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As filed with the Securities and Exchange Commission on March __, 2000
Registration No. 333-_____
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SMARTSOURCES.COM, INC.
(Name of Small Business Issuer in its Charter)
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COLORADO 7372 84-1073083
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Numbers) Identification No.)
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2030 MARINE DRIVE, SUITE 100, NORTH VANCOUVER, BRITISH COLUMBIA, CANADA V7P 1V7
(604) 986-0889
(Address and telephone number of principal executive offices)
2030 MARINE DRIVE, SUITE 100, NORTH VANCOUVER, BRITISH COLUMBIA, CANADA V7P 1V7
(Address or principal place of business or intended principal place of business)
MICHAEL J. FORSTER
DARRYL CARDEY
SMARTSOURCES.COM, INC.
2030 MARINE DRIVE, SUITE 100
NORTH VANCOUVER, BRITISH COLUMBIA, CANADA V7P 1V7
(604) 986-0889
(Name, address and telephone number of agent for service)
Copy to:
NORMAN R. MILLER, ESQ.
WOLIN, RIDLEY & MILLER LLP
1717 MAIN STREET, SUITE 3100
DALLAS, TEXAS 75201
TELEPHONE (214) 939-4900
FACSIMILE (214) 939-4949
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of the Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis under Rule 415 under the Securities Act of 1933, as
amended, check the following box: [X]
If this form is filed to register additional securities for an offering under
Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering: [ ]
If this form is a post-effective amendment filed under Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]
If this form is a post-effective amendment filed under Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made under Rule 434, please
check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of Each Class of Amount Maximum Maximum Amount of
Securities to be Registered to be Offering Price Aggregate Registration
- --------------------------- Registered Per Share(1) Offering Price(1) Fee
------------ ----------------- ------------------ ------------
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Common Stock, no par value 4,149,192(2) $7.91 $32,820,108.72 $8,664.51
============ ===== ============== =========
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(1) Estimated in accordance with Rule 457 solely for the purpose
of determining the registration fee and based on the average
of the bid and asked prices as reported by the OTC Electronic
Bulletin Board on March 13, 2000.
(2) This registration statement includes (a) 3,732,716 Shares
which may be issuable upon conversion of debentures in the
aggregate principal amount of $5,000,000 and upon exercise of
the investment options and warrants related to the debentures,
and (b) 416,476 Shares which may be acquired upon exercise of
other options and warrants or which were acquired in exchange
for subsidiary shares. The above estimate of the number of
shares issuable to holders of the convertible debentures
represents an agreed upon calculation of a multiple of the
number of shares potentially issuable upon conversion of the
debentures and exercise in full of the related investment
options at an assumed conversion price and exercise in full of
the related warrants at their fixed exercise price. The actual
number of shares issuable upon conversion of the debentures
and exercise of the related investment options is
indeterminate and depends on a number of factors which cannot
be predicted by us at this time and could be materially less
or more than the number set forth above. The amount to be
registered represents a good faith estimate of the shares of
Common Stock issuable upon conversion of the debentures and
exercise of the related investment options and warrants. This
registration statement also relates to an indeterminate number
of additional shares issuable upon conversion of the
debentures and exercise of the related investment options and
warrants, and exercise of the other options and warrants, as
such number may be adjusted as a result of stock splits, stock
dividends and similar transactions in accordance with Rule 416
under the Securities Act.
The registrant will amend this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting under Section 8(a), may determine.
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SUBJECT TO COMPLETION, DATED MARCH ___, 2000
4,149,192 SHARES
SMARTSOURCES.COM, INC.
COMMON STOCK
Our primary business focus is our Internet-based, content-management
technology known as kServer(TM). We seek to develop and provide web-based
solutions to communication and content-management needs by applying kServer(TM).
Although our primary focus is content-management solutions, we have
historically focused on our proprietary trade compliance software known as
ORIGIN(TM). We also provide international trade consulting services to
businesses operating under NAFTA and other trade regulatory requirements. See
"Business."
We have prepared this prospectus to allow holders of our convertible
debentures to sell up to 3,732,716 shares of our Common Stock which they may
acquire on conversion of the debentures or exercise of related investment
options and warrants related to the debentures. We have also prepared this
prospectus to allow other persons to sell up to 416,476 shares of our Common
Stock which they may acquire upon exercise of other options and warrants or
which they acquired in exchange for subsidiary shares. The holders of our
debentures and such other persons are collectively referred to as the "Offering
Shareholders," and all such shares of Common Stock are collectively referred to
as the "Shares."
We will receive no portion of the proceeds from the conversion of
debentures or the sale of Shares by the Offering Shareholders, but we will
receive proceeds, if any, from the exercise of investment options or warrants
related to the debentures or the exercise of other options or warrants by the
Offering Shareholders. The Offering Shareholders are under no obligation to
exercise any investment options, options or warrants. We will bear the expenses
in connection with the registration of the Shares. See "Plan of Distribution,"
"Use of Proceeds" and "Offering Shareholders."
The Shares covered by this prospectus may be offered and sold in
accordance with the Plan of Distribution described on page 32.
Our Common Stock is traded on the OTC Electronic Bulletin Board ("OTC
Bulletin Board") under trading symbol SSXX. On March 13, 2000, the closing price
for the Common Stock as reported on the OTC Bulletin Board was $7.9375 per
share.
See "Risk Factors," on page 4 of this prospectus for a discussion of
certain factors that should be considered by prospective purchasers.
Neither the Securities and Exchange Commission nor any state
securities commission has passed upon the accuracy or adequacy
of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is __________, 2000.
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TABLE OF CONTENTS
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Page
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FORWARD-LOOKING STATEMENTS AND CERTAIN DEFINED TERMS................................................ 1
PROSPECTUS SUMMARY.................................................................................. 1
RISK FACTORS........................................................................................ 4
USE OF PROCEEDS.................................................................................... 11
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS............................................ 12
DIVIDEND POLICY.................................................................................... 12
CAPITALIZATION..................................................................................... 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................................................................ 13
RECENT DEVELOPMENTS................................................................................ 16
BUSINESS .......................................................................................... 17
MANAGEMENT......................................................................................... 24
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..................................... 29
OFFERING SHAREHOLDERS.............................................................................. 30
PLAN OF DISTRIBUTION............................................................................... 32
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE............................................ 33
CERTAIN TRANSACTIONS............................................................................... 34
DESCRIPTION OF SECURITIES.......................................................................... 35
SHARES ELIGIBLE FOR FUTURE SALE.................................................................... 35
LEGAL MATTERS...................................................................................... 36
EXPERTS .......................................................................................... 36
ADDITIONAL INFORMATION............................................................................. 36
INDEX TO FINANCIAL STATEMENTS..................................................................... F-1
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FORWARD-LOOKING STATEMENTS AND CERTAIN DEFINED TERMS
Certain statements incorporated by reference or made in this prospectus
under the captions "Prospectus Summary," "Risk Factors," and "Business" and
elsewhere in this prospectus are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. These statements are
subject to the safe harbor provisions of that act. The statements include,
without limitation, forward-looking statements about the competitiveness of the
Internet technology and services industries and our strategies and other
statements contained herein that are not historical facts. The words
"anticipate," "believe," "estimate," "intends," "will" and similar expressions
are generally intended to identify forward-looking statements. Because such
statements involve risks and uncertainties, there are important factors that
could cause actual results to differ materially from those expressed or implied
by such forward-looking statements, including changes in general economic and
business conditions (including in the Internet technology and services
industries), actions of competitors, the extent to which we are able to develop
new products, services and markets for such products, changes in our business
strategies and other factors discussed under "Risk Factors."
As used in this prospectus, unless the context requires otherwise, (a)
the "Company", "we" or "us" mean SmartSources.com, Inc. and its predecessors and
consolidated subsidiaries, (b) "Common Stock" means our common stock, no par
value; (c) "Offering" means the offering of Shares contemplated by this
prospectus; (d) "Securities Act" means the Securities Act of 1933, as amended;
(e) "Exchange Act" means the Securities Exchange Act of 1934, as amended; and
(f) "SEC" means the Securities and Exchange Commission.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. This summary is not complete and may not contain all of the
information that you should consider before investing in the Shares. You should
read the entire prospectus carefully.
OUR COMPANY
OVERVIEW
Our primary business focus is our Internet-based, content-management
technology known as kServer(TM). We seek to develop and provide web-based
solutions to communication and content-management needs by applying kServer(TM).
We have spent the past two years developing this technology and have recently
rolled out a commercial version of the product. The kServer(TM) technology
allows our customers to expand their knowledge base, streamline content
delivery, leverage self-service data and applications, and ultimately increase
web-based revenues via a vast network of affiliate sites. With kServer(TM), a
business can manage relationships, 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(TM) technology, known
as kSites, enable all authorized users to create, assemble, publish, personalize
and manage vital business information easily in "real time," without any
computer programming experience or knowledge. Through the use of a unique
content-management system, businesses can transform the Internet browser from a
one-way viewer to a personalized, two-way application interface.
Although our primary focus is content-management solutions, we have
historically focused on our proprietary trade compliance technology known as
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. We also provide international trade consulting services
to businesses operating under NAFTA and other trade regulatory requirements.
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STRATEGY
Our strategy includes:
o design of innovative web-based content-management solutions
using our own and existing technology
o establishment of partnerships with key value-chain
participants to enable the creation of a "complete solution"
o collaboration with customers to develop customized
applications uniquely suited to solve their content-management
problems
o continual development of our technology base to extend our
source of advantage
o creation of an open platform, publishing and training to build
a network of kServer(TM) specialists who will promote the use
and potential of our technology
o identification of and focus on carefully selected vertical
markets
HISTORY AND STRUCTURE
Effective December 11, 1998, we completed the acquisition of Nifco
Investments Ltd. and subsidiaries. The acquisition was effected by the exchange
of 6,000,000 shares of Common Stock for all outstanding shares of Nifco
Investments. In connection with the transaction, the shareholders of Nifco
Investments obtained control of the Company; accordingly, the transaction has
been characterized as a reverse acquisition (the "Reverse Acquisition"). As we
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. We effected a 1-for-75 reverse stock split on October 15, 1998,
prior to the reverse acquisition, and all references to share and per share data
have been adjusted accordingly. The Company was formerly named Innovest Capital
Sources Corporation. We conduct our activities through five direct or indirect
subsidiaries: SmartSources.com Technologies, Inc. ("Technologies"); Intelli
Trade, Inc.("Intelli Trade"); Origin Software Corporation ("Origin Software");
Infer Technologies, Inc. ("Infer Technologies") and Nifco Investments Ltd.
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THE OFFERING
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Shares offered by Offering Shareholders: 4,149,192
Shares offered by the Company: None
Shares outstanding as of March 1, 2000: 12,312,963
Use of proceeds from conversion of debentures We will receive no proceeds from the conversion of the
and sale of Shares: debentures, nor will we receive any of the proceeds from sale of
the Shares by the Offering Shareholders.
Use of proceeds from exercise of the investment options, We will receive the exercise price of any investment options and
options and warrants: warrants related to the debentures and of any other options or
warrants that may be exercised by the Offering Shareholders.
Assuming no accrued interest and conversion in full of the
debentures and exercise in full of the related investment
options at the fixed conversion price of $9.7125 per share and
exercise in full of the related warrants at their exercise price
of $11.10 per share, the gross proceeds to us would be
$8,663,000. Assuming exercise of all options and warrants held
by the other Offering Shareholders, the gross proceeds to us
would be $2,165,000. We intend to use any proceeds from exercise
of the investment options, options and warrants for working
capital and general corporate purposes.
OTC Bulletin Board Symbol: SSXX
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RISK FACTORS
In addition to the other information contained in this prospectus,
prospective investors should consider carefully the following factors before
deciding to invest in shares of our Common Stock.
WE HAVE A LIMITED OPERATING HISTORY. IT WILL BE DIFFICULT TO EVALUATE OUR
BUSINESS IN MAKING AN INVESTMENT DECISION.
We are still in the early stages of our development, which makes the
evaluation of our business operations and prospects difficult. You should
consider the risks and difficulties frequently encountered by early stage
companies in new and rapidly emerging markets, particularly those companies
whose businesses depend on the Internet. These risks and difficulties, as they
apply to us in particular, are:
o Potential fluctuations in operating results and uncertain
growth rates
o Limited market acceptance of our products
o Concentration of our revenues in a single product
o Our dependence on a small number of orders for most of our
revenue
o Our need to expand our direct sales force and indirect sales
channels
o Our need to manage rapidly expanding operations
o Our need to attract, train and retain qualified personnel
WE HAVE A HISTORY OF LOSSES AND EXPECT LOSSES IN THE FUTURE. IF WE DO NOT
ACHIEVE OR SUSTAIN PROFITABILITY IN THE FUTURE, OUR VIABILITY WILL BE IN DOUBT
AND OUR STOCK PRICE WILL DECLINE.
As of December 31, 1999, we had an accumulated deficit of approximately
$4.17 million, and we expect to incur losses at least through 2002. To date, we
have funded operations from the sale of equity and convertible securities and
have marginally generated cash from operations. We expect to continue to incur
significant costs developing and introducing enhancements to the kServer(TM)
Internet solutions and expanding our direct sales and marketing activities. Our
losses could impede our ability to compete effectively by creating doubt among
our potential customers as to our long-term viability and cause a decrease in
the market price of our Common Stock. If we are to achieve profitability, we
will need to increase our revenues significantly. We cannot predict when we will
become profitable, if at all.
OUR QUARTERLY OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT, AND IF WE
FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS, THE
MARKET PRICE OF OUR COMMON STOCK MAY DECREASE SIGNIFICANTLY.
Our quarterly operating results have varied in the past and may vary
significantly in the future. Because our business is evolving rapidly and we
have a limited operating history, we have limited experience in forecasting our
revenues. Since our operating results are volatile and difficult to predict, we
believe that period-to-period comparisons of our operating results are not a
reliable indication of our future performance. Our future quarterly operating
results may be below the expectations of public market analysts and investors.
In this event, the market price of our Common Stock may decrease significantly.
OUR QUARTERLY RESULTS DEPEND ON A SMALL NUMBER OF LARGE CONTRACTS, SO THE LOSS
OF ANY SINGLE CONTRACT COULD HARM THOSE RESULTS AND CAUSE OUR STOCK PRICE TO
DROP.
Each quarter, we derive a significant portion of our revenues from a
small number of relatively large contracts or orders. As a result, our operating
results could suffer if any large orders or contracts are delayed or canceled in
any future period. We expect that we will continue to depend upon a small number
of large orders and/or contracts for a significant portion of our revenues.
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OUR REVENUES WILL DEPEND MAINLY ON A SINGLE PRODUCT LINE, KSERVER(TM), WHICH IS
IN AN EARLY STAGE OF COMMERCIALIZATION.
Most of our revenues will be generated from software licenses and
service fees from the kServer(TM) line of Internet solutions. kServer(TM) is at
an early stage of commercialization, therefore it is difficult to forecast the
level of market acceptance it will attain. Market acceptance could be seriously
impeded in the following circumstances:
o Broad standards for conducting e-business emerge and become
widely adopted, thus reducing the need for our infrastructure
products.
o Information services departments of potential customers choose
to create their e-business portals and e-marketplaces
internally or to use third-party professional developers to
create and maintain their sites.
o Competitors develop products, technologies or capabilities
that render our kServer(TM) products and related services
obsolete or noncompetitive or that shorten the life cycles of
these products and services.
o Our kServer(TM) products do not meet customer performance
needs or fail to remain free of significant software defects
or bugs.
o We are unable to recruit and retain the additional sales
personnel needed to effectively market our products.
Furthermore, to remain competitive, software products such as ours
typically require frequent updates that add new features. There can be no
assurance that we will succeed in creating and selling updated or new versions
of our products. A decline in the demand for, or in the average selling price
of, our products would have a direct negative effect on our primary source of
revenues and could cause our stock price to fall.
WE EXTEND CREDIT TO OUR CUSTOMERS.
We extend credit to customers based on an evaluation of each customer's
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.
THE MARKET FOR E-BUSINESS PORTALS IS NEW AND EMERGING, AND IF IT DOES NOT GROW
AS RAPIDLY AS WE ANTICIPATE OR FAILS TO EMERGE AT ALL, OUR PLANNED GROWTH AND
FINANCIAL OBJECTIVES WILL NOT BE MET.
Our success is dependent on the emergence of the market for e-business
portals. This is a new and rapidly evolving market. We are planning to dedicate
most of our sales, marketing and product development efforts toward e-business
portals. If this market does not develop as rapidly as we expect, our planned
growth and financial objectives will not be met. A number of factors could
prevent or hinder the emergence of this market, including the following:
o The unwillingness of customers to change their traditional
method of conducting commerce.
o The failure of the Internet network infrastructure to keep
pace with substantial growth.
o Adverse publicity and consumer concern about the security of
electronic commerce transactions.
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OUR PRODUCTS HAVE LONG AND VARIABLE SALES CYCLES; IT IS THEREFORE DIFFICULT TO
PREDICT THE TIMING OF INDIVIDUAL ORDERS AND MATCH REVENUES WITH OPERATING
EXPENSES, WHICH ARE RELATIVELY FIXED IN THE SHORT TERM.
Variations in the length of our sales cycles could cause our revenues
to fluctuate widely from period to period. To date, the average sales cycle for
our kServer(TM) products has been six months and has required pre-purchase
evaluation by a significant number of decision makers, including senior
management. Our sales cycles can be much longer for larger opportunities with
new customers. Since a number of factors influence the sales process, the period
between our initial contact with a new customer and the time we recognize
revenues from that customer varies widely. We spend significant time educating
and providing information to our prospective customers regarding the use and
benefits of our products. Even after purchase, our customers tend to deploy our
solution slowly and deliberately. Deployment schedules depend on the specific
technical capabilities of each customer, the size of the deployment, the
complexity of each customer's network environment, the quantity of hardware and
the degree of hardware configuration required.
WE FACE COMPETITION PRIMARILY FROM COMPANIES DEVELOPING THEIR OWN INTERNAL
E-BUSINESS INFRASTRUCTURE SYSTEMS AND OTHER PROVIDERS OF E-BUSINESS
INFRASTRUCTURE SOLUTIONS, AND IF WE ARE UNABLE TO COMPETE SUCCESSFULLY, WE WILL
NOT ACHIEVE OUR FINANCIAL OBJECTIVES.
The market for e-business infrastructure applications and services is
intensely competitive, evolving and susceptible to rapid technological change.
We expect the intensity of our competition to increase in the future. Many of
our competitors have longer operating histories, significantly greater
financial, technical, marketing and other resources, significantly greater name
recognition and a larger installed base of customers than we have. Our
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the
development, promotion and sale of their products and services than we can. In
addition, many of our current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties that
may improve their ability to address customer needs. Accordingly, it is possible
that new competitors, or alliances among competitors, may emerge and rapidly
acquire significant market share. Increased competition is likely to result in
price reductions, reduced gross margins and loss of market share, any of which
could negatively impact our ability to sell our products at the price levels
required to support our continuing operations.
WE NEED TO EXPAND OUR SALES OPERATIONS IF WE ARE TO INCREASE MARKET AWARENESS OF
AND REVENUES DERIVED FROM OUR PRODUCTS AND RELATED SERVICES.
If we fail to expand our direct sales capabilities as we have planned,
our prospects for revenue growth will be diminished. Our products and related
services require sophisticated sales efforts targeted at senior management of
our prospective customers. We plan to hire additional sales personnel, however,
competition for qualified sales personnel is intense, and we might not be able
to hire and retain the type and number of sales personnel we are targeting. New
hires will require extensive training and, typically, take several months to
achieve productivity. We cannot be certain that new hires will be as productive
as necessary.
If we do not develop indirect sales channels, we may miss sales
opportunities that might be available through these other channels. Although we
are currently investing and plan to continue to invest significant resources to
develop these indirect sales channels, we may not succeed in establishing a
channel that can market our products effectively and provide timely and
cost-effective customer support and services. In addition, we may not be able to
manage conflicts across our various sales channels, and our focus on increasing
sales through our indirect channel may divert management resources and attention
from direct sales.
OUR OPERATIONS AND GROWTH PROSPECTS MAY BE SIGNIFICANTLY IMPEDED IF WE ARE
UNABLE TO RETAIN OUR KEY PERSONNEL OR ATTRACT ADDITIONAL KEY PERSONNEL,
PARTICULARLY SINCE EXPERIENCED PERSONNEL AND NEW SKILLED PERSONNEL ARE IN SHORT
SUPPLY.
Competition for key personnel is intense. Our success depends on our
ability to attract, hire, train and retain personnel. We have experienced
difficulties with hiring and retention in the past, and certain of our key
personnel may
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terminate their employment with us to work for one of our competitors at any
time for any reason. Certain members of management have employment or consulting
agreements. See "Management." There can be no assurance that we will be
successful in attracting and retaining key personnel. The loss of services of
one or more key personnel could have a material adverse effect on us and would
materially impede the operation and growth of our business.
IF WE FAIL TO SUCCESSFULLY MANAGE OUR PLANNED EXPANSION OF OPERATIONS, OUR
GROWTH PROSPECTS WILL BE DIMINISHED AND OUR OPERATING EXPENSES COULD EXCEED
BUDGETED AMOUNTS.
Our ability to offer our products and related services in a quickly
evolving market requires an effective planning and management process. We have
expanded our operations rapidly since inception, and we intend to continue to
expand them in the foreseeable future. This rapid growth places significant
demand on our managerial and operational resources and our internal training
capabilities. In addition, we have recently hired a significant number of
employees and plan to further increase our total work force. This growth will
continue to substantially burden our management team. To manage growth
effectively, we must:
o Implement and improve our operational, financial and other
systems, procedures and controls on a timely basis
o Expand, train and manage our workforce, particularly our sales
and marketing and support organizations
We cannot be certain that our systems, procedures or controls will be
adequate to support our current or future operations or that our management will
be able to manage expansion and still achieve the rapid execution necessary to
meet our growth expectations. Failure to manage our growth effectively could
diminish our growth prospects and could result in lost opportunities as well as
operating expenses exceeding the amount budgeted.
WE HAVE NO SIGNIFICANT EXPERIENCE CONDUCTING OPERATIONS INTERNATIONALLY, WHICH
MAY MAKE IT MORE DIFFICULT THAN WE EXPECT TO EXPAND OVERSEAS AND MAY INCREASE
THE COSTS OF DOING SO.
To date, we have derived all of our revenues from sales in the United
States and Canada. We plan to expand our international operations in the future.
There are many barriers to competing successfully in the international arena,
including:
o cost of customizing products for foreign countries
o restrictions on the use of software encryption technology
o dependence on local vendors
o compliance with multiple conflicting and changing governmental
laws and regulations
o longer sales cycles
o import and export restrictions and tariffs
IF WE FAIL TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS, THE MARKET
ACCEPTANCE OF OUR PRODUCTS, AND OUR PROFITABILITY, MAY SUFFER.
To offer products and services to a larger customer base, our direct
sales force depends on strategic partnerships and marketing alliances to obtain
customer leads, referrals and distribution. If we are unable to maintain our
existing strategic relationships or fail to enter into additional strategic
relationships, we will have to devote substantially more resources to the
marketing of our products and services. We would also lose anticipated customer
introductions and co-marketing benefits. Our success depends in part on the
success of our strategic partners and their ability to market our products and
services successfully. In addition, our strategic partners may not regard us as
significant for their own
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businesses. Therefore, they could reduce their commitment to us or terminate
their respective relationships with us, pursue other partnerships or
relationships, or attempt to develop or acquire products or services that
compete with our products and services. Even if we succeed in establishing these
relationships, they may not result in additional customers or revenues.
ACQUISITIONS MIGHT HARM OUR BUSINESS.
As part of our business strategy, we may seek to acquire or invest in
additional businesses, products or technologies that we feel could complement or
expand our business. If we identify an appropriate acquisition opportunity, we
might be unable to negotiate the terms of that acquisition successfully, finance
it, or integrate it into our existing business and operations. We may also be
unable to select, manage or absorb any future acquisitions successfully.
Further, the negotiation of potential acquisitions, as well as the integration
of an acquired business, would divert management time and other resources. We
may have to use a substantial portion of our available cash, including proceeds
to us, if any, of this Offering, to consummate an acquisition. On the other
hand, if we consummate acquisitions through an exchange of our securities, our
shareholders could suffer significant dilution. In addition, we cannot assure
you that any particular acquisition, even if successfully completed, will
ultimately benefit our business.
IF WE FAIL TO ADEQUATELY RESPOND TO RAPID TECHNOLOGICAL CHANGES, OUR EXISTING
PRODUCTS WILL BECOME OBSOLETE OR UNMARKETABLE.
New approaches to gather, exchange, integrate, personalize and
syndicate information over the Internet based on new technologies and industry
standards could render our products obsolete and unmarketable. We believe that
to succeed, we must enhance our products, develop new products on a timely basis
to keep pace with technological developments, and satisfy the increasingly
sophisticated requirements of our customers. Therefore, we cannot be certain
that we will respond successfully to technological change, evolving industry
standards or customer requirements. If we are unable to adequately respond to
these changes, our revenues and market share could rapidly decline. In
connection with the introduction of new products and enhancements, we have
experienced development delays and related cost overruns, which are not unusual
in the software industry. We could encounter these problems or more serious
delays in the future. Any delays in developing and releasing new products or
enhancements to our products could result in customer dissatisfaction,
cancellation of orders and license agreements, negative publicity, loss of
revenues, slower market acceptance and legal action by customers against us. Our
products are designed to work on a variety of hardware and software platforms
used by our customers. However, these products may not operate well with future
versions of hardware and software platforms, programming languages, database
environments, and other systems that our customers use. We must constantly
modify and improve our technology to keep pace with changes made to these
platforms and to operational applications and other Internet-related
applications. This may result in uncertainty relating to the timing and nature
of new product announcements, introductions or modifications, which may harm our
business. If we fail to modify or improve our products in response to evolving
industry standards, they could rapidly become obsolete or unmarketable, which
would have a direct negative effect on our revenues.
IF OUR PRODUCTS CONTAIN ERRORS, OUR REVENUES AND NET OPERATING RESULTS WILL BE
NEGATIVELY IMPACTED AND OUR REPUTATION AND THE MARKET ACCEPTANCE OF THESE
PRODUCTS WILL BE JEOPARDIZED.
Our e-business infrastructure applications are complex and may contain
undetected errors or result in system failures, especially when first introduced
or when new versions or enhancements are released. Despite extensive testing,
errors could occur in any of our current or future product offerings after
commencement of commercial shipments. We have discovered software defects in our
new products after their introduction. The implementation of our products
typically involves working with sophisticated software, computing and
communications systems. If our software contains undetected errors or we fail to
meet our customers' expectations in a timely manner, we could experience loss of
or delay in revenues and loss of market share, loss of customers, failure to
achieve market acceptance, diversion of development resources, diversion of
customer support resources, negative publicity, increased service and warranty
costs, legal actions by customers against us, and increased insurance costs.
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<PAGE> 13
DEFECTS OR ERRORS IN OUR PRODUCTS MAY RESULT IN PRODUCT LIABILITY CLAIMS.
Because customers rely on our products for critical business processes,
any significant defects or errors in our products or services might result in
tort or warranty claims. Errors or defects in or other performance problems
associated with our products could result in financial or other damages to our
customers. Our customers may then seek damages from us for their losses. We have
not experienced any product liability claims to date. However, a product
liability claim brought against us, even if not successful, would likely be
time-consuming and costly and could harm our reputation. Our licenses with
customers generally contain provisions designed to limit our exposure to
potential product liability claims such as disclaimers of warranties and
limitations on liability for special, consequential and incidental damages. In
addition, our license agreements generally limit the amounts recoverable for
damages to the amounts paid by our customers to us for the products or services
giving rise to the damages. We cannot be certain that the limitations of
liability we include in our contracts will be enforceable because existing or
future laws or unfavorable judicial decisions could negate these liability
limiting provisions. Defending a product liability suit, regardless of its
merits, could entail substantial expense and require the time and attention of
key management personnel. The successful assertion of one or more large claims
that exceed contractual limitations on our liability could have a significant
negative impact on our results of operations and cause our stock price to fall.
IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OUR ABILITY
TO COMPETE COULD BE SERIOUSLY HARMED, AND IF OTHER COMPANIES BRING LAWSUITS
CLAIMING THAT WE INFRINGE THEIR INTELLECTUAL PROPERTY RIGHTS, WE COULD BE LIABLE
FOR SIGNIFICANT DAMAGES.
Our success depends in large part on our ability to adequately protect
our intellectual property rights. We seek to protect our source code,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection. We require our customers to enter into
license agreements, which impose restrictions on our customers' ability to
utilize our products. In addition, we seek to avoid disclosure of our trade
secrets by, among other methods, restricting access to our source code and
requiring those persons with access to our proprietary information to sign
confidentiality agreements with us. However, some of these confidentiality
agreements contain provisions that may permit these persons, in some
circumstances, to develop products based on our proprietary information as a
result of their access to our source code. If these persons develop products
based on our proprietary information, the value of our proprietary information
will be adversely impacted. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy aspects of our technology or to
obtain and use information that we regard as proprietary. Policing unauthorized
use of our technology is difficult, and while we are unable to determine the
extent to which piracy of our products exists, software piracy can be a
persistent problem. In addition, as we expand our operations, we become
increasingly exposed to intellectual property infringement because laws of some
foreign countries do not protect our proprietary rights to as great an extent as
the laws of the United States and Canada. Our means of protecting our
proprietary rights may not be adequate and our competitors may copy our
products, independently develop similar technology, or design around our
intellectual property. If we fail to adequately protect our intellectual
property, our ability to compete may be seriously harmed. There has been a
substantial amount of litigation in the software industry regarding intellectual
property rights. It is possible that in the future third parties may claim that
our current or future products infringe their intellectual property. We expect
that software developers will increasingly be susceptible to infringement claims
as the number of products and competitors in our industry segment grows and the
functionality of products in different industry segments overlaps. Any
intellectual property claims, with or without merit, could be time consuming,
result in costly litigation, cause product shipment delays or require us to
enter into royalty or licensing agreements. Any royalty or licensing agreements,
if required, may not be available on terms acceptable to us, or may not be
available at all, which could jeopardize the viability of our business.
THERE IS SUBSTANTIAL RISK THAT FUTURE REGULATIONS COULD BE ENACTED THAT EITHER
DIRECTLY RESTRICT OUR BUSINESS OR INDIRECTLY IMPACT OUR BUSINESS BY LIMITING THE
GROWTH OF INTERNET COMMERCE.
As Internet commerce evolves, we expect federal, state or foreign
agencies to adopt regulations covering many issues, including user privacy,
pricing, content and quality of products and services. If enacted, these laws,
rules or regulations could limit the market for our products and related
services, which could adversely affect our business prospects and operating
results. Although many of these regulations may not apply to our business
directly, we expect that laws regulating the solicitation, collection or
processing of personal/consumer information could indirectly affect
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<PAGE> 14
our business. The Telecommunications Act of 1996 prohibits some types of
information and content from being transmitted over the Internet. The
prohibition's scope and the liability associated with a Telecommunications Act
violation are currently unsettled. In addition, although substantial portions of
the Communications Decency Act were held to be unconstitutional, we are unsure
whether similar legislation will be enacted and upheld in the future. It is
possible that legislation could expose companies involved in Internet commerce
to liability, which could limit the growth of Internet commerce generally.
Legislation like the Telecommunications Act and the Communications Decency Act
could dampen the growth of Internet usage and decrease its acceptance as a
commercial medium. Moreover, the applicability to the Internet of existing law
sin various jurisdictions governing issues such as property ownership, sales
tax, libel and personal privacy is uncertain and may take years to resolve. Our
costs could increase and our growth could be harmed by any new legislation or
regulation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to our business, or the application of existing laws
and regulations to the Internet and on-line businesses.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL THAT MAY NOT BE AVAILABLE ON TERMS
FAVORABLE TO US, IF AT ALL.
We may need to raise additional capital in the future, and we cannot be
certain that we will be able to obtain additional financing on favorable terms,
if at all. If we cannot raise additional capital on acceptable terms, we may not
be able to develop or enhance our products and services, take advantage of
future opportunities or respond to competitive pressures or unanticipated
requirements. To fully realize our business objectives and potential, we may
require significant additional financing. We cannot be sure that we will be able
to secure the financing we will require, or that it will be available on
favorable terms. If we are unable to obtain any necessary additional financing,
we will be required to substantially curtail our approach to implementing our
business objectives. Additional financing may be debt, equity or a combination
of debt and equity. If equity, it could result in significant dilution to our
shareholders.
ISSUANCE OF SHARES UPON CONVERSION OF THE DEBENTURES AND EXERCISE OF THE RELATED
INVESTMENT OPTIONS AND WARRANTS MAY RESULT IN SUBSTANTIAL DILUTION TO OUR
SHAREHOLDERS.
On February 24, 2000, we issued (i) warrants to purchase 330,000 shares
of Common Stock exercisable at any time until February 24, 2005, at an exercise
price of $11.10 per share, and (ii) convertible debentures in the aggregate
principal amount of $5,000,000. In addition, at the time of each conversion, the
holder of the debentures has an investment option to purchase, at the fixed
conversion price of $9.7125, one additional share of Common Stock for each share
issuable upon conversion of the debentures. See "Recent Events."
Subject to adjustment upon the occurrence of certain events, the
principal amount of the debentures (plus all accrued interest and any additional
amounts owed) is convertible, in whole or in part, at the option of the holders,
into shares of Common Stock at a conversion price based on the trading price of
our Common Stock over a fixed period prior to conversion of the debentures, up
to a fixed conversion price of $9.7125. At the fixed conversion price, assuming
no accrued interest, conversion in full of the debentures and exercise in full
of the related investment options and warrants would result in the issuance of
an aggregate of 1,359,601 shares. The actual number of shares issuable upon
conversion of the debentures and exercise of the related investment options is
indeterminate and depends on a number of factors which cannot be predicted by us
at this time, including the future market price of our Common Stock and whether
the mandatory redemption and default provisions of the debentures are triggered.
The actual number of shares issued could be materially greater than the number
set forth above, and could result in significant dilution to our shareholders.
OUR EXISTING SHAREHOLDERS CONTROL A MAJORITY OF OUR STOCK.
Immediately after the closing of this offering, approximately 50.31% of
our outstanding capital stock will be owned by our directors and executive
officers and their affiliates. As a result, these shareholders, acting together,
would be able to control all matters requiring approval by the shareholders,
including the election of all directors and approval of significant corporate
transactions.
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<PAGE> 15
FUTURE SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE.
If our shareholders sell substantial amounts of our Common Stock, in
the public market after this Offering, the market price of our Common Stock
could be adversely affected. In addition, the sale of these shares could impair
our ability to raise capital through the sale of additional equity securities.
WE ARE LISTED ON THE OTC BULLETIN BOARD, WHICH CAN BE A VOLATILE MARKET.
Our Common Stock is quoted on the OTC Bulletin Board, a NASD sponsored
and operated quotation system for equity securities. It is a more limited
trading market than the Nasdaq SmallCap, and timely, accurate quotations of the
price of our Common Stock may not always be available. You may expect trading
volume to be low in such a market. Consequently, the activity of only a few
shares may affect the market and may result in wide swings in price and in
volume.
WE MAY BE SUBJECT TO EXCHANGE RATE FLUCTUATIONS.
A substantial portion of our revenues are received, and a substantial
portion of our operating costs are incurred, in Canadian dollars. Because our
financial statements are presented in U.S. dollars, any significant fluctuation
in the currency exchange rates between the Canadian dollar and the U.S. dollar
will affect our reported results of operations. We do not currently engage in
currency-hedging transactions.
USE OF PROCEEDS
All of the Shares offered hereby are being offered by the Offering
Shareholders for their own accounts. We will not receive any proceeds from the
conversion of the debentures, nor will we receive any of the proceeds from the
sale of Shares by the Offering Shareholders.
We will receive the exercise price of any investment options and
warrants related to the debentures and any other options or warrants that may be
exercised by the Offering Shareholders. Assuming no accrued interest and
conversion in full of the debentures and exercise in full of the related
investment options at the fixed conversion price of $9.7125 per share and
exercise in full of the related warrants at their exercise price of $11.10 per
share, the gross proceeds to us from the exercise of the investment options and
warrants would be $8,663,000. Assuming exercise of all other options and
warrants held by the other Offering Shareholders, the gross proceeds to us would
be $2,165,000. We intend to use any proceeds from exercise of the investment
options, options and warrants for working capital and general corporate
purposes.
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<PAGE> 16
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Our Common Stock is traded on the OTC 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 on December 11, 1998.
<TABLE>
<CAPTION>
PERIOD HIGH BID LOW BID
-------- -------- --------
<S> <C> <C>
December 11, 1998 to December 31, 1998 ..... $ 4.0000 $ 3.6250
January 1, 1999 to March 31, 1999 ........... 5.5000 3.6250
April 1, 1999 to June 30, 1999 .............. 6.0000 4.5000
July 1, 1999 to September 30, 1999 .......... 4.7500 3.7500
October 1, 1999 to December 31, 1999 ........ 5.3125 3.5000
January 1, 2000 to March 8, 2000 ............ 10.6875 5.3750
</TABLE>
As of March 1, 2000, there were approximately 269 shareholders of
record of our Common Stock. The closing bid and asked prices on March 13, 2000
were $7.8750 and $7.9375, respectively.
DIVIDEND POLICY
Since the Reverse Acquisition on December 11, 1998, we have not paid
any dividends. We do not anticipate paying a cash dividend in the foreseeable
future.
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<PAGE> 17
CAPITALIZATION
The table below sets forth, as of December 31, 1999, the following
information:
o our actual capitalization
o our pro forma capitalization after giving effect to our sale
on February 24, 2000 of convertible debentures in the
aggregate principal amount of $5,000,000 and the exchange in
February 2000 of 5,000,000 shares of Class B preferred stock
of our subsidiary, Origin Software, for 457,380 shares of our
Common Stock
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
----------- -----------
<S> <C> <C>
Convertible debentures 0 $ 5,000,000
----------- -----------
Debt and leases, current and long-term 488,000 488,000
----------- -----------
Minority interest 3,520,000 113,000
----------- -----------
Shareholders' deficit:
Common Stock, no par value, 50,000,000 2,695,000 6,102,000
shares authorized, 11,755,332 shares
outstanding
Accumulated other comprehensive 139,000 139,000
income
Accumulated deficit and deferred (4,580,000) (4,580,000)
compensation
----------- -----------
Total shareholders' deficit (1,746,000) 1,661,000
----------- -----------
Total capitalization and minority interest $ 2,262,000 $ 7,262,000
=========== ===========
</TABLE>
The table excludes the following information:
o 1,234,000 shares issuable upon exercise of outstanding options
at December 31, 1999
o 1,150,000 shares issuable upon exercise of outstanding
warrants at December 31, 1999
o 355,000 shares issuable upon exercise of outstanding warrants,
issued after December 31, 1999
o 825,000 shares issuable upon exercise of outstanding options,
issued after December 31, 1999
o 457,380 shares issuable upon exchange of wholly-owned
subsidiary preferred stock at December 31, 1999
o 135,000 shares issuable upon conversion of wholly-owned
subsidiary preferred stock at December 31, 1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Management's discussion and analysis of financial condition and results
of operations contains various "forward-looking statements." Such statements
consist of any statement other than a recitation of historical fact and can be
identified by the use of forward-looking terminology such as "may," "expect,"
"anticipate," "estimate" or "continue" or use of negative or other variations or
comparable terminology.
We caution that these statements are further qualified by important
facts that could cause actual results to differ materially from those contained
in the forward-looking statements, that these forward-looking statements are
necessarily
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<PAGE> 18
speculative, and there are certain risks and uncertainties that could cause
actual events or results to differ materially from those referred to in such
forward-looking statements.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1999 Compared to Three Months Ended
December 31, 1998. During the quarter ended December 31, 1999, we had
consolidated revenues of $212,000, operating expenses of $1,155,000 and a net
loss of $954,000.
Revenues for the three months ended December 31, 1999 increased 31% as
compared to 1998 revenues for the same period of $161,600. This was a result of
initial revenue from kServer(TM) and an increased client base for the
International Trade products and services.
Operating expenses included research and development costs, sales and
marketing, general and administrative, amortization and depreciation. The
aggregate of these costs increased significantly in the quarter ended December
31, 1999 as compared to the same period of the previous fiscal year. The
increase was due to a significant increase in staffing levels across all of our
departments.
Research and development costs for the period totaled $254,000, as
compared to $23,000 for the previous year. This was a direct result of continued
costs incurred in the development of the kServer(TM) line of products, including
higher payroll costs due to the increased number of engineers working on
kServer(TM) and the establishment of an engineering office in California.
Sales and marketing costs increased 154% in the period of analysis,
from $55,500 to $141,000, as a result of higher payroll costs and costs
associated with more sales, marketing and support personnel, and increased
travel expenses incurred in the promotion of our lines of products.
General and Administrative expenses increased 389%, from $113,700 to
$563,000. The increase was partially due to higher payroll costs resulting from
the addition of three new senior managers in August 1999. Also during the
period, we retained the services of a consulting firm to conduct a detailed
business strategy for the kServer(TM) division. The total cost of this study is
reflected in G&A expenses for the period. We also incurred significant
professional fees related to a settlement with Revenue Canada. The settlement
relates to a review conducted by Revenue Canada of various software
transactions, including those to which we were a party. In January 2000, Revenue
Canada agreed to the terms of the proposed settlement and, accordingly,
management expects that no tax liability will be incurred with respect to the
transactions referred to above.
Amortization and depreciation costs increased from $31,000 to $142,000,
mainly as a result of the amortization costs for the ORIGIN(TM) software
acquired in May 1999.
We incurred a loss on the sale of investments (Familyware software) of
$48,400 in the first quarter of fiscal 1999. No such losses were incurred in the
quarter ended December 31, 1999.
In the period of analysis, our interest expense decreased marginally by
$1,400 due to our reduced long-term debt levels.
As a result of the marginal increase in revenues and significant
increase in operating expenses, we had a net loss of $954,000 in the quarter
ended December 31, 1999. In the quarter ended December 31, 1998, we reported a
net loss of $90,000 ($149,900 loss before a provision for income taxes of
$59,900).
Year Ended September 30, 1999 Compared to Year Ended September 30,
1998. During the year ended September 30, 1999, we had consolidated revenues of
$721,000, operating expenses of $2,023,900 and a net loss of $672,800.
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<PAGE> 19
Revenues decreased 54% from 1998 revenues of $1,571,100. The lower
revenues were primarily the result of our shift in focus away from trade
compliance software and to the development of kServer(TM), our 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 a total of $722,700, or 46% of 1998 revenues, and $89,700, or 12%
of 1999 revenues. Tradespace, PMG and SmartSources.com are companies with common
ownership.
Operating expenses increased 74% as compared to operating expenses for
1998 of $1,164,800. The increase in operating expenses was a result of continued
research and development costs for the kServer(TM) line of products, higher
payroll costs due to the increased number of employees in all areas of the
Company and hiring of senior management during the year. Also, we incurred
higher professional fees (mainly legal and accounting) subsequent to the Reverse
Acquisition. In 1999, research and development costs were $374,700 and in 1998,
they were $38,400.
Net capitalized software costs and purchased software rights increased
to $1,550,000 as of September 30, 1999 compared to $111,400 at September 30,
1998. The increase was due primarily to the repurchase of the ORIGIN(TM)
software rights in May 1999. The terms of the purchase are described further in
Note 3 to the September 30, 1999 financial statements.
In 1999, our interest expense decreased by $13,000 due to our reduced
long-term debt levels.
As a result of the decrease in revenues and increase in operating costs
outlined above, we had a net loss of $672,800 in 1999. In 1998, we reported net
income of $152,900. The net loss for 1999 was funded from proceeds from the
issuance of additional equity capital.
LIQUIDITY
At March 1, 2000, our cash and cash equivalent balance was
approximately $4,600,000. This is a significant increase in cash as compared to
the December 31, 1999 cash position of $197,000. The increase resulted from our
issuance on February 24, 2000, of convertible debentures in the aggregate
principal amount of $5,000,000. The debentures bear interest at a rate of 7% per
annum commencing February 24, 2000 and mature on February 24, 2005. The
principal amount of the debentures (plus all accrued interest and any additional
amounts owed) is convertible, in whole or in part, at the option of the holders,
into shares of Common Stock. In connection with this issuance, we paid a
placement fee of $325,000 and issued 25,000 warrants.
During the quarter ended December 31, 1999, our cash position increased
slightly from $164,200 to $197,000. At December 31, 1999, we had a working
capital of $65,000 and a current ratio of 1.2 to 1. The working capital position
was down slightly as compared to the balance at September 30, 1999 when our
working capital was $84,300 and a current ratio of 1.3 to 1. We maintained our
working capital position through the issuance of additional equity capital
during the quarter for gross proceeds of approximately $686,000.
During the year ended September 30, 1999, our cash position increased
from $1,700 to $164,200. This was a significant improvement as compared to
September 30, 1998 when we had a working capital deficit of $14,900 and a
current ratio of .97 to 1. The improvement in our working capital was due to the
issuance of additional equity capital during the year. During 1999, we completed
equity financing that resulted in total proceeds of $1,500,000.
From inception, our investing activities have consisted primarily of
purchases of property and equipment, principally computer hardware and software.
Capital expenditures, including those under capital leases, totaled $46,600,
$139,500 and $14,000 in 1998, 1999, and the three months ended December 31,
1999, respectively. We expect that capital expenditures will increase with our
anticipated growth in operations, infrastructure and personnel. As of December
31, 1999, we had no material capital expenditure commitments.
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<PAGE> 20
To date, we have not invested in derivative securities or any other
financial instruments that involve a high level of complexity or risk. We expect
that, in the future, cash in excess of current requirements will continue to be
invested in high credit quality, interest-bearing securities.
We believe that the net proceeds of the debentures, together with cash
and cash equivalents, will be sufficient to meet our working capital
requirements for at least the next 12 months. Thereafter, we may require
additional funds to support our working capital requirements or for other
purposes and may seek to raise additional funds through public or private equity
financings or from other sources. There can be no assurance that additional
financing will be available on acceptable terms, if at all. If adequate funds
are not available or are not available on acceptable terms, we may be unable to
develop or enhance our products, take advantage of future opportunities, or
respond to competitive pressures or unanticipated requirements, which could have
a material adverse effect on our business, financial condition and operating
results.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS No. 133"). SFAS No. 133 is effective for all fiscal
quarters beginning with the quarter ending December 31, 2000. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including other contracts, and for hedging activities. We will adopt SFAS No.
133 in the quarter ending December 31, 2000 and do not expect its adoption to
have an impact on our results of operations, financial position or cash flows.
RECENT DEVELOPMENTS
On February 24, 2000, we issued (i) warrants to purchase 330,000 shares
of Common Stock exercisable at any time until February 24, 2005, at an exercise
price of $11.10 per share, and (ii) convertible debentures in the aggregate
principal amount of $5,000,000. In addition, at the time of each conversion, the
holder of the debentures has an investment option to purchase, at the fixed
conversion price of $9.7125, one additional share of Common Stock for each share
issuable upon conversion of the debentures.
TERMS OF SECURITIES
The debentures bear interest at a rate of 7% per annum commencing on
February 24, 2000 and mature on February 24, 2005. The principal amount of the
debentures (plus all accrued interest and any additional amounts owed) is
convertible, in whole or in part, at the option of the holders, into shares of
Common Stock at a conversion price based on the trading price of our Common
Stock over a fixed period prior to conversion of the debentures, up to a fixed
conversion price of $9.7125. The conversion price is subject to adjustment upon
the occurrence of certain events, including without limitation, if the Common
Stock is not listed on the American Stock Exchange or the Nasdaq SmallCap Market
by October 24, 2000 or on the Nasdaq National Market by February 24, 2001 or if
we default on certain other provisions of the Registration Rights Agreement
executed in connection with the investment.
After August 24, 2000, if the conversion price is lower than the fixed
conversion price and certain other requirements are met, we may elect to pay
cash in lieu of Common Stock upon conversion of the debentures. In addition, if
specified default events occur, the debentures are redeemable for cash, either
automatically or upon election of the holders of 50% of the outstanding
debentures, at 120% of the purchase price plus interest and default payments,
which may be substantial. Events triggering automatic redemption include our
making an assignment for the benefit of our creditors, or our bankruptcy,
insolvency, reorganization or liquidation. Events triggering the holders' right
to elect redemption include our failure to: (a) issue shares of Common Stock
upon conversion of the debentures; (b) transfer to the converting debenture
holders stock certificates for shares of Common Stock upon conversion of the
debentures; (c) keep the specified number of shares of Common Stock reserved for
issuance upon conversion of the debentures; (d) obtain effectiveness of the
registration statement of which this prospectus is a part prior to August 24,
2000; or (e) maintain listing of our Common Stock on the OTC Bulletin Board or
on other stock exchanges or quotation services on which the Shares may be
trading. In the event that NASD rules apply, the principal amount of the
debentures in excess of 20% of the outstanding shares of Common Stock on the
date of issuance of the debentures
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<PAGE> 21
is also redeemable for cash in lieu of shares if we do not obtain the approval
of our shareholders to issue shares in an amount in excess of such limit. If the
conversion price of the debentures were significantly lower than the fixed
conversion price, or if the default provisions of the debentures were triggered,
the potential number of shares issuable could substantially exceed the 20%
limit. We intend to seek shareholder approval of issuance of shares in excess of
this limit in connection with the conversion of the debentures. Any redemption
for cash in lieu of shares could significantly impair our working capital.
REGISTRATION RIGHTS
Under a Registration Rights Agreement entered into in connection with
the issuance of the debentures, we have filed with the SEC a registration
statement, of which this prospectus is a part, to register for resale the shares
of Common Stock that may be acquired upon conversion of the debentures, and
exercise of the investment options and warrants. We must keep the registration
statement effective until all of the securities offered have been sold. We are
responsible for the payment of all fees and costs associated with the
registration of the securities. We may be liable for penalty payments if (i) the
registration statement is not declared effective by June 24, 2000; (ii) the
holders of the debentures cannot make sales pursuant to the registration after
it has been declared effective; or (iii) the Common Stock ceases to be traded on
the OTC Bulletin Board or such other national securities exchange on which the
Common Stock is listed at the time of registration.
PLACEMENT FEE
In connection with issuance of the debentures, we paid a placement fee
of $325,000 to AB Phoenix Inc. and issued two-year warrants for 3,750 shares at
$11.10 per share to G. Kopolow & Associates and 21,250 shares at $11.10 per
share to AB Phoenix Inc. We also paid $30,000 to the holder of the debentures
for its legal expenses.
The foregoing is a summary of provisions of the agreements and instruments that
we executed in connection with the issuance of the debentures and related
warrants. This summary is not intended to be complete and is qualified by
reference to the provisions of applicable law and to the agreements and
instruments listed as exhibits to the registration statement of which this
prospectus is a part. See "Additional Information."
BUSINESS
Our primary business focus is our internet-based, content-management
technology known as kServer(TM). We seek to develop and provide web-based
solutions to communication and content-management needs by applying kServer(TM).
We have spent the past two years developing this technology and have recently
rolled out a commercial version of the product. The kServer(TM) technology
allows our customers to expand their knowledge base, streamline content
delivery, leverage self-service data and applications, and ultimately increase
web-based revenues via a vast network of affiliate sites. With kServer(TM), a
business can manage relationships, 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(TM) technology, known
as 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
content-management system, businesses can transform the Internet browser from a
one-way viewer to a personalized, two-way application interface.
Although our primary focus is content-management solutions, we have
historically focused on our proprietary trade compliance technology known as
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. We also provide international trade consulting services
to businesses operating under NAFTA and other trade regulatory requirements.
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<PAGE> 22
INDUSTRY BACKGROUND
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 and allow more contributors to add content to a web-site.
Until recently, businesses have attempted to satisfy their web
content-management needs largely through in-house solutions. In-house solutions
can be expensive and difficult to maintain, which can increase the risk of
delaying the launch of important eBusiness initiatives. For example, in-house
solutions may need to be extensively re-engineered each time a new web authoring
tool or eBusiness application is introduced. Other businesses have used
third-party solutions, typically turning to either workgroup software or web
publishing software. Workgroup software is generally designed to enable small
groups of developers to manage relatively simple web-sites. They generally do
not scale to support large numbers of contributors or the increasing complexity
and volume of web content. Using workgroup software may impair a company's
ability to deliver up-to-date and accurate web content. Web publishing software
is generally designed only to collect and display information on a web-site and,
because it is often proprietary, does not accommodate many popular web authoring
tools or web application servers. In addition, other third-party solutions do
not: (i) allow large numbers of contributors to add content to a web-site; (ii)
allow web teams to work on applications simultaneously; or (iii) integrate new
web technologies easily, thereby slowing the deployment of eBusiness
initiatives.
With the proliferation of eBusiness initiatives, the need has emerged
for a common infrastructure, or "platform," that can (i) accommodate large and
diverse groups of content contributors; (ii) accommodate popular web authoring
tools; and (iii) integrate leading web application servers. An open architecture
for such a platform enables customers to leverage their existing investments in
information technology and facilitates rapid adoption of new web technologies
and standards.
THE SMARTSOURCES.COM SOLUTION
We provide web content-management software known as kServer(TM).
kServer(TM) enables customers to migrate their businesses to the web rapidly,
thereby increasing their ability to generate more revenues and compete more
effectively. Today, the volume and complexity of web content and the number of
eBusiness applications continue to grow so rapidly that it can be difficult for
businesses to meet their web-site development schedules. kServer(TM) enables
customers to develop and deploy multiple kSite applications simultaneously. This
approach allows businesses to complete their eBusiness initiatives more rapidly.
In addition, kServer(TM) allows content contributors to perform quality
assurance functions on content modifications, which significantly reduces
testing time.
Complex web-sites can consist of up to hundreds of thousands of pages
containing both static and dynamic content supplied by departments throughout
the enterprise. As a result, these sites can be expensive to deploy and manage.
kServer(TM) lowers the costs of web operations primarily by reducing the
dependency on specialized web development personnel and by improving operating
efficiency through automation of workflow processes, such as task assignment,
routing and approval. Automated workflow processes can reduce the time required
to assemble, test and validate new web content. In addition, our products
support evolving web standards and our open architecture is compatible with
third-party web authoring tools and web application servers. As a result,
businesses can productively leverage their existing information technology
infrastructure.
To attract and retain online customers, today's leading web-sites
continuously enhance their users' online experience. Businesses seek to achieve
this by introducing new web technologies and refreshing content frequently. The
open architecture of kServer(TM) facilitates rapid integration of new web
technologies and simultaneous development of multiple eBusiness applications. In
addition, kServer(TM) is highly scalable, permitting the collaborative efforts
of hundreds of contributors to be coordinated as the need arises.
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<PAGE> 23
STRATEGY
Our strategy includes:
o design of innovative, web-based content-management solutions
using our own and existing technology
o establishment of partnerships with key value chain
participants to enable the creation of a "complete solution"
o collaboration with customers to develop customized
applications uniquely suited to solve their content-management
problems
o continual development of our technology base to extend our
source of advantage
o creation of an open platform, publishing and training to build
a network of kServer(TM) specialists who will promote the use
and potential of our core technology
o identification of and focus on carefully selected vertical
markets
MARKETS
The market segments we will focus on include:
o TRAVEL AND TRANSPORTATION
We have chosen the travel industry, travel agencies in particular, as a
key market segment to focus our sales and marketing efforts. We estimate that
there are approximately 32,000 travel agencies worldwide. Traditional travel
agencies have been under considerable threat due to the pressure from online
travel agencies. The travel industry faces key business issues such as (i) time
lag in information dissemination to travel agents and customers; (ii) the need
to share information focused on the specific needs of clients; and (iii) the
requirement for value-added services to justify their service fee.
As a solution to these business issues, we offer
personalized/customized portals to travel agents and their customers. These
portals allow the user to pull up-to-date airline, hotel, cruise packages, car
rental, weather and other relevant information onto their personal web-sites. By
presenting customers with this useful and timely information through
personalized portals, travel agents will be better able to engage and retain
customers and increase bookings.
We have entered into a memorandum of understanding with the franchise
division of Uniglobe International Travel, one of the world's largest
single-brand franchisor of travel agencies with over 1,000 locations, to deploy
the kServer(TM) product to participating travel agencies.
The kServer(TM) technology will provide a highly functional web-site to
each participating Uniglobe agency complete with value-added content and
applications. The kServer(TM) will allow travel agents to update local content
and manage users' profiles, all from a browser-based interface. For the frequent
traveler, agencies will be able to provide a personalized travel portal
delivering value-added content and applications that can be personalized for
each client's preferences. The kServer(TM) will provide pre-packaged,
ready-to-deploy content modules allowing for personalization of information to
the end-user, such as weather, travel advisories, currency rates, hotel links,
mapping and stock quotes, delivered to each personalized travel portal as
applications that provide for the travel agency operator to post local specials.
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<PAGE> 24
o FINANCIAL SERVICES
The Internet has increased the occurrences of remote access to trading
entities networks and the number of participants involved in trading. This trend
is expected to continue vigorously for the next several years. The financial
service sector, brokerage and corporate finance firms in particular, are
receptive to technological advances as long as there is a clear value in
implementing the new technology.
As with travel agencies, the kServer(TM) product can be used by
financial service firms to create personal investment portals for each client.
The portals can be customized to each client's investment interests or could be
used to bring together and disseminate securities laws and regulations
information from globally dispersed databases.
We will initially focus on obtaining critical domain expertise and then
on developing a compelling market message stressing enhanced performance,
efficiency and effectiveness resulting from improved knowledge and content-
management. Furthermore, it is imperative that we form key partnerships and
alliances with integrators who have significant presence and experience in the
financial service sector.
o GOVERNMENT
Governments, at all levels, face key issues, such as the following:
o complexity and high costs associated with dissemination and
sharing of massive amounts of information throughout various
government agencies
o lack of cross-departmental sharing within an individual
government agency
o lack of integration of information between countries on a
variety of issues
The kServer(TM) product can provide a solution to these problems. For
example, we can develop a web-based portal bringing together all information
from various departments of a government agency. Also, we can create a web-
based portal integrating policies and laws of member nations on a variety of
issues such as taxes, tariffs, immigration and environmental standards.
PRODUCT FEATURES
Multi-site
A big part of the power of kServer(TM) is the ability to create
thousands of different kSites very quickly without writing any HTML and XML
codes. 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(TM) 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.
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<PAGE> 25
Content-Management templates
All content in kServer(TM) 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(TM) this structure prevents "information overload" (i.e., what happens
when there is too much information for it to be effectively mined).
Content syndication
Content can be shared between a single kSite and other kSites or
external databases. kSites can subscribe to specific content and display that
content in-line as if it were native to that kSite.
Built-in services
kServer(TM) 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 sites.
Sales, Marketing and Distribution
We market and sell our kServer(TM) product primarily through a direct
sales force in North America. To date, we have licensed the software to two
customers: Everdream Corporation and the NAFTA Institute. We intend to
significantly increase our sales and marketing team this year.
To extend our market reach and increase sales opportunities, we intend
to establish relationships with leading technology partners and information
technology service providers. To date, we have established a partnership with
First City Partners Group Inc. to assist in the sales of kServer(TM) to certain
government and international trade organizations.
COMPETITION
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.
We compete with third party, content-management solution providers and,
to a lesser extent, with workgroup solutions and content publishing application
providers. We 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 our market. Other large
software companies, such as Microsoft and IBM, may also introduce competitive
products. Many of our existing and potential competitors have greater technical
marketing and financial resources than us.
INTERNATIONAL TRADE SOFTWARE AND SERVICES
Overview
Although our primary focus is content-management solutions, we have
historically focused on our proprietary trade compliance technology, 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.
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<PAGE> 26
We also provide international trade consulting services to businesses
operating under NAFTA and other trade regulatory requirements. We provide
consulting services to over 50 clients such as Sun Microsystems, Mattel, Delco
Remy America, Inc., Lipton and Levi Strauss & Co.
Clients of the trade division receive benefits such as:
o management of the complete NAFTA process
o specific services such as classification of bills of materials
o review and evaluation of internal NAFTA qualification
processes to determine if there are any weaknesses in the
processes
Industry and Competition
NAFTA is by far one of the most comprehensive and complex trade
agreements in existence, with more than 1,500 rules of origin regulating its
application. Businesses 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 resources range from free access to 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 us 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
Our product, ORIGIN(TM), is a software system designed to automate the
complex process of international trade and customs compliance. ORIGIN(TM)
assists companies operating within the international business environment with
their trade-management solutions.
The ORIGIN(TM) product line is made up of ORIGIN(TM) Basic, ORIGIN(TM)
Pro, and ORIGIN(TM) Trade Tools.
o ORIGIN(TM) Basic enables the user to process country of origin
determinations in any of the NAFTA countries, interactive
referencing and interpreting the NAFTA legislation. The
software produces a NAFTA certificate of origin and an audit
trail containing the steps taken to meet NAFTA.
o ORIGIN(TM) Pro is a comprehensive, customized NAFTA solution
that is able to automatically interpret bills of materials,
batch process 10,000 NAFTA determinations, and produce
detailed audit trails and compliance reports.
o ORIGIN(TM) Trade Tools is an innovative line of trade
compliance products used to further automate and manage the
entire logistics of NAFTA compliance.
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<PAGE> 27
Sales, Marketing and Distribution
Currently, our 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 a one-on-one sales call to ensure understanding of the
product and to arrange real-time online software demonstrations.
Sales associates offer real-time online software demonstrations to
potential customers, presenting the benefits and features of the ORIGIN(TM)
software first hand. The presentation, accompanied by a conference call, walks
the client through each step of the software's function and illustrates how
ORIGIN(TM) could streamline the user's specific trade compliance process.
All current sales and marketing are handled directly by an in-house
sales and marketing team. We are currently reviewing partnership opportunities.
RESEARCH AND DEVELOPMENT
We continue to invest in research and development to enhance the
kServer(TM) 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
December 31, 1999, approximately 10 employees were engaged in research and
development activities. We expect to hire additional engineers in the future for
further research and development activities.
PATENTS AND TRADEMARKS
Our success depends on our ability to maintain the proprietary aspects
of our technology and operate without infringing the proprietary rights of
others. We rely on a combination of trademarks, trade secret and copyright laws,
and contractual restrictions to protect the proprietary aspects of our
technology. We seek to protect the source code for our software, documentation
and other written materials under trade secret and copyright laws. We do not
currently have any United States or foreign patents issued. Our license
agreements impose certain restrictions on our customers' ability to utilize our
software. We also seek to protect our intellectual property by requiring
employees and consultants with access to proprietary information to execute
confidentiality agreements and by restricting access to the source code.
Due to rapid technological change, we believe that factors such as the
technological and creative skills of our personnel and new product developments
and enhancements to existing products are as equally important as the various
legal protections of our technology in establishing and maintaining a technology
leadership position.
PROPERTIES
We operate 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. We own the Vancouver
office space, which is approximately 3,400 square feet and lease an additional
3,000 square feet of office space in the same building. There are mortgages
payable of approximately $431,000 collateralized by the Vancouver office. The
Toronto office space consists of 3,200 square feet of leased office space.
LITIGATION
We have no pending litigation.
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<PAGE> 28
EMPLOYEES
As of December 31,1999, we employed 24 full-time employees.
MANAGEMENT
DIRECTORS
The names of the directors and certain information about them are set
forth below:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION/ DIRECTOR
NAME AGE POSITION HELD WITH THE COMPANY SINCE
- ---- --- ------------------------------ --------
<S> <C> <C> <C>
Nathan Nifco 36 Chairman, Chief Executive Officer and Director 1991
Michael J. Forster 35 President, Chief Operating Officer and Director 1999
Dr. Gerald J. Wittenberg 47 Surgeon; Director 1998
Charles K. Kelly 51 Chairman of Canadian Public Affairs Consulting Group, 1999
Vista Strategic Management, Inc., North American
Institute - Canada and The Cascadia Institute; Director
Norman R. Miller 51 Attorney; Director 1999
</TABLE>
Nathan Nifco
Nathan Nifco founded Nifco Synergy Ltd. in 1991. In September 1998, Mr.
Nifco incorporated Nifco Investments Ltd. for the purposes of holding all
outstanding shares of Nifco Synergy Ltd. In December 1998, Nifco Investments
Ltd. and all of its subsidiaries were acquired by the Company (formerly Innovest
Capital Sources Corporation). In connection with the transaction, Mr. Nifco
obtained control of the Company. Mr. Nifco holds a B.Sc. from the Monterrey
Institute of Technology in Mexico City; a M.Sc. from the Rosenbleuth Foundation,
also in Mexico City; an MBA from Asia Pacific International University; and
diplomas in executive leadership and management from the Massachusetts Institute
of Technology and the Kennedy School of Management at Harvard University.
Michael J. Forster
Michael Forster has served as our President and Chief Operating Officer
since August 1, 1999. On August 25, 1999, Mr. Forster was named a Director of
the Company. From 1997 to 1999, Mr. Forster was Chairman of the Board, Chief
Executive Officer and President of Mercury Scheduling Systems, Inc., a
publicly-owned airline operation software company based in Vancouver, Canada.
From 1996 to 1997, Mr. Forster was a business consultant to various airline
companies. From February 1995 to April 1996, Mr. Forster served as the President
and Chief Executive Officer of Sierra Expressway Airlines, a regional commuter
airline company. Subsequently, Sierra Expressway Airlines filed for bankruptcy
on October 4, 1996. From January 1994 to February 1995, Mr. Forster was the
General Manager and Chief Operations Executive for American Airlines and its
wholly-owned subsidiary, American Eagle. Mr. Forster currently serves as a
director of the following public companies: Royal Holdings Services, Ltd. and
Mercury Scheduling Systems, Inc. Mr. Forster received his B.S. degree in
aeronautical engineering from California Polytechnic State University in 1991.
Dr. Gerald J. Wittenberg
Dr. Gerald Wittenberg is an oral and maxillofacial surgeon and received
his degree from the University of British Columbia in 1977. In 1981, Dr.
Wittenberg obtained a Masters of Science degree with emphasis on Anatomy and
Physiology from the University of Minnesota. Dr. Wittenberg has a private
practice in Vancouver and Richmond, British Columbia, teaches at the University
of British Columbia, and is on staff at several hospitals.
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<PAGE> 29
Charles K. Kelly
Charles Kelly is the Chairman and Chief Executive Officer of Vista
Strategic Management, Inc. (1990-Present), Chairman of the Canadian Public
Affairs Consulting Group, Inc. (1978-Present) and the Chairman of Resortport
Development Corporation Ltd. (Present). Mr. Kelly has served as the Chairman of
two not-for-profit public policy organizations: The Cascadia Institute and North
American Institute-Canada since 1991 and 1994, respectively. Mr. Kelly received
his B.A. degree from Queen's University in 1971.
Norman R. Miller
Norman Miller is a founding partner of Wolin, Ridley & Miller LLP, a
law firm based in Dallas, Texas. Mr. Miller has practiced corporate and
securities law for more than 25 years. Mr. Miller received his J.D. from Harvard
Law School in 1973 and his B.A. degree, with distinction, from Northwestern
University in 1970.
Directors are elected for a term of one year and serve until their
successors are elected.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended September 30, 1999, the Board of Directors
had three meetings. Each director attended 100% of the meetings of the Board of
Directors held during the period for which he was a Director. The Board's Audit
Committee held two telephone conference meetings during 1999, and the
Compensation Committee did not hold any meetings during 1999.
Audit Committee. The Committee meets with our auditors to review the
results of the annual audit and discuss our financial statements. The Committee
currently consists of two directors, Norman Miller (Chairman) and Charles Kelly.
Compensation Committee. The Committee considers and makes
recommendations concerning salaries and incentive compensation awards to
employees and consultants under our stock option plan; determines compensation
levels; and performs such other functions regarding compensation as the Board
may delegate. There are no board or committee interlocks. The Committee
currently consists of two directors, Charles Kelly (Chairman) and Norman Miller.
COMPENSATION OF DIRECTORS
The members of the Board of Directors do not receive cash compensation
for their services as directors but are reimbursed for their reasonable expenses
incurred in connection with attendance at meetings of the Board of Directors and
committees.
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
Our Articles of Incorporation limit the liability of directors to the
maximum extent permitted by Colorado law. Colorado law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
o any breach of their duty of loyalty to the corporation or its
shareholders;
o acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
o unlawful payments of dividends or unlawful stock repurchases
or redemptions; or
o any transaction from which the director, directly or
indirectly, derived an improper personal benefit.
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<PAGE> 30
The limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our Articles of Incorporation and bylaws provide that we will indemnify
our directors and officers and may indemnify our employees, fiduciaries and
other agents to the fullest extent permitted by law. We believe that
indemnification under our bylaws covers at least negligence and gross negligence
on the part of the indemnified parties. Our bylaws also permit us to secure
insurance on behalf of any officer, director, employee, fiduciary or other agent
for any liability arising out of his or her actions in their capacity as an
officer, director, employee, fiduciary or other agent of the Company and
subsidiaries, regardless of whether the bylaws would permit indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and persons controlling the Company
pursuant to the foregoing provision, or otherwise, we have been advised that, in
the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
OTHER OFFICERS AND KEY EMPLOYEES
Executive officers are appointed by the Board and serve at the
discretion of the Board. Set forth below is information regarding executive
officers of the Company who are not directors.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION/POSITION HELD WITH THE COMPANY
---- --- ---------------------------------------------------
<S> <C> <C>
Sokhie S. Puar 36 Vice President, Corporate Development
Darryl Cardey 32 Chief Financial Officer
Carol Beaul 47 President, Intelli Trade, Inc., a wholly-owned subsidiary
Peter Rive 25 Chief Engineer, Infer Technologies, Inc., a
wholly-owned subsidiary
</TABLE>
Sokhie S. Puar, Vice President, Corporate Development
Sokhie Puar has been Vice President of Corporate Development of the
Company since February 1999. From 1987 to January 1999, Mr. Puar was a
Registered Representative at Canaccord Capital Corporation (Canada) and Noram
Investments (United States of America). A licensed securities professional in
both the United States and Canada, Mr. Puar received his training at the British
Columbia Institute of Technology obtaining both an advanced Diploma in
Mechanical Engineering (1985) and Business Administration (1986).
Darryl Cardey, Chief Financial Officer
Darryl Cardey has been Chief Financial Officer of the Company since
September 1999. From 1996 to 1999 and 1994 to 1996, Mr. Cardey was the Chief
Financial Officer for Mercury Scheduling Systems Inc. and Kirkton Holdings Ltd.,
respectively. Mr. Cardey received his B. Comm. degree (equivalent to B.S. degree
in Finance) from the University of British Columbia in 1990 and became a
Chartered Accountant in 1993.
Carol Beaul, President, Intelli Trade, Inc.
Carol Beaul has served as the President of Intelli Trade since 1994.
She has been a member of the board of directors of the Canadian Industrial
Transportation League since 1995. Ms. Beaul received her B.A. degree from
Windsor University in 1975.
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<PAGE> 31
Peter Rive, Acting President, Chief Engineer and Director, Infer Technologies,
Inc.
Peter Rive has served as the Acting President, Chief Engineer and a
Director of Infer Technologies since August 1999. Mr. Rive will serve as the
Acting President until a suitable candidate is found for the position. Mr. Rive
will then serve as a Vice President, Chief Engineer and Director of the
subsidiary.
There are no family relationships among any of our directors, officers
or key employees.
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows compensation awarded or paid to, or earned
by, our Executive Officers for the fiscal years ended September 30, 1998, if
applicable, and 1999 (the "Named Executive Officers"). Only the compensation of
our Chief Executive Officer exceeded $100,000 for 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation Awards
-----------------------------
Securities
Name and Principal Other Annual Restricted Underlying All Other
Position Year Salary ($) Bonus ($) Compensation Stock Award Options Compensation
<S> <C> <C> <C> <C> <C> <C> <C>
Nathan Nifco, Chief Executive 1998 57,951 -0- $92,049(1) -0- -0- -0-
Officer, Chairman and Director(7) 1999 109,280 -0- 142,395 -0- 200,000 -0-
Michael J. Forster, President 1999 23,333 -0- -0- -0- 150,000 -0-
and Director (2)(7)
Darryl Cardey, Chief Financial 1999 6,577 -0- -0- -0- 100,000 -0-
Officer (3)(7)
Sokhie S. Puar, Vice President, 1999 43,160 -0- -0- -0- 100,000 -0-
Corporate Development (4)(7)
Carol Beaul, President of 1998 55,633 -0- -0- -0- 100,000 -0-
Subsidiary (5) 1999 55,633
Peter Rive, Acting President, 1999 37,605 -0- -0- -0- 40,000 -0-
Chief Engineer and Director of
Subsidiary (6)
</TABLE>
- ---------------------------
* All figures are shown in U.S. dollars using an exchange rate of $0.6623
effective September 30, 1999.
(1) Nathan Nifco received compensation in 1998 in the amount of $92,049,
which was earned but not paid in fiscal 1997.
(2) Michael Forster became President and Chief Operating Officer in August
1999, and Director in August 1999.
(3) Darryl Cardey became the Chief Financial Officer in September 1999.
(4) Sokhie Puar became Vice President of Corporate Development in February
1999.
(5) Carol Beaul is the President of Intelli Trade.
(6) Peter Rive is the Chief Engineer and Director of Infer Technologies.
(7) Compensation was paid pursuant to a management consulting agreement
with the Company.
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<PAGE> 32
CONSULTING AND EMPLOYMENT AGREEMENTS
We have entered into management consulting and employment agreements
with the executive officers and significant employees as set forth below:
<TABLE>
<CAPTION>
NAME DATE COMPENSATION EXPIRATION DATE
---- ---- ------------ ---------------
<S> <C> <C> <C>
Nathan Nifco (Nifco Investment Ltd.) (1) November 30, 1998 $145,706 2003
Michael J. Forster July 26, 1999 $140,000 2001
Darryl Cardey September 1, 1999 $72,853 90-day notice
Sokhie S. Puar September 1, 1999 $72,853 2001
Carol Beaul (2) January 1, 1996 $55,633 Open
Peter Rive (3) August 1, 1999 $72,000 2001
</TABLE>
- -----------------------------------------
* All figures are shown in U.S. dollars using an exchange rate of $0.6623
effective September 30, 1999.
(1) In addition to Mr. Nifco's fixed salary, he is entitled to a bonus to
be determined at the discretion of the Board of Directors, but which
shall not be less than ten percent (10%) of Mr. Nifco's base salary.
(2) Ms. Beaul is President of Intelli Trade.
(3) Mr. Rive is Chief Engineer, a Director and Officer of Infer
Technologies.
STOCK INCENTIVE COMPENSATION PLAN
Our 1999 Stock Incentive Compensation Plan (the "1999 Stock Plan")
provides for the grant of incentive stock options, non-qualified stock options
and stock awards to employees, directors and consultants. Subject to shareholder
approval, a total of 4,000,000 shares of Common Stock will be reserved for
issuance under the 1999 Stock Plan. As of March 1, 2000, 1,759,000 options had
been granted to employees, officers and directors under the 1999 Stock Plan.
The compensation committee of the Board of Directors administers the
1999 Stock Plan and determines the terms of options granted, including the
exercise price, the number of shares subject to individual option awards and the
vesting period of the options. The exercise price of stock option grants cannot
be lower than 100% of the fair market value of the Common Stock on the date of
grant and, in the case of incentive stock options granted to holders of more
than 10% of our voting power, not less than 110% of the fair market value. The
term of a stock option cannot exceed ten years, and the term of an incentive
stock option granted to a holder of more than 10% of our voting power cannot
exceed five years. The Board of Directors may amend, modify or terminate the
1999 Stock Plan at any time as long as such amendment, modification or
termination does not impair the rights of plan participants with respect to
outstanding options under the 1999 Stock Plan. Our 1999 Stock Plan will
terminate in 2009, unless terminated earlier by the Board of Directors.
28
<PAGE> 33
Option Grants In Last Fiscal Year
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED
ANNUAL RATES OF
STOCK PRICE ALTERNATE TO (f)
- ----------------------------------------------------------------------------------------- APPRECIATION FOR AND (g): GRANT
NUMBER OF PERCENT OF OPTION TERM DATE VALUE
SECURITIES TOTAL OPTIONS --------------------- ---------------
UNDERLYING GRANTED EXERCISE OR GRANT DATE
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION 5% 10% PRESENT
NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE ($) ($) VALUE $
(a) (b) (c) (d) (e) (f) (g) (f)
- ----------------------- ----------- -------------- ----------- ----------------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Nathan Nifco (1) 200,000 23% 5.50 June 22, 2004 ......... ......... 0.71
Michael J. Forster (1) 150,000 17.2% 5.50 August 1, 2004 ......... ......... 0.71
Darryl Cardey (1) 100,000 11.5% 5.50 September 1, 2004 ......... ......... 0.71
Sokhie S. Puar (1) 100,000 11.5% 5.50 June 22, 2004 ......... ......... 0.71
Carol Beaul 100,000 11.5% 5.50 June 22, 2004 ......... ......... 0.71
Peter Rive 40,000 .05% 5.50 June 22, 2004 ......... ......... 0.71
</TABLE>
(1) The individuals entered into a management consulting agreement with the
Company and will receive Non-Qualified Stock Options.
* Total number of options granted to employees during fiscal year 1999
was 869,000.
* We use 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 -0-%
Price volatility 27.7%
Weighted average expected life of options 4.5 years
</TABLE>
Option Exercises In Last Fiscal Year
For the fiscal year ended September 30, 1999, there were no options
exercised by the Named Executive Officers.
SAR Grants in Last Fiscal Year
There were no stock appreciation rights granted during fiscal year
ended September 30, 1999.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of our Common Stock as of March 1, 2000 by: (i) each nominee for
director; (ii) each of the executive officers named in the Summary Compensation
Table; (iii) all executive officers and directors of the Company as a group; and
(iv) all those known by us to be beneficial owners of more than five percent of
our Common Stock.
29
<PAGE> 34
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
----------------------------
PERCENT OF
BENEFICIAL OWNER NUMBER OF SHARES TOTAL
- ---------------- ---------------- ----------
<S> <C> <C>
Nathan Nifco (3) ............................................. 3,003,070(2)* 24.39%
Michael J. Forster ........................................... 100,000* **
Dr. Gerald J. Wittenberg ..................................... 0* **
Charles K. Kelly ............................................. 0* **
Norman R. Miller ............................................. 0* **
Darryl Cardey ................................................ 50,000* **
Sokhie S. Puar ............................................... 50,000* **
Carol Beaul .................................................. 0* **
Dina Nifco (3) ............................................... 2,991,355(2) 24.29%
All executive officers and directors as a group (9 persons)... 6,194,425* 50.31%
</TABLE>
- ---------
* The number of beneficial shares owned includes options that the person
has the right to acquire beneficial ownership within a sixty day
period.
** Less than one percent.
(1) This table is based upon information supplied by officers, directors
and principal shareholders and by Schedules 13D and 13G filed with the
SEC. Unless otherwise indicated in the footnotes to this table and
subject to community property laws where applicable, we believe that
each of the shareholders named in this table has sole voting and
investment power with respect to the shares indicated as beneficially
owned. Applicable percentages are based on 12,312,963 shares of Common
Stock outstanding on March 1, 2000, adjusted as required by rules
promulgated by the SEC.
(2) This does not include 5,575 shares of Common Stock beneficially owned
by the Nifco Family Trust, of which Nathan Nifco is the Trustee and
Dina Nifco is a beneficiary.
(3) Dina Nifco is the wife of Nathan Nifco.
OFFERING SHAREHOLDERS
This prospectus relates to the offering by the Offering Shareholders
for resale of shares of our Common Stock acquired by them upon conversion of
debentures or exercise of investment options, options and warrants received in
private placement transactions or which they acquired in exchange for subsidiary
shares. See "Security Ownership of Certain Beneficial Owners and Management."
All of the Shares offered by this prospectus are being offered by the Offering
Shareholders for their own accounts.
The following table sets forth certain information with respect to the
number of Shares offered by the Offering Shareholders. To our knowledge, the
Offering Shareholders would have sole voting and investment power over the
Shares listed in the table below, if Shares were issued upon conversion of the
debentures or exercise of the investment options, options and warrants.
30
<PAGE> 35
<TABLE>
<CAPTION>
Shares Beneficially Owned
Aggregate Number After Offering
Shares Beneficially of Shares to be Sold -------------------------
Owned Prior to Offering in Offering Number Percent
----------------------- -------------------- ------ -------
<S> <C> <C> <C> <C>
RGC International Investors, LDC 3,732,716 3,732,716 0 --
("RGC")
Columbia Diversified Software Fund 91,476 91,476 0 --
Limited Partnership
Continental Capital & Equity 200,000 200,000 0 --
Corporation
G. Kopolow & Associates 3,750 3,750 0 --
AB Phoenix Inc. 21,250 21,250 0 --
Peter Sanders 100,000 100,000 0 --
</TABLE>
Subject to adjustment, the debentures issued to RGC are convertible
into shares of Common Stock at a conversion price based on the trading price of
our Common Stock over a fixed period prior to conversion of the debentures, up
to a fixed conversion price of $9.7125. The related investment options are
exercisable at the fixed conversion price of $9.7125 per share, and the related
warrants are exercisable at the fixed price of $11.10 per share. See "Recent
Developments." Assuming no accrued interest, conversion in full of the
debentures and exercise in full of the related investment options at the fixed
conversion price and exercise in full of the warrants at their fixed price would
result in the issuance of an aggregate of 1,359,601 shares. In accordance with
our agreement with the holder of the debentures, to assure that adequate shares
are available for issuance in the event of decreases in the conversion price of
the debentures, the number of shares we have reserved, and the number of Shares
set forth in the table above for RGC, represents an agreed upon calculation of a
multiple of the number of shares potentially issuable upon conversion of the
debentures and exercise in full of the related investment options at an assumed
conversion price and exercise in full of the warrants at their fixed exercise
price. The actual number of shares issuable upon conversion of the debentures
and exercise of the related investment options is indeterminate and depends on a
number of factors which cannot be predicted by us at this time, including the
future market price of our Common Stock and whether the mandatory redemption and
default provisions of the debentures are triggered, and could be materially less
or more than the number set forth above. The amount to be registered represents
a good faith estimate of the shares of Common Stock issuable upon conversion of
the debentures and exercise of the related investment options and warrants. The
registration statement of which this prospectus is a part also relates to an
indeterminate number of additional shares issuable upon conversion of the
debentures and exercise of the related investment options and the warrants and
exercise of the other options and warrants, as such number may be adjusted as a
result of stock splits, stock dividends and similar transactions in accordance
with Rule 416 under the Securities Act.
Under the terms of the debentures and the related warrants, the
debentures are convertible and the investment options and warrants are
exercisable by any holder only to the extent that the number of shares of Common
Stock issuable pursuant to such securities, together with the number of shares
of Common Stock owned by such holder and its affiliates (but not including
shares of Common Stock underlying unconverted debentures or unexercised portions
of the investment options or warrants) would not exceed 4.9% of the then
outstanding Common Stock as determined in accordance with Section 13(d) of the
Exchange Act. Accordingly, the number of shares of Common Stock set forth in the
table for RGC exceeds the number of shares of Common Stock that RGC could own
beneficially at any given time through their ownership of the debentures, the
investment options and the warrants. In that regard, the beneficial ownership of
the Common Stock by RGC set forth in the table is not determined in accordance
with Rule 13d-3 under the Exchange Act.
The warrants issued to G. Kopolow & Associates and AB Phoenix Inc. are
exercisable at $11.10 per share. The options granted to Continental Capital &
Equity Corporation are exercisable as follows: 50,000 at $5.25 per share, 50,000
at $6.00 per share, 50,000 at $7.50 per share and 50,000 at $8.00 per share. The
options granted to Peter Sanders are exercisable at $5.50 per share. The shares
of Common Stock issued to Columbia Diversified Software Fund Limited Partnership
were exchanged for 5,000,000 shares of Class B Preferred Stock of our
subsidiary, Origin Software.
31
<PAGE> 36
PLAN OF DISTRIBUTION
The Shares being offered under this prospectus by the Offering
Shareholders or their respective pledgees, donees, transferees or other
successors in interest, may be offered and sold from time to time on the OTC
Bulletin Board, or on other stock exchanges or quotation services on which the
Shares may be trading, at prevailing market prices or in privately negotiated
transactions. Such Shares may be sold by one or more of the following methods,
without limitation:
o a block trade in which a broker or dealer will attempt to sell
the Shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction
o the writing of options on the Shares
o short sales
o purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this
prospectus
o ordinary brokerage transactions and transactions in which the
broker solicits purchasers
o face-to-face transactions between sellers and purchasers
without a broker/dealer
o any combination of the foregoing
Brokers or dealers engaged by the Offering Shareholders may arrange for
other brokers or dealers to participate. Brokers or dealers may receive
commissions or discounts from the Offering Shareholders in amounts to be
negotiated. Participating brokers and dealers and the Offering Shareholders may
be deemed to be "Underwriters" within the meaning of the Securities Act in
connection with such sales.
The Shares may also be sold pursuant to Rule 144. The Offering
Shareholders shall have the sole and absolute discretion not to accept any
purchase offer or make any sale of shares if they deem the purchase price to be
unsatisfactory at any particular time.
The Offering Shareholders or their respective pledgees, donees,
transferees or other successors in interest, may also sell the Shares directly
to market makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. Such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the Offering Shareholders
and/or the purchasers of Shares for whom such broker-dealers may act as agents
or to whom they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the Shares will do so for their own account and at
their own risk. It is possible that an Offering Shareholder will attempt to sell
Shares in block transactions to market makers or other purchasers at a price per
share which may be below the then market price. The Offering Shareholders cannot
assure that all or any of the Shares offered in this prospectus will be issued
to, or sold by, the Offering Shareholders. The Offering Shareholders and any
brokers, dealers or agents, upon effecting the sale of any of the Shares offered
in this prospectus, may be deemed "underwriters," as that term is defined under
the Securities Act or the Exchange Act, or the rules and regulations under such
acts.
To comply with certain state securities laws, if applicable, the Shares
will be offered or sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in certain states the Shares may not
be sold or offered unless they have been registered or qualified for sale in
such states or an exception for registration or qualification is available and
is complied with.
The Offering Shareholders, alternatively, may sell all or any part of
the Shares offered by this prospectus through an underwriter. To our knowledge,
no Offering Shareholder has entered into any agreement with a prospective
32
<PAGE> 37
underwriter. If an Offering Shareholder enters into such an agreement or
agreements, the relevant details will be set forth in a supplement or revisions
to this prospectus.
The Offering Shareholders and any other persons participating in the
sale or distribution of the Shares will be subject to applicable provisions of
the Exchange Act and the rules and regulations under such act including, without
limitation, Regulation M, which provisions may restrict certain activities of,
and limit the timing of purchases and sales of any of the Shares by the Offering
Shareholders or any other such person. Furthermore, under Regulation M, persons
engaged in a distribution of securities are prohibited from simultaneously
engaging in market making and certain other activities with respect to such
securities for a specified period of time prior to the commencement of such
distributions, subject to specified exceptions or exemptions. All of these
limitations may affect the marketability of the Shares.
We have agreed to indemnify the Offering Shareholders, or their
transferees or assignees, against certain liabilities, including liabilities
under the Securities Act, or to contribute to payments the Offering Shareholders
or their respective pledgees, donees, transferees or other successors in
interest, may be required to make in respect of such liabilities.
We will pay the costs of registering the Shares. There can be no
assurances that the Offering Shareholders will sell any or all of the offered
Shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and executive
officers, and persons who own more than ten percent of a registered class of our
equity securities, to file initial reports of ownership and reports of changes
in ownership of Common Stock and our other equity securities with the SEC.
Officers, directors and greater than ten percent (10%) shareholders are required
by SEC regulation to furnish us with copies of all Section 16(a) forms they
file.
To our knowledge, the following table sets forth the directors,
officers and beneficial owners of more than ten percent of any class of our
equity securities registered pursuant to Section 12 of the Exchange Act that
failed to file on a timely basis:
<TABLE>
<CAPTION>
NO. OF
TRANSACTIONS
NO. OF LATE NOT REPORTED
INDIVIDUAL REPORTS TIMELY
---------- ------- ------
<S> <C> <C>
Carol Beaul 2 1
Darryl Cardey 1 1
Michael J. Forster 1 1
Lionel Prins 1 1
Charles K. Kelly 2 2
Nathan Nifco 1 1
Sokhie S. Puar 2 2
Gerald J. Wittenberg 1 1
</TABLE>
The number of late reports and transactions recorded above were related
to appointments of directors and the issuance of stock options. There were no
failures to file the required form.
33
<PAGE> 38
CERTAIN TRANSACTIONS
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. 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. It develops and markets software applications to assist school
districts with centralized purchasing and inventory control.
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.
Nathan Nifco, the Chairman, Chief Executive Officer and Director of
the Company owns approximately eighty percent (80%) interest in Tradespace,
twenty percent (20%) interest in PMG and fifteen percent (15%) interest in
Synergy Strategy, a company that is no longer in operation. Sales to these
affiliates in 1998 and 1999 totaled $722,700 and $89,700, respectively.
On November 16, 1999, we sold for cash 200,000 shares of Common Stock,
at a price of $3.45 per share, to certain of our officers and directors set
forth below, in a Private Placement pursuant to Rule 506, Regulation D of the
Securities Act:
<TABLE>
<CAPTION>
SHARES PRICE TOTAL
NAME TITLE(S) PURCHASED PER SHARE COST
---- -------- --------- --------- -----
<S> <C> <C> <C> <C>
Michael J. Forster President, Director 100,000 $3.45 $345,000
Sokhie S. Puar Vice President, Corporate 50,000 $3.45 $172,500
Development
Darryl Cardey Chief Financial Officer 50,000 $3.45 $172,500
</TABLE>
In 1998, Nifco Synergy, Ltd., now known as SmartSources.com
Technologies, Inc., a wholly-owned subsidiary of the Company, entered into a
non-interest bearing, non-recourse note in the principal amount of $68,000 with
Nathan Nifco for additional working capital. Mr. Nifco is a director, officer
and majority shareholder of the Company. In fiscal year 1999, Mr. Nifco forgave
$44,100 of the related party debt. The balance on the note is $24,000.
In 1996, we acquired our Vancouver, Canada office space. There are
mortgage payables to a Canadian bank in the amount of $156,000, due in 2011, and
two to Canadian finance companies in the amount of $275,000, due in 2001 and
2002. The notes are guaranteed by Nathan Nifco, a director, officer and majority
shareholder of the Company.
Norman R. Miller serves on our Board of Directors and is a founding
partner of Wolin, Ridley & Miller LLP, a law firm based in Dallas, Texas. The
firm acts as general counsel to the Company and is compensated for its legal
services.
34
<PAGE> 39
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 50,000,000 shares of Common
Stock, no par value. As of March 1, 2000, 12,312,963 shares of Common Stock were
outstanding, 4,000,000 shares were reserved for issuance upon exercise of
outstanding stock options, 1,610,000 shares were reserved for issuance upon
conversion or exercise of other outstanding options, warrants and exchangeable
preferred stock and 3,732,716 shares were reserved for issuance upon conversion
of the debentures or exercise of the related investment options and warrants.
COMMON STOCK
Our Articles of Incorporation provide that each share of Common Stock
entitles its holder to one vote on all matters on which shareholders are
entitled to vote. Holders of Common Stock are entitled to receive dividends if
and when declared by our Board of Directors and are entitled to share ratably in
all of the assets of the Company available for distribution to holders of Common
Stock upon liquidation, dissolution or winding up of the Company. Holders of
Common Stock do not have preemptive or conversion rights, or cumulative voting
rights.
SHARES ELIGIBLE FOR FUTURE SALE
As of March 1, 2000, 12,312,963 shares of our Common Stock were
outstanding. Of these, 5,418,950 shares are immediately eligible for sale in the
public market without restriction or further registration.
All other outstanding shares of our Common Stock are "restricted
securities" as such term is defined under Rule 144 under the Securities Act, in
that such shares were issued in private transactions not involving a public
offering, and/or are "control securities" as such term is defined under Rule
144, in that such shares are held by our officers, directors or other
affiliates. Restricted and control securities may not be sold in the absence of
registration other than in accordance with Rule 144 or another exemption from
registration. In general, under Rule 144, as currently in effect, a person (or
persons whose shares are required to be aggregated), including an "affiliate" of
the Company, as that term is defined under Rule 144, who has beneficially owned
restricted securities for at least one year, is entitled to sell, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of (a) 1% of the then
outstanding shares of our Common Stock or (b) the average weekly trading volume
in our Common Stock during the four calendar weeks preceding the date on which
notice of such sale is filed, subject to various restrictions. In addition, a
person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale and who has beneficially owned restricted
securities proposed to be sold for at least two years would be entitled to sell
those shares under Rule 144(k) without regard to the requirements described
above. An officer, director or other affiliate who holds shares that are not
restricted securities may sell such shares within the volume limitations
described above but is not subject to the holding period described above. As of
March 1, 2000, 6,000,000 of our outstanding shares of Common Stock were eligible
for sale in compliance with Rule 144.
As of March 1, 2000, 1,759,000 shares of Common Stock were subject to
outstanding options for employees, officers and directors under our 1999 Stock
Plan, none of which are vested. We intend to file a registration statement on
Form S-8 to register for resale the shares of Common Stock reserved for issuance
under our 1999 Stock Plan. Shares covered by the registration statement will be
eligible for sale in the public market upon effectiveness of such registration
statement and the exercise of the options without restriction, unless held by an
"affiliate," as that term is defined under Rule 144.
Nathan Nifco, Dina Nifco and the Nifco Family Trust have registration
rights with respect to 6,000,000 shares of Common Stock. They have waived
registration of such shares on the registration statement of which this
prospectus is a part. Level Jump Asset Management, Inc. will have registration
rights with respect to 150,000 shares of Common Stock upon exercise of its
warrants.
Sales of substantial amounts of our Common Stock under Rule 144, this
prospectus or otherwise could adversely affect the prevailing market price of
our Common Stock and could impair our ability to raise capital through the
future sale of our securities.
35
<PAGE> 40
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for us by
Wolin, Ridley & Miller LLP, Dallas, Texas. Norman R. Miller, a director of the
Company, is a founding partner of Wolin, Ridley & Miller LLP. See "Management."
EXPERTS
The consolidated financial statements included in this prospectus have
been audited by Moss Adams LLP, independent certified public accountants, to the
extent and for the periods set forth in their report incorporated herein by
reference, and are included in reliance upon such report given upon the
authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We are subject to the information requirements of the Exchange Act and
in accordance therewith files reports, proxy materials and other information
with the SEC. Such reports, proxy materials and other information can be
inspected and copied at the public reference facilities maintained by the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Regional Offices of the SEC: Seven World Trade Center, 13th Floor, New
York, N.Y. 10048 and 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material can also be obtained from the Public Reference Section of the SEC
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The SEC maintains a web-site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC. The address of such site is: http://www.sec.gov.
The Common Stock is listed on the OTC Bulletin Board and the reports, proxy
statements and certain other information filed by us may be obtained by calling
the Nasdaq Public Reference Room Disclosure Information Group at (800) 638-8241
or (202) 728-8298.
This prospectus contains a part of the Registration Statement on Form
SB-2, together with all exhibits and amendments thereto, the ("Registration
Statement") filed by us under the Securities Act. This prospectus, which
constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain items of which are
contained in schedules and exhibits to the Registration Statement as permitted
by the rules and regulations of the SEC. Statements contained in this prospectus
as to the contents of any agreement, instrument or other document referred to
are not necessarily complete. With respect to each such agreement, instrument or
other document filed as an exhibit to the Registration Statement, reference is
made to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such reference.
No dealer, sales representative or any other person has been authorized
to give any information or to make any representations in connection with this
Offering other than those contained in this prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by us, and Offering Shareholders or any Underwriter. This prospectus
does not constitute an offer to sell, or a solicitation of, any person in any
jurisdiction where such an offer or solicitation would be unlawful. Neither the
delivery of this prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in our
affairs since the date hereof or that the information contained herein is
correct as of any time subsequent to the date hereof.
We furnish our shareholders with annual reports containing audited
financial statements, and we intend to furnish our shareholders with quarterly
reports containing unaudited financial statements.
36
<PAGE> 41
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................................... F-2
Consolidated Balance Sheet as of September 30, 1999...................................................... F-3
Consolidated Statement of Operations for the years ended September 30, 1998 and 1999..................... F-4
Consolidated Statement of Shareholders' Equity for the years ended September 30, 1998 and 1999........... F-5
Consolidated Statement of Cash Flows for the years ended September 30, 1998 and 1999..................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
Unaudited Consolidated Balance Sheet as of December 31, 1999............................................ F-24
Unaudited Consolidated Statement of Operations for the three months
ended December 31, 1998 and 1999............................................................... F-25
Unaudited Consolidated Statement of Cash Flows for the three months
ended December 31, 1998 and 1999............................................................... F-26
Notes to Unaudited Consolidated Financial Statements for the three months
ended December 31, 1998 and 1999............................................................... F-27
</TABLE>
F-1
<PAGE> 42
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.
/s/ Moss Adams LLP
Bellingham, Washington
March 14, 2000
F-2
- --------------------------------------------------------------------------------
<PAGE> 43
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 12,300
----------
Total current assets 361,300
CAPITALIZED SOFTWARE COSTS AND
PURCHASED SOFTWARE RIGHTS, net 1,550,500
PROPERTY AND EQUIPMENT, net 764,300
OTHER ASSETS 33,300
----------
TOTAL ASSETS $2,709,400
==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<S> <C>
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)
Deferred compensation (247,500)
----------
Total stockholders' deficit (1,512,400)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,709,400
==========
</TABLE>
See accompanying notes to these consolidated financial statements. F-3
- --------------------------------------------------------------------------------
<PAGE> 44
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 1,164,800 2,023,900
----------- -----------
OPERATING INCOME (LOSS) 406,300 (1,302,900)
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (63,300) (50,300)
Other income (expense) 16,000 (13,000)
Write-down of investment in joint venture (103,400) --
----------- -----------
(150,700) (63,300)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 255,600 (1,366,200)
BENEFIT FROM (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. F-4
- --------------------------------------------------------------------------------
<PAGE> 45
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 Deferred Income
Shares Amount Income Deficit Compensation (Loss) Total
---------- ----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <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
Deferred compensation -- -- -- -- (247,500) (247,500)
Dividends -- -- -- (142,400) -- (142,400)
---------- ----------- ----------- ----------- --------- -----------
BALANCE, September 30, 1999 11,563,200 $ 1,821,300 $ 124,500 $(3,210,700) $(247,500) $(1,512,400)
========== =========== =========== =========== ========= ===========
</TABLE>
See accompanying notes to these consolidated financial statements. F-5
- --------------------------------------------------------------------------------
<PAGE> 46
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. F-6
- --------------------------------------------------------------------------------
<PAGE> 47
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
- --------------------------------------------------------------------------------
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.
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).
F-7
- --------------------------------------------------------------------------------
<PAGE> 48
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
- --------------------------------------------------------------------------------
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.
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.
F-8
- --------------------------------------------------------------------------------
<PAGE> 49
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
F-9
- --------------------------------------------------------------------------------
<PAGE> 50
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
- --------------------------------------------------------------------------------
NOTE 3 - CAPITALIZED SOFTWARE COSTS AND PURCHASED SOFTWARE RIGHTS
Information related to capitalized software costs and purchased software
rights is as follows:
<TABLE>
<CAPTION>
1998
----------------------------------------
Capitalized Purchased
Software Software
Costs Rights Totals
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year $ 114,100 $ -- $ 114,100
Costs capitalized 94,300 -- 94,300
Amortization expense (85,800) -- (85,800)
Effect of changes in foreign currency exchange rates (11,200) -- (11,200)
----------- ----------- -----------
Balance, end of year $ 111,400 $ -- $ 111,400
=========== =========== ===========
Cost $ 244,700 -- $ 244,700
Less accumulated amortization (133,300) -- (133,300)
----------- ----------- -----------
$ 111,400 $ -- $ 111,400
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1999
----------------------------------------
Capitalized Purchased
Software Software
Costs Rights Totals
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year $ 111,400 $ -- $ 111,400
Costs capitalized -- -- --
Software rights purchased -- 1,614,600 1,614,600
Amortization expense (82,400) (98,600) (181,000)
Effect of changes in foreign currency exchange rates 2,100 3,400 5,500
----------- ----------- -----------
Balance, end of year $ 31,100 $ 1,519,400 $ 1,550,500
=========== =========== ===========
Cost $ 254,100 1,620,700 $ 1,874,800
Less accumulated amortization (223,000) (101,300) (324,300)
----------- ----------- -----------
$ 31,100 $ 1,519,400 $ 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.
F-10
- --------------------------------------------------------------------------------
<PAGE> 51
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
- --------------------------------------------------------------------------------
NOTE 3 - CAPITALIZED SOFTWARE COSTS AND PURCHASED SOFTWARE RIGHTS (CONTINUED)
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.
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. The rights are being amortized over
four years.
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.
F-11
- --------------------------------------------------------------------------------
<PAGE> 52
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
- --------------------------------------------------------------------------------
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.
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
========
</TABLE>
Long-term debt matures as follows:
<TABLE>
<CAPTION>
Year Ending
September 30,
-------------
<S> <C>
2000 $ 58,700
2001 118,200
2002 165,900
2003 9,900
2004 10,800
Thereafter 110,000
-------
$473,500
</TABLE>
F-12
- --------------------------------------------------------------------------------
<PAGE> 53
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
- --------------------------------------------------------------------------------
NOTE 6 - NOTE PAYABLE AND LONG-TERM DEBT (CONTINUED)
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>
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.
F-13
- --------------------------------------------------------------------------------
<PAGE> 54
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
- --------------------------------------------------------------------------------
NOTE 7 - INCOME TAXES (CONTINUED)
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.
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. As disclosed in Note 17,
subsequent to September 30, 1999, the Company issued various shares and
share equivalents that will have a dilutive or potentially dilutive effect
on earnings per shares in future periods.
F-14
- --------------------------------------------------------------------------------
<PAGE> 55
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
- --------------------------------------------------------------------------------
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.
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.
F-15
- --------------------------------------------------------------------------------
<PAGE> 56
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
- --------------------------------------------------------------------------------
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.
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:
<TABLE>
<S> <C>
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
</TABLE>
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. A total of $82,500 of the deferred compensation was
previously reported as a prepaid expense and $165,000 as an other asset.
The 1999 financial statements have been restated to report the total amount
as a deduction from stockholders' equity. 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.
F-16
- --------------------------------------------------------------------------------
<PAGE> 57
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
- --------------------------------------------------------------------------------
NOTE 10 - CAPITAL STOCK (CONTINUED)
STOCK OPTION INCENTIVE COMPENSATION PLAN
Effective June 21, 1999, the Company adopted the 1999 Stock Incentive
Compensation Plan (the Plan). Under the Plan, as amended, subject to
shareholder approval, 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 not to exceed four million shares. 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 Options 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 4.75 years $ 5.50 -- $ --
</TABLE>
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>
F-17
- --------------------------------------------------------------------------------
<PAGE> 58
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
- --------------------------------------------------------------------------------
NOTE 10 - CAPITAL STOCK (CONTINUED)
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.
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 $1,512,400.
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. As described in Note 17, through March 14,
2000, the Company had issued common shares in private placements for total
proceeds of $1,184,000. It also placed 7% convertible debentures with
investors for $4,645,000 of net proceeds.
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,
another of the Company's subsidiaries, Origin Software, 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.
F-18
- --------------------------------------------------------------------------------
<PAGE> 59
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
- --------------------------------------------------------------------------------
NOTE 12 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
Effective January 7, 2000, a Revenue Canada 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.
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.
F-19
- --------------------------------------------------------------------------------
<PAGE> 60
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
- --------------------------------------------------------------------------------
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.
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
Segment income before tax 190,900 -- 64,700 255,600
Income tax expense 90,700 -- 12,000 102,700
Segment income 100,200 -- 52,700 152,900
Expenditures for segment assets 38,500 -- 8,100 46,600
</TABLE>
F-20
- --------------------------------------------------------------------------------
<PAGE> 61
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
- --------------------------------------------------------------------------------
NOTE 15 - SEGMENT AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS (CONTINUED)
<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 48,600 200 1,100 49,900
Depreciation and amortization 265,300 200 7,000 272,500
Segment income (loss) before tax (982,000) (97,900) (52,100) (1,132,000)
Income tax expense (benefit) (693,400) -- -- (693,400)
Segment income (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)
============= ============
Total assets for reportable segments $ 2,732,000
Corporate headquarters assets 120,900
Elimination of intersegment receivables (143,500)
------------
Consolidated total $ 2,709,400
============
</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.
F-21
- --------------------------------------------------------------------------------
<PAGE> 62
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
- --------------------------------------------------------------------------------
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.
NOTE 17 - SUBSEQUENT EVENTS
Private Placements of Common Shares
From November 3, 1999 through March 2, 2000, the Company issued
approximately 292,000 common shares to investors in private placements
for total proceeds of $1,184,000.
EXCHANGE OF CLASS B REDEEMABLE, EXCHANGEABLE PREFERRED STOCK OF ORIGIN
SOFTWARE CORPORATION
On February 15, 2000, the Company issued 457,400 shares of common stock
to Columbia Diversified Software Fund Limited Partnership in exchange
for 5 million shares of Class B redeemable, exchangeable preferred stock
of the Company's subsidiary, Origin Software. As a result of the
exchange, minority interest decreased by $3,407,000, and common stock
increased by a comparable amount.
APPLICATION FOR NASDAQ SMALL CAP MARKET LISTING
On February 17, 2000, the Company filed an application with the National
Association of Securities Dealers to have its common stock listed on the
Nasdaq Small Cap Market.
PRIVATE PLACEMENT OF CONVERTIBLE DEBENTURES AND WARRANTS
On February 24, 2000, the Company issued $5 million of 7% convertible
debentures and warrants to purchase 330,000 shares of common stock. In
connection with placing the debentures and warrants, the Company paid
$325,000 of placement fees, issued warrants in lieu of placement fees to
purchase 25,000 shares of common stock at a share price of $11.10, and
paid $30,000 to the holders of the debentures for legal costs. The term
of the 25,000 warrants is two years.
Concurrent with placing the debentures and warrants, the Company entered
into a Registration Rights Agreement (the Registration Agreement) with
the holders of the debentures. The Registration Agreement requires that
the Company file a registration statement with the Securities and
Exchange Commission by March 24, 2000 to register the shares of common
stock that may be acquired upon conversion of the debentures.
The 330,000 warrants are exercisable over a five-year term at an
exercise price of $11.10 per share. The debentures mature in five years
and are convertible in whole or in part into common stock any time
before maturity at a conversion price that floats with the market price
of the stock, not to exceed a fixed conversion price of $9.71. After
August 24, 2000, if the debentures are submitted for conversion and the
conversion price is below $9.71, the Company has the right to redeem the
debentures for cash at an amount equal to the value of the converted
shares. For each share of common stock issued upon conversion, the
holders of the debentures have the option to purchase one additional
share at the fixed conversion price of $9.71.
F-22
- --------------------------------------------------------------------------------
<PAGE> 63
NOTE 17 - SUBSEQUENT EVENTS (CONTINUED)
In the event that certain circumstances pertain, including without
limitation the following, the conversion price will be adjusted
downward:
1. The Company's common stock is not listed on the American Stock
Exchange or the Nasdaq Small Cap Market by October 24, 2000 or
on the Nasdaq National Market by February 24, 2001.
2. The Company is in default of the requirements of the
Registration Agreement.
In the event the Company fails to comply with certain terms of the
debentures, holders may elect for the debentures to be redeemed for cash
at an amount equal to 120% of the conversion price that would otherwise
apply, plus interest and default payments. If the rules of the National
Association of Securities Dealers apply, in the event the number of
shares to be issued upon conversion exceeds 20% of shares outstanding at
the time the debentures were issued, the Company must obtain stockholder
approval to issue shares in excess of this limit. If stockholder
approval is not obtained, the debentures underlying the shares in excess
of the 20% limit would become redeemable for cash.
STOCK OPTIONS AND STOCK PURCHASE WARRANTS
In addition to the warrants issued in connection with the convertible
debentures discussed above, subsequent to September 30, 1999, the
Company issued another 1,190,000 stock options and warrants to
employees, directors, and consultants.
F-23
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<PAGE> 64
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
SMARTSOURCES.COM INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalent $ 197,000
Trade accounts receivable, net 231,000
Prepaid expenses 42,000
------------
TOTAL CURRENT ASSETS 470,000
CAPITALIZED SOFTWARE COSTS AND
PURCHASED SOFTWARE RIGHTS, NET 1,445,000
PROPERTY AND EQUIPMENT, NET 758,000
OTHER ASSETS 36,000
------------
TOTAL ASSETS $ 2,709,000
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILIITES
Accounts payable and accrued liabilities $ 264,000
Income tax payable 79,000
Unearned revenue 8,000
Current portion of long-term debt 54,000
------------
TOTAL CURRENT LIABILITIES 405,000
LONG-TERM LIABILITIES
Due to stockholder 24,000
Long-term debt, net of current portion 434,000
Deferred tax liability 72,000
------------
TOTAL LIABILITIES 935,000
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 3,520,000
STOCKHOLDERS' DEFICIT
Common stock 2,695,000
Accumulated other comprehensive income 139,000
Accumulated deficit (4,165,000)
Deferred compensation (415,000)
------------
TOTAL STOCKHOLDERS' DEFICIT (1,746,000)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,709,000
</TABLE>
See accompanying notes to these consolidated financial statements. F-24
- --------------------------------------------------------------------------------
<PAGE> 65
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1998 AND 1999
- --------------------------------------------------------------------------------
SMARTSOURCES.COM INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Dec. 31, 1998 Dec. 31, 1999
------------- -------------
<S> <C> <C>
REVENUES EARNED $ 161,600 $ 212,000
OPERATING EXPENSES 252,200 1,155,000
------------ ------------
OPERATING LOSS (90,600) (943,000)
OTHER INCOME (EXPENSE)
Realized gain (loss) on investments (48,400) --
Interest expense (12,400) (11,000)
Other 1,500 --
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (149,900) (954,000)
PROVISION FOR INCOME TAXES 59,900 --
------------ ------------
NET LOSS $ (90,000) $ (954,000)
BASIC EARNINGS (LOSS) PER SHARE $ (0.01) $ (0.08)
DILUTED EARNINGS (LOSS) PER SHARE $ (0.01) $ (0.08)
------------ ------------
</TABLE>
See accompanying notes to these consolidated financial statements. F-25
- --------------------------------------------------------------------------------
<PAGE> 66
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
QUARTER ENDED DECEMBER 31, 1998 AND 1999
- --------------------------------------------------------------------------------
SMARTSOURCES.COM INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Dec. 31, 1998 Dec. 31, 1999
------------- -------------
<S> <C> <C>
CASH FROM OPERATING ACTIVITIES
Net Income (Loss) $ (90,000) $ (954,000)
Adjustments to reconcile net income(loss) to
net cash from operating activities
Depreciation and amortization 31,000 142,000
Loss on disposal of assets 48,400 --
Stock-based compensation -- 100,000
Realized gains (losses) on sale of investments (700) --
Deferred income taxes (72,100) --
Changes in operating assets and liabilities
Trade accounts receivable 262,600 (44,000)
Other assets (5,100) (18,000)
Accounts payable and other current liabilities 28,600 137,000
Administrative fees payable 38,700 --
Income taxes payable and refundable 12,200 --
Sale deposit (97,900) --
---------- ----------
Net cash flows from operating activities 155,700 (637,000)
CASH FROM INVESTING ACTIVITIES
Purchase of property and equipment (500) (14,000)
Refund of deposit on property and equipment -- 16,000
Proceeds from sale of Familyware 163,200 --
---------- ----------
Net cash flows from investing activities 162,700 2,000
CASH FROM FINANCING ACTIVITIES
Repayment of note payable, net (52,900) --
Principal repayments of long-term debt (10,600) (17,000)
Principal repayments of capital lease obligations -- (2,000)
Repayment of advances from stockholder (97,300) (1,000)
Proceeds from issuance of common stock -- 686,000
Dividends (140,300) --
---------- ----------
Net cash flows from financing activities (301,100) 666,000
EFFECT OF CHANGES IN EXCHANGE RATES (100) 1,800
NET CHANGE IN CASH 17,200 32,800
CASH AND CASH EQUIVALENTS, beginning of period 1,700 164,200
CASH AND CASH EQUIVALENTS, end of period 18,900 197,000
Supplemental disclosure of Cash Flow information:
Interest paid $ 12,400 $ 11,000
Income taxes paid $ (100) 0
Non-cash transactions:
Property and equipment acquired under
capital leases $ 21,000
Accounts payable refinanced under capital lease
obligations $ 6,000
Deferred compensation recognized in connection with
issuance of stock warrants $ 187,800
</TABLE>
See accompanying notes to these consolidated financial statements. F-26
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<PAGE> 67
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1998 AND 1999
- --------------------------------------------------------------------------------
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 Investments 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 Corporation (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.
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).
F-27
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<PAGE> 68
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1998 and 1999
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The preceding financial statements are presented
in accordance with U.S. generally accepted accounting principles.
PRINCIPLES OF CONSOLIDATION - 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.
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. Revenue 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. 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.
F-28
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<PAGE> 69
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1998 and 1999
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
NOTE 3 - 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
preceding 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 the quarter ended December 31, 1999, the Company issued or was
committed to issue 192,100 shares for total proceeds received of
$686,000. Subsequent to December 31, 1999 the Company was in the
process of raising capital through the issuance of additional shares.
At December 31, 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 the company's subsidiary, 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 2,412,410
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.
F-29
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<PAGE> 70
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1998 and 1999
- --------------------------------------------------------------------------------
NOTE 3 - CAPITAL STOCK (CONTINUED)
STOCK OPTION INCENTIVE COMPENSATION PLAN
Effective June 21, 1999, the Company adopted the 1999 Stock Incentive
Compensation Plan (the Plan). Under the Plan, as amended, subject to
shareholder approval, 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 not to exceed four million shares. The
Company has granted 1,034,000 options as of December 31, 1999, 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 at December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Weighted-
Number Average
Of Shares Exercise Price
------------ --------------
<S> <C> <C>
Options outstanding at December 31, 1999
Granted 1,094,000 $ 5.50
Exercised -- --
Forfeited (60,000) 5.50
Options outstanding at December 31, 1999 1,034,000 $ 5.50
Options exercisable at December 31, 1999 -- $ --
</TABLE>
A summary of stock options outstanding at December 31, 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> <C>
$ 5.50 1,034,000 4.5 years $ 5.50 -- $ --
</TABLE>
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 the quarter ended
December 31, 1999.
F-30
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<PAGE> 71
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1998 and 1999
- --------------------------------------------------------------------------------
NOTE 3 - CAPITAL STOCK (CONTINUED)
STOCK OPTIONS - OTHER
Effective December 15, 1999, the Company issued 200,000 options to
purchase the same number of the Company's common shares as follows:
50,000 shares at an exercise price of $5.25, 50,000 shares at an
exercise price of $6.00, 50,000 shares at an exercise price of $7.50 and
50,000 shares at an exercise price of $8.00. The options expire on
December 14, 2002. The options were issued at no cost in connection with
the Company entering into a consulting agreement with Continental
Capital & Equity Corporation (Continental). Under the agreement,
Continental will assist and advise the Company with respect to investor
relations professional services.
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 options. The Company used the Black-Scholes option pricing model to
compute estimated fair value of the warrants, based on the following
assumptions:
<TABLE>
<S> <C>
Risk-free interest rate 6.0%
Price volatility 52.5%
Average expected life of options 1.5 years
</TABLE>
Total compensation cost computed for the options issued to Continental
is $188,000. The cost is being recognized ratably over the three-year
term of the options.
NOTE 4 - STOCK ISSUANCES AND SUBSEQUENT EVENTS
Private Placements of Common Shares
From November 3, 1999 through March 2, 2000, the Company issued
approximately 292,000 common shares to investors in private placements
for total proceeds of $1,184,000.
EXCHANGE OF CLASS B REDEEMABLE, EXCHANGEABLE PREFERRED STOCK OF ORIGIN
SOFTWARE CORPORATION
On February 15, 2000, the Company issued 457,400 shares of common stock
to Columbia Diversified Software Fund Limited Partnership in exchange
for 5 million shares of Class B redeemable, exchangeable preferred stock
of the Company's subsidiary, Origin Software. As a result of the
exchange, minority interest decreased by $3,407,000, and common stock
increased by a comparable amount.
APPLICATION FOR NASDAQ SMALL CAP MARKET LISTING
On February 17, 2000, the Company filed an application with the National
Association of Securities Dealers to have its common stock listed on the
Nasdaq Small Cap Market.
PRIVATE PLACEMENT OF CONVERTIBLE DEBENTURES AND WARRANTS
On February 24, 2000, the Company issued $5 million of 7% convertible
debentures and warrants to purchase 330,000 shares of common stock. In
connection with placing the debentures and warrants, the Company paid
$325,000 of placement fees, issued warrants in lieu of placement fees to
purchase 25,000 shares of common stock at a share price of $11.10, and
paid $30,000 to the holders of the debentures for legal costs. The term
of the 25,000 warrants is two years.
F-31
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<PAGE> 72
SMARTSOURCES.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1998 and 1999
- --------------------------------------------------------------------------------
NOTE 4 - STOCK ISSUANCES AND SUBSEQUENT EVENTS (CONTINUED)
Concurrent with placing the debentures and warrants, the Company entered
into a Registration Rights Agreement (the Registration Agreement) with
the holders of the debentures. The Registration Agreement requires that
the Company file a registration statement with the Securities and
Exchange Commission by March 24, 2000 to register the shares of common
stock that may be acquired upon conversion of the debentures.
The 330,000 warrants are exercisable over a five-year term at an
exercise price of $11.10 per share. The debentures mature in five years
and are convertible in whole or in part into common stock any time
before maturity at a conversion price that floats with the market price
of the stock, not to exceed a fixed conversion price of $9.71. After
August 24, 2000, if the debentures are submitted for conversion and the
conversion price is below $9.71, the Company has the right to redeem the
debentures for cash at an amount equal to the value of the converted
shares. For each share of common stock issued upon conversion, the
holders of the debentures have the option to purchase one additional
share at the fixed conversion price of $9.71.
In the event that certain circumstances pertain, including without
limitation the following, the conversion price will be adjusted
downward:
1. The Company's common stock is not listed on the American Stock
Exchange or the Nasdaq Small Cap Market by October 24, 2000 or
on the Nasdaq National Market by February 24, 2001.
2. The Company is in default of the requirements of the
Registration Agreement.
In the event the Company fails to comply with certain terms of the debentures,
holders may elect for the debentures to be redeemed for cash at an amount equal
to 120% of the conversion price that would otherwise apply, plus interest and
default payments. If the rules of the National Association of Securities Dealers
apply, in the event the number of shares to be issued upon conversion exceeds
20% of shares outstanding at the time the debentures were issued, the Company
must obtain stockholder approval to issue shares in excess of this limit. If
stockholder approval is not obtained, the debentures underlying the shares in
excess of the 20% limit would become redeemable for cash.
F-32
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<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Colorado Business Corporation Law, Article 8(b) of our Articles of
Incorporation and Article V of our Amended and Restated Bylaws permit us to
indemnify our officers and directors and certain other persons against
reasonable expenses in defense of a suit to which they are parties by reason of
such office, so long as the persons conducted themselves in good faith and the
persons reasonably believed that their conduct was in the corporation's best
interests, not opposed to the corporation's best interests, and lawful.
Moreover, Article 5.3 of our bylaws provides for mandatory indemnification of
directors who are wholly successful in the defense of any proceeding to which
the person was a party because the person is or was a director. Indemnification
is not permitted in connection with a proceeding by or in the right of the
corporation in which the officer or director was finally adjudged liable to the
corporation or in connection with any other proceeding charging that the officer
or director derived an improper personal benefit, whether or not involving
action in an official capacity, in which proceeding the officer or director was
finally adjudged liable on the basis that he or she derived an improper personal
benefit.
Certain of our registration rights agreements also contain provisions
pursuant to which certain officers, directors and controlling persons of the
Company may be entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and persons controlling the Company
pursuant to the foregoing provision, or otherwise, we have been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We will pay the expenses of this Offering, estimated to include the
following:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee $ 8,551
Accounting Fees and Expenses 10,000
Legal Fees and Expenses 40,000
Transfer Agent Fees and Expenses 500
Blue Sky Fees 5,000
Printing Expenses 10,000
--------
Total $ 74,051
========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Recent sales of our securities without registration under the
Securities Act are as follows:
A. Common Stock
o December 1998: 6,000,000 shares of Common Stock were exchanged
for all of the outstanding capital stock of Nifco Investments
Ltd., a Canadian corporation, now a wholly owned subsidiary of
the Company. The former Nifco Investments Ltd. shareholders
are the holders of those shares. The sales were made in
reliance upon the exemption from registration afforded by
Section 4(2) of the Securities Act.
II-1
<PAGE> 74
o December 1998: 4,230,000 shares of Common Stock were sold for
cash in the aggregate amount of $50,000 to nine investors. The
sales were made in reliance upon the exemption from
registration afforded by Rule 504 of Regulation D.
o May 1999: 500,000 shares of Common Stock were sold for cash in
the aggregate amount of $950,000 without an underwriter to one
investor. The sale was made in reliance upon the exemption
from registration afforded by Section 4(2) of the Securities
Act and Rule 504 of Regulation D thereunder.
o July 1999: 72,464 shares of Common Stock were sold for cash in
the aggregate amount of $250,000 without an underwriter to one
private investor. The sale was made in reliance upon the
exemption from registration afforded by Section 4(2) of the
Securities Act and Rule 506 of Regulation D thereunder.
o September 1999: 72,464 shares of Common Stock were sold for
cash in the aggregate amount of $250,000 without underwriters
to two private investors. The sale was made in reliance upon
the exemption from registration afforded by Section 4(2) of
the Securities Act and Rule 506 of Regulation D thereunder.
o November 1999: 166,668 shares of Common Stock were sold for
cash in the aggregate amount of $575,000 without underwriters
to six private investors. The sale was made in reliance upon
the exemption from registration afforded by Section 4(2) of
the Securities Act and Rule 506 of Regulation D thereunder.
o December 1999: 25,432 shares of Common Stock were sold for
cash in the aggregate amount of $110,991 without underwriters
to two private investors. The sale was made in reliance upon
the exemption from registration afforded by Section 4(2) of
the Securities Act and Rule 506 of Regulation D thereunder.
o January 2000: 99,605 shares of Common Stock were sold for cash
in the aggregate amount of $498,025 without underwriters to
six private investors. The sale was made in reliance upon the
exemption from registration afforded by Section 4(2) of the
Securities Act and Rule 506 of Regulation D thereunder.
o February 2000: 457,380 shares of Common Stock were exchanged
for 5,000,000 shares of Class B Preferred Stock of Origin
Software Corporation, a subsidiary of the Company, held by
Columbia Diversified Software Fund Limited Partnership (the
"Partnership"). The preferred shares were originally issued in
October 1999 in connection with the repurchase of certain
software rights from the Partnership. The exchange was made in
reliance upon the exemption from registration afforded by
Section 4(2) of the Securities Act and Rule 506 of Regulation
D thereunder.
B. Stock Options to Employees
Through March 1, 2000, we have granted a total of 1,759,000 options to
employees, officers and directors under our Stock Option Plan. In the view of
the Company, the options granted pursuant to our 1999 Stock Option Plan were
issued but not sold and, therefore, registration is not required.
C. Other Options and Warrants
Effective August 24, 1999, we 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 us as a sales and
marketing agent for its line of software products and facilitate mergers and
acquisitions with compatible enterprises.
II-2
<PAGE> 75
Effective September 29, 1999, we 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 our entering into a consulting agreement with Level Jump Asset Management,
Inc. ("Level Jump"). Under the agreement, Level Jump will assist and advise us
with respect to mergers and acquisitions, capital structuring, and the placement
of new debt and equity issues.
In 1999, we granted 200,000 options to Continental Capital and Equity
Corporation and 100,000 options to Peter Sanders for consulting services. We
also issued an aggregate of 25,000 warrants to G. Kopolow & Associates and AB
Phoenix Inc. as a placement fee in connection with the issuance of the
debentures.
Sales of Common Stock and the issuance of other options and warrants
were made in reliance upon Section 4(2) of the Securities Act or Regulation D
promulgated thereunder as transactions not involving any public offering. Each
of the purchasers were sophisticated investors.
D. Convertible Securities
On February 24, 2000, we issued (i) warrants to purchase 330,000 shares
of Common Stock exercisable at any time until February 24, 2005 at an exercise
price of $11.10 per share and (ii) convertible debentures in the aggregate
principal amount of $5,000,000. In addition, at the time of each conversion, the
holder of the debentures has an investment option to purchase, at the fixed
conversion price of $9.7125, one additional share of Common Stock for each share
issuable upon conversion.
The sale of convertible securities was made in reliance upon Section
4(2) of the Securities Act or Regulation D promulgated thereunder as
transactions not involving any public offering. The purchaser was a
sophisticated investor.
E. Subsidiary Class A Convertible, Exchangeable Preferred Stock
Effective July 15, 1999, Infer Technologies, Inc., a subsidiary of the
Company, authorized the issuance of 7,500 shares of $0.01 par value Class A
convertible, exchangeable 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 our
Common Stock.
Concurrent with the authorization of the preferred stock, Infer
Technologies, Inc. entered into a subscription agreement to sell to its acting
president, chief engineer, and director all Class A shares for $0.01 per share.
The subscription rights accrue ratably over 24 months at 312.5 shares per month.
The issuance of the Class A shares was made in reliance upon Section 4(2) of the
Securities Act or Regulation D promulgated thereunder as transactions not
involving any Public Offering.
II-3
<PAGE> 76
ITEM 27. EXHIBITS AND REPORTS
EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION LOCATION
------ ----------- --------
<S> <C> <C>
3.01 Articles of Incorporation Filed as Exhibit 3.01 to the
Company's Annual Report on Form
10-KSB for fiscal year ended
September 30, 1999
3.02 Bylaws Filed as Exhibit 3.02 to the
Company's Annual Report on Form
10-KSB for fiscal year ended
September 30, 1999
3.03 Amended and Restated Bylaws Filed herewith.
5.01 Opinion of Wolin, Ridley & Miller LLP Filed herewith.
10.01 Share Exchange Agreement dated December 11, 1998 among Filed as Exhibit 1 to the Company's
Nathan Nifco and Dina Nifco, residents of West Vancouver, Current Report on Form 8-K dated
British Columbia, Canada and the Nifco Family Trust, a December 11, 1998
British Columbia, Canada trust (collectively, the
"Exchanging Shareholders"), Nifco Investments Ltd., a
British Columbia corporation ("Nifco"), and
SmartSources.com, Inc., a Colorado corporation formerly
known as Innovest Capital Sources Corporation
10.02 Employment Agreement between Nathan Nifco and Filed as Exhibit 10.01 to the
SmartSources.com, Inc., dated November 30, 1998. Company's Annual Report on Form
10-KSB for fiscal year ended
September 30, 1999
10.03 Management Consulting Agreement between Michael Forster and Filed as Exhibit 10.02 to the
SmartSources.com, Inc., dated July 20, 1999. Company's Annual Report on Form
10-KSB for fiscal year ended
September 30, 1999
10.04 Management Consulting Agreement between Darryl Cardey and Filed as Exhibit 10.03 to the
SmartSources.com Technologies Inc., dated September 1, 1999. Company's Annual Report on Form
10-KSB for fiscal year ended
September 30, 1999
10.05 Subscription Agreement between Peter Rive and Infer Filed as Exhibit 10.04 to the
Technologies, Inc., dated July 15, 1999. Company's Annual Report on Form
10-KSB for fiscal year ended
September 30, 1999
10.06 Sales Representation Agreement between First City Partners Filed as Exhibit 10.05 to the
Group, Inc. and SmartSources.com, Inc., dated August 24, Company's Annual Report on Form
1999. 10-KSB for fiscal year ended
September 30, 1999
10.07 Warrants with First City Partners dated August 24, 1999. Filed as Exhibit 10.06 to the
Company's Annual Report on Form
10-KSB for fiscal year ended
September 30, 1999
</TABLE>
II-4
<PAGE> 77
<TABLE>
<CAPTION>
NUMBER DESCRIPTION LOCATION
------ ----------- --------
<S> <C> <C>
10.08 Joint Venture Agreement between Familyware Products Inc. Filed as Exhibit 10.07 to the
and Nifco Synergy Ltd., dated April 29, 1996. Company's Annual Report on Form
10-KSB for fiscal year ended
September 30, 1999
10.09 Registered Copy of Mortgage for Strata Lot 1, LMS2241, Filed as Exhibit 10.08 to the
between the Royal Bank of Canada and Nifco Synergy Ltd., Company's Annual Report on Form
dated January 1, 1996. 10-KSB for fiscal year ended
September 30, 1999
10.10 Registered Copy of Mortgage for Strata Lot 1, LMS2241, Filed as Exhibit 10.09 to the
between Lock Investments Ltd. and Nifco Synergy Ltd., dated Company's Annual Report on Form
February 26, 1996. 10-KSB for fiscal year ended
September 30, 1999
10.11 Registered Copy of Mortgage of Strata Lot 6, LMS2241, Filed as Exhibit 10.10 to the
between Guild Properties, Inc. and Nifco Synergy Ltd., Company's Annual Report on Form
dated June 9, 1997. 10-KSB for fiscal year ended
September 30, 1999
10.12 Warrant Agreement with Level Jump Asset Management, Inc., Filed as Exhibit 10.11 to the
dated September 29, 1999. Company's Annual Report on Form
10-KSB for fiscal year ended
September 30, 1999
10.13 Software Acquisition Agreement between Nifco Synergy Ltd. Filed as Exhibit 10.12 to the
and EMC Communications, dated October 1, 1998. Company's Annual Report on Form
10-KSB for fiscal year ended
September 30, 1999
10.14 Share Exchange Agreement by and among Columbia Software Filed as Exhibit 1 to the Company's
Fund Limited Partnership and SmartSources.com, Inc. and Current Report on Form 8-K dated May
Origin Software Corporation, dated May 19, 1999. 19, 1999
10.15 Software Acquisition Agreement by and among Columbia Filed as Exhibit 2 to the Company's
Diversified Software Fund Limited Partnership and Origin Current Report on Form 8-K dated May
Software Corp. and Nifco Synergy Ltd., dated January 1, 19, 1999
1999.
10.16 1999 Stock Incentive Compensation Plan Filed as Exhibit 10.2 to the
Company's Quarterly Report on Form
10-QSB for the quarterly period
ended June 30, 1999
10.17 Intellectual Property Agreement between the Company and Filed herewith.
Industry Canada, dated February 4, 2000.
10.18 Master Relationship Agreement between SmartSources.com Filed herewith.
Technologies, Inc. and kTravel Solutions, Inc. and UniGlobe
Travel (Western Canada) Inc., dated February 18, 2000.
10.19 Management Employment Agreement between Sokhie Puar and the Filed herewith.
Company, dated September 1, 1999.
</TABLE>
II-5
<PAGE> 78
<TABLE>
<CAPTION>
NUMBER DESCRIPTION LOCATION
------ ----------- --------
<S> <C> <C>
10.20 Waiver of Objection Rights between the Company and the Filed herewith.
Canada Customs and Revenue Agency, dated January 13, 2000.
10.21 Securities Purchase Agreement by and among Filed as Exhibit No. 10.01 to the
SmartSources.com, Inc. and RGC International Investors LDC, Company's Current Report on Form 8-K
dated as of February 24, 2000 dated February 24, 2000
10.22 Convertible Debenture issued to RGC International Investors Filed as Exhibit 10.02 to the
LDC or its registered assigns by SmartSources.com, Inc., Company's Current Report on Form 8-K
dated as of February 24, 2000 dated February 24, 2000
10.23 Stock Purchase Warrant issued to RGC International Filed as Exhibit 10.03 to the
Investors LDC or its registered assigns by Company's Current Report on Form 8-K
SmartSources.com, Inc., dated as of February 24, 2000 dated February 24, 2000
10.24 Registration Rights Agreement by and among Filed as Exhibit 10.04 to the
SmartSources.com, Inc. and RGC International Investors LDC, Company's Current Report on Form 8-K
dated as of February 24, 2000 dated February 24, 2000
10.25 UniGlobe Memorandum of Understanding between UniGlobe Filed herewith.
Travel and SmartSources.com, Inc., dated February 18, 2000
10.26 Consulting Agreement among the Company and Level Jump Asset Filed herewith.
Management, Inc., dated September 29, 1999
10.27 Client Service Agreement among the Company and Continental Filed herewith.
Capital & Equity Corporation, dated December 7, 1999
10.28 Registration Rights Agreement among the Company and Filed herewith.
Continental Capital & Equity Corporation, dated
December 3, 1999
10.29 Letter of Understanding between the Company and Continental Filed herewith.
Capital & Equity Corporation, dated December 15, 1999
10.30 Registration Rights Agreement among the Company and Peter Filed herewith.
Sanders, dated January 4, 2000
10.31 Property Lease Agreement between Guild Properties, Inc. and Filed herewith.
SmartSources.com Technologies, Inc., dated May 15, 1999
10.32 Consulting Agreement between Volsan Business Consultant and Filed herewith.
SmartSources.com, Inc., dated January 1, 2000
10.33 Consulting Agreement between the Company and AB Phoenix, Filed herewith.
Inc. and G. Kopolow & Associates, Inc., dated February 16,
2000
</TABLE>
II-6
<PAGE> 79
<TABLE>
<CAPTION>
NUMBER DESCRIPTION LOCATION
------ ----------- --------
<S> <C> <C>
11.01 Statement of Computation of Per Share Earnings Filed herewith.
16.01 Letter response of Green & McElreath Filed as Exhibit 16 to the Company's
Current Report on Form 8-K dated
January 28, 1999
21.01 Subsidiaries of the Registrant. Filed herewith.
23.01 Consent of Wolin, Ridley & Miller LLP (included in its Filed herewith.
opinion filed as Exhibit 5.01)
23.02 Consent of Moss Adams LLP Filed herewith.
27.01 Financial Data Schedule Filed herewith.
</TABLE>
ITEM 28. UNDERTAKINGS
We will file during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus
filed with SEC pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
For purposes of determining liability under the Securities Act, we will
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
We will file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provision, or otherwise, we have been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than our payment of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding ) is asserted by such director, officer or controlling person
in connection with the securities being registered, we will, unless in the
opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by us is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-7
<PAGE> 80
We will:
(1) For determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant
under Rule 424(b)(1), or (4) or 497(h) under the Securities
Act as part of this registration statement as of the time the
SEC declared it effective.
(2) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities
offered in the registration statement, and that offering of
the securities at that time as the initial bona fide offering
of those securities.
II-8
<PAGE> 81
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in North Vancouver,
B.C., Canada.
SMARTSOURCES.COM, INC.
By: /s/ Michael J. Forster
--------------------------
Michael J. Forster, President
EACH PERSON WHOSE SIGNATURE APPEARS BELOW CONSTITUTES AND APPOINTS MICHAEL
J. FORSTER AND DARRYL CARDEY, AND EACH OF THEM, HIS TRUE AND LAWFUL
ATTORNEY-IN-FACT EITHER ONE OF WHOM MAY ACT WITHOUT THE OTHER, WITH FULL POWER
OF SUBSTITUTION AND RESUBSTITUTION FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE
AMENDMENTS) TO THIS REGISTRATION STATEMENT AND TO SIGN ANY AND ALL ADDITIONAL
REGISTRATION STATEMENTS RELATING TO THE SAME OFFERING OF SECURITIES AS THIS
REGISTRATION STATEMENT THAT IS FILED PURSUANT TO RULE 462(b) UNDER THE
SECURITIES ACT OF 1933 AND TO FILE THE SAME WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH WITH THE SECURITIES AND EXCHANGE COMMISSION,
GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER
AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND
NECESSARY TO BE DONE AS FULLY TO ALL INTENTS AS PURPOSES AS HE MIGHT OR COULD DO
IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS, OR EITHER OF THEM, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Nathan Nifco Chairman of the Board, March 14, 2000
- ------------------------ Chief Executive Officer and Director
Nathan Nifco (Principal Executive Officer)
/s/ Michael J. Forster President, Chief Operating Officer March 14, 2000
- ------------------------ and Director
Michael J. Forster
/s/ Darryl Cardey Chief Financial Officer March 15, 2000
- ------------------------ (Principal Financial and Accounting
Darryl Cardey Officer)
/s/ Charles K. Kelly Director March 16, 2000
- ------------------------
Charles K. Kelly
/s/ Gerald J. Wittenberg Director March 14, 2000
- ------------------------
Gerald J. Wittenberg
/s/ Norman R. Miller Director March 14, 2000
- ------------------------
Norman R. Miller
</TABLE>
<PAGE> 82
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION LOCATION
------ ----------- --------
<S> <C> <C>
3.01 Articles of Incorporation Filed as Exhibit 3.01 to the
Company's Annual Report on Form
10-KSB for fiscal year ended
September 30, 1999
3.02 Bylaws Filed as Exhibit 3.02 to the
Company's Annual Report on Form
10-KSB for fiscal year ended
September 30, 1999
3.03 Amended and Restated Bylaws Filed herewith.
5.01 Opinion of Wolin, Ridley & Miller LLP Filed herewith.
10.01 Share Exchange Agreement dated December 11, 1998 among Filed as Exhibit 1 to the Company's
Nathan Nifco and Dina Nifco, residents of West Vancouver, Current Report on Form 8-K dated
British Columbia, Canada and the Nifco Family Trust, a December 11, 1998
British Columbia, Canada trust (collectively, the
"Exchanging Shareholders"), Nifco Investments Ltd., a
British Columbia corporation ("Nifco"), and
SmartSources.com, Inc., a Colorado corporation formerly
known as Innovest Capital Sources Corporation
10.02 Employment Agreement between Nathan Nifco and Filed as Exhibit 10.01 to the
SmartSources.com, Inc., dated November 30, 1998. Company's Annual Report on Form
10-KSB for fiscal year ended
September 30, 1999
10.03 Management Consulting Agreement between Michael Forster and Filed as Exhibit 10.02 to the
SmartSources.com, Inc., dated July 20, 1999. Company's Annual Report on Form
10-KSB for fiscal year ended
September 30, 1999
10.04 Management Consulting Agreement between Darryl Cardey and Filed as Exhibit 10.03 to the
SmartSources.com Technologies Inc., dated September 1, 1999. Company's Annual Report on Form
10-KSB for fiscal year ended
September 30, 1999
10.05 Subscription Agreement between Peter Rive and Infer Filed as Exhibit 10.04 to the
Technologies, Inc., dated July 15, 1999. Company's Annual Report on Form
10-KSB for fiscal year ended
September 30, 1999
10.06 Sales Representation Agreement between First City Partners Filed as Exhibit 10.05 to the
Group, Inc. and SmartSources.com, Inc., dated August 24, Company's Annual Report on Form
1999. 10-KSB for fiscal year ended
September 30, 1999
10.07 Warrants with First City Partners dated August 24,1999. Filed as Exhibit 10.06 to the
Company's Annual Report on Form
10-KSB for fiscal year ended
September 30, 1999
</TABLE>
<PAGE> 83
<TABLE>
<CAPTION>
NUMBER DESCRIPTION LOCATION
------ ----------- --------
<S> <C> <C>
10.08 Joint Venture Agreement between Familyware Products Inc. Filed as Exhibit 10.07 to the
and Nifco Synergy Ltd., dated April 29, 1996. Company's Annual Report on Form
10-KSB for fiscal year ended
September 30, 1999
10.09 Registered Copy of Mortgage for Strata Lot 1, LMS2241, Filed as Exhibit 10.08 to the
between the Royal Bank of Canada and Nifco Synergy Ltd., Company's Annual Report on Form
dated January 1, 1996. 10-KSB for fiscal year ended
September 30, 1999
10.10 Registered Copy of Mortgage for Strata Lot 1, LMS2241, Filed as Exhibit 10.09 to the
between Lock Investments Ltd. and Nifco Synergy Ltd., dated Company's Annual Report on Form
February 26, 1996. 10-KSB for fiscal year ended
September 30, 1999
10.11 Registered Copy of Mortgage of Strata Lot 6, LMS2241, Filed as Exhibit 10.10 to the
between Guild Properties, Inc. and Nifco Synergy Ltd., Company's Annual Report on Form
dated June 9, 1997. 10-KSB for fiscal year ended
September 30, 1999
10.12 Warrant Agreement with Level Jump Asset Management, Inc., Filed as Exhibit 10.11 to the
dated September 29, 1999. Company's Annual Report on Form
10-KSB for fiscal year ended
September 30, 1999
10.13 Software Acquisition Agreement between Nifco Synergy Ltd. Filed as Exhibit 10.12 to the
and EMC Communications, dated October 1, 1998. Company's Annual Report on Form
10-KSB for fiscal year ended
September 30, 1999
10.14 Share Exchange Agreement by and among Columbia Software Filed as Exhibit 1 to the Company's
Fund Limited Partnership and SmartSources.com, Inc. and Current Report on Form 8-K dated May
Origin Software Corporation, dated May 19,1999. 19, 1999
10.15 Software Acquisition Agreement by and among Columbia Filed as Exhibit 2 to the Company's
Diversified Software Fund Limited Partnership and Origin Current Report on Form 8-K dated May
Software Corp. and Nifco Synergy Ltd., dated January 1, 19, 1999
1999.
10.16 1999 Stock Incentive Compensation Plan Filed as Exhibit 10.2 to the
Company's Quarterly Report on Form
10-QSB for the quarterly period
ended June 30, 1999
10.17 Intellectual Property Agreement between the Company and Filed herewith.
Industry Canada, dated February 4, 2000.
10.18 Master Relationship Agreement between SmartSources.com Filed herewith.
Technologies, Inc. and kTravel Solutions, Inc. and UniGlobe
Travel (Western Canada) Inc., dated February 18, 2000.
10.19 Management Employment Agreement between Sokhie Puar and the Filed herewith.
Company, dated September 1, 1999.
</TABLE>
<PAGE> 84
<TABLE>
<CAPTION>
NUMBER DESCRIPTION LOCATION
------ ----------- --------
<S> <C> <C>
10.20 Waiver of Objection Rights between the Company and the Filed herewith.
Canada Customs and Revenue Agency, dated January 13, 2000.
10.21 Securities Purchase Agreement by and among Filed as Exhibit No. 10.01 to the
SmartSources.com, Inc. and RGC International Investors LDC, Company's Current Report on Form 8-K
dated as of February 24, 2000 dated February 24, 2000
10.22 Convertible Debenture issued to RGC International Investors Filed as Exhibit 10.02 to the
LDC or its registered assigns by SmartSources.com, Inc., Company's Current Report on Form 8-K
dated as of February 24, 2000 dated February 24, 2000
10.23 Stock Purchase Warrant issued to RGC International Filed as Exhibit 10.03 to the
Investors LDC or its registered assigns by Company's Current Report on Form 8-K
SmartSources.com, Inc., dated as of February 24, 2000 dated February 24, 2000
10.24 Registration Rights Agreement by and among Filed as Exhibit 10.04 to the
SmartSources.com, Inc. and RGC International Investors LDC, Company's Current Report on Form 8-K
dated as of February 24, 2000 dated February 24, 2000
10.25 UniGlobe Memorandum of Understanding between UniGlobe Filed herewith.
Travel and SmartSources.com, Inc., dated February 18, 2000
10.26 Consulting Agreement among the Company and Level Jump Asset Filed herewith.
Management, Inc., dated September 29, 1999
10.27 Client Service Agreement among the Company and Continental Filed herewith.
Capital & Equity Corporation, dated December 7, 1999
10.28 Registration Rights Agreement among the Company and Filed herewith.
Continental Capital & Equity Corporation, dated
December 3, 1999
10.29 Letter of Understanding between the Company and Continental Filed herewith.
Capital & Equity Corporation, dated December 15, 1999
10.30 Registration Rights Agreement among the Company and Peter Filed herewith.
Sanders, dated January 4, 2000
10.31 Property Lease Agreement between Guild Properties, Inc. and Filed herewith.
SmartSources.com Technologies, Inc., dated May 15, 1999
10.32 Consulting Agreement between Volsan Business Consultant and Filed herewith.
SmartSources.com, Inc., dated January 1, 2000
10.33 Consulting Agreement between the Company and AB Phoenix, Filed herewith.
Inc. and G. Kopolow & Associates, Inc., dated February 16,
2000
</TABLE>
<PAGE> 85
<TABLE>
<CAPTION>
NUMBER DESCRIPTION LOCATION
------ ----------- --------
<S> <C> <C>
11.01 Statement of Computation of Per Share Earnings Filed herewith.
16.01 Letter response of Green & McElreath Filed as Exhibit 16 to the Company's
Current Report on Form 8-K dated
January 28, 1999
21.01 Subsidiaries of the Registrant. Filed herewith.
23.01 Consent of Wolin, Ridley & Miller LLP (included in its Filed herewith.
opinion filed as Exhibit 5.01)
23.02 Consent of Moss Adams LLP Filed herewith.
27.01 Financial Data Schedule Filed herewith.
</TABLE>
<PAGE> 1
EXHIBIT 3.03
AMENDED AND RESTATED
BYLAWS
OF
SMARTSOURCES.COM, INC.
<PAGE> 2
AMENDED AND RESTATED
BYLAWS
OF
SMARTSOURCES.COM, INC.
<TABLE>
<S> <C>
ARTICLE I
SHAREHOLDERS................................................................... 1
1.1. ANNUAL SHAREHOLDERS' MEETING.......................................... 1
1.2. SPECIAL SHAREHOLDERS' MEETING......................................... 1
1.3. RECORD DATE FOR DETERMINATION OF SHAREHOLDERS......................... 1
1.4. VOTING LIST........................................................... 2
1.5. NOTICE TO SHAREHOLDERS................................................ 2
1.6. QUORUM................................................................ 3
1.7. VOTING ENTITLEMENT OF SHARES.......................................... 3
1.8. PROXIES; ACCEPTANCE OF VOTES AND CONSENTS............................. 3
1.9. WAIVER OF NOTICE...................................................... 4
1.10. ACTION BY SHAREHOLDERS WITHOUT A MEETING.............................. 4
ARTICLE II
DIRECTORS...................................................................... 4
2.1. AUTHORITY OF THE BOARD OF DIRECTORS................................... 4
2.2. NUMBER................................................................ 4
2.3. QUALIFICATION......................................................... 4
2.4. ELECTION.............................................................. 5
2.5. TERM.................................................................. 5
2.6. RESIGNATION........................................................... 5
2.7. REMOVAL............................................................... 5
2.8. VACANCIES............................................................. 5
2.9. MEETINGS.............................................................. 5
2.10. NOTICE OF SPECIAL MEETING............................................. 6
2.11. QUORUM................................................................ 6
2.12. WAIVER OF NOTICE...................................................... 6
2.13. ATTENDANCE BY TELEPHONE............................................... 6
2.14. DEEMED ASSENT TO ACTION............................................... 6
2.15. ACTION BY DIRECTORS WITHOUT A MEETING................................. 7
ARTICLE III
COMMITTEES OF THE BOARD OF DIRECTORS........................................... 7
3.1. COMMITTEES OF THE BOARD OF DIRECTORS.................................. 7
ARTICLE IV
OFFICERS....................................................................... 8
4.1. GENERAL............................................................... 8
4.2. TERM.................................................................. 8
4.3. REMOVAL AND RESIGNATION............................................... 9
4.4. CHAIRMAN.............................................................. 9
4.5 PRESIDENT............................................................. 9
4.6. VICE PRESIDENT........................................................ 9
4.7. SECRETARY............................................................. 9
4.8. ASSISTANT SECRETARY................................................... 10
4.9. TREASURER............................................................. 10
4.10. ASSISTANT TREASURER................................................... 10
4.11. COMPENSATION.......................................................... 10
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE V
INDEMNIFICATION................................................................ 10
5.1. DEFINITIONS........................................................... 10
5.2. AUTHORITY TO INDEMNIFY DIRECTORS...................................... 11
5.3. MANDATORY INDEMNIFICATION OF DIRECTORS................................ 12
5.4. ADVANCE OF EXPENSES TO DIRECTORS...................................... 12
5.5. COURT-ORDERED INDEMNIFICATION OF DIRECTORS............................ 13
5.6. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION OF DIRECTORS....... 13
5.7. INDEMNIFICATION OF OFFICERS, EMPLOYEES, FIDUCIARIES, AND AGENTS....... 14
5.8. INSURANCE............................................................. 14
5.9. NOTICE TO SHAREHOLDERS OF INDEMNIFICATION OF DIRECTOR................. 15
ARTICLE VI
SHARES......................................................................... 15
6.1. CERTIFICATES.......................................................... 15
6.2. FACSIMILE SIGNATURES.................................................. 15
6.3. TRANSFER OF SHARES.................................................... 16
6.4. SHARES HELD FOR ACCOUNT OF ANOTHER.................................... 16
ARTICLE VII
MISCELLANEOUS.................................................................. 17
7.1. CORPORATE SEAL........................................................ 17
7.2. FISCAL YEAR........................................................... 17
7.3. RECEIPT OF NOTICES BY THE CORPORATION................................. 17
7.4. AMENDMENT OF BYLAWS................................................... 17
</TABLE>
<PAGE> 4
AMENDED AND RESTATED BYLAWS
OF
SMARTSOURCES.COM, INC.
ARTICLE I
SHAREHOLDERS
1.1. ANNUAL SHAREHOLDERS' MEETING. The annual shareholders' meeting shall be
held on the date and at the time and place fixed from time to time by the board
of directors; provided, however, that each annual meeting shall be held on a
date that is within six (6) months after the close of the last fiscal year of
the Corporation, or fifteen (15) months after the last annual meeting.
1.2. SPECIAL SHAREHOLDERS' MEETING. A special shareholders' meeting for any
purpose or purposes, may be called by the board of directors or the president.
The Corporation shall also hold a special shareholders' meeting in the event it
receives, in the manner specified in Section 7.3., one or more written demands
for the meeting, stating the purpose or purposes for which it is to be held,
signed and dated by the holders of shares representing not less than one-tenth
of all of the votes entitled to be cast on any issue at the meeting. Special
meetings shall be held at the principal office of the Corporation or at such
other place as the board of directors or the president may determine.
1.3. RECORD DATE FOR DETERMINATION OF SHAREHOLDERS.
(a) In order to make a determination of shareholders (1) entitled to notice
of or to vote any shareholders' meeting or at any adjournment of a shareholders'
meeting, (2) entitled to demand a special shareholders' meeting, (3) entitled to
take any other action, (4) entitled to receive payment of a share dividend or a
distribution, or (5) for any other purpose, the board of directors may fix a
future date as the record date for such determination of shareholders. The
record date may be fixed not more than seventy (70) days before the date of the
proposed action.
(b) Unless otherwise specified when the record date is fixed, the time of
day for determination of shareholders shall be as of the Corporation's close of
business on the record date.
(c) A determination of shareholders entitled to be given notice of or to
vote at a shareholders' meeting is effective for any adjournment of the meeting
unless the board of directors fixes a new record date, which the board shall do
if the meeting is adjourned to a date more than one hundred twenty (120) days
after the date fixed for the original meeting.
(d) If no record date is otherwise fixed, the record date for determining
shareholders entitled to be given notice of and to vote at an annual meeting or
special shareholders' meeting is the day before the first notice is given to
shareholders.
(e) The record date for determining shareholders entitled to take action
without a meeting pursuant to Sections 1.10. and 1.11. is the date a writing
upon which the action is taken is first received by the Corporation.
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1.4. VOTING LIST.
(a) After a record date is fixed for a shareholders' meeting, the secretary
shall prepare a list of names of all its shareholders who are entitled to be
given notice of the meeting. The list shall be arranged by voting groups and
within each voting group by class or series of shares, shall be alphabetical
within each class or series, and shall show the address of, and the number of
shares of each such class and series that are held by, each shareholder.
(b) The shareholders' list shall be available for inspection by any
shareholders, beginning the earlier of ten (10) days before the meeting for
which the list was prepared or two (2) business days after notice of the meeting
is given and continuing through the meeting, and any adjournment thereof, at the
Corporation's principal office or at a place identified in the notice of the
meeting in the city where the meeting will be held.
(c) The secretary shall make the shareholders' list available at the
meeting, and any shareholder or agent or attorney of a shareholder is entitled
to inspect the list at any time during the meeting or any adjournments.
1.5. NOTICE TO SHAREHOLDERS.
(a) The secretary shall give notice to shareholders of the date, time, and
place of each annual and special shareholders' meeting no fewer than ten (10)
nor more than sixty (60) days before the date of the meeting; except that, if
the articles of incorporation are to be amended to increase the number of
authorized shares, at least thirty (30) days' notice shall be given. Except as
otherwise required by the Colorado Business Corporation Act, the secretary shall
be required to give such notice only to shareholders entitled to vote at the
meeting.
(b) Notice of an annual shareholders' meeting need not include a
description of the purpose or purposes for which the meeting is called unless a
purpose of the meeting is to consider an amendment to the articles of
incorporation, a restatement of the articles of incorporation, a plan of merger
or share exchange, disposition of substantially all of the property of the
Corporation, consent by the Corporation to the disposition of property by
another entity, or dissolution of the Corporation.
(c) Notice of a special shareholders' meeting shall include a description
of the purpose or purposes for which the meeting is called.
(d) Notice of a shareholders' meeting shall be in writing and shall be
given
(1) by deposit in the United States mail, properly addressed to the
shareholder's address shown in the Corporation's current record of
shareholders, first class postage prepaid, and, if so given, shall be
effective when mailed; or
(2) by telegraph, teletype, electronically transmitted facsimile,
electronic mail, mail, or private carrier or by personal delivery to
the shareholder, and, if so given, shall be effective when actually
received by the shareholder.
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(e) If an annual or special shareholders' meeting is adjourned to a
different date, time, or place, notice need not be given of the new date, time,
or place if the new date, time, or place is announced at the meeting before
adjournment; provided, however, that, if a new record date for the adjourned
meeting is fixed pursuant to Section 1.3.(c), notice of the adjourned meeting
shall be given to persons who are shareholders as of the new record date.
(f) If three (3) successive notices are given by the Corporation, whether
with respect to a shareholders' meeting or otherwise, to a shareholder and are
returned as undeliverable, no further notices to such shareholder shall be
necessary until another address for the shareholder is made known to the
Corporation.
1.6. QUORUM. Shares entitled to vote as a separate voting group may take action
on a matter at a meeting only if a quorum of those shares exists with respect to
that matter. One-third of the votes entitled to be cast on the matter by the
voting group shall constitute a quorum of that voting group for action on the
matter. If a quorum does not exist with respect to any voting group, the
president or any shareholder or proxy that is present at the meeting, whether or
not a member of that voting group, may adjourn the meeting to a different date,
time, or place, and (subject to the next sentence) notice need not be given of
the new date, time, or place if the new date, time, or place is announced at the
meeting before adjournment. If a new record date for the adjourned meeting is or
must be fixed pursuant to Section 1.3.(c), notice of the adjourned meeting shall
be given pursuant to Section 1.5. to persons who are shareholders as of the new
record date. At any adjourned meeting at which a quorum exists, any matter may
be acted upon that could have been acted upon at the meeting originally called;
provided, however, that, if new notice is given of the adjourned meeting, then
such notice shall state the purpose or purposes of the adjourned meeting
sufficiently to permit action on such matters. Once a share is represented for
any purpose at a meeting, including the purpose of determining that a quorum
exists, it is deemed present for quorum purposes for the remainder of the
meeting and for any adjournment of that meeting unless a new record date is or
shall be set for that adjourned meeting.
1.7. VOTING ENTITLEMENT OF SHARES. Except as stated in the articles of
incorporation, each outstanding share, regardless of class, is entitled to one
vote, and each fractional share is entitled to a corresponding fractional vote,
on each matter voted on at a shareholders' meeting.
1.8. PROXIES; ACCEPTANCE OF VOTES AND CONSENTS.
(a) A shareholder may vote either in person or by proxy.
(b) An appointment of a proxy is not effective against the Corporation
until the appointment is received by the Corporation. An appointment is valid
for eleven (11) months unless a different period is expressly provided in the
appointment form.
(c) The Corporation may accept or reject any appointment of a proxy,
revocation of appointment of a proxy, vote, consent, waiver, or other writing
purportedly signed by or for a shareholder, if such acceptance or rejection is
in accordance with the provisions of Sections 7-107- 203 and 7-107-205 of the
Colorado Business Corporation Act.
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1.9. WAIVER OF NOTICE.
(a) A shareholder may waive any notice required by the Colorado Business
Corporation Act, the articles of incorporation, or these Bylaws, whether before
or after the date or time stated in the notice as the date or time when any
action will occur or has occurred. The waiver shall be in writing, be signed by
the shareholder entitled to the notice, and be delivered to the Corporation for
inclusion in the minutes or filing with the corporation records, but such
delivery and filing shall not be conditions of the effectiveness of the waiver.
(b) A shareholder's attendance at a meeting waives objection to lack of
notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting because of lack of notice or defective notice, and waives
objection to consideration of a particular matter at the meeting that is not
within the purpose or purposes described in the meeting notice, unless the
shareholder objects to considering the matter when it is presented.
1.10. ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any action required or permitted
to be taken at a shareholders' meeting may be taken without a meeting if all of
the shareholders entitled to vote thereon consent to such action in writing.
Action taken pursuant to this section shall be effective when the Corporation
has received writings that describe and consent to the action, signed by all of
the shareholders entitled to vote thereon. Action taken pursuant to this section
shall be effective as of the date the last writing necessary to effect the
action is received by the Corporation, unless all of the writings necessary to
effect the action specify another date, which may be before or after the date
the writings are received by the Corporation. Such action shall have the same
effect as action taken at a meeting of shareholders and may be described as such
in any document. Any shareholder who has signed a writing describing and
consenting to action taken pursuant to this section may revoke such consent by a
writing signed by the shareholder describing the action and stating that the
shareholder's prior consent thereto is revoked, if such writing is received by
the Corporation before the effectiveness of the action.
ARTICLE II
DIRECTORS
2.1. AUTHORITY OF THE BOARD OF DIRECTORS. The corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed under the direction of, a board of directors.
2.2. NUMBER. The number of directors shall be fixed by resolution of the board
of directors from time to time and may be increased or decreased by resolution
adopted by the board of directors from time to time, but no decrease in the
number of directors shall have the effect of shortening the term of any
incumbent director.
2.3. QUALIFICATION. Directors shall be natural persons at least eighteen (18)
years old but need not be residents of the State of Colorado or shareholders of
the Corporation.
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2.4. ELECTION. The board of directors shall be elected at the annual meeting of
the shareholders or at a special meeting called for that purpose.
2.5. TERM. Each director shall be elected to hold office until the next annual
meeting of shareholders and until the director's successor is elected and
qualified.
2.6. RESIGNATION. A director may resign at any time by giving written notice of
his or her resignation to any other director or (if the director is not also the
secretary) to the secretary. The resignation shall be effective when it is
received by the other director or secretary, as the case may be, unless the
notice of resignation specifies a later effective date. Acceptance of such
resignation shall not be necessary to make it effective unless the notice so
provides.
2.7. REMOVAL. Any director may be removed by the shareholders of the voting
group that elected the director, with or without cause, at a meeting called for
that purpose. The notice of the meeting shall state that the purpose, or one of
the purposes, of the meeting is removal of the directors. A director may be
removed only if the number of votes cast in favor of removal exceeds the number
of votes cast against removal.
2.8. VACANCIES.
(a) If a vacancy occurs on the board of directors, including a vacancy
resulting from an increase in the number of directors:
(1) The shareholders may fill the vacancy at the next annual meeting
or at a special meeting called for that purpose; or
(2) The board of directors may fill the vacancy; or
(3) If the directors remaining in office constitute fewer than a
quorum of the board, they may fill the vacancy by the affirmative vote of a
majority of all the directors remaining in office.
(b) Notwithstanding Section 2.8.(a), if the vacant office was held by a
director elected by a voting group of shareholders, then, if one or more of the
remaining directors were elected by the same voting group, only such directors
are entitled to vote to fill the vacancy if it is filled by directors, and they
may do so by the affirmative vote of a majority of such directors remaining in
office; and only the holders of shares of that voting group are entitled to vote
to fill the vacancy if it is filled by the shareholders.
(c) A vacancy that will occur at a specific later date, by reason of a
resignation that will be come effective at a later date under Section 2.6. or
otherwise, may be filled before the vacancy occurs, but the new director may not
take office until the vacancy occurs.
2.9. MEETINGS. The board of directors may hold regular or special meetings in or
out of Colorado. A regular meeting shall be held, without other notice than
these Bylaws, immediately after and at the same place as the annual meeting of
shareholders. The board of directors may, by
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resolution, establish other dates, times, and places for additional regular
meetings, which may thereafter be held without further notice. Special meetings
may be called by the president or by any two directors and shall be held at the
principal office of the Corporation unless another place is consented to by
every director. At any time when the board consists of a single director, that
director may act at any time, date, or place without notice.
2.10. NOTICE OF SPECIAL MEETING. Notice of a special meeting shall be given to
every director at least twenty-four (24) hours before the time of the meeting,
stating the date, time, and place of the meeting. The notice need not describe
the purpose of the meeting. Notice may be given orally to the director,
personally, or by telephone or other wire or wireless communication. Notice may
also be given in writing by telegraph, teletype, electronically transmitted
facsimile, electronic mail, mail, or private carrier. Notice shall be effective
at the earliest of the time it is received; five days after it is deposited in
the United States mail, properly addressed to the last address of the director
shown on the records of the Corporation, first class postage prepaid; or the
date shown on the return receipt if mailed by registered or certified mail,
return receipt requested, postage prepaid, in the United States mail and if the
return receipt is signed by the director to whom the notice is addressed.
2.11. QUORUM. Except as provided in Section 2.8., a majority of the number of
directors fixed in accordance with these Bylaws shall constitute a quorum for
the transaction of business at all meetings of the board of directors. The act
of the majority of the directors present at any meeting at which a quorum is
present shall be the act of the board of directors, except as otherwise
specifically required by law.
2.12. WAIVER OF NOTICE.
(a) A director may waive any notice of a meeting before or after the time
and date of the meeting stated in the notice. Except as provided by Section
2.12.(b), the waiver shall be in writing and shall be signed by the director.
Such waiver shall be delivered to the secretary for filing with the corporate
records, but such delivery and filing shall not be conditions of the
effectiveness of the waiver.
(b) A director's attendance at or participation in a meeting waives any
required notice to him or her of the meeting unless, at the beginning of the
meeting or promptly upon his or her later arrival, the director objects to
holding the meeting or transacting business at the meeting because of lack of
notice or defective notice and does not thereafter vote for or assent to action
taken at the meeting.
2.13. ATTENDANCE BY TELEPHONE. One or more directors may participate in a
regular or special meeting by, or conduct the meeting through the use of, any
means of communication by which all directors participating may hear each other
during the meeting. A director participating in a meeting by this means is
deemed to be present in person at the meeting.
2.14. DEEMED ASSENT TO ACTION. A director who is present at a meeting of the
board of directors when corporate action is taken shall be deemed to have
assented to all action taken at the meeting unless:
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(a) The director objects at the beginning of the meeting, or promptly upon
his or her arrival, to holding the meeting or transacting business at the
meeting and does not thereafter vote for or assent to any action taken at the
meeting;
(b) The director contemporaneously requests that his or her dissent or
abstention as to any specific action taken be entered in the minutes of the
meeting; or
(c) The director causes written notice of his or her dissent or abstention
as to any specific action to be received by the presiding officer of the meeting
before adjournment of the meeting or by the secretary (or, if the director is
the secretary, by another director) promptly after adjournment of the meeting.
The right of dissent or abstention pursuant to this Section 2.14. as to a
specific action is not available to a director who votes in favor of the action
taken.
2.15. ACTION BY DIRECTORS WITHOUT A MEETING. Any action required or permitted by
law to be taken at a board of directors' meeting may be taken without a meeting
if all members of the board consent to such action in writing. Action shall be
deemed to have been so taken by the board at the time the last director signs a
writing describing the action taken, unless, before such time, any director has
revoked his or her consent by a writing signed by the director and received by
the secretary or any other person authorized by the Bylaws or the board of
directors to receive such a revocation. Such action shall be effective at the
time and date it is so taken unless the directors establish a different
effective time or date. Such action has the same effect as action taken at a
meeting of directors and may be described as such in any document.
ARTICLE III
COMMITTEES OF THE BOARD OF DIRECTORS
3.1. COMMITTEES OF THE BOARD OF DIRECTORS.
(a) Subject to the provisions of Section 7-109-106 of the Colorado Business
Corporation Act, the board of directors may create one or more committees and
appoint one or more members of the board of directors to serve on them.
(b) The provisions of these Bylaws governing meetings, action without
meeting, notice, waiver of notice, and quorum and voting requirements of the
board of directors apply to committees and their members as well.
(c) To the extent specified by resolution adopted from time to time by a
majority of all the directors in office when the resolution is adopted, whether
or not those directors constitute a quorum of the board, each committee shall
exercise the authority of the board of directors with respect to the corporate
powers and the management of the business and affairs of the Corporation; except
that a committee shall not:
(1) Authorize distributions;
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(2) Approve or propose to shareholders action that the Colorado
Business Corporation Act requires to be approved by shareholders;
(3) Fill vacancies on the board of directors or on any of its
committees;
(4) Amend the articles of incorporation pursuant to Section 7-110-102
of the Colorado Business Corporation Act;
(5) Adopt, amend, or repeal bylaws;
(6) Approve a plan of merger not requiring shareholder approval;
(7) Authorize or approve reacquisition of shares, except according to
a formula or method prescribed by the board of directors; or
(8) Authorize or approve the issuance or sale of shares, or a contract
for the sale of shares, or determine the designation and relative rights,
preferences, and limitations of a class or series of shares; except that
the board of directors may authorize a compensation committee or an officer
to do so within limits specifically prescribed by the board of directors.
(d) The creation of, delegation of authority to, or action by, a committee
does not alone constitute compliance by a director with applicable standards of
conduct.
ARTICLE IV
OFFICERS
4.1. GENERAL. The Corporation shall have as officers a president, a secretary,
and a treasurer, who shall be appointed by the board of directors. The board of
directors may appoint as additional officers a chairman and other officers of
the board. The board of directors, the president, and such other subordinate
officers as the board of directors may authorize from time to time, acting
singly, may appoint as additional officers one or more vice presidents,
assistant secretaries, assistant treasurers, and such other subordinate officers
as the board of directors, the president, or such other appointing officers deem
necessary or appropriate. The officers of the Corporation shall hold their
offices for such terms and shall exercise such authority and perform such duties
as shall be determined from time to time by these Bylaws, the board of
directors, or (with respect to officers who are appointed by the president or
other appointing officers) the persons appointing them; provided, however, that
the board of directors may change the term of offices and the authority of any
officer appointed by the present or other appointing officers. Any two or more
offices may be held by the same person. The officers of the Corporation shall be
natural persons at least eighteen (18) years old.
4.2. TERM. Each officer shall hold office from the time of appointment until the
time of removal or resignation pursuant to Section 4.3. or until the officer's
death.
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4.3. REMOVAL AND RESIGNATION. Any officer appointed by the board of directors
may be removed at any time by the board of directors. Any officer appointed by
the president or other appointing officer may be removed at any time by the
board of directors or by the person appointing the officer. Any officer may
resign at any time by giving written notice of resignation to any director (or
to any director other than the resigning officer if the officer is also a
director), to the president, to the secretary, or to the officer who appointed
the officer. Acceptance of such resignation shall not be necessary to make it
effective, unless the notice so provides.
4.4. CHAIRMAN. The chairman shall preside at all meetings of shareholders, and
the chairman shall also preside at all meetings of the board of directors unless
the board of directors has appointed the president, or other officer of the
board and has authorized such person to preside at meetings of the board of
directors instead of the chairman. Subject to the direction and control of the
board of directors, the chairman of the Corporation and as such shall have
general and active management of the business of the Corporation and shall see
that all orders and resolutions of the board of directors are carried into
effect. The chairman may negotiate, enter into, and execute contracts, deeds and
other instruments on behalf of the Corporation as are necessary and appropriate
to the conduct of the business and affairs of the Corporation or as are approved
by the board of directors. The chairman shall have such additional authority and
duties as are appropriate and customary for the office of chairman and chief
executive officer, except as the same may be expanded or limited by the board of
directors from time to time.
4.5 PRESIDENT. The president shall have such authority and duties as are
prescribed by the board of directors or chairman. Upon the death, absence, or
disability of the chairman, the president shall have the authority and duties of
the chairman.
4.6. VICE PRESIDENT. The vice president, if any, or, if there are more than one,
the vice presidents in the order determined by the board of directors or the
president (or, if no such determination is made, in the order of their
appointment), shall be the officer or officers next in seniority after the
president. Each vice president shall have such authority and duties as are
prescribed by the board of directors or president. Upon the death, absence, or
disability of the chairman, president, the vice president, if any, or, if there
are more than one, the vice presidents in the order determined by the board of
directors or the president, shall have the authority and duties of the
president.
4.7. SECRETARY. The secretary shall be responsible for the preparation and
maintenance of minutes of the meetings of the board of directors and of the
shareholders and of the other records and information required to be kept by the
Corporation under Section 7-116-101 of the Colorado Business Corporation Act and
for authenticating records of the Corporation. The secretary shall also give, or
cause to be given, notice of all meetings of the shareholders and special
meetings of the board of directors, keep the minutes of such meetings, have
charge of the corporate seal and have authority to affix the corporate seal to
any instrument requiring it (and, when so affixed, it may be attested by the
secretary's signature), be responsible for the maintenance of all other
corporate records and files and for the preparation and filing of reports to
governmental agencies (other than tax returns), and have such other authority
and duties as are appropriate and customary for the office of secretary, except
as the same may be expanded or limited by the board of directors from time to
time.
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4.8. ASSISTANT SECRETARY. The assistant secretary, if any, or, if there are more
than one, the assistant secretaries in the order determined by the board of
directors or the secretary (or, if no such determination is made, in the order
of their appointment) shall, under the supervision of the secretary, perform
such duties and have such authority as may be prescribed from time to time by
the board of directors or the secretary. Upon the death, absence, or disability
of the secretary, the assistant secretary, if any, or if there are more than
one, the assistant secretaries in the order designated by the board of directors
or the secretary (or, if no such determination is made, in the order of their
appointment), shall have the authority and duties of the secretary.
4.9. TREASURER. The treasurer shall have control of the funds and the care and
custody of all stocks, bonds, and other securities owned by the Corporation, and
shall be responsible for the preparation and filing of tax returns. The
treasurer shall receive all moneys paid to the Corporation and, subject to any
limits imposed by the board of directors, shall have authority to give receipts
and vouchers, to sign and endorse checks and warrants in the Corporation's name
and on the Corporation's behalf, and give full discharge for the same. The
treasurer shall also have charge of disbursement of funds of the Corporation,
shall keep full and accurate records of the receipts and disbursements, and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as shall be designated by the
board of directors. The treasurer shall have such additional authority and
duties as are appropriate and customary for the office of treasurer, except as
the same may be expanded or limited by the board of directors from time to time.
4.10. ASSISTANT TREASURER. The assistant treasurer, if any, or, if there are
more than one, the assistant treasurers in the order determined by the board of
directors or the treasurer (or, if no such determination is made, in the order
of their appointment) shall, under the supervision of the treasurer, perform
such duties and have such authority as may be prescribed from time to time by
the board of directors or the treasurer. Upon the death, absence, or disability
of the treasurer, the assistant treasurer, if any, or, if there are more than
one, the assistant treasurers in the order designated by the board of directors
or the treasurer (or, if no such determination is made, in the order of their
appointment), shall have the authority and duties of the treasurer.
4.11. COMPENSATION. Officers shall receive such compensation for their services
as may be authorized or ratified by the board of directors. Election or
appointment of an officer shall not of itself create a contractual right to
compensation for services performed as such officer.
ARTICLE V
INDEMNIFICATION
5.1. DEFINITIONS. As used in this article:
(a) "Corporation" includes any domestic or foreign entity that is a
predecessor of the Corporation by reason of a merger or other transaction in
which the predecessor's existence ceased upon consummation of the transaction.
(b) "Director" means an individual who is or was a director of the
Corporation or an individual who, while a director of the Corporation, is or was
serving at the Corporation's request
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as a director, officer, partner, trustee, employee, fiduciary, or agent of
another domestic or foreign corporation or other person or of an employee
benefit plan. A director is considered to be serving an employee benefit plan at
the Corporation's request if his or her duties to the Corporation also impose
duties on, or otherwise involve services by, the director to the plan or to
participants in or beneficiaries of the plan. "Director" includes, unless the
context requires otherwise, the estate or personal representative of a director.
(c) "Expenses" includes counsel fees.
(d) "Liability" means the obligation incurred with respect to a proceeding
to pay a judgment, settlement, penalty, fine, including an excise tax assessed
with respect to an employee benefit plan, or reasonable expenses.
(e) "Official capacity" means, when used with respect to a director, the
office of director in the Corporation and, when used with respect to a person
other than a director as contemplated in Section 5.1.(a), the office in the
Corporation held by the officer or the employment, fiduciary, or agency
relationship undertaken by the employee, fiduciary, or agent on behalf of the
Corporation. "Official capacity" does not include service for any other domestic
or foreign corporation or other person or employee benefit plan.
(f) "Party" includes a person who was, is, or is threatened to be made a
named defendant or respondent in a proceeding.
(g) "Proceeding" means any threatened, pending, or completed action, suit,
or proceeding, whether civil, criminal, administrative, or investigative and
whether formal or informal.
5.2. AUTHORITY TO INDEMNIFY DIRECTORS.
(a) Except as provided in Section 5.2.(d), the Corporation may indemnify a
person made a party to a proceeding because the person is or was a director
against liability incurred in the proceeding if:
(1) The person conducted himself or herself in good faith; and
(2) The person reasonably believed:
(A) In the case of conduct in an official capacity with the
Corporation, that his or her conduct was in the Corporation's best
interests; and
(B) In all other cases, that his or her conduct was at least not
opposed to the Corporation's best interests; and
(3) In the case of any criminal proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful; and
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(4) Notwithstanding the provisions of clauses (1), (2) and (3) above,
to the fullest extent permitted by Colorado law, as in effect on the date
or dates any such indemnification is paid.
(b) A director's conduct with respect to an employee benefit plan for a
purpose the director reasonably believed to be in the interests of the
participants in or beneficiaries of the plan is conduct that satisfies the
requirement of Section 5.2.(a)(2)(B). A director's conduct with respect to an
employee benefit plan for a purpose that the director did not reasonably believe
to be in the interests of the participants in or beneficiaries of the plan shall
be deemed not to satisfy the requirements of Section 5.2.(a)(1).
(c) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the standard of conduct
described in this Section 5.2.
(d) The Corporation may not indemnify a director under this Section 5.2.
(1) In connection with a proceeding by or in the right of the
Corporation in which the director was finally adjudged liable to the
Corporation; or
(2) In connection with any other proceeding charging that the director
derived an improper personal benefit, whether or not involving action in an
official capacity, in which proceeding the director was finally adjudged
liable on the basis that he or she derived an improper personal benefit.
(e) Indemnification permitted under this Section 5.2. in connection with a
proceeding by or in the right of the Corporation is limited to reasonable
expenses incurred in connection with the proceeding.
5.3. MANDATORY INDEMNIFICATION OF DIRECTORS. The Corporation shall indemnify a
person who was wholly successful, on the merits or otherwise, in the defense of
any proceeding to which the person was a party because the person is or was a
director, against reasonable expenses incurred by him or her in connection with
the proceeding.
5.4. ADVANCE OF EXPENSES TO DIRECTORS.
(a) The Corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of final
disposition of the proceeding if:
(1) The director furnishes to the Corporation a written affirmation of
the director's good faith belief that he or she is entitled to
indemnification.
(2) The director furnishes to the Corporation a written undertaking,
executed personally or on the director's behalf, to repay the advance if it
is ultimately determined that he or she is not entitled to indemnification;
and
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<PAGE> 16
(3) A determination is made that the facts then known to those making
the determination would not preclude indemnification under this article.
(b) The undertaking required by Section 5.4.(a)(2) shall be an unlimited
general obligation of the director but need not be secured and may be accepted
without reference to financial ability to make repayment.
(c) Determinations and authorizations of payments under this Section 5.4.
shall be made in the manner specified in Section 5.6.
5.5. COURT-ORDERED INDEMNIFICATION OF DIRECTORS. A director who is or was a
party to a proceeding may apply for indemnification to the court conducting the
proceeding or to another court of competent jurisdiction. On receipt of an
application, the court, after giving any notice the court considers necessary,
may order indemnification in the following manner:
(a) If it determines that the director is entitled to mandatory
indemnification under Section 5.3., the court shall order indemnification, in
which case the court shall also order the Corporation to pay the director's
reasonable expenses incurred to obtain court-ordered indemnification.
(b) If it determines that the director is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, whether or not the
director met the standard of conduct set forth in Section 5.2.(a) or was
adjudged liable in the circumstances described in Section 5.2.(d), the court may
order such indemnification as the court deems proper; except that the
indemnification with respect to any proceeding in which liability shall have
been adjudged in the circumstances described in Section 5.2.(d) is limited to
reasonable expenses incurred in connection with the proceeding and reasonable
expenses incurred to obtain court-ordered indemnification.
5.6. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION OF DIRECTORS.
(a) The Corporation may not indemnify a director under Section 5.2. unless
authorized in the specific case after a determination has been made that
indemnification of the director is permissible in the circumstances because the
director has met the standard of conduct set forth in Section 5.2. The
Corporation shall not advance expenses to a director under Section 5.4. unless
authorized in the specific case after the written affirmation and undertaking
required by Sections 5.4.(a)(1) and 5.4.(a)(2) are received and the
determination required by Section 5.4.(a)(3) has been made.
(b) The determination required by Section 5.6.(a) shall be made:
(1) By the board of directors by a majority vote of those present at a
meeting at which a quorum is present, and only those directors not parties
to the proceeding shall be counted in satisfying the quorum; or
(2) If a quorum cannot be obtained, by a majority vote of a committee
of the board of directors designated by the board of directors, which
committee shall consist of two
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<PAGE> 17
or more directors not parties to the proceeding; except that directors who
are parties to the proceeding may participate in the designation of
directors for the committee.
(c) If a quorum cannot be obtained as contemplated in Section 5.6.(b)(1),
and a committee cannot be established under Section 5.6.(b)(2) if a quorum is
obtained or a committee is designated, if a majority of the directors
constituting such quorum or such committee so directs, the determination
required to be made by Section 5.6.(a) shall be made:
(1) By independent legal counsel selected by a vote of the board of
directors or the committee in the manner specified in Section 5.6.(b)(1) of
5.6.(b)(2), or, if a quorum of the full board cannot be obtained and a
committee cannot be established, by independent legal counsel selected by a
majority vote of the full board of directors; or
(2) By the shareholders.
(d) Authorization of indemnification and advance of expenses shall be made
in the same manner as the determination that indemnification or advance of
expenses is permissible; except that, if the determination that indemnification
or advance of expenses is permissible is made by independent legal counsel,
authorization of indemnification and advance of expenses shall be made by the
body that selected such counsel.
5.7. INDEMNIFICATION OF OFFICERS, EMPLOYEES, FIDUCIARIES, AND AGENTS.
(a) An officer is entitled to mandatory indemnification under Section 5.3.
and is entitled to apply for court-ordered indemnification under Section 5.5.,
in each case to the same extent as a director;
(b) The Corporation may indemnify and advance expenses to an officer,
employee, fiduciary, or agent of the Corporation to the same extent as to a
director; and
(c) The Corporation may also indemnify and advance expenses to an officer,
employee, fiduciary, or agent who is not a director to a greater extent than is
provided in these Bylaws, if not inconsistent with public policy, and if
provided for by general or specific action of its board of directors or
shareholders or by contract.
5.8. INSURANCE. The Corporation may purchase and maintain insurance on behalf of
a person who is or was a director, officer, employee, fiduciary, or agent of the
Corporation, or who, while a director, officer, employee, fiduciary, or agent of
the Corporation, is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee, fiduciary, or agent of another
domestic or foreign corporation or other person or of an employee benefit plan,
against liability asserted against or incurred by the person in that capacity or
arising from his or her status as a director, officer, employee, fiduciary, or
agent, whether or not the Corporation would have power to indemnify the person
against the same liability under Sections 5.2., 5.3., or 5.7. Any such insurance
may be procured from any insurance company designated by the board of directors,
whether such insurance company is formed under the laws of this state or any
other jurisdiction of
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<PAGE> 18
the United States or elsewhere, including any insurance company in which the
Corporation has an equity or any other interest through stock ownership or
otherwise.
5.9. NOTICE TO SHAREHOLDERS OF INDEMNIFICATION OF DIRECTOR. If the Corporation
indemnifies or advances expenses to a director under this article in connection
with a proceeding by or in the right of the Corporation, the Corporation shall
give written notice of the indemnification or advance to the shareholders with
or before the notice of the next shareholders' meeting. If the next shareholder
action is taken without a meeting at the instigation of the board of directors,
such notice shall be given to the shareholders at or before the time the first
shareholder signs a writing consenting to such action.
ARTICLE VI
SHARES
6.1. CERTIFICATES. Certificates representing shares of the capital stock of the
Corporation shall be in such form as is approved by the board of directors and
shall be signed by the chairman or vice chairman of the board of directors (if
any), or the president or any vice president, and by the secretary or an
assistant secretary or the treasurer or an assistant treasurer. All certificates
shall be consecutively numbered, and the names of the owners, the number of
shares, and the date of issue shall be entered on the books of the Corporation.
Each certificate representing shares shall state upon its face:
(a) That the Corporation is organized under the laws of the State of
Colorado;
(b) The name of the person to whom issued;
(c) The number and class of the shares and the designation of the series,
if any, that the certificate represents;
(d) The par value, if any, of each share represented by the certificate;
(e) A conspicuous statement, on the front or the back, that the Corporation
will furnish to the shareholder, on request in writing and without charge,
information concerning the designations, preferences, limitations, and relative
rights applicable to each class, the variations in preferences, limitations, and
rights determined for each series, and the authority of the board of directors
to determine variations for future classes or series; and
(f) Any restrictions imposed by the Corporation upon the transfer of the
shares represented by the certificate.
6.2. FACSIMILE SIGNATURES. Where a certificate is signed
(a) By a transfer agent other than the Corporation or its employee, or
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<PAGE> 19
(b) By a registrar other than the Corporation or its employee, any or all
of the officers' signatures on the certificate required by Section 6.1. may be
facsimile. If any officer, transfer agent, or registrar who has signed, or whose
facsimile signature or signatures have been placed upon, any certificate, shall
cease to be such officer, transfer agent, or registrar, whether because of
death, resignation, or otherwise, before the certificate is issued by the
Corporation, it may nevertheless be issued by the Corporation with the same
effect as if he or she were such officer, transfer agent, or registrar at the
date of issue.
6.3. TRANSFER OF SHARES. Transfers of shares shall be made on the books of the
Corporation only upon presentation of the certificate or certificates
representing such shares properly endorsed by the person or persons appearing
upon the face of such certificate to be the owner, or accompanied by a proper
transfer or assignment separate from the certificate, except as may otherwise be
expressly provided by the statutes of the State of Colorado or by order of a
court of competent jurisdiction. The officers or transfer agents of the
Corporation may, in their discretion, require a signature guaranty before making
any transfer. The Corporation shall be entitled to treat the person in whose
name any shares are registered on its books as the owner of those shares for all
purposes and shall not be bound to recognize any equitable or other claim or
interest in the shares on the part of any other person, whether or not the
Corporation shall have notice of such claim or interest.
6.4. SHARES HELD FOR ACCOUNT OF ANOTHER. The board of directors may adopt by
resolution a procedure whereby a shareholder of the Corporation may certify in
writing to the Corporation that all or a portion or the shares registered in the
name of such shareholder are held for the account of a specified person or
persons. The resolution shall set forth
(a) The classification of shareholders who may certify;
(b) The purpose or purposes for which the certification may be made;
(c) The form of certification and information to be contained herein;
(d) If the certification is with respect to a record date or closing of the
stock transfer books, the time after the record date or the closing of the stock
transfer books within which the certification must be received by the
Corporation; and
(e) Such other provisions with respect to the procedure as are deemed
necessary or desirable. Upon receipt by the Corporation of a certification
complying with the procedure, the persons specified in the certification shall
be deemed, for the purpose or purposes set forth in the certification, to be the
holders of record of the number of shares specified in place of the shareholders
making the certification.
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<PAGE> 20
ARTICLE VII
MISCELLANEOUS
7.1. CORPORATE SEAL. The board of directors may adopt a seal, circular in form
and bearing the name of the Corporation and the words "SEAL" and "COLORADO,"
which, when adopted, shall constitute the seal of the Corporation. The seal may
be used by causing it or a facsimile of it to be impressed, affixed, manually
reproduced, or rubber stamped with indelible ink.
7.2. FISCAL YEAR. The board of directors may, by resolution, adopt a fiscal year
for the Corporation.
7.3. RECEIPT OF NOTICES BY THE CORPORATION. Notices, shareholder writings
consenting to action, and other documents or writings shall be deemed to have
been received by the Corporation when they are received
(a) At the registered office of the Corporation in the State of Colorado.
(b) At the principal office of the Corporation (as that office is
designated in the most recent document filed by the Corporation with the
Secretary of State for the State of Colorado designating a principal office)
addressed to the attention of the secretary of the Corporation;
(c) By the secretary of the Corporation wherever the secretary may be
found; or
(d) By any other person authorized from time to time by the board of
directors, the president, or the secretary to receive such writings, wherever
such person is found.
7.4. AMENDMENT OF BYLAWS. These Bylaws may at any time and from time to time be
amended, supplemented, or repealed by the board of directors.
The foregoing Bylaws were duly adopted by the Board of Directors as the initial
bylaws of SmartSources.com, Inc., effective as of February ____, 2000.
------------------------------
Sokhie Puar, Secretary
17
<PAGE> 1
EXHIBIT 5.01
[WOLIN, RIDLEY & MILLER LLP LETTERHEAD]
March 14, 2000
SmartSources.com, Inc.
2030 Marine Drive, Suite 100
North Vancouver, British Columbia
Canada V7P 1V7
RE: Public Offering of Common Stock
Pursuant to Registration Statement on Form SB-2 (the "Registration
Statement")
Ladies and Gentlemen:
We are counsel to SmartSources.com, Inc., a Colorado corporation (the
"Company"), in connection with the registration under the Securities Act of 1933
(the "Act") of up to 4,149,192 shares of the Company's Common Stock, no par
value per share (the "Shares"), pursuant to the Registration Statement.
We have examined and relied upon such records, documents and other
instruments as in our judgment are necessary and appropriate to express the
opinion set forth in this letter, and have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity to original documents of all documents submitted to us as
certified or photostatic copies. Based upon the foregoing, we are of the opinion
that the Shares have been duly authorized and, when sold and fully paid for in
the manner and on the terms described in the Registration Statement (after the
Registration Statement is declared effective), will be validly issued, fully
paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to this firm under the caption "Legal Matters" in
the prospectus included in the Registration Statement.
Sincerely,
WOLIN, RIDLEY & MILLER LLP
/s/ Wolin, Ridley & Miller LLP
<PAGE> 1
EXHIBIT 10.17
INTELLECTUAL PROPERTY AGREEMENT
THIS AGREEMENT dated the 4th day of February, 2000 is made
BETWEEN
SMARTSOURCES.COM TECHNOLOGIES INC.
(hereinafter called "SmartSources")
AND
INDUSTRY CANADA, as represented by the Information
Highway Applications Branch
(hereinafter called "Industry Canada")
WHEREAS Industry Canada wishes to design and develop a comprehensive
civic portal through CivicLife for use by the Government of Canada to deliver
information and services to citizens throughout the various regions of Canada
on a user friendly basis; and
WHEREAS the SmartSources kServer Access Edition Software is a critical
embedded component of the civic portal; and
WHEREAS Industry Canada and SmartSources wish to set forth in this
Agreement the terms and conditions under which the kServer Access Edition
Software developed pursuant to the SmartSources Supply Agreement is to be owned
and licensed by Industry Canada and SmartSources;
NOW THEREFORE in consideration of the premises, the mutual covenants
contained herein and the receipt of good and valuable consideration which the
parties acknowledge, this Agreement provides as follows:
<PAGE> 2
2
ARTICLE I
DEFINITIONS
1.01 DEFINITIONS
Unless otherwise defined herein, the following terms shall have the
following meanings in this Agreement and the recitals thereto:
"Arbitration Act" means the Arbitration Act, 1991, S.O. 1991, Chap. 17
as amended or substituted from time to time; and
"Business Day" means any day of the year, other than a Saturday,
Sunday or any day on which banks are required or authorized to close
in Ottawa, Ontario; and
"CivicLife" means CivicLife.com Inc.; and
"CivicLife Intellectual Property Agreement" means the Intellectual
Property Agreement of even date between Industry Canada and CivicLife;
and
"CivicLife Supply Agreement" means the Agreement for the Supply of a
Civic Portal of even date between Innovative Solutions Agency and
CivicLife; and
"Civic Portal Software" means the integrated software to be developed
by CivicLife pursuant to the terms of the CivicLife Supply Agreement
to provide the Civic Portal Software, including the website interface
and structure and all application software components, index and
searching capabilities, the HTML, XML or other authoring code, the
data base structures and source code for all of the foregoing, and the
embedded kServer Access Edition Software. Not included are readily
available, off the shelf infrastructure software components such as
workstation and server operating systems, database management systems,
and application server software; and
"Completion Date" means the Completion Date, as defined in the
SmartSources Supply Agreement; and
<PAGE> 3
3
"Industry Canada" means Her Majesty in right of Canada as represented by the
Ministry of Industry; and
"kServer Access Edition Software" means the software component to be developed
by SmartSources pursuant to the terms of the SmartSources Supply Agreement to
provide the kServer Access Edition Software, including the website interface
and structure and all application software components, index and searching
capabilities, the HTML, XML or other authoring code, the data base structures
and source code for all of the foregoing. Not included are readily available,
off the shelf infrastructure software components such as workstation and server
operating systems, database management systems, and application server
software; and
"Party" means either SmartSources or Industry Canada; and
"Person" means any individual, partnership, limited partnership, joint venture,
syndicate, sole proprietorship, corporation, trust, trustee, executor,
administrator or other personal legal representative, unincorporated
association, institute, institution, regulatory authority or agency, government
or governmental agency or other entity howsoever designated or constituted; and
"SmartSources" means SmartSources.com Technologies Inc.; and
"SmartSources Supply Agreement" means the Agreement for the Supply of the
kServer Access Edition Software of even date between Innovative Solutions
Agency and SmartSources; and
"Upgrades" means any upgrades to, modifications, enhancements or derivative
works of the kServer Access Edition Software. Upgrades do not include items,
features and capabilities to be delivered under the SmartSources Supply
Agreement.
<PAGE> 4
4
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.01 REPRESENTATIONS OF SMARTSOURCES
SmartSources represents and warrants to Industry Canada that:
(a) it is duly incorporated and validly existing under the Canada
Business Corporations Act;
(b) it has the requisite corporate power to own its assets and to
carry on its activities as contemplated hereunder;
(c) the execution and delivery of this Agreement by SmartSources,
and the carrying out by it of all of the activities
contemplated hereby, have been duly authorized by all
requisite corporate action; and
(d) this Agreement constitutes a legal, valid and binding
obligation of SmartSources, enforceable against it in
accordance with its terms, subject as to enforcement of
remedies to applicable bankruptcy, insolvency, reorganization
and other laws affecting generally the enforcement of the
rights of creditors and subject to a court's discretionary
authority with respect to the granting of a decree ordering
specific performance or other equitable remedies.
2.02 REPRESENTATIONS OF INDUSTRY CANADA
Industry Canada represents and warrants to SmartSources that:
(a) the execution and delivery of this Agreement by Industry
Canada, and the carrying out by Industry Canada of all of the
activities contemplated hereby, have been duly authorized;
(b) Industry Canada has full power to execute and deliver this
Agreement and Industry Canada has full power to perform its
obligations hereunder; and
<PAGE> 5
5
(c) this Agreement constitutes a legal, valid and binding
obligation of Industry Canada enforceable against Industry
Canada in accordance with its terms subject to a court's
discretionary authority with respect to the granting of a
decree ordering specific performance or other equitable
remedies.
ARTICLE III
GRANT
3.01 LICENSE GRANT
Except as provided in Section 4.01, the technical information and
intellectual property rights in the kServer Access Edition Software
shall belong to and be owned jointly by each of the Parties as to an
undivided one-half interest and the Parties hereby grant to each other
a non-exclusive, perpetual right and license to reproduce the kServer
Access Edition Software as an embedded component of the Civic Portal
Software. Standard forms of license and sub-license agreements will be
defined and mutually agreed to by the Parties.
<PAGE> 6
6
ARTICLE IV
CONDITIONS
4.01 LICENSE CONDITIONS
The license granted pursuant to Section 3.01 is subject to the
following conditions:
(a) Industry Canada and CivicLife shall have the rights to
market, operate, license and commercialize the kServer Access
Edition Software as an embedded component of the Civic Portal
Software as set out in the CivicLife Intellectual Property
Agreement;
(b) SmartSources shall have the exclusive worldwide right to
market, operate, license and commercialize the kServer Access
Edition Software on any basis other than as an embedded
component of the Civic Portal Software and retain all
revenues derived therefrom; and
(c) if Industry Canada enters into a licensing agreement for the
Civic Portal Software in a developed country or a developing
country and is requested to provide the installation,
operation and on-going support services for the kServer
Access Edition Software as an embedded component of the Civic
Portal Software required pursuant to such agreement, Industry
Canada shall ensure that SmartSources is always included on
the list of qualified vendors for the supply of such
services.
<PAGE> 7
7
ARTICLE V
UPGRADES
5.01 INDUSTRY CANADA/SMARTSOURCES JOINTLY DEVELOPED UPGRADES
Any Upgrades developed by SmartSources on behalf of and funded by
Industry Canada shall belong to and be owned jointly by each of the
Parties as to an undivided one-half interest and the Parties hereby
grant to each other a non-exclusive perpetual license to incorporate
the Upgrades in the kServer Access Edition Software in both standalone
and Civic Portal-embedded deployments as the Parties may be permitted
to make as defined elsewhere in this agreement.
5.02 SMARTSOURCES INDEPENDENTLY-DEVELOPED UPGRADES
Any Upgrades developed independently by SmartSources which are not
funded by Industry Canada shall be owned solely by SmartSources.
Notice of such Upgrades shall be sent to Industry Canada during the
development of such Upgrades and SmartSources hereby grants Industry
Canada a non-exclusive perpetual license to incorporate such Upgrades
in the kServer Access Edition Software as an embedded component of the
Civic Portal Software.
ARTICLE VI
MAINTENANCE
6.01 MAINTENANCE AGREEMENT
Should Industry Canada wish to use competitive tendering to secure
maintenance for the kServer Access Edition Software following the
Canadian Pilot Phase, Industry Canada will ensure that SmartSources is
always solicited provided it is a qualified bidder. Should Industry
Canada wish to obtain third party maintenance support for the kServer
Access Edition Software, SmartSources will provide essential training
services to the third party organization on a mutually agreeable basis
at then-prevailing industry professional services rates.
<PAGE> 8
8
ARTICLE VII
TRADE MARKS
7.01 TRADE MARKS
SmartSources acknowledges that Industry Canada is the owner of the
trade mark "Access.ca". The Parties agree to display the Industry
Canada and SmartSources's logos on any implementation of the kServer
Access Edition as embedded in the Civic Portal Software. Industry
Canada agrees to use its best efforts to assist SmartSources during
the currency of this Agreement with the commercialization of the
kServer Access Edition Software as embedded in the Civic Portal
Software and to make available its expertise and marketing materials
in connection therewith.
ARTICLE VIII
ARBITRATION
8.01 ARBITRATION
Any dispute arising out of or in connection with the Agreement,
including any question regarding its existence, validity or
termination, shall be submitted to and finally resolved by arbitration
under the Arbitration Act. The rules and procedures set out in the
Arbitration Act shall apply except to the extent they are modified by
any rules for arbitration agreed to by the Parties.
<PAGE> 9
9
ARTICLE IX
CONFIDENTIALITY
9.01 CONFIDENTIALITY
Industry Canada and SmartSources have an established Confidentiality
Agreement, and shall develop any required additional policies relating
to confidentiality which shall define what constitutes confidential
information, the treatment to be given to such information and the
circumstances under which such information may be disclosed by the
Parties. Industry Canada is subject to the Access to Information Act.
ARTICLE X
INTERPRETIVE MATTERS AND CONVENTIONS
10.01 GENDER AND NUMBER
Any reference in this Agreement to gender shall include all genders
and words importing the singular number only shall include the plural
and vice versa.
10.02 HEADINGS
The provision of a Table of Contents, the division of this Agreement
into Articles, Sections, Subsections and other subdivisions and the
insertion of headings are for convenience of reference only and shall
not affect or be utilized in the construction or interpretation of
this Agreement.
10.03 CALCULATION OF TIME PERIOD
When calculating the period of time within which or following which
any act is to be done or step taken pursuant to this Agreement, the
date which is the reference date in calculating such period shall be
excluded. If the last day of such period is a not a Business Day, the
period in question shall end on the next Business Day.
<PAGE> 10
10
10.04 PERFORMANCE ON HOLIDAYS
If under this Agreement any action is to be taken on a day which is
not a Business Day, that action is to be taken, as applicable, on or
as of the next day that is a Business Day.
10.05 REFERENCES
In this Agreement, references to "hereof", "hereto" and "hereunder"
and similar expressions mean and refer to this Agreement taken as a
whole and not to any particular Article, Section, Subsection or other
subdivision; "Article", "Section", "Subsection" or other subdivision
of this Agreement followed by a number means and refers to the
specified Article, Section, Subsection or other subdivision of this
Agreement.
<PAGE> 11
11
ARTICLE XI
MISCELLANEOUS
11.01 SEVERABILITY
If any provision of this Agreement is determined to be invalid or
unenforceable by an arbitrator or a court of competent jurisdiction
from which no further appeal lies or is taken, that provision shall be
deemed to be severed therefrom and the remaining provisions of this
Agreement shall not be affected thereby and shall remain valid and
enforceable; provided that in the event that any portion of this
Agreement shall have been so determined to be or become invalid or
unenforceable (the "offending portion"), the Parties shall negotiate
in good faith such changes to this Agreement as will best preserve for
the Parties the benefits and obligations of such offending portion.
11.02 AMENDMENTS
This Agreement may only be amended, modified or supplemented by
written agreement signed by both of the Parties.
11.03 WAIVER
No waiver of any of the provisions of this Agreement by either Party
shall be deemed to constitute a waiver of such provision by the other
Party or a waiver by such Party of any other provision (whether or not
similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided in writing duly executed by the Party to
be bound thereby.
11.04 GOVERNING LAW
This Agreement shall be governed by and interpreted and enforced in
accordance with the laws of the Province of Ontario and the laws of
Canada applicable therein.
<PAGE> 12
12
11.05 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the Parties
pertaining to the matters contemplated hereby and superseded all prior
agreements, understandings, negotiations and discussions, whether oral
or written, of the Parties.
11.06 FURTHER ASSURANCES
The Parties will, from time to time during the course of this
Agreement or upon its expiry and without further consideration,
execute and deliver such other documents and instruments of transfer,
conveyance and assignment and take such further action as the other
may reasonably require to effect the activities contemplated thereby.
11.07 NOTICES
Any notice, direction or other instrument required or permitted to be
given under this Agreement shall be in writing (including facsimile or
any other means of communication by which words are capable of being
visibly and instantaneously reproduced at a distant point of
reception) and given by delivering it or sending it by facsimile or
other similar means of communication addressed:
(a) if to SmartSources, at:
SmartSources.com Technologies Inc..
2030 Marine Drive, Suite 100
North Vancouver
British Columbia V7P 1V7
Attention: Chairman & CEO
Facsimile: (613) 236-7785
(b) if to Industry Canada, at:
Industry Canada
Information Highway Applications Branch
<PAGE> 13
13
1400-155 Queen Street
Ottawa, Ontario
Attention: Director General, IHAB
Facsimile: (613) 954-3272
Any such notice, direction or other instrument given as aforesaid
shall be effective upon receipt, unless received on a day which is not
a Business Day in which event it shall be deemed to be received on the
next Business Day. Either Party may change its address for service
from time to time by notice given in accordance with the foregoing and
any subsequent notice shall be sent to the Party at its changed
address.
11.08 TIME OF THE ESSENCE
Time shall be of the essence of this Agreement.
11.09 ASSIGNMENT, SUCCESSORS
This Agreement and any rights or duties hereunder may not be
transferred, assigned or delegated to any other Person by either Party
without the prior written consent of the other Party.
11.10 RELATIONSHIP OF THE PARTIES
Nothing contained in this Agreement shall be construed to place the
Parties in the relationship of partners or joint venturers and neither
Party shall have any right to obligate or bind the other Party in any
manner.
11.11 WAIVER
All waivers under this Agreement must be made in writing and failure
at any time to require any Party's performance of any obligations
under this Agreement shall not affect the right subsequently to
require performance of that obligation.
<PAGE> 14
14
11.12 REMEDIES CUMULATIVE
All rights, powers and remedies must be made in writing and failure at
any time to require any Party's performance of any obligations under
this Agreement shall not affect the right subsequently to require
performance of that obligation.
11.13 EXECUTION IN COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which, taken together,
shall constitute one and the same instrument.
11.14 EXCUSABLE DELAYS
The dates and times by which either Party is required to perform any
obligation under this Agreement shall be postponed automatically to
the extent, for the period of time, that the Party is prevented from
so performing by circumstances beyond its reasonable control. Said
circumstances shall include acts of nature, strikes, lockouts, riots,
acts of war, epidemics, government regulations imposed after the fact,
fire, communications failures, power failures, earthquakes or other
disasters.
11.15 EXCLUDED PERSONS
No member of the House of Commons shall be admitted to any share or
part of this Agreement nor to any benefit to arise therefrom.
<PAGE> 15
15
IN WITNESS WHEREOF the Parties have executed this Agreement.
SMARTSOURCES.COM TECHNOLOGIES INC.
Per: /s/ NATHAN NIFCO
------------------------------------
Name: Nathan Nifco
Title: Chairman & CEO
INDUSTRY CANADA
Per: /s/ DOUG HULL
------------------------------------
Name: Doug Hull
Title: Director General, IHAB
<PAGE> 16
SCHEDULE A
DELIVERABLES FROM SMARTSOURCES.COM TECHNOLOGIES INC TO CIVICLIFE.COM INC
Under separate contracts to Industry Canada (IC), SmartSources.com Technologies
Inc (SS) and CivicLife.com Inc (CL) are contracted to provide an integrated
suite of products which can operate the Civic Portal Software for the
Government of Canada.
Definitions
"SS" SmartSources.com Technologies Inc of Vancouver, BC,
Canada
"CL" CivicLife.com Inc of Ottawa, ON, Canada
"IC" Industry Canada
"ISA" The Innovative Solutions Agency of PEI, Canada
"SS-ISA Contract" The contract which exists between SS and ISA to
develop and deliver the SS
Deliverables.
"SS Deliverables" As set out in the SS-ISA Contract and repeated in
Section 1 below with additional details.
"CL-ISA Contract" The contract which exists between CL and ISA to supply
the other components of the Civic Portal Software and
to integrate the SS Deliverables.
"CL Deliverables" The Civic Portal Software as described in the CL-ISA
agreement incorporating the SS Deliverables.
1. SS DELIVERABLES
The components of this product suite, as referenced in the contract with IC are
as follows (extracted from the IC agreements):-
7.3.1 Context Information Manager
The Context Information Manager is essentially a complex series of
kSites which can hold both structured and unstructured content. This
is based upon the kServer technology. The following capabilities are
supported:
o The ability to hold both original content and
references to various types of external content.
o Information regarding the structure of the content
to enable the Content Retriever and Channel
Renderers to correctly format the content.
o An ability to Tag the content using content tags
which will allow enable the Search Manager to
provide sophisticated searching capabilities.
<PAGE> 17
This will be achieved using any number of kSites. These kSites will fulfill the
following functions:
o Content kSite - A kSite that contains either original content or
references to external content. In particular, a content kSite will
allow the user to employ a number of predefined (n) layout templates
to display the context of a kSite.
o Context kSite - A kSite that provides the contextual information
required to perform searches and to provide customizable views.
Specifically, a context kSite will be structured and organized as
follows:
1. Authority contains information on WHO is responsible of
originating/producing/administering the information in the context
information manager.
2. Location contains information on WHERE is the web site or its
components are located.
3. Source contains information on WHAT mechanisms are responsible to
deliver the web site to the user.
4. Relevancy contains information on HOW the components of a web site
may be used
5. Time contains information on WHEN the information about a component
in a web site was placed in the context information manager.
o User kSite - A user-specific kSite which allows the user to define
their own channels of information, user preference, user information
and to reference content held in other kSites or out on the Internet
according to and based on the specific API calls and requests made
from the the CivicLife component These kSites can also be associated
with specific community portals.
o Query kSite - Either a temporary or permanent query result set that
can be saved by a user and/or used as the basis for further
inferential searching.
7.3.2 Search Manager
The Search Manager uses the sophisticated data capabilities of the Context
Information Manager to provide the portal user with a rapid method of locating
any content within the portal.
Searching capabilities will include:-
o The ability to search by keyword or phrase in a content or context
kSite.
o To use any combinations of Tags stored in a context kSite
o To save/re-use the results of a search for later use in a query kSite
o To use the results of one search as the basis for a more detailed or
refining search.
o To use a natural language interface to locate FAQs and other
information.
The critical differentiator for the Search Manager is that it operates in the
context of the user's own information. Therefore, it is aware of the location
of the user and certain aspects of the
<PAGE> 18
users profile. This enables the Search Manager to provide highly relevant
results from the user's own community along with any special interest
communities which the user has selected.
The interaction between the CL Deliverables (CLD) and SS Deliverables (SSD) is
expected to provide the following high-level capabilities (there will be other
additional facilities too which have not yet been identified):
o An API which can be used by CL to do the following (additional
facilities will be identified during the project):
o Establish a vocabulary of Meta Data which can be used to
classify content held in the kSites;
o Allow for the creation of items within kSites which are tagged
with the appropriate Meta Data. Items can include:
o Content in a variety of forms: ie. HTML, Audio, Video,
plain text, etc
o References to external data sources including remote Web Sites or
XML data sources, along with information of the method required
to render the content.
o The ability to retrieve sets of content from one or more kSites
by supplying search criteria in the form of Meta Data;
o The ability to retrieve sets of content from one or more kSites by
providing either keywords or natural language search expressions;
o The capability of managing the kServer and doing such things as:
o Creating and destroying kSites;
o Moving kSites between servers;
o The kServer software capable of being deployed in the environment
described below. This kServer software will be capable of meeting the
performance requirements of the Civic Portal Software in such a way that
it does not negatively impact on the end-user experience when using the
portal.
SS will be responsible for building on top of their standard kServer to meet
the requirements of the SS-ISA Contract and this version of the kServer will
become the kServer-Access Edition.
SS will also be responsible for to the creation of the Meta Data Framework and
the API required for each parties software to interact.
2. TARGET OPERATING ENVIRONMENT
Operating System
The target operating environment for the deliverables will be Windows NT Server
V4.O Service Pack 5 during the development and verification phases of the
project. A different operating environment may be selected for the final roll
out. However, any selected operating environment will provide access to a
stable, high-performance Java Virtual Machine compliant to the J2EE
specification.
<PAGE> 19
Currently, the supported environments for the final rollout will be limited to:
o Windows NT Server Version 4.0;
o Sun Solaris 7 for SPARC;
o Hewlett-Packard HP-UX 11.0;
o IBM AIX 4.
DATABASE MANAGEMENT SYSTEM
Whilst Oracle 8 or 8i will be used during the development and verification
phases of the project, it is possible that IC may select an alternative
database platform for the final roll out. Care should be taken to ensure that
all deliverables are written in such a way that they are portable between
relational database management systems.
Currently, the supported databases are expected to be one of:
o Oracle 8i;
o IBM DB/2;
o Microsoft SQL Server 7.0;
o Sybase Adaptive Server 12.0.
APPLICATION SERVER
At the conclusion of the development process or shortly thereafter, the
delivered software should be capable of being efficiently deployed using the
SilverStream 3.0 J2EE Application Server. A copy of this software to run under
either Windows NT 4.0 or Sun Solaris will be provided to SS by CL for testing
and integration purposes.
During the development phase the software deliverables will be designed to
utilize the current BEA WebLogic Application Server. CL will provide assistance
to SS at the appropriate time to enable SS to certify the kServer components
running within the SilverStream 3.0 J2EE Application Server.
3. REQUIRED PERFORMANCE
The target performance for the Civic Portal Software is approximately 30
million page impressions per day. This will, of course, require a suitable
amount of high performance to achieve and this hardware will not be in place
until the final roll out is underway. However, the SS Deliverables must be
capable of delivering this performance when deployed on suitable hardware.
4. TIMELINESS
SS will provide the deliverables in accordance with the time line described in
the SS-ISA Contract and in such a manner as to enable CL to meet its
obligations under the CL-ISA Contract.
<PAGE> 20
5. OPERATIONAL AND TECHNICAL SUPPORT
The operational and technical support will consist of case management services
for cases reported to SS by CL in connection with the operation of the Civic
Portal Software. Cases will include problems and queries. Case management
services will cover case logging, case classification as to case type and case
severity/urgency, and case resolution in terms of software fault correction or
preparation and proposal of plans to deal with complex or difficult cases.
Support coverage will be from 9:00 AM to 5:00 PM EST on Government of Canada
business days.
SS commits to providing support to CL to enable CL to provide the required
level of operational and technical support as specified in CL's agreement with
IC.
<PAGE> 21
CIVIC PORTAL SOFTWARE
DEVELOPMENT AND COMMERCIAL AGREEMENT
THIS AGREEMENT dated the 4th day of February, 2000 is made
BETWEEN
SMARTSOURCES.COM TECHNOLOGIES INC.
(hereinafter called "SmartSources")
AND
CIVICLIFE.COM INC.
(hereinafter called "CivicLife")
WHEREAS Industry Canada wishes to design and develop a comprehensive
civic portal through CivicLife for use by the Government of Canada to
deliver information and services to citizens throughout the various regions
of Canada on a user friendly basis; and
WHEREAS each of SmartSources and CivicLife has entered into an
agreement with ISA pursuant to which the Parties will develop and deliver
the Civic Portal Software to Industry Canada; and
WHEREAS SmartSources and CivicLife wish to enter into this Agreement
to integrate the work carried out by each of them pursuant to the
SmartSources Supply Agreement and the CivicLife Supply Agreement;
NOW THEREFORE in consideration of the premises, the mutual covenants
contained herein and the receipt of good and valuable consideration which
the parties acknowledge, this Agreement provides as follows:
<PAGE> 22
2
ARTICLE I
DEFINITIONS
1.01 DEFINITIONS
Unless otherwise defined herein, the following terms shall have the
following meanings in this Agreement and the recitals thereto:
"Business Day" means any day of the year, other than a Saturday,
Sunday or any day on which banks are required or authorized to close
in Ottawa, Ontario; and
"CivicLife" means CivicLife.com Inc.; and
"CivicLife Intellectual Property Agreement" means the Intellectual
Property Agreement of even date between Industry Canada and CivicLife;
and
"CivicLife Supply Agreement" means the Agreement for the Supply of a
Civic Portal of even date between Innovative Solutions Agency and
CivicLife pursuant to which CivicLife shall deliver the Civic Portal
Software to Industry Canada; and
"Civic Portal Software" means the integrated software to be developed
by CivicLife pursuant to the terms of the CivicLife Supply Agreement
to provide the Civic Portal Software, including the website interface
and structure and all application software components, index and
searching capabilities, the HTML, XML or other authoring code, the
data base structures and source code for all of the foregoing, and the
embedded kServer Access Edition Software. Not included are readily
available, off the shelf infrastructure software components such as
workstation and server operating systems, database management systems,
and application server software; and
"Completion Date" means the Completion Date as defined in the
CivicLife Contract; and
"Industry Canada" means Industry Canada as represented by the
Information Highway Applications Branch; and
<PAGE> 23
3
"kServer Access Edition Software" means the software component to be
developed by SmartSources pursuant to the terms of the SmartSources
Supply Agreement to provide the kServer Access Edition Software,
including the website interface and structure and all application
software components, index and searching capabilities, the HTML, XML
or other authoring code, the data base structures and source code for
all of the foregoing; and
"ISA" means Innovative Solutions Agency; and
"Party" means either CivicLife or SmartSources; and
"Person" means any individual, partnership, limited partnership, joint
venture, syndicate, sole proprietorship, corporation, trust, trustee,
executor, administrator or other personal legal representative,
unincorporated association, institute, institution, regulatory
authority or agency, government or governmental agency or other entity
howsoever designated or constituted; and
"SmartSources" means SmartSources.com Technologies Inc.; and
"SmartSources Supply Agreement" means the Agreement for the Supply of
a Civic Portal of even date between Innovative Solutions Agency and
SmartSources; and
"SmartSources Deliverables" means the components of the Civic Portal
Software set forth in Schedule A to be delivered by SmartSources to
CivicLife pursuant to this Agreement.
<PAGE> 24
4
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.01 REPRESENTATIONS AND WARRANTIES
Each party represents and warrants to the other that:
(a) it is duly incorporated and validly existing and has the
requisite power to own its assets and carry on its activities
as contemplated hereunder;
(b) the execution and delivery of this Agreement by it, and the
carrying out by it of all of the activities contemplated
hereby, have been duly authorized by all requisite corporate
action; and
(c) this Agreement constitutes a legal, valid and binding
obligation of it, enforceable against it in accordance with
its terms, subject as to enforcement of remedies to
applicable bankruptcy, insolvency, reorganization and other
laws affecting generally the enforcement of the rights of
creditors and subject to a court's discretionary authority
with respect to the granting of a decree ordering specific
performance or other equitable remedies.
<PAGE> 25
5
ARTICLE III
OBJECTIVE
3.01 OBJECTIVE
This Agreement is being entered into for the purpose of establishing
the relationship of the Parties during the period of design,
development and submission of the work by the Parties on the Civic
Portal Software up to the Completion Date, and support of the work for
the period specified in the CivicLife Supply Agreement thereafter, and
to establish the responsibilities of each Party for their respective
portion of such work. This agreement also addresses the commercial
relationship of the Parties and the sharing of revenues in the
licensing of the Civic Portal Software.
<PAGE> 26
6
ARTICLE IV
PARTIES' RELATIONSHIP
4.01 DEVELOPMENT BY CIVICLIFE
CivicLife will develop the Civic Portal Software in response to the
CivicLife Supply Agreement and will include the SmartSources
Deliverables assigned and identified to be completed by SmartSources
pursuant to this Agreement.
4.02 ISA CONTRACTS
Each Party will use its best efforts, as jointly deemed reasonable, to
produce the Civic Portal Software and each party will continue to use
its best efforts toward this objective throughout any and all
negotiations concerning the Civic Portal Software and any amendments
to the SmartSources Supply Agreement and the CivicLife Supply
Agreement.
4.03 PRIME CONTRACTOR
CivicLife is the prime contractor to Industry Canada with respect to
the relationship of the Parties.
4.04 RESPONSIBILITIES OF PARTIES
Neither Party shall demand compensation of any kind from the other
during the term of this Agreement unless otherwise agreed in writing.
Each Party will bear all costs, risks and liabilities incurred by it
arising out of its obligations and efforts under this Agreement, the
SmartSources Supply Agreement and the CivicLife Supply Agreement. Such
liability includes, but is not limited to, all damages, costs and
expenses claimed from or incurred as the result of any claim or
proceeding made against a Party with respect to the infringement of
any patent, copyright, trademark, trade secret or other proprietary
right of any third party.
<PAGE> 27
7
4.05 COOPERATION
Each Party shall furnish to the other such cooperation and assistance
as may be reasonably required hereunder; provided, however, that the
Parties, as between themselves, shall be deemed to be independent
contractors, and the employees of one shall not be deemed to be the
employees of the other.
4.06 NO FORMAL BUSINESS ORGANIZATION
This Agreement is not intended by the Parties to constitute or create
a joint venture, or formal business organization of any kind, other
than a contractor team arrangement and the rights and obligations of
the Parties shall be only those expressly stated in this Agreement,
the SmartSources Supply Agreement and the CivicLife Supply Agreement.
Neither Party shall have the authority to bind the other except to the
extent authorized herein. The Parties shall remain as independent
contractors at all times and neither Party shall act as the agent for
the other except as expressly permitted herein..
4.07 NO SHARING
Nothing in this Agreement shall be construed as providing for the
share of profits or losses arising out of the efforts of either or
both of the Parties.
4.08 REPRESENTATIVES
The Parties hereby designate an individual within their own
organization as their representative responsible to direct performance
of the Parties' necessary functions (including receipt and protection
of proprietary information). Such representative shall have primary
responsibility to effectuate the requirements and responsibilities of
the Parties under this Agreement.
For SmartSources - Mr. Nathan Nifco
For CivicLife - Mr. Kevin Higgins
<PAGE> 28
8
4.09 WORK COMPLETION
Each Party will participate exclusively with the other to complete the
work described in the SmartSources Supply Agreement, the CivicLife
Supply Agreement and this Agreement.
4.10 SALES TO THIRD PARTIES
Nothing in this Agreement shall limit or restrict the rights of the
Parties from quoting or selling to others not party to this Agreement
their (a) standard commercial products and services upon demand, (b)
other previously-offered products and services that are not unique to
the work contemplated by this Agreement and (c) providing technical
information concerning products falling within categories (a) and (b)
preceding. Nothing herein shall preclude the parties from marketing or
selling their standard commercial products and services to any third
parties for purposes unrelated to the Civic Portal Software during the
term of this Agreement.
4.11 REVENUE SHARING
Industry Canada and CivicLife shall have the rights to market,
operate, license and commercialize the kServer Access Edition Software
as an embedded component of the Civic Portal Software as set out in
the CivicLife Intellectual Property Agreement;
The Parties shall share revenues received from the licensing of the
Civic Portal Software with the embedded kServer Access Edition
Software as provided for in the CivicLife Intellectual Property
Agreement, on the following basis:
Where SmartSources has led the selling effort in connection with a
licensing opportunity as evidenced by a SmartSources letter to
CivicLife identifying such opportunity and setting out a suitable
selling plan related thereto, and where SmartSources has advanced the
potential licensee according to the selling plan to the point where
the potential licensee indicates a written desire to receive a
<PAGE> 29
9
proposal from Industry Canada or CivicLife, then in the event
CivicLife is successful in licensing the Civic Portal Software to said
potential licensee, SmartSources shall be entitled to a 33% share of
the CivicLife license share.
In all other case where Industry Canada or CivicLife licenses the
Civic Portal Software, SmartSources shall receive 25% of CivicLife
license share.
<PAGE> 30
10
ARTICLE V
SMARTSOURCES RESPONSIBILITIES
5.01 SMARTSOURCES DELIVERABLES
SmartSources will furnish to CivicLife, for incorporation into the
Civic Portal Software, the SmartSources Deliverables in accordance
with and prior to the milestones set forth in the SmartSources
Contract to allow CivicLife to meet its obligations under the
CivicLife Contract. SmartSources will also furnish qualified personnel
to CivicLife who will cooperate in preparing the Civic Portal
Software.
5.02 SMARTSOURCES DELIVERABLES CAPABILITY
SmartSources acknowledges that the target performance for the Civic
Portal Software is general public acceptance at a full national roll
out level for all Canadians. SmartSources represents and warrants to
CivicLife that the SmartSources Deliverables will be capable of
delivering this performance level when deployed on suitable hardware.
5.03 MUTUAL ASSISTANCE
SmartSources and CivicLife will assure availability of management and
technical personnel to each other to assist in any discussions and
negotiations with Industry Canada and ISA with respect to the
development of the Civic Portal Software.
5.04 RELATIONS WITH INDUSTRY CANADA
Although CivicLife is the prime contractor to Industry Canada, it is
recognized that SmartSources may have continuing relations with
Industry Canada or its Agents, and may be the recipient of inquiries
concerning the SmartSources Deliverables. Therefore, any cogent
communications invited by Industry Canada or its Agents directly with
SmartSources concerning any matter involving this Agreement or the
Civic Portal Software shall not be deemed to be a breach of this
Agreement, provided CivicLife is notified of such contact by
SmartSources prior
<PAGE> 31
11
to the contact where possible or, where not possible, subsequently in
a timely manner.
ARTICLE VI
RIGHTS IN INVENTIONS
6.01 RIGHTS IN INVENTIONS
Inventions shall remain the property of the originating Party. In the
event of joint inventions, the Parties shall establish their
respective rights by negotiations between them.
<PAGE> 32
12
ARTICLE VII
PROPRIETARY INFORMATION
7.01 PROPRIETARY INFORMATION
During the term of this Agreement, the Parties hereto may exchange
proprietary and/or confidential information. Such information must be
in writing and clearly marked on each page as proprietary or
confidential. All such information will be deemed to be treated by the
Parties as proprietary and confidential.
7.02 NON-DISCLOSURE
The Parties agree that they shall not at any time divulge any matters
relating to the Civic Portal Software which may become known to them
by reason of their involvement in the Civic Portal Software except as
required by Government regulation, and then in a coordinated manner.
The Parties agree to be true and faithful to each other in all
dealings and transactions relating to the Civic Portal Software. The
Parties agree that they will not, together or alone, use for their own
benefit or purposes or for the benefit or purpose of any other person,
firm, corporation, association or other business entity, any trade
secrets, any information of a proprietary or confidential nature or
plans belonging to or relating to the affairs of the other Party
either during or after the work on the Civic Portal Software has been
completed.
The receiving Party, during the term of this Agreement and for two
years thereafter, shall hold such information in confidence, shall use
such information only for the purposes of this Agreement and shall not
disclose such information to any third party without prior written
approval of the other Party, except that information necessary to
complete the Civic Portal Software may be disclosed to Industry
Canada, ISA or an arbitrator appointed as set out in 11.01
<PAGE> 33
13
7.03 ACCIDENTAL DISCLOSURE
Neither Party shall be liable for the inadvertent or accidental
disclosure of proprietary or confidential information if such
disclosure occurs despite the exercise of the same degree of care as
such Party normally takes to preserve its own such proprietary or
confidential information.
7.04 EXCEPTED INFORMATION
These restrictions on the use or disclosure of information marked as
proprietary or confidential shall not apply to information that:
(a) was known to the receiving Party at the time of disclosure;
(b) subsequently is developed by the recipient, independent of
the information transmitted by the disclosing Party;
(c) becomes known to the receiving Party from a source other than
the disclosing Party without breach of this Agreement;
(d) has been published or is otherwise in the public domain
without breach of this Agreement; or
(e) is disclosed with the prior written approval of the other
Party.
7.05 INFORMATION USE
Any information, other than proprietary or confidential information
identified as provided above, shall not be restricted by either Party
as to the other Party's use thereof.
7.06 THIRD PARTY RIGHTS
No license to the other Party, under any trademark, patent or
copyright, or applications which are now or may thereafter be owned by
such Party, is either granted or implied by the conveying of
information to that Party. None of the information which may be
submitted or exchanged by the Parties shall constitute
<PAGE> 34
14
any representation, warranty, assurance, guarantee or inducement by
either Party to any of the other with respect to the infringement of
trademarks, patents, copyrights, or any right of privacy, or other
rights of third persons.
ARTICLE VIII
TERMINATION OF AGREEMENT
8.01 TERMINATION
This Agreement shall automatically expire and be deemed terminated
effective upon the date of the happening or occurrence of any one of
the following events or conditions, whichever shall first occur:
(a) mutual agreement of the Parties to terminate the Agreement;
(b) the insolvency, bankruptcy, reorganization under bankruptcy
law, or assignment for the benefit of creditors by any Party;
or
(c) three years after the completion of the support period
specified in the CivicLife Contract.
ARTICLE IX
SECURITY: CUSTOMER CLASSIFIED INFORMATION
9.01 ACCESS TO CLASSIFIED INFORMATION
Should access to Industry Canada's classified information be required
in the preparation of their respective portions of the work on the
Civic Portal Software, both the Parties shall meet the security
clearance requirements of Industry Canada as set forth in government
laws and regulations. The Parties agree that all of their personnel
who, pursuant to this Agreement, will have access to such classified
information, shall have an appropriate personal security clearance,
which is still in effect, prior to being accorded access to such
information.
<PAGE> 35
15
ARTICLE X
PUBLICITY
10.01 PUBLICITY
The Parties shall not issue a news release, public announcement,
advertisement, or any other form of publicity concerning their efforts
in connection with this Agreement without obtaining prior written
approval from the other Party except as required by Government
regulation, and then in a coordinated way.
ARTICLE XI
DISPUTE RESOLUTION
11.01 DISPUTE RESOLUTION
Should a dispute arise between the Parties involving their respective
duties or matters under this Agreement, or the working relations
between the Parties, then the individuals set forth in Section 4.08
will make every effort to resolve the dispute. When such resolution
cannot be achieved within ten (10) Business Days, the dispute will be
referred to a mutually agreed upon arbitrator who may be appointed by
the Parties from time to time, and is acceptable to Industry Canada.
<PAGE> 36
16
ARTICLE XII
INTERPRETIVE MATTERS
12.01 GENDER AND NUMBER
Any reference in this Agreement to gender shall include all genders
and words importing the singular number only shall include the plural
and vice versa.
12.02 HEADINGS
The provision of a Table of Contents, the division of this Agreement
into Articles, Sections, Subsections and other subdivisions and the
insertion of headings are for convenience of reference only and shall
not affect or be utilized in the construction or interpretation of
this Agreement.
12.03 CALCULATION OF TIME PERIOD
When calculating the period of time within which or following which
any act is to be done or step taken pursuant to this Agreement, the
date which is the reference date in calculating such period shall be
excluded. If the last day of such period is a not a Business Day, the
period in question shall end on the next Business Day.
12.04 PERFORMANCE ON HOLIDAYS
If under this Agreement any action is to be taken on a day which is
not a Business Day, that action is to be taken, as applicable, on or
as of the next day that is a Business Day.
12.05 REFERENCES
In this Agreement, references to "hereof", "hereto" and "hereunder"
and similar expressions mean and refer to this Agreement taken as a
whole and not to any particular Article, Section, Subsection or other
subdivision; "Article", "Section", "Subsection" or other subdivision
of this Agreement followed by a number means and refers to the
specified Article, Section, Subsection or other subdivision of this
Agreement.
<PAGE> 37
17
ARTICLE XIII
MISCELLANEOUS
13.01 SEVERABILITY
If any provision of this Agreement is determined to be invalid or
unenforceable by an arbitrator or a court of competent jurisdiction
from which no further appeal lies or is taken, that provision shall be
deemed to be severed therefrom and the remaining provisions of this
Agreement shall not be affected thereby and shall remain valid and
enforceable; provided that in the event that any portion of this
Agreement shall have been so determined to be or become invalid or
unenforceable (the "offending portion"), the Parties shall negotiate
in good faith such changes to this Agreement as will best preserve for
the Parties the benefits and obligations of such offending portion.
13.02 AMENDMENTS
This Agreement may only be amended, modified or supplemented by
written agreement signed by both of the Parties.
13.03 WAIVER
No waiver of any of the provisions of this Agreement by either Party
shall be deemed to constitute a waiver of such provision by the other
Party or a waiver by such Party of any other provision (whether or not
similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided in writing duly executed by the Party to
be bound thereby.
13.04 GOVERNING LAW
This Agreement shall be governed by and interpreted and enforced in
accordance with the laws of the Province of Ontario and the laws of
Canada applicable therein.
<PAGE> 38
18
13.05 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the Parties
pertaining to the matters contemplated hereby and superseded all prior
agreements, understandings, negotiations and discussions, whether oral
or written, of the Parties.
13.06 FURTHER ASSURANCES
The Parties will, from time to time during the course of this
Agreement or upon its expiry and without further consideration,
execute and deliver such other documents and instruments of transfer,
conveyance and assignment and take such further action as the other
may reasonably require to effect the activities contemplated thereby.
13.07 NOTICES
Any notice, direction or other instrument required or permitted to be
given under this Agreement shall be in writing (including facsimile or
any other means of communication by which words are capable of being
visibly and instantaneously reproduced at a distant point of
reception) and given by delivering it or sending it by facsimile or
other similar means of communication addressed:
(a) if to SmartSources, at:
SmartSources.com Technologies Inc.
2030 Marine Drive, Suite 100
North Vancouver, B.C. V7P 1V7
Attention: Chairman & CEO
Facsimile: (604) 986-0869
<PAGE> 39
19
(b) if to CivicLife, at:
CivicLife.com Inc.
50 O'Connor Street, Suite 300
Ottawa, Ontario K1P 6L2
Attention: President
Facsimile: (613) 232-3191
Any such notice, direction or other instrument given as aforesaid
shall be effective upon receipt, unless received on a day which is not
a Business Day in which event it shall be deemed to be received on the
next Business Day. Either Party may change its address for service
from time to time by notice given in accordance with the foregoing and
any subsequent notice shall be sent to the Party at its changed
address.
13.08 TIME OF THE ESSENCE
Time shall be of the essence of this Agreement.
13.09 ASSIGNMENT, SUCCESSORS
This Agreement and any rights or duties hereunder may not be
transferred, assigned or delegated to any other Person by either Party
without the prior written consent of the other Party.
13.10 RELATIONSHIP OF THE PARTIES
Nothing contained in this Agreement shall be construed to place the
Parties in the relationship of partners or joint venturers and neither
Party shall have any right to obligate or bind the other Party in any
manner.
<PAGE> 40
20
13.11 WAIVER
All waivers under this Agreement must be made in writing and failure
at any time to require any Party's performance of any obligations
under this Agreement shall not affect the right subsequently to
require performance of that obligation.
13.12 REMEDIES CUMULATIVE
All rights, powers and remedies must be made in writing and failure at
any time to require any Party's performance of any obligations under
this Agreement shall not affect the right subsequently to require
performance of that obligation.
13.13 EXECUTION IN COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which, taken together,
shall constitute one and the same instrument.
13.14 EXCUSABLE DELAYS
The dates and times by which either Party is required to perform any
obligation under this Agreement shall be postponed automatically to
the extent, for the period of time, that the Party is prevented from
so performing by circumstances beyond its reasonable control. Said
circumstances shall include acts of nature, strikes, lockouts, riots,
acts of war, epidemics, government regulations imposed after the fact,
fire, communications failures, power failures, earthquakes or other
disasters.
<PAGE> 41
21
IN WITNESS WHEREOF the Parties have executed this Agreement.
SMARTSOURCES.COM TECHNOLOGIES INC.
Per: /s/ NATHAN FIFCO
----------------------------------
Name: Nathan Nifco
Title: Chairman & CEO
CIVICLIFE.COM INC.
Per: /s/ KEVIN HIGGINS
-----------------------------------
Name: Kevin Higgins
Title: President
<PAGE> 42
Agreement for the Supply
of a
Civic Portal
Between
ISA and SmartSources
February 4, 2000
<PAGE> 43
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
1. PARTIES.................................................................. 4
2. DEFINITIONS AND REFERENCES............................................... 5
3. PURPOSE AND DURATION OF THE AGREEMENT.................................... 6
4. CONTEXT AND SCOPE........................................................ 6
5. EXPECTATIONS OF THE PARTIES.............................................. 7
6. MILESTONES, SCHEDULE OF WORK AND PAYMENTS................................ 9
6.1 MILESTONES........................................................... 9
6.2 SCHEDULE ELEMENTS.................................................... 9
6.3 PROJECT FUNDING...................................................... 9
7. DELIVERABLES............................................................. 11
7.1 GENERAL.............................................................. 11
7.2 DELIVERABLES BY STAGE OF WORK........................................ 11
7.2.1 CivicLife Deliverables: ....................................... 12
7.2.2 SmartSources Deliverables: .................................... 14
7.2.3 Joint CivicLife and SmartSources Deliverables: ................ 15
7.3 ACCESS.CA SERVICE DEFINITION......................................... 16
7.4 CIVIC PORTAL FUNCTIONS AND FEATURES.................................. 16
7.4.1 User Profile Manager........................................... 16
7.4.2 Channel Manager................................................ 16
7.4.3 Presentation Layer/User Interfaces............................. 16
7.4.4 Content Retriever.............................................. 17
7.4.5 Channel Renderers.............................................. 17
7.4.6 Content Tagger................................................. 17
7.4.7 Authoring Wizards.............................................. 17
7.4.8 Context Information Manager.................................... 17
7.4.9 Search Manager................................................. 18
7.4.10 Collaboration Tools........................................... 18
7.4.11 Transaction Framework......................................... 18
7.4.12 Statistics Framework.......................................... 19
7.4.13 Email Tools................................................... 19
7.4.14 Geographic Information System (GIS)........................... 19
7.4.15 Community Directories......................................... 19
7.4.16 User Information Management Tools............................. 20
7.4.17 Other Tools and Applications.................................. 20
7.5.1 Development Environment........................................ 20
7.5.2 Demonstration/Verification Environment......................... 20
7.5.3 Production Environment......................................... 21
7.5.4 Scalability.................................................... 21
7.5.5 Volumetrics.................................................... 21
7.5.6 Testing and Performance Tuning................................. 21
7.6 DOCUMENTATION........................................................ 21
7.7 IC ACCESS TO CIVICLIFE/SMARTSOURCES DEVELOPMENT AND DEMONSTRATION/
VERIFICATION ENVIRONMENTS/BRIEFINGS.................................. 22
7.8 INSTALLATION, INTEGRATION & TESTING SUPPORT.......................... 22
</TABLE>
2
<PAGE> 44
<TABLE>
<S> <C>
7.9 TRAINING ........................................................................ 22
7.10 OPERATIONAL AND TECHNICAL SUPPORT .............................................. 22
7.11 DEVELOPMENT SUITE SOFTWARE ..................................................... 23
7.12 DEVELOPMENT AND DEMONSTRATION/VERIFICATION ENVIRONMENT HARDWARE AND SOFTWARE.... 23
7.13 DETAILED SCHEDULE OF DELIVERABLES AND PAYMENTS ................................. 23
9. CHANGE PROCESS ..................................................................... 23
10. TERMINATION ........................................................................ 23
ANNEX A - ACCESS.CA PILOT TRIAL COMMUNITIES ............................................ 24
ANNEX B - SERVICE DEFINITION ........................................................... 25
ANNEX C - AGREEMENT FOR THE INTEGRATION OF SMARTSOURCES AND CIVICLIFE WORK ............. 25
ANNEX D - DETAILED SCHEDULE OF DELIVERABLES AND PAYMENTS BY STAGE OF WORK .............. 25
</TABLE>
3
<PAGE> 45
1. PARTIES
The parties to this agreement, (the "Parties"), are:
Innovative Solutions Agency ("ISA")
25 University Avenue, 3rd Floor Holman Bldg
Charlottetown, PEI C1A 7N8
SmartSources Technologies Inc. ("SmartSources")
2030 Marine Drive, Suite 100
North Vancouver, BC V7P 1V7
RELATIONSHIP BETWEEN CIVICLIFE AND SMARTSOURCES
CivicLife, as the Prime Contractor, will develop the Civic Portal Software in
response to the CivicLife Contract and will include the SmartSources
deliverables assigned and identified to be completed by SmartSources in this
agreement.
4
<PAGE> 46
2. DEFINITIONS AND REFERENCES
AGREEMENT: this contract.
SMARTSOURCES means SmartSources.com Technologies Inc.
Civic Portal means Civic Portal Software, which is the complete collection of
software to be supplied by CivicLife and SmartSources and as defined as
deliverables in Section 7 and Appendix B.
COMPLETION DATE: The completion date of the main part of this contract, defined
as the date on which deliverables are made by SmartSources and CivicLife, and
accepted by IC / ISA. The Completion Date is May 31st, 2000. Certain elements,
including ongoing support by SmartSources and CivicLife, and Intellectual
Property provisions continue beyond the Completion Date, as specified elsewhere
in the contract.
IC means Industry Canada, Information Highway Applications Branch. 155 Queen St
Floor 7 Ottawa, Ontario K1A 0H5
INTELLECTUAL PROPERTY means the kServer Access Edition Software and related
documentation as required in the schedules of deliverables in Section 7 and
ANNEX D of this Agreement.
INTELLECTUAL PROPERTY AGREEMENT means the separate and related agreement
between Industry Canada and SmartSources that governs the ownership, rights,
terms and conditions in respect to the Intellectual Property.
IP means Intellectual Property.
ISA means Innovative Solutions Agency.
KSITE: A kSite is an abstract repository of data from various sources which is
managed as a single entity. A kSite can hold content or can refer to other
sources of content. kSites provide powerful features for the meta-tagging of
content and searching, both by conventional keyword searches and inferential
searches. kSites have the ability to refer to content within other kSites.
KSites can contain purely contextual information which references content held
in content kSites. A kSite can be a persistent object or it can be created
dynamically as a result of a search or query.
KSERVER: A kServer is responsible for managing and maintaining one or more
kSites and dealing with the storage, querying and retrieval of kSite
information. It is a 100% Pure Java environment which uses a sophisticated
meta-data framework to enable the kSite to operate as described.
CIVICLIFE means CivicLife.com Inc.
REFERENCES
This Agreement is related to the following separate agreements, all of which
taken together are part of a complete whole. This Agreement's requirements must
be complied with in concert with the requirements of all of these agreements:
INTELLECTUAL PROPERTY AGREEMENT between Industry Canada and SmartSources,
relating to the kServer Access Edition Software, dated 4 February 2000.
INTELLECTUAL PROPERTY AGREEMENT between Industry Canada and CivicLife, relating
to the Civic Portal Software, dated 4 February 2000.
5
<PAGE> 47
AGREEMENT FOR THE SUPPLY OF A CIVIC PORTAL between ISA and CivicLife, a
parallel agreement to this Agreement.
Civic Portal Software Development and Commercial Agreement, between
SmartSources and CivicLife and its Schedule A. Deliverables from
SmartSources.com Technologies Inc. to CivicLife.Com Inc. dated February 4, 2000
appended as ANNEX C to this Agreement and to the parallel agreement between ISA
and CivicLife
3. PURPOSE AND DURATION OF THE AGREEMENT
This agreement (the "Agreement") sets out the specific understandings and
commitments of the Parties for the development, supply, enhancement and support
of a Comprehensive Civic Portal (the "Civic Portal").
The Agreement also identifies the ownership of Intellectual Property (the "IP")
and associated licenses, rights and royalties. Upon completion of the terms of
this Agreement, Industry Canada and SmartSources will be joint owners of and
have the right to market, license, commercialize and operate the kServer Access
Edition Software subject to the IP ownership and use conditions set out in the
Intellectual Property Agreement.
IC desires to procure a fully functioning Civic Portal, defined in the text
below, for delivery by the Completion Date and has engaged ISA as its
contractor.
CivicLife, in conjunction with SmartSources will develop and deliver the Civic
Portal in accordance with the detailed schedule in Section 7, Deliverables,
below.
With the exception of the Intellectual Property Agreement, and Section 7.10,
Operational Support, the Agreement covers the period from the date of signature
to the Completion Date, unless changed by mutual agreement amongst the Parties.
Operational Support as defined in Section 7.10 Operational and Technical
Support will be provided by SmartSources and CivicLife for 1 year from the
Completion Date.
4. CONTEXT AND SCOPE
IC is in the process of developing and rolling out a national ACCESS.CA service
to be launched in December 2000. In preparation for the national launch, IC
requires a functioning portal to be available by the Completion Date for
technical verification and immediately thereafter for up to 20 Pilot Trials in
communities across Canada. Pilot Trials would be operational until launch of
the national service at the end of 2000.
Annex A contains a list of communities that are candidates for Pilot Trials.
Other communities may be added to this list. IC will determine the list of
Pilot Trial communities and the priority sequence for Pilot Trials.
CivicLife, in partnership with SmartSources, will develop and supply Civic
Portal software with the capabilities set out in Section 7 Deliverables that
will be capable of being scaled to provide service in all of the Pilot Trial
communities. The software shall be further scalable for national launch and
growth. SmartSources and CivicLife will also provide the design and other
specifications and requirements for the server hardware and software necessary
to host the Civic Portal software in a sufficient scale to provide simultaneous
access in the Pilot Trial communities, and subsequently for national launch and
growth. These specifications will be provided in document form within 10
working days of receipt of the final list of pilot trial communities and
concurrent user estimates from IC.
6
<PAGE> 48
CivicLife and SmartSources will design the Civic Portal software to accommodate
establishment of:
a) additional stand-alone development environments
b) an on-line verification environment where new capabilities can be
tested; and
C) a fully scaled-up production environment.
By the Completion Date CivicLife and SmartSources will supply the working
portal software as defined in Section 7, Deliverables. Since much of the work
will be in a development phase, work will progress to the Completion Date in a
collaborative fashion between CivicLife, SmartSources and Industry Canada.
Specific modifications and refinements to capabilities will be incorporated
based on discussion, decision and documented agreement amongst the parties.
SmartSources and CivicLife will provide documentation, and training and
installation, integration and testing support to Industry Canada and its
designated contractors and service operators as defined in Section 7
Deliverables.
The contracted cost of the work up to the Completion Date is $500,000 (Canadian
Funds). Decisions regarding specific approach for launch and further
expenditures will be dependent on the performance of SmartSources and
CivicLife, and other planning considerations.
CivicLife and SmartSources will design the Civic Portal software using
recognized industry standards to accommodate additions after the completion
date of features and functions by third parties as may be requested,
contracted, or received unsolicited by IC. Third party add-on capabilities may
include alternative interfaces, applications, templates, content, plug-ins and
other features that could be reasonably expected within a portal. Although the
ability to incorporate such 3rd-party capabilities will be inherent in the Civic
Portal design, there may be additional funding requirements and revisions to
schedule associated with doing so.
While the deliverables under this Agreement are defined by the scope, above, by
becoming a joint owner in the Intellectual Property, IC's use of the Civic
Portal Software is not limited to use only in the context of Pilot Trials for
ACCESS.CA. The Intellectual Property Agreement provides the terms and
conditions of the use of the Intellectual property by the Parties.
5. EXPECTATIONS OF THE PARTIES
IC requires that SmartSources and CivicLife have established a formal agreement
that clearly defines roles, and individual elements that each party contributes
to the overall deliverables as defined in this Agreement. The agreement between
SmartSources and CivicLife must specify responsibility for development, supply
and support of individual elements of the Civic Portal, and responsibility for
their combination into an integrated whole and the support of the whole. Such
an agreement is included in this Agreement as ANNEX C, Civic Portal Software
Development and Commercial Agreement.
CivicLife and SmartSources agree to build on existing CivicLife and
SmartSources technologies to develop and launch a Civic Portal aimed at
satisfying the interaction needs of public sector organizations and the public.
Public sector organizations include government agencies at all levels as well
as school boards and schools, and potentially post-secondary educational
institutions. The public includes citizens, businesses and community
organizations.
General capabilities of the Civic Portal will include:
o 'Single window' connectivity to existing government services across
all relevant levels;
o Localization of service presentation by postal code;
o Initial electronic democracy capabilities;
7
<PAGE> 49
o Tools and services which facilitate the delivery of public sector
content and execution of transactions;
o An innovative web interface which simplifies the public's consumption
of public sector offerings.
o Tools to create or integrate community, business and organizational
directories for all communities across Canada
o Highly responsive FAQ interface
The business objective of the project is to build the essential components of a
Civic Portal to meet the civic interaction needs of Canadians.
The Civic Portal will be broad in scope and by the Completion Date it will
provide sophisticated capabilities to illustrate the full power of the ultimate
production site to be launched on a national basis later in 2000.
Delivery of the Civic Portal lays the groundwork for ACCESS.CA to have the
potential to become one of the Internet's major portal sites achieving several
significant benefits for Canada:
o Electronic government service delivery to Canadian citizens,
businesses and community organizations;
o An interactive, citizen-centred, web-based presence for schools and
community organizations;
o A rapid uptake of e-commerce capabilities across the Canadian
economic spectrum in both urban and rural geographies;
o Advancement of the global competitiveness of the Canadian public
sector;
o Development of key Internet technologies for global commercialization
by CivicLife and SmartSources
This project will realize the development of several important components of
the Civic Portal:
CIVIC PORTAL GATEWAY -one-stop window to the civic world - including all
levels of government and K-12 schools - for citizens, businesses and community
organizations to access information, transactions, news, services etc.
CIVIC PORTAL AUTHOR -- tools and services which enable governments, community
groups, businesses and schools to plug into the portal to heighten current
services, information and transaction capabilities as well as animate
communications with constituents/citizen base
CIVIC PORTAL CONTEXT MANAGEMENT FRAMEWORK -- It is essential that users are
able to gain easy access to the complex world of public sector content and
services. This component of the project will leverage existing enabling
technology developed with previous support and investment from CANARIE (TAD
`95) to facilitate context-based access, search and navigation to Internet
content by citizens, businesses, community organizations and schools.
8
<PAGE> 50
6. MILESTONES, SCHEDULE OF WORK AND PAYMENTS
6.1 MILESTONES
The project will be conducted over a four-month period commencing in February
2000 and completing in May 2000. Key project milestones are:
February 4th, 2000 - Complete selection and procurement of all key technology
components;
February 29th, 2000 - Complete detailed definition of initial software
components, look and feel, and portal architecture;
March 31st, 2000 - Release portal alpha version for presentation and user
interface testing and review;
April 30th, 2000 - Release portal beta version with 50% Federal and Provincial
content and services, along with 10% Municipal, School, Community and Business
content and services;
May 31st, 2000 - Release portal beta version for external review.
6.2 SCHEDULE ELEMENTS
The main schedule elements within stages of work leading up to the milestones
identified in Section 6.1, above, are as follows:
o SmartSources and CivicLife conduct the work within the stage of work
o SmartSources and CivicLife submit the work for review and payment
o IC reviews work. Assuming work is substantially acceptable, ISA will
pay CivicLife and SmartSources, as relevant, minus a 10% holdback,
within 30 days of invoice. Upon review, if no non-conforming elements
are found in the work, then the holdback will be paid to CivicLife
and SmartSources, as relevant, within 60 days of invoice. In the
event that non-conforming elements are identified, the holdback will
be retained by ISA until 30 days following the correction to these
non-conforming elements.
After the Completion Date, CivicLife and SmartSources will provide support as
defined in Section 7.10 Operational and Technical Support to Industry Canada
for a period of 1 year.
6.3 PROJECT FUNDING
Past Investments
This project to develop and launch a Civic Portal builds on prior efforts, both
privately- and publicly-funded, to develop key technology components and
intellectual property. The partners have invested approximately $2.5 million in
these components.
Proposed Investments
This proposal requests ISA funding in the amount of $2.020 million to be applied
as shown in the following summary table. Specific deliverables are associated
with each payment, on a detailed schedule as per ANNEX D, Detailed Deliverables
and Payments by Stage of Work.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
DATE STAGE OF WORK (S) & MILESTONE (M) CIVICLIFE SMARTSOURCES TOTAL
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Feb 4 Contract signature/procure $510K $250K $760K
2000 development environment (S,M)
- ----------------------------------------------------------------------------------------------------
Feb 29 Detailed definition and documentation of $325K $ 75K $400K
2000 Civic Portal Software components (S);
Design approved (M)
- ----------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 51
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
March 31 Alpha Release of Civic Portal Software $ 335K $ 75K $ 410K
2000 (S); Alpha Release approved (M)
- ----------------------------------------------------------------------------------------------------
April 30 Beta Release (Internal) of Civic Portal $ 300K $ 100K $ 400K
2000 Software (S); Beta approved (M)
- ----------------------------------------------------------------------------------------------------
May 31 Beta Release (External) of Civic Portal $ 50K $ 0 $ 50K
2000 Software (S); Beta external approved
(M)
- ----------------------------------------------------------------------------------------------------
May 31 Pilot Operations--operational and $ 0K $ 0K $ 0K
2000 to technical support (S)
May 31
2001
- ----------------------------------------------------------------------------------------------------
Total $1,520K $ 500K $2,020
- ----------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 52
7. DELIVERABLES
7.1 GENERAL
The objective of the development plan is to make progress on the development of
all of the portal features described below and to have a working site capable
of supporting the pilot trial activities available by the Completion Date.
The plan is to develop reliable, robust and high performance capabilities.
Following the Completion Date, additional functionality could be developed to
enhance the intended comprehensive functionality objectives. Such enhancements
are not part of the Agreement and are dealt with in the Intellectual Property
Agreements between SmartSources and IC, as well as between CivicLife and IC.
By the Completion Date, the Civic Portal will be based upon proven and scalable
technology that can be further tuned to meet the performance requirements of a
major portal and ultimately be capable of operating on a worldwide basis. For
the purposes of the Agreement, the portal will satisfy requirements in Canada.
The Civic Portal will be built to be used on stand-alone and on-line
development environments; online demonstration and verification environments;
and on-line production environments.
Section 7.2 provides deliverables by stage of work for CivicLife and jointly
for CivicLife and SmartSources.
Section 7.3 specifies the service definition requirements of the Civic Portal
deliverables.
Section 7.4 describes the functional and feature requirements of the Civic
Portal deliverables.
Sections 7.5 through 7.13 define design requirements; documentation; access to
development environment & briefings; installation, integration and testing
support; training; operational and technical support; development suite
software; demonstration system components.
ANNEX D provides a detailed schedule of Civic Portal deliverables and payments
by phase of work.
7.2 DELIVERABLES BY STAGE OF WORK
Work will be performed by SmartSources, and jointly by CivicLife and
SmartSources, in accordance with the schedules of deliverables shown in 7.2.2
and 7.2.3.
Integration of deliverables between CivicLife and SmartSources into a complete
whole at each stage of work will be the responsibility of CivicLife. When there
is adequate demonstration of the integration of work, the work in that stage
will proceed to review and acceptance by ISA within the corresponding milestone.
Upon acceptance, the work in that phase is approved and will be paid for. A 10%
holdback will be retained as described in Section 6.2.
11
<PAGE> 53
7.2.1 CIVICLIFE DELIVERABLES:
- -------------------------------------------------------------------------------
Stage of CivicLife Deliverables
Work
- -------------------------------------------------------------------------------
1 $510,000
Feb 4,
2000 Selection of software technology for the construction of the
development environment for the Civic Portal taking into
consideration the eventual deployment flexibility.
The selected technology will allow for the deployment
environment to use different Operating System and Database
Management Systems should that flexibility be required.
As a result of this selection process. CivicLife will establish
and operate a development, test and verification environment for
use during the life of this contract and for a period of 12
months thereafter.
The services provided include:
- T1 internet access to the development environment for
IC and other authorized parties.
- Firewalling.
- Management and maintenance of the environment including
7x24 hardware support.
- Provision of software and infrastructure components.
- Provision of hardware to operate the development
servers.
- Provision of staff to operate and manage the environment
- -------------------------------------------------------------------------------
2 $325,000
Feb 29,
2000 Detailed definition of the individual Civic Portal software
components for delivery under this project.
Definition of the user interface look and feel for at least two
"skins" for the Beta phase.
Definition of the Civic Portal architecture for the following
areas:
Multi-lingual capabilities
User profile manager
Channel Manager
Presentation Layer
Content Retriever
Channel Renderers
Content Tagger
Geographic Information System for geographic content organisation
Collect 50% Canadian Federal and Provincial content and
services.
- -------------------------------------------------------------------------------
12
<PAGE> 54
CIVICLIFE DELIVERABLES, CONTINUED:
- -------------------------------------------------------------------------------
3 $335,000
March 31
2000 Alpha releases of the following Civic Portal components:
Multi-lingual capabilities
User profile manager
Channel Manager
Presentation Layer
Content Retriever
Channel Renderers
Content Tagger
Geographic Information System for geographic content organisation
Definitions of the following Civic Portal components:
Self-subscription Authoring Wizards for Businesses, Communities
and Government
Services
Collaboration tools
Initial cut of the Transaction Framework
Initial cut of the Statistics Framework
E-mail Tools
User Information Management Tools
Other Tools and Appliances
Collect 10% Municipal, School, Community and Business content and
services.
- -------------------------------------------------------------------------------
4 $300,000
Apr 30 2000
Beta releases of the working Civic Portal. This will include all
of the capabilities identified above.
Certain of these capabilites will be limited in their scope for
example the statistics and transactional capabilities.
- -------------------------------------------------------------------------------
5 $50,000
May 31
2000 Availability of Beta Civic Portal for external review. This will
run on the existing server infrastructure and will cater for
approximately 200 concurrent page generations. In real life,
this should relate to a user audience of approximately 1,000
intensive users in any one hour.
- -------------------------------------------------------------------------------
6 $0
Post May technical and operational support for above deliverables.
31 2000
- -------------------------------------------------------------------------------
Total $1,520,000
- -------------------------------------------------------------------------------
13
<PAGE> 55
7.2.2 SMARTSOURCES DELIVERABLES:
- -------------------------------------------------------------------------------
Stage of
Work SmartSources Deliverables
- -------------------------------------------------------------------------------
1 $75,000
Feb 4
2000 Selection of technology for the construction of the development
environment of the kServer Access edition required to support
the Civic Portal within the Context Information Manager and
Search Manager functions.
As a result of this selection process SmartSources will
establish and operate a development environment for use during
the life of this contract and for a period of 12 months
thereafter for the development of the kServer Access.ca Edition
in support of CivicLife.
The services provided include:
- Management and maintenance of the environment including
7x24 hardware support.
- Provision of software and infrastructure components.
- Provision of hardware to operate the development servers.
- Provision of staff to operate and manage the environment.
$175,000
Production of the following technical documentation:
- KServer Access Edition white paper
- KServer Access Edibon API
- KServer Access Edition Meta-data Framework
Consultation relevant for each document preparation and revision
along with on-going maintenance.
- -------------------------------------------------------------------------------
2 $75,000
Feb 29
2000 The following technical documentation and specifications of the
kServer Access Edition required to deploy the individual software
components:
kServer technical systems specifications
kServer API specifications
kServer administrative interface technical specifications
Detailed definition of the individual software components for
delivery under this project.
Definition of the architecture for the following areas:
Context Information Manager
Search Manager
- --------------------------------------------------------------------------------
3 $75,000
March 31
2000 Alpha releases of the following components:
Context Information Manager
Search Manager
- --------------------------------------------------------------------------------
14
<PAGE> 56
SMARTSOURCES DELIVERABLES, CONTINUED:
4 $100,000
Apr 30 2000 Beta releases of the kServer Access edition embedded technology.
This will include the following capabilities:
Context Information Manager
Search Manager
Certain of these capabilities will be limited in their scope for
example the statistics and transactional capabilities.
- -------------------------------------------------------------------------------
5 Beta release support to CivicLife.
May 31
2000
- --------------------------------------------------------------------------------
6 Technical and Operational Support for the above deliverables.
Post May
31 2000
- --------------------------------------------------------------------------------
Total $500,000
- --------------------------------------------------------------------------------
7.2.3 JOINT CIVICLIFE AND SMARTSOURCES DELIVERABLES:
Joint deliverables shall be completed prior to the deliverables being submitted
for review and acceptance in each phase of work.
- --------------------------------------------------------------------------------
Phase Joint Deliverables
- --------------------------------------------------------------------------------
1 Identification of key integration tasks for SmartSources kServer
Feb 4 and CivicLife technologies.
2000
- --------------------------------------------------------------------------------
2 Detailed integration plan for all design deliverables of
Feb 29 CivicLife and SmartSources.
2000
- --------------------------------------------------------------------------------
3 Full integration of Alpha release deliverables of CivicLife and
March 31 SmartSources.
2000
- --------------------------------------------------------------------------------
4 Full integration of Beta release - internal - deliverables of
Apr 30 CivicLife and SmartSources.
2000
- --------------------------------------------------------------------------------
5 Full integration of Beta release - external - deliverables of
May 31 CivicLife and SmartSources.
2000
Plan for integrated technical and operational support in
preparation for ACCESS.CA Pilots.
- --------------------------------------------------------------------------------
6 Integrated technical and operational support of all integrated
Post May deliverables, above as defined in Section 7.10 Operational and
31 2000 Technical Support.
- --------------------------------------------------------------------------------
15
<PAGE> 57
7.3 ACCESS.CA SERVICE DEFINITION
The Civic Portal shall be capable of providing service features to citizens,
small businesses, communities, and government organizations as defined in Annex
B, Service Definition.
7.4 CIVIC PORTAL FUNCTIONS AND FEATURES
Sections 7.4.1 to 7.4.17 provide descriptions of the Civic Portal major
components with associated capabilities. The Civic Portal shall conform to
these descriptions.
As a general requirement, portal functionality will be developed in independent
modules. This will permit: independent scalability of functions based on demand
for their use; ability to upgrade and repair individual modules without having
to affect the entire portal software; and other operational flexibilities.
SmartSources and CivicLife will provide best estimates for assessing the cost
of major separate functions, and where applicable cost per transaction. This
is to enable IC to be able to make decisions regarding future development and
rollout priorities.
7.4.1 USER PROFILE MANAGER
This will allow users to register with the portal and to identify sufficient
information about themselves to allow the portal to automatically select
content based upon location and demographic information. It will also allow for
language selection.
Users may also search for other content either within their local community or
elsewhere and incorporate this content into their own `personal portal'. Other
content may be organized into other geographic areas or by special interests.
In addition, the user profile will have the ability to securely retain other
personal information required to complete certain on-line services.
Information on external e-mail accounts will also be held to facilitate the
integration of the eDemocracy and Collaboration elements of the site.
7.4.2 CHANNEL MANAGER
This service will allow channels of information to be created and managed by
the portal. It will include a wide range of channel formats and integration
with appropriate parsing technology.
Channels may be generally available to all users of the portal or they may be
accessible on some form of revenue basis - e.g.: membership fee based.
7.4.3 PRESENTATION LAYER / USER INTERFACES
A wide number of different presentation formats will be provided. These will
accommodate the following differences between users:
o User look and feel preference;
o Browser capabilities;
o Navigation and interaction preferences (whether to use Macromedia
Flash, for example);
o Colour, font and style preferences;
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o `Skins' to suit different age groups;
o Favourites referencing content selected during the user's navigation
of the site.
The Portal will be built to be able to accommodate additional user interfaces
from third parties. Integration of a particular interface will depend on the
interface's ability to map to the Civic Portal's technical specification for
such interfaces.
7.4.4 CONTENT RETRIEVER
This service will retrieve the content to be rendered in the appropriate
formats by the Channel Renderer. Based upon the user's profile including
language preference, the appropriate content for each channel will be retrieved
and provided for rendering.
The Content Retriever will be able to access any content anywhere in the portal
subject to security and individual user restrictions.
7.4.5 CHANNEL RENDERERS
There will be a wide number of these to deal with the different channel formats
and layouts to be presented. Extensive use of Style Sheets (both CSS and XSL)
will be made to provide for the presentation of data from XML sources.
7.4.6 CONTENT TAGGER
The Content Tagger will enable portal administrators to browse to other sites
and to select specific content from those sites for incorporation into the
portal. This tool facilitates the incorporation of 3rd-party website content
within the Civic Portal frame and `look and feel' environment and permits
maintenance of a `live' link to such content as it is modified by the content
owner.
7.4.7 AUTHORING WIZARDS
These tools will enable all manner of portal contributors to `opt-into' the
portal and include their content or e-services in a standard manner. For
example, wizards for business to become part of the site will be provided
including the ability to reference external content or to create their own
content using a built-in WYSIWYG HTML editor.
Other authoring wizards for Government Services, Community Associations,
eDemocracy and for Channel Authoring will also be provided.
7.4.8 CONTEXT INFORMATION MANAGER
The Context Information Manager is a series of kSites which can hold both
structured and unstructured content. This is based upon the kServer technology.
The following capabilities are supported:
o The ability to hold both original content and references to various
types of external content.
o Information regarding the structure of the content to enable the
Content Retriever and Channel Renderers to correctly format the
content.
o An ability to Tag the content using content tags which will enable
the Search Manager to provide sophisticated searching capabilities.
This will be achieved using any number of kSites. These kSites will fulfill the
following functions:
o Content kSite - A kSite that contains either original content or
references to external content.
o Context kSite - A kSite that provides the contextual information
required to perform searches and to provide customizable views.
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o User kSite -- A user-specific kSite which allows the user to define
their own channels of information and to reference content held in
other kSites or out on the Internet. These kSites can also be
associated with specific community portals.
o Query kSite -- Either a temporary or permanent query result set that
can be saved by a user and/or used as the basis for further inferential
searching.
7.4.9 SEARCH MANAGER
The Search Manager uses the sophisticated data capabilities of the Context
Information Manager to provide the portal user with a rapid method of locating
any content within the portal.
Searching capabilities will include:
o The ability to search by keyword or phrase.
o To use any combinations of Tags.
o To save the results of a search for later use.
o To use the results of one search as the basis for a more detailed or
refining search.
o To use a natural language interface to locate FAQs and other
information.
The critical differentiator for the Search Manager is that it operates in the
context of the user's own information. Therefore, it is aware of the location
of the user and certain aspects of the users profile. This enables the Search
Manager to provide highly relevant results from the user's own community along
with any special interest communities which the user has selected.
7.4.10 COLLABORATION TOOLS
These include the facilities for both users and community portal operators
required to create informal Polls, Discussion Groups, News and Notices and
other content elements targeted at individuals or groups of users.
These tools will be used in the citizen consultation and Community areas of the
site to enable Citizen to Citizen and Citizen to Government interaction.
The facility to utilize real-time instant messaging as well as access to
Internet Relay Chat (IRC) and ICQ (I Seek You) style conference and chat room
services will also be provided.
7.4.11 TRANSACTION FRAMEWORK
This will be a series of wizards and definitions to enable Electronic Service
Delivery via the portal by various government departments and agencies at the
Federal, Provincial and municipal levels. Over a period of time, a series of
XML standards and definitions will emerge for how the portal exchanges data
between its transaction definitions and external ESD solutions.
The Transaction Framework will also provide the mechanism for collecting and
transferring fees to appropriate content providers. Content providers may fall
into a number of categories but may include local portal operators or
commercial vertical community operators.
Examples of transaction types by category include:
License applications and payments
Benefits applications
Filing of complaints
Public requests for information
Registrations
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Tax payments
Reservations for public facilities
Fine payments
7.4.12 STATISTICS FRAMEWORK
Detailed standard portal usage logs will be collected for all portal traffic.
These logs can be viewed both as detailed log items in a database, and in the
form of various statistical and other reports that will be configurable by
ACCESS.CA administrators. A third-party web activity reporting package facility
for creating, viewing and analyzing these statistics will be required and is
not provided with the portal.
In addition, the Statistics Framework will also provide the underlying
mechanism for collecting data to allow commercial operators to collect their
fees.
A full technical specification will be documented and delivered upon
completion of this contract.
7.4.13 EMAIL TOOLS
Email tools will be provided to allow portal users to have their own personal
e-mail address. In addition, the ability to integrate with other external
e-mail will be provided. Users can nominate whether they wish to use an
existing e-mail account with the portal. The e-mail manager will also be able
to present a single view of multiple e-mail accounts.
Email must be accessible by any registered user from any Internet
browser-capable computer
Email, at its most basic level, can be anonymous - i.e. - user need only
provide an "alias" user name and a private password to obtain an account
Layers of user identification and validation would be required if Email is used
within the scope of transactions requiring security - e.g.: financial
transactions
7.4.14 GEOGRAPHIC INFORMATION SYSTEM (GIS)
This will enable the portal to identify where the user is located and to
therefore map the content that is applicable.
A capability to deal with spatial data and other abstract types is required.
This must be able to resolve Postal Code information into accurate geographic
location information.
7.4.15 COMMUNITY DIRECTORIES
The Civic Portal will be built to accommodate directories of businesses and
other organizations for all communities across Canada. These directories may be
added by IC or its designated contractors.
To aid in using the GIS capabilities, directories developed for the Civic
Portal will include postal code reference data for each directory entry and
community.
The Civic Portal user interfaces shall have prominent display of directories
and ready access to any desired directory within the fewest number of clicks.
Third party directories can be added or referenced in the Civic Portal. To this
end, standards for preferred directory functionality and form will be provided.
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7.4.16 USER INFORMATION MANAGEMENT TOOLS
The Civic Portal will include personal calendar, personal contact manager, and
other personal applications into which personal data can be stored. These
applications shall be capable of being synchronized with PDA devices (e.g.:
Pilots, etc) but this capability is not part of the initial project to be
delivered by the Completion Date. These tools will only be accessible by the
registered individual.
The Civic Portal shall also include calendars, contact and other applications
that can be used in context of collaboration groups. For example, this will
enable communities of interest to keep a common calendar and contact management
profiles (including timelines & critical path). These tools will only be
accessible by members of collaboration groups, and designated individuals from
these groups will perform updates.
The Civic Portal shall also include broader community calendars and contact
lists that can be accessed by the public at large. Designated individuals will
perform updates.
All calendars, contact managers and other applications shall be capable of
being updated from selections of data in other accessible calendars, contact
managers and applications.
7.4.17 OTHER TOOLS AND APPLICATIONS
The Civic Portal shall be built to accommodate third party tools and
applications using industry standards which are readily available to
developers. Such tools and applications would be incorporated into the Civic
Portal online production environment by IC after appropriate testing on a
development environment and on-line verification environment.
7.5 CIVIC PORTAL INFRASTRUCTURE DESIGN REQUIREMENTS
7.5.1 DEVELOPMENT ENVIRONMENT
Until the Civic Portal is finally delivered to IC by the Completion Date, the
development environments will be hosted at CivicLife in Ottawa, and
SmartSources in Vancouver.
Once IC has taken delivery and turned the Civic Portal on for service, there
can be any number of stand-alone or on-line development environments associated
with the Civic Portal software.
Both SmartSources and CivicLife shall provide a complete specification and
design for stand-alone and on-line development environments which will permit
any individual environment to be used for development and modification
associated with the entire Civic Portal and any subset of capabilities of the
Civic Portal. Refer to Section 7.6
7.5.2 DEMONSTRATION / VERIFICATION ENVIRONMENT
The demonstration environment for the Beta preview of the Civic Portal will be
contained on the CivicLife-development servers.
IC, directly or through a designated provider, will establish an on-line
verification environment to be used to launch Pilot Trial verifications in new
communities, and add new content, features, applications and other capabilities
to Pilots and nationally-launched ACCESS.CA service.
CivicLife and SmartSources shall provide a complete specification and design
for an on-line verification environment that will permit verification of
capabilities associated with the entire Civic Portal and any subset of
capabilities of the Civic Portal, including third party capabilities. Refer to
Section 7.6
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7.5.3 PRODUCTION ENVIRONMENT
IC, directly or through a designated provider, will establish a production
environment.
CivicLife and SmartSources shall provide a complete specification and design
for an on-line production environment that will permit integration of
capabilities associated with the entire Civic Portal initially, and
subsequently any subset of new or modified capabilities of the Civic Portal,
including third party capabilities. Refer to Section 7.6.
7.5.4 SCALABILITY
The required performance from the Civic Portal technology for purposes of
demonstration is to ultimately be able to deliver a performance of 500
concurrent page generations on a single dual-CPU server with no single page
view taking more than 5 seconds.
This equates to a real-world performance of 360,000 page views per hour per
server. With a typical beta user performing around 100 page views per hour,
this would suggest that around 3,600 concurrent previewers could be accessing
the beta portal.
The first demonstration of the portal may not reach these performance levels
due to limitations in the size of the servers and of the supporting database
server. However, the technology selected will have the capability to scale to
these levels in the real production environment.
A figure of 1,000 concurrent previewers has therefore been selected as being
representative of the actual performance which will be available from the
demonstration environment.
CivicLife and SmartSources will provide IC with full information regarding
scalability and sizing of the Civic Portal, including necessary formulas for
calculating capacity requirements of all servers, software, and Internet
connectivity. Refer to Section 7.6.
7.5.5 VOLUMETRICS
CivicLife and SmartSources will provide volume-based design parameters for the
purposes of initial sizing and subsequent periodic expansions of the production
environment. These parameters will take account of the number of users in each
category, the number of page requests and views, the quantity of sites accessed
for page views and feeds, the number of feeds and their frequency of updates,
the network access architecture of the portal, and any other element which will
have an impact on sizing and quality of performance.
7.5.6 TESTING AND PERFORMANCE TUNING
It is intended that the portal will be tested in a real world simulation for
its performance characteristics during the demonstration phase. This testing
will involve loading the software onto a suite of real-world servers and
simulating the workload through using specialist load testing software.
Products such as Mercury LoadRunner will allow several thousand real users to be
simulated using low-cost PC workstations. CivicLife will arrange for tests which
can simulate around 4,000 or more concurrent sessions which can be set-up to
simulate multiple users. It is expected that a test simulating up to 40,000 real
world users can be realistically modelled.
7.6 Documentation
SmartSources and CivicLife will provide to Industry Canada full documentation
on all software
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developed and delivered up to Completion Date.
This documentation will consist of two documents: Civic Portal Design
Specification and Civic Portal Operations Specification
Civic Portal Design Specification
o General description of the Portal
o Functional description of all of the elements of the portal
o Interface requirements amongst elements within the portal
o Interface requirements for third party capabilities
o Installation, integration and testing methodology
o Version management methodology
o Annotated source code for all portal functions
o Recommended development suites
Civic Portal Operations Specification
o Network architecture and quantified design for all servers, including
development, verification, and production servers for Pilot Trial of
various sizes; and an initial national launch. Formulas and factors
for sizing will be provided.
o Internet access architecture and quantified design, as above, for all
servers
o Server software requirements and specifications
o Data architecture of the portal
o Data management requirements and recommendations for the portal
o Security design / recommendations for all parts of the system
o Operating standards
o Support functions necessary to maintain operating standards
o Open standards for addition of third party components, software,
applications, features and other capabilities
7.7 IC ACCESS TO CIVICLIFE / SMARTSOURCES DEVELOPMENT AND DEMONSTRATION/
VERIFICATION ENVIRONMENTS / BRIEFINGS
SmartSources and CivicLife will provide access on request by IC to their
respective development and demonstration/verification environments for
purposes of observation and verification of development.
7.8 INSTALLATION, INTEGRATION & TESTING SUPPORT
SmartSources and CivicLife will provide 10 person days support to Industry
Canada and its designated contractors and operators for installation,
integration and testing of the portal software or appropriate sub-components if
applicable onto stand-alone development environments, on-line verification
environments, and on-line production environments.
7.9 TRAINING
SmartSources and CivicLife will provide Industry Canada and its designated
contractors and operators with 10 person days of training to communicate how to
install, integrate, test and operate all components of the Portal software.
7.10 OPERATIONAL AND TECHNICAL SUPPORT
SmartSources and CivicLife will provide Industry Canada and its designated
contractors and operators
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operational and technical support for the duration of one year from the
delivery date.
The operational and technical support will consist of case management services
for cases reported to SmartSources and CivicLife in connection with the
operation of the Civic Portal software. Cases will include problems and
queries. Case management services will cover case logging, case classification
as to case type and case severity/urgency, and case resolution in terms of
software fault correction or preparation and proposal of plans to deal with
complex or difficult cases. Support coverage will be from 9:00 AM to 5:00 PM
EST on Government of Canada business days. Support coverage outside of this
period will be provided on an emergency pay-as-used basis at CivicLife and
SmartSources professional services rates.
7.11 Development Suite Software
SmartSources and CivicLife will supply IC with a five-concurrent-user license
for the full software development suite. Such software and licenses shall allow
sub-licensing to designates or contractors of IC for use on IC licensed
facilities.
IC use of this software assumes IC access to operating system and database
software and workstation and server hardware. IC should expect to purchase
annual maintenance support on these components from the providing vendor.
Any sub-licensing will be subject to 3rd-party licenses restrictions.
7.12 DEVELOPMENT AND DEMONSTRATION / VERIFICATION ENVIRONMENT HARDWARE AND
SOFTWARE
IC will have guaranteed access to CivicLife and SmartSources development and
demonstration/verification environments for purposes of developing changes
and additions to ACCESS.CA content and applications for a period of 1 year
following Completion Date. This facility will support up to five simultaneous
developers.
Such development activity will be coordinated with CivicLife and SmartSources
on a mutually agreed basis.
7.13 DETAILED SCHEDULE OF DELIVERABLES AND PAYMENTS
ANNEX D provides a detailed schedule of deliverables and payments by stage of
work.
8. CHANGE PROCESS
This Agreement may be changed by mutual agreement between the parties.
Changes will be formally recorded in new Annexes. They will identify the nature
of the change, and may trigger the requirement to issue revised text for
various sections of this agreement and / or its annexes. There will also be a
recording of the consequent changes in costs and responsibilities of parties.
Changes may be initiated by either party by providing a request in writing.
Changes will not be made unilaterally by either party.
9. TERMINATION
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ANNEX A - ACCESS.CA PILOT TRIAL COMMUNITIES
The following communities across Canada may be included in Pilot Trials of
ACCESS.CA following delivery of the Civic Portal software from CivicLife and
SmartSources. Pilots will be implemented according to a schedule to be
established by IC, and will continue until the national launch of ACCESS.CA
service.
<TABLE>
<CAPTION>
COMMUNITY POPULATION (THOUSANDS)
1998 1996
<S> <C> <C>
St Johns, NFLD 173.6
Charlottetown, PEI 32.5
Halifax, NS 348
St John, NB 127.3
Fredericton, NB 46.5
Moncton, NB 59.3
Montreal Metropolitan Area, QUE 3,326,510
Montreal city, QUE 1,016,376
Montreal - Dorval city, QUE 17,572
Montreal - East Montreal, QUE 3,523
Montreal - North Montreal, QUE 81,581
Montreal - West Montreal, QUE 5,254
Montreal - Longueuil, QUE 127,977
Quebec, QUE 687.2
Sherbrooke, QUE 152.7
Abitibi/Temiscamingue, QUE
Toronto Metropolitan Area, ONT 4,263,757
Toronto City, ONT 653,734
Toronto International Airport ONT 544,382
Hamilton, ONT 658.6
St Cathearines, ONT 389.1
London, ONT 418.2
COIN
Ottawa, ONT 427.4
Kingston, ONT 143.4
North Bay, ONT 64.8
Sudbury, ONT 163.3
Sault Ste. Marie,ONT 83.6
Thunder Bay, ONT 128.6
Winnipeg, MB 676.4
Brandon, MB 40.6
Thompson, MB 14.4
Regina, SK 199.5
Saskatoon, SK 229.3
Calgary, ALTA 907.1
Edmonton, ALTA 917.5
St Albert, ALTA 46.9
Vancouver - Metropolitan Area, BC 1,831,665
Vancouver City, BC 514,008
Vancouver Bay, BC 13,075
Vancouver International Airport, BC 148,867
Victoria, BC 318.1
Prince George, BC 75.2
Prince Rupert, BC 17.4
Terrace, BC 20.9
Kelowna, BC 136.5
Yellowknife, NWT 17.3
Whitehorse, YT 21.8
</TABLE>
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ANNEX B - SERVICE DEFINITION
Please refer to the attached document.
ANNEX C - CIVIC PORTAL SOFTWARE AND COMMERCIAL DEVELOPMENT AGREEMENT
Please refer to the attached document.
ANNEX D - DETAILED SCHEDULE OF DELIVERABLES AND PAYMENTS BY STAGE OF WORK
Please refer to the attached document.
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<PAGE> 1
EXHIBIT 10.18
MASTER RELATIONSHIP AGREEMENT
THIS AGREEMENT made as of the 17th day of February, 2000.
BETWEEN:
SMARTSOURCES.COM TECHNOLOGIES INC., (British Columbia Incorporation
Number: 0394358), with an office at 2030 Marine Drive, Suite 100,
North Vancouver, British Columbia, CANADA V7P 1V7
(hereinafter called "SMARTSOURCES.COM")
OF THE FIRST PART
AND:
kTRAVEL SOLUTIONS INC., with an office at 300 North Commercial,
P.O. Box 5008, Bellingham, Washington 98227-5008
(hereinafter called "kTRAVEL SOLUTIONS")
OF THE SECOND PART
(Smartsources.com and kTravel Solutions collectively called
"Smartsources")
AND:
UNIGLOBE TRAVEL (WESTERN CANADA) INC., with an office at 1600 - 1188
West Georgia Street, Vancouver, British Columbia, CANADA V6E 4A2
(hereinafter called the "REGION")
OF THE THIRD PART
WHEREAS:
A. Smartsources specializes in the development of software technology for
Internet-based content and knowledge management;
B. Smartsources has developed a certain Internet application and technology
for deployment of website and portal services;
C. The Region currently has franchise relationships with certain franchisees
and has agreed to promote the Technology to its franchisees;
D. The Region has agreed to facilitate the execution of license agreements for
the Technology between Smartsources and its franchisees;
<PAGE> 2
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E. The Region shall enter into a license agreement with Smartsources to enable
the Region to manage and update the content of its franchisees' kSites (the
"Regional License Agreement"); and
F. The parties wish to set forth the terms and conditions for the mutual
responsibilities of the parties regarding the Technology upon the terms and
conditions herein contained.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
premises and of the mutual covenants herein set forth, the parties hereto have
covenanted and agreed as follows:
1.0 DEFINITIONS
1.1 In this Agreement:
(a) "AFFILIATED COMPANY" or "AFFILIATED COMPANIES": two or more
corporations where the relationship between them is one in which one
of them is a subsidiary of the other, or both are subsidiaries of the
same corporation, or fifty percent (50%) or more of the voting shares
of each of them is owned by the same person, corporation or other
legal entity;
(b) "BETA TEST": means the initial website and Travel Portals produced by
the Technology and approved by the Region;
(c) "BUSINESS RULINGS": information regarding the day to day operations,
practices, procedures and processes of the Region and the Franchisees
that may be pertinent to Smartsources' responsibilities under this
Agreement;
(d) "COMMENCEMENT DATE": this Agreement will be deemed to have come into
force on the date of execution of this Agreement by Smartsources, and
shall be read and construed accordingly;
(e) "CONFIDENTIAL INFORMATION": any information designated by either party
as confidential, whether orally or in writing but excluding any
information that is:
(i) possessed by the party to which the information is disclosed
(the "Recipient") prior to receipt from the party disclosing the
information (the "Discloser"), other than through prior
disclosure by Discloser, as evidenced by the Recipient's
business records;
(ii) published or available to the general public otherwise than
through a breach of this Agreement;
(iii) obtained by the Recipient from a third party with a valid right
to disclose it, provided that said third party is not under a
confidentiality obligation to the Discloser; or
(iv) independently developed by employees, agents or consultants of
the Recipient who had no knowledge of, or access to, the
Discloser's information as evidenced by the Recipient's business
records.
<PAGE> 3
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(f) "CONTENT PARTNERSHIPS": refers to a set of present and future content
and web application partnerships pre-established by Smartsources to
which the Region is granted access to as part of the Technology under
this Agreement;
(g) "DEPLOYMENT DATE": means the physical deployment date for the
Technology mutually agreed upon by Smartsources and the Region;
(h) "PRODUCT DOCUMENTATION": includes all functional specifications,
operating instructions, user guides, manuals, reference materials,
papers or other materials of any nature whatsoever that are supplied
by Smartsources in conjunction with the Technology;
(i) "ENHANCEMENTS": improvements, variations, updates, modifications, and
enhancements made by Smartsources relating to the Technology at any
time after the Commencement Date;
(j) "FRANCHISEES": means those franchisees of the Region, from time to
time, which as of the Commencement Date are disclosed by the Region in
Schedule "D" to this Agreement;
(k) "HOSTING": means the physical location of servers and facilities from
where the Technology and applications are delivered and serviced to
the Internet on behalf of the Region and the Franchisees;
(l) "HYPERLINK": means an element in an electronic document that links to
another place in the same document or to an entirely different
document;
(m) "INITIAL TRAINING": means the initial training provided by
Smartsources to the Region for the use and operation of the
Technology, as set out in Schedule "A";
(n) "INTERNET TRAVEL RESERVATION ENGINE": means any third party web
application designed to deliver electronic booking and related
functionalities for travel-related reservations;
(o) "kSERVER LICENSE AGREEMENT": means the kServer License Agreement
between a Franchisee and kTravel Solutions, attached as Schedule "C"
hereto;
(p) "kSERVER LICENSEES": means the Franchisees that have executed kServer
License Agreements with Smartsources under Section 2.2(b) of this
Agreement;
(q) "kSITE": means a website produced by the Technology that is licensed
to a Franchisee under the terms and conditions of the License
Agreement;
(r) "MONTHLY LICENCE FEES": means the monthly fees charged by Smartsources
to the Franchisees for the services delivered and support of the
Technology, as set forth in the kServer License Agreement;
(s) "PERSONNEL": means all employees, officers, directors and agents of
Smartsources, any of them;
<PAGE> 4
-4-
(t) "PRIME RATE": means the prime rate of interest charged from time to
time by the main branch at Vancouver of The Royal Bank of Canada. A
certificate signed by a branch manager of The Royal Bank of Canada
stating its prime rate at any time shall be conclusive evidence of the
Prime Rate for the purposes of this Agreement;
(u) "REGION DATA": any and all data specific to the Region generated
and/or collected by the Region and/or Smartsources as part of the
function of the Technology, including but not limited to the Region's
customer profiles, consumer data, databases and/or customer
preferences;
(v) "REVENUE": all revenues, receipts, monies, (and the fair market value
of all other consideration directly or indirectly collected or
received whether by way of cash or credit or any barter, benefit,
advantage, or concession) received by any of the parties to this
Agreement from activities which include but are not limited to the
advertising and electronic commerce activities related to the
Technology and any associated third party technologies, less the
following deductions to the extent included in the amounts invoiced
and thereafter actually allowed and taken:
(i) credit, allowances or refunds given on account of returned
goods;
(ii) transportation charges invoiced separately and actually charged
to third parties; and
(iii) bona fide special rebates provided by either party;
but shall specifically exclude any revenue generated by the sale of
any air, car, hotel reservation, vacation packages or other products
exclusive to the Region that are sold directly or indirectly through
the Technology.
Where any Revenue is derived from a country other than the Canada, it
shall be converted to the equivalent in Canadian dollars on the date
the applicable party is deemed to have received such Revenue pursuant
to the terms hereof at the rate of exchange set on such date by the
Royal Bank of Canada for buying such currency. The amount of Canadian
dollars pursuant to such conversion shall be included in the Revenue.
(w) "SPECIAL REQUIREMENTS": means any additional requirements related to
the Technology, including but not limited to all modifications, extra
capabilities and/or customization requested by the Region for the
Technology:
(i) which are not included in the Product Documentation or the
Technology; and
(ii) which the Region specifically requests in writing to
Smartsources; and
(iii) which Smartsources agrees in writing to develop;
(x) "SPECIAL REQUIREMENTS FEES": means the fees charged by Smartsources to
the Region to meet the Special Requirements, as set forth in Section
7.2;
(y) "STANDARD SMARTSOURCES DOCUMENTS": includes all standard forms and
documentation produced and supplied by Smartsources for purposes which
include but are not limited to requests for Special Requirements,
Supplementary Services, enhancements, feedback, problems, procedural
matters, Business Rulings, and
<PAGE> 5
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otherwise, for the use of the Region and/or the Franchisees in
connection with fulfilling the Region's responsibilities under Article
2.0 herein;
(z) "SUPPLEMENTARY SERVICES": means those training and consulting
services offered by Smartsources to the Region additional to the
Initial Training as described in Section 7.3 and Schedule "A".
(aa) "SUPPLEMENTARY SERVICE FEES": means the fees charged by Smartsources
for Supplementary Services that it provides to the Region, as set
forth in Section 7.3 and Schedule "A" herein, as amended from time to
time by Smartsources;
(bb) "TECHNOLOGY": means any and all knowledge, know-how and/or technique
or techniques invented, developed and/or acquired, prior to the Date
of Commencement by Smartsources relating to and including the
technology, as described in Schedule "B" hereto, as amended from time
to time, and the Product Documentation;
(cc) "TERRITORY": means the geographical boundary within which the
Technology may be used by the Franchisees, consisting of the following
provinces in Canada: British Columbia, Alberta, Saskatchewan,
Manitoba, the Yukon Territory and the Northwest Territories;
(dd) "TIER ONE FRANCHISEES": means the Franchisees that are licensed Tier
One kSites by Smartsources, which shall not exceed 15% of the
Franchisees;
(ee) "TIER ONE kSITE": means a website produced by the Technology without
the Travel Portal functionality, as described in Schedule "B" hereto;
(ff) "USER CONTENT": means the User Content and information specific to
each website, as provided by the Region and/or the Franchisees through
the use of the Technology; and
(gg) "USER SYSTEM": means the computer hardware and software configuration
of the Franchisees required to support and use the Technology;
(hh) "TRAVEL PORTALS": means the personalized travel portals produced with
the Technology that are licensed to a user and described in Schedule
"B" hereto.
2.0 RESPONSIBILITIES OF THE REGION
2.1 The Region shall use its commercially reasonable efforts to actively promote
the Technology to the Franchisees and facilitate the execution of the kServer
License Agreements.
2.2 The Region agrees to deliver executed kServer License Agreements signed by:
(a) no less than 50% of the Franchisees (including Tier One Franchisees)
to Smartsources no later than March 17, 2000 (the "Review Date"); and
(b) no less than 70% of the Franchisees (including Tier One Franchisees,
provided that no more than 15% of the Franchisees shall be Tier One
Franchisees) to Smartsources no later than June 30, 2000.
<PAGE> 6
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The Region agrees that the total number of Tier One Franchisees shall
not exceed 15% of the Franchisees. If the Region is unable to meet its
obligations under this Section 2.2 by the Review Date, the parties shall
re-negotiate the terms of this Master Relationship Agreement and/or the kServer
License Agreement in good faith, including but not limited to fees, pricing and
Revenue terms.
2.3 The Region represents and warrants to Smartsources that Schedule "D" is a
full and complete list of the Franchisees at the date that this Agreement is
executed.
2.4 If the Region complies with its obligations under Section 2.2(a), the
parties agree that the Deployment Date for the Franchisees who have executed
kServer License Agreements by the Review Date shall be five weeks following the
Review Date. If the Region complies with its obligations under Section 2.2(b),
the parties agree that the Deployment Date for the additional Franchisees who
have executed kServer License Agreements by June 30,2000 shall be two weeks
following June 30, 2000. Smartsources shall use its commercially reasonable
efforts to fulfill these Deployment Dates, subject to the following:
(a) the Region and/or Franchisees shall provide Smartsources with
information that Smartsources reasonably requests and requires to
deploy the Technology in a timely fashion;
(b) the Region and/or Franchisees shall not change their Business Rulings
in a manner which impacts Smartsources' ability to deploy the
Technology by the Deployment Date; and
(c) Smartsources shall not be expected to provide Special Requirements
requested by the Region and/or Franchisees if such Special
Requirements delay Smartsources' ability to deploy the Technology by
the Deployment Date.
2.5 The Region must provide any and all requests for Special Requirements,
Supplementary Services, Business Rulings and/or any other modifications and
services required from Smartsources, whether with respect to the Region or to a
Franchisee in the form of a detailed written request submitted to Smartsources
using the Standard Smartsources Documents where provided, or the Region's own
standard memoranda and documentation.
2.6 The Region shall be responsible for all management and administration of the
Franchisees, using the Standard Smartsources Documents where provided, or the
Region's own standard memoranda and documentation and shall include but not be
limited to the following:
(a) managing any oral, written or electronic communications from the
Franchisees, including but not limited to telephone support, written
requests for customization, enhancements and/or training, feedback,
complaints, interruption problems associated with the Hosting;
(b) providing a training and education process to the Franchisees for the
Technology, including handling any requests for Supplementary Services
required by the Franchisees and providing a schedule of Supplementary
Services Fees to the Franchisees as required;
<PAGE> 7
-7-
(c) managing and facilitating any and all required registrations in
association with the kSites, including but not limited to registration
of the kSites with the relevant search engines and registration of
domain names in association with the kSites;
(d) gathering and assimilating any information reasonably requested by
Smartsources from each Franchisee and compiling the same;
(e) distributing the Standard Smartsources Documents, where provided, or
the Region's own standard memoranda and documentation to the
Franchisees to handle any matters related to the Technology; and
(f) gathering and assimilating such forms and documentation received from
the Franchisees into an appropriate summary form and providing such
summary form to Smartsources for its easy reference.
2.7 The Region is responsible for all promotion and marketing of the kSites.
2.8 Smartsources shall provide the Region with procedural advice with respect to
the implementation and use of the Technology as requested by the Region from
time to time, but the Region and the Franchisees shall be responsible for the
supervision, management and control of the Technology as installed in the System
including, but not limited to:
(a) assuring proper machine configuration as set out in Schedule "B",
program up-date installation, audit controls and operating methods;
(b) ensuring that only adequately trained and authorized employees of the
Region and/or Franchisees use the Technology:
(c) implementing sufficient procedures and checkpoints to satisfy
requirements for security and accuracy of data input and output, as
well as establishing and implementing adequate procedures and
safeguards with respect to non-disclosure of the Technology; and
(d) revising and updating the User Content on the kSites, as required from
time to time.
3.0 RESPONSIBILITIES OF SMARTSOURCES
3.1 Smartsources' responsibilities shall be as follows:
(a) providing Hosting for the Region and the Franchisees, as set out under
the kServer License Agreement and the Regional License Agreement;
(b) set-up and installation procedures for the Technology in accordance
with Section 2.4;
(c) providing Initial Training to the Region, as set out in Schedule "A",
subject to the use and operation of the Technology pre-supposing a
minimum level of computer and internet knowledge. Smartsources shall
not be responsible for providing extra training to employees of the
Region that do not possess such minimum knowledge to use and operate
the Technology;
<PAGE> 8
-8-
(d) providing Standard Smartsources Documentation to the Region for its
distribution and use under Article 2.0 herein;
(e) modification of the Technology to support the Special Requirements
upon the written request of the Region;
(f) provide procedural and technical advice and support regarding the
Technology, as reasonably requested by the Region from time to time,
to enable the Region to fulfill its responsibilities to the
Franchisees under Section 2.6;
(g) assign the Smartsources Project Manager and Smartsources Account
Executive, as set out in Section 8.3, to resolve any problems and
issues regarding the Technology;
(h) provision of Supplementary Services to the Region as set out in
Schedule "A" upon the written request of the Region; and
(i) providing a layout for the kSites that is consistent with the graphic
standards, logos, colours, look and feel of the Beta Test (the
"Layout").
3.2 From time to time, Smartsources may alter, modify or design the Layout as
reasonably required by the technical requirements of the Technology and/or
Enhancements.
3.3 If the Region requires a different or unique Layout for the Franchisees than
that provided by Smartsources, the additional services provided by Smartsources
to create such different layout shall be considered Supplementary Services that
will require Supplementary Services Fees to be paid by the Region to
Smartsources in accordance with Schedule "A."
3.4 Smartsources shall be obliged to accept any reasonable User Content produced
by the Region or specifically added by the Region to the kSites.
3.5 Smartsources shall provide credits to the Region and review third party
pricing with respect to the Technology, in accordance with Schedule "A".
3.6 If access to any of the Content Partnerships under Schedule "B" become
unavailable, Smartsources shall make commercially reasonably efforts to provide
an equivalent Content Partnership to be incorporated into the Technology.
3.7 Smartsources shall make commercially reasonable efforts to maintain open
standards for the addition of third party components, software applications,
features and other capabilities in relation to the Technology.
4.0 ADVERTISING
4.1 If the Region requires advertising, it may secure advertising from its
travel-related partnerships in connection with the Technology. Smartsources
shall update advertisements as received from the Region on the first day of each
month commencing from the Commencement Date, provided that the Region provides
reasonable notice to Smartsources to allow Smartsources to make the updates.
<PAGE> 9
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4.2 Any advertising provided by the Region must strictly conform to the
specifications which shall be provided in writing to the Region by Smartsources
upon their availability. Smartsources shall not be responsible for any
modifications required to any advertising provided by the Region to conform to
these specifications.
4.3 Smartsources may secure advertising from its preferred suppliers and/or
partnerships in connection with the Technology.
4.4 The Region represents and warrants that its current preferred suppliers,
partnerships and any entities with which it has existing relationships or
associations in the context of advertising and/or electronic commerce are listed
accurately and disclosed in Schedule "F", as amended from time to time (the
"Preferred Entities"). The Region shall be entitled to reasonably refuse the
advertising offered by Smartsources due to conflicts with the Preferred Entities
and any other internal policy reasons that are sufficiently provided to and
approved by Smartsources.
5.0 REVENUE
5.1 All Revenue with respect to the advertising secured by the Region or
Smartsources shall be apportioned between the parties as set out in Schedule
"E", as amended from time to time and as agreed between the parties. Any
Revenues with respect to electronic commerce, or other relationships shall be
the subject of a separate Schedule to be negotiated between the Region and
Smartsources.
6.0 TERM
6.1 This Agreement shall terminate on the expiration of a term of 5 years from
the Date of Commencement, or the termination of the last KServer License
Agreement, whichever event shall last occur unless earlier terminated pursuant
to Article 14.0 herein.
7.0 SPECIAL REQUIREMENTS AND SUPPLEMENTARY SERVICES
7.1 Smartsources shall not be required to provide any Special Requirements or
Supplementary Services directly to the Franchisees.
7.2 The Region may request Special Requirements from Smartsources in writing. In
consideration for such Special Requirements provided by Smartsources to the
Region, the Region shall pay to Smartsources Special Requirement Fees on the
terms and conditions set out in Schedule "A".
7.3 During the term of this Agreement, and any extensions thereof, Smartsources
shall offer Supplementary Services to the Region. The Region shall provide
Smartsources with a written request for Supplementary Services. In consideration
of the Supplementary Services provided by Smartsources to the Region, the Region
shall pay to Smartsources the Supplementary Service Fees as set forth in
Schedule "A".
7.4 Any outside support, consulting, integration and outsourcing services that
are provided and/or offered by Smartsources under this Agreement in relation to
the Technology intended to be used by the Region requires the prior written
consent of Smartsources (the "Outside Services"). Use of the Outside Services by
the Region in relation to the Technology without Smartsources's prior written
consent constitutes a material breach of this Agreement by the Region.
<PAGE> 10
-10-
The Outside Services does not include general support and consulting services
that are not provided and/or offered by Smartsources under this Agreement.
7.5 In addition to the fees payable hereunder, the Region shall indemnify and
hold harmless Smartsources against all value added, sales, social services,
excise and other taxes, rates and duties chargeable against Smartsources (except
taxes based on net income) arising from the transactions contemplated by this
Agreement.
7.6 All monies payable by the Region to Smartsources under this Agreement shall
be calculated and paid in Canadian Dollars. The manner of payment shall be in a
form deemed acceptable by Smartsources.
7.7 Smartsources shall submit receipts showing payment and/or all current
invoices due for payment under this Agreement to the address of the Region set
out above, or such other address as the Region may direct, in writing.
7.8 The Region shall make timely payment of all monies due to Smartsources under
this Agreement. Late payments shall bear interest on the outstanding amounts due
at the rate of 2% above the Prime Rate in effect from time to time. For the
purposes of determining interest on the amounts outstanding, interest shall be
calculated and compounded monthly using the daily weighted average of the Prime
Rate in effect during such month. Interest accruing from time to time on the
amounts outstanding shall be due and payable monthly in arrears on the last day
of each calendar month.
8.0 PROJECT MANAGERS
8.1 The Region will assign a project manager to facilitate the management of any
matters related to the Technology (the "Region Project Manager"). The Region
Project Manager shall be responsible for facilitating the coordination and
execution of the Region's obligations including but not limited to gathering
information about the Region's procedures (including all Business Rulings),
practices and data as required for the configuration of the Technology on the
Region's System and the development of any Special Requirements, planning and
coordinating the installation of the Technology and a mutually agreeable
Deployment Date, planning and coordinating the Initial Training, and acting as
an effective liaison with Smartsources and the Advisory Committee.
8.2 Smartsources shall assign a project manager to manage any matters related to
the Technology during the period leading up to the Deployment Dates set out in
Section 2.4 (the "Smartsources Project Manager"). The Smartsources Project
Manager shall be responsible for facilitating the functionality of the
Technology, delivery, setup and installation of the Technology and handle any
Special Requirements requested by the Region.
8.3 Smartsources shall assign an account executive to handle inquiries received
from the Region and manage Smartsources' relationship with the Region during the
term of this Agreement (the "Smartsources Account Executive").
8.4 The Region Project Manager, Smartsources Account Executive, and Smartsources
Project Manager shall cooperate and act in good faith to resolve any problems
and issues regarding the Technology. Matters that are unable to be resolved by
these parties shall be escalated to the Advisory Committee for consideration.
<PAGE> 11
-11-
9.0 ADVISORY COMMITTEE
9.1 The parties agree to form an advisory committee comprised of two
representatives from each of Smartsources and the Region (the "Advisory
Committee"). The Advisory Committee shall meet on a regular basis, but no less
than four times a year during the first year of this Agreement, and thereafter
shall establish a meeting schedule deemed suitable by the Advisory Committee.
The parties shall each bear their own expenses in connection with these
meetings. Among other responsibilities, the Advisory Committee will oversee the
relationship between the parties, and will:
(a) review and approve the development of the strategy with respect to
marketing development and distribution of the Technology,
(b) use good faith efforts to attempt to resolve all matters escalated to
the Advisory Committee; and
(c) review, discuss, develop, and if necessary, prioritize opportunities,
whether advertising or electronic commerce-related or otherwise, that
the parties believe are good candidates for the Technology and related
services.
10.0 INTERNET TRAVEL RESERVATION ENGINE
10.1 Smartsources shall facilitate the incorporation of the Internet Travel
Reservation Engine into the Technology by the use of a Hyperlink.
10.2 The Region will be responsible for all agreement, negotiation and purchase
of the Internet Travel Reservation Engine, unless otherwise agreed upon by the
parties. The Region will conduct due diligence to find an Internet Travel
Reservation Engine in accordance with the Region's requirements. If Special
Requirements are required to integrate the Internet Travel Reservation Engine
into the Technology that requires more than the use of a Hyperlink, Smartsources
shall charge the Region for any Special Requirements Fees resulting from such
Special Requirements.
11.0 ENHANCEMENTS
11.1 Smartsources shall have the right, at any time and from time to time, to
modify, expand or enhance the Technology, and the Region shall cooperate fully
with, and allow, Personnel to effect such changes, provided that such changes do
not interfere with, or disrupt the Region's use of the Technology.
12.0 CONFIDENTIALITY AND NON-DISCLOSURE
12.1 The Confidential Information shall be received used or developed by either
party solely in furtherance of the purposes set forth in this Agreement subject
to the terms and conditions set forth in this Article 12.0.
12.2 The parties shall keep and use all of the Confidential Information in
confidence and will not, without the Discloser's prior written consent, disclose
any Confidential Information to any person or entity, except those of the
Recipient's officers, employees or consultants who require the Confidential
Information in performing their obligations under this Agreement.
<PAGE> 12
-12-
12.3 The parties shall not use, either directly or indirectly, any Confidential
Information for any purpose other than as set forth herein without the
Discloser's prior written consent.
12.4 If the Recipient is required by judicial or administrative process to
disclose any or all of the Confidential Information, the Recipient shall
promptly notify the Discloser and allow the Discloser reasonable time to oppose
such process before disclosing any Confidential Information.
12.5 Notwithstanding any termination or expiration of this Agreement, the
obligations created in this Article 12.0 shall survive and be binding on both
parties, their successors and permitted assigns.
12.6 Smartsources covenants and agrees to not disclose any information it
receives concerning the business of the Region without the Region's specific
written consent, or unless such information becomes publicly available through
no action of Smartsources. Smartsources shall take appropriate action with its
employees, by agreement or otherwise, to satisfy its obligations under this
sub-section.
13.0 INDEMNIFICATION BY THE REGION
13.1 The Region recognizes that the Technology and all information in respect
thereto constitute valuable proprietary rights and ownership to Smartsources.
The Region hereby indemnifies, holds harmless and defends Smartsources against
any and all claims, actions, causes of action, suits, proceedings. demands,
assessments, judgments, costs, including reasonable legal costs and other
expenses incidental to the foregoing, damages or liability which may be made or
brought against Smartsources and its successors and assigns by any person or
entity whomsoever directly or indirectly arising out of the use of the
Technology by the Region including, against any damages or losses, consequential
or otherwise, arising from or out of the use of the Technology by the Region
howsoever the same may arise.
13.2 Smartsources recognizes that the Region Data and all information in respect
thereto constitute valuable proprietary rights and ownership to the Region.
Smartsources hereby indemnifies, holds harmless and defends the Region against
any and all claims, actions, causes of action, suits, proceedings, demands,
assessments, judgments, costs, including reasonable legal costs and other
expenses incidental to the foregoing, damages or liability which may be made or
brought against the Region and its successors and assigns by any person or
entity whomsoever directly or indirectly arising from or out of any unauthorised
use of the Region Data by Smartsources including, without limiting the
generality of the foregoing, against any damages or losses, consequential or
otherwise, arising out of any unauthorised use of the Region Data by
Smartsources howsoever the same may arise.
14.0 TERMINATION
14.1 This Agreement may be terminated by Smartsources immediately without notice
prior to the expiration of the term, and any extensions thereof, upon the
following:
(a) the failure by the Region to pay any amounts due hereunder, where such
failure is not fully corrected within 14 days of written notice by
Smartsources to the Region;
(b) the failure or neglect of the Region (the "BREACHING PARTY") to
observe, keep, or perform any of the covenants, terms and conditions
hereunder, where such non-
<PAGE> 13
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performance is not fully corrected by the Breaching Party within 30
days of written notice by the non-Breaching Party to the Breaching
Party; or
(c) any proceeding under the Bankruptcy and Insolvency Act of Canada, or
any other statute of similar purport, is commenced by or against the
Region.
14.2 Smartsources may, at its option, terminate this Agreement immediately
on the happening of any one or more of the following events by
delivering notice in writing to that effect to the Region:
(a) if the Region becomes insolvent;
(b) if any execution, sequestration, or any other process of any court
becomes enforceable against the Region or if any such process is
levied on the rights under this Agreement or on any of the monies due
to Smartsources and is not released or satisfied by the Region within
30 days thereafter;
(c) if any resolution is passed or order made or other steps taken for the
winding up, liquidation or other termination of the existence of the
Region;
(d) if the Region is more than 30 days in arrears of royalties or other
monies that are due to Smartsources under the terms of this Agreement;
(e) if the Region ceases or threatens to cease to carry on its business;
(f) if a controlling interest in the Region passes to any person or
persons other than those having a controlling interest at the Date of
Commencement, whether by reason of purchase of shares or otherwise,
without the prior written consent of Smartsources, which shall not be
unreasonably withheld;
(g) if the Region undergoes a reorganization or any part of its business
relating to this Agreement is transferred to a subsidiary or
associated company without the prior written consent of Smartsources
which shall not be unreasonably withheld;
(h) if the Region makes a material misrepresentation to Smartsources in
relation to this Agreement; or
(i) if less than 60% of the kServer Licensees do not renew or terminate
their kServer License Agreements after the initial 3 year term set out
under the kServer License Agreements.
14.3 The Region agrees and acknowledges that any of its obligations to pay
any outstanding monies under Article 7.0 that are due and payable to
Smartsources at the time of termination shall survive termination.
14.4 Immediately upon any termination of the Agreement for any reason, the
Region shall have no further right of any nature whatsoever in the
Technology or any Enhancements.
14.5 Notwithstanding Section 14.4, upon any termination of the Agreement
for any reason, Smartsources shall make commercially reasonable
efforts to facilitate the transferance of the Region Data to the
Region in a timely fashion. During the term of this Agreement and
after
<PAGE> 14
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termination of this Agreement, Smartsources shall not use this information for
any purpose whatsoever (including but not limited to downloading the Region
Data, disclosing the Region Data to third parties, using the Region Data for
commercial or marketing purposes, and data mining of the Region Data by
Smartsources) without the prior written consent of the Region and shall not
prevent the Region from using and/or recording such information for its own
purposes.
15.0 ASSIGNMENT
15.1 The Region will not assign, transfer, mortgage, charge or otherwise
dispose of any or all of its rights, duties or obligations granted to
it under this Agreement without the prior written consent of
Smartsources which shall not be unreasonably withheld. In the event of
such an assignment, such entity shall execute a written agreement
which provides that such entity shall assume all such obligations or
covenants from the Region and that Smartsources shall retain all
rights granted to Smartsources pursuant to this Agreement.
15.2 Smartsources shall have the right to assign its rights, duties and
obligations under this Agreement to an Affiliated Company or
Affiliated Companies of Smartsources. In the event of such an
assignment, the Region will release, remise and forever discharge
Smartsources from any and all obligations or covenants subject to
Section 15.3, provided however that such company executes a written
agreement which provides that such company shall assume all such
obligations or covenants from Smartsources and that the Region shall
retain all rights granted to the Region pursuant to this Agreement.
15.3 For greater certainty, the parties covenant and acknowledge that the
underlying protection set out in Section 16.6, including the
confidentiality and non-disclosure obligations and covenants under
Article 12.0 shall survive any assignment of this Agreement under this
Article 15.0.
16.0 GENERAL
16.1 Any notice, request, demand, consent or other communication provided
or permitted hereunder shall be in writing and given by personal
delivery, transmitted by facsimile to the party whose address and
facsimile number for the receipt of such document is as follows:
(a) If to Smartsources:
Delivery: SMARTSOURCES.COM
----------------
Suite 100 - 2030 Marine Drive
North Vancouver, BC
V7P 1V7
Attention: Todd Martin, Senior Analyst
Facsimile: (604) 986-0869
(b) If to the Region:
Delivery: UNIGLOBE TRAVEL (WESTERN CANADA) INC.
------------------------------------
1600 - 1188 West Georgia Street,
Vancouver, B.C.
V6E 4A2
Attention: Laurie Radloff
Facsimile: (604) 681-1047
<PAGE> 15
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or to such other address for delivery or facsimile as a party may, in writing,
direct. Any notice so given shall be deemed to have been received on the date it
was delivered or transmitted.
16.2 This Agreement shall be governed in all respects by the laws of the
Province of British Columbia, and any dispute thereunder shall be subject to the
exclusive jurisdiction of the British Columbia Courts. The parties irrevocably
attorn to the sole jurisdiction of British Columbia.
16.3 The Region acknowledges and agrees that the Technology constitute valuable
proprietary rights and ownership to Smartsources. The Region acknowledges that
the unauthorized use or release of the Technology except as provided herein,
would result in damages to Smartsources which could not be adequately
compensated for in damages by monetary award. Accordingly, in the event of any
such breach, in addition to all other remedies available at law or in equity,
Smartsources shall be entitled as a matter of right to apply to a court of
competent equitable jurisdiction for relief by way of restraining order,
injunction, decree or otherwise, as may be appropriate to ensure compliance with
this Agreement.
16.4 Time is hereby expressly made of the essence with respect to the
performance of the parties of their respective obligations under this Agreement.
16.5 The parties shall not be held responsible, nor shall either party be
considered in breach of this Agreement, for the failure of either party to
fulfill any terms or provisions hereof if such failure was a result of civil
disorder, war, governmental decrees or laws, acts of enemies, strikes, floods,
acts of God, or by any other cause not within the control of either party and
which could not have been prevented by either party exercising reasonable
diligence.
16.6 The parties hereto hereby covenant and acknowledge that the provisions of
this Agreement with respect to confidentiality under Article 12.0 of this
Agreement and other protection set forth in this Agreement shall survive the
termination of this Agreement.
16.7 No omission or delay of either party hereto in requiring due and punctual
fulfilment by the other party of the obligations of such party hereunder shall
be deemed to constitute a waiver of its right to require due and punctual
fulfilment, or a waiver of any of its remedies hereunder.
16.8 The parties hereto are independent, and neither party is the agent, joint
venture, partner or employee of the other and no party shall be able to bind the
other party.
16.9 The parties covenant and agree to make all applications, execute all other
deeds, documents, instruments and assurances, and do such further and other acts
as may be necessary or desirable to carry out the true intent and meaning of
this Agreement, and to give full effect to the transactions contemplated or
intended hereby.
16.10 This Agreement shall ensure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns.
16.11 Headings and captions are for the purposes of convenience only, and are
not to be construed as part of this Agreement.
16.12 Terms of computer terminology which are not otherwise defined herein shall
have the meanings normally attributed thereto in the computer industry, unless
the context of the use of such terminology would suggest otherwise.
<PAGE> 16
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16.13 This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof, into which all prior negotiation,
commitment, representations and undertakings of the parties are merged and,
except as herein specifically provided, there are no oral or written
understandings or agreements between the parties hereto relating to the subject
matter hereof.
16.14 No amendment or other modification of this Agreement shall be valid or
binding on either party hereto, unless in writing and executed by the parties
hereto.
16.15 This Agreement may be executed in counterparts, each of which when so
executed and delivered shall be deemed an original, but such counterparts
together shall constitute but one and the same instrument.
EXECUTED by the parties hereto as of the day and year first above written.
BY SMARTSOURCES.COM TECHNOLOGIES INC.:
/s/ MICHAEL J. FORSTER President COO
- ------------------------------------ ------------------------------
Authorized Signature Title
Michael J. Forster February 18, 2000
- ------------------------------------ ------------------------------
Name Date
BY KTRAVEL SOLUTIONS INC.:
- ------------------------------------ ------------------------------
Authorized Signature Title
- ------------------------------------ ------------------------------
Name Date
BY UNIGLOBE TRAVEL (WESTERN CANADA) INC.:
/s/ L. RADLOFF President
- ------------------------------------ ------------------------------
Authorized Signature Title
L. Radloff February 18, 2000
- ------------------------------------ ------------------------------
Name Date
<PAGE> 17
SCHEDULE "A"
INITIAL TRAINING
1.1 Smartsources will provide Initial Training to the Region in the form of
instruction by Personnel (the "Instruction"), and Product Documentation to
the Region. The Instruction provided by Smartsources to the Region shall
not exceed a maximum of 40 hours, and Smartsources shall only be
responsible for providing the Instruction to a maximum of 6 of the Region's
selected employees (the "Training Group").
1.2 The use and operation of the Technology pre-supposes a minimum level of
computer and internet knowledge. The Region shall ensure that the Training
Group that it selects possess a minimum level of computer and internet
knowledge to understand how to use and operate the Technology after
appropriate Instruction. Smartsources shall not be responsible for
providing extra training to employees of the Region that do not possess
such minimum knowledge.
1.3 If the Region requires instruction exceeding the Initial Training, this
shall constitute Supplementary Services and require Supplementary Services
Fees, as set out below.
SUPPLEMENTARY SERVICES FEES
2.1 During the term of this Agreement, and any extensions thereof, Smartsources
shall offer Supplementary Services to the Region.
2.2 The Region shall provide Smartsources with a written request for
Supplementary Services. Smartsources shall provide within a reasonable time
to the Region the Supplementary Services in accordance with, but not
limited to, the following schedule of Supplementary Service Fees:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Technology Fee per hour (in Canadian dollars)
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Chief Technology Officer $250
- ----------------------------------------------------------------------------------------------------------
Director, Development $145
- ----------------------------------------------------------------------------------------------------------
Development Manager $125
- ----------------------------------------------------------------------------------------------------------
Developer - Database $163
- ----------------------------------------------------------------------------------------------------------
Developer 3 $175
- ----------------------------------------------------------------------------------------------------------
Developer 2 $150
- ----------------------------------------------------------------------------------------------------------
Developer 1 $85
- ----------------------------------------------------------------------------------------------------------
MIS/Network Specialist 2 $125
- ----------------------------------------------------------------------------------------------------------
MIS/Network Specialist 1 $90
- ----------------------------------------------------------------------------------------------------------
Production Manager $155
- ----------------------------------------------------------------------------------------------------------
Webmaster 3 $150
- ----------------------------------------------------------------------------------------------------------
Webmaster 2 $96
- ----------------------------------------------------------------------------------------------------------
Data Conversion Engineer - Lead $90
- ----------------------------------------------------------------------------------------------------------
Data Conversion Engineers $75
- ----------------------------------------------------------------------------------------------------------
Quality Assurance $75
- ----------------------------------------------------------------------------------------------------------
Server Engineers - Lead $250
- ----------------------------------------------------------------------------------------------------------
Server Engineers - Senior $225
- ----------------------------------------------------------------------------------------------------------
Server Engineers $180
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROJECT MANAGEMENT
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Project Manager $145
- ----------------------------------------------------------------------------------------------------------
Business Analyst $145
- ----------------------------------------------------------------------------------------------------------
Unit Manager $125
- ----------------------------------------------------------------------------------------------------------
Senior Producer $105
- ----------------------------------------------------------------------------------------------------------
Producer $86
- ----------------------------------------------------------------------------------------------------------
Associate Producer $58
- ----------------------------------------------------------------------------------------------------------
Indexer $48
- ----------------------------------------------------------------------------------------------------------
Customer Support & Training $80
- ----------------------------------------------------------------------------------------------------------
Technical Writer $120
- ----------------------------------------------------------------------------------------------------------
STUDIO
- ----------------------------------------------------------------------------------------------------------
Director, Studio $145
- ----------------------------------------------------------------------------------------------------------
Principal Designer $130
- ----------------------------------------------------------------------------------------------------------
Designer $120
- ----------------------------------------------------------------------------------------------------------
Junior Designer $72
- ----------------------------------------------------------------------------------------------------------
Production Artist $88
- ----------------------------------------------------------------------------------------------------------
PRODUCT MARKETING
- ----------------------------------------------------------------------------------------------------------
Director, Product Marketing $155
- ----------------------------------------------------------------------------------------------------------
Senior Product Manager $96
- ----------------------------------------------------------------------------------------------------------
Product Manager $77
- ----------------------------------------------------------------------------------------------------------
Public Relations Associate $85
- ----------------------------------------------------------------------------------------------------------
BUSINESS DEVELOPMENT
- ----------------------------------------------------------------------------------------------------------
V.P., Business Development $200
- ----------------------------------------------------------------------------------------------------------
Director. Business Development $155
- ----------------------------------------------------------------------------------------------------------
Business Development Associate $90
- ----------------------------------------------------------------------------------------------------------
Market Requirements Engineer $170
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The Region shall be responsible for the travel, living and per diem costs
for Personnel to undertake the Supplementary Services. These rates are
subject to change from time to time during the term of this Agreement, and
any extensions thereof.
Smartsources shall provide the Region with written notice of any revised
Supplementary Services Fees (the "Notice/s"). The Region shall be
responsible for distributing the Notice/s to the Franchisees. The revised
Supplementary Services Fees shall take effect 30 days after the date of the
applicable Notice.
SPECIAL REQUIREMENTS FEE
3.1 The Region shall provide a detailed written request to Smartsources if the
Region requires Smartsources to modify the Technology to support Special
Requirements.
3.2 SmartSources shall respond within a reasonable time to the Region with a
work specification outlining the time, materials and cost to provide any
Special Requirements requested by the Region (the "Work Spec").
3.3 If the Region accepts the terms of the Work Spec, in consideration of the
services provided by Smartsources to the Region to fulfil the Special
Requirements, the Region shall agree to pay to Smartsources a Special
Requirements Fee, which will be set out in the Work Spec.
<PAGE> 19
Region shall be responsible for the travel, living and per diem costs for
Personnel to undertake the Special Requirements.
3.4 If the Region does not proceed with the Special Requirements Smartsources
may still charge a Supplementary Services Fee to the Region for the
consulting services and research required to create the Work Spec.
CREDITS TO THE REGION
4.1 In consideration for the Region's contributions with respect to
facilitating the execution of the kServer License Agreements, Smartsources
shall provide a credit to the Region in the amount of Cdn$500.00 for each
kServer License Agreement executed by a Franchisee (not including the Tier
One Franchisees) within the Territory during the term of this Agreement.
The Region shall not receive a credit for the Tier One Franchisees unless
the Tier One Franchisees decide to upgrade their Tier One kSites to kSites
that include Travel Portals.
4.2 In consideration for the Region's covenants under this Agreement,
Smartsources shall provide a credit to the Region in the amount of 10% of
the Monthly License Fees received by Smartsources within the Territory
during the term of this Agreement.
4.3 Smartsources agrees to:
(a) accept the credits under Sections 4.1 and 4.2 (the "Credits") as
payment by the Region of any Special Requirements and/or Supplementary
Services that the Region requests under Article 7.0 of this Agreement;
or
(b) provide all, or any part of, the outstanding Credits in the form of a
cheque from Smartsources to the Region, within 15 business days of the
Region's written request for such cheque.
THIRD PARTY PRICING
5.0 Smartsources shall review from time to time, but not less than four times a
year, the pricing that Smartsources provides to other third party customers
(the "Third Party Pricing") with respect to the Technology, and compare the
Third Party Pricing to the pricing offered to the Region at that time.
Smartsources agrees that if it discovers any Third Party Pricing that is
lower than the pricing offered to the Region at that time, with respect to
the average Monthly Licensing Fees on the basis of at least $100 Travel
Portals being licensed to each Franchisee, then Smartsources shall offer
the lower Third Party Pricing to the Region.
<PAGE> 20
SCHEDULE "B"
DESCRIPTION OF TECHNOLOGY
The kServer technology is described generally as follows:
I. DESIGN & PRESENTATION
1. Provide kSite and Travel Portal interface design and layout in compliance to
Uniglobe trademarks and graphical standards
2. Provide all digital imaging requirements for implementation of a template
3. Facilitate branding and labelling of each kSite.
II. kSITE FUNCTIONALITY
1. A uniquely branded website displaying licensee-specific information
2. Display licensee-specific content published via content authoring tools
3. Display regional produced content syndicated to each licensee kSite
4. Provide self-registration and login features to subscribers
5. Facilitate a hyperlink to third party booking engine
III. Content Authoring
1. Provides online tools to publish content to a kSite via a java-enabled
Internet browser
(a) The Content Authoring Module will enable licensee to:
(b) Create and edit new knowledge bases (Categories)
(c) Create and edit new sub-knowledge bases (Sub-Categories)
(d) Default templates with pre-established slots for uploading of content
(ie specials, news articles etc.);
2. Create new templates with various combinations of slot values:
(i) Text box
(ii) Text area
(iii) Image
(iv) Static Image
(v) Hyper Link
3. Create, edit, post and delete instances (content or article consisting of a
combination of slot values) to a kSite
4. Receive and share knowledge bases and instances published by the Region
IV. TRAVEL PORTAL FUNCTIONALITY & SUBSCRIBER MANAGEMENT
1. Self-registration and creation of personal travel portal
2. Displaying unique name of traveller
3. Destination Content provided by Lonely Planet
4. Self-selection of value-added content
5. Travel portal will include the following value-added content and application
modules:
(a) Weather by Weather Labs
<PAGE> 21
(b) Stock Portfolio by Stockpoint
(c) News with modules provided by CNNfn, Washington Post, Fox News,
Information Week, Los Angles Times, News.com, San Jose Mercury News,
Time, USA Today, Wired News, ZD Net
(d) Street Maps by Map Quest
(e) Bookmark
(f) Calculator
(g) Census Maps
(h) Discussion Boards
(i) Email
(j) Excite Top News by Reuters
(k) Excite Business News
(l) Excite Tech News by ZDNet
(m) Excite Sport News
(n) Excite Entertainment News by UPI
(o) Excite Health News
(p) Excite Auto Guide
(q) Excite TV Listings
(r) Excite MLB Scores
(s) Excite MLS Scores
(t) Excite NBA Scores
(u) Excite NCAA Football Conferences
(v) Excite NCAA Football Scores
(w) Excite NFL Scores
(x) Excite NHL Scores
(y) Excite Small Business by Quicken
(z) Excite Maps
(aa) Excite Movie Features
(bb) Horoscopes
(cc) News Tracker
(dd) News from Moreover
(ee) News from iSyndicate
(ff) Notes
(gg) Package Tracker
(hh) Search
(ii) Search with GoTo
(jj) Search with RealNames
(kk) Search with iAtlas
(ll) Yellow Pages from iAtlas
6. Subscriber management module will provide the following capabilities:
(a) Create and add new subscribers
(b) View subscriber profiles and pertinent business-specific fields (ie.
first name, last name, company name, email address etc.)
(c) Edit or delete subscriber profiles
(d) Search subscriber profiles by first name and/or last name and/or email
<PAGE> 22
The technology provided for the TIER ONE kSITES is described generally as
follows:
1. Provide kSite interface design and layout in compliance to Uniglobe
trademarks and graphical standards
2. Provide all digital imaging requirements for implementation of a template
3. Facilitate branding and labelling of each kSite limited to the following
agency specific data:
(a) Name of Agency
(b) Domain Name as text
(c) Address(es) and Locations
(d) Telephone Number(s)
(e) Facsimile Number(s)
(f) Email Address
(g) Welcome message/About Us
<PAGE> 23
SCHEDULE "C"
KSERVER LICENSE AGREEMENT
<PAGE> 24
KSERVER LICENSE AGREEMENT
THIS AGREEMENT made as of the ________day of ________________, 2000.
BETWEEN:
KTRAVEL SOLUTIONS INC., with an office at 300 North Commercial,
P.O. Box 5008, Bellingham, Washington 98227-5008
(hereinafter called "SMARTSOURCES")
OF THE FIRST PART
AND:
<INSERT COMPANY
__________________________________________________________
NAME>, with an office at__________________________________
___________________________________________________<INSERT
HEAD OFFICE ADDRESS>
(hereinafter called the "LICENSEE")
OF THE SECOND PART
WHEREAS:
A. Smartsources.com specializes in the development of software technology
for Internet-based content and knowledge management;
B. Smartsources.com has developed a certain Internet application and
technology for deployment of website and portal services;
C. Smartsources has obtained a license from Smartsources.com to
sublicense the Technology to third parties under the terms and
conditions of this Agreement;
D. The Licensee is a franchisee of the Region, which is defined in
Schedule "E" (the "Region"); and
E. The Licensee shall obtain from Smartsources a non-exclusive license to
use the Technology within the Territory upon the terms and conditions
herein contained.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
premises and of the mutual covenants herein set forth, the parties hereto have
covenanted and agreed as follows:
1.0 DEFINITIONS
1.1 In this Agreement:
(a) "AFFILIATED COMPANY" or "AFFILIATED COMPANIES": two or more
corporations where the relationship between them is one in which
one of them is a subsidiary of the other, or both are
subsidiaries of the same corporation, or fifty percent (50%) or
more of the voting shares of each of them is owned by the same
person, corporation or other legal entity;
<PAGE> 25
-2-
(b) "BETA TEST": means the initial kSite and Travel Portals approved
by the Region;
(c) "COMMENCEMENT DATE": this Agreement will be deemed to have come
into force on the Date of Commencement which shall be the date of
execution of this Agreement by Smartsources, and shall be read
and construed accordingly;
(d) "CONFIDENTIAL INFORMATION": any information designated by either
party as confidential, whether orally or in writing but excluding
any information that is:
(i) possessed by the party to which the information is
disclosed (the "Recipient") prior to receipt from the
party disclosing the information (the "Discloser"), other
than through prior disclosure by Discloser, as evidenced
by the Recipient's business records;
(ii) published or available to the general public otherwise
than through a breach of this Agreement;
(iii) obtained by the Recipient from a third party with a valid
right to disclose it, provided that said third party is
not under a confidentiality obligation to the Discloser;
or
(iv) independently developed by employees, agents or
consultants of the Recipient who had no knowledge of, or
access to, the Discloser's information as evidenced by the
Recipient's business records;
(e) "CONTENT PARTNERSHIPS": refers to a set of present and future
content and web application partnerships established by
Smartsources to which the Licensee is granted access to as part
of the Technology under this Licence;
(f) "DEPLOYMENT DATE": means the physical deployment date for the
Technology determined by Smartsources and approved by the Region;
(g) "DOCUMENTATION": includes all functional specifications,
operating instructions, user guides, manuals, reference
materials, papers or other materials of any nature whatsoever
that are supplied by Smartsources in conjunction with the
Technology;
(h) "ENHANCEMENTS": improvements, variations, updates, modifications,
and enhancements made by Smartsources relating to the Technology
at any time after the Commencement Date;
(i) "HOSTING": means the physical location of servers and facilities
from where the Technology and applications are delivered and
serviced to the Internet;
(j) "INITIAL SET-UP FEE": means the fees charged by Smartsources to
the Licensee for the initial set up and configuration of the User
System for the Technology, as set forth in Section 5.1 and
Schedule "A" hereto;
(k) "INTERNET TRAVEL RESERVATION ENGINE": means any third party web
application designed to deliver electronic booking and related
functionalities for travel-related reservations;
<PAGE> 26
-3-
(l) "KSITE": means a website produced by the Technology that is
licensed on the terms and conditions herein contained, and
described in Schedule "B" hereto;
(m) "LICENSEE DATA": any and all data specific to the Licensee
generated and/or collected by the Licensee and/or Smartsources as
part of the function of the Technology, including but not limited
to the Licensee's customer profiles, consumer data, databases
and/or customer preferences;
(n) "MONTHLY LICENCE FEES": means the monthly fees charged by
Smartsources to the Licensee for the services delivered and
support of the Technology, as set forth in Section 5.2 and
Schedule "A" hereto, as amended from time to time by
Smartsources;
(o) "MULTI-BRANCH LICENSEE": means a Licensee that has more than one
branch owned by a single entity;
(p) "PERSONNEL": means all employees, officers, directors and agents
of Smartsources, and any of them;
(q) "PRIME RATE": means the prime rate of interest charged from time
to time by the main branch at Vancouver of The Royal Bank of
Canada. A certificate signed by a branch manager of The Royal
Bank of Canada stating its prime rate at any time shall be
conclusive evidence of the Prime Rate for the purposes of this
Agreement;
(r) "SMARTSOURCES.COM": means the head licensor of the Technology,
Smartsources.com Technologies Inc., a corporation duly
incorporated under the laws of British Columbia;
(s) "TECHNOLOGY": means any and all knowledge, know-how and/or
technique or techniques invented, developed and/or acquired,
prior to the Date of Commencement by Smartsources.com relating to
and including the Technology, including a specified number of
Travel Portals as described in Schedule "B" hereto, as amended
from time to time and the Documentation; and
(t) "TERRITORY": means the geographical boundary within which the
Technology may be used by the Licensee as described in Schedule
"E" hereto;
(u) "TIER ONE kSITE": means a website produced by the Technology
without the Travel Portal functionality, as described in Schedule
"B" hereto;
(v) "TRAVEL PORTALS": means the personalized travel portals produced
with the Technology that are licensed to a user and described in
Schedule "B" hereto;
(w) "USER CONTENT": means the travel user content and information
specific to each website, as provided by the Licensee and/or the
Region through the use of the Technology; and
(x) "USER SYSTEM": means the computer hardware and software
configuration of the Licensee required to support and use the
Technology, as described in Schedule "C" hereto.
<PAGE> 27
-4-
2.0 PROPERTY RIGHTS IN AND TO THE TECHNOLOGY
2.1 The parties hereto hereby acknowledge and agree that Smartsources.com owns
any and all right, title and interest in and to the Technology. The Licensee
shall, at the request of Smartsources.com, enter into such further agreements
and execute any and all documents as may be reasonably required to ensure that
ownership of the Technology remains with Smartsources.com. The Licensee shall
take all action required with its employees and agents, by agreements or
otherwise, to comply with its obligations under this Agreement with respect to
preventing unauthorized use, copying, modification or other distribution of the
Technology, and the protection and security with respect to the provisions of
this Agreement.
3.0 GRANT OF LICENCE
3.1 In consideration of the Initial Set-Up Fee, Monthly Licence Fees and the
covenants on the part of the Licensee contained herein, Smartsources hereby
grants to the Licensee a non-exclusive, non-transferable limited licence (the
"LICENCE") to use the Technology within the Territory solely upon the terms and
conditions herein contained.
3.2 The Licence herein granted to the Licensee, whose operations office is set
out in Section 13.1, is solely for use of the Technology on the User System for
the purpose of providing the Licensee's customers with access to the Licensee's
products and services via the Internet, upon the specific terms and restrictions
herein contained.
3.3 The Licence does not grant to the Licensee the following rights (without
limiting the generality of the foregoing):
(a) to distribute, sell, lease, transfer, assign, trade, rent,
publish or license the Technology, or any part thereof including
the Documentation and/or copies thereof, to any other entity;
(b) to use the Technology, or any part thereof for any other purpose
other than as set out in this Section 3.2;
(c) to modify, adapt, translate, reverse engineer, decompile,
disassemble, create derivative work or develop any system or
program based on the Technology, except as specifically permitted
in writing by Smartsources:
(d) to secure independent advertising other than that provided by
Smartsources and the Region except as specifically permitted in
writing by Smartsources and the Region;
(e) to include or bring in other technology, applications, or
functionalities in relation to the Technology except as
specifically permitted in writing by Smartsources through the
negotiation and execution of a separate customization agreement
with respect to the same;
(f) to change the Content Partnerships related to the Technology in
any way except as specifically permitted in writing by
Smartsources and the Region; or
(g) to attempt to bring in or hire other organisations for the
purpose of adding to the Content Partnerships to be integrated
into the Technology except as specifically permitted in writing
by Smartsources and the Region.
<PAGE> 28
-5-
3.4 The Licensee acknowledges and agrees that Smartsources exclusively owns and
retains any and all right, title and interest to the Technology and agrees to
refrain from any act or omission that derogates from or infringes upon such
exclusive proprietary rights of Smartsources in the Technology. In the event
that the Licensee becomes aware that a third party or third parties are
improperly using the Technology, or any part thereof, or infringing upon any
proprietary rights of Smartsources to the Technology, the Licensee shall
promptly notify Smartsources of all facts known to it relating to such use.
3.5 Smartsources reserves the right to protect, in any and all jurisdictions, by
copyright, patent, trade-mark, trade name and all other forms of legal and
equitable protection, its right, title and interest to the Technology.
3.6 Smartsources agrees not to directly market the Technology to the customers
of the Licensee. Other than this sole restriction, Smartsources may
independently publish, sell, license or distribute the Technology and/or
Enhancements to any third party and in any market, including but not limited to
the Licensee's suppliers, direct and indirect competitors.
3.7 Smartsources reserves the right to fulfil its contractual and/or legal
obligations to third parties associated with the Technology, subject to such
obligations not interfering with the core functionalities of the Technology as
described in Schedule "B".
4.0 TERM
4.1 The Licence herein granted is effective as of the Commencement Date, and
shall continue for 3 years (the "CURRENT TERM") unless terminated in accordance
with this Agreement. Upon completion of the Current Term, the Licence herein
granted shall be automatically renewed on a yearly basis (the "RENEWAL TERM")
thereafter, upon the terms and conditions herein contained, mutatis mutandis,
subject to the following:
(a) the Licensee shall not be entitled to an automatic renewal if it
is in material breach of any of the terms of this Agreement and
Smartsources shall be entitled to termination of this Agreement
under Article 11.0 of this Agreement; or
(b) if the Licensee wishes not to renew the Licence, the Licensee
shall notify Smartsources of its intention to not renew by way of
written notice sent to Smartsources 45 days prior to the
expiration of the then current term.
Smartsources shall not charge the Licensee any renewal fees for
any automatic renewals by the Licensee under this Section 4.1.
4.2 The Licence granted herein is personal to the Licensee and is not granted to
any of the Licensee's Affiliated Company or Affiliated Companies.
5.0 FEES
5.1 At least 15 days prior to the installation and delivery of the Technology to
the Licensee, the Licensee shall:
(a) provide any agency-specific content of the Licensee reasonably
requested by Smartsources to implement the Technology on the User
System; and
<PAGE> 29
-6-
(b) pay the Initial Set-Up Fee to Smartsources as set out in
Schedule "A".
5.2 In further consideration for the license granted hereunder, the Licensee
shall, commencing on the Commencement Date, and continuing thereafter prior to
the first of each and every month during the term of the Licence herein granted,
and any extensions thereof, pay to Smartsources the Monthly Licence Fees
according to the number of Travel Portals associated with the Technology as set
forth in Schedule "A". Multi-Branch Licensees shall pay the Monthly License Fees
according to the aggregate number of Travel Portals licensed to all of its
branches that request a kSite, as set forth in Schedule "A".
5.3 Smartsources shall not be required to provide any training for the use and
operation of the Technology directly to the Licensee. Smartsources shall only
provide training, consulting and any other supplementary services to the Region.
5.4 Any outside support, consulting, integration and outsourcing services in
relation to the Technology intended to be used by the Licensee requires the
prior written consent of Smartsources. Use of such outside services by the
Licensee in relation to the Technology without Smartsources's prior written
consent constitutes a material breach of this Agreement by the Licensee.
5.5 In addition to the Licence Fees payable hereunder, the Licensee shall
indemnify and hold harmless Smartsources against all value added, sales, social
services, excise and other taxes, rates and duties chargeable against
Smartsources (except taxes based on net income) arising from the transactions
contemplated by this Agreement.
5.6 All monies payable by the Licensee to Smartsources under this Agreement
shall be calculated and paid in Canadian Dollars and shall be paid by
pre-authorized payment from the Licensee's account, which information should be
provided by the Licensee to Smartsources in the form of the attached Schedule
"D".
5.7 Smartsources shall submit receipts showing payment and/or all current
invoices due for payment under this Agreement to the address of the Licensee set
out above, or such other address as the Licensee may direct, in writing.
5.8 The Licensee shall arrange with its pre-authorization payment account to
make timely payment of all monies due to Smartsources under this Agreement. Late
payments shall bear interest on the outstanding amounts due at the rate of 2%
above the Prime Rate in effect from time to time. For the purposes of
determining interest on the amounts outstanding, interest shall be calculated
and compounded monthly using the daily weighted average of the Prime Rate in
effect during such month. Interest accruing from time to time on the amounts
outstanding shall be due and payable monthly in arrears on the last day of each
calendar month.
6.0 RESPONSIBILITIES
6.1 Smartsources shall provide the Licensee with the Documentation with respect
to the implementation and use of the Technology, but the Licensee shall be
solely responsible for the supervision, management and control of the Technology
as installed in the User System including, but not limited to:
(a) assuring proper machine configuration as set out in Schedule "C",
program up-date installation, audit controls and operating
methods;
<PAGE> 30
-7-
(b) all required registrations in association with its kSite,
including but not limited to registration of the kSite with the
relevant search engines and registration of domain names in
association with the kSite;
(c) establishing adequate backup plans based on alternative hardware,
fault tolerant systems or manual procedures as well as re-start
and recovery procedures in the event of downtime;
(d) ensuring that only adequately trained and authorized employees
use the Technology;
(e) implementing sufficient procedures and checkpoints to satisfy
requirements for security and accuracy of data input and output,
as well as establishing and implementing adequate procedures and
safeguards with respect to non-disclosure of the Technology; and
(f) revising and updating the User Content as required from time to
time.
6.2 A Multi-Branch Licensee shall be solely responsible for each of
its branches, including but not limited to:
(a) handling a request for a kSite from a branch and providing
sufficient written notification thereof to Smartsources;
(b) providing a copy of this Agreement to each of its branches that
requests a kSite to ensure that each branch is reasonably
familiar with its obligations as a licensee of the Technology:
and
(c) ensuring that each of its branches complies with Smartsources'
reasonable requests for information to ensure that Smartsources
is able to fulfill its responsibilities under Section 6.2 of this
Agreement.
6.3 Smartsources shall be responsible for:
(a) providing Hosting for the Licensee, commencing from the
Deployment Date, subject to Smartsources reserving the right to
obtain such Hosting from an outside source;
(b) set-up and installation procedures for the Technology on or
before the Deployment Date; and
(c) providing a layout for the Licensee's KSite that is consistent
with the graphic standards, logos, colours, look and feel of the
Beta Test (the "Layout").
6.4 From time to time, Smartsources may alter, modify or design the
Layout as reasonably required by the technical requirements of the Technology
and/or Enhancements.
6.5 Smartsources shall be obliged to accept any reasonable User
Content produced by the Region or specifically added by the Licensee to the
Licensee's website.
<PAGE> 31
-8-
7.0 LIMITED WARRANTY AND LIMITATIONS OF LIABILITY
7.1 Smartsources warrants to maintain the reasonable availability of the
Technology via the Internet to the Licensee.
7.2 The above warranty is in lieu of any and all other warranties expressed,
implied or statutory, including, but not limited to, any implied warranties of
merchantability or fitness for a particular purpose, durability for a reasonable
period of time, and any other warranty implied at law or in equity. The Licensee
expressly waives any such warranties as may be imposed by law. Smartsources
makes no representations regarding the use or the results of use of the
Technology in terms of correction, accuracy, reliability or otherwise other than
under Section 7.1.
7.3 Without limiting the generality of the foregoing, neither the support
services nor the warranties herein granted shall extend to the rectification of
failures resulting from:
(a) any error, defect, or malfunction associated with the Licensees'
customers' use of the Internet Travel Reservation Engine;
(b) the accuracy and/or reliability of the User Content on the
Licensee's website;
(c) any error, defect, or malfunction associated with the Licensees'
customers' use of the applications associated with the Content
Partnerships;
(d) the accuracy and/or reliability of the content and information
provided by the Content Partnerships;
(e) a defect in, or malfunction of, the designated hardware or any
other Licensee equipment in the User System;
(f) the use of the Technology on computer hardware or a computer
configuration other than the User System;
(g) electrostatic discharge or magnetic fields;
(h) the misuse of the Technology or its use in conjunction with any
other Technology;
(i) failure to keep all or part of any equipment clean;
(j) any damage occasioned by acts of war, civil unrest, or acts of
God; or
(k) the usage of the Technology to produce a result that is deemed by
Smartsources to be in conflict with the design of the Technology;
(l) any alteration or modification of the Technology in any way by
the Licensee or a third party;
(m) any other cause not within the control of Smartsources and which
could not be prevented by the exercise of reasonable diligence by
Smartsources.
7.4. In no event shall Smartsources be liable for direct, indirect, special or
consequential damages (including damages for loss of business profits, business
interruption, loss of business
<PAGE> 32
-9-
information) arising from any defect, error, fault, or failure to perform with
respect to the Technology even if Smartsources has been advised of the
possibility of such defect, error, fault, or failure. The Licensee acknowledges
that it has been advised by Smartsources to undertake its own due diligence with
respect to the Technology. Each party's liability on any claim shall under no
circumstances exceed the amounts due or paid by the Licensee to use the
Technology under this Agreement.
7.5 The Licensee agrees that its sole remedy arising from a breach of the
limited warranty contained in Section 7.1 is to notify Smartsources in writing
of an interruption of the Hosting service (the "Notice"). If the Licensee
continues not to have access to the Technology for a consecutive period of 30
days following the date that Notice was provided to Smartsources, the Licensee
may then, at its option, terminate this Agreement in accordance with Article
11.0.
7.6 The Licensee acknowledges that web-based technology in general is not error
free and agrees that the existence of such errors shall not constitute a breach
of this Agreement. If the Licensee discovers a defect in the Technology, it
shall provide a reasonably detailed written description of the defect to
Smartsources (the "Defect"). Thereupon, Smartsources shall use its reasonably
efforts to correct the Defect, provided that Smartsources is satisfied that the
Defect is of a nature of a malfunction, as opposed to a modification of the
Technology.
7.7 In the event that the Defect cannot be corrected, the Licensee's only remedy
is to terminate the Agreement without any recourse in damages against
Smartsources.
8.0 ENHANCEMENTS
8.1 Smartsources shall have the right, at any time and from time to time, to
modify, expand or enhance the Technology, and the Licensee shall cooperate fully
with, and allow, Personnel to effect such changes, provided that such changes do
not interfere with, or disrupt the Licensee's use of the Technology.
9.0 CONFIDENTIALITY AND NON-DISCLOSURE
9.1 The Confidential Information shall be received used or developed by either
party solely in furtherance of the purposes set forth in this Agreement subject
to the terms and conditions set forth in this Article 9.0.
9.2 The parties shall keep and use all of the Confidential Information in
confidence and will not, without the Discloser's prior written consent, disclose
any Confidential Information to any person or entity, except those of the
Recipient's officers, employees or consultants who require the Confidential
Information in performing their obligations under this Agreement.
9.3 The parties shall not use, either directly or indirectly, any Confidential
Information for any purpose other than as set forth herein without the
Discloser's prior written consent.
9.4 If the Recipient is required by judicial or administrative process to
disclose any or all of the Confidential Information, the Recipient shall
promptly notify the Discloser and allow the Discloser reasonable time to oppose
such process before disclosing any Confidential Information.
9.5 Notwithstanding any termination or expiration of this Agreement, the
obligations created in this Article 9.0 shall survive and be binding on both
parties, their successors and permitted assigns.
<PAGE> 33
-10-
9.6 Smartsources covenants and agrees to not disclose any information it
receives concerning the business of the Licensee without the Licensee's specific
written consent, or unless such information becomes publicly available through
no action of Smartsources. Smartsources shall take appropriate action with its
employees, by agreement or otherwise, to satisfy its obligations under this
sub-section.
10.0 INDEMNIFICATION BY THE LICENSEE
10.1 The Licensee recognizes that the Technology and all information in respect
thereto constitute valuable proprietary rights and ownership to Smartsources.
The Licensee hereby indemnifies, holds harmless and defends Smartsources against
any and all claims, actions, causes of action, suits, proceedings, demands,
assessments, judgments, costs, including reasonable legal costs and other
expenses incidental to the foregoing, damages or liability which may be made or
brought against Smartsources and its successors and assigns by any person or
entity whomsoever directly or indirectly arising out of the exercise of any
rights under this Agreement including, without limiting the generality of the
foregoing, against any damages or losses, consequential or otherwise, arising
from or out of the use of the Technology by the Licensee howsoever the same may
arise.
11.0 TERMINATION
11.1 This Agreement may be terminated by Smartsources immediately without notice
prior to the expiration of the term, and any extensions thereof, upon the
following:
(a) the failure by the Licensee to pay any amounts due hereunder,
where such failure is not fully corrected within 14 days of
written notice by Smartsources to the Licensee;
(b) the failure or neglect of the Licensee (the "BREACHING PARTY") to
observe, keep, or perform any of the covenants, terms and
conditions hereunder, where such non-performance is not fully
corrected by the Breaching Party within 30 days of written notice
by the non-Breaching Party to the Breaching Party; or
(c) any proceeding under the Bankruptcy and Insolvency Act of Canada,
or any other statute of similar purport, is commenced by or
against the Licensee.
11.2 Smartsources may, at its option, terminate this Agreement immediately on
the happening of any one or more of the following events by delivering notice in
writing to that effect to the Licensee:
(a) if the Licensee becomes insolvent;
(b) if any execution, sequestration, or any other process of any
court becomes enforceable against the Licensee or if any such
process is levied on the rights under this Agreement or on any of
the monies due to Smartsources and is not released or satisfied
by the Licensee within 30 days thereafter;
(c) if any resolution is passed or order made or other steps taken
for the winding up, liquidation or other termination of the
existence of the Licensee;
<PAGE> 34
-11-
(d) if the Licensee is more than 30 days in arrears of royalties or
other monies that are due to Smartsources under the terms of this
Agreement;
(e) if the Licensee ceases or threatens to cease to carry on its
business;
(f) if the Licensee makes a material misrepresentation to
Smartsources in relation to this Agreement;
(g) if the Region's relationship with Smartsources is terminated; or
(h) if the Licensee's franchise relationship with the Region is
terminated.
11.3 Either party may terminate the Licence herein by notifying the other party
in writing at least 45 days prior to the end of the Current Term or Renewal
Terms, as applicable, of its intention to terminate this Agreement.
11.4 Immediately upon any termination of the Licence herein granted for any
reason, the Licensee shall:
(a) immediately cease using the Technology, or any part thereof, in
any manner whatsoever;
(b) return or immediately destroy, or cause to be destroyed, all
copies, backups and versions of the Technology licensed herein;
(c) immediately return to Smartsources all Documentation provided
with, generated by or descriptive of the Technology; and
(d) forthwith furnish to Smartsources a certificate in form and
substance satisfactory to Smartsources certifying to the
destruction of the Technology licensed herein and the return of
all Documentation.
11.5 The Licensee agrees and acknowledges that any of its obligations to pay any
outstanding monies under Article 5.0 that are due and payable to Smartsources at
the time of termination shall survive termination.
11.6 Immediately upon any termination of the Licence for any reason, the
Licensee shall have no further right of any nature whatsoever in the Technology
or any Enhancements.
11.7 Smartsources recognizes that the Licensee Data and all information in
respect thereto constitute valuable proprietary rights and ownership to the
Licensee. During the term of this Agreement and after termination of this
Agreement, Smartsources shall not use the Licensee Data for any purpose
whatsoever (including but not limited to downloading the Licensee Data,
disclosing the Licensee Data to third parties, using the Licensee Data for
commercial or marketing purposes, and data mining of the Licensee Data by
Smartsources) without the prior written consent of the Licensee.
12.0 ASSIGNMENT
<PAGE> 35
-12-
12.1 The Licensee shall have the right to assign its rights, duties and
obligations under this Agreement to another entity, provided however that such
entity executes a written agreement which provides that such entity shall assume
all such obligations or covenants from the Licensee and that Smartsources shall
retain all rights granted to Smartsources pursuant to this Agreement.
12.2 Smartsources shall have the right to assign its rights, duties and
obligations under this Agreement to any of Smartsources.com, an Affiliated
Company or Affiliated Companies of Smartsources, or an Affiliated Company or
Affiliated Companies of Smartsources.com. In the event of such an assignment,
the Licensee will release, remise and forever discharge Smartsources from any
and all obligations or covenants, provided however that such company executes a
written agreement which provides that such company shall assume all such
obligations or covenants from Smartsources and that the Licensee shall retain
all rights granted to the Licensee pursuant to this Agreement.
13.0 GENERAL
13.1 Any notice, request, demand, consent or other communication provided or
permitted hereunder shall be in writing and given by personal delivery,
transmitted by facsimile to the party whose address and facsimile number for the
receipt of such document is as follows:
(a) If to Smartsources:
Delivery: kTRAVEL SOLUTIONS INC.,
----------------------
300 North Commercial,
P.O. Box 5008,
Bellingham, Washington 98227-5008
Attention:
Facsimile:
(b) If to the Licensee:
Delivery: _______________________<COMPANY NAME>
________________<HEAD OFFICE ADDRESS>
________________
________________
Attention:_________________<INSERT MAIN CONTACT>
Facsimile:_________________<INSERT FAX NUMBER>
or to such other address for delivery or facsimile as a party may, in writing,
direct. Any notice so given shall be deemed to have been received on the date it
was delivered or transmitted.
13.2 This Agreement shall be governed in all respects by the laws of the
Province of British Columbia, and any dispute thereunder shall be subject to the
exclusive jurisdiction of the British Columbia Courts. The parties irrevocably
attorn to the sole jurisdiction of British Columbia.
13.3 The Licensee acknowledges and agrees that the Technology constitute
valuable proprietary rights and ownership to Smartsources. The Licensee
acknowledges that the unauthorized use or release of the Technology except as
provided herein, would result in damages
<PAGE> 36
-13-
to Smartsources which could not be adequately compensated for in damages by
monetary award. Accordingly, in the event of any such breach, in addition to all
other remedies available at law or in equity, Smartsources shall be entitled as
a matter of right to apply to a court of competent equitable jurisdiction for
relief by way of restraining order, injunction, decree or otherwise, as may be
appropriate to ensure compliance with this Agreement.
13.4 Time is hereby expressly made of the essence with respect to the
performance of the parties of their respective obligations under this Agreement.
13.5 The parties shall not be held responsible, nor shall either party be
considered in breach of this Agreement, for the failure of either party to
fulfill any terms or provisions hereof if such failure was a result of civil
disorder, war, governmental decrees or laws, acts of enemies, strikes, floods,
acts of God, or by any other cause not within the control of either party and
which could not have been prevented by either party exercising reasonable
diligence.
13.6 The parties hereto hereby covenant and acknowledge that the provisions of
this Agreement with respect to confidentiality under Article 9.0 of this
Agreement and other protection set forth in this Agreement shall survive the
termination of this Agreement.
13.7 No omission or delay of either party hereto in requiring due and punctual
fulfilment by the other party of the obligations of such party hereunder shall
be deemed to constitute a waiver of its right to require due and punctual
fulfilment, or a waiver of any of its remedies hereunder.
13.8 The parties hereto are independent, and neither party is the agent, joint
venture, partner or employee of the other and no party shall be able to bind the
other party.
13.9 The parties covenant and agree to make all applications, execute all other
deeds, documents, instruments and assurances, and do such further and other acts
as may be necessary or desirable to carry out the true intent and meaning of
this Agreement, and to give full effect to the transactions contemplated or
intended hereby.
13.10 This Agreement shall ensure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns.
13.11 Headings and captions are for the purposes of convenience only, and are
not to be construed as part of this Agreement.
13.12 Terms of computer terminology which are not otherwise defined herein shall
have the meanings normally attributed thereto in the computer industry, unless
the context of the use of such terminology would suggest otherwise.
13.13 This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof, into which all prior negotiation,
commitment, representations and undertakings of the parties are merged and,
except as herein specifically provided, there are no oral or written
understandings or agreements between the parties hereto relating to the subject
matter hereof.
13.14 No amendment or other modification of this Agreement shall be valid or
binding on either party hereto, unless in writing and executed by the parties
hereto.
<PAGE> 37
-14-
13.15 This Agreement may be executed in counterparts, each of which when so
executed and delivered shall be deemed an original, but such counterparts
together shall constitute but one and the same instrument.
EXECUTED by the parties hereto as of the day and year first above written.
BY SMARTSOURCES.COM TECHNOLOGIES INC.:
- --------------------------------------- ----------------------------------
Authorized Signature Title
- --------------------------------------- ----------------------------------
Name Date
:
- ---------------------------------------
BY
- --------------------------------------- ----------------------------------
Authorized Signature Title
- --------------------------------------- ----------------------------------
Name Date
<PAGE> 38
SCHEDULE "A"
MONTHLY LICENSE FEES
1.1 During the term of the Licence herein granted, and any extensions thereof,
the Licensee shall pay to Smartsources a minimum Monthly License Fee of
CDN$l50.00, commencing on the Commencement Date, and continuing thereafter
prior to the first of each and every month.
1.2 At any time, the Licensee or Multi-Branch Licensee may choose to change the
maximum number of Travel Portals managed by the Technology and then would
agree to pay the corresponding Monthly License Fee according to the
following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PRICE PER ADDITIONAL
NUMBER OF TRAVEL PORTALS TRAVEL PORTAL MONTHLY LICENSING FEE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
0 (Tier One kSite) Tier One fee $ 25.00
- ----------------------------------------------------------------------------------------------------
50 Basic subscription fee $ 150.00
- ----------------------------------------------------------------------------------------------------
75 $ 0.5000 $ 162.50
- ----------------------------------------------------------------------------------------------------
100 $ 0.4963 $ 174.82
- ----------------------------------------------------------------------------------------------------
125 $ 0.4926 $ 186.95
- ----------------------------------------------------------------------------------------------------
150 $ 0.4889 $ 198.89
- ----------------------------------------------------------------------------------------------------
175 $ 0.4852 $ 210.65
- ----------------------------------------------------------------------------------------------------
200 $ 0.4815 $ 222.23
- ----------------------------------------------------------------------------------------------------
225 $ 0.4778 $ 233.62
- ----------------------------------------------------------------------------------------------------
250 $ 0.4741 $ 244.82
- ----------------------------------------------------------------------------------------------------
275 $ 0.4704 $ 255.84
- ----------------------------------------------------------------------------------------------------
300 $ 0.4667 $ 266.68
- ----------------------------------------------------------------------------------------------------
325 $ 0.4630 $ 277.33
- ----------------------------------------------------------------------------------------------------
350 $ 0.4593 $ 287.80
- ----------------------------------------------------------------------------------------------------
375 $ 0.4556 $ 298.08
- ----------------------------------------------------------------------------------------------------
400 $ 0.4519 $ 308.17
- ----------------------------------------------------------------------------------------------------
425 $ 0.4482 $ 318.08
- ----------------------------------------------------------------------------------------------------
450 $ 0.4445 $ 327.81
- ----------------------------------------------------------------------------------------------------
475 $ 0.4408 $ 337.35
- ----------------------------------------------------------------------------------------------------
500 $ 0.4371 $ 346.71
- ----------------------------------------------------------------------------------------------------
525 $ 0.4334 $ 355.88
- ----------------------------------------------------------------------------------------------------
550 $ 0.4297 $ 364.86
- ----------------------------------------------------------------------------------------------------
575 $ 0.4260 $ 373.67
- ----------------------------------------------------------------------------------------------------
600 $ 0.4223 $ 382.28
- ----------------------------------------------------------------------------------------------------
625 $ 0.4186 $ 390.71
- ----------------------------------------------------------------------------------------------------
650 $ 0.4149 $ 398.96
- ----------------------------------------------------------------------------------------------------
675 $ 0.4112 $ 407.02
- ----------------------------------------------------------------------------------------------------
700 $ 0.4075 $ 414.90
- ----------------------------------------------------------------------------------------------------
725 $ 0.4038 $ 422.59
- ----------------------------------------------------------------------------------------------------
750 $ 0.4001 $ 430.10
- ----------------------------------------------------------------------------------------------------
775 $ 0.3964 $ 437.42
- ----------------------------------------------------------------------------------------------------
800 $ 0.3927 $ 444.56
- ----------------------------------------------------------------------------------------------------
825 $ 0.3890 $ 451.51
- ----------------------------------------------------------------------------------------------------
850 $ 0.3853 $ 458.28
- ----------------------------------------------------------------------------------------------------
875 $ 0.3817 $ 464.86
- ----------------------------------------------------------------------------------------------------
900 $ 0.3780 $ 471.26
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 39
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
925 $ 0.3743 $ 477.47
- ----------------------------------------------------------------------------------------------------
950 $ 0.3706 $ 483.50
- ----------------------------------------------------------------------------------------------------
975 $ 0.3669 $ 489.34
- ----------------------------------------------------------------------------------------------------
1000 $ 0.3632 $ 495.00
- ----------------------------------------------------------------------------------------------------
>1000, ,<=3500 n/a $500.00
- ----------------------------------------------------------------------------------------------------
</TABLE>
For Travel Portals greater than 3500, the Monthly Licensing Fee will
continue to increase at the same incremental scale according to the number of
Travel Portals as the Monthly Licensing Fees from 1,000 to 3,500 Travel Portals
set out in the above table. An additional Monthly License Fees schedule for
Travel Portals greater than 3500 can be provided to the Licensee by Smartsources
at the Licensee's request.
1.3 During any Renewal Term of the Licence, the Licensee shall pay a Monthly
Licence Fee at the then current rate charged by Smartsources, in similar
manner to that paid during the Current Term.
INITIAL SET-UP FEE
2.1 The Initial Set-Up Fee shall be the amount of CDN$2000.00, subject to
Sections 2.2 and 2.3.
2.2 If the Licensee is licensing a Tier One kSite from Smartsources, the
Initial Set-Up Fee shall be the amount of CDN$500.00.
23 If the Licensee is a Multi-Branch Licensee, the Initial Set-Up Fee shall
be:
(a) CDN$2000.00 for the first branch owned by the Multi-Branch Licensee
that requests a kSite; and
(b) CDN$500.00, for each subsequent branch owned by the Multi-Branch
Licensee that requests a kSite.
2.4 All Initial Set-Up Fees are due and payable by the Licensee to Smartsources
at least 15 days prior to the installation and delivery of the Technology to
the Licensee.
<PAGE> 40
SCHEDULE "B"
DESCRIPTION OF TECHNOLOGY
The kServer technology is described generally as follows:
I. DESIGN & PRESENTATION
1. Provide kSite and Travel Portal interface design and layout in compliance
to Uniglobe trademarks and graphical standards
2. Provide all digital imaging requirements for implementation of a template
3. Facilitate branding and labeling of each kSite.
II. kSITE FUNCTIONALITY
1. A uniquely branded website displaying licensee-specific information
2 Display licensee-specific content published via content authoring tools
3. Display regional produced content syndicated to each kSite
4 Provide self-registration and login features to subscribers
5. Facilitate a hyperlink to third party booking engine
III. CONTENT AUTHORING
1. Provides online tools to publish content to a kSite via a java-enabled
Internet browser
(a) The Content Authoring Module will enable licensee to:
(b) Create and edit new knowledge bases (Categories)
(c) Create and edit new sub-knowledge bases (Sub-Categories)
(d) Default templates with pre-established slots for uploading of content
(ie specials, news articles etc.);
2. Create new templates with various combinations of slot values:
(i) Text box
(ii) Text area
(iii) Image
(iv) Static Image
(v) Hyper Link
3. Create, edit, post and delete instances (content or article consisting of a
combination of slot values) to a kSite
4. Receive and share knowledge bases and instances published by the Region
IV. TRAVEL PORTAL FUNCTIONALITY & SUBSCRIBER MANAGEMENT
1. Self-registration and creation of personal travel portal
2. Displaying unique name of traveler
3. Destination Content provided by Lonely Planet
4. Self-selection of value-added content
5. Travel portal will include the following value-added content and
application modules:
(a) Weather by Weather Labs
<PAGE> 41
(b) Stock Portfolio by Stockpoint
(c) News with modules provided by CNNfn, Washington Post, Fox News,
Information Week, Los Angles Times, News.com, San Jose Mercury
News, Time, USA Today, Wired News, ZD Net
(d) Street Maps by Map Quest
(e) Bookmark
(f) Calculator
(g) Census Maps
(h) Discussion Boards
(i) Email
(j) Excite Top News by Reuters
(k) Excite Business News
(l) Excite Tech News by ZDNet
(m) Excite Sport News
(n) Excite Entertainment News by UPI
(o) Excite Health News
(p) Excite Auto Guide
(q) Excite TV Listings
(r) Excite MLB Scores
(s) Excite MLS Scores
(t) Excite NBA Scores
(u) Excite NCAA Football Conferences
(v) Excite NCAA Football Scores
(w) Excite NFL Scores
(x) Excite NHL Scores
(y) Excite Small Business by Quicken
(z) Excite Maps
(aa) Excite Movie Features
(bb) Horoscopes
(cc) News Tracker
(dd) News from Moreover
(ee) News from iSyndicate
(ff) Notes
(gg) Package Tracker
(hh) Search
(ii) Search with GoTo
(jj) Search with RealNames
(kk) Search with iAtlas
(ll) Yellow Pages from iAtlas
6. Subscriber management module will provide the following capabilities:
(a) Create and add new subscribers
(b) View subscriber profiles and pertinent business-specific fields
(ie. first name, last name, company name, email address etc.)
(C) Edit or delete subscriber profiles
(d) Search subscriber profiles by first name and/or last name and/or
email
<PAGE> 42
The technology provided for the TIER ONE kSITES is described generally as
follows:
1. Provide kSite interface design and layout in compliance to Uniglobe
trademarks and graphical standards
2. Provide all digital imaging requirements for implementation of a template
3. Facilitate branding and labelling of each kSite limited to the following
agency specific data:
(a) Name of Agency
(b) Domain Name as text
(c) Address(es) and Locations
(d) Telephone Number(s)
(e) Facsimile Number(s)
(f) Email Address
(g) Welcome message/About Us
<PAGE> 43
SCHEDULE "C"
COMPUTER SOFTWARE AND HARDWARE REQUIREMENTS FOR TECHNOLOGY
1. The Licensee shall require an Internet connection.
2. The Licensee shall require one of the following Internet browsers: Microsoft
Internet Explorer 4.0 or Netscape 4.0 (the "Browser"). The Licensee shall be
required to ensure that it has the necessary system requirements as set out
in the respective Browser's hardware requirements list.
<PAGE> 44
SCHEDULE "D"
PRE-AUTHORIZATION PAYMENT FORM TO BE PROVIDED BY LICENSEE
(to be attached)
<PAGE> 45
SCHEDULE "E"
DESCRIPTION OF REGION AND TERRITORY
1. The Region is Uniglobe Travel (Western Canada) Inc.
2. The Territory shall consist of the following provinces in Canada: British
Columbia, Alberta, Saskatchewan, Manitoba, the Yukon Territory and the Northwest
Territories and Ontario to the Lakehead.
<PAGE> 46
SCHEDULE "F"
LIST OF FRANCHISEES OF THE REGION
EFFECTIVE AS OF THE COMMENCEMENT DATE OF THIS AGREEMENT
The Region shall update this list from time to time, but not less than four
times a year.
<PAGE> 47
SCHEDULE G
ADVERTISING REVENUE DISTRIBUTION MODEL
Revenues with respect to advertising shall be apportioned as follows:
A. For advertising secured by the Region:
(1) 100% shall be retained by the Region.
B. For advertising secured by Smartsources:
(1) 30% shall be retained by Smartsources; and
(2) 70% shall be remitted by Smartsources to the Region
within 30 days of receipt of such Revenue by
Smartsources.
<PAGE> 48
SCHEDULE "H"
THE REGION'S PREFERRED SUPPLIERS AND PARTNERSHIPS
Smartsources recognizes that this list may be modified or adjusted, as required,
by the Region from time to time.
<PAGE> 1
EXHIBIT 10.19
[SMARTSOURCES.COM LETTERHEAD]
August 27, 1999
PERSONAL AND CONFIDENTIAL
Mr. Sokhie Puar
c/o #100 - 2030 Marine Drive
North Vancouver, B.C. V7P 1V7
Dear Sokhie:
Re: Management Employment Agreement
The purpose of this letter is to make you an offer of Management Employee on the
following terms and conditions:
1) Position: Vice President Corporate Development
2) Salary: $110,000 CND per annum
3) Term: This Management agreement is for a period of two
years, ending September 30, 2001.
4) Stock Options: Smartsources.com will grant 100,000 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 six months notice or pay in lieu thereof.
6) Salary Review: Smartsoures.com will review the performance and
contribution of Sokhie Puar during this period prior to a major financing.
Provided a major financing is closed the annual salary will be adjusted post
financing to $140,000 per annum.
<PAGE> 2
August 27, 1999
Page 2
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/ MICHAEL FORSTER
Michael Forster
President, COO, Director
/s/ SOKHIE PUAR
Sokhie Puar
Vice President Corporate Development
<PAGE> 1
EXHIBIT 10.20
WAIVER OF OBJECTION RIGHTS Page 1
WAIVER OF OBJECTION RIGHTS
Whereas the Minister of National Revenue ("Minister") has reviewed the
September 30, 1995, and subsequent Corporation Income Tax Returns of
SmartSources.com Technologies Inc. (the "Taxpayer") in respect of the income
tax treatment of the sale of certain software ("ORIGIN") to Columbia
Diversified Software Fund Limited Partnership and the purchase of certain
software ("FamilyWare") from FamilyWare Products Inc. and the subsequent sale
of this software to EMC Communications Inc.
And whereas the Taxpayer and the Minister have agreed, subject to the Taxpayer
waiving its right to object, to settle certain audit issues as outlined in the
Minister's letter dated January 7, 2000 and itemized as follows:
1. The proceeds from the sale of ORIGIN software will be determined on the basis
of the actual net cash received which totalled $2,095,600 in 1995, $1,823,328
in 1996 and $195,321 in 1997.
2. Capital gain reserves of $481,315 and $161,373 will be allowed for 1995 and
1996 respectively. These reserves will be reported as capital gains in the
subsequent years as follows: $481,315 in 1996 and $161,373 in 1997.
3. The price of the FamilyWare software purchased will be based on the actual
cash paid of $600,000.
4. The sale of the FamilyWare software in 1998 will be based on the cash
received of $300,000.
5. It is agreed that any future cash received on the December, 1994 and 1995
Origin software sales will be reported as sales proceeds subject to capital
gain treatment.
6. It is agreed that any future cash received on the October 1, 1998 FamilyWare
software sale will be recorded as recaptured income for the next $300,000
received and as capital gains proceeds for amounts in excess of $300,000.
Now, therefore the Taxpayer waives the right to object to the Minister's
reassessment of the above itemized issues for the pertinent years provided such
reassessments are in accordance with the agreement outlined above.
The Taxpayer acknowledges:
1. that the provisions of subsection 165(1.2) of the Income Tax Act have been
read and understood as they pertain to this agreement;
<PAGE> 2
WAIVER OF OBJECTION RIGHTS Page 2
2. that the impact of this agreement will be binding on the Taxpayer's
trustees, successors, administrators and any other person who might become
liable for the taxes and interest which will ensue from the reassessment of
the issues itemized above;
3. that this document is being freely and voluntarily signed; and
4. an awareness of the right to seek professional advice with respect to
signing the agreement.
/s/ DARRYL CARDEY January 13, 2000
- ----------------------------------- ------------------------
Taxpayer or Authorized Officer Date
This waiver has been voluntarily signed before me by Darryl Cardey who has
acknowledged that he understands its nature and effect.
/s/ [ILLEGIBLE] January 13, 2000
- ----------------------------------- ------------------------
Witness Date
<PAGE> 1
EXHIBIT 10.25
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding ("MOU") is made the _______ day of March, 2000
between UNIGLOBE TRAVEL (INTERNATIONAL) INC. ("Uniglobe") of Suite 900 - 1199
West Pender Street, Vancouver, British Columbia V6E 2R1 and SMARTSOURCES.COM,
INC. ("SmartSources") of 1288 Pear Avenue, Suite A, Mountain View, California
940443.
WHEREAS:
A. Uniglobe is the one of the world's largest franchisors of retail travel
agencies, with locations in more than 20 countries throughout the world;
B. Uniglobe grants master licenses to regional subfranchisors ("Regions") for
particular geographic territories, with the Regions then granting unit
franchises to franchisees ("Franchisees") to operate as UNIGLOBE retail
travel agencies within a particular territory;
C. SmartSources is a developer of websites for internet usage and has
experience in developing website development programs which can be licensed
to a Region, with the Region then deploying sublicenses ("Ksite Licenses")
to its franchisees; and
D. Uniglobe has agreed to appoint SmartSources as a preferred vendor to assist
SmartSources in providing its services to Regions and to Franchisees.
NOW THEREFORE THIS MOU WITNESSES that, in consideration of the premises and the
mutual covenants and agreements herein contained, the parties agree as follows:
1. Uniglobe intends to appoint SmartSources as a preferred vendor to the
Regions and Franchisees for an initial term of one year, which term will
renewed automatically year-by-year unless terminated by either party
effective on each anniversary date of this MOU by written notice of
termination given not less than 90 days prior to any anniversary date of
this MOU.
2. SmartSources will, subject to the approval of Uniglobe, negotiate master
licenses with each Region to provide the services of SmartSources to a
Region and its franchisees. Regions will then deploy k-site to the
Franchisees, which sublicenses shall require the Franchisee to pay an
initial fee and ongoing fees to SmartSources as well as "portal" fees to
SmartSources. All licenses will be in accordance with a Schedule of Fees to
be developed on a regional basis.
3. SmartSources will provide the following services:
(a) a website program suitable for Regions and Franchisees;
(b) individual websites for Franchisees pursuant to a Ksite Licence, such
websites being customized for the Franchisees but in a standardized
format approved by Region and Uniglobe as to the "look and feel" of
such websites;
(c) where SmartSources develops links to any websites with the capability
to provide electronic and/or internet booking engines for airline,
hotel or car reservations or any other products or services, then such
websites will only provide fulfilment at the location of individual
Franchisees, for the benefit and use of such Franchisee only; and
<PAGE> 2
(d) SmartSources will develop a link to Uniglobe.com to enable Franchisees
to have Uniglobe.com provide fulfilment services if Franchisees so
desire and SmartSources will not develop a link to any third party
centralized fulfilment centre.
4. SmartSources will pay to Uniglobe a license fee to be negotiated in the
range of 1% to 3% of the gross revenues payable by Regions and Franchisees
to SmartSources, such payment to be paid to Uniglobe monthly. In
consideration of the license fee, Uniglobe will endorse the services of
SmartSources and provide promotional, management and support services to
SmartSources in its relationships with Regions and Franchisees.
5. Prior to SmartSources providing a standardized website to a Region for its
Franchisees, SmartSources shall provide to Uniglobe a sample of the website
indicating its content, design, functionality and domain name protocols for
approval by Uniglobe.
6. Uniglobe will provide graphic and functionality standards for Franchisee
websites and SmartSources will develop websites to reflect such standards.
7. SmartSources will develop the websites for Franchisees such that each
website contains systems and administrative capabilities which permit
Uniglobe, its affiliate or a Region to have access to a specified area of
the content of the website and portals for their own purposes to facilitate
promotion of the "UNIGLOBE" brand name, distribution of product or specific
content, etc.
8. This MOU is not intended to be a binding agreement between the parties, but
is intended to be the basis for a formal agreement between the parties to be
executed by March 31, 2000.
9. Uniglobe and SmartSources will jointly agree in writing to any press
releases or announcements to be issued in respect of this MOU.
10. This MOU may be executed in counterparts or by facsimile, each of which
shall together, for all purposes, constitute one and the same instrument and
each of which shall together be deemed to be an original, notwithstanding
that all of the parties are not signatories to the same counterpart or
facsimile.
11. This MOU may not be assigned by either party hereto.
<PAGE> 3
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day
and year first above written.
UNIGLOBE TRAVEL (INTERNATIONAL.) INC. SMARTSOURCES.COM, INC.
Per: /s/ [ILLEGIBLE] Per: /s/ MICHAEL FORSTER
--------------------------------- ----------------------------
Authorized Signatory Authorized Signatory
Michael Forster
President
----------------------
[ILLEGIBLE]
714-893-8662
<PAGE> 1
Page 1 of 7 EXHIBIT 10.26
Consulting Agreement
This Agreement is effective as of the 29 of September, 1999 by and between Level
Jump Asset Management Inc. (hereinafter called "the "Consultant"), and
Smartsources.com Inc., a corporation duly incorporated according to the laws of
the state of Colorado, United States of America (trading symbol SSXX) ("the
Company").
Whereas, the Company is a publicly traded Company; and
Whereas, the Consultant is in the business of assisting public companies in the
promotion of corporate activities through the Internet and Print media; and
Whereas, the Company desires to retain Consultant to provide specific services
for the Company as herein set forth;
Now therefore, in consideration of the mutual covenants and promises contained
herein, and in consideration of the payment by each of the parties to the other
party of the sum of $2.00, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby covenant and agree with one another as follows;
1. Duties and Involvement.
a. The Company hereby engages Consultant to provide assistance and
advice to the Company in mergers, acquisitions, internal capital
structuring and the placement of new debt and equity issues of
the Company, such services will be performed on a best efforts
basis. In each instance, the Consultant shall endeavor, subject
to market conditions, to assist company in identifying corporate
candidates for mergers and acquisitions, sources of private and
institutional funds, provide planning, structuring, strategic and
other advisory services to company, and to assist in negotiations
on behalf of company.
b. Consultant acknowledges that neither it nor any of its employees
or affiliates is an officer, director, or agent of the Company,
that in rendering advice or recommendations to the Company it is
not and will not be responsible for any management decisions on
behalf of the Company and that it is not authorized or empowered
to commit the Company to any recommendation or course of action.
The Company represents that Consultant does not have, through
stock ownership or otherwise, the power to control the Company
nor to exercise any dominating influence over its management.
<PAGE> 2
Page 2 of 7
2. Term. This Agreement shall commence on the date of execution of this
agreement and continue for six (6) months from the date of execution
(the "Term").
3. Compensation. The Company shall transfer and deliver to the Consultant in
accordance with the Schedule set forth below one hundred and
fifty thousand (150,000) warrants of Smartsources.com Inc., (trading symbol
SSXX), exercisable at a price of five dollars ($5.00) per share with an
expiry of not less than 24 months, as consideration for the services
herein. The warrant contract will be prepared and delivered by the Company
to the Consultant within thirty (30) business days following the
commencement of the Term. The warrants are issued in compliance with
applicable U.S. securities laws. Any transfers of warrants will be in
accordance with applicable U.S. securities laws.
a. 150,000 warrants within thirty (30) business days following the
execution of this Agreement;
The Consultant represents that the receipt of the warrants are for
investment purposes and not for the intent to distribute.
If the Company should at any time, or from time to time hereafter,
effect a stock split, a reverse stock split, or a recapitalization,
the terms of the above warrants shall be proportionately adjusted to
prevent the dilution or enlargement of the rights of the holders.
All such shares and warrants are hereinafter referred to as
"Securities".
Once the warrants are exercised, the Company agrees to piggyback
register the common shares underlying the warrants on the registration
statements filed after the warrants are exercised except for
REGISTRATIONS RELATING TO MERGER, ACQUISITIONS AND EMPLOYEE BENEFIT
PLANS. THIS IS FURTHER SUBJECT TO THE RIGHT OF THE MANAGING
UNDERWRITER TO EXCLUDE SUCH SHARES FROM REGISTRATION IF IT DEEMS IT
DESIRABLE AND IS IN THE BEST INTEREST OF THE OFFERING. SUCH RIGHTS
WILL BE PRO-RATA WITH ANY OTHER PIGGYBACK RIGHTS GRANTED BY THE
COMPANY. All of the Company's obligations to register the common
shares will survive this agreement. All of the Company's obligations
to register the common shares will survive any transfer of common
shares by the Consultant to any third party.
In addition a commission of 10% (ten per cent) shall be paid to the
Consultant for any financing, debt or equity, received by the Company
through introduction or effort on behalf of the Consultant.
In addition a commission of 4% (four per cent) shall be paid to the
Consultant for any merger or acquisition or sale by the Company
through
<PAGE> 3
Page 3 of 7
introduction or effort on behalf of the Consultant. This commission to
be calculated based on the market value of merger, purchase and/or
sale transaction.
The Consultant may terminate all of its obligations hereunder by notice in
writing to the Company if any transfer and delivery of Securities is not
completed on the date required as aforesaid (a "Completion Date") without
prejudice to the right of the Consultant to avail itself of any other
remedy at law or in equity as a result of such default. Moreover, interest
at the rate of eighteen (18%) per cent per annum from the Completion Date
to the actual date of transfer and delivery of any Securities, calculated
on the total value of such Securities (which value shall be determined by
the Consultant AND THE COMPANY acting reasonably) shall be payable by the
Company to the Consultant. In addition the Company shall reimburse the
Consultant for all reasonable out of pocket disbursements incurred by the
Consultant, with the Company's prior written approval, on behalf of the
Company forthwith on demand.
4. Non Disclosure. The Company covenants not to disclose the nature of its
relationship with the Consultant or any of the terms of this Agreement
without the prior written consent of the Consultant except as may be
required by law.
5. Services Not Exclusive. Consultant shall devote such of its time and effort
necessary to the discharge of its duties hereunder. The Company
acknowledges that Consultant is engaged in other business activities of a
similar nature to those provided for in this Agreement with other clients
and that it will continue such activities during the Term. Consultant shall
not be restricted from engaging in other activities during the Term.
6. Relationship of the Parties. The Parties intend that the relationship
between them created under this Agreement is that of an independent
contractor only. Consultant is not to be considered an agent or employee of
the Company for any purpose. Consultant acknowledges that it is not an
agent of the Company, and that it may not commit the Company to any action
or obligation. Any and all Agreements or arrangements that Consultant may
negotiate for or with the Company will be subject to acceptance by the
Company through its board of directors or authorized corporate officers.
7. Records. Consultant shall keep full and accurate records of consulting work
performed under this Agreement. All record, sketches, drawings, prints,
computations, charts, reports, and other documentation made in the course
of the consulting work to be performed hereunder, or in anticipation of the
consulting work to be performed in regard to this Agreement shall at all
times remain the sole property of Consultant. Consultant agrees that
neither it nor its employees or agents will, during the term of this
Agreement, or any time thereafter, disclose or divulge or use, directly or
indirectly, for its own benefit any confidential information, data, trade
secrets, etc. relating to the business
<PAGE> 4
Page 4 of 7
of the Company learned in connection with its work for the Company, except
as may be required by law. All material distributed or prepared by the
Consultant relating to the Company must be approved prior to distribution.
The provisions of this paragraph shall survive the termination of this
Agreement and shall continue until such information data, trade secrets,
etc. become public knowledge through no action of Consultant or any of its
employees or agents.
8. Notices. Any notice under this Agreement shall be in writing and shall be
effective when actually delivered in person or three days after being
deposited with Canada Post or US Postal Services, registered or certified,
postage prepaid and addressed to the party at the address stated in this
Agreement or such other address as either party may designate by written
notice to the other.
9. Information Provided by Company.
a. The Company covenants and agrees to provide to the Consultant all
information and documentation pertaining to the Company that is
reasonably necessary for the Consultant to perform its services
hereunder. The Company covenants, represents and warrants to the
Consultant that all information and documentation provided herein will
be timely, accurate and complete in all respects and covenants and
agrees to indemnify and save harmless the Consultant, its officers,
directors, agents and employees in respect of any losses or damages,
costs or other amounts incurred directly or indirectly as a result of
any breach of the aforesaid covenant, representation and warranty.
b. The Company covenants to make full, fair and plain disclosure to the
Consultant of all material facts and changes to allow the Consultant
to accurately profile the Company. The Company acknowledges that the
Consultant will be relying on the above mentioned disclosure in the
preparation of the Consultants materials and covenants and agrees to
indemnify and save harmless the Consultant, its officers, directors,
agents and employees in respect of any losses or damages, costs or
other amounts incurred directly or indirectly as a result of any
breach of the aforesaid covenant.
c. Consultant acknowledges that it may have access to confidential
"nonpublic" information regarding the Company's business, properties,
prospective and actual investors, and business partners. Consultant
agrees that it will not, during or subsequent to the term of this
Agreement, divulge, furnish, or make accessible to any person or
entity information or plans of the Company with respect to the
Company's business, properties, investors, or business partners except
as authorized by representatives of the Company for dissemination
hereunder or except as required by law.
<PAGE> 5
Page 5 of 7
d. The Company acknowledges and agrees that all reports and documents
prepared by the Consultant for the Company shall contain a disclaimer
with respect to liability of the Consultant to members of the public.
Notwithstanding the foregoing, the Company hereby covenants and agrees
to indemnify and save the Consultant, its officers, directors,
shareholders, successors and assigns harmless, of and in respect of
any costs, expenses, damages, claims, causes of action or liabilities
of any nature or kind arising from a breach of this Agreement by the
Company including without limiting the generality of the foregoing,
the provision of inaccurate, incomplete, or erroneous information or
materials by the Company to the Consultant.
11. Survival of Obligations. All warranties, covenants and indemnities of the
Company in favor of the Consultant shall survive the termination of this
Agreement and remain in full force and effect thereafter.
12. Time. Time is of the essence of this Agreement.
13. Waiver. Failure of either party at any time to require performance of any
provision of this Agreement, shall not limit the party's right to enforce
the provision, nor shall any waiver of any breach of any provision be a
waiver of any succeeding breach of any provision or a waiver of the
provision itself or any other provision.
14. Assignment. Except as otherwise provided within this Agreement, neither
party hereto may transfer or assign this Agreement without prior written
consent of the other party.
15. Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario, and the federal laws of
Canada where applicable. The parties attorn to the non-exclusive
jurisdiction of the courts of Ontario.
16. Presumption. This Agreement or any section thereof shall not be construed
against any party due to the fact that said Agreement or any section thereof
was drafted by said party.
17. Titles and Captions. All article, section and paragraph titles or captions
contained in this Agreement are for convenience only and shall not be deemed
part of the context nor affect the interpretation of this Agreement.
18. Pronouns and Plurals. All pronouns and any variations thereof shall de
deemed to refer to the masculine, feminine, neuter, singular or plural as
the identity of the Person or Persons may require.
<PAGE> 6
Page 6 of 7
19. Entire Agreement. This Agreement contains the entire understanding between
and among the parties and supersedes any prior understandings and Agreements
among them respecting the subject mater of this Agreement.
20. Agreement Binding. This Agreement shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.
21. Good Faith, Cooperation and Due Diligence. The parties hereto covenant,
warrant and represent to each other good faith, complete cooperation, due
diligence and honesty in fact in the performance of all obligations of the
parties pursuant to this Agreement. All promises and covenants are separate
and independent and in the event any covenant of provision herein is found
to be void or unenforceable it shall be deemed to be removed from this
Agreement and the balance of the Agreement shall be construed as though such
provision did not form part thereof.
22. Counterparts. This Agreement may be executed in several counterparts and all
so executed shall constitute one Agreement, binding on all the parties
hereto even though all the parties are not signatories to the original to
the same counterpart.
23. Parties in Interest. Nothing herein shall be construed to be to the benefit
of any third party, nor is it intended that any provision shall be for the
benefit of any third party.
<PAGE> 7
Page 7 of 7
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement to be effective as of the day and year first above written.
Level Jump Asset Management Inc.,
Per: /s/ ROBERT LANDAU
---------------------------
Robert Landau, President
---------------------------
/s/ [illegible]
---------------------------, Witness
[illegible], Vice President
Company:
/s/ DARRYL CARDEY Signature
-------------------------
CFO Position
-------------------------
Sokhie Puar Witness name
-------------------------
/s/ SOKHIE PUAR Witness signature
-------------------------
<PAGE> 8
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, $.0 1 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
1
<PAGE> 9
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
2
<PAGE> 10
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,
3
<PAGE> 11
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 on the face hereof.
4
<PAGE> 12
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
5
<PAGE> 13
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:
-------------------------------
6
<PAGE> 1
EXHIBIT 10.27
[CONTINENTAL CAPITAL & EQUITY CORPORATION]
195 Wekiva Springs Road
Suite 200
Longwood, Florida 32779
PHONE
(407) 682-2001
FAX
(407) 682-2544
CLIENT SERVICE AGREEMENT
THIS AGREEMENT is made and entered into this 7th day of December 1999, between
CONTINENTAL CAPITAL & EQUITY CORPORATION, located at 195 Wekiva Springs Road,
Suite 200, Longwood, FL 32779, (hereinafter referred to as "CCEC") and
SMARTSOURCES.COM located at 2030 Marine Drive, Suite 100, North Vancouver, BC
Canada V7P1V7 (hereinafter referred to as the "Company").
WITNESSETH:
WHEREAS, CCEC is a financial relations and direct marketing advertising
firm specializing in the dissemination of information about publicly traded
companies, and
WHEREAS, the Company is publicly held with its common stock trading on
the OTCBB, and
WHEREAS, the Company desires to publicize itself with the intention of
making its name and business better known to shareholders, investors, brokerage
houses, institutional investors, analysts and other industry professionals, and
WHEREAS, CCEC is willing to accept the Company as a client.
NOW THEREFORE, in consideration of the mutual covenants herein contained, it is
agreed:
1. ENGAGEMENT: The Company hereby engages CCEC to publicize the Company to
brokers, prospective investors, institutional investors, analysts, other
industry professionals and shareholders described in Section 2 of this
Agreement, and subject to the further provisions of this Agreement. CCEC hereby
accepts the Company as a client and agrees to publicize it as described in
Section 2 of this Agreement, but subject to the further provisions of this
Agreement.
2. MARKETING PROGRAM: Consists of the following components:
(A) CCEC will review and analyze various aspects of the Company's goals
and make recommendations on feasibility and achievement of desired goals.
(B) CCEC will review all of the general information and recent filings
from the Company and produce up to a 100,000 piece direct mail package to
include an 11" X 17" self mailer and an ample number of corporate profiles so as
to allow for one profile for each respondent to the original mailing, both items
to be approved by the Company prior to circulation.
(C) CCEC will provide exposure to its network of firms and brokers that
may be interested in participating with the Company and schedule and conduct the
necessary due diligence and obtain the required approvals necessary for those
firms to participate. CCEC will also interview and make determinations on any
firms or brokers referred by the Company with regard to their participation.
(D) At the Company's request, CCEC will be available to the Company to
field any calls from firms and brokers inquiring about the Company.
/s/ NATHAN NIFCO /s/ [ILLEGIBLE}
---------------- ----------------
INITIAL-Company INITIAL-CCEC
Page 1 of 4
<PAGE> 2
(E) CCEC will use its best efforts to obtain the Company exposure on
radio programming, in independent financial newsletters, and through on-line fax
and Internet broadcast services.
(F) CCEC will promote the Company on the Worldwide Internet via CCEC's
home web site (www.insidewallstreetcom). Further CCEC shall create banner ads
for placement on financial web sites with hyperlinks back to the Company's
feature page on CCEC's home web site. The banner ads shall run for two (2)
months.
(G) At the Company's request, CCEC shall write, produce and assist the
Company in releasing all press announcements. The Company shall be solely
responsible for paying all fees associated with the actual release(s) through
BusinessWire, P.R. Newswire, or any other comparable news dissemination source.
(H) CCEC will create, build and continually enhance a fax database of
all brokers, investors, analysts and media contacts who have expressed an
interest in receiving on-going information on the Company. CCEC will assist the
Company in setting up an account with a fax broadcasting agency to manage the
actual broadcasting in the event Company does not have this capability in-house.
Further, CCEC will, at its election, mass-fax broadcast select releases to its
network of U.S. stockbrokers, analysts and institutional investors.
(I) CCEC will obtain express written approval from the Company on all
material produced by CCEC prior to disseminating the information to the public.
3. TIME OF PERFORMANCE: Services to be performed under this Agreement shall
commence upon execution of this Agreement and shall continue for a period of
twelve (12) months.
4. COMPENSATION AND EXPENSES: In consideration of the services to be performed
by CCEC, the Company agrees to pay compensation to CCEC as follows:
(A) Seventy thousand (70,000) shares of the Company's common stock due
upon execution of this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY; The Company represents and
warrants to CCEC, each such representation and warranty being deemed to be
material that:
(A) The Company will cooperate fully and timely with CCEC to enable
CCEC to perform its obligations under this Agreement.
(B) The execution and performance of this Agreement by the Company has
been duly authorized by the Board of Directors of the Company in accordance with
applicable law, and, to the extent required, by the requisite number of
shareholders of the Company;
(C) The performance by the Company of this Agreement will not violate
any applicable court decree, law or regulation, nor will it violate any
provisions of the organizational documents of the Company or any contractual
obligation by which the Company may be bound.
(D) The Company will promptly deliver to CCEC a complete due diligence
package to include latest 10K, latest 1OQ, last six (6) months of press releases
and all other relevant materials, including but not limited to corporate
reports, brochures, etc.
(E) The Company will promptly deliver to CCEC a list of names and
addresses of all shareholders of the Company of which it is aware.
(F) The Company will promptly deliver to CCEC a list of brokers and
market makers of the Company's securities which have been following the Company.
(G) Because CCEC will rely on such information to be supplied it by the
Company, all such information shall be true, accurate, complete and not
misleading, in all respects.
(H) The Company will act diligently and promptly in reviewing materials
submitted to it by CCEC to enhance timely distribution of the materials and will
inform CCEC of any inaccuracies contained therein prior to the projected
publication date
/s/ NATHAN NIFCO /s/ [ILLEGIBLE}
---------------- ----------------
INITIAL-Company INITIAL-CCEC
Page 2 of 4
<PAGE> 3
6. DISCLAIMER BY CCEC: CCEC WILL BE THE PREPARER OF CERTAIN PROMOTIONAL
MATERIALS. CCEC MAKES NO REPRESENTATION THAT (A) ITS SERVICE WILL
RESULT IN ANY ENHANCEMENT TO THE COMPANY (B) THE PRICE OF THE
COMPANY'S PUBLICLY TRADED SECURITIES WILL INCREASE, (C) ANY PERSON WILL
PURCHASE SECURITIES IN THE COMPANY, OR (D) ANY INVESTOR WILL LEND
MONEY TO OR INVEST IN OR WITH THE COMPANY.
7. EARLY TERMINATION: If the Company fails to cooperate with CCEC, or fails to
make timely payment of the compensation set forth in Section 4 of this Agreement
CCEC shall have the right to terminate any further performance under this
Agreement. In such event all compensation shall become immediately due and
payable and/or deliverable, and CCEC shall be entitled to receive and retain the
same as liquidated damages, and not as a penalty, in lieu of all other remedies,
the parties acknowledging and agreeing that it would be too difficult currently
to determine the exact extent of CCEC's damage, but that the receipt and
retention of such compensation is reasonable present estimate of such damage.
8. LIMITATION OF CCEC LIABILITY: If CCEC fails to perform its services
hereunder, its entire liability to the Company shall not exceed the lessor of
(a) the amount of cash compensation CCEC has received from the Company under
Section 4 of this Agreement or (b) the actual damage to the Company as a result
of such non-performance. IN NO EVENT WILL CCEC BE LIABLE FOR ANY INDIRECT,
SPECIAL OR CONSEQUENTIAL DAMAGES NOR FOR ANY CLAIM AGAINST THE COMPANY BY ANY
PERSON OR ENTITY ARISING FROM OR IN ANY WAY RELATED TO THIS AGREEMENT, UNLESS
SUCH DAMAGES RESULT FROM THE USE, BY CCEC, OF INFORMATION NOT AUTHORIZED BY THE
COMPANY.
9. OWNERSHIP OF MATERIALS: All right, title and interest in and to materials to
be produced by CCEC in connection with the contract and other services to be
rendered under this Agreement shall be and remain the sole and exclusive
property of CCEC, except that if the Company performs fully and timely its
obligations hereunder, it shall be entitled to receive upon written request, one
hundred (100) copies of all such materials.
10. CONFIDENTIALITY: Until such time as the same may become publicly known, CCEC
agrees that any information of a confidential nature will not be revealed or
disclosed to any person or entity, except in the performance of this Agreement,
and upon completion of its services and upon written request of the Company all
materials and original documentation provided by the Company will be returned to
it. CCEC will, however, require Confidentiality Agreements from its own
employees and from contractors CCEC reasonably believes will come in contact
with confidential material.
11. NOTICES: All notices hereunder shall be in writing and addressed to the
party at the address herein set forth and shall be given by personal delivery,
by certified mail, express mail or by national overnight courier services.
Notices will be deemed given upon the earlier of actual receipt or three (3)
business days after being mailed or delivered to such courier service. Any
notices to be given hereunder will be effective if executed by and sent by the
attorneys for the parties giving such notice, and in connection therewith the
parties and their respective counsel agree that in giving such notice such
counsel may communicate directly in writing with such parties to the extent
necessary to give such notice.
12. SEPARABILITY: If one or more of the provisions of this Agreement shall be
held invalid, illegal, or unenforceable in any respect, such provision, to the
extent invalid, illegal, or unenforceable, and provided that such provision is
not essential to the transaction provided for by this Agreement, shall not
affect any other provision hereof, and the Agreement shall be construed as if
such provision had never been contained herein.
/s/ NATHAN NIFCO /s/ [ILLEGIBLE}
---------------- ----------------
INITIAL-Company INITIAL-CCEC
Page 3 of 4
<PAGE> 4
13. ARBITRATION: Any controversy or claim arising out of or relating to the
Client Service Agreement, or the breach thereof, shall be settled by arbitration
in accordance with the commercial arbitration rules of the American
Arbitration Association, and judgement upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
14. MISCELLANEOUS:
(A) GOVERNING LAW: This Agreement shall be governed by and interpreted
under the laws of the State of Florida where CCEC has been organized and this
Agreement has been accepted by CCEC. Venue for all litigation shall be Seminole
County, Florida.
(B) CURRENCY: In all instances, references to dollars shall be deemed
to be United States Dollars.
(C) MULTIPLE/FAXED COUNTERPARTS: This Agreement may be executed in
multiple counterparts, and by fax transmission, each of which shall be deemed an
original.
Executed as a sealed instrument as of the last day and year shown hereunder.
CONFIRMED AND AGREED ON THE 15th DAY OF DECEMBER 1999
CONTINENTAL CAPITAL & EQUITY CORPORATION
By: /s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
-------------------------------- ---------------------------------
CCEC Representative CCEC Officer
/s/ DARRYL CARDEY /s/ DARRYL CARDEY
-------------------------------- ---------------------------------
Witness Witness
CONFIRMED AND AGREED ON THE 15 DAY OF DECEMBER 1999
SMARTSOURCES.COM
By: /s/ NATHAN NIFCO /s/ DARRYL CARDEY
-------------------------------- ---------------------------------
Duly Authorized Witness
<PAGE> 1
EXHIBIT 10.28
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of December 3, 1999 (this
"Agreement"), is between Continental Capital & Equity Corporation ("CCEC"), and
SmartSources.com, Inc., a Colorado corporation (the "Company").
RECITALS
WHEREAS, CCEC has been granted the option to purchase 200,000 shares of
the Company's Common Stock.
WHEREAS, the parties have agreed that the CCEC shall have certain
registration rights as set forth more fully below.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
1. Definitions. Unless otherwise defined herein, any capitalized terms
used herein have the following meanings:
(a) "COMMISSION" means the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
(b) "COMMON STOCK" means the Common Stock, par value $0.01 per share,
of the Company.
(c) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
(d) "PERSON" means a natural person, a partnership, a corporation, a
limited liability company, as association, a joint stock company, a trust, a
joint venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.
(e) The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing with the Commission a
registration statement in compliance with the Securities Act, and the
declaration or ordering of the effectiveness of such registration statement.
(f) "SECURITIES ACT" means the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
<PAGE> 2
2. Demand Registration.
(a) Demand for Registration. On any date after the first 90
days preceding the date this agreement hereof, CCEC may, on one occasion
only, by written request, require the Company to effect the registration
under the Securities Act of Common Stock. Upon receipt of such request,
the Company shall, as soon as practicable, use all reasonable efforts to
effect such registration (including, without limitation, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or regulations) in
order to permit the sale or other disposition of Common Stock in
accordance with the intended method of sale or other disposition described
in such request and in any such response. The Company shall maintain the
effectiveness of any such registration statement for the earlier of 180
days or until the shares of Common Stock registered by CCEC thereunder
have been sold.
(b) Underwriting. In the event that a registration pursuant to
this Section 2 is for a registered public offering involving an
underwriting, the Company may include Common Stock for its own account, or
for the account of other stockholders having rights to participate in the
Company's registrations, in any registration pursuant to this Section 2,
subject to the provisions of Section 4. All costs of registration shall be
borne by the Company.
3. "Piggy-Back" Registration.
(a) Notice of Registration. If, at any time or from time to time
the Company proposes to register any Common Stock under the Securities Act
(except pursuant to an exercise of the registration rights granted by
Section 2 hereof and except pursuant to a registration statement filed on
Form S-4 or Form S-8 or any successor forms), it will at each such time or
times give prompt written notice to CCEC of its intention to do so and,
upon the written request of CCEC given within 20 days after receipt of such
written notice from the Company (which request shall state the intended
method of disposition thereof), the Company will use all reasonable efforts
to effect the registration of the Common Stock which it shall have been so
requested to register by including the same in such registration statement
(and any related qualification under blue sky laws or other compliance),
and in any underwriting involved therein, all to the extent requisite to
permit the sale or other disposition thereof in accordance with the
intended method of sale or other disposition given in each such request.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise CCEC as a part of the written notice given pursuant
to this Section 3. CCEC shall (together will the Company and any other
stockholders distributing their securities through such underwriting enter
into an underwriting agreement in customary form with the managing
underwriter selected for such underwriting by the Company. All costs of
registration shall be borne by the Company.
4. Priority in Registration. If the Company's managing underwriters
shall advise the Company and CCEC in writing that the inclusion in any
registration pursuant to this Agreement of
2
<PAGE> 3
some or all the Common Stock sought to be registered by CCEC creates a
substantial risk that the proceeds or price the Company will derive from such
registration will be materially reduced or that the number of securities to be
registered (including those sought to be registered at the instance of the
Company and any other party entitled to participate in such registration as
well as those sought to be registered by CCEC) is too large a number to be
reasonably sold, the Company shall include in such registration the number of
shares which the Company is so advised can be sold in such offering (but shall
have no obligations to CCEC to include any more than such number):
(a) if such registration is pursuant to Section 2 hereof (i)
first, Common Stock requested by CCEC to be included in such registration
pursuant to this Agreement, and (ii) second, those securities sought to be
registered by the Company and any other party entitled to participate in such
registration; or
(b) if such registration is pursuant to Section 3 hereof (i)
first, Common Stock to be registered by the Company, (ii) second, Common Stock
sought to be registered by CCEC and all other parties entitled to participate
in such registration.
To facilitate the allocation of shares in accordance with the above
provisions, the Company may round the number of shares allocated to CCEC to the
nearest 100 shares.
5. Holdback. If a registration under Section 2 or Section 3 shall
be in connection with an underwritten Public Offering, CCEC shall agree, upon
the request of the Company or the managing underwriters not to effect any
public sale or distribution, including any sale pursuant to Rule 144, of any
shares of Common Stock (other than as part of such underwritten Public
Offering) within seven days before or 90 days after the effective date of such
registration statement, or such other shorter period of time as the
underwriters may require; provided that the officers and directors of the
Company who own Common Stock and any other Person permitted to sell shares of
Common Stock in a registration also agree to such restrictions.
6. Certain Information. As a condition to the inclusion of CCEC's
Common Stock in any registration statement, CCEC will furnish to the Company
such information as the Company may request in writing with respect to CCEC and
as shall be required to be disclosed in the registration statement (and the
prospectus included therein) by the applicable rules, regulations and guidelines
of the Commission.
7. Registration Procedures. If and whenever the Company is
required to use all reasonable efforts to effect registration, qualification or
compliance pursuant to this Agreement, the Company will keep CCEC advised in
writing as to the initiation of each registration and as to the completion
thereof. At its expense, the Company shall, as expeditiously as possible:
(a) prepare and file with the Commission a registration
statement on the appropriate form with respect to such Common Stock and use all
reasonable efforts to cause such registration statement to become and remain
effective for such period as may be reasonably
3
<PAGE> 4
necessary to effect the sale of such securities (and in the case of
registration pursuant to Section 2 for 90 days or until the shares of Common
Stock registered by CCEC thereunder have been sold);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be reasonably necessary to keep such registration
statement effective for such period as may be reasonably necessary to effect
the sale of such securities, (and in the case of registrations pursuant to
Section 2 for 90 days or until the shares of Common Stock registered by CCEC
thereunder have been sold), and otherwise as may be necessary to comply with
the provisions of the Securities Act, or the rules and regulations thereunder,
with respect to the disposition of all of the Common Stock covered by such
registration statement until such time as all of the Common Stock registered
thereunder has been disposed of in accordance with the intended method of
disposition of the sellers set forth in such registration statement;
(c) furnish CCEC, under the Securities Act, and to each underwriter,
if any, of such Common Stock such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus included in
such registration statement (including each preliminary prospectus) and such
other documents as such seller or underwriter may reasonably request, in order
to facilitate the public sale or other disposition of such Common Stock owned
by such seller or the sale of such Common Stock by such underwriters;
(d) use all reasonable efforts to register or qualify such Common
Stock under such other securities or blue sky laws of such jurisdictions as
such seller shall reasonably request to consummate the public sale or the
disposition in each jurisdiction of the units owned by such seller (provided,
however, that the Company shall not be required to (i) qualify generally to do
business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service of process in any such
jurisdiction);
(e) prepare and file with the Commission promptly upon the request
of CCEC, any amendments or supplements to such registration statement or
prospectus which, in the reasonable opinion of counsel for CCEC, is required
under the Securities Acts or the rules and regulations thereunder in connection
with the distribution of the Common Stock by CCEC; and
(f) advise CCEC promptly after it shall receive notice or obtain
knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of such registration statement or the initiation
or threatening of any proceeding for that purpose and promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal
if such stop order should be issued.
8. Indemnification.
(a) The Company will indemnify and hold harmless CCEC from and
against any and all losses, claims, damages, liabilities (or actions in respect
thereof) and legal and other expenses (including costs of investigation) caused
by any untrue statement or alleged untrue statement of a material fact
contained in any registration statement under which such Common Stock was
registered
4
<PAGE> 5
under the Securities Act, any prospectus or preliminary prospectus contained
therein, any offering circular or other document, or any amendment or supplement
thereto, or caused by an omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make statements
therein not misleading or any violation by the Company of the Securities Act or
any rule or regulation promulgated thereunder applicable to the Company in
connection with any such registration, qualification or compliance, except
insofar as such losses, claims, damages, liabilities or expenses are caused by
any such untrue statement or omission or alleged untrue statement or omission
made in reliance on and in conformity with written information relating to CCEC
and furnished to the Company by an instrument duly executed by CCEC or its legal
counsel expressly for use therein.
(b) It shall be a condition to the obligation of the Company to
effect a registration of Common Stock under the Securities Act pursuant hereto
that CCEC indemnify and hold harmless the Company and each person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act to the same extent as the indemnity from the Company in the foregoing
paragraph, but only to the extent that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by an instrument
duly executed by such seller or its legal counsel expressly for use therein.
(c) In case any claim shall be made or any proceeding (including any
governmental investigation) shall be instituted involving any indemnified party
in respect of which indemnity may be sought pursuant to this Section 8, such
indemnified party shall promptly notify the indemnifying party in writing of
the same; provided that failure to notify the indemnifying party shall not
relieve it from any liability it may have to an indemnified party otherwise
than under this Section 10 unless the failure to give such notice is materially
prejudicial to an indemnifying party's ability to defend such action. The
indemnifying party will be entitled at its own expense to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the indemnifying party, who shall conduct the defense of such claim or
litigation shall be reasonably satisfactory to the indemnified party. In any
such proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and disbursements of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party shall have failed
to retain counsel for the indemnified party as aforesaid, (ii) the indemnifying
party and such indemnified party shall have mutually agreed to the retention of
such counsel or (iii) representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding; provided that the Company
shall not be liable for the fees and disbursements of more than one additional
counsel for all indemnified parties. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent. No indemnifying party, in the defense of any such claim or
litigation, shall, except with the consent of each indemnified party, consent
to entry of any judgment or enter into any settlement which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to
such indemnified party of a release from all liability in respect of such claim
or litigation.
5
<PAGE> 6
9. Binding Agreement. This Agreement shall inure to the benefit
of and be binding upon the parties hereto.
10. Amendment. Any provision of this Agreement may be amended,
supplemented, waived, discharged or terminated by a written instrument signed
by the Company and CCEC.
11. Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible and such provision
shall be deemed inoperative to the extent it is deemed unenforceable, and in
all other respects this Agreement shall remain in full force and effect;
provided, however, that if any such provision may be made enforceable by
limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by applicable law.
12. Entire Agreement. This Agreement and the other writings referred
to herein, or delivered pursuant hereto, contain the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior and
contemporaneous arrangements or understandings with respect hereto.
13. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only, do not constitute a part of this
Agreement and shall not affect in any manner the meaning or interpretation of
this Agreement.
14. Notices; Addresses. Any notice, communication, payment or demand
required or permitted to be given or made hereunder shall be in writing and
will be deemed to have been given or made for all purposes if (i) delivered
personally (effective upon delivery), (ii) mailed by U.S. mail, registered or
certified, postage prepaid, return receipt requested (effective two days after
mailing), (iii) sent by a national overnight delivery service (effective one
day after delivery to such delivery service), or (iv) sent by telecopy
(effective upon confirmation of transmission), in each addressed as indicated
on the stock transfer records of the Corporation.
15. GOVERNING LAW. THE VALIDITY, MEANING AND EFFECT OF THIS
AGREEMENT SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
COLORADO APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THAT STATE,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
16. Counterparts. This Agreement may be executed by the parties
hereto by telecopy in any number of counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same
agreement.
17. Effectiveness. This Agreement shall be effective as to CCEC and
shall apply to all shares of Common Stock owned beneficially and of record by
CCEC, whether now owned or subsequently acquired.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
SMARTSOURCES.COM, INC.
By: /s/ DARRYL CARDEY
----------------------------
Name: /s/ Darryl Cardey
--------------------------
Title: CFO
-------------------------
CONTINENTAL CAPITAL & EQUITY
CORPORATION
By: /s/ JIM SCHNORF
----------------------------
Name: Jim Schnorf
--------------------------
Title: CFO
-------------------------
7
<PAGE> 1
EXHIBIT 10.29
CONTINENTAL CAPITAL & EQUITY CORPORATION
SUITE 200
195 WEKIVA SPRINGS RD.
LONGWOOD, FL 32779
PHONE (407) 682-2001
FAX (407) 682-2544
December 15, 1999
Michael Forster
SmartSources.com
1288 Pear Avenue Suite A
Mountain View, CA 94043
RE: LETTER OF UNDERSTANDING
Dear Mr. Forster:
This letter shall serve as a formal understanding between Continental Capital &
Equity corporation ("CCEC") and SmartSources.com ("Company") amending Section 4
of the Client Service Agreement executed December 8, 1999, to include the
following terms:
(B) CCEC has an option to purchase from the Company two hundred
thousand (200,000) shares of the Company's common stock as follows: fifty
thousand (50,000) shares at a per share price of five dollars twenty five cents
($5.25); fifty thousand (50,000) shares at a per share price of six dollars
($6.00); fifty thousand (50,000) shares at a per share price of seven dollars
fifty cents ($7.50); and fifty thousand (50,000) shares at a per share price of
eight dollars ($8.00). The options shall expire 36 months from the execution
date of this agreement. The Company agrees to register the underlying shares
pursuant to the terms and conditions of the attached Registration Rights
Agreement.
To confirm that this is also your understanding, please sign in the space
provided below.
Sincerely,
CONTINENTAL CAPITAL & EQUITY CORPORATION
/s/ JIMMY HOLTON
Jimmy Holton
Executive Vice President
Agreed this 15th day of December 1999.
SMARTSOURCES.COM
/s/ MICHAEL FORSTER
- -------------------------
Michael Forster
<PAGE> 1
EXHIBIT 10.30
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of January 4, 2000 (this
"Agreement"), is between Peter Sanders ("Sanders"), and SmartSources.com, Inc.,
a Colorado corporation (the "Company").
RECITALS
WHEREAS, Sanders has been granted the option to purchase 100,000 shares
of the Company's Common Stock.
WHEREAS, the parties have agreed that the Sanders shall have certain
registration rights as set forth more fully below.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
1. Definitions. Unless otherwise defined herein, any capitalized terms
used herein have the following meanings:
(a) "COMMISSION" means the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
(b) "COMMON STOCK" means the Common Stock, par value $0.01 per
share, of the Company.
(c) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
(d) "PERSON" means a natural person, a partnership, a
corporation, a limited liability company, an association, a joint stock company,
a trust, a joint venture, an unincorporated organization or a governmental
entity or any department, agency or political subdivision thereof.
(e) The terms "REGISTER," "REGISTERED" and "REGISTRATION"
refer to a registration effected by preparing and filing with the Commission a
registration statement in compliance with the Securities Act, and the
declaration or ordering of the effectiveness of such registration statement.
(f) "SECURITIES ACT" means the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
<PAGE> 2
2. Demand Registration.
(a) Demand for Registration. On any date after the first
anniversary of the date hereof, Sanders may, on one occasion only, by written
request, require the Company to effect the registration under the Securities Act
of Common Stock. Upon receipt of such request, the Company shall, as soon as
practicable, and in any event within 180 days of receiving such request, use all
reasonable efforts to effect such registration (including, without limitation,
appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or regulations) in order
to permit the sale or other disposition of Common Stock in accordance with the
intended method of sale or other disposition described in such request and in
any such response. The Company shall not be required to effect a registration
requested pursuant to this Section 2, if the Company has effected a registration
pursuant to this Section within the previous six months; or (ii) the gross
proceeds from the sale of the Common Stock requested to be registered is not
expected in the reasonable judgment of the board of directors of the Company to
be at least $5,000,000. The Company shall maintain the effectiveness of any such
registration statement for the earlier of 90 days or until the shares of Common
Stock registered by Sanders thereunder have been sold.
(b) Underwriting. In the event that a registration pursuant to
this Section 2 is for a registered public offering involving an underwriting,
the Company may include Common Stock for its own account, or for the account of
other stockholders having rights to participate in the Company's registrations,
in any registration pursuant to this Section 2, subject to the provisions of
Section 4. Sanders shall bear the cost of any underwriters' discounts and
commissions relating to his Common Stock which is sold and the cost of his legal
counsel. All other costs of registration shall be borne by the Company.
3. "Piggy-Back" Registration.
(a) Notice of Registration. If, at any time or from time to
time the Company proposes to register any Common Stock under the Securities Act
(except pursuant to an exercise of the registration rights granted by Section 2
hereof and except pursuant to a registration statement filed on Form S-4 or Form
S-8 or any successor forms), it will at each such time or times give prompt
written notice to Sanders of his intention to do so and, upon the written
request of Sanders given within 20 days after receipt of such written notice
from the Company (which request shall state the intended method of disposition
thereof), the Company will use all reasonable efforts to effect the registration
of the Common Stock which it shall have been so requested to register by
including the same in such registration statement (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all to the extent requisite to permit the sale or other disposition
thereof in accordance with the intended method of sale or other disposition
given in each such request.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise Sanders as a part of the written notice given pursuant
to this Section 3. In such event, the right of Sanders to
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<PAGE> 3
registration pursuant to this Section 3 shall be conditioned upon Sanders'
participation in such underwriting and the inclusion of Sanders' Common Stock in
the underwriting to the extent provided herein. Sanders shall (together with the
Company and any other stockholders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company. Sanders
shall bear the cost of any underwriters' discounts and commissions relating to
his Common Stock which is sold and the cost of his legal counsel. All other
costs of registration shall be borne by the Company.
4. Priority in Registration. If the Company's managing underwriters
shall advise the Company and Sanders in writing that the inclusion in any
registration pursuant to this Agreement of some or all of the Common Stock
sought to be registered by Sanders creates a substantial risk that the proceeds
or price the Company will derive from such registration will be materially
reduced or that the number of securities to be registered (including those
sought to be registered at the instance of the Company and any other party
entitled to participate in such registration as well as those sought to be
registered by Sanders) is too large a number to be reasonably sold, the Company
shall include in such registration the number of shares which the Company is so
advised can be sold in such offering (but shall have no obligations to Sanders
to include any more than such number):
(a) if such registration is pursuant to Section 2 hereof (i)
first, Common Stock requested by Sanders to be included in such registration
pursuant to this Agreement, and (ii) second, those securities sought to be
registered by the Company and any other party entitled to participate in such
registration; or
(b) if such registration is pursuant to Section 3 hereof (i)
first, Common Stock to be registered by the Company, (ii) second, Common Stock
sought to be registered by Sanders and all other parties entitled to participate
in such registration.
To facilitate the allocation of shares in accordance with the above
provisions, the Company may round the number of shares allocated to Sanders to
the nearest 100 shares.
5. Holdback. If a registration under Section 2 or Section 3 shall be in
connection with an underwritten Public Offering, Sanders shall agree, upon the
request of the Company or the managing underwriters not to effect any public
sale or distribution, including any sale pursuant to Rule 144, of any shares of
Common Stock (other than as part of such underwritten Public Offering) within
seven days before or 90 days after the effective date of such registration
statement, or such other shorter period of time as the underwriters may require;
provided that the officers and directors of the Company who own Common Stock and
any other Person permitted to sell shares of Common Stock in a registration also
agree to such restrictions.
6. Certain Information. As a condition to the inclusion of Sanders'
Common Stock in any registration statement, Sanders will furnish to the Company
such information as the Company may request in writing with respect to Sanders
and as shall be required to be disclosed in the registration statement (and the
prospectus included therein) by the applicable rules, regulations and guidelines
of the Commission.
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<PAGE> 4
7. Registration Procedures. If and whenever the Company is required to
use all reasonable efforts to effect registration, qualification or compliance
pursuant to this Agreement, the Company will keep Sanders advised in writing as
to the initiation of each registration and as to the completion thereof. At its
expense, the Company shall, as expeditiously as possible:
(a) prepare and file with the Commission (in the case of a
registration pursuant to Section 2, not later than 90 days after the requisite
request therefor) a registration statement on the appropriate form with respect
to such Common Stock and use all reasonable efforts to cause such registration
statement to become and remain effective for such period as may be reasonably
necessary to effect the sale of such securities (and in the case of registration
pursuant to Section 2 for 90 days or until the shares of Common Stock registered
by Sanders thereunder have been sold);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be reasonably necessary to keep such registration statement
effective for such period as may be reasonably necessary to effect the sale of
such securities, (and in the case of registrations pursuant to Section 2 for 90
days or until the shares of Common Stock registered by Sanders thereunder have
been sold), and otherwise as may be necessary to comply with the provisions of
the Securities Act, or the rules and regulations thereunder, with respect to the
disposition of all of the Common Stock covered by such registration statement
until such time as all of the Common Stock registered thereunder has been
disposed of in accordance with the intended method of disposition of the sellers
set forth in such registration statement;
(c) furnish Sanders, under the Securities Act, and to each
underwriter, if any, of such Common Stock such number of copies of such
registration statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary prospectus)
and such other documents as such seller or underwriter may reasonably request,
in order to facilitate the public sale or other disposition of such Common Stock
owned by such seller or the sale of such Common Stock by such underwriters;
(d) use all reasonable efforts to register or qualify such
Common Stock under such other securities or blue sky laws of such jurisdictions
as such seller shall reasonably request to consummate the public sale or the
disposition in each such jurisdiction of the units owned by such seller
(provided, however, that the Company shall not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this subparagraph, (ii) subject itself to taxation
in any such jurisdiction, or (iii) consent to general service of process in any
such jurisdiction);
(e) prepare and file with the Commission promptly upon the
request of Sanders, any amendments or supplements to such registration statement
or prospectus which, in the reasonable opinion of counsel for Sanders, is
required under the Securities Acts or the rules and regulations thereunder in
connection with the distribution of the Common Stock by Sanders; and
(f) advise Sanders promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of such
4
<PAGE> 5
registration statement or the initiation or threatening of any proceeding for
that purpose and promptly use its best efforts to prevent the issuance of any
stop order or to obtain its withdrawal if such stop order should be issued.
8. Indemnification.
(a) The Company will indemnify and hold harmless Sanders from
and against any and all losses, claims, damages, liabilities (or actions in
respect thereof) and legal and other expenses (including costs of investigation)
caused by any untrue statement or alleged untrue statement of a material fact
contained in any registration statement under which such Common Stock was
registered under the Securities Act, any prospectus or preliminary prospectus
contained therein, any offering circular or other document, or any amendment or
supplement thereto, or caused by an omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
statements therein not misleading or any violation by the Company of the
Securities Act or any rule or regulation promulgated thereunder applicable to
the Company in connection with any such registration, qualification or
compliance, except insofar as such losses, claims, damages, liabilities or
expenses are caused by any such untrue statement or omission or alleged untrue
statement or omission made in reliance on and in conformity with written
information relating to Sanders and furnished to the Company by an instrument
duly executed by Sanders or his legal counsel expressly for use therein.
(b) It shall be a condition to the obligation of the Company
to effect a registration of Common Stock under the Securities Act pursuant
hereto that Sanders indemnify and hold harmless the Company and each person, if
any, who controls the Company within the meaning of the Securities Act or the
Exchange Act to the same extent as the indemnity from the Company in the
foregoing paragraph, but only to the extent that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such seller or his legal counsel
expressly for use therein.
(c) In case any claim shall be made or any proceeding
(including any governmental investigation) shall be instituted involving any
indemnified party in respect of which indemnity may be sought pursuant to this
Section 8, such indemnified party shall promptly notify the indemnifying party
in writing of the same; provided that failure to notify the indemnifying party
shall not relieve it from any liability it may have to an indemnified party
otherwise than under this Section 10 unless the failure to give such notice is
materially prejudicial to an indemnifying party's ability to defend such action.
The indemnifying party will be entitled, at its own expense, to assume the
defense of any such claim or any litigation resulting therefrom, provided that
counsel for the indemnifying party, who shall conduct the defense of such claim
or litigation shall be reasonably satisfactory to the indemnified party. In any
such proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and disbursements of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party shall have failed
to retain counsel for the indemnified party as aforesaid, (ii) the indemnifying
party and such indemnified party shall have mutually agreed to the retention of
such counsel or (iii) representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential
5
<PAGE> 6
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding; provided that the Company shall
not be liable for the fees and disbursements of more than one additional counsel
for all indemnified parties. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent. No
indemnifying party, in the defense of any such claim or litigation, shall,
except with the consent of each indemnified party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect of such claim or litigation.
9. Binding Agreement. This Agreement shall inure to the benefit of and
be binding upon the parties hereto.
10. Amendment. Any provision of this Agreement may be amended,
supplemented, waived, discharged or terminated by a written instrument signed by
the Company and Sanders.
11. Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible and such provision
shall be deemed inoperative to the extent it is deemed unenforceable, and in all
other respects this Agreement shall remain in full force and effect; provided,
however, that if any such provision may be made enforceable by limitation
thereof, then such provision shall be deemed to be so limited and shall be
enforceable to the maximum extent permitted by applicable law.
12. Entire Agreement. This Agreement and the other writings referred to
herein, or delivered pursuant hereto, contain the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior and
contemporaneous arrangements or understandings with respect hereto.
13. Descriptive Headings. The descriptive headings herein are inserted
for convenience of reference only, do not constitute a part of this Agreement
and shall not affect in any manner the meaning or interpretation of this
Agreement.
14. Notices; Addresses. Any notice, communication, payment or demand
required or permitted to be given or made hereunder shall be in writing and will
be deemed to have been given or made for all purposes if (i) delivered
personally (effective upon delivery), (ii) mailed by U.S. mail, registered or
certified, postage prepaid, return receipt requested (effective two days after
mailing), (iii) sent by a national overnight delivery service (effective one day
after delivery to such delivery service), or (iv) sent by telecopy (effective
upon confirmation of transmission), in each case, addressed as indicated on the
stock transfer records of the Corporation.
15. GOVERNING LAW. THE VALIDITY, MEANING AND EFFECT OF THIS AGREEMENT
SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THAT STATE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
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<PAGE> 7
16. Counterparts. This Agreement may be executed by the parties hereto
by telecopy in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same agreement.
17. Effectiveness. This Agreement shall be effective as to Sanders and
shall apply to all shares of Common Stock owned beneficially and of record by
Sanders, whether now owned or subsequently acquired.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
SMARTSOURCES.COM, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
------------------------------------------
Peter Sanders
<PAGE> 1
EXHIBIT 10.31
STANDARD FORM - NET LEASE
BETWEEN:
GUILD PROPERTIES INC.
c/o Suite 1660-1188 West Georgia Street
Vancouver, BC V6E 4A2
("Landlord")
AND:
SMARTSOURCES.COM TECHNOLOGIES INC.
Suite 100-2030 Marine Drive
North Vancouver, BC V7P 1V7
("Tenant")
PREMISES:
Suite 200
2030 Marine Drive
North Vancouver, BC V7P 1V7
(Strata Lot 5)
TERM:
3 years from May 15, 1999
plus right to renew for additional 3 years
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE 1 - BASIC PROVISIONS AND DEFINITIONS ................................2
1.01 BASIC PROVISIONS ...................................................2
1.02 DEFINITIONS ........................................................3
ARTICLE 2 - PREMISES .........................................................9
2.01 PREMISES ...........................................................9
2.02 RELOCATION OF PREMISES .............................................9
2.03 STRATA TITLE BUILDING ..............................................9
2.04 MAINTENANCE PAYMENTS ...............................................9
ARTICLE 3 - TERM ...........................................................10
3.01 TERM ..............................................................10
3.02 POSTPONEMENT ......................................................10
3.03 LANDLORD'S WORK ...................................................10
3.04 IMPROVEMENT ALLOWANCE .............................................10
3.05 RIGHT OF RENEWAL ..................................................10
ARTICLE 4 - RENT ...........................................................12
4.01 RENT...............................................................12
4.02 PAYMENT OF RENT ...................................................12
4.03 RENT FOR IRREGULAR PERIODS ........................................14
4.04 WAIVER OF OFFSET ..................................................14
ARTICLE 5 - TENANTS COVENANTS ..............................................15
5.00 TENANT'S COVENANTS ................................................15
5.01 RENT ..............................................................15
5.02 PERMITTED USE .....................................................15
5.03 WASTE AND NUISANCE ................................................15
5.04 INSURANCE RISKS ...................................................15
5.05 CONDITION .........................................................15
5.06 BY-LAWS ...........................................................15
5.07 FIRE EXIT DOORS ...................................................16
5.08 RULES AND REGULATIONS .............................................16
5.09 OVERHOLDING .......................................................16
5.10 SIGNS AND DIRECTORY ...............................................16
5.11 INSPECTION AND ACCESS .............................................17
5.12 SHOWING LEASED PREMISES ...........................................17
5.13 TENANT'S WORK .....................................................17
5.14 JANITOR SERVICE AND IN-SUITE MAINTENANCE ..........................17
ARTICLE 6 - LANDLORD'S COVENANTS ...........................................18
6.00 LANDLORD'S COVENANTS ..............................................18
6.01 QUIET ENJOYMENT ...................................................18
6.02 INTERIOR CLIMATE CONTROL ..........................................18
6.03 ELEVATORS .........................................................18
6.04 ENTRANCES, LOBBIES, ETC............................................19
6.05 WASHROOMS .........................................................19
6.06 JANITOR SERVICE ...................................................19
6.07 MAINTENANCE OF COMMON AREAS .......................................19
ARTICLE 7 - REPAIR AND DAMAGE AND DESTRUCTION ..............................20
7.01 LANDLORD'S REPAIRS ................................................20
</TABLE>
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<TABLE>
<S> <C>
7.02 TENANT'S REPAIRS ..................................................20
7.03 ABATEMENT AND TERMINATION .........................................21
7.04 LANDLORD'S WORKS ..................................................22
ARTICLE 8 - TAXES AND OPERATING COSTS .....................................23
8.01 LANDLORD'S TAX OBLIGATIONS ........................................23
8.02 TENANT'S TAX OBLIGATIONS ..........................................23
8.03 TENANT'S TAX COST .................................................23
8.05 RECEIPTS, ETC. ....................................................24
8.06 ALLOCATION OF TAXES ...............................................24
8.07 OPERATING COST ....................................................24
8.08 ALLOCATION OF OPERATING COST ......................................25
8.09 ALLOCATION TO PARTICULAR TENANT ...................................25
ARTICLE 9 - UTILITIES AND ADDITIONAL SERVICES .............................26
9.01 WATER AND TELEPHONE ...............................................26
9.02 ADDITIONAL SERVICES ...............................................26
9.03 EXTRA OPERATING COSTS .............................................26
9.04 ENERGY CONSERVATION ...............................................26
9.05 ALTERATIONS .......................................................27
ARTICLE 10 - LICENSES, ASSIGNMENTS AND SUBLETTINGS ........................28
10.01 LICENSES, ETC ....................................................28
10.02 ASSIGNMENT AND SUBLETTING ........................................28
10.03 CONDITIONS OF CONSENT ............................................28
10.04 CHANGE IN CONTROL OF TENANT ......................................29
ARTICLE 11- FIXTURES AND IMPROVEMENTS .....................................30
11.01 INSTALLATION OF FIXTURES AND IMPROVEMENT .........................30
11.02 LIENS AND ENCUMBRANCES ON FIXTURES AND IMPROVEMENTS ..............30
11.03 REMOVAL OF FIXTURE AND IMPROVEMENTS ..............................31
ARTICLE 12-INSURANCE AND LIABILITY ........................................32
12.01 LANDLORD'S INSURANCE .............................................32
12.02 TENANT'S INSURANCE ...............................................32
12.03 LIMITATION OF LANDLORD'S LIABILITY ...............................33
12.04 LIMITATION OF TENANT'S LIABILITY .................................34
12.05 INDEMNITY OF LANDLORD ............................................34
ARTICLE 13- SUBORDINATION, ATTORNMENT, REGISTRATION AND CERTIFICATES ......35
13.00 TENANT'S COVENANTS ...............................................35
13.01 SALE OR FINANCING OF BUILDING ....................................35
13.02 SUBORDINATION AND ATTORNMENT .....................................35
13.03 REGISTRATION .....................................................35
13.04 CERTIFICATES .....................................................35
13.05 ASSIGNMENT BY LANDLORD ...........................................36
ARTICLE 14- OCCURRENCE OF DEFAULT .........................................37
14.01 UNAVOIDABLE DELAY ................................................37
14.02 NO ADMISSION .....................................................37
14.03 PART PAYMENT .....................................................37
ARTICLE 15- REMEDIES FOR LANDLORD AND TENANT'S DEFAULT ....................38
15.01 REMEDYING BY LANDLORD, NON-PAYMENT AND INTEREST ..................38
15.02 REMEDIES CUMULATIVE ..............................................38
15.03 RIGHT OF RE-ENTRY ON DEFAULT OR TERMINATION ......................38
</TABLE>
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<TABLE>
<S> <C>
15.04 TERMINATION AND RE-ENTRY .........................................39
15.05 PAYMENT OF RENT, ETC. ON TERMINATION .............................39
15.06 RE-LETTING, ETC. .................................................39
ARTICLE 16 - EVENTS TERMINATING LEASE .....................................40
16.01 CANCELLATION OF INSURANCE ........................................40
16.02 PROHIBITED OCCUPANCY, BANKRUPTCY, ETC. ...........................40
ARTICLE 17 - MISCELLANEOUS ................................................41
17.01 NOTICES ..........................................................41
17.02 EXTRANEOUS AGREEMENTS ............................................41
17.03 TIME OF ESSENCE...................................................41
17.04 AREA DETERMINATION ..............................................41
17.05 SUCCESSORS AND ASSIGNS ...........................................41
17.06 FRUSTRATION ......................................................42
17.07 WAIVER ...........................................................42
17.08 GOVERNING LAW ....................................................42
17.09 NET LEASE ........................................................42
17.10 CAPTIONS .........................................................43
17.11 ACCEPTANCE .......................................................43
ARTICLE 18 - SCHEDULES ....................................................44
18.01 SCHEDULES ........................................................44
SCHEDULE A ..................................................................46
FLOOR PLAN OF THE LEASED PREMISES ...........................................46
SCHEDULE B ..................................................................47
LEGAL DESCRIPTION OF THE LEASED PREMISES ....................................47
SCHEDULE C ..................................................................48
RULES AND REGULATIONS .......................................................48
SCHEDULE D ..................................................................50
ADDITIONAL TERMS FORMING PART OF THE LEASE ..................................50
SCHEDULE E ..................................................................51
PROPOSED TENANT'S LEASEHOLD IMPROVEMENTS PLAN ...............................51
</TABLE>
iv
<PAGE> 5
LEASE
THIS LEASE dated for reference the 17th day of March, 1999
BETWEEN:
GUILD PROPERTIES INC.
c/o Suite 1660-1188 West Georgia Street
Vancouver, BC V6E 4A2
(hereinafter called the "Landlord")
OF THE FIRST PART
AND:
SMARTSOURCES.COM TECHNOLOGIES INC.
Suite 100-2030 Marine Drive
North Vancouver, BC V7P 1V7
(hereinafter called the "Tenant")
OF THE SECOND PART
WITNESSETH THAT:
1
<PAGE> 6
ARTICLE 1 - BASIC PROVISIONS AND DEFINITIONS
1.01 BASIC PROVISIONS
a) Leased Premises:
Suite No. 200
Strata Lot 5
Strata Plan LMS2241
2030 Marine Drive
North Vancouver, B.C. (see Schedule A)
b) Rentable Area: 1,293 square feet
c) Term: 3 years
d) Commencement Date: May 15, 1999
(Rent free use for outfitting by the Tenant at the
Tenant's risk from date of execution of this Lease by
both parties up to Commencement Date)
e) Basic Rent and Note on Additional Rent:
(1) Basic Rent
YEARS 1 to 3 inclusive:
$14.50 per sq. ft. per annum + Rental Taxes which is
$1,562.38 per month plus Rental Taxes (currently G.S.T)
(2) Additional Rent:
Based on an estimated $8.09 per sq. ft. per annum
plus any Rental Taxes toward Operating Costs and
Taxes during the Term (based on the projected budget
for 1999 and on 1998 figures)
Note: The Additional Rent, including the Operating Cost, is subject to
change and adjustment without notice as necessary from time to
time and calculated for each 12 month period.
f) Permitted Use: General Office premises
g) Parking Entitlement: 2 reserved stalls at the charge as set
out in Schedule D
h) Renewal Term: 3 years
i) Deposit: to be applied toward first and last 5 months Basic
Rent and Additional Rent plus applicable taxes.
2
<PAGE> 7
The foregoing Basic Provisions are approved by the parties. Each reference in
this Lease to any of the Basic Provisions shall be construed to include the
provisions set forth above as well as all of the additional terms and conditions
of the applicable sections of this Lease where such Basic Provisions are more
fully set forth.
1.02 DEFINITIONS
In this Lease the following expressions shall have the following meanings:
a) "Accountant" means the person employed by or engaged by the Landlord
from time to time to keep financial records and accounts for the
Landlord or for the Building or the Leased Premises;
b) "Additional Rent" means all sums of money to be paid by the Tenant
whether to the Landlord or otherwise pursuant to this Lease save and
except annual Basic Rent;
c) "Additional Services" means the services and supervision supplied by
the Landlord and referred to in section 9.02 or in any other provision
hereof as Additional Services, and any other services which from time
to time the Landlord supplies to the Tenant and which are additional to
other services which the Landlord has agreed to supply pursuant to the
provisions of this Lease and to like provisions of other leases of
space in the Building or may elect to supply as included within the
standard level of services available to tenants in the Building
generally and in addition to those normally supplied, the provision of
labour and supervision in connection with the moving of any furniture
or equipment of any tenant and the making of any repairs or alterations
for any tenant and maintenance or other services not normally
furnished to tenants generally;
d) "Basic Rent" means the basic rent reserved hereunder payable by the
Tenant as set forth in section 4.01(a);
e) "Building" means that certain building and those certain areas and
improvements and amenities described in Strata Plan LMS52241 and having
a municipal address of 2030 Marine Drive, North Vancouver, British
Columbia;
f) "Capital Tax" means any tax or taxes payable under any existing or
future municipal, provincial or federal legislation, based upon or
computed by reference to the "net paid up capital" of the place of
business of the Landlord and/or the owners of the Land and Building as
determined for the purposes of such taxes or based upon or computed by
reference to the taxable capital employed in Canada, or any similar tax
levied, imposed or assessed in the future in lieu thereof or in
addition thereto by any municipal, legislative or parliamentary
authority;
g) "Commencement Date of the Term" means the date the Lease commences as
set forth in section 3.01;
h) "Cost of Additional Services" shall mean without duplication in the
case of Additional Services provided by the Landlord as reasonable
charge made therefor by the Landlord which shall not exceed the cost of
obtaining such services from independent contractors and in the case of
Additional Services by independent contractors the Landlord's total
cost of providing Additional
3
<PAGE> 8
Services to the Tenant including the cost of all labour (including
salaries, wages and fringe benefits) and materials and other direct
expenses incurred, the cost of supervision and other indirect expenses
capable of being allocated thereto (such allocation to be made upon a
reasonable basis) and all other out-of-pocket expenses made in
connection therewith including amounts paid to independent contractors,
plus an administration fee equal to 15% thereof;
i) "Insured Damage" means that part of any damage occurring to any portion
of the Leased Premises for which the Landlord is responsible of which
the entire cost of repair is actually recoverable by the Landlord under
a policy of insurance in respect of fire and other perils from time to
time effected by the Landlord or, if and to the extent that the
Landlord has not insured and is deemed to be a co-insurer or
self-insurer pursuant to section 12.01, would have been recoverable had
the Landlord effected insurance in respect of perils and to amounts and
on terms for which it is deemed to be insured;
j) "Land" means the parcels or tracts of land described in Schedule B;
k) "Leased Premises" means, subject to section 2.02, that portion of the
Building aggregating 1,293 square feet of Rentable Area more or less,
to be determined by measurement in accordance with this Lease,
approximately as shown outlined in red on the plan(s) attached as
Schedule "A" hereto and having the municipal address of Suite 200, 2030
Marine Drive, North Vancouver, B.C.;
1) "Leasehold Improvement" means all fixtures, improvements,
installations, alterations and additions from time to time made,
erected or installed in the Leased Premises with the exception of trade
fixtures and furniture and equipment not of the nature of fixtures, but
includes all partitions however fixed (including moveable partitions)
and includes all wall-to-wall carpeting with the exception of such
carpeting where laid over vinyl tile or other finished floor and
installed so as to be readily removable without charge;
m) "Net Paid Up Capital" for general corporations other than savings
institutions, is the aggregate of the corporation's capital stock,
surpluses, retained earnings and all other liabilities and deferred
credits except current accounts payable, less certain deductions from
corporations: deficit, deferred tax debit, deferred exploration costs
and investment allowance.
n) "Normal Business Hours" means the hours from 8.00 a.m. to 6.00 p.m.
Monday to Friday, inclusive, of each week, holidays excepted;
o) "Office Portion of the Building" means that portion of the Building
designated from time to time by the Landlord for rental for office
purposes;
p) "Operating Cost" means the strata fees payable to the Strata
Corporation for expenses and contingency reserves calculated in
accordance with generally accepted accounting principles, without
duplication, incurred in the maintenance and operation of the Building
and the Land, as contemplated in this Lease, whether incurred directly
or indirectly by the Strata Corporation and which expenses, if they had
been directly incurred by the Landlord would:
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(i) include except where otherwise provided in this Lease (but
subject to certain deductions as hereinafter provided) the
cost of providing complete supervisory and all maintenance
services, the cost of operating elevators, all costs
associated with or attributed to heating, cooling and
ventilating all space including both Rentable and non-Rentable
areas, the cost of providing hot and cold water, electricity
(including lighting), telephone and other utilities and
services to both Rentable and non-Rentable areas, the cost of
cleaning, maintaining and servicing in all respects all
electric lighting fixtures in the Building (including both
Rentable and non-Rentable areas) and the cost of replacement
of electric light bulbs, tubes, starters and ballasts (such
cleaning, maintaining, servicing and replacement to be within
the exclusive right of the Landlord), the cost of all repairs
and replacements including the amortized cost over the useful
life of repairs and replacements of a capital nature whether
to the Building or the Land or any part thereof, the cost of
exterior window cleaning and providing security and
supervision, the costs of all insurance for liability or fire
or other casualties (and if the Landlord shall elect in whole
or in part to self-insure, the amount of reasonable
contingency reserves not exceeding the amount of premiums
which would otherwise have been incurred in respect of the
risk undertaken), Capital Tax attributed to the Land or
Building, accounting costs incurred in connection with
maintenance and operation including computations required for
the imposition of charges to tenants and audit charges
required to be incurred for the conclusive determination of
any costs hereunder, and the reasonable rental value (having
regard to the rentals prevailing from time to time for similar
space) of space utilized by the landlord in connection with
the operation or maintenance of the Building and the Land, the
amount of all salaries, wages and fringe benefits (including
without limitation workers' compensation) paid to employees
engaged in the maintenance or operation of the Building and
the Land, amounts paid to independent contractors for any
services in connection with such maintenance or operation, the
cost of direct supervision and of management and other
indirect expenses to the extent allowable to the maintenance
and operation of the Building and the Land, the cost to the
Landlord of capital improvements made for the general benefit
of tenants of the Building including improvements intended to
reduce Operating Cost, to increase safety and to improve the
maintenance and operation of the Land and Building, the cost
of any management fees and managing agent's fees, interest (at
the prime rate quoted by the main branch in Vancouver of the
Toronto Dominion Bank the Landlord's bank at Toronto for loans
to creditworthy and substantial commercial customers) on any
unamortized portion of capital expenditures made under this
subparagraph, and all other expenses of every nature incurred
in connection with the maintenance and operation of the
Building and the Land;
(ii) exclude Taxes, (other than Capital Tax) debt service,
depreciation (except depreciation of costs incurred for
repairing and replacing fixtures, equipment and facilities
servicing or comprising the Building [including the heating,
ventilating, air conditioning and climate control systems
servicing the Building] which by their nature require periodic
repair or replacement and are not charged fully in the year in
which they are incurred at rates determined from time to time
by the Landlord in accordance with sound accounting
principles), expenses properly chargeable to capital account
(except capital expenditures that are made by the Landlord
with the intention of reducing Operating Cost, increasing
safety or improving the maintenance and operation of the Land
and Building), costs
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determined by the Landlord from time to time to be fairly
allowable to the correction of construction faults or initial
maladjustments in operating equipment, the Cost of Additional
Services for any tenant of the Building, and all management
cost not allowable to the actual maintenance and operation of
the Building (such as in connection with leasing and rental
advertising).
In computing Operating Cost there shall be credited as a
deduction the amounts of proceeds of insurance relating to
Insured Damage and other damage actually recovered by the
Landlord (or if the Landlord is deemed to self-insure, a
corresponding application of reserves) applicable to such
damage, recovery of electricity and light bulb and tube and
ballast replacement, in each case to the extent that the cost
thereof was included therein. If there are any vacancies in
the Building and because of such vacancies the Operating Cost
is less than it would have been if the Building has been fully
occupied, then for the purpose of determining the amount
payable by the Tenant under this Clause, the Operating Cost
for the relevant account period shall be increased by the
amount of any savings in the Operating Cost for such period
attributable to such vacancies (as determined by the Landlord
acting reasonably) and any reference to the Operating Cost in
this Lease shall be deemed to refer to the Operating Cost as
so increased. Any report of the Landlord's accountant or other
licensed public accountant appointed by the Landlord for the
purpose shall in the absence of manifest error be conclusive
as to the amount of Operating Cost for any period to which
such report relates.
q) "Rent" means and includes the Basic Rent, Additional Rent and all other
sums payable by the Tenant to the Landlord under this Lease;
r) "Rentable Area" in the case of a whole floor of the Building shall
include all area within the outside walls and shall be computed by
measuring to the inside surface of the glass of the outer Building
walls without deduction for columns and projections necessary to the
Building, and shall include the Service Areas within and exclusively
serving the floor, but shall not include the stairs and elevator shafts
supplied by the Landlord for use in common with other tenants, and
flues, stacks, pipe shafts or vertical ducts within their enclosing
walls;
s) "Rentable Area" in the case of part of a floor of the Building shall
include all area occupied and shall be computed by measuring from the
inside surface of the glass of the outer Building walls to the office
side of corridors or other permanent partitions or to the lease line
separating the Leased Premises from any other area of the Building or
Service Areas where no wall or partition exists and to the centre of
partitions which separate the area occupied from adjoining Rentable
Areas without deduction for columns and projections necessary to the
Building or for any storefront or doorway area recessed from the lease
line and shall include a portion of the Service Areas within and
exclusively serving only the floor, but shall not include stairs and
elevator shafts supplied by the Landlord for use in common with other
tenants, and flues, stacks, pipe shafts and vertical ducts within their
enclosing walls within the area occupied; the portion of the Service
Areas to be included in the Rentable Area of the Leased Premises shall
be equal to the area of such Service Areas times a fraction, the
numerator of which is the area of the Leased Premises and the
denominator of which is the area of all leaseable premises (including
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<PAGE> 11
the Leased Premises) on the floor, with such areas to be calculated in
accordance with this subsection without reference to Service Areas;
t) "Rental Taxes" means any tax or duty imposed upon the Landlord which is
measured by or based in whole or in part directly upon the Rent payable
under this lease, whether existing at the date hereof or hereinafter
imposed by any governmental authority, including without limitation
value added tax, business transfer tax, retail sales tax, federal sales
tax, goods and services tax, a harmonized sales tax, excise taxes or
duties, or any other tax similar to any of the foregoing.
u) "Retail Portion of the Building" means that portion of the Building
designated from time to time by the Landlord for rental for retail
purposes;
v) "Service Areas" shall mean the area of corridors elevator lobbies,
service elevator lobbies, refuse area, washrooms, air-cooling rooms,
fan rooms, janitor's closets, telephone and electrical closets and
other closets on the floor serving the Leased Premises and other
premises on such floor should the floor be a multiple tenancy floor;
w) "Taxes" means all taxes, rates, duties, levies and assessments
whatsoever, whether municipal, parliamentary or otherwise, levied,
imposed or assessed against the Building or the Land or upon the
Landlord in respect thereof or from time to time levied, imposed or
assessed in the future in lieu thereof, including those levied, imposed
or assessed for education, schools and local improvements, and
including all costs and expenses (including legal and other
professional fees and interest and penalties on deferred payments)
incurred by the Landlord in good faith in contesting, resisting or
appealing any taxes, rates, duties, levies or assessments, but
excluding taxes and license fees in respect of any business carried on
by tenants and occupants of the Building (including the Landlord) and
income or profits taxes upon the income of the Landlord to the extent
such taxes are not levied in lieu of taxes, rates, duties, levies and
assessments against the Building or the Land or upon the Landlord in
respect thereof and shall also include any and all taxes which may in
future be levied in lieu of taxes as hereinbefore defined;
x) "Tax Cost" for any calendar year means an amount equal to the
aggregate, without duplication, of all Taxes for such calendar year;
y) "Tenant's Particular Share" means either a share attaching only to the
Rentable Area such as limited common property where applicable and
otherwise means the fraction, the numerator of which is the Rentable
Area of the Leased Premises and the denominator of which is the
Rentable Area of the portion of the Building (i.e. Office Portion of
the Building or Retail Portion of the Building or the area of a strata
lot, where the matter deals only with that strata lot) in which the
Leased Premises are located;
z) "Tenant's Share" means the fraction, the numerator of which is the
Rentable Area of the Leased Premises and the denominator of which is
the Total Rentable Area;
aa) "Term" means the term of this Lease set forth in section 3.01 but
includes any renewal thereof under section 3.05 or any extension or any
period of permitted overholding;
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bb) "Total Rentable Area" shall mean the total Rentable Area of the
Building whether rented or not, calculated as if the Building were
entirely occupied by the tenants renting whole floors. The lobby and
entrances on the ground floor and subservice floors used in common by
tenants and areas rented or to be rented for automobile parking or for
storage shall be excluded from the foregoing calculations. The
calculations of the Total Rentable Area, whether rented or not, shall
be adjusted from time to time to give effect to any change.
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<PAGE> 13
ARTICLE 2- PREMISES
2.01 PREMISES
In consideration of the rents, covenants and agreements hereinafter reserved and
contained on the part of the Tenant to be paid, observed and performed, the
Landlord hereby demises and leases to the Tenant, and the Tenant leases from the
Landlord the Leased Premises.
2.02 RELOCATION OF PREMISES
[deleted]
2.03 STRATA TITLE BUILDING
The Building is a Strata Title building. The Landlord agrees to cause the Strata
Corporation to perform those duties of the Landlord that would be normally
performed by the Strata Corporation. The Tenant agrees to abide by the rules
that the Strata Corporation may from time to time enact.
2.04 MAINTENANCE PAYMENTS
The Tenant acknowledges that part of the costs described in the definition of
Operating Costs will be paid by the Landlord as assessments to the Strata
Corporation for the Building. In calculating Operating Costs payable by the
Tenant the Landlord will review the components of the assessment and include in
Operating Costs only those components which are costs included in the definition
of Operating Costs.
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ARTICLE 3 - TERM
3.01 TERM
The Term of the Lease shall be for a period of three (3) years commencing on the
15th day of May 1999 and to be fully completed and ended on the 14th day of May
2002.
3.02 POSTPONEMENT
If the Leased Premises are not ready for occupancy on the Commencement Date of
the Term, then the Tenant shall take possession of the Leased Premises as soon
as the same are ready for occupancy and this Lease shall not be void or voidable
nor shall the Landlord be liable for any loss or damage resulting from the delay
in the Tenant's occupancy and in such event the Term of the Lease shall commence
on the Commencement Date of the Term and any rent-free period of occupancy prior
to the Term shall expire at the beginning of the Term even though the Leased
Premises may not be ready for occupancy.
3.03 LANDLORD'S WORK
The Landlord will not be responsible for the construction of Leasehold
Improvements, but will provide an allowance toward Tenant requirements. Where
approved by the Landlord the Tenant may construct additional Leasehold
Improvements in a good and workmanlike manner in compliance with all municipal,
provincial and federal laws, bylaws, rates and regulations.
3.04 IMPROVEMENT ALLOWANCE
The Leased Premises are leased on an "as is where is" basis but the Landlord
will provide a one-time Tenant Improvement Allowance for work to be completed
within the first 3 months of the Term of 1) up to $20.00 per square foot, 2)
plus up to a maximum of $5,000.00 for improvements to the ventilation system,
and 3) the Landlord will arrange for and pay for improvement to the floor
surface to make it suitable for laying carpet. The $20.00 per square foot
allowance will be reimbursed to the Tenant based on receipts for work completed,
and the reimbursement will be provided by the Landlord within one month of
receiving all receipts for the completed work. The Tenant's proposed Leasehold
Improvements shall be as described to the Landlord, and after approval by the
Landlord, a sketch and description of the proposed Leasehold Improvement shall
be prepared by the Tenant to be attached to this Lease as Schedule E.
3.05 RIGHT OF RENEWAL
Despite section 3.01, where the Tenant is not in default of any covenant term or
obligation contained in this Lease and has not been in such default at any time
during the Term of this Lease (whether waived or cured or not), the Tenant shall
have the right, upon giving not less than six (6) months written notice to the
Landlord (not to be given before July 1, 2001 nor after October 31, 2001) to
renew this Lease for one additional term of three (3) years upon the same
provisions contained in this Lease, except the annual Basic Rent payable for the
renewal term
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<PAGE> 15
and this Right of Renewal. Such a renewal term shall commence on the 1st of
May, 2002. The annual Basic Rent for a renewal term shall be the greater of
$14.50 per square foot per annum plus Rental Taxes or that amount agreed by the
Landlord and Tenant having regard to the prevailing rental rates in the open
market then being charged for the best use of similar premises in the general
area of the Building and if no agreement is reached by February 28, 2002, such
annual Basic Rent shall be determined by 3 arbitrators. Of the three (3)
arbitrators, one is to be appointed and paid by each party and the third is to
be appointed by the first 2 arbitrators, and the provisions of the Commercial
Arbitration Act for the Province of British Columbia and amending Acts shall
govern the arbitration proceedings. The determination, which shall be made by
the said arbitrators or by a majority of them, as the case may be, shall be
final and binding upon the Landlord and the Tenant and the cost of the
arbitration and remuneration of the third arbitrator shall be borne equally by
the Landlord and the Tenant. The provisions of this clause shall be deemed to be
a submission to arbitration within the provisions of the Commercial Arbitration
Act for the Province of British Columbia.
If the annual Basic Rent is not settled or determined at the Commencement Date
of the Renewal Term, then the Tenant shall pay an annual Basic Rent equal to one
hundred and fifty percent (150%) of the annual Basic Rent payable in the last
twelve (12) months of the Lease and, upon determination of the annual Basic Rent
for the Renewal Term, the annual Basic Rent paid to that time shall be adjusted
accordingly.
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ARTICLE 4 - RENT
4.01 RENT
The Tenant shall yield and pay for the Leased Premises unto the Landlord, at the
office of the Landlord, or at such other place as the Landlord may direct in
writing, during the Term in lawful money of Canada without any setoff,
abatement, compensation or deduction whatsoever on the days and at the times
hereinafter specified, Rent which shall include the aggregate of the sums
specified in sub-clauses (a) and (b) below:
(a) BASIC RENT
Basic Rent, which shall include any applicable Rental Taxes, shall be
in the amount per annum set out in the following Schedule of Basic
Rent:
SCHEDULE OF BASIC RENT
<TABLE>
<CAPTION>
LEASE ANNUAL BASIC RENT MONTHLY BASIC RENT
<S> <C> <C>
15th May, 1999 to 14th May, 2002 $14.50 per sq. ft. per annum ($1,562.38 per month
+ Rental Taxes + Rental Taxes)
</TABLE>
(b) ADDITIONAL RENT
Additional Rent, which shall include any applicable Rental Taxes, shall
be the aggregate of the following:
i) The Tenant's Share of Taxes (and the Tenants Particular Share
of Taxes where applicable);
ii) the Tenant's Share of Operating Costs (and the Tenants
Particular Share of Operating Costs where applicable) plus any
applicable Rental Taxes or other taxes thereon; and
iii) such other amounts, charges, costs, and expenses and any
applicable Rental Taxes or other taxes thereon as are required
to be paid by the Tenant to the Landlord pursuant to this
lease in addition to Basic Rent.
4.02 PAYMENT OF RENT
The Rent provided for in this Article 4 shall be paid by the Tenant as follows:
(a) BASIC RENT
The Basic Rent shall be paid in equal consecutive monthly instalments
in advance on the first (1st) day of each and every month during the
Term.
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(b) ADDITIONAL RENT PAYMENTS
The amount of any or all of the items of Additional Rent under
subclause 4.01(b) which the Tenant is to pay may be estimated by the
Landlord for such fiscal period (usually 12 months) or portion thereof
as the Landlord may determine. The Tenant agrees to pay to the
Landlord the amount of such estimate in monthly instalments in advance
in amounts and during the period specified by the Landlord on the first
(1st) day of each and every month during the Term. The Landlord may
make its estimates so that the Tenant's share of Additional Rent will
be payable to the Landlord prior to the time the Landlord is obliged to
pay the costs in respect of which the Additional Rent is payable. The
Landlord may submit to the Tenant at any time during a period a
re-estimate of the amount of Additional Rent payable by the Tenant
under subclause 4.01(b) and a revised monthly instalment amount. As
soon as reasonably possible after the end of the fiscal period for
which such estimated payments have been made, the Landlord will make a
final determination of Tax Cost and Operating Cost for such fiscal
period and notify the Tenant of the actual amount required to be paid
as Additional Rent under subclause 4.01(b). If necessary an
adjustment shall be made between the parties and any money owing by or
to one party shall be paid or credited within 30 days of such notice.
(c) BASIS OF DETERMINING RENT
The Tenant acknowledges that the Basic Rent is calculated on the basis
of the Rentable Area of the Leased Premises, being as set out in
subclause 1.01(b) and at the rate set out in subclause 1.01(e) for each
square foot of Rentable Area.
(d) POST-DATED CHEQUES
If requested by the Landlord from time to time, the Tenant will provide
to the Landlord without prejudice to any other right or remedy of the
Landlord a series of cheques, post dated to the respective due dates of
payments, for the amounts of the Rent and estimates on account thereof
which are periodically payable under this Lease for up to 12 calendar
months at one time.
(e) DEPOSIT
The Tenant will provide the Landlord with $15,626.82 as a deposit to be
applied against the rent for the period of the Term (including the
period of any renewal) as follows: to be applied in payment of the
first month's Additional Rent and Basic Rent and last five (5) month's
Basic Rent and Additional Rent (or the last 5 months of any renewal
Term whichever is later). In the event of default by the Tenant
hereunder, the Landlord may also at its option apply the deposit
against the costs of performing the Tenant's obligations hereunder and
the Landlord's damages.
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4.03 RENT FOR IRREGULAR PERIODS
All Rent reserved herein shall be deemed to accrue from day to day, and if for
any reason it shall become necessary to calculate Rent for irregular periods of
less than one year an appropriate pro rata adjustment shall be made on a daily
basis in order to compute Rent for such irregular period.
4.04 WAIVER OF OFFSET
The Tenant hereby waives and renounces any and all existing and future claims,
offset and compensation against any Rent and agrees to pay such Rent regardless
of any claim, offset or compensation which may be asserted by the Tenant or on
its behalf.
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ARTICLE 5 - TENANTS COVENANTS
5.00 TENANT'S COVENANTS
The Tenant covenants with the Landlord as follows:
5.01 RENT
To pay the Basic Rent and Additional Rent on the days and in the manner provided
herein and to pay all other amounts, charges, costs and expenses as are required
to be paid by the Tenant to the Landlord or to others under this Lease.
5.02 PERMITTED USE
To use the Leased Premises only for general office premises and not to use or
permit to be used the Leased Premises or any part thereof for any other purpose
or business, except that the premises may be used for another use with the
consent of the Landlord, which is not to be arbitrarily withheld.
5.03 WASTE AND NUISANCE
Not to commit or permit any waste or injury to the Leased Premises including the
Leasehold Improvements and trade fixtures therein, any overloading of the floors
thereof, any noise or other nuisance therein or any use or manner of use causing
annoyance to other tenants and occupants of the Building.
5.04 INSURANCE RISKS
Not to do, omit to do or permit to be done or omit to be done upon the Leased
Premises anything which would cause the Landlord's cost of insurance to be
increased (and, without waiving the foregoing prohibition, the Landlord may
demand and the Tenant shall pay to the Landlord upon demand the amount of such
increase of cost caused by anything so done or omitted to be done) or which
shall cause any policy of insurance to be subject to cancellation.
5.05 CONDITION
Not to permit the Leased Premises to become untidy, unsightly or hazardous or
permit unreasonable quantities of waste or refuse to accumulate therein, and at
the end of each business day to leave the Leased Premises in a condition such as
to reasonably facilitate the performance of the Landlord's janitor and cleaning
services referred to in section 6.06.
5.06 BY-LAWS
To comply at its own expense with all municipal, federal, provincial, sanitary,
fire and safety laws, by-laws, regulations and requirement pertaining to the
operation and use of the Leased Premises,
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the condition of the Leasehold Improvements, trade fixtures, furniture and
equipment installed therein and the making by the Tenant of any repairs, changes
or improvements therein.
5.07 FIRE EXIT DOORS
To permit the installation by the Landlord at the cost of the Tenant of any door
in any wall of the Leased Premises necessary to comply with the requirements of
any statute, law, by-law, ordinance, order or regulation referred to in section
5.06, and to permit ingress and egress to and from the Leased Premises by the
Landlord or by other tenants of the Landlord or by their respective employees,
servants, workmen and invitees, by use of such doors in case of fire or
emergency.
5.08 RULES AND REGULATIONS
To observe, and to cause its employees, invitees and others over whom the
Tenant can reasonably be expected to exercise control to observe the Rules and
Regulations attached as Schedule "C" hereto, and such further and other
reasonable rules and regulations and amendments and changes therein as may
hereafter be made by the Landlord of which notice in writing shall be given to
the Tenant provided the Rules and Regulations made by the Landlord are not
inconsistent with the provisions of this Lease, and to observe all Rules and
Regulations and bylaws of the Strata Council and all such rules and regulations
and bylaws by the Landlord or the Strata Council shall be deemed to be
incorporated into and form part of this Lease.
5.09 OVERHOLDING
That if the Tenant continue to occupy the Leased Premises after the expiration
of this Lease without any further written agreement and without objection by the
Landlord, the Tenant shall be a monthly tenant at a monthly rent equal to 150%
of the monthly rent payable by the Tenant as set forth in Article 4 hereof
during the last month of the Term and (except as to length of tenancy) on and
subject to the provisions and conditions herein set out.
5.10 SIGNS AND DIRECTORY
Except for exterior signage to be approved firstly by the Landlord as to design,
size and location and to meet all requirements of the Municipal authority, not
to paint, display, inscribe, place or affix any sign, symbol, notice or
lettering of any kind anywhere outside the Leased Premises (whether on the
outside or inside of the Building) or within the Leased Premises so as to be
visible from the outside of the Leased Premises; with the exception also of a
building standard identification sign at or near the entrance of the Leased
Premises and a directory listing in the main lobby of the Building, in each case
containing only the name of the Tenant and to be subject to the approval of the
Landlord as to design, size and location. Such identification sign and directory
listing shall be installed at the expense of the Tenant, and the Landlord
reserves the right to install them as an Additional Service as if specifically
requested by the Tenant. The Landlord's approval to design, size and location of
the signs will not be arbitrarily withheld.
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5.11 INSPECTION AND ACCESS
To permit the Landlord at any time and from time to time to enter and to have
its authorized agents, employees and contractors enter the Leased Premises for
the purpose of inspection, window cleaning, maintenance, providing janitor
service, making repairs, alterations or improvements to the Leased Premises or
the Building, or to have access to utilities and services (including any
underfloor header ducts and access panels which the Tenant agrees not to
obstruct) or to determine the electric light and power consumption by the Tenant
in the Leased Premises and the Tenant shall provide free and unimpeded access
for the purpose, and shall not be entitled to compensation for any
inconvenience, nuisance or discomfort caused thereby, but the Landlord in
exercising its rights hereunder shall proceed to the extent reasonably possible
so as to minimize the inconvenience to or interference with the Tenant's use and
enjoyment of the Leased Premises during any period of repair or alteration by
the Landlord to the Leased Premises or the Building.
5.12 SHOWING LEASED PREMISES
To permit the Landlord and its authorized agents and employees to show the
Leased to prospective tenants during Normal Business Hours of the last six
months of the Term.
5.13 TENANT'S WORK
To pay for 100% of the cost of the Leasehold Improvements as described in 3.03
and 3.04, which will then be reimbursed by the Landlord up to the maximum of the
Improvement Allowance described in section 3.04.
5.14 JANITOR SERVICE AND IN-SUITE MAINTENANCE
To provide for and to cause when reasonably necessary from time to time the
floors of the leased premises to be swept and cleaned all in keeping with a
first class office building, and to provide for and cause when reasonably
necessary from time to time all in-suite maintenance including but not limited
to replacement of electric bulbs.
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ARTICLE 6 - LANDLORD'S COVENANTS
6.00 LANDLORD'S COVENANTS
The Landlord covenants with the Tenant as follows:
6.01 QUIET ENJOYMENT
The Landlord for itself, its successors and assigns, hereby covenants with the
Tenant, its successors and assigns that it and they, paying the rent hereby
reserved, and performing the covenant on its and their part contained, shall and
may peaceably possess and enjoy the Leased Premises for the Term hereby granted,
without any interruption or disturbance from the Landlord, its successors, or
assigns, or any other person or persons lawfully claiming by, from, through, or
under it, them, or any of them.
6.02 INTERIOR CLIMATE CONTROL
To provide to the Leased Premises during Normal Business Hours, by means
of a system for heating and cooling, filtering and circulating air,
processed air in such quantities, at such temperature as shall maintain
in the Leased Premises conditions of reasonable temperature and comfort
in accordance with good standards of interior climate control generally
pertaining at the date of this Lease applicable to similar buildings
based on normal occupancy of premises for the Permitted Use, but the
Landlord shall have no responsibility for any inadequacy of performance
of the system if the Leased Premises depart from the design criteria as
designed by Perelco Design Ltd. for such system, namely that the
occupancy will not exceed one person for every 100 square feet of floor
area, that the electrical power consumed in the Leased Premises for all
purposes shall not exceed 7.3 watts per square foot of floor area, that
the Tenant shall not have installed partitions or other installation in
locations which interfere with the proper operation of the system, that
the window coverings on exterior windows shall be fully closed while such
windows are exposed to direct sunlight, and that the Landlord shall have
no responsibility to provide for the removal of smoke, dust or odours
which originate from within the Leased Premises. If the use of the Leased
Premises does not accord with the design criteria and changes in the
system are feasible and desirable to accommodate such use the Landlord
may, and at the written request of the Tenant shall, make such changes
and the entire expense of such changes will be reimbursed by the Tenant
to the Landlord.
6.03 ELEVATORS
Subject to the supervision of the Landlord, to furnish for use by the Tenant and
its employees and invitees in common with other persons entitled thereto
passenger elevator service to the Leased Premises, and to furnish for the use of
the Tenant in common with others entitled thereto at reasonable intervals and at
such hours as the Landlord may select, elevator service to the Leased Premises
for the carriage of furniture, equipment, deliveries and supplies, provided
however, that if the elevators shall become inoperative or shall be damaged or
destroyed the Landlord shall have a reasonable time within which to repair such
damage or replace such elevator and the Landlord shall repair or replace the
same as soon as reasonably possible, but shall in no event be liable for
indirect
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or consequential damages or other damages for person discomfort or illness
during such period of repair or replacement.
6.04 ENTRANCES, LOBBIES, ETC.
To permit the Tenant and its employees and invitees during Normal Business Hours
in common with others entitled thereto to use the common entrance, lobbies,
stairways and corridors of the Building giving access to the Leased Premises
(subject to the Rules and Regulations referred to in section 5.08 and such other
reasonable limitations as the Landlord may from time to time impose).
6.05 WASHROOMS
To permit the Tenant and its employees and invitees in common with others
entitled thereto to use the washrooms in the Building on the floor and floors on
which the Leased Premises are situate.
6.06 JANITOR SERVICE
[deleted]
6.07 MAINTENANCE OF COMMON AREAS
To cause the elevators, common entrances, lobbies, stairways, corridors,
washrooms and other parts of the Building from time to time provided for common
use and enjoyment to be swept, cleaned or otherwise maintained substantially in
keeping with a first-class office building.
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ARTICLE 7 - REPAIR AND DAMAGE AND DESTRUCTION
7.01 LANDLORD'S REPAIRS
The Landlord covenants with the Tenant:
(a) subject to section 7.03(b), to keep in a good and reasonable state of
repair, and consistent with the general standards of first-class office
buildings in the city in which the Building is located:
i) the Building (other than the Leased Premises and premises of
other tenants) including the foundation, roof, exterior walls,
including glass portions thereof, the systems for interior
climate control, the elevators, entrances, stairways,
corridors and lobbies and washrooms from time to time provided
for use in common by the Tenant and other tenants of the
Building and the systems provided for bringing utilities to
the Leased Premises.
ii) the structural members or elements of the Leased Premises; and
(b) to repair defects in construction performed or installations made by
the Landlord in the Leased Premises and Insured Damage.
7.02 TENANT'S REPAIRS
The Tenant covenants with the Landlord:
(a) to keep the Leased Premises in a good and reasonable state of repair
and consistent with the general standards of first-class office
buildings in the city in which the Building is located, but subject to
section 7.03(b) including all Leasehold Improvements and all trade
fixtures therein and all glass therein, with the exception of
reasonable wear and tear, defects in construction of the structural
elements of the Leases Premises and Insured Damage therein.
(b) that the Landlord may enter and view the state of repair, and that the
Tenant will repair according to notice in writing, and that the Tenant
will leave the Leased Premises in a good and reasonable state of
repair, subject always to the exceptions referred to in section
7.02(a);
(c) that if any part of the Building including the systems for interior
climate control or for the provision of utilities becomes out of
repair, damaged or destroyed through the negligence or misuse of the
Tenant or its employees, invitees or others for whom the Tenant is in
law responsible or can reasonably be expected to exercise control, the
expense of repairs or replacements thereto necessitated thereby to the
extent not covered by the Landlord's or the Strata Corporation's
insurance shall be reimbursed to the Landlord promptly upon demand; and
d) that in case it shall become necessary or proper at any time from
accident or breakdown or from any cause to improve the condition or
operation of the elevators, heating, ventilating
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and air condition apparatus, electric lighting, boilers or machinery,
or anything pertaining thereto, the Landlord shall be at liberty to
omit the operation of the elevators or heating, ventilating and air
conditioning apparatus or electric lighting until necessary repairs or
improvements shall have been made and completed, without in any manner
or respect affecting the obligations or covenants of the Tenant herein
contained.
7.03 ABATEMENT AND TERMINATION
It is agreed between the Landlord and the Tenant that:
(a) in the event of damage to the Leased Premises or to the Building and if
the damage is such that the Leased Premises or any substantial part
thereof are rendered not reasonably capable of use and occupancy by
the Tenant for the purposes of its business for any period of time in
excess of ten days, then:
i) unless the damage was caused by the fault or negligence of the
Tenant or its employees, invitees or others under its control,
from and after the date of occurrence of the damage and until
the Leased Premises are again reasonably capable of use and
occupancy as aforesaid, Rent shall abate from time to time in
proportion to the part or parts of the Leased Premises not
reasonably capable of use and occupancy; and
ii) unless this Lease is terminated as hereinafter provided, the
Landlord or the Tenant, as the case may be (according to the
nature of the damage and their respective obligations to
repairs as provided in sections 7.01 and 7.02 hereof) shall
repair such damage with all reasonable diligence, but to the
extent that any part of the Leased Premises is not reasonably
capable of such use and occupancy by reason of damage which
the Tenant is obligated to repair hereunder, any abatement of
rent to which the Tenant is otherwise entitled hereunder shall
not extend later than the time by which, in the reasonable
opinion of the Landlord, repairs by the Tenant ought to have
been completed with reasonable diligence; and
(b) if either:
i) the Leased Premises; or
ii) premises whether of the Tenant or other tenants of the Building
comprising in the aggregate half or more of the Rentable Area of
the Building;
are substantially damaged or destroyed by any cause to the extent
such that in the reasonable opinion of the Landlord they cannot
be repaired or rebuilt within 240 days after the occurrence of
the damage or destruction, either the Tenant or the Landlord may
as its option, exercisable by written notice to the other party
given 30 days after the occurrence of such damage or destruction,
terminate this Lease, in which event neither the Landlord nor the
Tenant shall be bound to repair as provided in sections 7.01 and
7.02 hereof, and the Tenant shall instead deliver up possession
of the Leased Premises to the Landlord with reasonable expedition
but in any event within 60 days after the
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delivery of such notice of termination, and rent shall be
proportioned and paid to the date upon which possession is so
delivered up (but subject to any abatement to which the Tenant
may be entitled under section 7.03(a) by reason of the Leased
Premises having been rendered in whole or in part not reasonably
capable of use and occupancy), but otherwise the Landlord or the
Tenant as the case may be (according to the nature of the damage
and their respective obligations to repair as provided in
sections 7.01 and 7.02) shall repair such damage with such
reasonable diligence.
7.04 LANDLORD'S WORKS
The Landlord retains the right to undertake and complete all those works and
improvements of the Building and of the Leased Premises that may be deemed
necessary or useful by the Landlord at its sole discretion to the safety,
efficiency, modernization, comfort or decor of the Building. Such works and
improvements will not give the right to any indemnity to the Tenant, but the
Landlord will use its best endeavours to reduce the discomfort and inconvenience
to the Tenant that the carrying out of these works may create to the Tenant.
Without restricting the generality of the foregoing, the Landlord shall be at
liberty at any time during the said term to remodel, repair, alter, improve or
add to the Leased Premises, or the whole or any part of the Building of which
the Leased Premises form a part, or to change the location of the entrance or
entrances thereof without compensation or responsibility to the Tenants, and for
such purposes, if necessary, to enter into, pass through, work upon and attach
scaffolds or other temporary structures to the Leased Premises, taking
reasonable steps to avoid unnecessary inconvenience to the Tenants.
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ARTICLE 8 - TAXES AND OPERATING COSTS
8.01 LANDLORD'S TAX OBLIGATIONS
The Landlord covenants with the Tenant subject to the provisions of section
8.02, to pay to the taxing authority or authorities having jurisdiction, all
Taxes.
8.02 TENANT'S TAX OBLIGATIONS
The Tenant covenants with the Landlord:
(a) to pay when due, all taxes, business taxes, business licence fees, and
other taxes, rates, duties or charges levied, imposed or assessed by
lawful authority in respect of the use and occupancy of the Leased
Premises by the Tenant, the business or businesses carried on therein,
or the equipment, machinery or fixtures brought therein by or belonging
to the Tenant, or to anyone occupying the Leased Premises with the
Tenant's consent, or from time to time levied, imposed or assessed in
the future in lieu thereof, and to pay to the Landlord upon demand the
portion of any tax, rate, duty or charge levied or assessed upon the
Land or Building that is attributable to any equipment, machinery or
fixtures on the Leased Premises which are not the property of the
Landlord, or which may be removed by the Tenant;
(b) to pay promptly to the Landlord when demanded or otherwise due
hereunder all Taxes in respect of all Leasehold Improvements in the
Leased Premises;
(c) to pay to the Landlord in the manner specified in section 4.02(b) the
Tenant's Share of the Tax Cost.
8.03 TENANT'S TAX COST
After the commencement of the Term of this Lease and prior to the commencement
of each calendar year thereafter which commences during the Term the Landlord
may estimate the Tax Cost for the ensuing calendar year or (if applicable)
broken portion thereof, as the case may be, to become payable under Section
8.02, and notify the Tenant in writing of such estimate. When the Tax Cost for
the calendar year or broken portion of the calendar year in question becomes
finally determined the Landlord shall recalculate the same. If the Tenant has
overpaid the Tenant's Share of Tax Cost, the Landlord shall refund any excess
paid but if any balance remains unpaid, the Landlord shall fix monthly
instalments for the then remaining balance of such calendar year or broken
portion thereof such that, after giving credit for instalments paid by the
Tenant hereunder on the basis of such estimate, the Tenant's Share of the Tax
Cost will have been entirely paid during such calendar year or broken portion
thereof. If for any reason the Tax Cost is not finally determined within such
calendar year or broken portion thereof, the parties shall make the appropriate
readjustment when such Tax Cost becomes finally determined. Any report of the
Landlord's Accountant as to the Tax Cost shall be conclusive as to the amount
thereof for any period to which such report relates.
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8.04 POSTPONEMENT, ETC. OF TAXES
The Landlord may postpone payment of any Taxes payable by it pursuant to
section 8.01 and the Tenant may postpone payment of any Taxes, rates, duties,
levies and assessments payable by it under sections 8.02(a) and (b) in each case
to the extent permitted by law and if prosecuting in good faith any appeal
against the imposition thereof, and provided in the case of a postponement by
the Tenant that if the Building or any part thereof or the Landlord shall become
liable to assessment, prosecution, fine or other liability the Tenant shall have
given security in a form and of an amount satisfactory to the Landlord in
respect of such liability and such undertakings as the Landlord may reasonably
require to ensure payment thereof.
8.05 RECEIPTS, ETC.
Whenever requested by the Landlord the Tenant will deliver to its receipts for
payment of all taxes, rates, duties, levies and assessments payable by the
Tenant pursuant to sections 8.02(a) and (b) hereof and furnish such other
information in connection therewith as the Landlord may reasonably required.
8.06 ALLOCATION OF TAXES
If a separate allocation of Taxes is not issued by the relevant taxing authority
with respect to any Leasehold Improvements, the Landlord or the Tenant may from
time to rime apply to the taxing authority for a determination of the portion of
Taxes attributable to such Leasehold Improvements, which determination shall be
conclusive for the purpose of this Article. In the event that no such
determination may be obtained from the taxing authority, the Landlord shall
establish the portion of Taxes attributable to such Leasehold Improvements using
the then current established principles of assessment used by the taxing
authority or such other method which is fair, reasonable and equitable as
determined by the Landlord.
8.07 OPERATING COST
During the Term of the Lease, the Tenant shall pay to the Landlord in the manner
set forth in this section the Tenant's Share of the Operating Cost (and where
applicable, the Tenant's Particular Share, allocated pursuant to section 8.08 to
that portion of the Building in which the Leased Premises are located). Prior to
the commencement of the Term of this Lease and the commencement of each fiscal
period selected by the Landlord thereafter which commences during the Term, the
Landlord shall estimate the amount of Operating Cost for the ensuing fiscal
period or (if applicable) broken portion thereof, as the case may be, and notify
the Tenant in writing of such estimate. The Operating Cost in any fiscal period
shall be an amount equal to the aggregate of all Operating Costs for that fiscal
period. The Landlord may from time to time alter the fiscal period selected, in
which case, and in the case where only a broken portion of a fiscal period is
included within the Term, the appropriate adjustment in monthly payments shall
be made. From time to time during a fiscal period the Landlord may re-estimate
the amount of Operating Cost in which event the Landlord shall notify the tenant
in writing of such re-estimate and fix monthly instalments for the then
remaining balance of such fiscal period or broken portion thereof such that,
after giving credit for instalments paid by the Tenant on the basis of the
previous estimate or estimates, the
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Operating Cost will have been paid during such fiscal period or broken portion
thereof, but in any event before the end of the Term. As soon as practicable
after the expiration of each fiscal period, the Landlord shall make a final
determination of Operating Cost for such fiscal period or (if applicable) broken
portion thereof and notify the Tenant and the parties shall make the appropriate
adjustment and any monies owing by or to one party by the other upon final
determination shall be paid to the other within ten days of the final
determination. Notices by the Landlord stating the amount of any estimate,
re-estimate or determination of Operating Cost, or monthly instalments payable
need not include particulars of Operating Cost; provided however, the Operating
Cost shall be reported by the Landlord's Accountant and a copy of such report
shall be furnished to the Tenant upon request. Any report of the Landlord's
Accountant as to the Operating Cost shall be conclusive as to the amount thereof
for any period to which such report relates, except in the case of manifest
error.
8.08 ALLOCATION OF OPERATING COST
For any fiscal period or other period of operation determined by the Landlord,
the Landlord may allocate all or any portion of the Operating Cost (or the
individual items making up the Operating Cost) between any Office Portion of the
Building and Retail Portion of the Building in such a manner which reasonably
reflects the use by and benefit to such tenants of the Operating Cost or item of
Operating Cost. The Tenant shall pay, in the same manner set out in section
8.07, the Tenant's Particular Share of the Operating Cost allocated to that
portion of the Building in which the Leased Premises are located. The provisions
of section 8.07, including those dealing with the re-estimate, adjustment and
reporting of Operating Cost for the Building, shall apply to the allocation of
Operating Cost pursuant to this section, to the extent that those provisions are
not inconsistent with the provisions of this section.
8.09 ALLOCATION TO PARTICULAR TENANT
Notwithstanding any of the foregoing, whenever in the Landlord's reasonable
opinion, any Operating Cost or item of Operating Cost properly relates to a
particular tenant or tenants within the Building, the Landlord may allocate and
add such Operating Cost or item of Operating Cost to such tenant or tenants as
part of the Tenant's Particular Share of Operating Costs. Without limitation, if
in the Landlord's reasonable opinion the Tenants consumption of utilities is
greater than the normal or average consumption by tenants of the Building, the
Landlord shall have the right either:
(a) to install meters at the Tenant's expense to measure the Tenant's
consumption of such utilities; or
(b) to retain a qualified consultant to determine the rate by which the
Tenant's consumption exceeds the normal or average consumption by
tenants of the Building.
Based upon the metered consumption or the consultant's report, as applicable,
the Landlord may allocate to the Tenant the amount by which the cost of the
utilities consumed by the Tenant exceeds the cost of utilities normally or on
average consumed by tenants of the Building. Any amount allocated by the
Landlord to the Tenant pursuant to this section shall be payable by the Tenant
forthwith upon demand.
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ARTICLE 9 - UTILITIES AND ADDITIONAL SERVICES
9.01 WATER AND TELEPHONE
The Landlord shall furnish ducts for bringing telephone services to Leased
Premises and shall provide water to washrooms available for the Tenant's use in
common with others entitled thereto.
9.02 ADDITIONAL SERVICES
The Landlord, if it shall from time to time so elect, shall have the exclusive
right, by way of Additional Services, to provide or have its designated agent or
contractor provide any janitor or cleaning services to the Leased Premises
requested by the Tenant which are additional to those required to be provided by
the Landlord under section 6.06, including the Additional Services which the
Landlord agrees to provide at the request of the Tenant, and the Landlord may
also elect to supervise the moving of furniture or equipment of the Tenant and
the making of repairs or alterations conducted within the Leased Premises, and
to supervise or make deliveries to the Leased Premises. The Cost of Additional
Services (including the Landlord's administration fee as in section 1.02(h)
hereof) provided to the Tenant, whether the Landlord shall be obligated
hereunder or shall elect to provide them as Additional Services, shall be paid
to the Landlord by the Tenant from time to time promptly upon receipt of
invoices therefor from the Landlord. Cost of Additional Services charges
directly to the Tenant and other tenants shall be credited in computing
Operating Cost to the extent that they would otherwise have been included.
9.03 EXTRA OPERATING COSTS
The Tenant will pay to the Landlord in the same manner in which Operating Cost
is paid from time to time hereunder any and all additional costs and expenses of
the Landlord which may arise in respect of the use by the Tenant of the Leased
Premises for business hours that do not coincide with Normal Business Hours for
the Building generally or that may arise in respect of extra heating,
ventilating and air conditioning supply, electrical supply and other services
which are required to be provided to tenants of the Building or outside of
Normal Business Hours. The Landlord reserves the right to install at the
Tenant's expense meters to check the Tenant's consumption of electricity, water
or other utilities.
9.04 ENERGY CONSERVATION
The Tenant covenants with the Landlord:
(a) that the Tenant will cooperate with the Landlord in the conservation of
all forms of energy in the Building, including without limitation the
Leased Premises;
(b) that the Tenant will comply with all laws, by-laws, regulations and
orders relating to the conservation of energy and affecting the Leased
Premises or the Building;
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(c) that the Tenant will at its own cost and expense comply with all
reasonable requests and demands of the Landlord made with a view to
such energy conservation provided that such requests are made in
accordance with good management practice; and
(d) that any and all costs and expenses paid or incurred by the Landlord in
complying with such laws, by-laws, regulations and orders, so far as
the same shall apply to or reasonably be apportioned to the Building by
the Landlord, shall be included in the Landlord's Operating Cost for
the purpose of section 1.02(p).
The Landlord shall not be liable to the Tenant in any way for any loss, costs,
damages or expenses, whether direct or consequential, paid, suffered or incurred
by the Tenant as a result of any reduction in the services provided by the
Landlord to the Tenant or to the Building as a result of the Landlord's
compliance with such laws, by-laws, regulations or orders.
9.05 ALTERATIONS
Where, after substantial completion of the Building, the Landlord is required by
law or a competent authority to make alterations to the Leased Premises, they
shall be amortized over about 10 years such that in each year of the Term after
completion of such alterations (but not after the cost thereof has been repaid
to the Landlord), the Tenant shall pay to the Landlord not less than ten percent
of all costs to the Landlord of making such alterations including financing
costs, and if the Landlord is required to make similar alterations to other
portions or areas of the Building the cost of so doing shall be reasonably
apportioned by the Landlord to each of the premises.
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ARTICLE 10 - LICENSES, ASSIGNMENTS AND SUBLETTINGS
10.01 LICENSES, ETC.
The Tenant shall not suffer or permit any part of the Leased Premises to be used
or occupied by any persons other than the Tenant, any subtenants permitted under
section 10.02 and the employees of the Tenant and any such permitted subtenant
nor suffer or permit any part of the Leased Premises to be used or occupied by a
licensee, franchisee or concessionaire, nor suffer or permit any persons to be
upon the Leased Premises other than the Tenant, such permitted subtenants and
their respective employees, customers and others having lawful business with
them.
10.02 ASSIGNMENT AND SUBLETTING
The Tenant shall not assign this Lease or sublet the whole or any part of the
Leased Premises, unless (1) it shall have received or procured a bona fide
written offer to take an assignment or sublease which is not inconsistent with,
and the acceptance of which would not breach any provision of this Lease if this
section is complied with and which the Tenant has determined to accept subject
to this section being complied with, and (2) it shall have first requested and
obtained the consent in writing of the Landlord thereto. Any request for such
consent shall be in writing and accompanied by a true copy of such offer, and
the Tenant shall furnish to the Landlord all information available to the Tenant
and requested by the Landlord as to the responsibility, reputation, financial
standing and business of the proposed assignee or subtenant. Within 30 days
after the receipt by the Landlord of such request for consent and of all
information which the Landlord shall have requested hereunder (and if no such
information has been requested, within 30 days after receipt of such request for
consent) the Landlord shall advise whether it consents to the assignment or
sublease. The Landlord's consent to the Tenant's request for consent to assign
or sublet shall not be arbitrarily withheld and if such consent shall be given,
the Tenant shall assign or sublet, as the case may be, only upon the terms set
out in the offer submitted to the Landlord as aforesaid and not otherwise. The
Tenant further agrees that if the Landlord consents to any such assignments or
subletting, the Tenant shall be responsible for and shall hold the Landlord
harmless from any and all capital costs for Leasehold Improvements and all other
expenses, costs and charges in respect to or arising out of any such assignment
or subletting. Notwithstanding any assignment or subletting, the Tenant
hereunder shall remain bound to the Landlord for the fulfilment of all terms,
covenants, conditions and agreements herein contained.
10.03 CONDITIONS OF CONSENT.
The Landlord may require as a condition of its consent that the proposed
assignee or subtenant agree with the Landlord to observe and perform all the
obligations of the Tenant under this Lease and the Tenant agrees with the
Landlord that:
(a) in the case of an assignment, if the Tenant is to receive from any
assignee, either directly or indirectly, consideration in any form
whatsoever for the assignment of this Lease, the Tenant shall
forthwith pay an amount equal to such consideration to the Landlord;
and
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(b) if the Tenant sublets and receives consideration in any form whatsoever
from the subtenant, either directly or indirectly, at a rate which is
in excess of the Basic Rent payable under this Lease (on a per square
foot basis) for the sublet area, the Tenant shall pay any such excess
to the Landlord in addition to all Rent payable hereunder.
10.04 CHANGE IN CONTROL OF TENANT
(a) If the Tenant is a private corporation and if by the sale or other
disposition, bequest or operation of law of its shares or securities
the control or the beneficial ownership of such corporation is changed
at any time during the Term of this Lease, such change shall be deemed
to be an assignment of the Lease within the meaning of section 10.02.
If such control or beneficial ownership is changed without the prior
written consent of the Landlord, the Landlord may, at its option,
cancel the Lease and the Term hereby granted upon the giving of 60 days
notice to the Tenant of its intention to cancel and this Lease and the
Term shall thereupon be cancelled.
(b) If the Tenant is a partnership and, if at any time during the term of
this Lease, any person who at the time of the execution of this Lease
owns a partner's interest who ceases to own such partner's interest or
there is a material change in the ownership, in the opinion of the
Landlord, in such partner's interest, such cessation or change of
ownership shall constitute an assignment of this Lease for all purposes
of this Article.
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ARTICLE 11 - FIXTURES AND IMPROVEMENTS
11.01 INSTALLATION OF FIXTURES AND IMPROVEMENT
The Tenant will not make, erect, install or alter any Leasehold Improvements or
trade fixtures in the Leased Premises without having requested and obtained the
Landlord's prior written approval, which the Landlord shall not unreasonably
withhold. In making, erecting, installing or altering any Leasehold Improvements
or trade fixtures the Tenant shall comply with the tenant construction
guidelines as established by the Landlord and shall obtain all required building
and occupancy permits and shall not alter or interfere with any installations
which have been made by the Landlord without the prior written approval of the
Landlord, and in no event shall alter or interfere with window coverings
installed by the Landlord on exterior windows. The Tenant's request for any
approval hereunder shall be in writing and accomplished by an adequate
description of the contemplated work and, where appropriate, working drawings
and specifications thereof. Any out off pocket expense incurred by the Landlord
in connection with any such approval shall be deemed incurred by way of
Additional Service and it is agreed that such expenses constitute part of the
Tenant's request to install fixtures or additional Leasehold Improvements. All
work to be performed in the Leased Premises shall be performed by competent
contractors and subcontractors of whom the Landlord shall have approved (such
approval not to be unreasonably withheld, but provided that the Landlord may
require that the Landlord's contractors and subcontractors be engaged for any
mechanical or electrical work) All such work shall be subject to inspection by
and the reasonable supervision of the Landlord as an Additional Service and it
is agreed that such expenses constitutes part of the Tenant's request to install
fixtures or additional Leasehold Improvements and shall be performed in
accordance with any reasonable conditions or regulations imposed by the Landlord
and completed in good and workmanlike manner in accordance with the
description of the work approved by the Landlord.
11.02 LIENS AND ENCUMBRANCES ON FIXTURES AND IMPROVEMENTS
In connection with the making, erection, installation or alteration of Leasehold
Improvements and trade fixtures and all other work or installations made by or
for the Tenant in the Leased Premises the Tenant shall comply with all
provisions of the construction or builders lien act and other statues from time
to time applicable thereto (including any provision requiring or enabling the
retention of portions of any sums payable by way of hold-backs) and except as to
any such hold-back shall promptly pay all accounts relating thereto.
The Tenant shall not create any mortgage, conditional sale agreement or other
encumbrance in respect of its Leasehold Improvements or trade fixtures or permit
any such mortgage, conditional sale agreement or other encumbrance to attach to
the Leased Premises. If and when any mechanics' or other lien for work, labour,
services or materials supplied to or for the Tenant or for the cost of which the
Tenant may be in any way liable or claims therefor shall arise or be filed or
any such mortgage, conditional sale agreement or other encumbrance shall attach,
the Tenant shall within 20 days after receipt of notice thereof procure the
discharge thereof, including any certificate of action registered in respect of
any lien, by payment of giving security or in such other manner as may be
required or permitted by law, and failing which the Landlord may in addition to
all other remedies
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hereunder avail itself of its remedy under section 15.01 and may make any
payments required to procure the discharge of any such liens or encumbrances,
shall be entitled to be reimbursed by the Tenant as provided in section 15.01,
and its right to reimbursement shall not be affected or impaired if the Tenant
shall then or subsequently establish or claim that any lien or encumbrance so
discharged was without merit or excessive or subject to any abatement, setoff or
defence.
11.03 REMOVAL OF FIXTURE AND IMPROVEMENTS
All Leasehold Improvements in or upon the Leased Premises shall immediately at
the expiry of the initial term of this Lease be and become the Landlord's
property without compensation therefor to the Tenant. Except to the extent
otherwise expressly agreed by the Landlord in writing, no Leasehold
Improvements, trade fixtures, furniture or equipment shall be removed by the
Tenant from the Leased Premises either during or at the expiration or sooner
termination of the Term except that (1) the Tenant shall at the end of the Term
remove such of the trade fixtures as the Landlord shall require to be removed,
and (2) the Tenant shall remove its furniture and equipment at the end of the
Term. The Tenant shall, in the case of every removal either during or at the end
of the Term, immediately make good any damage caused to the Leased Premises by
the installation and removal, and shall, at the end of the Term, leave the
Leased Premises in a clean and tidy condition, having removed all waste and
Tenant chattels.
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ARTICLE 12 - INSURANCE AND LIABILITY
12.01 LANDLORD'S INSURANCE
The Landlord shall be deemed to have insured the Building and all improvements
and installations made by the Landlord in the Leased Premises, except to the
extent hereinafter specified, in respect of perils and to amounts and on terms
and conditions which from time to time are insurable at a reasonable premium and
which are normally insured by reasonably prudent owners of properties similar to
the Building, as from time to time determined at reasonable intervals (but
which need not be determined more often than annually and shall be determined
not less often than every three years) by insurance advisors selected by the
Landlord, and whose written opinion shall be conclusive. Upon the request of the
Tenant from time to time the Landlord will furnish a statement as to the perils
in respect of which and the amounts to which it has insured the Building, and
the Tenant shall be entitled at reasonable times upon reasonable notice to the
Landlord to inspect copies of the relevant portions of policies of insurance in
effect and a copy of any relevant opinions of the landlord's insurance
advisors. The Landlord shall maintain such other insurance in such amounts and
upon such terms as would normally be carried by a prudent owner.
12.02 TENANT'S INSURANCE
The Tenant shall take out and keep in force during the Term:
(a) comprehensive general liability (including bodily injury, death and
property damage) (sometimes referred to as "commercial general
liability") insurance on an occurrence basis with respect to the
business carried on, in or from the Leased Premises and the Tenant's
use and occupancy thereof of not less than $3,000,000 per occurrence
which insurance shall include the Landlord as an additional named
insured and shall protect the Landlord in respect of claims by the
Tenant as if the Landlord were separately insured; and
(b) insurance in such amounts as may be reasonably required by the Landlord
in respect of fire and such other perils, including sprinkler leakage
as are from time to time defined in the usual extended coverage
endorsement covering the Tenant's trade fixtures and the furniture and
equipment of the Tenant and (except as to Insured Damage) all Leasehold
Improvements of the Tenant, and which insurance shall include the
Landlord as an additional named insured as the Landlord's interest may
appear with respect to the insured Leasehold Improvements and provided
that any proceeds recoverable in the event of loss to Leasehold
improvements shall be payable to the Landlord but the Landlord agrees
to make available such proceeds toward the repair or replacement of the
insured property if this Lease is not terminated pursuant to any other
provision hereof;
and if the Landlord shall require the same from time to time then
also:
(c) Tenant's fire legal liability insurance in an amount not less than the
replacement value of the Leased Premises;
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All insurance required to be maintained by the Tenant hereunder shall be on
terms and with insurers to which the Landlord has no reasonable objection and
shall provide that such insurers shall provide to the Landlord thirty (30) days'
prior written notice of cancellation or material alteration of such terms. The
Tenant shall furnish to the Landlord certificates or other evidence acceptable
to the Landlord as to the insurance from time to time required to be effected by
the Tenant and its renewal or continuation in force. If the Tenant shall fail to
take out, renew and keep in force such insurance the Landlord may on reasonable
notice to the Tenant do so as the agent of the Tenant and the Tenant shall repay
to the Landlord any amounts paid by the Landlord as premiums forthwith upon
demand.
12.03 Limitation of Landlord's Liability
The Tenant agrees that:
(a) the Landlord shall not be liable for any bodily injury or death of, or
loss or damage to any property belonging to the Tenant or its
employees, invitees, or licensees or any other person in, on or about
the Building or the Land, or for any interruption of any business
carried on in the Leased Premises, unless and to the extent that the
injury, death, loss or damage was caused by the negligent act or
omission of the Landlord and, without limiting the generality of the
foregoing, in no event except the Landlord's negligence shall the
Landlord be liable;
i) for any damage other than Insured Damage or for bodily injury
or death of anyone which results from fire, explosion,
earthquake, flood, falling plaster, steam, gas, electricity,
water, rain, snow, dampness, or leaks from any part of the
Leased Premises or from the pipes, appliances, electrical
system, plumbing works, roof, subsurface or other part or
parts of the Building or Land or from the streets, lanes and
other properties adjacent thereto,
ii) for any damage, injury, noise and other nuisance or death
caused by anything done or omitted by the Tenant or any of its
employees, agents, assignees, subtenants, contractors,
licensees, invitees or anyone for whom the Tenant is in law
responsible, or by any other tenant or person in the Building,
iii) for the non-observance or the violation of any provision of
any of the rules and regulations of the Landlord in effect
from time to time or of any lease by another tenant of
premises in the Building or any concessionaire, employee,
licensee, agent, customer, officer, contractor, or other
invitee of any of them, or by anyone else,
iv) for any act or omission (including theft, malfeasance or
negligence) on the part of any agent, contractor or person
from time to time employed by it to perform janitorial
services, security services, supervision or any other work in
or about the Leased Premises or the Building,
v) for loss or damage, however caused, to money, securities,
negotiable instruments, papers or other valuables of the
Tenant or any of its servants or agents,
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vi) for the failure to supply interior climate control or elevator
service when prevented from doing so by strikes, the necessity
of repairs, any order or regulation of any body having
jurisdiction, the failure of the supply of any utility
required for the operation thereof, or any other cause beyond
the Landlords reasonable control, or
vii) for any bodily injury, death, or damage to property arising
from the use of, or any happening in or about, any elevator;
and
(b) the Tenant releases and discharges the Landlord from any and all
actions, causes of action, claims, damages, demands, expenses, and
liabilities which the Tenant now or hereafter may have, suffer, or
incur which arise from any matter for which the Landlord is not liable
under subclause 12.03 (a).
12.04 LIMITATION OF TENANT'S LIABILITY
The Landlord releases the Tenant from all claims or liabilities in respect of
any damage which is Insured Damage, to the extent of the cost of repairing such
damage, but not from injury, loss or damage which is consequential thereto or
which arises therefrom where the Tenant is negligent or otherwise at fault.
12.05 INDEMNITY OF LANDLORD
Except as provided in section 12.04, the Tenant agrees to indemnify and save
harmless the Landlord in respect of all claims for bodily injury or death, noise
and other nuisance, property damage, or other loss or damage arising from the
conduct of any work by or any act or omission of the Tenant or any assignee,
subtenant, agent, employee, contractor, invitee or licensee of the Tenant, and
in respect of all costs, expenses and liabilities incurred by the Landlord in
connection with or arising out of all such claims, including the expenses of any
action or proceeding pertaining thereto, and in respect of any loss, costs,
expense or damage suffered or incurred by the Landlord arising from any breach
by the Tenant of any of its covenants and obligations under this Lease.
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ARTICLE 13- SUBORDINATION, ATTORNMENT, REGISTRATION AND CERTIFICATES
13.00 TENANT'S COVENANTS
The Tenant agrees with the Landlord that:
13.01 SALE OR FINANCING OF BUILDING
The rights of the Landlord under this Lease may be mortgaged, charged,
transferred or assigned to a purchaser or purchasers or to a mortgagee, or
trustee for bond holders and in the event of a sale or of default by the
Landlord under any mortgage, trust deed or trust indenture and the purchaser,
mortgagee or trustee, as the case may be, duly entering into possession of the
Building or the Leased Premises, the Tenant agrees to attorn to the become the
tenant of such purchaser or purchasers, mortgagee or trustee under the terms of
this Lease.
13.02 SUBORDINATION AND ATTORNMENT
This Lease and all rights of the Tenant hereunder (if required by any mortgagee
or the holder of any trust deeds or trust indentures), shall be subject and
subordinate to all mortgages, trust deeds or trust indentures now or hereafter
existing which may now or hereafter affect the Building and to all renewals,
modifications, consolidations, replacements and extensions thereof; provided
that the Tenant whenever required by any mortgagee (including any trustee under
a trust deed or trust indenture) shall attorn to such mortgagee as the tenant
upon all of the terms of this Lease. The Tenant agrees to execute promptly
whenever requested by the Landlord or by such mortgagee an instrument of
subordination or attornment, as the case may be, as may be required of it,
provided that the mortgagee shall agree in writing not to disturb the Tenant's
possession hereunder so long as it is observing and performing the covenants and
the conditions on its behalf contained in this Lease.
13.03 REGISTRATION
The Landlord shall have no obligation to execute and deliver this Lease in
registerable form, provided however that if the Tenant pays all costs, expenses,
fees, and taxes in connection with the registration of this lease in the
appropriate Land Title Office and the cost of any plans required for such
registration, the Landlord shall execute and deliver this Lease in registerable
form.
13.04 Certificates
The Tenant agrees with the Landlord that the Tenant shall promptly whenever
requested by the Landlord from time to time execute and deliver to the Landlord
(and if required by the Landlord, to any mortgagee including any trustee under a
trust deed or trust indenture or purchaser designated by the Landlord) a
certificate in writing confirming that the Tenant is in possession of the Leased
Premises, commenced to pay rent on a specific date, that this lease is in full
force and effect, is modified or unmodified, confirming the rental payable
hereunder and the state of the accounts
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between the Landlord and Tenant, the existence or non-existence of defaults, and
any other matters pertaining to this Lease as to which the Landlord shall
request a certificate. Should the Tenant fail to deliver any such certificate
within 20 days of the Landlord's request, the Landlord shall be entitled to
execute such a certificate on the Tenant's behalf as the Tenant's true and
lawful attorney and the Tenant shall by its failure to deliver such a
certificate within 20 days of the Landlord's request be estopped thereafter from
denying the accuracy of the contents of such a certificate or the Landlord's
authority to execute such a certificate on the Tenant's behalf.
13.05 ASSIGNMENT BY LANDLORD
In the event of a sale by the Landlord of the Building or a portion thereof
containing the Leased Premises or the assignment by the Landlord of this Lease
or any interest of the Landlord hereunder, and to the extent that such purchaser
or assignee has assumed the covenants and obligations of the Landlord hereunder,
the Landlord shall, without further written agreement, be freed and relieved of
liability upon such covenants and obligations.
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ARTICLE 14- OCCURRENCE OF DEFAULT
14.01 UNAVOIDABLE DELAY
Except as herein otherwise expressly provided, if and whenever and to the extent
that either the Landlord or the Tenant shall be prevented, delayed or restricted
in the fulfilment of any obligations hereunder in respect of the supply or
provision of any service or utility, the making of any repair, the doing of any
work or any other thing (other than the payment of Rent) by reason of strikes or
work stoppages, or being unable to obtain any material, service, utility of
labour required to fulfil such obligation or by reason of any statute, law or
regulation of or inability to obtain any permission from any governmental
authority having lawful jurisdiction preventing, delaying or restricting such
fulfilment, or by reason of other unavoidable occurrence other than lack of
funds, the time for fulfilment of such obligation shall be extended during the
period in which such circumstance operates to prevent, delay or restrict the
fulfilment thereof, and the other party to this Lease shall not be entitled to
compensation for any inconvenience, nuisance or discomfort thereby occasioned;
but nevertheless the Landlord will use its best efforts to maintain services
essential to the use and enjoyment of the Leased Premises.
14.02 NO ADMISSION
The acceptance of any rent from or the performance of any obligation hereunder
by a person other than the Tenant shall not be construed as an admission by the
Landlord of any right, title or interest of such person as a subtenant,
assignee, transferee or otherwise in the place and stead of the Tenant.
14.03 PART PAYMENT
The acceptance by the Landlord of a part payment of any sums required to be paid
hereunder shall not constitute waiver or release of the right of the Landlord to
payment in full of such sums.
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ARTICLE 15- REMEDIES FOR LANDLORD AND TENANT'S DEFAULT
15.01 REMEDYING BY LANDLORD, NON-PAYMENT AND INTEREST
In addition to all the rights and remedies of the Landlord available to it in
the event of any default hereunder by the Tenant either by any other provision
of this Lease or by statute or the general law, the Landlord, after 5 day's
notice:
(a) shall have the right at all times to remedy or attempt to remedy any
default of the Tenant, and in so doing may make any payments due or
alleged to be due by the Tenant to third parties and may enter upon the
Leased Premises to do any work or other things therein and in such
event all expenses of the Landlord in remedying or attempting to remedy
such default shall be payable by the Tenant to the Landlord forthwith
upon demand;
(b) shall have the same rights and remedies in the event of any non-payment
by the Tenant of any amounts payable by the Tenant under any provision
of this Lease as in the case of nonpayment of rent; and
(c) if the Tenant shall fail to pay any Rent promptly when due, shall be
entitled, if it shall demand it, to interest thereon at a rate of five
percent per annum in excess of the rate of interest charged and
published from time to time by the main branch in Vancouver of the
Toronto Dominion Bank, as its prime rate for loans to creditworthy and
substantial commercial customers, from the date upon which the same was
due until actual payment thereof.
(d) shall be entitled to be reimbursed by the Tenant for any costs incurred
by it as a result of the Tenant's default under this Lease, including
without limitation an amount determined by the Landlord to be paid by
the Tenant in the event that an instrument of payment tendered by the
Tenant is dishonoured. The Tenant acknowledges that at the date
hereof, such amount is $200.00.
15.02 REMEDIES CUMULATIVE
The Landlord may from time to time resort to any or all of the rights and
remedies available to it in the event of any default hereunder by the Tenant,
either by any provision of this Lease or by statute or the general law, all of
which rights and remedies are intended to be cumulative and not alternative, as
the express provisions hereunder as to certain rights and remedies are not to be
interpreted as excluding any other or additional rights and remedies available
to the Landlord by statute or general law.
15.03 RIGHT OF RE-ENTRY ON DEFAULT OR TERMINATION
Provided and it is expressly agreed that if and whenever the Rent hereby
reserved or other monies payable by the Tenant or any part thereof, whether
lawfully demanded or not, are unpaid and the Tenant shall have failed to pay
such Rent or other monies within five business days after the
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Landlord shall have given to the Tenant notice requiring such payment, or if the
Tenant shall breach or fail to observe and perform any of the covenants,
agreements, provisos, conditions, rules or regulations and other obligations on
the part of the Tenant to be kept, observed or performed hereunder and the
Tenant shall fail to cure such breach or failure within 10 days after notice by
the Landlord, or if this Lease shall have become terminated pursuant to any
provision hereof, or if the Landlord shall have become entitled to terminate
this Lease and shall have given notice terminating it pursuant to any provision
hereof, then and in every such case it shall be lawful for the Landlord
thereafter to enter into and upon the Leased Premises or any part thereof and in
the name of the whole and the same to have again, repossess and enjoy as of its
former estate, anything in this Lease contained to the contrary notwithstanding.
15.04 TERMINATION AND RE-ENTRY
If and whenever the Landlord becomes entitled to re-enter upon the Leased
Premises under any provision of the Lease, the Landlord, in addition to all
other rights and remedies, shall have the right to terminate this Lease
forthwith by leaving upon the Leased Premises notice in writing of such
termination.
15.05 PAYMENT OF RENT, ETC, ON TERMINATION
Upon the giving by the Landlord of a notice in writing terminating this Lease,
this Lease and the Term, shall terminate, and the Tenant shall immediately
deliver up possession of them. The Landlord, at its option and, in addition to
any other remedies it may have hereunder, may require the Tenant, by notice, to
pay to the Landlord as damages for the default of the Tenant in the observance
and performance of its covenants under this Lease, all rent and additional
payments reserved or required to be paid and remaining unpaid by the Tenant
under this Lease from the date of default by the Tenant to and including the
expiration of the term of this Lease and, for the purposes hereof, it is agreed
by the Tenant with the Landlord that this Lease constitutes a commercial
contract. The Landlord hereby agrees to mitigate such damages by using its best
efforts to release the Leased Premises.
15.06 RE-LETTING, ETC.
Whenever the Landlord becomes entitled to re-enter upon the Leased Premises
under any provision of this Lease the Landlord in addition to all other rights
it may have shall have the right as agent of the Tenant to enter the Leased
Premises and re-let them and to receive the rent therefor and as the agent of
the Tenant to take possession of any furniture or other property thereon and to
sell the same at public or private sale without notice and to apply the proceeds
thereof and any rent derived from re-letting the Leased Premises upon account of
the rent due and to become due under this Lease and the Tenant shall be liable
to the Landlord for the deficiency, if any.
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ARTICLE 16- EVENTS TERMINATING LEASE
16.01 CANCELLATION OF INSURANCE
If any policy of insurance upon the Building from time to time effected by the
Landlord shall be cancelled or about to be cancelled by the insurer by reason of
the use or occupation of the Leased Premises by the Tenant or any assignee,
subtenant or licensee of the Tenant or anyone permitted by the Tenant to be upon
the Leased Premises and the Tenant after receipt of notice in writing from the
Landlord shall have failed to take such immediate steps in respect of such use
or occupation as shall enable the Landlord to reinstate or avoid cancellation
(as the case may be) of such policy of insurance, the Landlord may at its option
terminate the Lease by leaving upon the Leased Premises notice in writing of
such termination.
16.02 PROHIBITED OCCUPANCY, BANKRUPTCY, ETC.
In case without the written consent of the Landlord the Leased Premises shall be
used by any other persons than the Tenant or its permitted assigns or subtenants
or for any purpose other than that for which they were leased, or occupied by
any persons whose occupancy is prohibited by this Lease, or if the Leased
Premises shall be vacated or abandoned, or remain unoccupied for 15 days or
more, while capable of being occupied, or if the Term or any of the goods and
chattels of the Tenant shall at any time be seized in execution or attachment,
or if the Tenant shall make any assignment for the benefit of creditors or any
bulk sale, become bankrupt or insolvent or take the benefit of any statute now
or hereafter in force for bankrupt or insolvent debtors or (if a corporation)
shall take any steps or suffer any order to be made for its winding-up or other
termination of its corporate existence, then in any such case the Landlord may
at its option terminate this Lease by leaving upon the Leased Premises notice
in writing of such termination and thereupon, in addition to the payment by the
Tenant of Rent and other payments for which the Tenant is liable under this
Lease, Rent for the current month and the next ensuing three months' Rent shall
immediately become due and be paid by the Tenant, or party then controlling the
Tenant's affairs.
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ARTICLE 17- MISCELLANEOUS
17.01 NOTICES
Any notice required or contemplated by any provision of this Lease shall be
given in writing, and if to the Landlord, either delivered to an executive
officer of the Landlord or sent by facsimile transmission or mailed by prepaid
registered mail addressed to the Landlord at:
1660 - 1188 West Georgia Street
Vancouver, B.C. V6E 4A2
Facsimile No. (604) 662-7958
and if to the Tenant, addressed to it and either delivered or sent by facsimile
transmission or mailed by prepaid registered mail to the Leased Premises. Every
such notice shall be deemed to have been given when delivered or, if sent by
facsimile transmission, when sent or, if mailed as aforesaid, upon the third day
after the day of mailing thereof in Canada. Either the Landlord or the Tenant
may from time to time by notice in writing to the other designate another
address in Canada as the address to which notices are to be mailed, sent or
delivered to it.
17.02 EXTRANEOUS AGREEMENTS
The Tenant acknowledges that there are no covenants, representations,
warranties, agreements or conditions expressed or implied relating to this Lease
of the Leased Premises save as expressly set out in this Lease and in any
agreement to lease in writing between the Landlord and the Tenant pursuant to
which this Lease has been executed. This Lease may not be modified except by an
agreement in writing executed by the Landlord and the Tenant
17.03 TIME OF ESSENCE
Time shall be of the essence of this Lease.
17.04 AREA DETERMINATION
If any calculation or determination by the Landlord of the Rentable Area of any
premises (including the Leased Premises) or the Building is disputed or called
into question, it shall be calculated or determined by the Landlord's architect
or quantity surveyor from time to time appointed for the purpose, whose
certificate shall be conclusive in the absence of manifest error.
17.05 SUCCESSORS AND ASSIGNS
This Lease and everything herein contained shall ensure to the benefit of and be
binding upon the successors and assigns of the Landlord and the successors and
permitted assigns of the Tenant. References to the Tenant shall be read with
such changes in gender as may be appropriate, depending upon whether the Tenant
is a male or female person or a firm or corporation, and if the
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Tenant is more than one person or entity, the covenants of the Tenant shall be
deemed joint and several.
17.06 FRUSTRATION
The Landlord and the Tenant agree that notwithstanding the occurrence or
existence of any event or circumstance or the non-occurrence of any event or
circumstance and so often and for so long as the same may occur or continue
which, but for this section, would frustrate or void this Lease, the obligations
and liabilities of the Tenant hereunder shall continue in full force and effect
as if such event or circumstance has not occurred or existed.
17.07 WAIVER
No condoning, excusing or overlooking by the Landlord or Tenant of any default,
breach or nonobservance by the Tenant or the Landlord at any time or times in
respect of any covenant, proviso or condition herein contained shall operate as
a waiver of the Landlord's or the Tenant's rights hereunder in respect of any
continuing or subsequent default, breach or non-observance or so as to defeat or
affect in any way the rights of the Landlord or the Tenant herein in respect of
any such continuing or subsequent default or breach and no waiver shall be
inferred from or implied by anything done or omitted by the Landlord or the
Tenant save only express waiver in writing.
17.08 GOVERNING LAW
This Lease shall be governed by and construed in accordance with the laws of the
province in which the Building is located. The Landlord and the Tenant agree
that all of the provisions of this Lease are to be construed as covenants and
agreements as though the words importing such covenants and agreements were
included in each separate section hereof. Should any provision or provisions of
this Lease be illegal or not enforceable, it or they shall be considered
separate and severable from the Lease and its remaining provisions shall remain
in force and be binding upon the parties hereto as though the said provision or
provisions had never been included.
17.09 NET LEASE
The Tenant acknowledges and agrees that it is intended that this Lease shall be
a completely carefree net lease for the Landlord except as shall be otherwise
provided in the specific provisions contained in this Lease, and that the
Landlord shall not be responsible during the Term for any costs, charges,
expenses and outlays of any nature whatsoever arising from or relating to the
Leased Premises, and the Tenant, except as shall be otherwise provided in the
specific provisions contained in this Lease, Shall pay all charges, impositions
and costs of every nature and kind relating to the Leased Premises whether or
not referred to herein and whether or not within the contemplation of the
Landlord or the Tenant and the Tenant covenants with the Landlord accordingly.
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17.10 CAPTIONS
The captions appearing in this Lease have been inserted as a matter of
convenience and for reference only and in no way define, limit or enlarge the
scope or meaning of this Lease or of any provision thereof.
17.11 ACCEPTANCE
The Tenant does hereby accept this Lease of the above described land having had
the opportunity to seek independent legal advice on the matter, to be held by it
as tenant, and subject to the conditions, restrictions and covenants above set
forth.
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ARTICLE 18- SCHEDULES
18.01 SCHEDULES
The following schedules are attached to this Lease and form part hereof:
Schedule A - Floor Plan of the Leased Premises
Schedule B - Legal Description of the Lands
Schedule C - Rules and Regulations
Schedule D - Additional Terms (Parking, and First Right of Refusal)
Schedule E - Proposed Tenant's Leasehold Improvements
IN WITNESS WHEREOF the Landlord and the Tenant have executed this Lease by their
authorized signatories as of the day and year first above written.
FOR THE LANDLORD:
GUILD PROPERTIES INC.
Per: [ILLEGIBLE] C/S
------------------------------------
FOR THE TENANT:
SMARTSOURCES.COM TECHNOLOGIES INC.
Per: /s/ [ILLEGIBLE]
------------------------------------
Authorized Signatory
Print name here: [ILLEGIBLE]
------------------------
C/S
Per:
------------------------------------
Authorized Signatory
Print name here:
------------------------
WITNESS TO: /s/ [ILLEGIBLE]
Tenant's Signature ----------------------------------
Signature
[ILLEGIBLE]
----------------------------------
Print Name of Witness
[ILLEGIBLE]
----------------------------------
Address of Witness
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WITNESS TO:
Second Signatory for Tenant ----------------------------------
Signature
----------------------------------
Print Name of Witness
----------------------------------
Address of Witness
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SCHEDULE A
FLOOR PLAN OF THE LEASED PREMISES
(outlined in red on the attached plan)
SEE ATTACHED
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SCHEDULE B
LEGAL DESCRIPTION OF THE LEASED PREMISES
The following is the legal description for Suite 200, 2030 Marine Drive, North
Vancouver, B.C.:
PID:
Strata Lot 5, DL764, Group 1, New Westminster District, Strata Plan LMS2241
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SCHEDULE C
RULES AND REGULATIONS
The Tenant shall observe the following Rules and Regulations (as amended,
modified or supplemented from time to time by the Landlord as provided in the
Lease):
1. The Tenant shall not use or permit the use of the Leased Premises in
such manner as to create any objectionable noises, odours or other
nuisance or hazard, or breach any applicable provisions of municipal
by-law or other lawful requirements applicable thereto or any
requirements of the Landlord's insurers, shall not permit the Leased
Premises to be used for cooking (except with the Landlord's prior
written consent) or for sleeping, shall keep the Leased Premises tidy
and free from rubbish, shall deposit rubbish in receptacles which are
either designated or clearly intended for waste and shall leave the
Leased Premises at the end of each business day in a condition such as
to facilitate the performance of the Landlord's janitor services in the
Leased Premises.
2. The Tenant shall not abuse, misuse or damage the Leased Premises or any
of the improvements or facilities therein, and in particular shall not
deposit rubbish in any plumbing apparatus or use it for other than
purposes for which it is intended, and shall not deface or mark any
walls or other parts of the Leased Premises.
3. The Tenant shall not perform, patronize or (to the extent under its
control) permit any canvassing, soliciting or peddling in the Building,
shall not install in the Leased Premises any machines vending or
dispensing refreshments or merchandise and shall not permit food or
beverages to be brought to the Leased Premises except by such means, at
such times and by such persons as have been authorized by the Landlord.
4. The entrances, lobbies, elevators, staircases and other facilities of
the Building are for use only for access to the Leased Premises and
other parts of the Building and the Tenant shall not obstruct or misuse
such facilities or permit them to be obstructed or misused by its
agents, employees, invitees or others under its control.
5. No safe or heavy office equipment shall be moved into or about the
Building by or for the Tenant unless the consent of the Landlord is
first obtained and unless all due care is taken. Such equipment shall
be moved upon the appropriate steel bearing plates, skids or platforms
and subject to the Landlord's direction, and at such times, by such
means and by such persons as the Landlord shall have approved. No
furniture, freight or bulky matter of any description shall be moved in
or out of the Leased Premises or carried in the elevators except during
such hours as the Landlord shall have approved. Hand trucks and similar
appliances shall be equipped with rubber ties and other safeguards
approved by the Landlord, and shall be used only by prior arrangements
with the Landlord.
6. The Tenant shall permit and facilitate the entry of the Landlord, or
those designated by it, into the Leased Premises for the purpose of
inspection, repair, window cleaning and the performance of other
janitor services, and shall not permit access to main header ducts,
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janitor and electrical closets and other necessary means of access to
mechanical, electrical and other facilities to be obstructed by the
placement of furniture or otherwise. The Tenant shall not place any
additional locks or other security devices upon the doors of the Leased
Premises without the prior written approval of the Landlord and subject
to any conditions imposed by the Landlord for the maintenance of
necessary access.
7. The Landlord may require that all or any persons entering and leaving
the Building at any time other than the Normal Business Hours
satisfactorily identify themselves and register in books kept for the
purpose and may prevent any person from entering the Leased Premises
unless provided with a key thereto and a pass or other authorization
from the Tenant in a form satisfactorily to the Landlord and may
prevent any person removing any goods therefrom without written
authorization.
8. The Tenant shall refer to the Building only by name from time to time
designated by the Landlord for it and shall use such name only for the
business address of the Leased Premises and not for any promotion or
other purpose.
9. The Tenant shall not interfere with window coverings installed upon
exterior windows, and shall close or (if such window coverings are
remotely controlled) permit to be closed such window coverings during
such hours from dusk to dawn as the Landlord may require, and shall not
install or operate any interior drapes installed by the Tenant so as to
interfere with the exterior appearance of the Building.
The foregoing Rules and Regulations, as from time to time amended, are not
necessarily of uniform application, but may be waived in whole or in part in
respect of other tenants without affecting their enforceability with respect to
the Tenants and the Leased Premises, and may be waived in whole or in part with
respect to the Leased Premises without waiving them as to future application to
the Leased Premises, and the imposition of Rules and Regulations shall not
create or imply an obligation of the Landlord to enforce them and shall create
no liability on the part of the Landlord for their non-enforcement.
49
<PAGE> 54
SCHEDULE D
ADDITIONAL TERMS FORMING PART OF THE LEASE
1. Parking
The Landlord will provide the Tenant throughout the Term with 2 reserved parking
stalls in the Building being stalls 9 and 32 for the exclusive use of the Tenant
free of charge until October, 2000 and then at the additional charge of $25.00
per month per stall payable from November 1, 2000.
2. Right of First Refusal
a) Where, before April 30, 2002, the Landlord has received a
bonafide-offer from a Third Party for the purchase of the
Leased Premises (Strata Lot 5), the Landlord agrees not to
accept that offer until advising the Tenant of the offer and
then until either,
i) ten (10) business days have passed since advising the
Tenant without the Tenant presenting the Landlord
with a legally binding offer on the same or better
terms for the purchase of the Leased Premises, or
ii) the Tenant has advised the Landlord that it does not
intend to exercise its rights under this section and
has no objection to the Landlord accepting the offer
from the Third Party.
b) The Landlord shall not be required to accept any purchase
offer for the Leased Premises from a Third Party or from the
Tenant.
50
<PAGE> 55
SCHEDULE E
Attached to and forming part of the Lease by GUILD PROPERTIES INC. to
SMARTSOURCES.COM TECHNOLOGIES INC.
PROPOSED TENANT'S LEASEHOLD IMPROVEMENTS PLAY
51
<PAGE> 56
PART OF SCHEDULE E
[DRAWING OF RENOVATION PLAN]
<PAGE> 1
EXHIBIT 10.32
CONSULTING AGREEMENT
THIS AGREEMENT dated the 1st day of January, 2000
BETWEEN:
VOLSAN BUSINESS CONSULTING, a business pursuant to the laws of the
Province of BC and Having an office located at 9477 209th Street
Langley, BC. V1M 2H1
("Volsan")
OF THE FIRST PART
AND:
SMARTSOURCES.COM INC., a body corporate duly incorporated pursuant to
the laws of the State of Colorado
("Smartsources")
OF THE SECOND PART
WHEREAS:
A. Smartsources, which is in the business of developing certain computer
software products and marketing the same;
B. has agreed to enter into this Consulting Agreement with Volsan in the
terms and conditions hereinafter contained.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
mutual covenants hereinafter contained the parties hereto do agree as follows:
1.0 CONSULTING
1.1 Volsan agrees to provide such reasonable services and assistance to
Smartsources as follows:
a. Assist in investor relations and corporate communications with
shareholders and potential investors
b. Assist in the dissemination of information relating to
Smartsources to shareholders and Volsan's database of potential
investors.
c. Maintain a minimum of three full time individuals devoting their
efforts to investor relations and corporate communication
activities relating to Smartsources.
2.0 TERM
2.1 The term of this Agreement shall run from the date of execution
hereof up to and including December 31, 2000. The agreement can be terminated
subject to paragraph 5.0 with no further obligations by either party.
3.0 SMARTSOURCES COVENANTS
3.1 Smartsources hereby covenants that it shall provide all necessary
information, documents, and other such reasonable assistance as may be required
by Volsan to undertake its obligations contained herein.
<PAGE> 2
-2-
4.0 CONSULTING FEES
4.1 In consideration of the services to be provided hereunder,
Smartsources agrees to pay to Volsan the sum of $12,000 per month
payable on the first day of each month.
4.2 Smartsources will reimburse Volsan for all out of pocket expenses
reasonably, actually and properly incurred by it in connection
with the performance of its duties. Volsan will be responsible
for its direct rent and general office overhead.
4.3 In the event Volsan is able to introduce individuals or groups to
the Company who participate, Smartsources will arrange for compensation to be
paid to Volsan in addition to the monthly fee set out in paragraph 1a. whereby
such compensation is determined on a case-by-case basis subject to market
conditions and any restrictions or limitations imposed by the regulatory
authorities.
5.0 TERMINATION
5.1 Notwithstanding the term of agreement set out in paragraph 2
hereof, either Smartsources or Volsan may terminate this agreement upon 30 day
written notice to the other party.
6.0 GENERAL
6.1 This Agreement shall be construed in accordance with and the
parties hereto agree to be bound by the laws of the Province of British
Columbia.
6.2 Neither party shall assign its rights hereunder without the
written consent of the other party hereto.
6.3 Time shall be of the essence hereof.
6.4 Any notice to be given hereunder shall be duly and effectively
given when delivered to the address set out on page 1 hereof.
6.5 This Agreement shall ensure to the benefit of the parties hereto
their successors and assigns.
6.6 Nothing contained herein shall be construed as creating a
partnership, joint venture, or employment contract between the parties hereto.
IN WITNESS WHEREOF the parties hereto have executed this
Agreement as of the day and year first written above:
SMARTSOURCES.COM INC. VOLSAN BUSINESS CONSULTING
/s/ DARRYL CARDEY /s/ [ILLEGIBLE]
- --------------------------------- ---------------------------------
Authorized Signatory Authorized Signatory
December 21, 1999 December 21, 1999
- --------------------------- -------------------------
Date Date
<PAGE> 1
EXHIBIT 10.33
[AB PHOENIX, INC. LETTERHEAD]
2/16/00
Darryl Cardey
CFO & Vice-President Corporate Finance
SmartSources.com, Inc.
2030 Marine Drive, Suite 100
North Vancouver, BC, Canada Y7P 1V7
Via Facsimile: 604.986.0869
Re: Remuneration for Services Rendered
Dear Darryl,
With regard to the above referenced item, AB Phoenix, Inc., proposes to
arrange and introduce to SmartSource.com a financial institution (i.e.~
professionally managed fund, banque, insurance corporation) that will invest an
amount of no less than $5,000,000 (Five Million Dollars. U.S.) via an
equity/debt type structure in the company, SmartSource.com. AB Phoenix will
endeavor to assist in structuring such a transaction that meets, and or exceeds.
the terms proposed by SmartSource.com and conforms with all applicable
securities and banking laws in the United States and Canada.
The remuneration for this consultation shall be as follows:
1. 5.5% (Five and One Half Percent) of the total dollar amount raised vis
a vis this proposed transaction.
2. 1% (One Percent) of the total dollar amount raised. to cover any and
all expenses incurred by AB Phoenix, Inc., with regard to this proposed
transaction.
3. An option to purchase 25,000 (Twenty Five Thousand) warrants, (One
warrant equaling one common share of the company, SmartSourcecom) at a
price to be computed at 120% of the closing price (As stipulated in the
"Term Sheet" as produced and stated by Rose Glen Capital Group. Inc.,
as of 1/27/00), of the common shares of the company, SmartSource.com.
at the time of the closing of this proposed transaction. These warrants
shall be granted the right to be exercised for a period of time not to
exceed 2 (Two) years from the closing of this proposed transaction.
These warrants will be granted the right to "Piggy Back" the
registration of the underlying common shares for these warrants with
the registration of the underlying shares for the warrants granted to
the financial institution that invests in this proposed transaction.
4. Any and all legal fees incurred by AB Phoenix. Inc., and or its
financial institution that invests in this proposed transaction. Said
fee shall not exceed 1% (One Percent) of the total dollar amount of
this
<PAGE> 2
transaction. (This legal fee is stipulated in the "Term Sheet" as
produced and stared by Rose Glen Capital Groups Inc., as of 1/27/00).
The legal fees shall not exceed this amount.
5. In the event that the financial institution(s) who has been introduced
to this proposed transaction (Under the auspices of AB Phoenix, Inc.)
were to subsequently exercise any optional/warrants with regard to this
equity/debt transaction, AB Phoenix, Inc.. would be entitled to a fee
of 3% (Three Percent) of the total monies procured by SmartSource.com
in the course of the exercise of the options/warrants. This fee amount
survives for the period at one year from the closing of this proposed
transaction.
AB Phoenix, Inc. is of the opinion that this is a fair and equitable
compensation for the work to be profferred with regard to this proposed
transaction. Should you have any questions regarding this remuneration proposal
please telephone me at the herein-stated telephone number. If this proposal is
satisfactory please indicated such by affixing your signature to the understood
and agreed portion of this document.
Best regards,
Eric A.M. Dennis
Managing Director
mfp
/s/ ERIC A.M. DENNIS /s/ DARRYL CARDEY
- ---------------------------------- ----------------------------------------
Eric A.M. Dennis Darryl Cardey
Managing Director CFO & Vice-President, Corporate Finance
AB Phoenix, Inc. SmartSources.com., Inc.
Agreed and Understood Agreed and Understood
<PAGE> 3
[AB PHOENIX, INC. LETTERHEAD]
2/16/00
Darryl Cardey
CFO & Vice-President, Corporate Finance
SmartSources.com, Inc.
2030 Marine Drive, Suite 100
North Vancouver, BC, Canada V7P 1V7
Via Facsimile: 604.986.0869
Re: Warrants/Options per Remuneration Agreement
Dear Darryl,
With regard to the above referenced item, AB Phoenix, Inc., desires to
have the warrants/options designated in the following format;
AB Phoenix, Inc.
21,250
Twenty One Thousand Two Hundred and Fifty Warrants/Options
G. KOPOLOW & ASSOCIATES, INC.
3750
Three Thousand Seven Hundred and Fifty Warrants/Options
777 Bonhomme Avenue
Suite 1200
Clayton, Mo.
63105
314-230.3740
These warrants/options are to be granted to the entities as stated
herein, in the amounts stated herein. If you have any questions regarding
this information, please telephone me at the stated number.
Best regards,
/s/ ERIC A.M. DENNIS
- ----------------------------------
Eric A.M. Dennis
Managing Director
<PAGE> 1
EXHIBIT 11.01
COMPUTATION OF 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
=============== ===============
</TABLE>
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
EXHIBIT 21.01
SUBSIDIARIES
SmartSources.com Technologies, Inc.
Nifco Investments, Ltd.
Intelli Trade, Inc.
Origin Software Corporation
Infer Technologies, Inc.
<PAGE> 1
EXHIBIT 23.02
CONSENT OF MOSS ADAMS LLP
We consent to (a) the inclusion in the Registration Statement of
SmartSources.com, Inc. on Form SB-2 of our report dated March 4, 2000, relating
to the consolidated financial statements of SmartSources.com, Inc. and
Subsidiaries as of September 30, 1999 and for the two years in the period then
ended and (b) the reference to our firm in the Registration Statement under the
caption "Experts."
/s/ Moss Adams LLP
Moss Adams LLP
Bellingham, Washington
March 15, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SMARTSOURCES.COM, INC. AND SUBSIDIARIES' UNAUDITED CONDENSED FINANCIAL
STATEMENTS AS OF AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND FOR THE
AUDITED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-2000 SEP-30-1999
<PERIOD-START> OCT-01-1999 OCT-01-1998
<PERIOD-END> DEC-31-1999 SEP-30-1999
<CASH> 197,000 164,200
<SECURITIES> 0 0
<RECEIVABLES> 251,000 221,300
<ALLOWANCES> (20,000) (36,500)
<INVENTORY> 0 0
<CURRENT-ASSETS> 470,000 361,300
<PP&E> 1,083,000 1,067,300
<DEPRECIATION> (325,000) (303,000)
<TOTAL-ASSETS> 2,709,000 2,709,400
<CURRENT-LIABILITIES> 405,000 277,000
<BONDS> 0 0
0 0
0 0
<COMMON> 2,695,000 1,821,300
<OTHER-SE> (4,441,000) (3,333,700)
<TOTAL-LIABILITY-AND-EQUITY> 2,709,000 2,709,400
<SALES> 212,000 721,000
<TOTAL-REVENUES> 212,000 721,000
<CGS> 0 0
<TOTAL-COSTS> 1,155,000 2,023,900
<OTHER-EXPENSES> 0 13,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 11,000 50,300
<INCOME-PRETAX> (954,000) (1,366,200)
<INCOME-TAX> 0 693,400
<INCOME-CONTINUING> (954,000) (672,800)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (954,000) (672,800)
<EPS-BASIC> (0.08) (0.07)
<EPS-DILUTED> (0.08) (0.07)
</TABLE>
