the construction or interpretation hereof.
1.2 SINGULAR, PLURAL, GENDER. Wherever in this Agreement the context so
requires, the singular number shall include the plural number and vice versa
and any gender herein used shall be deemed to include the feminine, masculine
or neuter gender.
1.3 AGREEMENT The terms "hereof", "hereto", "herein", "hereunder" and
similar expressions refer to this Agreement and not to any particular Section
or other portion hereof and include any agreement supplemental hereto.
1.4 ENTIRE AGREEMENT. The Parties agree that this Agreement constitutes the
complete and exclusive statement of the terms and conditions between them
covering the performance thereof and cannot be altered, amended or modified
except in writing executed by both parties hereto. Any representation, warranty
or condition, written or otherwise, not expressly contained in this Agreement
or in an authorized written amendment thereto shall not be enforceable by
either party. Each of the parties acknowledge that it has not been induced to
enter into this Agreement by any representation not specifically stated herein.
1.5 SEVERABILITY. If any of the provisions contained in this Agreement is
found by a court of competent jurisdiction to be invalid, illegal or
unenforceable in any respect, the validity, legality or unenforceability of the
remaining provisions contained herein shall not be in any way affected or
impaired thereby.
1.6 GOVERNING LAW. This Agreement and its application and interpretation will
be governed exclusively by the laws prevailing in the Province of British
Columbia and the federal laws of Canada applicable therein (excluding any
conflict of laws rule or principle that might refer such construction to the
laws of another jurisdiction). The courts of the Province of British Columbia
shall have exclusive jurisdiction over all matters arising in relation to this
Agreement and each party hereby submits to the jurisdiction of the courts of
the Province of Ontario.
1.7 DATE FOR ACTION. In the event that any date on which any action is
required to be taken hereunder by any of the parties is not a Business Day,
<PAGE> 6
such action shall be required to be taken on the next succeeding day which is a
Business Day unless otherwise provided in this Agreement.
1.8 Currency. All references to currency are deemed to mean lawful money of
Canada unless expressed to be in some other currency.
1.9 Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with Generally Accepted Accounting Principles,
which shall mean, at any time, accounting principles generally accepted in
Canada as recommended in the Handbook of the Canadian Institute of Chartered
Accountants or as recommended by such other entity as may be approved by a
significant segment of the accounting profession in Canada, which are
applicable to the circumstances as of the date of determination.
2.0 Formation of Joint Venture.
2.1 The parties hereto agree to form a joint venture to better exploit the
Work with third parties during the term of this Agreement and thereafter.
2.2 The parties hereby agree to make the Work available to the parties to this
Agreement for the duration hereof and subject to the terms hereof.
2.3 The parties hereto agree that FamilyWare shall be marketer, distributor,
developer and maintainer of the Work.
2.4 The parties hereto agree that the activities of the joint venture shall be
monitored by an executive committee which shall have four members, each of whom
must be present at all meetings thereof. Each of FamilyWare and Nifco shall be
entitled to appoint two members.
3. Appointment of FamilyWare.
3.0 Nifco hereby appoints FamilyWare as its exclusive agent to;
(a) maintain, develop, enhance, distribute and market the Work
world-wide; and
(b) grant licenses or sub-licenses and make sub-distribution arrangements
and provide maintenance and warranty services on the Work.
4. Appointment of Sales Agents.
4.0 Nifco agrees that FamilyWare may delegate any of the responsibilities
contained in this Agreement to third parties; provided, however, that no
<PAGE> 7
such delegation shall relieve FamilyWare of any of its obligations or
representations under this Agreement; and
4.1 Nifco acknowledges that FamilyWare, at its expense, will engage sales
agents to obtain a distribution network for selling and licensing the Work.
5. Distribution
5.0 FamilyWare agrees to diligently market and distribute the Work and in this
regard FamilyWare shall:
(a) determine redevelopment, sales and marketing strategies, and set
selling prices for the Work;
(b) be responsible for the duplicating and arranging for the
manufacturing of the Work. FamilyWare shall be responsible for
the costs of reproduction, marketing, duplication and
distribution of the Work, including their Enhancements;
(c) use reasonable efforts to diligently, and to the best of its
ability, directly or indirectly, market, sell, distribute,
package and price the Work with a view to developing and
maximizing sales and Net Sales;
(d) use reasonable efforts to secure appropriate distribution
channels for the world-wide distribution of the Work;
(e) reasonably maintain commercial acceptability of the Work and
maintain all instruction booklets in accordance with industry
standards;
6. Development
6.0 FamilyWare shall follow and maintain a software development plan, outlining
for Nifco anticipated development plans and re-development work required to
carry out its obligations under this Agreement, to ensure the Work does not
become obsolete with respect to the Software industry. The development plan
shall include cost estimates and expense estimates required to achieve
milestones of functionality. Any re-development costs and out-of-pocket expenses
incurred by FamilyWare in carrying out said development and re-development
obligations shall be paid by FamilyWare for all Derivatives and subsequent
versions of Work released.
<PAGE> 8
8.
7. Maintenance
7.0 FamilyWare agrees to deliver the most current version of the Work to Nifco
from time to time, upon request.
7.1 FamilyWare agrees to ensure that the Work is maintained free of bugs and
defects in accordance with industry standards and agrees to reasonably enhance
or refine existing features if applicable, to reasonably maintain marketability
of the Work within the software industry.
7.2 FamilyWare agrees to ensure that all instruction booklets, as usually
provided for such Work in the industry, reflect the functionality for consumer
use.
7.3 FamilyWare agrees to perform its maintenance obligations to the extent
necessary to meet the obligations to end users of the Work and its other
obligations under this Agreement.
7.4 FamilyWare agrees to maintain, enhance, refine where applicable the Work
for the purposes of its use, demonstration, duplication and distribution.
8. Payments to FamilyWare
8.0 Nifco shall be entitled to all Net Sales, subject to the deductions set
out in Section 8.1.
8.1 Nifco shall pay to FamilyWare the following amounts for services to be
provided by FamilyWare under this Agreement, to be calculated monthly in the
following manner:
(a) until such time as the Purchase Price has been fully paid, Nifco
shall pay to FamilyWare 20% of the Net Sales;
(b) thereafter Nifco shall pay to FamilyWare 90% of the Net Sales.
8.2 Net Amounts due to Nifco (that is the amount referred to in Section 8.0
less any amounts due to FamilyWare under Section 8.1) pursuant to the terms of
this Agreement shall be paid to Nifco on a monthly basis on the last working day
of each month.
9. Credit Facilities
9.0 Nifco hereby grants to FamilyWare a credit facility equal to fifty percent
(50%) of the amount paid to Nifco under Section 8.2 above. FamilyWare may draw
upon such credit facility at any time after any payment is due to
<PAGE> 9
9.
Nifco pursuant to Section 8.2. Upon the drawing of such credit by FamilyWare,
the amount advanced by Nifco to FamilyWare shall bear interest at the rate of
eight percent (8.0%) per annum compounded annually.
10. Term
10.0 Subject to sections 12 and 14 of this Agreement, the term of this
Agreement shall be for an initial period of 50 years from the date of this
Agreement. This Agreement shall be automatically renewable for additional
five-year terms upon notice to FamilyWare, or may otherwise be terminated by
either party upon notice to such effect to the other party not less than 90 days
prior to the expiry of the then current term.
11. Competition
11.0 FamilyWare agrees not to compete either directly or indirectly with Nifco
with respect to the sale, marketing, distribution, development or any other
aspects relating to the Work as contemplated under this Agreement.
12. Rights of Termination
12.0 Without limiting any of its rights or remedies at law or equity, Nifco
may terminate this Agreement on 30 days written notice to FamilyWare in the
event that FamilyWare commits an Act of Insolvency, or there is a material
breach of any material representation, warranty, covenant or obligation of this
agreement by FamilyWare.
13. Reporting
13.0 FamilyWare agrees to provide Nifco with monthly reports containing a
statement of all Net sales collected from sales of Work not later than 20 days
after the last day of the previous month and agrees to provide access to all
books and records of FamilyWare from time to time at the request of Nifco.
FamilyWare also agrees to provide Nifco with an audited annual statement of all
Net Sales collected from sales of Work, not later than ninety days after
FamilyWare's fiscal year-end.
14.0 FamilyWare shall indemnify, hold harmless, defend and bear all reasonable
costs of defending Nifco, together with its successors and assigns, from,
against or in respect of any and all damage, loss, deficiency, expense
(including, but not limited to, any reasonable legal costs or expenses),
action, suit, proceedings, demand, assessment or judgment to or against Nifco
arising out of, in connection with, or caused by:
<PAGE> 10
10.
(a) any other debt, obligation or liability of FamilyWare which is not
expressly assumed by Nifco under this Agreement,
(b) any claim for products liability asserted against Nifco for or with
respect to products sold or distributed by FamilyWare,
(c) any claim for warrant, product support, product maintenance, software
development or with respect to the condition of products sold or
distributed by FamilyWare not expressly assumed by Nifco as provided
herein, and
(d) any claim for breach of the covenants, warranties and representations
set forth in this Agreement which shall all survive the Closing.
14.1 Notwithstanding the provisions of the Software Agreement and in particular
the provisions of Section 3(b)(iii) thereof and the promissory note made
pursuant thereto, it is hereby understood and agreed that Nifco's obligation to
pay the amount set forth in the said Section 3(b)(iii) of the Software Agreement
shall be limited to 50% of the amounts receivable by Nifco pursuant to Section
8.2 hereof.
14.2 FamilyWare may at any time, and, after May 1, 1998 shall, apply and set
off all amounts advanced to it by Nifco under Section 9.0 hereof, together with
any interest thereon against Nifco's obligation to pay FamilyWare under Section
3(b) of the Software Agreement (together with interest thereon). Nifco hereby
consents and agrees to such set off.
15. Directorship
(a) Nifco shall be entitled to nominate and appoint one representative to
FamilyWare's Board of Directors. FamilyWare shall take whatever steps
as may be necessary to keep and maintain the appointment of Nifco's
representative to the Board of FamilyWare for the term of this
Agreement.
(b) FamilyWare shall from time to time co-ordinate and consult with the
Executive Committee of the Joint Venture with regard to the general
marketing and development plans and timetable of the Work;
(c) without in any way limiting the generality of the foregoing
FamilyWare shall provide the Executive Committee of the Joint
Venture with all such information, reports, business plans,
<PAGE> 11
11.
financial statements or other information that it may request with
regard to any matter relating to this Agreement;
16. Further agreements
16.0 The parties have agreed that Nifco will contract FamilyWare resources to
assist Nifco with its sales and marketing activities. The parties have also
agreed that FamilyWare will contract Nifco resources to assist FamilyWare with
its development activities. These relationships will begin with senior
management reviews of development and sales and marketing plans. Actual company
cross charges will be agreed to by both parties in advance. The parties hereto
agree to then negotiate in good faith towards the implementation of detailed
Sales and Marketing and Development agreements to cover other software products
of each company.
16.1 FamilyWare hereby agrees to provide Nifco $300,000 on closing as an
advance towards Nifco development services. These funds will be allocated
towards any and all development services provided by Nifco for FamilyWare
software products as requested by FamilyWare, and as referenced in section 16.0.
As Nifco provides such services these advanced funds will be credited towards
such work. Any unused portion of this advance as of September 30, 1997 must be
repaid to FamilyWare upon their immediate request.
17. Assignment
17.0 The right and authority of FamilyWare to license or delegate certain of
its duties or responsibilities as contemplated pursuant to section 4 does not
entitle FamilyWare to make any assignment of its rights or obligations
hereunder, other than as expressly provided herein.
This Agreement shall be effective as of April 29, 1996.
NIFCO SYNERGY LTD.
Per: /s/ NATHAN NIFCO
-----------------------------
FAMILYWARE PRODUCTS INC.
Per: /s/ MICHAEL I. BROWN
-----------------------------
Michael I. Brown
<PAGE> 1
FORM B
(Section 219.1)
Province of
British Columbia
MORTGAGE - PART I (This area for Land Title Office Use) Page 1 of 7 pages
- --------------------------------------------------------------------------------
1. APPLICATION: (Name, address, phone number and signature of applicant,
applicant's solicitor or agent)
BULL, HOUSSER & TUPPER, Barristers & Solicitors, 3000 - 1055 West Georgia
Street, Vancouver, British Columbia, V6E 3R3 687-6575, Client Number 010651
Per: /s/ MELANIE MARKOWSKY
---------------------------
MELANIE MARKOWSKY, PARALEGAL
- --------------------------------------------------------------------------------
2. PARCEL IDENTIFIER(S) AND LEGAL DESCRIPTION(S) OF THE MORTGAGED LAND:*
(PID) (LEGAL DESCRIPTION)
023-306-696 Strata Lot 1 District Lot 764 Group 1 New Westminster
District Strata Plan LMS2241 Together with an interest in
the common property in proportion to the unit entitlement
of the Strata Lot as shown on Form 1, Municipality of
North Vancouver
- --------------------------------------------------------------------------------
3. BORROWER(S) [MORTGAGOR(S)]: (including postal address(es) and postal
code(s))*
NIFCO SYNERGY LTD., (Incorporation No. 394358) having an office at
600 - 815 Hornby Street, Vancouver, British Columbia, V6Z 2E6
- --------------------------------------------------------------------------------
4. LENDER(S) [MORTGAGEE(S)]: (including occupation(s), postal address(es)
and postal code(s))*
ROYAL BANK OF CANADA, a chartered bank of Canada, having a branch office
and postal address at 1025 West Georgia Street, Vancouver, British
Columbia, V6E 3N9
- --------------------------------------------------------------------------------
5. PAYMENT PROVISIONS:**
<TABLE>
========================================================================================================
<S> <C> <C> <C> <C> <C>
(a) Principal Amount: (b) Interest Rate: (c) Interest Y M D
Adjustment Date:
$289,000 Prime plus 2% per annum N/A
- --------------------------------------------------------------------------------------------------------
(d) Interest Calculation Period: (e) Payment Dates: (f) First Payment
Date:
Monthly (calculated on Principal: On Demand ON DEMAND
outstanding daily balances) Interest: 20th day of every
month or as otherwise
specified by the Mortgagee
- --------------------------------------------------------------------------------------------------------
(g) Amount of each periodic (h) Interest Act (Canada) (i) Last Payment
payment: Statement: Date:
N/A N/A ON DEMAND
- --------------------------------------------------------------------------------------------------------
(j) Assignment of Rents which the (k) Place of Payment: (l) Balance Due
applicant wants registered? Date:
SEE SCHEDULE POSTAL ADDRESS IN ON DEMAND
ITEM 4
========================================================================================================
</TABLE>
* If space insufficient, enter "SEE SCHEDULE" and attach schedule in Form E.
** If space in any box insufficient, enter "SEE SCHEDULE" and attach schedule
in Form E.
<PAGE> 2
FORM B
(Section 219.1)
Province of
British Columbia
MORTGAGE - PART I (This area for Land Title Office Use) Page 1 of 7 pages
- --------------------------------------------------------------------------------
1. APPLICATION: (Name, address, phone number and signature of applicant,
applicant's solicitor or agent)
BULL, HOUSSER & TUPPER, Barristers & Solicitors, 3000 - 1055 West Georgia
Street, Vancouver, British Columbia, V6E 3R3 687-6575, Client Number 010651
Per:
---------------------------
- --------------------------------------------------------------------------------
2. PARCEL IDENTIFIER(S) AND LEGAL DESCRIPTION(S) OF THE MORTGAGED LAND:*
(PID) (LEGAL DESCRIPTION)
023-306-696 Strata Lot 1 District Lot 764 Group 1 New Westminster
District Strata Plan LMS2241 Together with an interest in
the common property in proportion to the unit entitlement
of the Strata Lot as shown on Form 1, Municipality of
North Vancouver
- --------------------------------------------------------------------------------
3. BORROWER(S) [MORTGAGOR(S)]: (including postal address(es) and postal
code(s))*
NIFCO SYNERGY LTD., (Incorporation No. 394358) having an office at
600 - 815 Hornby Street, Vancouver, British Columbia, V6Z 2E6
- --------------------------------------------------------------------------------
4. LENDER(S) [MORTGAGEE(S)]: (including occupation(s), postal address(es)
and postal code(s))*
ROYAL BANK OF CANADA, a chartered bank of Canada, having a branch office
and postal address at 1025 West Georgia Street, Vancouver, British
Columbia, V6E 3N9
- --------------------------------------------------------------------------------
5. PAYMENT PROVISIONS:**
<TABLE>
========================================================================================================
<S> <C> <C> <C> <C> <C>
(a) Principal Amount: (b) Interest Rate: (c) Interest Y M D
Adjustment Date:
$289,000 Prime plus 2% per annum N/A
- --------------------------------------------------------------------------------------------------------
(d) Interest Calculation Period: (e) Payment Dates: (f) First Payment
Date:
Monthly (calculated on Principal: On Demand ON DEMAND
outstanding daily balances) Interest: 20th day of every
month or as otherwise
specified by the Mortgagee
- --------------------------------------------------------------------------------------------------------
(g) Amount of each periodic (h) Interest Act (Canada) (i) Last Payment
payment: Statement: Date:
N/A N/A ON DEMAND
- --------------------------------------------------------------------------------------------------------
(j) Assignment of Rents which the (k) Place of Payment: (l) Balance Due
applicant wants registered? Date:
SEE SCHEDULE POSTAL ADDRESS IN ON DEMAND
ITEM 4
========================================================================================================
</TABLE>
* If space insufficient, enter "SEE SCHEDULE" and attach schedule in Form E.
** If space in any box insufficient, enter "SEE SCHEDULE" and attach schedule
in Form E.
<PAGE> 3
MORTGAGE - PART 1 Page 2
- --------------------------------------------------------------------------------
6. MORTGAGE contains floating charge 7. Mortgage secures a current or
on land? running account?
YES [ ] NO [X] YES [X] NO [ ]
- --------------------------------------------------------------------------------
8. INTEREST MORTGAGED:
Freehold [X]
Other (specify) [ ]*
- --------------------------------------------------------------------------------
9. MORTGAGE TERMS:
Part 2 of this mortgage consists of (select one only):
(a) Prescribed Standard Mortgage Terms [ ]
(b) Filed Standard Mortgage Terms [X] D.F. Number: MT900186
(c) Express Mortgage Terms [ ] (annexed to this mortgage as
Part 2)
A selection of (a) or (b) includes any additional or modified terms
referred to in Item 10 or in a schedule annexed to this mortgage.
- --------------------------------------------------------------------------------
10. ADDITIONAL OR MODIFIED TERMS:*
SEE SCHEDULE
- --------------------------------------------------------------------------------
11. PRIOR ENCUMBRANCES PERMITTED BY LENDER:*
N/A
- --------------------------------------------------------------------------------
12. EXECUTION(S):**This mortgage charges the Borrower's interest in the land
mortgaged as security for payment of all money due and performance of all
obligations in accordance with the mortgage terms referred to in Item 9 and the
Borrower(s) and every other signatory agree(s) to be bound by, and
acknowledge(s) receipt of a true copy of, those terms.
Officers Signature(s) EXECUTION DATE Borrower(s) Signature(s)
Y M D NIFCO SYNERGY LTD.
by its authorized signatory:
/s/ PETER B. GORGOPA 96 01 19 /s/ NATHAN NIFCO
- ----------------------- -----------------------
Name: PETER B. GORGOPA NATHAN NIFCO
ALLARD AND COMPANY
Barristers & Solicitors
600 - 815 Hornby Street
Vancouver, B.C. V6Z 2E6
Phone No. 689-3885
OFFICER CERTIFICATION:
Your signature constitutes a representation that you are a solicitor, notary
public or other person authorized by the Evidence Act, R.S.B.C. 1979, c. 116,
to take affidavits for use in British Columbia and certifies the matters set
out in Part 5 of the Land Title Act as they pertain to the execution of this
instrument.
* If space insufficient, enter "SEE SCHEDULE" and attach schedule in Form E.
** If space insufficient, continue executions on additional page(s) in Form D.
<PAGE> 4
LAND TITLE ACT
FORM E
SCHEDULE
- --------------------------------------------------------------------------------
Page 3
Enter the required information in the same order as the information must appear
on the Freehold Transfer Form, Mortgage Form or General
Instrument Form.
5. PAYMENT PROVISIONS:**
(j) Assignment of Rents which the applicant wants registered?
YES [X] NO [ ]
if YES page & paragraph number:
Pages 3, 4 and 5 (paragraphs 1 to 15 inclusive) of this Schedule to the
Form B and reading as follows:
ASSIGNMENT OF RENTS
1. DEFINITIONS
In this Mortgage:
"Indebtedness" means the Principal Amount of the Mortgage and all
interest thereon and all other indebtedness, liability or obligations of
the Mortgagor to the Mortgagee from time to time secured by the
Mortgage.
"Leases" means each and every written or unwritten agreement to lease,
lease renewal, tenancy agreement, licence and right of occupancy made or
to be made, or granted or to be granted, with respect to the Mortgaged
Land or any part thereof, now or in the future.
"Rents" means all rents and other payments due or accruing due or at any
time hereafter to become due pursuant to the Leases and the benefit of
all guarantees of payment and all covenants to pay therein contained.
2. The Mortgagor will, without demand, promptly deliver to the Mortgagee a
true copy of each of the Leases and give to the Mortgagee full
information relating to each of the Leases.
3. The Mortgagor hereby assigns to the Mortgagee all Rents, for the
Mortgagee to have and to hold until the Indebtedness and all obligations
of the Mortgagor in respect of this Mortgage have been fully paid and
satisfied.
<PAGE> 5
LAND TITLE ACT
FORM E
SCHEDULE Page 4
- --------------------------------------------------------------------------------
Enter the required information in the same order as the information must appear
on the Freehold Transfer Form, Mortgage Form or General Instrument Form.
4. The Mortgagor hereby grants to the Mortgagee full power and authority to
enter upon the Mortgaged Land to collect the Rents, to serve demands on
the holders of the Leases in respect of payment of the Rents and to
demand, collect, sue for, distrain for, recover and give receipts for
the Rents, and to enforce payment of the Rents and performance of the
said guarantees of payment and covenants to pay, in the Mortgagee's own
name or in the name of and as an agent for the Mortgagor, as the
Mortgagee may elect, and hereby grants to the Mortgagee irrevocable
authority to join the Mortgagor in any such proceedings or actions.
5. Although this is a present and absolute assignment, (subject to
defeasance on repayment of the Indebtedness), the Mortgagor, as agent
for the Mortgagee, will be entitled to collect and retain the Rents as
and when they become due and payable according to the terms of the
Leases until there is a default in the observance or performance by the
Mortgagor of any term, covenant, agreement, proviso or condition of the
Mortgage or of any other collateral security; PROVIDED that this
paragraph shall not relieve the Mortgagor from the observance and
performance of the Mortgagor's obligations hereunder.
6. In the event of default by the Mortgagor under the Mortgage, proceedings
may, at the option of the Mortgagee, be taken under this assignment of
rents either independently or in conjunction with the other rights and
remedies of the Mortgagee under the Mortgage.
7. Nothing herein contained shall be deemed to have the effect of making
the Mortgagee responsible for the collection of the Rents or for the
observance or performance of any of the provisions of the Leases either
by the Mortgagor or by any holders of the Leases, or of rendering the
Mortgagee a mortgagee in possession of the Mortgaged Land or in any way
accountable or liable as such, or of imposing any obligation on the
Mortgagee to take any action or exercise any remedy in the collection or
recovery of the Rents.
8. The Mortgagee will be liable to account for only such moneys as it
actually receives pursuant to this assignment of rents, including such
portions thereof as may be expended by the Mortgagee on collection
charges, inspection fees, costs as between solicitor and client, and
other expenses to which the Mortgagee may be put in respect thereof, and
the balance of such moneys, when so received by the Mortgagee, will be
applied on account of the Indebtedness.
9. The Mortgagor will not at any time during the existence of the Mortgage,
without the prior written consent of the Mortgagee:
(a) assign, pledge, or otherwise encumber the Leases or the Rents,
or any of them, and will not knowingly do or omit to be done or
permit to be done any act which either directly or indirectly
has the effect of waiving, releasing, reducing or abating any of
the Mortgagor's rights or remedies or the obligations of any
other party under or in connection with the Leases;
<PAGE> 6
LAND TITLE ACT
FORM E
SCHEDULE Page 5
- --------------------------------------------------------------------------------
Enter the required information in the same order as the information must appear
on the Freehold Transfer Form, Mortgage Form or General Instrument Form.
(b) terminate, accept a surrender of, or amend the Leases in any
manner, or permit any assignment or extension of any of the
Leases or any subletting thereunder; or
(c) receive or permit any prepayment of the Rents under the Leases.
10. The Mortgagor will execute and deliver such further assurances,
assignments, notices or other documents as the Mortgagee may reasonably
require from time to time to render such assignment effective.
11. At the request of the Mortgagee from time to time, the Mortgagor will
give any other party to any of the Leases actual written notice of this
assignment of rents, and will use the Mortgagor's best efforts to obtain
from such party an acknowledgement of any such notice; but nothing in
this paragraph shall oblige the Mortgagee to make any such request.
12. There are to the knowledge of the Mortgagor no existing or future rights
of set-off, assignment, commutation or prepayment with respect to the
Rents.
13. To the knowledge of the Mortgagor, there have been no defaults under any
of the now existing Leases by the Mortgagor or by any of the holders of
the Leases, and there are no outstanding disputes pursuant to such
Leases.
14. The Mortgagor will at all times observe and perform all the Mortgagor's
obligations under the Leases.
15. The Mortgagor now has good and sufficient power, authority and right to
assign the Rents and other benefits referred to herein in the manner
aforesaid according to the true intent and meaning of this assignment of
rents.
<PAGE> 7
LAND TITLE ACT
FORM E
SCHEDULE Page 6
- --------------------------------------------------------------------------------
Enter the required information in the same order as the information must appear
on the Freehold Transfer Form, Mortgage Form or General Instrument Form.
10. ADDITIONAL OR MODIFIED TERMS:
A. COLLATERAL SECURITY
This Mortgage is granted for valuable consideration (the receipt
and sufficiency of which are hereby acknowledged by the Mortgagor) as
general and continuing collateral security for payment and satisfaction
of all debts, liabilities and obligations, present or future, direct or
indirect, absolute or contingent, matured or not, extended or renewed,
of whatsoever nature and kind and howsoever arising, at any time and
from time to time owing or payable by the Mortgagor to the Mortgagee,
all as may be more fully set forth in the Filed Standard Mortgage Terms
(referred to in Item 9 of Form B) which form part of this Mortgage and
Defeasance Option #3 under Section 3 of the said Filed Standard Mortgage
Terms applies to this Mortgage, and in interpreting this Mortgage,
Section 21 of the said Filed Standard Mortgage Terms shall be read
subject to the following:
NOTICE IS HEREBY GIVEN to every person dealing with the title to the
Mortgaged Land that the liabilities secured by this Mortgage include,
without limiting the generality of any other provisions hereof, the
liabilities of the Mortgagor to the Mortgagee with respect to any
bankers' acceptances from time to time issued by the Mortgagor and
accepted by the Mortgagee and with respect to any letters of credit or
letters of guarantee from time to time issued by the Mortgagee at the
request of the Mortgagor and that advances by the Mortgagee not
exceeding from time to time the aggregate amount referred to herein are
contemplated and secured by this Mortgage and that with respect to any
such bankers' acceptances and any such letters of credit or letters of
guarantee, the Mortgagee is hereby and thereby required from the date of
acceptance of each such bankers' acceptance and from the date of
issuance of each such letter of credit or letter of guarantee, to make
the advances contemplated therein in accordance with the terms thereof.
B. The following shall be added immediately following Section 8 of the said
Filed Standard Mortgage
Terms:
"8A. PROHIBITIONS
Without the prior written consent of the Mortgagee, the
Mortgagor shall not and shall not have the power to:
(a) grant, create or permit to be created any mortgage, charge or
security interest in, encumbrance or lien over, or claim against
the Mortgaged Land or any part thereof which ranks or could in
any event rank in priority to or pan passu with the charge of
this Mortgage; or
<PAGE> 8
LAND TITLE ACT
FORM E
SCHEDULE Page 7
- --------------------------------------------------------------------------------
Enter the required information in the same order as the information must appear
on the Freehold Transfer Form, Mortgage Form or General Instrument Form.
(b) issue or have outstanding at any time any secured or unsecured
bonds, debentures, debenture stock or other evidences of
indebtedness of the Mortgagor or of any predecessor in title of
the Mortgagor issued under a trust deed or other instrument
running in favour of a trustee."
C. The following shall be added immediately following Section 20 of the
said Filed Standard Mortgage
Terms:
"20A. IMMEDIATE PAYMENT AND PREPAYMENT
The Mortgagee may exercise its rights and remedies hereunder
immediately upon default, and the Mortgagor hereby confirms that except
as may be expressly otherwise provided herein or in any other written
agreement between the Mortgagor and the Mortgagee contemplating the
granting of this Mortgage, the Mortgagee has not given any covenant,
express or implied, and is under no obligation to allow the Mortgagor
any period of time to remedy any default prior to the Mortgagee
exercising its rights and remedies hereunder.
Any right or option contained in the said Filed Standard
Mortgage Terms to prepay or repay prior to the date of final payment
hereunder the whole balance or any portion of the principal monies
remaining unpaid hereunder may only be exercised in the absence of any
agreement to the contrary with respect to all or any portion of the
debts, liabilities and obligations from time to time secured hereby."
END OF DOCUMENT
<PAGE> 1
LAND TITLE ACT
FORM C
(Section 219.81)
Province of
British Columbia
GENERAL INSTRUMENT - PART 1 (This area for Land Title Office Use)
Page 1 of - 6 pages
- --------------------------------------------------------------------------------
1. APPLICATION: (Name, address, phone number and signature of applicant,
applicant's solicitor or agent)
BULL, HOUSSER & TUPPER, Barristers & Solicitors, Suite 3000, 1055 West
Georgia Street, Vancouver, British Columbia, V6E 3R3 687-6575 (Client
Number 010651)
Per:___________________________
- --------------------------------------------------------------------------------
2. PARCEL IDENTIFIER(S) AND LEGAL DESCRIPTION(S) OF LAND:*
(PID) (LEGAL DESCRIPTION)
023-306-696 Strata Lot 1 District Lot 764 Group I New
Westminster District Strata Plan LMS2241 Together
with an interest in the common property in
proportion to the unit entitlement of the Strata Lot
as shown on Form 1, Municipality of North Vancouver
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
3. NATURE OF INTEREST:*
DESCRIPTION DOCUMENT REFERENCE PERSON ENTITLED TO INTEREST
(page and paragraph)
Priority Agreement granting Entire Instrument Owner of Mortgage No. BK24371 and
Mortgage No.BK24371 and Assignment of Rents No. BK24372
Assignment of Rents No. (Transferee)
BK24372 priority over
Mortgage No. BK24373
</TABLE>
- --------------------------------------------------------------------------------
4. TERMS. Part 2 of this instrument consists of (select one only):
(a) Filed Standard Charge Terms [ ] D.F. Number:
(b) Express Charge Terms [X] Annexed as Part 2
(c) Release [ ] There is no Part 2 of this instrument
A selection of (a) includes any additional or modified terms referred to in Item
7 or in a schedule annexed to this instrument. If (c) is selected, the charge
described in Item 3 is released or discharged as a charge on the land described
in Item 2.
- --------------------------------------------------------------------------------
5. TRANSFEROR(S):*
LOCK INVESTMENTS LTD. (Incorporation No. 221322), of 300 - 1445 West
Georgia Street, Vancouver, British Columbia, V7X 1T2
- --------------------------------------------------------------------------------
6. TRANSFEREE(S): (including occupations(s), postal address(es) and postal
code(s))*
ROYAL BANK OF CANADA, a chartered bank of Canada, having a branch office
and postal address at 1025 West Georgia Street, Vancouver, British
Columbia, V6E 3N9
- --------------------------------------------------------------------------------
<PAGE> 2
GENERAL INSTRUMENT - PART 1 Page 2
- --------------------------------------------------------------------------------
7. ADDITIONAL OR MODIFIED TERMS: N/A
- --------------------------------------------------------------------------------
8. EXECUTION(S): This instrument creates, assigns, modifies, enlarges,
discharges, or governs the priority of the interest(s) described in Item 3 and
the Transferor(s) and every other signatory agree to be bound by this
instrument, and acknowledge(s) receipt of a true copy of the filed standard
charge terms, if any.
Officer Signature(s) EXECUTION DATE Party(ies) Signature(s)
Y M D
LOCK INVESTMENTS LTD. by its
/s/ PHILLIP C. MARSHALL 96 2 26 authorized signatory:
- -------------------------
Name: PHILLIP C. MARSHALL /s/ MARGHERITA OBERTI
Barristar & Solicitor ----------------------------
Suite 1724, Four Bentall Centre, Name: MARGHERITA OBERTI
1055 Dunsmuir St.
P.O. 49043, Vancouver,
British Columbia V7X 1C4
Telephone (604) 689-8001
OFFICER CERTIFICATION
Your signature constitutes a representation that you are a solicitor, notary
public or other person authorized by the Evidence Act, R.S.B.C. 1979, c. 116, to
take affidavits for use in British Columbia and certifies the matters set out in
part 5 of the Land Title Act as they pertain to the execution of this
instrument.
* If space insufficient, enter "SEE SCHEDULE" and attach schedule in Form E.
<PAGE> 3
Page 3
TERMS OF INSTRUMENT - PART 2
EXPRESS CHARGE TERMS
(Priority Agreement)
By its or their execution of the Form C (General Instrument -
Part 1) to which these Express Charge Terms are annexed, the Transferor(s)
described in Section 5 of the said Form C, for value received, does or do hereby
and thereby warrant, represent, grant, consent, covenant, agree, acknowledge and
confirm as follows:
1. Definitions
1.1 In these Express Charge Terms and in the Form C to which these Express
Charge Terms are annexed:
(a) "Agreement" means the agreement created by Part 1 and Part 2 together;
(b) "Debtor" means the party or parties described in Section I of Schedule A
hereto and includes its or their heirs, executors, administrators,
successors and assigns;
(c) "Form C" means the form identified as Form C (General Instrument - Part
1) to which these Express Charge Terms are annexed;
(d) "Grantor" means the party or parties described in Part 1 as the
Transferor(s);
(e) "Grantor Security" means the security issued or granted to or held by
the Grantor as described in Section II of Schedule A hereto and any
modification, extension, renewal or substitution thereof or therefor in
effect from time to time;
(f) "Lands" means the lands and premises described or referred to in Item 2
of Part 1 or, when the said lands and premises are not registered in the
name of the Debtor, the Debtor's interest therein;
(g) "Part 1" means all of the terms, conditions and other information
contained in Form C and any schedule or attachment to Form C and which
does not form a part of Part 2;
(h) "Part 2" means these Express Charge Terms;
(i) "Royal" means the party described in Part 1 as the Transferee(s);
(j) "Royal Security" means the security issued or granted to or held by
Royal as described in Section III of Schedule A hereto and any
modification, extension, renewal or substitution thereof or therefor in
effect from time to time;
<PAGE> 4
Page 4
(k) except where the context may otherwise require, all references to the
Grantor Security, the Royal Security and the Lands include in each case
where applicable each or any of them or any part or parts thereof
separately.
2. Warranties and Representations
2.1 The Grantor hereby warrants and represents to Royal:
(a) that the Grantor is the legal and beneficial owner of the Grantor
Security and that the Grantor Security has not been assigned,
transferred or otherwise disposed of, in whole or in part, and that the
Grantor is entitled to receive all monies secured thereby; and
(b) that the Grantor has not commenced any enforcement or realization
proceedings under any of the Grantor Security and that no floating
charge comprised in or constituted by any of the Grantor Security has
been crystallized.
3. Grant of Priority
3.1 The Grantor does hereby:
(a) consent to the creation or granting by the Debtor of the Royal Security
notwithstanding any prohibition thereof contained in the Grantor
Security and does hereby waive any breach by the Debtor of or default
under the Grantor Security resulting from the issuance or granting of
the Royal Security;
(b) grant to Royal priority over the interest which the Grantor has now or
may at any time hereafter acquire in and to the Lands under or by virtue
of the Grantor Security and does hereby postpone the Grantor Security
and the mortgages, charges and security interests created thereby, and
all right, title and interest of the Grantor thereunder or pursuant
thereto in and to the Lands to the Royal Security and the mortgages,
charges and security interests created thereby in or upon the Lands, to
the intent that all right, title and interest of the Grantor in and to
the Lands shall be subject to the right, title and interest which Royal
has now or may at any time hereafter acquire in and to the Lands under
or by virtue of the Royal Security to the same extent as if the Royal
Security and the mortgages, charges and security interests created
thereby had been entered into, granted, executed, delivered, registered,
attached and perfected and as if all moneys advanced or readvanced on
the security thereof from time to time had been advanced prior to the
entering into, granting, issuance, execution, delivery, registration,
attachment and perfection of the Grantor Security and the mortgages,
charges and security interests created thereby and prior to the
advancement of any monies secured thereby;
(c) postpone and defer all its rights under the Grantor Security and all the
lien, charge and security interest thereof upon or in the Lands to the
Royal Security and to the lien, charge and security interest which Royal
has acquired or may at any time hereafter acquire upon or in the Lands
under or by virtue of the Royal Security, to the intent that the Royal
Security shall be, become and remain a mortgage, charge and security
interest upon or in the Lands having and retaining priority to the full
extent thereof over the Grantor Security;
<PAGE> 5
Page 5
(d) agree that the provisions of this Agreement will apply notwithstanding
the respective date or dates on which:
(i) any floating charge of any of the Grantor Security or the
Royal Security is crystallized; the Grantor or Royal commences
enforcement or realization proceedings under the Grantor
Security or the Royal Security, as the case may be; or
(iii) any notice is given to any debtor of the Debtor either by the
Grantor or its assigns or by Royal and its assigns.
4. General Provisions
4.1 Royal may grant time, renewals, extensions, releases and discharges to,
accept compositions from and otherwise deal with the Debtor as it may see fit,
the whole without notice to the Grantor and without prejudice to or in any way
limiting or affecting the agreements on the part of the Grantor set forth in
this Agreement.
4.2 The headings to the provisions of this Agreement are inserted for
convenience of reference only and shall not form part of nor affect the
interpretation of this Agreement.
4.3 This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators, successors
and assigns. References herein to the singular or neuter include the plural and
the masculine or feminine, and vice versa, as the context may require.
<PAGE> 6
Page 6
SCHEDULE A
SECTION I - DEBTOR
NIFCO SYNERGY LTD.
SECTION II - GRANTOR SECURITY
1. Mortgage registered against the Lands under number BK24373.
SECTION III - ROYAL SECURITY
1. Mortgage of the Lands securing the principal sum of $289,000, which is
registered in the Vancouver Land Title Office under number BK24371;
2. Assignment of Rents registered against the Lands in the Vancouver Land
Title Office under number BK24372.
END OF DOCUMENT
<PAGE> 7
DIRECTION AS TO PAYMENT
TO: Royal Bank of Canada
Vancouver Business Banking Centre
1025 West Georgia Street
Vancouver, British Columbia
V6E 3N9
AND TO: Bull, Housser & Tupper
Barristers and Solicitors
3000 - 1055 West Georgia Street
Vancouver, British Columbia
V6E 3R3
RE: Financing provided by Royal Bank of Canada in connection with the
purchase by Nifco Synergy Ltd. of the real property described as Parcel
Identifier: 023-306-696, Strata Lot I District Lot 764 Group I New
Wesminster District Strata Plan LMS2241 Together, with an interest in
the common property in proportion to the unit entitlement of the Strata
Lot as shown on Form 1, Municipality of North Vancouver ("Lands").
- --------------------------------------------------------------------------------
This constitutes your irrevocable authority and direction to pay to or at the
direction of Allard & Company, Barristers & Solicitors, in trust, the sum of
$289,000 or such lesser sum as they may specify out of loan monies being made
available to the undersigned by Royal Bank of Canada in connection with the
purchase by the undersigned of the Lands and the clearing of title thereto.
Dated this 19 day of January, 1996.
THE CORPORATE SEAL OF )
NIFCO SYNERGY LTD. was hereunto affixed in )
the presence of: )
)
/s/ NATHAN NIFCO ) C/S
- ----------------------------------- )
Authorized Signatory )
<PAGE> 1
EXHIBIT 10.10
Registered June 9, 1997 under No. BL202283
LAND TITLE ACT
FORM B
(Section 219.1)
Province of British Columbia
<TABLE>
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------
MORTGAGE-PART 1 (This area for Land Title Use) PAGE 1 OF 27 PAGES
- ------------------------------------------------------------------------------------
1. APPLICATION: REFERENCE #File: V14271
Norma R. Barican of GOWLING, STRATHY & HENDERSON
Barristers and Solicitors
2414-1055 Dunsmuir Street
Vancouver, BC V7X 1J1 ______________________
Tel No. (604) 683-6498 Norma R. Barican
- ------------------------------------------------------------------------------------
2. PARCEL IDENTIFIER(S) AND LEGAL DESCRIPTION(S) OF THE MORTGAGED LAND:*
(PID) (LEGAL DESCRIPTION)
023-306-742 Strata Lot 6, District Lot 764, Group 1, New
Westminster District, Strata Plan LMS2241
- ------------------------------------------------------------------------------------
3. BORROWER(S) [MORTGAGOR(S)]: (Including postal address(es) and postal code(s))*
NIFCO SYNERGY LTD. (Incorp. No. 394358)
600 - 815 Hornby Street, Vancouver, British Columbia, V6Z 2E6
COVENANTOR: NATHAN NIFCO OF #411 - 1859 Spyglass Place, Vancouver, British
Columbia, V5Z 4G7
- ------------------------------------------------------------------------------------
4. LANDER(S) [MORTGAGEE(S)]: (Including occupations, postal address(es) and postal
code(s))*
GUILD PROPERTIES INC. (Incorp. No.386881)
300- 1445 West Georgia Street, Vancouver, British Columbia, V7X 1T2
- ------------------------------------------------------------------------------------
5. PAYMENT PROVISIONS:** b) Interest Rate: c) Interest
a) Principal Amount: Adjustment
$260,376 7% per annum Date: N/A Y M D
- ------------------------------------------------------------------------------------
d) Interest Calculation e) Payment Dates: f) First
Period: Semi-annually ninth day of each Payment
not in advance month Date: 97 7 09
- ------------------------------------------------------------------------------------
g) Amount of each periodic h) Interest Act (Canada) i) Last
payment: Statement: The Payment
$2,003.10 equivalent rate of Date: 02 6 09
interest calculated
half yearly not in
advance is 7% per
annum
- ------------------------------------------------------------------------------------
j) Assignment of Rents k) Place of payment: l) Balance
which the applicant Due Date:
wants registered? 02 6 09
YES No /X/ POSTAL ADDRESS IN ITEM
If YES, page and 4 ABOVE
paragraph number:
</TABLE>
* If space insufficient, enter "SEE SCHEDULE", attach schedule in Form E.
** If space in any box insufficient, enter "SEE SCHEDULE", attach schedule in
Form E.
<PAGE> 2
MORTGAGE - PART 1 PAGE 2 of 27 pages
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------
6. MORTGAGE contains floating charge on land? 7. MORTGAGE secures a current or
YES [ ] NO [X} running account? YES [ ] NO [X]
- ----------------------------------------------------------------------------------------------
8. INTEREST MORTGAGED:
Freehold [X]
Other (specify) [ ]*
- ----------------------------------------------------------------------------------------------
9. MORTGAGE TERMS:
Part 2 of this mortgage consists of (select one only):
a) Prescribed Standard Mortgage Terms [ ]
b) Filed Standard Mortgage Terms [ ] D.F. Number:
c) Express Mortgage Terms [X] (annexed to this mortgage as Part 2)
A selection of (a) or (b) includes any additional or modified terms referred to in
Item 10 or in a schedule annexed to this mortgage.
- ----------------------------------------------------------------------------------------------
10. ADDITIONAL OR MODIFIED TERMS:*
N/A
- ----------------------------------------------------------------------------------------------
11. PRIOR ENCUMBRANCES PERMITTED BY LENDER:*
N/A
- ----------------------------------------------------------------------------------------------
12. EXECUTION(S):** This mortgage charges the Borrower's interest in the land mortgaged as
security for payment of all money due and performance of all obligations in accordance
with the mortgage terms referred to in Item 9 and the Borrower(s) and every other
signatory agree(s) to be bound by, and acknowledge(s) receipt of a true copy of, those
terms.
</TABLE>
- --------------------------------------------------------------------------------
EXECUTION DATE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
OFFICER SIGNATURE(S) Y M D BORROWER(S) SIGNATURE(S)
/s/ PETER B. GORGOPA 97 06 09 NIFCO SYNERGY LTD. by its
- ----------------------------- authorized signatory(ies)
PETER B. GORGOPA
ALLARD AND COMPANY /s/ NATHAN NIFCO
Barristers & Solicitors -----------------------------
#600-815 HORNBY STREET Name:
VANCOUVER, B.C. V6Z 2E6
PHONE NO.: 689-3885 -----------------------------
Name:
/s/ PETER B. GORGOPA COVENANTOR
- -----------------------------
PETER B. GORGOPA /s/ NATHAN NIFCO
ALLARD AND COMPANY -----------------------------
Barristers & Solicitors 97 06 09 NATHAN NIFCO
#600-815 HORNBY STREET
VANCOUVER, B.C. V6Z 2E6
PHONE NO.: 689-3885
</TABLE>
OFFICER CERTIFICATION:
Your signature constitutes a representation that you are a solicitor, notary
public or other person authorized by the Evidence Act, R.S.B.C. 1979, c.116, to
take affidavits for use in British Columbia and certifies the matters set out
in Part 5 of the Land Title Act as they pertain to the execution of this
instrument.
* If space insufficient, enter "SEE SCHEDULE", attach schedule in Form E.
** If space insufficient, continue executions on additional page(s) in Form D.
<PAGE> 3
Page 3 of 27 pages
MORTGAGE TERMS - PART 2
1. DEFINITIONS
1.1 In this Mortgage:
(a) "BALANCE DUE DATE" means the balance due date, if any, set out or
referred to in item 5(1) of the Mortgage Form;
(b) "BUSINESS DAY" means any day which in Vancouver, British Columbia is
a day that is not a "holiday" as that word is defined in the
Interpretation Act (British Columbia) as amended or replaced from
time to time;
(c) "COVENANTOR" means Nathan Nifco;
(d) "FIRST PAYMENT DATE" means the first payment date, if any, set out
or referred to in item 5(f) of the Mortgage Form;
(e) "FIXTURES" mean all present and after-acquired structures,
additions, improvements, plant, machinery, apparatus, facilities,
equipment, fixtures and other goods installed in or affixed or
attached to the buildings or improvements situate on the Mortgagor's
Interest in the Mortgaged Lands or affixed or attached thereto,
including without limitation:
(i) all fences, motors, wiring, fixed mirrors, suspended ceiling
tiles, doors, windows and computers and all other structures,
additions, improvements, plant, machinery, apparatus,
facilities, equipment, fixtures and other goods installed in
or affixed or attached to the buildings or improvements
situate on the Mortgaged Lands or affixed or attached thereto
for use in carrying on an activity inside the said buildings
or improvements or on the said Mortgaged Lands;
(ii) all carpeting and other floor coverings, including without
limitation all carpets and floor coverings in all rooms, halls
and stairways;
(iii) all window coverings and fixtures, including without
limitation all awnings, shutters, drapes, blinds and valances;
(iv) all appliances, including without limitation all
refrigerators, ranges, dishwashers, garbage disposal units and
stoves; and
(v) all heating, cooling, plumbing, air-conditioning,
air-filtering, ventilating, conveyancing, electrical,
lighting, security, vacuum, telecommunications, sprinkler,
fire-fighting, cooking and refrigeration devices, systems and
equipment, including without limitation all furnaces, water
heaters, hot water tanks, oil and gas burners, electric
fixtures, escalators, elevators, boilers, pressure vessels,
stokers, blowers, tanks, gas pipes, radiators, aerials,
television antennae, satellite dishes and built-in furniture;
<PAGE> 4
Page 4 of 27 pages
(f) "HAZARDOUS MATERIALS" means:
(i) any oil, flammable substances, explosives, radioactive
materials, hazardous wastes or substances, toxic wastes or
substances or any other wastes, contaminates, materials or
pollutants which:
A. pose a hazard to the whole or any portion of the Lands,
or business of the Mortgagor in connection with the
Lands or to the persons on or about the Lands;or
B. cause the whole or any portion of the Lands or the
business of the Mortgagor in connection with the Lands
to be in violation of any Hazardous Materials Laws;
(ii) asbestos in any form which is or could become friable, urea
formaldehyde foam insulation, transformers or other equipment
which contain dielectric fluid containing levels of
polychlorinated biphenyls or radon gas;
(iii) any chemical, material or substance defined as or included in
the definition of "dangerous goods", "deleterious substance",
"hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous wastes", "restricted
hazardous waste", or "toxic substances", "waste" or words of
similar import under any applicable local, provincial or
federal law or under the regulations adopted or publications
promulgated pursuant thereto, including, but not limited to,
the Canadian Environmental Protection Act (Canada), Fisheries
Act (Canada), Transportation of Dangerous Goods Act (Canada),
Canada Water Act and the Waste Management Act (British
Columbia);
(iv) any other chemical, material or substance, exposure to which
is prohibited, limited or regulated by any governmental
authority or which may or could pose a hazard to the occupants
of the Lands or the owners or occupants of property adjacent
thereto or any other person coming upon the Lands or adjacent
property; and
(v) any other chemical, materials or substance which may or could
pose a hazard to the environment;
(g) "HAZARDOUS MATERIALS CLAIMS" means any and all enforcement, cleanup,
removal, remedial or other governmental or regulatory actions,
prosecution, investigations, agreements, injunctions or orders
instituted or completed pursuant to any Hazardous Materials Laws,
together with any and all claims made by any third party against the
Mortgagor in connection with the Lands or the business contribution,
cost recovery, compensation, loss or injury resulting from the
presence, release or discharge of any Hazardous Materials;
(h) "HAZARDOUS MATERIALS LAWS" means any federal, provincial or local
laws, rules, ordinances, regulations, order or other edicts having
the force of law relating to the environment or any Hazardous
Materials (including, without limitation, the use,
<PAGE> 5
Page 5 of 27 pages
handling, transportation, production, disposal, discharge or storage
thereof or the terms of any permit issued therefor) or the
environmental conditions on, under or about the Lands including,
without limitation, soil, ground water and indoor and ambient air
conditions;
(i) "INTEREST ADJUSTMENT DATE" means the interest adjustment date, if
any, set out or referred to in item 5(c) of the Mortgage Form;
(j) "INTEREST CALCULATION PERIOD" means the interest calculation period
set out or referred to in item 5(d) of the Mortgage Form;
(k) "INTEREST MARGIN" means the annual percentage rate, if any, above or
below the Prime Rate set out or referred to in item 5(b) of the
Mortgage Form;
(l) "INTEREST RATE" means, subject to the provisions of paragraph 19 of
this Mortgage, the annual interest rate set out or referred to in
item 5(b) of the Mortgage Form (or such other rate or rates of
interest as may be agreed upon between the Mortgagor and the
Mortgagee or as may be fixed by the Mortgagor pursuant to the Loan
Agreement), calculated and compounded at the end of each Interest
Calculation Period not in advance, and, if the Interest Rate is
stated to be a rate above or below the Prime Rate, Interest Rate
shall mean the rate per annum equal to the Prime Rate plus or minus
the Interest Margin, as the case may be, calculated and compounded
at the end of each Interest Calculation Period;
(m) "LANDS" mean:
(i) the land(s) described or referred to in item 2 of the Mortgage
Form together with the improvements, appurtenances and every
other thing referred to in Section 10 of the Land Transfer
Form Act (British Columbia), as amended or replaced from time
to time, and whether now or hereafter existing or acquired, in
connection with such land(s); and
(ii) the Fixtures;
(n) "LAST PAYMENT DATE" means the last payment date, if any, set out or
referred to in item 5(i) of the Mortgage Form;
(o) "MORTGAGE" means the Mortgage Form and these express mortgage terms,
read together, as amended, modified and extended from time to time;
(p) "MORTGAGE FORM" means the Form B under the Land Title (Transfer
Forms) Regulation (British Columbia), as amended or replaced from
time to time, which refers to these express mortgage terms and is
executed by the Mortgagor and the Covenantor, if any, and all
schedules and addenda attached to such Form B;
(q) "MORTGAGEE" means the person or persons described in item 4 of the
Mortgage Form as the lender(s) or mortgagee(s) and their respective
heirs, personal representatives, successors or assigns, as the case
may be;
<PAGE> 6
Page 6 of 27 pages
(r) "MORTGAGOR" means the person or persons described in item 3 of the
Mortgage Form as the borrower(s) or mortgagor(s) who executed the
Mortgage Form and their respective heirs, personal representatives,
successors or permitted assigns, as the case may be;
(s) "PAYMENT DATES" means the payment dates, if any, set out or referred
to in item 5(e) of the Mortgage Form and "PAYMENT DATE" means any
one of them;
(t) "PAYMENT OFFICE" means the place of payment set out or referred to
in item 5(k) of the Mortgage Form;
(u) "PERIODIC PAYMENT" means the amount of each payment, if any, set out
or referred to in item 5(g) of the Mortgage Form;
(v) "PERMITTED ENCUMBRANCES" means the prior encumbrances, if any, set
out or referred to in item 11 of the Mortgage Form;
(w) "PERSON" includes an individual, a corporation and a partnership of
individuals or corporations or a combination thereof;
(x) "PRIME RATE" means the variable percentage rate of interest per
annum announced from time to time by the Royal Bank of Canada at its
main branch in Vancouver, British Columbia, as a reference rate then
in effect for determining interest rates on Canadian dollar loans
made by the Royal Bank of Canada in Canada and as such the annual
variable rate of interest now designated by the Royal Bank of Canada
and commonly referred to and known as its "Prime Rate";
(y) "PRINCIPAL SUM" means, at any time and from time to time, the
outstanding balance of the principal amount set out or referred to
in item 5(a) of the Mortgage Form;
(z) "TERMS" and "MORTGAGE TERMS" mean, unless the context otherwise
requires, all of the covenants, agreements, provisos, terms,
conditions and provisions of this Mortgage, and the agreement set
out in item 12 of the Mortgage Form of the Mortgagor to be bound by
the mortgage terms referred to in item 9 shall constitute the
agreement of the Mortgagor to be bound by all of the covenants,
agreements, provisos, terms, conditions and provisions of this
Mortgage.
2. GRANT OF SECURITY
2.1 This Mortgage is made under Part 3 of the Land Transfer Form Act (British
Columbia) as amended or replaced from time to time.
2.2 For good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged by the Mortgagor, the Mortgagor:
(a) GRANTS AND MORTGAGES unto the Mortgagee forever ALL AND SINGULAR the
Lands subject only to the Permitted Encumbrances;
<PAGE> 7
Page 7 of 27 pages
(b) GRANTS AND MORTGAGES unto the Mortgagee forever ALL AND SINGULAR the
Fixtures subject only to the Permitted Encumbrances.
2.3 If the Mortgagor hereafter acquires any further or greater interest in the
Lands, this Mortgage shall extend to such interest in the Lands.
2.4 Without in any way affecting or releasing the Mortgagor's liability to the
Mortgagee for the payment of the moneys and the performance of the obligations
hereby secured and for the consideration aforesaid the Mortgagor assigns,
transfers and sets over to the Mortgagee:
(a) any moneys due and payable by an expropriating authority upon an
expropriation of any or all of the Lands, provided that such
assignment is limited to the amount of moneys secured hereby and
outstanding at the date the Mortgagor ceases to be the registered
owner of the Lands or such part of the Lands as may be affected by
any such expropriation, and the Mortgagor further agrees that it
shall execute and deliver any such further or additional
documentation which the Mortgagee may in the Mortgagee's sole
discretion deem necessary to effect the above assignment or which is
requested by the expropriating authority and also agrees to forward
to the Mortgagee copies of any documentation relating to an
expropriation or proposed expropriation of the Lands or any portion
thereof forthwith upon the receipt of the same; and
(b) all right, title, claim, demand and interest of the Mortgagor
whatsoever at law or in equity or otherwise to indemnification,
express or implied, of and from the performance and observance of
any and all of the terms of this Mortgage, including without
limitation payment of any and all moneys due under this Mortgage by
any purchaser of the Lands, or any part thereof, from the Mortgagor.
2.5 The security constituted or intended to be constituted by this Mortgage and
the indebtedness and obligations hereby secured or intended to be secured shall
exist notwithstanding any lack or limitation of status, power or capacity of the
Mortgagor or of the directors, officers, partners or agents thereof, or that the
Mortgagor may not be a legal entity, or by virtue of any irregularity, defect or
informality in the taking or registering of this Mortgage or any other security
and whether or not any or all of the foregoing is known to the Mortgagee.
3. PROVISO FOR REDEMPTION
3.1 Provided this Mortgage to be void on the occurrence of the following events:
(a) payment to the Mortgagee of the Principal Sum with interest thereon
at the Interest Rate calculated as well after as before maturity,
default and judgment, as follows:
(i) interest at the Interest Rate calculated as aforesaid on the
total of all amounts from time to time advanced or secured
hereunder as part of the Principal Sum and computed from the
respective dates of such advances, or when such sums become
secured, shall become due and be paid by Periodic Payments on
each and every Payment Date commencing on the First Payment
Date and continuing on
<PAGE> 8
Page 8 of 27 pages
each and every Payment Date thereafter to and including the
date the entire balance of the Principal Sum, interest thereon
as aforesaid and all other moneys due and owing hereunder are
fully paid and satisfied;
(ii) the outstanding balance of the Principal Sum together with
interest as aforesaid and all other sums secured hereunder
shall become due and be paid on the Balance Due Date (herein
sometimes called "maturity");
provided that the Mortgagor shall have the privilege, at any time
and from time to time of prepaying the whole or any part of the
monies secured hereby, without notice, bonus or penalty;
(b) payment by the Mortgagor to the Mortgagee of all such other moneys
as the Mortgagee may be entitled to by virtue of this Mortgage, as
and when such moneys shall become due and payable;
(c) payment of taxes and performance of statute labour; and
(d) observance and performance of all covenants, agreements, provisos,
terms, conditions and provisions herein contained.
AND the Mortgagor releases to the Mortgagee all the claims of the
Mortgagor on the Lands subject to the above provisos.
THE MORTGAGOR COVENANTS AND AGREES WITH THE MORTGAGEE AS FOLLOWS:
4. PAYMENT
4.1 The Mortgagor will duly pay the Principal Sum, interest, and all other
moneys secured hereby when due and hereunder and will observe the above
provisos.
4.2 The Principal Sum, interest and all other moneys payable hereunder shall be
paid when due without any set-off, deduction, defalcation or abatement
whatsoever.
4.3 If the Mortgagor fails to pay when due the Principal Sum, interest or other
moneys secured hereby, or any part thereof, including compound interest, the
Mortgagor shall pay to the Mortgagee compound interest thereon on demand, as
well after as before maturity, default and judgment, to be computed with rests
on the last day of each Interest Calculation Period.
4.4 The following shall apply if the Interest Rate is a rate below, equal to or
above the Prime Rate:
(a) if the Prime Rate changes and so often as the same occurs during the
currency of this Mortgage, the Interest Rate shall change without
notice to the Mortgagor on the same day and in the same amount as
the Prime Rate changed;
<PAGE> 9
Page 9 of 27 pages
(b) a certificate of any officer of the Hongkong Bank of Canada as to
the Prime Rate at any particular time or times, shall be deemed to
be conclusive evidence of the Prime Rate hereunder at such time or
times;
(c) if the Hongkong Bank of Canada shall at any time during the currency
of this Mortgage establish more than one rate of interest as its
Prime Rate, then for the purposes hereof the Prime Rate hereunder
shall be the higher or highest of such rates so established; and
(d) in the event foreclosure proceedings are commenced hereunder by the
Mortgagee, the Mortgagee may, at its option, apply to fix the
Interest Rate that will be payable hereunder after the grant of the
Order Nisi until the balance of the Principal Sum outstanding has
been paid in full at the Interest Rate applicable hereunder on that
day which is seven (7) days prior to the date of the grant of the
Order Nisi.
4.5 Until the Mortgagee shall notify the Mortgagor otherwise, all payments to be
made to the Mortgagee under this Mortgage shall be paid to or to the order of
the Mortgagee at the Payment Office, in dollars of lawful money of Canada,
solely on business days, and before 12:00 o'clock noon local time on any such
day and in the event a payment is made after 12:00 o'clock noon local time on
any business day, or is made on any day that is not a business day, such payment
will be deemed to have been received by the Mortgagee on the business day next
following.
4.6 The Mortgagor will, on the due date thereof, pay and satisfy all taxes,
rates, levies, charges, rents, assessments, statute labour and other impositions
whatsoever already or hereafter rated, charged, assessed or imposed no matter by
whom or by what authority howsoever on the Lands or on the Mortgagor or
Mortgagee in respect of the Lands, and submit to the Mortgagee upon its request
tax receipts evidencing the payment of taxes within thirty (30) days after they
become due, and if requested by the Mortgagee, the Mortgagor shall transmit to
the Mortgagee the assessment notices, tax bills and other notices affecting the
imposition of taxes forthwith after the receipt of such request.
4.7 If this Mortgage is now or at any time hereafter subject to any prior or
equal ranking, encumbrance, charge, lien or interest claimed upon the Lands,
including but not limited to Permitted Encumbrances (each hereinafter called a
"prior charge"):
(a) the Mortgagor will pay or cause to be paid as they become due all
payments required to be made under or by virtue of each prior
charge, whether for principal, interest, taxes or otherwise;
(b) the Mortgagor will duly observe, perform and comply with the
covenants, provisos and agreements contained in each prior charge
which are to be kept, observed and performed by it;
(c) any default under a prior charge which allows any person to commence
proceedings to enforce its rights resulting from such default, shall
be deemed to be default hereunder and shall entitle the Mortgagee to
exercise any and all remedies available to the Mortgagee in the
event of default hereunder; and
<PAGE> 10
Page 10 of 27 pages
(d) in the event of default by the Mortgagor under a prior charge which
allows any person to commence proceedings to enforce its rights
resulting from such default, the Mortgagee shall have the right, but
no obligation, to cure the same in its sole and absolute discretion.
4.8 The Mortgagor shall pay all costs, charges and expenses including, without
limitation, legal costs on a solicitor and his own client basis and appraiser's
fees, in connection with any modification or extension of this Mortgage
requested by the Mortgagor or reasonably requested by the Mortgagee to preserve
its security because of any act by the Mortgagor in respect of the Land.
4.9 The Mortgagor shall pay all fees, costs, charges and expenses including,
without limitation, legal fees, costs, charges and expenses on a solicitor and
his own client basis, which may be incurred by or on behalf of the Mortgagee
whether before or after court proceedings are commenced, or whether otherwise
incurred, in recovering, collecting, procuring or enforcing payment of any or
all the moneys secured under this Mortgage or in any way enforcing or protecting
the security of this Mortgage or enforcing any of the terms of this Mortgage
(including but not limited to all travelling expenses of the Mortgagee, the
Mortgagee's servants and agents, and commissions on collection of rent which may
be incurred by or on behalf of the Mortgagee in the taking, recovering and
keeping possession of the Lands or in inspecting the same) and all other amounts
generally in any other measure or proceedings taken by or on behalf of the
Mortgagee to realize or collect the moneys hereby secured or to defend or
perfect the title of the Lands, all of which fees, costs, charges, commissions,
expenses and other amounts shall be a charge under this Mortgage on the Lands in
favour of the Mortgagee and shall be payable forthwith by the Mortgagor to the
Mortgagee with interest at the Interest Rate until paid.
4.10 The Mortgagor shall forthwith upon demand repay to the Mortgagee all other
proper outlays incurred by the Mortgagee and not covered by any other covenant
herein.
4.11 The Mortgagee shall have a reasonable time after payment in full of the
moneys secured hereby within which to prepare and execute a discharge of this
Mortgage, and interest at the Interest Rate shall continue to run and accrue
until actual payment in full of all moneys secured hereby has been received by
the Mortgagee, and all legal and other expenses for the preparation and
execution of such discharge shall be borne by the Mortgagor, and the Mortgagor
will not be entitled to a discharge of this Mortgage unless and until the
Mortgagor shall have kept and performed all the covenants, provisos, agreements
and stipulations herein contained, whether the Mortgagee has taken legal
proceedings thereon and recovered judgment or otherwise.
4.12 The Mortgagor may prepay this Mortgage in whole or in part without notice,
bonus or penalty. Any amount prepaid shall be applied firstly to accrued but
unpaid interest with the balance applied to principal.
5. TITLE
5.1 The Mortgagor has a good title in fee simple to the Lands, subject only to
Permitted Encumbrances.
<PAGE> 11
Page 11 of 27 pages
5.2 The Mortgagor has the right to convey the Lands to the Mortgagee save as
aforesaid.
5.3 The Mortgagor has done no act to encumber the Lands, save as aforesaid.
5.4 There are no environmental risks or liabilities in connection with the Lands
known to the Mortgagor, (or if the Mortgagor is a corporation, to any of the
Mortgagor's directors and officers) which have not been disclosed to the
Mortgagee.
5.5 On default the Mortgagee shall have quiet possession of the Lands free from
all encumbrances, save only for Permitted Encumbrances, provided that until
default of payment the Mortgagor shall have quiet possession of the Lands.
5.6 The Mortgagor will execute such further assurances of the Lands as the
Mortgagee may require including without limitation any and all documents
required by the Mortgagee in connection with the Personal Property Security Act
(British Columbia) as amended by the Personal Property Security Amendment Act,
1990 (British Columbia) as further amended or replaced from time to time.
5.7 The Mortgagor will not permit a lien to be acquired or filed against the
Lands under the Builders Lien Act, (British Columbia), as amended or replaced
from time to time, or under any other statute or law at any time in force
affecting the Lands.
6. INSURANCE
6.1 The Mortgagor will forthwith insure and during the continuance of this
Mortgage will keep insured each and every building, structure, erection,
improvement, fixture or replacement thereof (including without limitation all
plant, equipment, apparatus, machinery and fixtures of every kind and nature
whatsoever) now on the Lands or which may hereafter be erected thereon against
loss or damage by fire and such other perils as the Mortgagee may reasonably
require.
6.2 The Mortgagor will keep and maintain third party liability insurance in an
amount satisfactory to the Mortgagee.
6.3 The Mortgagor will keep and maintain such other insurance as is customarily
maintained by persons operating or occupying similar properties in equivalent
locations.
6.4 All insurance coverage required by the Mortgagee shall be issued by insurers
in the form and upon terms and in amounts acceptable to the Mortgagee, and the
Mortgagor shall cause the Mortgagee to be named as a loss payee as its interest
may appear in respect of the Lands on the policy or policies of insurance
effected by the Mortgagor and shall cause mortgage clauses in a form approved by
the Mortgagee to be included in such policy or policies and shall provide
evidence of such insurance to the Mortgagee forthwith upon demand.
6.5 The Mortgagor will pay all insurance premiums and sums of money necessary
for such purposes as the same shall become due.
<PAGE> 12
Page 12 of 27 pages
6.6 The Mortgagor shall forthwith on the happening of any loss or damage furnish
to the Mortgagee at the Mortgagor's expense all necessary proofs and do all
necessary acts to enable the Mortgagee to obtain payment of insurance moneys.
6.7 The Mortgagor will forthwith assign, transfer and deliver over to the
Mortgagee each and every policy or policies of insurance and receipts thereto
appertaining.
6.8 Any insurance moneys received may, at the option of the Mortgagee, be
applied to a suspense account or in or towards rebuilding, reinstating or
repairing all or any portion of the Lands or be paid to the Mortgagor or any
other person appearing by the registered title to be or to have been the owner
of the Lands or be applied or paid partly in one way and partly in another or
such moneys may be applied, in the sole discretion of the Mortgagee, in whole or
in part on the moneys secured hereby or any part thereof whether due or not then
due;
6.9 To ensure that the Mortgagee may so apply such insurance moneys in the
manner herein contemplated, the Mortgagor assigns and releases to the Mortgagee
all rights of the Mortgagor to receive the insurance moneys and expressly waives
all the Mortgagor's rights and benefits under the Insurance Act (British
Columbia) as amended or replaced from time to time and the Fire Prevention
(Metropolis) Act 1774 as amended or replaced from time to time.
7. USE, ALTERATIONS AND REPAIRS
7.1 The Mortgagor shall not, without the express written consent of the
Mortgagee first had and obtained, change the present use of the Lands nor permit
the Lands or any portion thereof to be unoccupied or unused, except while
undeveloped or in the course of development.
7.2 The Mortgagor shall promptly observe, perform, execute and comply with all
laws, rules, requirements, orders, directions, ordinances and regulations of
every governmental, municipal and civil authority or agency concerning the Lands
and further agrees, at the cost and expense of the Mortgagor, to do and perform
all acts and things which may be required at any time hereafter by any such
present or future laws, rules, requirements, orders, directions, ordinances and
regulations and in particular, but without limiting the generality of the
foregoing:
(a) it will observe and comply in all material respects with the
provisions of all Hazardous Materials Laws pertaining to the Lands
or the business of the Mortgagor in connection therewith and from
time to time, upon request of the Mortgagee, provide to the
Mortgagee evidence satisfactory to the Mortgagee, acting reasonably,
of such observance and compliance;
(b) it will, after becoming aware thereof, promptly provide the
Mortgagee with notice of:
(i) the presence of or any discharge or release of Hazardous
Materials on, under or about the Lands which is required to be
reported to any governmental authority;
(ii) any Hazardous Materials Claims; and
(iii) any remedial action taken in response to any Hazardous
Materials Claims;
<PAGE> 13
Page 14 of 27 pages
thereof from time to time shall be in the absolute discretion of the Mortgagee
and not exercised or deemed exercised unless and until that advance has actually
been made to the Mortgagor, but nevertheless the security created by this
Mortgage shall take effect in accordance with the terms of this Mortgage
forthwith upon the execution hereof by the Mortgagor. NOTICE IS HEREBY GIVEN to
every person dealing with the title to the Lands that advances not exceeding the
aggregate amount secured by this Mortgage are contemplated and secured by this
Mortgage.
8.2 If this Mortgage is redeemed by the Mortgagor, it shall be cancelled and
shall not be reissued, but neither:
(a) any partial payment made thereon by the Mortgagor to the Mortgagee;
nor
(b) any ceasing by the Mortgagor to be indebted to the Mortgagee,
shall be deemed to be a redemption or cancellation pro tanto or otherwise, and
this Mortgage shall be and remain valid security for any subsequent advance by
the Mortgagee to the Mortgagor, including without limitation any additional
amounts which pursuant to the Loan Agreement are deemed to be Loans, to the same
extent as if that advance or re-advance had been made on the execution of this
Mortgage.
9. MORTGAGEE'S ELECTION TO MAKE PAYMENTS AND CURE DEFAULTS
9.1 If the Mortgagor fails to make any payment which the Mortgagor has
covenanted or agreed to make by the terms of this Mortgage or to provide proof
of the making of any such payment to the Mortgagee upon demand, the Mortgagee
may make any such payment.
9.2 If the Mortgagor fails to perform any covenant or agreement herein contained
on the part of the Mortgagor or to provide proof of performance to the Mortgagee
upon demand, the Mortgagee may in its sole discretion perform or cause to be
performed any such covenant or agreement and may do such acts as it considers
are reasonable to protect the interests of the Mortgagee and for such purposes
the Mortgagee and its authorized representatives may enter onto the Lands.
Without limiting the generality of the foregoing, the Mortgagee may:
(a) insure the buildings on the Lands in accordance with the provisions
hereof if the Mortgagor neglects to insure or to deliver policies
and receipts in accordance herewith;
(b) repair and reinstate the buildings and improvements on the Lands if
the Mortgagor fails to repair in accordance herewith or demolishes
or alters such buildings or improvements in contravention hereof;
(c) without any order or direction of the Mortgagor, pay to contractors,
sub-contractors, material men, labourers, and other persons
supplying or having a claim for work, services, or materials
supplied in and about the construction, repairing, altering or
replacing of any buildings, structures, erections or improvements
and the like now or hereafter constructed on the Lands, any moneys
due to them for such work, services or materials;
<PAGE> 14
Page 15 of 27 pages
(d) pay common expenses, assessments, contributions or levies required
to be paid in connection with any strata lot comprising the Lands;
and
(e) perform any other acts, matters or things necessary in the sole
opinion of the Mortgagee to prevent damage to or to protect or
preserve the Lands or to remedy any default of the Mortgagor
hereunder.
PROVIDED THAT the Mortgagee shall not be bound to exercise its rights
hereunder and, if the Mortgagee shall exercise its rights hereunder, it shall
not be liable to the Mortgagor for any loss or damage suffered by the Mortgagor
as a result of such exercise.
9.3 If the Mortgagee shall make payment to any creditor of the Mortgagor or any
encumbrance holder in respect of the Lands pursuant to the provisions hereof,
the Mortgagee shall be entitled to all equities and securities held by such
creditor or encumbrance holder in respect of the indebtedness or encumbrance
paid or satisfied.
9.4 All payments made and all sums of money expended by the Mortgagee under this
paragraph 9, including incidental costs, charges, expenses and outlays incurred
in doing anything under this paragraph 9, shall be forthwith payable by the
Mortgagor on demand with interest at the Interest Rate from the time or
respective times of the payment thereof until paid, and until paid shall be a
charge on the Lands in favour of the Mortgagee prior to all claims thereon
subsequent to this Mortgage and may be added to the Principal Sum as if the same
had originally formed part thereof.
9.5 Nothing done by the Mortgagee in reliance on the provisions of this
paragraph 9 shall in any manner prejudice the remedies of the Mortgagee in
respect of any default of the Mortgagor or otherwise.
10. DEFAULT AND ACCELERATION
10.1 If any default at any time be made of or in any payment of the Principal
Sum or interest hereby secured or mentioned, or intended so to be, or any part
thereof, at the times and in the amounts provided, or in payment of any of the
taxes, rates, levies, charges, rents, assessments, statute labour or other
impositions whatsoever, or under the covenant to insure herein given, or as to
any other covenant or proviso herein contained, or if the Mortgagor becomes
bankrupt or insolvent or makes or demonstrates an intention to make an
assignment for the benefit of its creditors or makes a proposal or takes
advantage of any provision of the Bankruptcy and Insolvency Act or any other
legislation for the benefit of insolvent debtors or if the whole or any portion
of the Lands become the subject of expropriation proceedings, then and in every
such case and in the sole discretion of the Mortgagee:
(a) the outstanding Principal Sum, interest, and all other moneys owing
hereunder shall forthwith become due and payable without notice in
like manner and with like consequences and effects to all intents
and purposes whatsoever as if the Balance Due Date had fully come
and expired, and notwithstanding that this Mortgage is declared to
be made in pursuance of Part 3 of the Land Transfer Form Act
(British Columbia), as amended or replaced from time to time, it is
expressly understood and agreed by the Mortgagor that the
reinstatement provisions of the form of words
<PAGE> 15
Page 16 of 27 pages
numbered 15 in Column II of Schedule 6 to the said Land Transfer
Form Act shall have no force and effect in respect of this Mortgage
or any of the moneys hereby secured, whether for interest, the
Principal Sum or upon any other account whatsoever and the
provisions relating to a default under this Mortgage by the
Mortgagor shall be as set out herein and the Mortgagor shall not be
relieved from the consequences of default by payment of the moneys
of which default of payment has been made and costs and charges
related thereto;
(b) the Mortgagee shall have possession of the Lands free and clear from
all encumbrances subject only to Permitted Encumbrances; and
(c) the Mortgagee may exercise any and all remedies to enforce this
Mortgage.
10.2 If the Mortgagor or any other person liable for the performance of any or
all of the Mortgagor's obligations under this Mortgage defaults in the
observance or performance of any of the terms of any other security documents
given or granted to the Mortgagee as additional or collateral security for the
payment of the moneys hereby secured or the performance of the terms of this
Mortgage, then such default shall be deemed to be a default under this Mortgage
and entitle the Mortgagee to exercise any and all remedies available to the
Mortgagee in the event of default under this Mortgage.
11. REMEDIES OF MORTGAGEE ON DEFAULT
11.1 The Mortgagee, on default of any payment required to be made hereunder as
and when due, may on one week's notice enter on and lease or sell the Lands or
any part or parts thereof; and should default in payment continue for one month,
the foregoing powers of entry and leasing or sale, or any of them, may be
exercised without notice and the Mortgagee may lease or sell as aforesaid
without entering into possession of the Lands; and the title of a purchaser or
lessee upon a sale or lease made in professed exercise of the above power shall
not be liable to be impeached on the ground that no case had arisen to authorize
the exercise of such power, or that such power had been improperly or
irregularly exercised or that notice had not been given; and the Mortgagee may
sell the whole or any part or parts of the Lands by public auction or private
contract, or partly one and partly the other, on such terms as to credit and
otherwise as to the Mortgagee shall appear most advantageous and for such prices
as can reasonably be obtained therefor; and sales may be made from time to time
of portions of the Lands to satisfy interest or parts of the Principal Sum
overdue, leaving the Principal Sum or balance thereof to run at interest,
payable at the Interest Rate; and the Mortgagee may make any stipulations as to
title or commencement of title, or otherwise, as the Mortgagee shall deem
proper; and the Mortgagee may buy in or rescind or vary any contract for sale of
any of the Lands and re-sell, without being answerable for any loss occasioned
thereby; and in the case of a sale on credit the Mortgagee shall only be bound
to account to the Mortgagor for such moneys as have been actually received from
the purchaser(s) after the satisfaction of the Mortgagee's claim; and for any of
such purposes the Mortgagee may make and execute all agreements and assurances
that the Mortgagee deems fit; and the purchaser at any sale hereunder shall not
be bound to see to the propriety or regularity thereof; and no want of notice or
of publication, even if required hereby, shall invalidate any sale hereunder;
and the above powers may be exercised by the Mortgagee and against the
Mortgagor, and the costs
<PAGE> 16
Page 17 of 27 pages
of any abortive sale shall become a charge upon the Lands, and the Mortgagee may
add them to the moneys secured hereby;
11.2 If default shall be made in payment of any part of the Principal Sum,
interest or other moneys hereby secured at any time herein provided for the
payment thereof, it shall be lawful for the Mortgagee to, and the Mortgagor
hereby grants full power and license to the Mortgagee to, enter, seize and
distrain upon any goods upon the Lands and by distress warrant to recover by way
of rent reserved as in the case of a demise of the Lands as much of the
Principal Sum, interest or other moneys hereby secured as shall from time to
time be or remain in arrears or unpaid, together with all costs, charges and
expenses of the Mortgagee in connection therewith (including without limitation
legal fees, costs, charges and expenses on a solicitor and his own client
basis);
11.3 The obtaining of a judgment or judgments in any action to enforce this
Mortgage or any of the covenants herein contained or any covenant contained in
any other security for payment of the moneys hereby secured or performance of
the obligations herein contained shall not operate as a merger of this Mortgage
or of the moneys hereby secured or any of the said covenants or affect the right
of the Mortgagee to interest at the Interest Rate and at the times aforesaid on
any moneys owing to the Mortgagee under any covenant therein or herein set
forth, and any judgment shall provide that interest shall be computed at the
Interest Rate and in the same manner as herein provided until the judgment or
judgments shall have been fully paid and satisfied;
11.4 Upon any default or defaults in the payment of the moneys hereby secured or
of any instalment thereof or of interest thereon, as they become due, or upon
any default by the Mortgagor in the performance or observance of any of the
terms of this Mortgage, or of any of the assignments of rents or leases or other
deeds or instruments from time to time given by the Mortgagor to the Mortgagee
as additional or collateral security for the moneys hereby secured, then on the
happening of any one or more of such events, the Mortgagor shall refrain from
collecting and receiving all rents accruing as aforesaid and, upon notice from
the Mortgagee, all tenants shall thereafter pay all such rents to the Mortgagee,
and any payment made otherwise will not discharge the obligations of such
tenant, and the Mortgagee may immediately cause default proceedings to be
commenced under this Mortgage in the manner prescribed by law, and the Mortgagee
shall be entitled to have a receiver, receiver-manager or a receiver and manager
appointed and, without proof of any ground for his appointment other than the
said default, to take possession and charge of the Lands and to fully and
effectively operate the business which the Lands comprise or which was conducted
thereon by the Mortgagor including, without limiting the generality of the
foregoing, the right to rent the same and receive and collect the rents, issues
and profits thereof under direction of the Court, and any amount so collected by
such receiver shall be applied under direction of the Court to the payment of
any judgment rendered, or amounts found due, according to the terms of this
Mortgage including the costs of collection and legal fees, costs, charges and
expenses on a solicitor and his own client basis, and in the event of any
default or defaults in the payment of the moneys hereby secured or of any
instalment thereof or of interest thereon or in the performance or observance of
any of the terms of this Mortgage, the Mortgagee shall have the right forthwith
after any such default to enter upon, take possession of and rent the Lands and
receive the rents, issues and profits thereof and apply the same, after payment
of all necessary charges and expenses, on account of the moneys hereby secured;
<PAGE> 17
Page 18 of 27 pages
11.5 In addition to the foregoing rights and powers, the Mortgagee may appoint
by instrument in writing a receiver, receiver-manager or receiver and manager
(herein called the "Receiver") of the Lands, with or without bond, and may from
time to time remove the Receiver and appoint another in his stead. A Receiver
appointed by the Mortgagee as aforesaid will be deemed to be the agent of the
Mortgagor and the Mortgagor shall be solely responsible for the Receiver's acts
or defaults and the Mortgagee shall not be in any way responsible therefor and
the Mortgagee shall not be liable to the Receiver for his remuneration, costs,
charges or expenses;
11.6 It is further specifically understood and agreed that the Receiver
appointed by the Mortgagee shall have the following powers, subject to any
limitations in the instrument in writing or any order of a court of competent
jurisdiction appointing him, namely to:
(a) take possession of the Lands;
(b) rent the Lands or any portion thereof and receive and collect the
rents, issues and profits thereof;
(c) carry on or concur in carrying on the business of the Mortgagor in
operating the business comprised of the Lands or which is conducted
thereon by the Mortgagor;
(d) pay any or all debts and liabilities in connection with the Lands;
(e) sell or lease or concur in selling or leasing any or all of the
Lands;
(f) make any arrangements or compromises which the Receiver considers
expedient;
(g) borrow money, upon the security of the whole or any part of the
Lands, to carry on the business of the Mortgagor comprised of the
Lands or which is conducted thereon by the Mortgagor or to maintain
the whole or any part of the Lands in a manner that will be
sufficient to obtain the amounts from time to time required in the
opinion of the Receiver, and in so doing the Receiver may issue
certificates (each herein called a "Receiver's Certificate") that
may be payable as the Receiver considers expedient and bear interest
as stated therein, and the amounts from time to time payable under
any Receiver's Certificate shall charge the Lands in priority to
this Mortgage and the Mortgagor hereby charges the Lands with the
debt, if any, owing from time to time under any Receiver's
Certificate; and
(h) institute and prosecute all suits, proceedings and actions which the
Receiver considers necessary or advisable for the proper protection
of the Lands, to defend all suits, proceedings and actions against
the Mortgagor or the Receiver, to appear in and conduct the
prosecution and defence of any suit, proceeding or action then
pending or thereafter instituted, and appeal any suit, proceeding or
action;
11.7 In exercising his powers hereunder, any Receiver will be free to deal with
the Lands and any assets of the Mortgagor related thereto in such order or
manner as he may be directed by the Mortgagee, any rule of law or equity to the
contrary notwithstanding, including, without limitation, the equitable principle
or doctrine of marshalling;
<PAGE> 18
Page 19 of 27 pages
11.8 The net revenue received from the Lands and the net proceeds of sale of the
Lands or any part thereof shall be applied by the Receiver, subject to the
claims of creditors, if any, ranking in priority to this Mortgage, as follows:
(a) firstly, in payment of all costs, charges and expenses of and
incidental to the appointment of the Receiver and the exercise by
him of all or any of the powers aforesaid including the reasonable
remuneration of the Receiver and all amounts properly payable to
him;
(b) secondly, in payment to the Mortgagee of all costs and charges owing
hereunder and interest and arrears of interest remaining unpaid
hereunder;
(c) thirdly, in payment to the Mortgagee of the Principal Sum owing
hereunder; and
(d) fourthly, any surplus shall be paid to the Mortgagor;
provided that in the event any party claims a charge against all or a portion of
the surplus, the Receiver shall make such disposition of all or any portion of
the surplus as the Receiver deems appropriate in the circumstances;
11.9 Neither the provisions of this Mortgage nor the exercise of the powers
provided in this Mortgage shall render the Mortgagee a mortgagee in possession,
and the Mortgagee shall not be accountable except for the moneys actually
received by the Mortgagee;
11.10 All remedies available to the Mortgagee herein shall be in addition to and
not restrictive of the remedies of the Mortgagee at law and in equity and by
statute;
11.11 Each remedy of the Mortgagee may be enforced in priority to or
concurrently with or subsequent to any other remedy or remedies of the
Mortgagee;
11.12 The Mortgagee may realize on various securities and any parts thereof in
any order that the Mortgagee may consider advisable, and any realization,
whether by foreclosure or sale, on any security or securities shall not bar
realization on any other security or securities.
12. PRESERVATION OF MORTGAGE AND OTHER SECURITY
12.1 No extension of time given by the Mortgagee to the Mortgagor, nor anyone
claiming under the Mortgagor, nor any other dealing by the Mortgagee with the
owner of the equity of redemption of the Lands, shall in any way affect or
prejudice the rights or remedies of the Mortgagee against the Mortgagor or any
other person liable either in whole or in part for the payment of the moneys
hereby secured or the performance of the obligations of the Mortgagor hereunder.
12.2 Every part, lot or strata lot into which the Lands are or may hereafter be
divided does and shall stand as charged with the whole of the moneys hereby
secured, and no person shall have any right to require the moneys hereby secured
to be apportioned upon or in respect of any such part, lot or strata lot.
<PAGE> 19
Page 20 of 27 pages
12.3 All erections, buildings, structures, machinery, plant and improvements
whatsoever, including furnaces, boilers, water heaters and all plumbing, air
conditioning, ventilating and heating equipment, electric light fixtures, storm
windows and storm doors, window screens and screen doors, (and if applicable,
refrigerators, ranges, dishwashers, clothes washers, clothes dryers, garbage
compactors and any other appliances and all apparatus and equipment appurtenant
thereto), which are now or which shall hereafter be owned by the Mortgagor and
be put upon the Lands, are or shall thereafter be deemed to be fixtures and a
part of the Lands and the security for the moneys hereby secured, even though
not attached otherwise than by their own weight.
12.4 The Mortgagee may at all times release any part or parts of the Lands or
any other security or any surety for payment of all or any part of the moneys
hereby secured or may release the Mortgagor or any other person from any
covenant or other liability to pay the moneys secured hereby or any part
thereof, either with or without any consideration therefor and without being
accountable for the value thereof or for any moneys except those actually
received by the Mortgagee, and without thereby releasing any other part of the
Lands or any other securities or covenants herein contained, it being agreed
that, notwithstanding any such release, the Lands, securities and covenants
remaining unreleased shall stand charged with the whole of the moneys hereby
secured.
12.5 The Mortgagee may waive any default hereunder provided that no such waiver,
nor any failure to enforce at any time or from time to time any of the rights of
the Mortgagee hereunder, shall prejudice the Mortgagee's rights in the event of
any future default or breach.
12.6 The provisions of this Mortgage and the security of this Mortgage are in
addition to, but not in substitution for, any other security now or hereafter
held by the Mortgagee for the Principal Sum, interest and other amounts hereby
secured or any part thereof.
12.7 Any act done or omitted to be done by any of the parties hereto regarding
any other securities held by the Mortgagee for the Principal Sum, interest and
other amounts hereby secured or any part thereof shall not in any way affect or
prejudice this Mortgage, and this Mortgage shall remain and be in force until
satisfaction thereof is made by payment of all sums hereby secured as if no
other security was held by the Mortgagee for such sums.
13. RIGHT OF CONSOLIDATION PRESERVED
13.1 The doctrine of consolidation shall apply to this Mortgage notwithstanding
Section 27 of the Property Law Act (British Columbia) as amended or replaced
from time to time.
14. SALE OR TRANSFER
14.1 If:
(a) the Lands or any part thereof are sold, transferred, conveyed or
assigned or otherwise disposed of, or the Mortgagor enters into any
agreement to effect any of the foregoing, whether by registered or
unregistered instrument and whether for valuable or nominal
consideration or otherwise, to a party not first approved in writing
by the Mortgagee; or
<PAGE> 20
Page 21 of 27 pages
(b) such purchaser, grantee, transferee or assignee should fail to:
(A) apply for and receive the Mortgagee's written approval as
aforesaid;
(B) if required by the Mortgagee, personally assume all the
obligations of the Mortgagor under this Mortgage; and
(C) if required by the Mortgagee, execute an assumption agreement
in the form required by the Mortgagee,
then the Mortgagee at its option may declare the Principal Sum then secured
hereunder, all accrued interest and all other moneys then secured hereby, to
become immediately due and payable in full and the Mortgagor shall pay the same
forthwith.
14.2 The word "assigned" as used in paragraph 14.1 shall include any transfer,
sale, assignment, bequest, inheritance, encumbrance or other disposition of
shares of any body corporate comprising the Mortgagor, in whole or in part,
having the result of changing the identity of the person(s) who during the
currency of this Mortgage exercise the effective voting control of such body
corporate.
14.3 The Mortgagee shall be entitled to be reimbursed for reasonable out of
pocket expenses it incurs to process each application for approval as herein
contemplated, which expenses shall be payable by the Mortgagor forthwith upon
demand. Failure by the Mortgagor to pay such expenses shall be deemed to be an
act of default hereunder. It is further understood and agreed that any approval
given hereunder shall in no way change the liability of the Mortgagor or in any
way alter the rights of the Mortgagee as against the Mortgagor or any other
person liable for payment of the moneys hereby secured.
15. STRATA LOT PROVISIONS
15.1 If the Lands now or at any time hereafter are comprised of one or more
strata lots, the Mortgagor covenants and agrees:
(a) "Act" means for the purposes of this paragraph, the Condominium Act
(British Columbia) as amended or replaced from time to time;
(b) where used in this paragraph 15, the terms "buildings", "common
facilities", "common property", "Form A certificate", "Form B
certificate", "owner", "Strata Corporation", "strata lot", and
"strata plan" shall have the respective meanings attributed to them
in the Act;
(c) to observe and perform in all material respects all the covenants,
agreements, conditions and provisos required to be observed and
performed under the Act and any by-laws, rules and regulations that
may be passed by the Strata Corporation or any special interest
section thereof of which the Mortgagor is a member by virtue of
ownership by the Mortgagor of the strata lot(s) hereby charged;
<PAGE> 21
Page 22 of 27 pages
(d) to pay, on or before the due dates thereof, the share of common
expenses and each and every assessment, contribution or levy made by
the Strata Corporation or any special interest section thereof
against the strata lot(s) and interest(s) in the Lands, and the
Mortgagor shall not permit a situation under which the Strata
Corporation or any special interest section thereof may register in
the land title office a Form B certificate under the Act;
(e) to forward to the Mortgagee within ten (10) days of demand by the
Mortgagee a Form A certificate as provided for in the Act certifying
that no moneys are owing to the Strata Corporation by the Mortgagor;
(f) that the Mortgagor shall not without the prior written consent of
the Mortgagee:
(i) assign any of the Mortgagor's rights, powers, duties or
obligations under the Act or the by-laws created under the
Act; or
(ii) give possession of any strata lot(s) hereby charged to any
person whether on the basis of an agreement providing for the
purchase of the strata lot(s) by the occupier or on the basis
of a lease, sublease or assignment of lease for a term of one
(1) year or more or otherwise;
(g) to grant and hereby grants to the Mortgagee all rights and powers to
vote conferred on the Mortgagor by the Act, but neither this section
nor anything done by virtue thereof shall render the Mortgagee a
mortgagee in possession;
(h) that this Mortgage constitutes express written notice to the
Mortgagor that the Mortgagee intends to exercise the power to vote
on any matters relating to insurance, maintenance, finance or other
matters affecting the security for this Mortgage and no additional
notice need be given to the Mortgagor to permit the Mortgagee to
exercise the right and power to vote conferred on the Mortgagor in
respect of these matters, and the Mortgagee may, at any duly called
meeting of the Strata Corporation of which the Mortgagee has
received written notice, exercise the right to vote on these matters
if the Mortgagee is not by its authorized representative, agent or
proxy, present at that meeting;
(i) that the right and power to vote granted in this Mortgage to the
Mortgagee does not impose on the Mortgagee any duty or obligation
whatsoever to protect the interest of the Mortgagor, and the
Mortgagee shall not be responsible for the consequences of any
exercise of the right to vote or any failure to exercise the right
to vote;
(j) that under Section 28(3) of the Act the Mortgagor hereby authorizes
any officer of the Mortgagee to apply at any time and from time to
time during the term hereof to the Strata Corporation to have the
by-laws for the time being in force governing the strata lot(s) and
interest in the Lands hereby charged made available for inspection
by an officer of the Mortgagee;
<PAGE> 22
Page 23 of 27 pages
(k) that under Section 36 of the Act the Mortgagor hereby authorizes any
officer of the Mortgagee to apply at any time and from time to time
to the Strata Corporation for certification to the Mortgagee of:
(i) the amount of any contribution determined as the contribution
of the Mortgagor;
(ii) the manner in which the contribution is payable;
(iii) the extent to which the contribution has been paid by the
Mortgagor; and
(iv) the amount of any moneys expended by the Strata Corporation on
behalf of the Mortgagor under Section 34(2) of the Act and not
recovered by the Strata Corporation;
(l) that the Mortgagor shall cause the Mortgagee to be named as a loss
payee as its interest may appear in respect of the strata lot(s) on
the policy or policies of insurance effected by the Strata
Corporation, on the buildings, common facilities and the insurable
improvements owned by the Strata Corporation and shall cause
mortgage clauses in a form approved by the Mortgagee to be included
in such insurance policy or policies and shall provide evidence of
such insurance to the Mortgagee forthwith upon demand;
(m) that if the insurance effected by the Strata Corporation on the
buildings and common facilities is inadequate in the opinion of the
Mortgagee, then the Mortgagor shall upon demand effect insurance of
the strata lot(s) and the Mortgagor's interest in the common
property against such risks or hazards and in an amount as the
Mortgagee may require with an insurance company and by a policy
satisfactory to the Mortgagee, which policy or policies shall
contain loss payable provisions and mortgage clauses as aforesaid,
and shall provide evidence of such insurance to the Mortgagee; and
(n) that the Mortgagee is the Mortgagor's agent to examine, inspect and
obtain copies of any and all records, minutes, books of account or
other documents of any nature and kind whatsoever which the
Mortgagor is entitled to examine or inspect.
16. PROMISSORY NOTE
16.1 Any promissory note or notes taken in connection with any advance of funds
to be secured hereunder is taken as collateral security only and not in
satisfaction of the moneys secured hereby.
17. OTHER OBLIGATIONS
17.1 Any default by the Mortgagor in the performance of any contractual
obligation to the Mortgagee under any agreement or legal instrument collateral
or supplemental hereto, and any default by any person or persons in the
performance or observance of any provision or covenant hereunder or under any
other security for the payment of the moneys secured by this
<PAGE> 23
Page 24 of 27 pages
Mortgage and any material adverse change in the financial condition of the
Mortgagor and/or any other person executing this Mortgage, and the making of any
misstatement by any person in any statutory declaration or certificate at any
time delivered in connection with this Mortgage, shall be deemed to be a default
hereunder and shall entitle the Mortgagee to exercise all remedies available to
the Mortgagee in the event of default by the Mortgagor hereunder.
18. ESTOPPEL CERTIFICATE
18.1 The Mortgagor, within seven (7) days after receipt of a request to do so,
will certify to the Mortgagee, or any person designated by the Mortgagee, the
amount of the Principal Sum then due hereunder, the date to which interest is
paid, that it has no right of set-off against the moneys due hereunder or, if it
has such a right of set-off, the amount thereof, and that there have been no
amendments hereof or, if there has been any such amendment, specifying it.
19. INTEREST RATE ALTERNATIVE
19.1 Subject to the provisions of paragraph 20, if the Interest Rate would,
except for this clause, be a criminal rate, or void for uncertainty, or
unenforceable for any other reason, or not capable of being ascertained, or is
determined by court to be subject to deemed reinvestment of interest then the
Interest Rate shall be one percent (1%) per annum less than the minimum rate
which would be a criminal rate calculated in accordance with generally accepted
actuarial practices and principles.
20. MAXIMUM RETURN TO MORTGAGEE
20.1 It is agreed that, notwithstanding any agreement to the contrary, no
Interest on the Credit Advanced will be payable in excess of that permitted by
the laws of Canada. If the effective annual rate of Interest, calculated in
accordance with generally accepted actuarial practices and principles, would
exceed 60% on the Credit Advanced, then:
(a) the amount of any fees payable in connection therewith will be
reduced to the extent necessary to eliminate such excess;
(b) any remaining excess that has been paid will be credited towards
prepayment of the principal amount; and
(c) any overpayment that may remain after such crediting will be
returned forthwith upon demand.
In this paragraph the terms "Interest" and "Credit Advanced" have the meanings
ascribed to them in section 347 of the Criminal Code.
21. MISCELLANEOUS
21.1 In order for any addition to or modification, amendment or variation of
this Mortgage to be effective it must be in writing and signed by all parties to
this Mortgage.
<PAGE> 24
Page 25 of 27 pages
21.2 Any extension of the term of payment of the moneys hereby secured, or any
part thereof, and any agreement increasing or decreasing the rate of interest
payable hereunder, prior to the execution of the discharge of this Mortgage by
the Mortgagee need not be registered in a land title office, but shall be
effectual and binding on the Mortgagor and any other person liable for the
moneys hereby secured, in whole or in part, and it shall not be necessary to
register any such agreement in order to retain priority of this Mortgage so
altered over any instrument registered as a charge against the Lands
subsequently to the registration of this Mortgage.
21.3 Any demand or notice necessary to be given in pursuance of the exercise of
the powers and provisions herein contained may be given to the Mortgagor or to
any encumbrancer by writing signed or purporting to be signed by or on behalf of
the Mortgagee.
21.4 Any demand or notice to be made or given under the provisions of this
Mortgage may be effectually made or given in writing addressed to the party to
whom it is made or given and delivered or mailed by registered post to the
address stated in Item 3 or Item 4 of Part 1 of this Mortgage, as the case may
be, or to such other address in British Columbia as the party to whom it is made
or given shall have previously specified by written notice, and shall be deemed
to have been made or given on the date of delivery if delivered and on the third
day after mailing if mailed.
21.5 The Mortgagee has not made and the Mortgagor does not rely on any
representations, warranties, covenants, agreements, conditions or provisos, oral
or otherwise, whether made by the Mortgagee or any person acting actually or
ostensibly on the Mortgagee's behalf, other than those contained in this
Mortgage unless those representations, warranties, covenants, agreements,
conditions and provisos are contained in a supplementary contract in writing
duly executed by both the Mortgagor and the Mortgagee which supplementary
contract is expressed to survive the closing of the transaction referred to
therein and the registration of this Mortgage.
21.6 If this Mortgage is executed by a Covenantor then the Covenantor hereby
guarantees to the Mortgagee payment of all moneys payable under this Mortgage,
provided that the Mortgagee shall not be bound to look to any other person or
the security it may hold before being entitled to payment from the Covenantor,
and provided further that the Mortgagee, at all times at its discretion and
without notice to any person and without thereby releasing the Covenantor from
payment of the moneys payable under this Mortgage, may agree with any proper
person or persons to alter or change in any way the terms of payment of this
Mortgage, and either with or without any consideration therefor may release any
person or persons from any liability under this Mortgage or release part or all
of the Mortgaged Lands or release any other security for the moneys secured by
this Mortgage, and may apply all moneys received on account of this Mortgage to
the payment of all moneys thereby secured (whether or not any amount is then
due) in such manner as the Mortgagee may determine.
22. INTERPRETATION
22.1 The paragraph headings in this Mortgage are inserted for convenience of
reference only and shall not affect the construction or interpretation of this
Mortgage.
<PAGE> 25
Page 26 of 27 pages
22.2 All references in this Mortgage to the words "hereof", "herein" or
"hereunder" shall be construed to mean and refer to this Mortgage as a whole and
shall not be construed to refer only to a specific paragraph or clause of this
Mortgage unless the context clearly requires such construction.
22.3 In the event of any party being comprised of two or more persons, all
covenants and agreements of such party herein contained shall be and be deemed
to be joint and several covenants or agreements of each such person, and the
heirs, executors, administrators, successors and permitted assigns of each such
person shall be jointly and severally bound by the covenants, agreements,
stipulations and provisos herein stated in addition to those granted or implied
by statute.
22.4 If any of the terms of this Mortgage are or are held to be unenforceable or
otherwise invalid, such holding will not in any way affect the enforceability or
validity of the remaining terms of this Mortgage.
22.5 This Mortgage including any covenants and indemnity of any covenantor
provided for herein shall be governed by and construed in accordance with the
laws of the Province of British Columbia, and each party hereby submits to the
jurisdiction of the courts of the Province of British Columbia and agrees to be
bound by any suit, action or proceeding commenced in such courts and by any
order or judgment resulting from such suit, action or proceeding; provided that
the foregoing shall in no way limit the right of the Mortgagee to commence
suits, actions or proceedings based on this Mortgage in any other jurisdiction.
22.6 Wherever the singular or masculine gender is used throughout this Mortgage,
the same shall be construed as meaning the plural or the feminine or the body
corporate or politic where the context or the parties hereto so require.
22.7 If title to the Lands or any portion thereof is held by the Mortgagor as a
partner of a firm, as a trustee, as an agent, or in any other similar capacity,
whether fiduciary or otherwise:
(a) each and every warranty, representation, covenant, agreement, term,
condition, proviso and stipulation; and
(b) each and every grant, mortgage, mortgage by way of sublease and
other charge constituted hereby;
made by or imposed upon the Mortgagor hereunder shall be and be deemed to be
jointly and severally made by or imposed upon the Mortgagor and the partnership,
the beneficiary (or beneficiaries) of the trust, the principals) of the agent,
or other entity (or entities), as the case may be, and each grant, mortgage,
mortgage by way of sublease and other charge contained in this Mortgage shall be
deemed to be a grant, mortgage, mortgage by way of sublease or charge of the
estate, right, title and interest of the partnership, the beneficiary (or
beneficiaries), the principals), or such entity (or entities), as the case may
be, in and to the Lands or such portion thereof, as the case may be as well as
being a grant, mortgage, mortgage by way of sublease or other charge, of the
estate, interest and title of the Mortgagor in and to the Lands, or such portion
thereof as the case may be, it being the intention of the
<PAGE> 26
Page 27 of 27 pages
parties hereto that this Mortgage shall constitute a charge against both the
legal and beneficial title to the Lands.
22.8 This Mortgage is intended by the Mortgagor and the Mortgagee to take effect
as a deed, notwithstanding that it may or may not be executed under seal
22.9 Time shall be of the essence hereof.
22.10 This Mortgage shall be dated, for reference purposes only, June 9, 1997.
END OF DOCUMENT
<PAGE> 1
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
STOCK PURCHASE WARRANT
This Stock Purchase Warrant (this "Warrant"), dated September 29, 1999, is
issued to LEVEL JUMP ASSET MANAGEMENT, INC. (the "Holder"), by
SMARTSOURCES.COM, INC., a Colorado corporation (the "Company").
1. Purchase of Shares. Subject to the terms and conditions hereinafter
set forth, the Holder is entitled, upon surrender of this Warrant at the
principal office of the Company (or at such other place as the Company shall
notify the holder hereof in writing), to purchase from the Company 150,000
fully paid and non-assessable shares of Common Stock, $.01 par value (the
"Common Stock"), of the Company (as adjusted pursuant to Section 7 hereof, the
"Shares") for the purchase price specified in Section 2 below.
2. Purchase Price. The purchase price for the Shares is $5.00 per
share. Such price shall be subject to adjustment pursuant to Section 7 hereof
(such price, as adjusted from time to time, is herein referred to as the
"Warrant Price").
3. Exercise Period. This Warrant is exercisable in whole or in part at
any time from the date hereof through September 29, 2001.
4. Method of Exercise. While this Warrant remains outstanding and
exercisable in accordance with Section 3 above, the Holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by surrender of this Warrant, together with a duly executed copy of
the form of Exercise Notice attached hereto, to the Secretary of the Company at
its principal offices, and the payment to the Company of an amount equal to the
aggregate purchase price for the number of Shares being purchased.
5. Certificates for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued as soon as practicable thereafter, and in any event
within thirty (30) days of the delivery of the subscription notice.
6. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Common Stock, free
from all preemptive rights with respect thereto, which will be sufficient to
permit the exercise of this Warrant for the full number of Shares specified
herein. The Company further covenants that such Shares, when issued pursuant to
the
<PAGE> 2
exercise of this Warrant, will be duly and validly issued, fully paid and
non-assessable and free from all taxes, liens and charges with respect to the
issuance thereof.
7. Adjustment of Warrant Price and Number of Shares. The number and
kind of securities purchasable upon exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time as follows:
(a) Stock Dividends, Subdivisions, Combinations and Other
Issuances. If the Company shall at any time prior to the expiration of this
Warrant subdivide its Common Stock, by stock split or otherwise, combine its
Common Stock or issue additional shares of its Common Stock as a dividend with
respect to any shares of its Common Stock, the number of Shares issuable on the
exercise of this Warrant shall forthwith be proportionately increased in the
case of a subdivision or stock dividend and proportionately decreased in the
case of a combination. Appropriate adjustments shall also be made to the
purchase price payable per share, but the aggregate purchase price payable for
the total number of Shares purchasable under this Warrant (as adjusted) shall
remain the same. Any adjustment under this Section 7(a) shall become effective
at the close of business on the date the subdivision or combination becomes
effective or as of the record date of such dividend, or, in the event that no
record date is fixed, upon the making of such dividend.
(b) Reclassification, Reorganization, Merger, Sale or
Consolidation. In the event of any reclassification, capital reorganization or
other change in the Common Stock of the Company (other than as a result of a
subdivision, combination or stock dividend provided for in Section 7(a) above)
or in the event of a consolidation or merger of the Company with or into, or the
sale of all or substantially all of the properties and assets of the Company, to
any person, and in connection therewith consideration is payable to holders of
Common Stock in cash, securities or other property, then as a condition of such
reclassification, reorganization or change, consolidation, merger or sale,
lawful provision shall be made, and duly executed documents evidencing the same
shall be delivered to the Holder, so that the Holder shall have the right at any
time prior to the expiration of this Warrant to purchase, at a total price equal
to that payable upon the exercise of this Warrant immediately prior to such
event, the kind and amount of cash, securities or other property receivable in
connection with such reclassification, reorganization or change, consolidation,
merger or sale, by a holder of the same number of shares of Common Stock as were
exercisable by the Holder immediately prior to such reclassification,
reorganization or change, consolidation, merger or sale. In any such case,
appropriate provisions shall be made with respect to the rights and interest of
the Holder so that the provisions hereof shall thereafter be applicable with
respect to any cash, securities or property deliverable upon exercise hereof.
Notwithstanding the foregoing, (i) if the Company merges or consolidates with,
or sells all or substantially all of its property and assets to, any other
person, and consideration is payable to holders of Common Stock in exchange for
their Common Stock in connection with such merger, consolidation or sale which
consists solely of cash, or (ii) in the event of the dissolution, liquidation or
winding up of the Company, then the Holder shall be entitled to receive
distributions on the date of such event on an equal basis with holders of Common
Stock as if this Warrant had been exercised immediately prior to such event,
less the Warrant Price. Upon receipt of such payment, if any, the rights of the
Holder shall terminate and cease, and this Warrant shall expire. In case of any
such merger, consolidation or sale of assets, the surviving or acquiring person
and, in the event of any dissolution, liquidation or winding up of the Company,
the Company shall promptly, after receipt of this surrendered Warrant, make
payment by delivering a
<PAGE> 3
check in such amount as is appropriate (or, in the case of consideration other
than cash, such other consideration as is appropriate) to such person as it may
be directed in writing by the Holder surrendering this Warrant.
(c) Certain Distributions. In case the Company shall fix a record
date for the making of a dividend or distribution of cash, securities or
property to all holders of Common Stock (excluding any dividends or
distributions referred to in Sections 7(a) or 7(b) above, the number of Shares
purchasable upon an exercise of this Warrant after such record date shall be
adjusted to equal the product obtained by multiplying the number of Shares
purchasable upon an exercise of this Warrant immediately prior to such record
date by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such distribution, and the denominator of which shall be
the Warrant Price immediately prior to such distribution, less the fair market
value per Share, as determined by the Holder, of the cash, securities or
property so distributed. Such adjustment shall be made successively whenever
any such distribution is made and shall become effective on the effective date
of distribution.
8. Pre-Exercise Rights. Prior to exercise of this Warrant, the Holder
shall not be entitled to any rights of a shareholder with respect to the
Shares, including without limitation, the right to vote such Shares, receive
preemptive rights or be notified of shareholder meetings, and the Holder shall
not be entitled to any notice or other communication concerning the business or
affairs of the Company.
9. "Piggy-Back" Registration.
(a) If the Company proposes to register any of its capital stock
under the 1933 Act in connection with the public offering of such securities
for its own account or for the account of its security holders, other than
Holders of Registrable Shares pursuant hereto (a "Piggy-Back Registration
Statement"), except for (i) a registration relating solely to the sale of
securities to participants in the Company's stock plans or employee benefit
plans or (ii) a registration relating solely to a transaction for which Form
S-4 may be used, then the Company shall give written notice of such
determination to each Holder of Registrable Shares, and each such Holder shall
have the right to request, by written notice given to the Company within
fifteen (15) days of the date that such written notice was mailed by the
Company to such Holder, that a specific number of Registrable Shares held by
such Holder be included in the Piggy-Back Registration Statement (and related
underwritten offering, if any);
(b) If the Piggy-Back Registration Statement relates to an
underwritten offering, the notice given to each Holder shall specify the name
or names of the managing underwriter or underwriters for such offering. In
addition, such notice shall also specify the number of securities to be
registered for the account of the Company and for the account of its
shareholders (other than the Holders of Registrable Shares), if any;
(c) If the Piggy-Back Registration Statement relates to an
underwritten offering, each Holder of Registrable Shares to be included therein
must agree (i) to sell such Holder's Registrable Shares on the same basis as
provided in the underwriting arrangement approved by the Company, and (ii) to
timely complete and execute all questionnaires, powers of attorney,
<PAGE> 4
indemnities, hold-back agreements, underwriting agreements and other documents
required under the terms of such underwriting arrangements or by the SEC, NASD
or by any state securities regulatory body;
(d) If the Piggy-Back Registration Statement relates to an
underwritten offering, the managing underwriter may limit or exclude the
Registrable Shares from the Piggy-Back Registration Statement if it deems it
desirable and in the best interests of the offering. If the number of
securities proposed to be sold in such underwritten offering exceeds the number
of securities that may be sold in such offering, there shall be included in the
offering, first, up to the maximum number of securities to be sold by the
Company for its own account, and second, as to the balance, if any, pro rata as
between Holders, based upon the number of Registrable Shares proposed to be
registered by each Holder, and any other shareholders having piggy-back
registration rights, based upon the number of shares proposed to be registered
by each of them.
(e) Holders of Registrable Shares shall have the right to withdraw
their Registrable Shares from the Piggy-Back Registration Statement, but if the
same relates to an underwritten offering, they may only do so during the time
period and on the terms agreed upon among the underwriters for such underwritten
offering and the Holders of Registrable Shares;
(f) The Holders will advise the Company at the time a registration
becomes effective whether the Registrable Shares included in the registration
will be underwritten or sold directly by the Holders;
(g) All demand and piggy-back registration rights of the Holders
shall terminate when all of the Registrable Shares then outstanding may be sold
pursuant to Rule 144(k) or when all of the Registrable Shares have been sold in
registered public offerings. These registration rights are transferable to any
Holder of the Registrable Shares.
(h) All expenses incurred in connection with the registration of
the Registrable Shares shall be borne by the Company, other than underwriting
discounts and commissions, registration, filing and qualification fees, and
printing expenses applicable to the Registrable Shares, and legal counsel to the
selling Holders, which shall be borne by the selling Holders.
11. Restricted Securities. The Holder understands that this Warrant
and the Shares purchasable hereunder constitute "restricted securities" under
the federal securities laws and are being, or will be, acquired from the Company
in transactions not involving a public offering and accordingly may not, under
such laws and applicable regulations, be resold or transferred without
registration under the Securities Act of 1933, as amended, or an applicable
exemption from registration. In this connection, the Holder acknowledges that
Rule 144 of the Securities and Exchange Commission is not now, and may not in
the future be, available for resales of the Shares purchased hereunder. The
Holder further acknowledges that the Shares and any other securities issued
upon exercise of this Warrant shall bear a legend substantially in the form of
the legend appearing of the face hereof.
<PAGE> 5
12. Investment Purpose. The Holder represents and warrants to the
Company that the Warrants and Shares are acquired for investments purposes only
and are not acquired with a view to, or for sale in connection with, any
distribution.
13. Successors and Assigns. This Warrant may not be assigned without
the prior written consent of the Company.
14. Governing Law. This Warrant shall be governed by the laws of the
State of Colorado, excluding the conflicts of laws provisions thereof.
SMARTSOURCES.COM, INC.
By: /s/ Darryl Cardey
-------------------------------
Darryl Cardey
Chief Financial Officer
<PAGE> 6
EXERCISE NOTICE
Dated ,
The undersigned hereby irrevocably elects to exercise the Stock Purchase
Warrant, dated September 29, 1999, issued by SmartSources.com, a Colorado
corporation (the "Company") to the undersigned to the extent of purchasing
shares of Common Stock and hereby makes payment of $ in payment
of the aggregate Warrant Price of such Shares.
LEVEL JUMP ASSET MANAGEMENT,
INC.
By:
------------------------
<PAGE> 1
SOFTWARE ACQUISITION AGREEMENT
THIS AGREEMENT MADE AS OF THE 1ST DAY OF OCTOBER, 1998
BETWEEN:
EMC Communications Inc., a corporation incorporated under the laws of
the Province of British Columbia (Hereinafter referred to as "EMC")
AND:
Nifco Synergy Ltd., a company formed under the laws of the Province of
British Columbia (Hereinafter referred to as "Nifco")
WHEREAS Nifco is owner of 40% of certain of the property rights in the Work as
hereinafter defined;
AND WHEREAS EMC desires to acquire the ownership interest in the Work for the
purpose of reproducing, marketing and distributing such Work in order to obtain
income therefrom;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mutual
covenants hereinafter contained the Purchaser hereby agrees to sell to EMC and
EMC agrees to purchase from Nifco the 40% of ownership in the Work under the
terms and conditions herein specified.
PART I -- DEFINITIONS
"Work" means:
(a) The FamilyWare Software, and all Derivatives, Modules and Products thereto;
o FamilyWare Software engine -- written in Visual C++, using an ODBC
interface to FoxPro database. This software engine is a powerful, 4th
generation software product which has been used to develop all
FamilyWare titles
o Family Christmas (all versions): A Windows software product which
includes Christmas planning information, such as holiday scheduler,
individual wish lists, shopping lists, and Christmas Card sent and
received records
o Family BabyBook (all versions): A Windows software product which
allows users to record all of the important details and precious
memories of your
<PAGE> 2
baby's first years -- height and weight, baby's "firsts", medical --
information, scanned photographs, and more. Family BabyBook can be
viewed on screen or in printed form and duplicated for far away family
members.
o Family Valuables (all versions): A Windows software product which
keep track of everything you own, from the family car to your
children's toys. Record every belonging with its source, cost,
location, appraisal and scanned image or photograph.
o FamilyPets (all versions): A Windows software product designed to help
pet owners take better care of their pets today, while at the same
time creating a lasting record including photographs and memorable
moments.
(b) All trademarks, patents, copyrights, intellectual property, applications
and pending applications, routines and subroutines; and all documentation
related to the product.
(c) All documentation, training and marketing materials in support of the
FamilyWare Software, and the business plan for the development, marketing
and distribution of the FamilyWare Software; and
(d) All contracts, agreements and arrangements outstanding or pending with
respect to the licensing, sale, support, maintenance, distribution or
manufacturing of any of the above.
PART II -- PURCHASE AND OWNERSHIP
2. WARRANTY OF OWNERSHIP
Nifco represents and warrants that is it the owner of 40% of the Work and holds
legal and beneficial title to the Ownership Percentage of the Work including all
pending trademark, trade secrets, patents, copyrights and intellectual property
rights. Furthermore, Nifco represents that no third party has any legal or
beneficial interest or pending intellectual rights in the Work.
3. PAYMENT OF PURCHASE PRICE
The Seller hereby agrees to sell to the Purchaser 40% Ownership Percentage in
the Work for $1,000,000 CND DLLs.
The Purchaser agrees to make payment of the purchase price by:
(a) Cash deposit of $150,000 (One hundred and fifty thousand Canadian dollars)
CND DLLs on or before June 15, 1998
<PAGE> 3
(b) Cash deposit of $75,000 (Seventy five thousand Canadian dollars) CND DLLs
on or before July 15, 1998
(c) Cash deposit of $75,000 (Seventy five thousand Canadian dollars) CND DLLs
on or before August 15, 1998
(d) A Promissory Note, due October 1st, 2015, in the amount of $700,000 (Seven
hundred thousand dollars Canadian dollars) CND Dollars.
and pay on the 31st of December each year the interest on the principal balance
from time to time outstanding at the lesser of 4% or the prescribed rate
compounded annually.
4. SECURITY
The purchaser acknowledges that the Promissory Note is evidence of a promise to
pay the balance of the purchase price to the Vendor and hereby grants the Vendor
a purchase-money security interest in the work and a general and continuing
security interest form payment and performance of all obligations hereunder in
the form of a Security Agreement attached to as Schedule "A"
5. APPLICATION OF DISTRIBUTABLE CASH
Subject to paragraph 3 of Part III, until such time as the principal and accrued
interest due and pursuant to the terms and conditions of the promissory Note
has been repaid in full, the purchaser agrees to apply its Distributable Cash,
derived from the and pertaining to this Agreement and the Work as follows:
a) Firstly, an amount equal to all accrued and unpaid interest owing under
the Promissory Note; and
b) Secondly, 45% of the balance to be paid to the Vendor on
account of principal owing pursuant to the terms of the Promissory Note; and
c) Thirdly, the balance to be retained by the Purchaser for its own use.
6. TAXES
EMC shall be responsible for all goods and services tax payable on the purchase
of the Work. Nifco agrees to cooperate with EMC in facilitating its application
for an input tax credit with respect to such payment.
7. TRANSFER OF TITLE TO THE WORK
Nifco hereby acknowledges and agrees that on October 1st, 1998 EMC shall own a
percentage equal to the Ownership Percentage in any and all rights, title and
interest now and in the future existing in and to the Work, as at before and
after the date hereof, and Nifco covenants that it shall not, directly or
indirectly, contest such ownership in any manner whatsoever, apply to register
any patent, copyright or trade-mark in connection therewith, or apply for any
other form of intellectual property protection relating to the Work without
prior notice to and content of EMC.
8. COPYRIGHTS AND INTELLECTUAL PROPERTY RIGHTS
(a) Nifco acknowledges that any and all of the trade names, copyrights and
other intellectual property rights used or embodied or in connection with
the Work shall vest in and remain the sole property of EMC in proportion to
its Ownership and Nifco
<PAGE> 4
shall not, directly or indirectly, at any time thereafter in any way
question or dispute such rights;
(b) In the event that Derivatives, inventions, designs, processes or
developments are created, designed or evolve in regards to the Work, Nifco
acknowledges and agrees that the same shall belong to EMC in proportion to
its Ownership Percentage;
(c) Nifco shall not write, rewrite or create software or products for itself or
any other party which is so similar to the Work or the Products that such
software and products may infringe the copyright for passing off or any
other rights of EMC relation to the Work.
PART III -- GENERAL
1. LAW OF AGREEMENT
The Agreement shall be governed by and interpreted in accordance with the laws
of the Province of British Columbia and the laws of Canada applicable therein,
as interpreted by the Courts of such province, and the parties irrevocable
attorn to the jurisdiction of the courts of such province.
2. CURRENCY
Any dollar amounts noted herein are represented in Canadian currency
3. ENTIRE AGREEMENT
This agreement sets forth all (and is intended by all parties to be an
integration of all) of the representations, promises, agreements and
understandings among the parties hereto with respect to the purchase, sale,
maintenance and development of the Work, and there are no representations,
promises, agreements or understandings, oral or written express or implied,
among them other than as set forth, referred to, or incorporated herein.
4. GENDER, ETC.
Words importing the singular number only include the plural, and words in the
plural include the singular, and the words importing the masculine gender shall
include the feminine gender and the neuter gender where the context so requires,
and wording importing Person shall include Persons or vice versa.
5. HEADINGS
The division of this Agreement into sections and the article headings are for
the convenience or reference only and shall not affect the interpretation or
construction of this Agreement.
<PAGE> 5
6. TIME OF THE ESSENCE
Time shall be of the essence in this Agreement.
7. WAIVER
No waiver of any provision of this Agreement shall constitute a waiver of any
other provision nor shall any waiver of any provision of this Agreement
constitute a continuing waiver unless otherwise expressly provided.
This Agreement shall be effective as of October 1st, 1998.
Michael Ozerkevich
for
EMC Communications Inc.
Per:
------------------------------
Nathan Nifco
for
Nifco Synergy Ltd.
Per:
------------------------------
Schedule A
Security Agreement
THIS AGREEMENT is made the 1st of October, 1998
BETWEEN
EMC Communications Inc.
a corporation incorporated under the laws of the Province of
British Columbia (hereinafter referred as the "Purchaser")
AND:
Nifco Synergy Ltd.
A corporation incorporated under the laws of British Columbia
(hereinafter referred as the "Vendor"
<PAGE> 6
Schedule A
Security Agreement
THIS AGREEMENT is made the 1st of October, 1998
BETWEEN
EMC Communications Inc.
a corporation incorporated under the laws of the Province of
British Columbia (hereinafter referred as the "Purchaser")
AND:
Nifco Synergy Ltd.
A corporation incorporated under the laws of British Columbia
(hereinafter referred as the "Vendor"
WHEREAS all terms capitalized herein and not otherwise defines shall have the
meanings as are ascribed to such terms in the vendor acquisition dated October
1, 1998 entered between the Vendor and the Purchaser (the Software Acquisition
Agreement);
AND WHEREAS pursuant to the terms of the Software Acquisition Agreement, the
Purchaser agreed to purchase an Ownership of the Work (term defined in the
Acquisition Agreement)
AND WHEREAS in consideration of the purchase price for the Ownership Percentage,
the Purchaser (i) paid to the Vendor the amount due on Closing; (ii) issued a
Promissory Note to the Vendor for the balance of the Purchase Price bearing
interest at the rate set out therein, and repayable by installments with the
final installment due on June 30, 2007 (the "Maturity Date");
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and
the covenants and agreements herein contained the parties hereto agree as
follows:
INTERPRETATION
1.1 INTERPRETATION
In this Agreement, unless something in the subject matter or context is
inconsistent therewith,
(a) "AGREEMENT" means this agreement and all amendments made hereto by
written agreement between the Purchaser and the Vendor;
(b) "COLLATERAL" has the meaning set out in Section 2.1;
<PAGE> 7
(c) "EVENT OF DEFAULT" has the meaning set out in Section 5.1;
(d) "MATERIAL CONTRACTS" has the meaning set out in the Software
Acquisition Agreement; and
(e) "WORK" has the meaning set out in the Software Acquisition Agreement.
The terms "accessions", "accounts", "instruments", "money", "proceeds" and
"securities" whenever used herein have the meanings given to those terms in the
Personal Property Security Act (British Columbia), as now enacted or as the same
may from time to time be amended, re-enacted or replaced.
1.2 SECTIONS AND HEADINGS
(a) The division of this Agreement into Articles and Sections and the
insertion of headings are for convenience of reference only and will
not affect the construction or interpretation of this Agreement;
(b) the terms "this Agreement", "hereof", "hereunder" and similar
expressions refer to this Agreement and not to any particular Article,
Section or other portion hereof and include any agreement supplemental
hereto; and
(c) Unless something in the subject matter or context is inconsistent
therewith, reference herein to Articles and Sections are to Articles
and Sections of this Agreement.
1.3 EXTENDED MEANINGS
In this Agreement words importing the singular number only include the
plural and vice versa, words importing any gender include all genders and words
importing include individuals, partnerships, associations, trusts,
unincorporated organizations corporations.
GRANT OF SECURITY INTEREST
2.1 SECURITY INTEREST
As general and continuing security for the payment and performance of all
obligations and liabilities of the Purchaser to the Vendor pursuant to the
Software Acquisition Agreement, including, the obligation to repay the
Promissory Note, the Purchaser hereby:
(a) grants to the Vendor a security interest in, assigns to the Vendor,
mortgages and charges as and by way of a first fixed and specific
mortgage and charge to the Vendor and, in the case of the Ownership
Percentage, pledges all right, title and interest that the Purchaser
now has or may hereafter have, be possessed of, be entitled to, or
acquire, by way of amalgamation or otherwise, in the Work;
(b) assigns, transfers and conveys to the Vendor all debts, book debts,
accounts, book accounts, claims, judgments, demands, monies and
choses in action which now are or may at any time hereafter be due,
owing or
<PAGE> 8
accruing due to, or owned by, the Purchaser in connection with the
Purchaser's Ownership Percentage in the Work, and also all securities,
instruments, bills, notes, policies and other documents now held or
owned or which may be hereafter taken, held or owned by the Purchaser
or anyone on behalf of the Purchaser in respect of the said debts,
book debts, accounts, book accounts, claims, judgments, demands,
monies and choses in action, or any part thereof, and also all books,
papers, documents and records (electronic or otherwise) recording,
evidencing or relating to the said debts, book debts, accounts, book
accounts, claims, judgments, demands, monies and choses in action, or
any part thereof (all of the foregoing being hereinafter collectively
referred to as the "Assigned Property"); and
(c) assigns, transfers and sets over and grants a security interest to the
Vendor in and to all of the Purchaser's right, title and interest in,
to and under (including all payments or distributions and securities
due or to become due to the Purchaser) (i) the Joint Venture
Agreement, and (ii) the Material Contracts as the same may be amended,
modified, restated or varied from time to time (collectively, the
"Assigned Agreements"); provided that the said assignment will not
render the Vendor liable to observe or perform any term, covenants or
condition of any of the Assigned Agreements.
(The Work, the Assigned Property and the Assigned Agreements are sometimes
hereinafter collectively referred to as the "Collateral").
2.2 ATTACHMENT OF SECURITY INTEREST
The Purchaser acknowledges that value has been given and agrees that the
charge and security interest granted hereby will attach when the Purchaser signs
this Agreement and the Purchaser has any rights in the Collateral.
GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
PURCHASERS
3.1 REPRESENTATIONS AND WARRANTIES
The Purchaser hereby represents and warrants to the Vendor that:
(a) except as otherwise provided herein, the Purchaser is the beneficial
and sole owner of the Collateral free from any liens, charges,
security interests, encumbrances or any rights of others which rank
prior to or pari passu with the security interest, assignment and
mortgage and charge granted hereby;
(b) it has requisite authority, right and power to execute and deliver
this Agreement and to take all actions required pursuant hereto; and
(c) other than pursuant to the Ownership Agreement and the Software
Acquisition Agreement, there is not now any contract, option or right
(at law, in equity or otherwise) binding upon the Purchaser to sell,
assign, charge or encumber the Work.
<PAGE> 9
3.2 COVENANTS
The Purchaser covenants with the Vendor that the Purchaser will:
(a) ensure that the representations and warranties set forth in Section
3.1 will be true and correct at all times;
(b) from time to time forthwith at the request and cost of the Vendor
execute and deliver all such financing statements, schedules,
assignments and documents, and do all such further acts and things as
may be reasonably required by the Vendor to effectively carry out the
full intent and meaning of this Agreement or to better evidence and
perfect the security interest, assignment, pledge and mortgage and
charge granted hereby;
(c) not change its name, jurisdiction of incorporation or registered
office without first giving notice to the Vendor of such change and
the date when such new change is to become effective; and
(d) not, without the prior written consent of the Vendor, create, permit,
assume, have outstanding or suffer to exist, any assignment, mortgage,
lien, charge, security interest or other encumbrance on the
Collateral, or any part thereof, ranking or purporting to rank, prior
to or pari passu with the security interest created hereby.
DEALING WITH COLLATERAL
4.1 DEALING WITH COLLATERAL BY THE PURCHASER
Except as permitted in the Ownership Agreement, the Purchaser shall not
sell, lease or otherwise dispose of any of the Collateral in his possession
without the prior written consent of the Vendor and in the event of any such
sale, lease or disposition permitted under the Ownership Agreement or consented
to by the Vendor, the Vendor will discharge its security interest in the
Collateral.
4.2 RIGHTS AND DUTIES OF THE VENDOR
The Vendor may perform any of its rights and duties hereunder by or through
agents and is entitled to retain counsel and to act in reliance upon the advice
of such counsel concerning all matters pertaining to its rights and duties
hereunder.
DEFAULT AND REMEDIES
5.1 EVENTS OF DEFAULT
The Purchaser will be in default under this Agreement upon the occurrence
of any of the following events (herein referred to as an "Event of Default"):
(a) the Purchaser does not pay all amounts when due under the Promissory
Note and such default is not remedied within 5 business days following
notice of the default;
(b) the Purchaser does not observe or perform any covenant or obligation
of the Purchaser contained in this Agreement and such default is not
remedied within 30 days after notice of such default is given to the
Purchaser;
<PAGE> 10
(c) any representation or warranty made by the Purchaser herein is proven
to be incorrect or misleading in any material respect at any
particular time;
(d) the Purchaser is an insolvent person within the meaning of the
Bankruptcy and Insolvency Act (Canada) or commits or threatens to
commit any act of bankruptcy;
(e) the commencement of any proceeding or the taking of any step by or
against the Purchaser for the appointment of one or more of a trustee,
receiver, receiver and manager, custodian, liquidator or any other
person with similar powers with respect to the Purchaser or the
Collateral or any part thereof; or
(f) the Collateral or any part thereof is seized or otherwise attached by
anyone pursuant to any legal process or other means, including
distress, execution or any other step or proceeding with similar
effect, and the same is not released, bonded, satisfied, discharged or
vacated within the shorter of a period of 15 day and 10 days less than
such period as would permit such property or any part thereof to be
sold pursuant thereto.
5.2 REMEDIES
(a) On or after the occurrence of any Event of Default (1) any or all
security granted hereby will, at the option of the Vendor, become
immediately enforceable; and (2) in addition to any right or remedy
provided by law, the Vendor will have the rights and remedies set out
below, all of which rights and remedies will be enforceable
successively, concurrently or both:
(i) the Vendor may take possession of the Collateral;
(ii) the Vendor may enforce any rights of the Purchaser in respect of
the Collateral by any manner permitted by law, but subject to
the terms of the Ownership Agreement;
(iii) the Vendor may sell, lease or otherwise dispose of the
Collateral at public auction, by private tender, by private sale
or otherwise either for case or upon credit upon such terms and
conditions as the Vendor may determine, provided that no such
sale or disposition shall be effective unless the lessee or
transferee agrees to become bound by the provisions of the
Ownership Agreement, in place and instead of the transferee;
(iv) the Vendor may accept the Collateral in satisfaction of the
Obligations upon notice to the Purchaser of its intention to do
so in the manner required by law;
(v) the Vendor may charge on its own behalf and pay to others all
reasonable amounts for expenses incurred and for services
tendered in connection with the exercise of the rights and
remedies of the Vendor hereunder, including, without limiting
the generality of the foregoing, reasonable legal and accounting
fees and expenses, and in every such case the amounts so paid
together with all costs, charges and expenses incurred in
connection therewith,
<PAGE> 11
including interest thereon at 8% per annum, will be added to and
form part of the Obligations hereby secured; and
(vi) the Vendor may discharge any claim, lien, mortgage, charge,
security interest, encumbrance or any rights of others that may
exist or be threatened against the Collateral, and in every such
case the amounts so paid together with costs, charges and
expenses incurred in connection therewith win be added to the
Obligations hereby secured.
(b) the Vendor may (i) grant extensions of time, (ii) take and perfect or
abstain from taking and perfecting security, (iii) give up securities,
(iv) accept compositions or compromises, (v) grant releases and
discharges, and (vi) release any part of the Collateral or otherwise
deal with the Purchaser, debtors of the Purchaser, sureties and others
and with the Collateral and other security as the Vendor sees fit
without prejudice to the liability of the Purchaser to the Vendor or
the Vendor's rights hereunder;
(c) the Vendor will not be liable or responsible for any failure to seize,
collect, realize or obtain payment with respect to the Collateral and
is not bound to institute proceedings or to take other steps for the
purpose of seizing, collecting, realizing or obtaining possession or
payment with respect to the Collateral or for the purpose of
preserving any rights of the Vendor, the Purchaser or any other
person, in respect of the Collateral;
(d) the Vendor may apply any proceeds of realization of the Collateral to
payment of expenses in connection with the preservation and
realization of the Collateral as above described and the Vendor may
apply any balance of such proceeds to payment of the Obligations in
such order as the Vendor sees fit and if there is any surplus
remaining, the Vendor may pay it to any person having a claim thereto
in priority to the Purchaser of whom the Vendor has knowledge and any
balance remaining must be paid to the Purchaser; and
(e) In the event the Vendor takes possession of or accepts the Collateral,
the Vendor will be bound by the terms of the Ownership Agreement in
place and instead of the defaulting Purchaser.
GENERAL
6.1 BENEFIT OF THE AGREEMENT
This Agreement will enure to the benefit of and be binding upon the
successors and permitted assigns of the parties hereto and in the case of the
Purchaser, his heirs and executors.
6.2 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof and cancels and supersedes any prior
understandings and agreements between the parties hereto with respect thereto
and there are no representations, warranties, terms, conditions, undertakings or
collateral
<PAGE> 12
agreements, express, implied or statutory, between the parties except as
expressly set forth in this Agreement and the Material Contracts.
6.3 AMENDMENTS AND WAIVERS
No amendment to this Agreement will be valid or binding unless set forth in
writing and duly executed by all of the parties hereto and no waiver of any
breach of any provision of this Agreement will be effective or binding unless
made in writing and signed by the party purporting to give the same and, unless
otherwise provided in the written waiver, will be limited to the specific breach
waived.
6.4 ASSIGNMENT
The rights of the Vendor under this Agreement may be assigned by the Vendor
without the prior consent of the Purchaser, provided that any assignee shall be
subject to any equities that exist between the Vendor and the Purchaser and
except as permitted under the Ownership Agreement, the Purchaser may not assign
his obligations under this Agreement without the consent of the Vendor.
6.5 SEVERABILITY
If any provision of this Agreement is determined to be invalid or
unenforceable in whole or in part, such invalidity or enforceability will attach
only to such provision or part thereof and the remaining part of such provision
and all other provisions hereof will continue in full force and effect.
6.6 NOTICES
(a) Any demand, notice or other communication to be given in connection
with this Agreement must be given in writing and may be given by
personal delivery or by registered mail addressed to the recipient as
follows:
<PAGE> 13
To the Purchaser: EMC Communications Inc.
4th Floor,
Scotiabank Building
200 Portage Avenue
Winnipeg, Manitoba
R3C 3X2
Attention: Kenneth J. Dalton
Facsimile: (204) 943-2385
To the Vendor:
Nifco Synergy Ltd.
Suite 100 -- 2030 Marine Drive
North Vancouver, British Columbia
V7P 1V7
Attention: Nathan Nifco
Fax: (604) 986-0869
or such other address as may be designated by notice given by any
party to the other;
(b) any demand, notice or other communication given by personal delivery
will be conclusively deemed to have been given on the date of actual
delivery thereof and, if given by registered mail, on the third
business day following the deposit thereof in the mail; and
(c) if the party given giving any demand, notice or other communication
knows or ought reasonably to know of any difficulties with the postal
system that might affect the delivery of mail, any such demand, notice
or other communication must not be mailed but must be given by
personal delivery.
6.7 FURTHER ASSURANCES
The Purchaser must, at his expense from time to time, do, execute and
deliver, or cause to be done, executed and delivered, all such financing
statements, further assignments, documents, acts, matters and things as may be
reasonably requested by the Vendor for the purpose of giving effect to this
Agreement.
6.8 POWER OF ATTORNEY
Upon the occurrence of an Event of Default that is continuing, the
Purchaser hereby irrevocably constitutes and appoints any officer for the time
being of the Vendor the true and lawful attorney of the Purchaser, with full
power of substitution, to do, make and execute all such statements, assignments,
documents, acts, matters or
<PAGE> 14
things with the right to use the name of the Purchaser whenever and wherever the
officer may deem necessary or expedient and from time to time to exercise all
rights and powers and to perform all acts of ownership in respect to the
Collateral in accordance with this Agreement.
6.9 GOVERNING LAW
This Agreement will be governed by and construed in accordance with the
laws of the Province of British Columbia and the laws of Canada applicable
therein.
6.10 EXECUTED COPY
The Purchaser acknowledges receipt of a fully executed copy of this
Agreement.
IN WITNESS WHEREOF the parties have executed this Agreement.
The 22 day of June, 1998. EMC COMMUNICATIONS INC.
JUNE 22/98 By: /s/
- ---------------------------- ------------------------------------
Date of Execution
The __ day of June, 1998. NIFCO SYNERGY LTD.
JUNE 22/98 By: /s/
- ---------------------------- ------------------------------------
Date of Execution
<PAGE> 1
11.01
The numerators and denominators of basic and diluted earnings per share are as
follows:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Numerator - Net income (loss) as reported $ 152,900 $ (672,800)
Denominator - Weighted average number of shares outstanding 6,688,300 10,084,200
Effect of dilutive securities -- --
Diluted weighted average number of shares outstanding 6,688,300 10,084,200
Basic earnings (loss) per share $ 0.02 $ (0.07)
Diluted earnings (loss) per share $ 0.02 $ (0.07)
</TABLE>
As described in Note 10 of the Financial Statements, during 1999 the Company
granted stock options and warrants to purchase up to 2,069,000 shares, and its
subsidiaries issued preferred shares with exchange rights for up to 5,011,400
common shares. These shares were not included in computing diluted earnings per
share because their effects were antidilutive.
<PAGE> 1
21.01
Subsidiaries of SmartSources.com Inc.
Nifco Investments Ltd. was incorporated in the province of British Columbia,
Canada in September 1998. It conducts business as Nifco Investments Ltd.
SmartSources.com Technologies Inc. is a British Columbia corporation organized
in 1990. It conducts business as SmartSources.com.
Intelli Trade Inc. is a British Columbia corporation organized in 1994. It
conducts business as Intelli Trade Inc.
Origin Software Corporation is a British Columbia corporation organized in
September 1998, conducting business as Origin Software Corporation.
Infer Technologies Inc. is a Delaware corporation organized in 1999. It conducts
business as Infer Technologies Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000827082
<NAME> SMARTSOURCES.COM INC
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1998
<PERIOD-START> OCT-01-1998 OCT-01-1997
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 164,200 1,700
<SECURITIES> 0 0
<RECEIVABLES> 184,800 405,700
<ALLOWANCES> 36,500 11,100
<INVENTORY> 0 0
<CURRENT-ASSETS> 443,800 417,500
<PP&E> 764,300 727,200
<DEPRECIATION> 272,500 150,100
<TOTAL-ASSETS> 2,956,900 1,426,700
<CURRENT-LIABILITIES> 277,000 432,400
<BONDS> 0 0
0 0
0 0
<COMMON> 1,821,300 100
<OTHER-SE> (3,086,200) (2,225,800)
<TOTAL-LIABILITY-AND-EQUITY> 2,956,900 1,426,700
<SALES> 721,000 1,571,100
<TOTAL-REVENUES> 721,000 1,571,100
<CGS> 0 0
<TOTAL-COSTS> 1,971,500 995,900
<OTHER-EXPENSES> 115,700 319,600
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 50,300 63,300
<INCOME-PRETAX> (1,366,200) 255,600
<INCOME-TAX> 693,400 (102,700)
<INCOME-CONTINUING> (1,250,500) 575,200
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (672,800) 152,900
<EPS-BASIC> (0.07) 0.02
<EPS-DILUTED> (0.07) 0.02
</TABLE>
