Exhibit 99.1
POINTS INTERNATIONAL LTD.
www.points.com
ANNUAL INFORMATION FORM
March 21, 2005
Information presented herein is current as of December 31, 2004,
unless otherwise indicated. All dollar amounts are in
Canadian dollars unless otherwise indicated.
TABLE OF CONTENTS
INTRODUCTION .............................................................. 1
SUBSIDIARIES .............................................................. 2
GENERAL DEVELOPMENT OF THE BUSINESS ....................................... 2
Three-Year History ..................................................... 2
DESCRIPTION OF THE BUSINESS ............................................... 4
Core Business - Points Solutions ....................................... 4
Points.com ............................................................. 4
Points.com Business Solutions .......................................... 5
Specialized Skill and Knowledge ........................................ 5
Competitive Conditions ................................................. 5
Status of New Products ................................................. 6
Components - Raw Materials, Component Parts and Finished Products ...... 6
Intangible Property .................................................... 7
Seasonality ............................................................ 7
Economic Dependence .................................................... 8
Changes to Contracts ................................................... 8
Employees .............................................................. 8
Foreign Operations ..................................................... 8
Reorganizations ........................................................ 8
RISK FACTORS .............................................................. 8
Limited Financial Resources ............................................ 8
Maturity of the CIBC Capital Partners' Debenture ....................... 9
Liabilities of the Corporation ......................................... 9
Technology and Product Development Risks for Points.com version 3.0 .... 10
Sensitivity to Foreign Exchange Rate Changes ........................... 10
High Dependence on Key Customers ....................................... 10
Dependence upon Key Personnel .......................................... 11
Growth-Related Risks ................................................... 11
Impediments to Material Transactions ................................... 11
Conflicts of Interest .................................................. 11
Limited Customers ...................................................... 11
Revenues ............................................................... 12
DIVIDENDS ................................................................. 12
GENERAL DESCRIPTION OF CAPITAL STRUCTURE .................................. 12
MARKET FOR SECURITIES ..................................................... 14
ESCROWED SECURITIES ....................................................... 15
DIRECTORS AND OFFICERS .................................................... 15
Name, Address and Occupation of Directors .............................. 15
Current Officers of the Corporation .................................... 17
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Security Holdings ...................................................... 18
BOARD COMMITTEES .......................................................... 18
Audit Committee ........................................................ 18
Human Resources and Corporate Governance Committee ..................... 20
Corporate Cease Trade Orders or Bankruptcies ........................... 20
Conflicts of Interest .................................................. 20
LEGAL PROCEEDINGS ......................................................... 20
INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS ............... 20
Indebtedness by an Officer ............................................. 20
Shares of the Corporation Issued in Exchange for Property .............. 21
TRANSFER AGENT ............................................................ 22
MATERIAL CONTRACTS ........................................................ 22
ADDITIONAL INFORMATION .................................................... 22
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INTRODUCTION
Points International Ltd. (herein referred to as "Points International" or the
"Corporation") is a corporation existing under the Canada Business Corporations
Act ("CBCA"). The address of the principal office of the Corporation is 800 -
179 John Street, Toronto, Ontario M5T 1X4.
The Corporation was initially incorporated under the Business Corporations Act
(Alberta) on January 5, 1999 under the name Sportek Systems Inc. Pursuant to
Certificates of Amendment dated February 2, 1999 and April 16, 1999,
respectively, the Corporation changed its name to Sports Technologies Group Inc.
("STGI") and amended its articles to remove its private company restrictions.
By way of Articles of Amendment dated February 10, 2000, STGI's name was changed
to Exclamation International Incorporated. The Corporation was then continued
from the Business Corporations Act (Alberta) to the Business Corporations Act
(Ontario) ("OBCA") on February 17, 2000. The Articles of Continuance were
amended on December 20, 2001, June 27, 2002 and April 10, 2003 to, respectively,
add a new series of preferred shares designated the "Series One Preference
Share," to change the Corporation's name to "Points International Ltd.," and to
add two new series of preferred shares designated the "Series Two Preferred
Share" and "Series Three Preferred Share."
Effective November 10, 2004, the Corporation was continued from the OBCA to the
CBCA. As part of the continuance, the Corporation amended its Articles to remove
the provisions relating to the "Series A Preferred Shares," to remove the
provision disallowing the directors to appoint one or more additional directors
between annual general meetings, and to remove the provision restricting
meetings of shareholders to the City of Toronto and anywhere in Alberta.
In connection with the continuance, the Corporation repealed its then existing
by-laws and adopted by-laws that conform to CBCA requirements.
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SUBSIDIARIES
At December 31, 2004, the Corporation had the following subsidiaries:
(FLOW CHART)
Note: (1) The Corporation does not own 100% of Points.com Inc. on a
fully-diluted basis due to certain outstanding options and warrants. See
"General Development of the Business - Three-Year History" below.
GENERAL DEVELOPMENT OF THE BUSINESS
THREE-YEAR HISTORY
On November 5, 2001, the Corporation's board of directors adopted a
restructuring plan (hereafter referred to as the "Restructuring Plan"), pursuant
to which, on February 8, 2002, the Corporation acquired the 5% of the issued
shares of Points.com Inc. ("Points.com") not previously indirectly held by the
Corporation. As a result, the Corporation and its affiliates own directly and
indirectly 100% of the outstanding shares of Points.com. However, the
Restructuring Plan did not result in the Corporation acquiring all of the shares
of Points.com on a fully diluted basis. Points.com had previously issued to
certain loyalty program partners "partner warrants", and rights to acquire
warrants, which are exercisable to acquire common shares of Points.com. In
addition, Points.com had previously issued options to acquire its common shares.
Holders of the options to acquire common shares of Points.com have been granted
the right to put those shares to the Corporation for common shares ("Common
Shares") of the Corporation.
The Corporation is now focused solely on the business of Points.com. In
connection with the Restructuring Plan, the Corporation wound down or divested
most of its remaining interests in other companies and minority holdings. The
Corporation continues to hold an 8-10% (fully diluted) interest in ThinApse
Corporation ("ThinApse"), a Vancouver-based technology company. In 2004,
ThinApse sold its assets to a company listed on the TSX Venture Exchange. The
Corporation still holds shares in ThinApse and, on December 31, 2004, wrote down
its $161,629 investment to zero.
On April 11, 2003, InterActiveCorp ("IAC"), through a wholly-owned affiliate,
made a $15.1 million strategic investment in Points International (the "IAC
Investment"). Under the IAC Investment, Points International issued one
convertible preferred share, the Series Two Preferred Share and Common Share
purchase warrants (the "Warrants") for aggregate cash consideration
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of $12.4 million and $2.7 million, respectively. As at the date hereof, the
Series Two Preferred Share is convertible, for no additional consideration, into
up to 19,999,105 Common Shares, subject to certain anti-dilution adjustments.
The Warrants are exercisable to acquire up to 55% of the Common Shares
(calculated on an adjusted fully diluted basis) less the number of Common Shares
issued or issuable on conversion of the Series Two Preferred Share, and expire
on April 11, 2006.
Under an investor rights agreement entered into on the closing of the IAC
Investment, IAC and its affiliates have various rights, including prospectus
qualification rights, pre-emptive rights in connection with further issuances of
shares, matching rights for change of control transactions, approval rights over
certain material transactions and rights to board and board committee
representation.
On March 31, 2004, the Corporation acquired the assets of MilePoint, Inc. (the
"MilePoint Acquisition"), a loyalty program technology provider and operator,
for $3.5 million in cash and four million common shares.
At the beginning of the second quarter of 2005, the Corporation will begin
making some important changes to the Points.com consumer Web site.
Currently, the Points.com Web site is a transactional Web site that allows
consumers to swap miles and points between over 45 reward programs. While
established as the world's only service of its kind, Points.com, in its current
form, represents only a small part of the Corporation's opportunity to service
consumers' total reward program experience.
The new Points.com Web site, referred to as "Points.com version 3.0," represents
a major enhancement in the relationship with both reward program partners and
the consumer. Today, the consumer interacts with a Web site that centres on a
single feature: swap ("Swap"). Points.com version 3.0 will broaden the Web
site's offerings and present each consumer with a personalized view of his or
her reward program universe.
Because of this personalized view of the consumer's reward program universe,
Points.com will be able to help consumers release more value from their
favourite programs and "Get More Rewards, Faster(TM)". This is accomplished by
adding new mile and point management tools such as ways to purchase ("Buy") and
earn ("Earn") more miles or points in their favourite programs. In addition, the
system will be driven by an ATG Marketing Enterprise System that will use the
consumer's unique reward program, reward goals and point balance mix to suggest
ways to use the Earn, Buy and Swap tools most effectively.
As a result of these changes, Points.com will become a "reward management
portal" that provides a more comprehensive and engaging consumer experience.
This functionality is expected to add new revenue streams to the Points.com
business model. Most significantly, the loyalty management utility of the Web
site is expected to allow Points.com to focus more on a subscription membership
model as a core aspect of the business.
Management expects that Points.com version 3.0 will be phased in over the course
of 2005, with monthly releases beginning in the second quarter. In April 2005,
Points.com users will
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immediately notice a new look and feel that will reflect the more
consumer-focused approach. Over the course of the spring and summer, Points.com
will add or expand its Buy, Earn and Suggestion functionality.
In the second half of 2005, management will begin driving consumer traffic to
the new Points.com Web site to leverage the Web site's ongoing evolution.
In accordance with Canadian generally accepted accounting principles and the
Canadian Institute of Charted Accountants (CICA) handbook, Sections 3061 and
3062, Web site development costs incurred in the Web site application and
infrastructure development associated with Points.com version 3.0 will be
capitalized. For additional information, see the Corporation's Management's
Discussion and Analysis ("MD&A"), "General and Administrative Expenses," page
23, "Property, Plant and Equipment," page 30 and "Capital Resources - Planned
Capital Expenditures" page 36.
DESCRIPTION OF THE BUSINESS
The Corporation had only one operating segment, Points.com, in each of 2004 and
2003.
CORE BUSINESS - POINTS SOLUTIONS
The Corporation has developed a proprietary technology platform that allows it
to offer a portfolio of solutions, referred to as the Points Solutions, to the
loyalty program industry. The technology platform was designed to create value
for consumers and loyalty programs alike. The Points Solutions are comprised of
Points.com (referred to as the Points Exchange in past disclosures) and a suite
of Points.com Business Solutions (referred to as the Private Branded Solutions
in past disclosures) available to loyalty program operators. The Corporation's
business is principally conducted over the internet (other than functions such
as customer support), allowing its two primary categories of customers (loyalty
program operators and loyalty program consumers) to be virtually anywhere in the
world.
Points Solutions accounted for 97% ($7.56 million) of the Corporation's
revenues. The remaining 3% is attributed to interest income.
Points.com
The Corporation's cornerstone product is the proprietary Points.com Web site.
Points.com is an online service allowing consumers who are members of
participating loyalty programs to swap their loyalty program points and/or miles
between other participating loyalty programs.
As at December 31, 2004, Points.com had attracted 45 loyalty program
participants (as at the date hereof, one additional partner is under contract
but not yet launched and three partners have been launched), including the
loyalty programs of leading airlines, hotels, online and retail businesses, and
gift certificate programs.
For more information on the development of new technology for Points.com, see
"General Development of the Business - Three-Year History" herein
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Points.com Business Solutions
At December 31, 2004, the Corporation had 55 Points.com Business Solutions
products in the marketplace. This suite of technologies includes:
Buy and Gift - facilitates the online sale and gift of miles, points and other
loyalty program currencies.
Corporate - facilitates the sale of loyalty program currencies to corporate
customers.
Transfer - facilitates the amalgamation or transfer of loyalty program
currencies among multiple accounts.
Integrate - functions as a common platform to process transactions between
third-party loyalty programs, to simplify and automate a complex and
resource-intensive process with a single integration.
Elite - facilitates the online sale of tier status to members of loyalty
programs.
Systems Design - custom applications developed for select large loyalty program
partners. See page 6 "Status of New Products" of this AIF for an example of the
redeemAAmiles program, an application built for a loyalty partner.
Specialized Skill and Knowledge
The Corporation employs 11 key senior managers. These managers possess over 60
years of aggregate loyalty experience, have managed large loyalty program sales
organizations, and built large loyalty technology systems. The success of the
Corporation is dependent on the experience of such key personnel and loss of
such personnel could adversely affect the Corporation's business, operations and
prospects.
In addition, the Points Solutions are a proprietary technology. As a result, the
Corporation is also dependent on its ability to retain talented and highly
skilled information technology professionals to maintain, build and operate the
technology infrastructure. The loss of key employees could adversely affect the
Corporation's business, operations and prospects.
Competitive Conditions
Several indirect competitors are currently in the market with limited product
offerings. Other internet Web sites that offer financial and account aggregation
and management (e.g., MileageManager) are potential competitors. These indirect
and potential competitors currently offer a product similar to the Corporation's
"My Account" (previously referred to as the pointsfolio(TM)), but do not offer
an swap function. Management believes that none of the competitors is actively
partnering with loyalty programs to independently provide a solution similar to
the Points.com service. Rather, these indirect competitors are only able to
retrieve and display member account information. However it is possible that one
or more of the indirect or potential competitors could, in the future, compete
directly with Points.com.
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The Corporation must compete with a wide range of companies that seek to provide
business solutions technology, from small companies to large companies. Many
existing and potential competitors do or could have greater technical or
financial resources than the Corporation. The financial performance of the
Corporation may be adversely affected by such competition. In particular, no
assurances can be given that additional direct competitors to the Corporation
may not be formed or the Corporation may not lose some or all of its
arrangements with its loyalty program partners, including its key loyalty
program partners, decreasing its ability to be competitive and operate as a
viable business.
Companies such as IBM Ltd. and Sabre Inc. ("Sabre") (a leading provider of
technology for the travel industry) are potential competitors for Points.com's
services. Sabre in particular has greater resources and extensive relationships
with airlines, although a significant investment in time and resources would be
required to develop offerings similar to those offered by Points.com.
Points.com has established mutually beneficial relationships with potential
competitors. During April 2002, Points.com and Sabre entered into a formal
agreement that has resulted in the Points Solutions being marketed to loyalty
programs internationally by Sabre. Sabre focuses on international markets,
working in complement with Points.com's business development team, which focuses
on North American markets, through Points.com and Points International (US)
Ltd., and on international markets through Points International (UK) Limited.
With operations in 45 countries, Sabre's marketing network has global reach and
has established relationships with major loyalty programs.
Any competition, as described above, could have a material adverse impact on the
Corporation's business, operations and prospects.
Status of New Products
On September 17, 2004, a redemption platform was launched to enable American
Airlines AAdvantage program members to redeem their miles online for hotel stays
and other program points. Participating companies to date include Marriott,
Diners Club, Intercontinental Hotels and Hilton. The participant list will be
expanded in the first quarter of 2005 to include other partner options. The
redeemAAmiles program adds value to the American Airlines AAdvantage(R) program
and its members by increasing the utility of miles earned, and facilitating an
online process that reduces transaction processing time from weeks to days. The
redemption platform is an example of a Systems Design solution. The
Corporation's economics are similar to a swap transaction at Points.com.
Components - Raw Materials, Component Parts and Finished Products
Predominantly all of Points.com's business is conducted electronically.
Accordingly, the sources, pricing and availability of raw materials and
component parts for the Corporation are not known to be subject to any material
constraints.
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Intangible Property
The Corporation and Points.com hold the rights to several important trademarks,
including the Points.com and Points.net domain names. Several other trademark
applications are in process. On December 16, 2003, Points.com was awarded the
registration of the trademark POINTS.COM and design in the U.S. and has an
application pending in Canada for the trademark POINTS.COM. On July 5, 2001,
MyPoints.com, Inc. ("MyPoints") filed a Statement of Opposition in Canada to the
Corporation's application for the trade-mark POINTS.COM. On December 13, 2004,
Points International and MyPoints signed a Mutual Coexistence Agreement
stipulating that neither party will object to the use, application or
registration of their respective marks, in Canada, for stated services. In
January 2005, MyPoints withdrew its opposition to the Points.com registration.
The Corporation has filed eight trademark applications in Canada. Four of the
trademarks have been registered and four are pending. The Corporation has also
filed six trademark applications in the U.S., of which four have been registered
and two are pending.
In connection with the MilePoint Acquisition, the Corporation acquired 10
registered trademarks and two pending trademark applications. The trademarks are
filed in the U.S., the European Union, Australia and Japan.
The proprietary technology used in the business is owned by Points.com, and
Points.com has made two applications to register patents. The patent, entitled
the "Apparatus and Method of Facilitating the swap of Points Between Selected
Entities", has been filed in Canada and the U.S. while the patent entitled
"Apparatus and Method of Distributing and Tracking the Distribution of Incentive
Points", has been filed in Canada, the U.S. and Australia.
In addition, as part of the MilePoint Acquisition, the Corporation acquired two
patents - "Loyalty Program Tracking and Conversion System", filed in Canada, the
U.S. and Australia and "Loyalty Currency Vending System" (a Continuation-in-Part
of the previous MilePoint patent) has been filed in the U.S.
Points.com is regularly granted the right to use its partners' trademarks in
connection with the joint branding of its Web site and provision of services to
members.
As Points.com operates in a technology-based environment, its intellectual
property and its access to the property of its loyalty program partners are
critical to the Corporation's ongoing business.
Seasonality
Points Solutions (comprising Points.com and Points.com Business Solutions) is
not subject to major seasonality factors. There is, however, one period in which
growth slows or declines and one period in which certain products are active and
generate revenue.
During July and August, Points Solutions experiences a slight decline in
activity as fewer consumers are online purchasing, transferring or exchanging
miles. This modest decline has occurred in each of the past two years.
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The Elite product is only available to certain loyalty programs' consumers from
late January to mid April with most of the activity occurring during February
and March.
Economic Dependence
See Note 21 of the Corporation's Audited Consolidated Financial Statements,
which are incorporated by reference herein.
Changes to Contracts
The Corporation anticipates the renegotiation of contracts to occur in the
normal course of business. In the event that contracts are not renegotiated on
terms reasonably satisfactory to the Corporation, the Corporation's business
could be materially adversely affected. However, the Corporation's management
anticipates that material contracts will be successfully renegotiated.
Employees
As at December 31, 2004, the Corporation had 79 full-time employees (including
three contractors replacing employees in a temporary leave of absence) and three
short-term contractors.
Foreign Operations
Due to the nature of Points International's business, management of the
Corporation does not believe that there are any particular risks associated with
the foreign operations of the Corporation that differ materially from the risks
associated with the domestic operations of the Corporation, although the
Corporation believes it is possible that it may face competition within foreign
markets.
Reorganizations
See "General Development of the Business - Three-Year History" herein for
additional information.
RISK FACTORS
Investing in internet-based businesses can have a high degree of business risk.
In addition to the other information contained in this AIF, investors should
carefully consider the risk factors set out below, review the discussion under
"Description of the Business" above and review the MD&A prior to making an
investment decision with respect to the Corporation.
LIMITED FINANCIAL RESOURCES
The financial resources of the Corporation are limited. For 2004, Points
International reported ($2,352,995) of cash flows used in operating activities,
deposits of $13,153,623 and working capital of ($7,767,648). If cash flow
provided by operations does not increase the Corporation's liquid and
unencumbered cash position, it could impact the Corporation's ability to pay its
liabilities and/or exploit its business opportunities and fund growth.
Consequently, the
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Corporation could in future be dependent upon its ability to obtain additional
financing either by debt, equity or other means.
The ability of the Corporation to arrange such additional financing in the
future will depend in part upon the prevailing capital market conditions, as
well as the business performance of the Corporation. There can be no assurance
that the Corporation will be successful in its efforts to arrange additional
financing on terms satisfactory to the Corporation. The nature of the
relationship with IAC (including the ability of IAC to acquire control of the
Corporation, to exercise pre-emptive rights and the right to match third-party
offers for the Corporation) may result in difficulties for the Corporation in
finding new third-parties willing to make debt or equity investments in the
Corporation.
If additional financing is raised by the issuance of shares from the treasury of
the Corporation, control of the Corporation may change and/or shareholders may
suffer additional dilution. If additional financing is raised by the issuance of
debt, the Corporation will be more highly leveraged going forward and the
repayment of or interest payments upon such debt could have a negative effect on
the cash flow of the Corporation. If adequate financing is not available, or is
not available on acceptable terms, the Corporation may not be able to take
advantage of opportunities, invest in technological development and
enhancements, or otherwise respond to competitive pressures and remain in
business. In addition, the failure to secure additional financing could result
in the failure of the Corporation to meet its liabilities as they become due,
which would have a material adverse effect on the Corporation.
MATURITY OF THE CIBC CAPITAL PARTNERS' DEBENTURE
When the 11% $6,000,000 senior secured convertible debenture (as amended from
time to time, the "Debenture") issued to CIBC Capital Partners, a division of
Canadian Imperial Bank of Commerce, matures on July 4, 2005, the Corporation
will be required to repay $6 million of principal and $3,413,118 of accrued
interest to CIBC Capital Partners. The repayment of $9,413,118 of principal and
accrued interest will cause the Corporation to be in a negative working capital
position, may materially threaten its solvency and/or may severely restrict the
ability to grow its business. There is no certainty that the Corporation would
have sufficient cash at such time to make the repayment. However, CIBC Capital
Partners has the option, exercisable prior to March 31, 2005, to extend the
maturity date to March 15, 2006 and thereafter the right to extend the maturity
of the Debenture for up to two additional one-year periods.
For additional information see page 32, "Commitments Related to the Terms of
Certain Financing Arrangements" of the Corporation's MD&A.
LIABILITIES OF THE CORPORATION
As at December 31, 2004, Points International had outstanding consolidated
current liabilities of $24,775,900 including the Debenture and consolidated
total liabilities of $39,115,680, including the Series One Preference Share and
the Series Two Preferred Share, all of which are discussed in greater detail in
the MD&A. There is no assurance that the Corporation will be able to repay such
amounts when and if they are due, as any such repayment will be dependent upon
generating sufficient cash reserves and may also be dependent upon securing
additional financing.
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TECHNOLOGY AND PRODUCT DEVELOPMENT RISKS FOR POINTS.COM VERSION 3.0
Points.com version 3.0 is a significant technology development project that the
Corporation expects to release at the beginning of the second quarter of 2005.
Monthly updates are planned into early 2006. See "General Development of the
Business - Three-Year History" for additional information.
With any substantial technology development project, the Corporation faces the
real and material possibility that some of the risks outlined below will occur.
Risks related to purchased third-party software include partial or incorrect
software deployment and a lack of domain knowledge of the third-party software
in the Corporation's IT department.
Risks related to internally developed software include, but are not limited to,
unanticipated complexity, software defects, design flaws or an incomplete
design.
Marketing risks include, but are not limited to, poor customer experience,
insufficient perceived consumer value, deficiencies in reporting, tracking, and
forecasting capabilities, poor customer retention rates, low customer
acquisition rates and low customer activity rates.
SENSITIVITY TO FOREIGN EXCHANGE RATE CHANGES
The translation of the Corporation's revenues and expenses is, and will continue
to be, sensitive to changes in the U.S./Canadian foreign exchange rates ("FX
Rates"). Changes to FX Rates will have greater impact on the Corporation's
revenues than on its expenses as approximately 92% of the Corporation's revenues
are in U.S. dollars and the remaining 8% are split between Canadian dollars,
Euros, Great Britain Pounds and Swiss Francs. Management expects that the
percentage of U.S. dollar-based revenue will not decrease significantly in 2005.
In 2004, approximately 69% of the Corporation's general and administrative
expenses were in Canadian dollars, 28% were U.S. dollar-based and 3% were based
in other foreign currencies. The Corporation does not have material foreign
exchange risk with its cash expenses as it has sufficient foreign currency
reserves to meet its foreign obligations.
Over the past three years, the FX rate differential has been negative. In 2004,
the decline in the U.S. dollar resulted in a 11% lower revenue growth, or
approximately $905,500, offset by a 3.5% decrease in expense growth, or
approximately $426,000.
For additional information see page 22, "Foreign Exchange Rates" of the
Corporation's MD&A.
HIGH DEPENDENCE ON KEY CUSTOMERS
Approximately 54% of the Corporation's revenues are from its three largest
customers (the two largest customers represent 43% of revenues). In 2003, two
customers represented 61% of the Corporation's revenues. In addition, 61% (2003
- - 58%) of the Corporation's deposits are due to these three customers.
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DEPENDENCE UPON KEY PERSONNEL
See "Description of the Business - Core Business - Points Solutions -
Specialized Skill and Knowledge" herein.
GROWTH-RELATED RISKS
The Corporation may be subject to growth-related risks, including capacity
constraints and pressure on its internal systems and controls. The Corporation's
ability to manage its growth effectively will require it to continue to
implement and improve its operational and financial systems and to expand, train
and manage its employee base. Any inability of the Corporation to deal with this
growth could have a material adverse impact on its business, operations and
prospects.
IMPEDIMENTS TO MATERIAL TRANSACTIONS
Under the investor's rights agreement entered into by the Corporation and IAC in
connection with the IAC Investment, in the event that there is an offer to
effect any transaction that could result in any person (or group of persons)
other than IAC acquiring (i) assets of Points International and/or its
subsidiaries that are, individually or in the aggregate, material to Points
International or any of its subsidiaries, or (ii) 20% or more of the equity of,
or voting rights in respect of, Points International or any of its subsidiaries,
IAC is entitled to notice of such transaction and the right to propose a
matching transaction. The existence of this matching right in favour of IAC will
significantly reduce the probability that a third party would propose a
transaction in the nature described above and that could otherwise have been
beneficial to the Corporation and its shareholders.
CONFLICTS OF INTEREST
There are potential conflicts of interest to which the directors and officers
will be subject with respect to the operations of the Corporation. As a result
of the Corporation's efforts to engage people who have experience in the
Corporation's area of business, some of the directors and officers have been and
will continue to be engaged in other businesses. Situations may arise where the
directors and officers will be in direct competition or have an interest in
parties that conflict with the Corporation. Any such conflicts will be subject
to the governance practices of the board of directors and governed by the law
applicable to directors' and officers' conflict of interest.
LIMITED CUSTOMERS
There can be no assurance that Points International will be successful in
marketing its products to potential retail customers and loyalty program
operating partners. Competitors of the Corporation may have long-standing
relationships with their customers. As a result, it may be difficult for the
Corporation to penetrate certain markets to gain new customers or loyalty
program partners. In addition, it is possible that the Corporation will not be
able to maintain its existing relationships with retail customers and loyalty
program partners.
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REVENUES
Operating revenues are derived from contracts for Points Solutions. This
includes revenue from Points.com Business Solutions, in the form of development
fees, maintenance fees and commissions, and revenue from Points.com in the form
of fees and commissions. Revenue growth is dependent on attracting new partners
and customers for the Corporation's business, and in securing continued
contracts for its Points.com Business Solutions. Competition or other business
factors may have a material adverse effect on the Corporation's business.
DIVIDENDS
The Corporation has not declared or paid any dividends to its shareholders and
may not do so without the prior approval of the holder of both the Debenture and
Series Two Preferred Share in the capital of the Corporation. The Corporation
will retain earnings for general corporate purposes to promote future growth. As
such, the board of directors does not anticipate paying any dividends for the
foreseeable future. The Corporation's Board of Directors will review this policy
from time to time, having regard to the Corporation's financial condition,
financing requirements and other relevant factors.
GENERAL DESCRIPTION OF CAPITAL STRUCTURE
The Corporation's share capital consists of an unlimited number of Common Shares
and an unlimited number of preferred shares, issuable in series, of which three
series consisting of one share each have been authorized. As at the date hereof,
74,072,456 Common Shares, one Series One Preference Share, one Series Two
Preferred Share and no Series Three Preferred Shares are outstanding.
The Common Shares carry one vote per share, are entitled to dividends if, as and
when declared by the board of directors and participate rateably on any
liquidation, dissolution or winding-up of the Corporation. Except as described
below, the Common Shares rank subsequent to the preferred shares.
The Series One Preference Share is a non-voting, convertible share. The Series
One Preference Share will automatically convert into one Common Share upon (i)
conversion into Common Shares of greater than $2,000,000 of the $6,000,000
principal amount of the Debenture, (ii) repayment in full of the Debenture or
(iii) payment of the Dividend (as defined below) (each a "Conversion Event"). In
the event of the liquidation, dissolution or winding-up of the Corporation prior
to a Conversion Event, the holder of the Series One Preference Share is entitled
to (a) receive $4,000,000 before any payment to holders of any Common Shares and
(b) share pro-rata (on the basis that the Series One Preference Share represents
that number of Common Shares into which the Debenture is then convertible) with
the holders of all other participating shares in further distributions from the
assets of Points International to an aggregate maximum of $20,000,000 in
addition to the sum specified in (a). The holder of the Series One Preference
Share is entitled to a dividend (the "Dividend") in the event that, prior to a
Conversion Event, prescribed change of control or related events occur. The
Dividend is approximately equal to the liquidation preference described above;
in no event may the Dividend exceed $24,000,000. The Series One Preference Share
is not entitled to dividends other than as set out above.
Page 12 of 22
The Series Two Preferred Share is a voting, convertible share and ranks equally
with the Series One Preferred Share. The Series Two Preferred Share is
convertible until March 31, 2013, for no additional consideration, into
19,999,105 Common Shares, subject to adjustment in accordance with its
anti-dilution protection provisions. If not converted, the Series Two Preferred
Share will be redeemed by the Corporation on March 31, 2013 for the greater of
$12,400,000 plus 7% per annum from the date of issuance and the market value of
the Common Shares into which the Series Two Preferred Share then could be
converted. The Series Two Preferred Share will also be redeemed if certain
change of control events occur, for an amount equal to the greater of (i) 125%
of the redemption amount described above and (ii) the greater of (A) the value
of the Common Shares into which the Series Two Preferred Share then could be
converted on the day immediately prior to public announcement of the change of
control and (B) the product of the Common Shares into which the Series Two
Preferred Share then could be converted and the value of the consideration paid
per Common Share in the transaction resulting in the change of control. In the
event of the liquidation, dissolution or winding-up of the Corporation, the
holder of the Series Two Preferred Share will be entitled to receive an amount
equal to the greater of $12,400,000 plus 7% per annum from the date of issuance
and the product of the number of Common Shares into which it could then be
converted and the per share amount to be distributed to the holders of the
Common Shares after giving effect to any payments to be paid on shares ranking
prior to the Common Shares. The Series Two Preferred Share entitles the holder
to various rights, including to receive dividends with the holders of Common
Shares on an "as converted" basis, vote with the holders of Common Shares on an
"as converted" basis (in certain circumstances, to a maximum of 19.9% of the
votes that may be cast), vote separately as a series with respect to certain
material transactions and certain other matters involving the Corporation, and
elect two members to the board of directors of the Corporation and have one
member sit on each committee of the board of directors. If the Series Two
Preferred Share ceases to be held by an affiliate of IAC, it will automatically
convert into a Series Three Preferred Share.
The Series Three Preferred Share is a non-voting, non-convertible share ranking
equally with the Series One Preferred Share. The Corporation will redeem the
Series Three Preferred Share upon the earlier of March 31, 2013 and the third
business day following a prescribed change of control event. In the event of
redemption on March 31, 2013, the amount payable will equal $12,400,000 plus 7%
per annum from the date of issuance of the Series Two Preferred Share. In the
event of redemption following a change of control, the amount payable will equal
125% of the amount specified in the preceding sentence. In the event of the
liquidation, dissolution or winding-up of the Corporation, the holder of the
Series Three Preferred Share will be entitled to receive an amount equal to
$12,400,000 plus 7% per annum, calculated from the date of issue of the Series
Two Preferred Share.
The Corporation also has outstanding the 11% $6,000,000 Debenture. The Debenture
will mature on July 4, 2005 subject to the right of the holder, exercisable
prior to March 31, 2005, to extend the maturity date to March 31, 2006 and
thereafter the right to extend the maturity of the Debenture for up to two
additional one-year periods. The Corporation is entitled to pre-pay the
Debenture, without interest (the payment of which is waived), following the
exercise in full of the Warrant; the Debenture may not otherwise be prepaid. If
the Warrant expires, the $6,000,000 principal amount of the Debenture will be
convertible at the option of the holder into 18,908,070 Common Shares and
accrued interest on any principal amount as converted ceases to
Page 13 of 22
be payable. The Debenture will automatically convert into Common Shares in
certain circumstances, including the sale of all outstanding Common Shares for a
price per share of at least $1.26928 and the sale of all or substantially all of
the assets of Points International yielding net proceeds per Common Share (after
giving effect to the conversion of the Debenture) of at least $1.26928. The
Debenture is not convertible into Common Shares at the option of the holder as
long as the Warrant is outstanding and held by IAC or an affiliate thereof but
is otherwise convertible at the option of the holder into 18,908,070 Common
Shares. The Debenture contains negative covenants in favour of the holder such
that the holder's consent is required for, among other things, (i) the sale by
the Corporation of all or substantially all of its assets, (ii) any transaction
to reorganize the Corporation's capital structure or merge with another person,
(iii) certain sales of treasury stock, (iv) the payment of dividends or
distributions on share capital or the purchase or redemption of outstanding
securities, (v) amendments to the Corporation's articles or by-laws and (vi)
material changes to the Corporation's business.
Subsequent to year end, on January 31, 2005, CIBC Capital Partners waived the
prohibitions on prepayment of the Debenture and acknowledged that Points.com may
at any time prepay the principal amount together with all accrued and unpaid
interest and other amounts payable under the Debenture (the "Waiver"). Pursuant
to the Waiver, any prepayment would consist of an amount of cash equal in value
to the unpaid principal amount and an amount in common shares of the Corporation
equal in value to the amount of accrued but unpaid interest. The Waiver is in
effect until March 31, 2005.
MARKET FOR SECURITIES
The Corporation's Common Shares are listed on the Toronto Stock Exchange ("TSX")
under the symbol "PTS". The Corporation's common shares are also listed on the
U.S. Pink sheets under the symbol "PTSEF.PK".
FY 2004 HIGH LOW CLOSE VOLUME
------- ----- ----- ----- ---------
December $0.94 $0.61 $0.94 3,138.135
November 0.88 0.58 0.63 1,214,388
October 0.90 0.62 0.84 1,603,477
September 0.95 0.72 0.82 574,028
August 1.06 0.69 0.90 388,872
July 1.03 0.85 1.02 789,345
June 1.17 0.96 1.01 1,947,197
May 1.30 0.95 1.11 1,331,763
April 1.54 1.08 1.23 7,042,289
Page 14 of 22
FY 2004 HIGH LOW CLOSE VOLUME
------- ----- ----- ----- ---------
March 1.33 0.90 1.12 4,110,326
February 1.10 0.88 0.99 2,228,235
January 1.08 0.76 0.93 1,749,429
Note 1: January and February 1- 23, 2004, Points International was listed on the
TSX Venture Exchange. On February 24, 2004, the Corporation began to trade on
the TSX and ceased to trade on the TSX Venture Exchange.
ESCROWED SECURITIES
NUMBER OF SECURITIES PERCENTAGE OF
DESIGNATION OF CLASS HELD IN ESCROW CLASS
- -------------------- -------------------- -------------
Common Shares (1) 2,700,000 3.7%
Note (1): Computershare Trust Company of Canada acts as the Escrow Agent and the
shares are released as follows: 700,000 shares on March 31, 2005; 1,500,000
shares on September 30, 2005; and 500,000 shares on March 31, 2006.
DIRECTORS AND OFFICERS
NAME, ADDRESS AND OCCUPATION OF DIRECTORS
The following table sets forth the name, municipalities of residence, term as
director and current and five-year historic occupation of the directors of the
Corporation. Each director is elected to hold office until the Corporation's
next annual shareholders' meeting or until his successor is elected or
appointed. Points International next annual and special meeting will be held on
May 11, 2005.
PRINCIPAL OCCUPATION WITHIN THE PRECEDING FIVE
YEARS (CURRENT AND FOR PAST FIVE YEARS UNLESS
NAME OFFICE TERM AS DIRECTOR OTHERWISE NOTED)
- ------------------------ ---------------------- ------------------- ----------------------------------------------------------
Douglas A. Carty(1) Chairman of the Board Feb. 2002 - present Chief Financial Officer, Laidlaw International Ltd., a
Glen Ellyn, Illinois transportation company (Jan. 2003 - present)
Chief Financial Officer, Atlas Air Worldwide Holdings
Inc., an air cargo company (Jul. 2001 - Dec. 2002)
Chief Financial Officer, Canadian Airlines, an airline
(Jul. 1996 - Jul. 2000)
Marc B. Lavine(1) Vice-Chairman of the Feb. 2000 - present Chief Executive Officer, President and Director of
Paris, France Board Chrysalis Capital Corporation II, a capital pool company
(June 2004 - present)
Chief Executive Officer, President and Director of
Chrysalis Capital Corporation, a capital pool company
(Oct. 1, 2003 - present)
Chief Executive Officer, Exclamation International
Incorporated (Jun. 1999 - Feb. 2002)
Page 15 of 22
PRINCIPAL OCCUPATION WITHIN THE PRECEDING FIVE
YEARS (CURRENT AND FOR PAST FIVE YEARS UNLESS
NAME OFFICE TERM AS DIRECTOR OTHERWISE NOTED)
- ------------------------ ---------------------- ------------------- ----------------------------------------------------------
T. Robert MacLean(3) Chief Executive Feb. 2002 - present Chief Executive Officer, Points International Ltd. (Feb.
Toronto, Ontario Officer and Director 2002 - present)
Chief Executive Officer, Points.com Inc. (Feb. 2000 -
present)
President, Points.com Inc. (Feb. 2000 - Feb. 2002)
Vice President, other positions, Canadian Airlines, an
airline (1988 - 2000)
Christopher J.D. Barnard President and Director Feb. 2000 - present President, Points International Ltd. (Feb. 2000 - present)
Toronto, Ontario
President, Points.com Inc. (Feb. 2002 - present)
Vice President, Exclamation International Incorporated
(Jul. 1998 - Feb. 2000)
Rowland W. Fleming(2) Director Feb. 2002 - present Public and private company director (Apr. 1999 - present)
Mississauga, Ontario
John W. Thompson(1) Director Feb. 2002 - present Public company director (Aug. 2000 - present)
Toronto, Ontario
Managing Director, Kensington Capital Partners Limited, an
investment and advisory firm (Sept. 1999 - Oct. 2003)
J. Grant McCutcheon(2) Director Feb. 2000 - present Director, Lawrence & Company Incorporated, an investment
Toronto, Ontario firm (Dec. 1995 - present)
Jim W. Kranias(2) Director Feb. 2000 - present President, International Consulting, a private consulting
London, England company (Aug. 1998 - present)
Eric A. Korman(1)(2),(4) Director June 2003 - present Senior Vice President, Mergers & Acquisitions,
New York, New York InterActiveCorp, an interactive commerce company (Dec.
2004 - present)
Other positions at InterActiveCorp (Sept. 2001 - Dec.
2004)
Principal, and head of business development for ePartners
Venture Capital, a $650 million venture fund (Jan. 2000 -
Apr. 2001)
Dan Marriott(4) Director Dec 2003 - present Senior Vice President, Interactive Development,
New York, New York InterActiveCorp, an interactive commerce company (Dec.
2003 - present)
Senior Vice President, Strategic Planning, InterActiveCorp
(Feb. 2002 - Dec. 2003)
Executive Vice President, Corporate Strategy and
Development, Ticketmaster, Inc., an online consumer
products company (Feb. 1999 - Feb. 2002)
Notes:
(1) Audit Committee
(2) Human Resources and Corporate Governance Committee
(3) Mr. MacLean serves as an observer for both the Audit and Human Resources
and Corporate Governance Committees.
(4) Nominee of Points Investments, Inc., a corporation controlled by
InterActiveCorp, holder of the Series Two Preferred Share.
Page 16 of 22
CURRENT OFFICERS OF THE CORPORATION
The following table sets forth the name, municipalities of residence, office,
term as officer and current and five-year historic occupation of the officers of
the Corporation.
PRINCIPAL OCCUPATION WITHIN THE PRECEDING FIVE
YEARS (CURRENT AND FOR PAST FIVE YEARS UNLESS
NAME OFFICE TERM AS OFFICER OTHERWISE NOTED)
- ------------------------- --------------------------- -------------------- ---------------------------------------------------
T. Robert MacLean Chief Executive Officer and Feb. 2002 - present Chief Executive Officer, Points International Ltd.
Toronto, Ontario Director (Feb.2002 - present)
Chief Executive Officer, Points.com Inc. (Feb. 2000
- present)
President, Points.com Inc. (Feb. 2000 - Feb. 2002)
Vice President, other positions, Canadian Airlines,
an airline (1988 - 2000)
Christopher J.D. Barnard President and Director Feb. 2000 - present President, Points International Ltd. (Feb. 2000 -
Toronto, Ontario present)
President, Points.com Inc. (Feb. 2002 - present)
Vice President, Exclamation International
Incorporated (Jul. 1998 - Feb. 2000)
Darlene J. Higbee Clarkin Vice President and Chief Feb. 2002 - present Vice President and Chief Technology Officer,
Delta, British Columbia Technology Officer Points.com Inc. (Jul. 2000 - present) and Points
International Ltd. (Feb. 2002 - present)
IT Manager, Canadian Airlines (1990 - 2000)
Grad Conn Chief Marketing Officer May 2004 - present Chief Marketing Officer, Points International Ltd.
Toronto, Ontario and Points.com Inc. (May 2004 - present)
Vice President, Managing Director, Grey Direct +
Interactive (2002 - May 2004)
Chief Executive Officer, OpenCola Inc. (1998 -
2001)
Peter Lockhard Vice President, Points.com Jan. 2005 - present Vice President, Points International Ltd and
Toronto, Ontario Business Solutions Points.com Inc. (Jan. 2005 - present)
Managing Director, Aquiam Partners Ltd. (May 2001
- Dec. 2004)
Vice President, Professional Services, FloNetwork
Inc. (Sept. 2000 - Apr. 2001)
Account Director, Maritz Canada Inc. (Feb. 1998 -
Aug. 2000)
Stephen M. Yuzpe Chief Financial Officer and Feb. 2000 - present Chief Financial Officer, Points International Ltd.
Toronto, Ontario Corporate Secretary (Feb. 2000 - present) and Points.com Inc. (Feb.
2002 - present)
Catalyst, Exclamation International Incorporated
(Feb. 1999 - Feb. 2000)
William A. Thompson Senior Vice President, Feb. 2002 - present Senior Vice President, Partners, Points
Flower Mound, Texas Partners International Ltd. and Points.com Inc. (Feb. 2003 -
present)
Vice President, Partner Relationships, other
positions, Points.com Inc. (Aug. 2000 - Feb. 2003)
Director and General Manager, American Airlines
(Jun. 1996 - Aug. 2000)
Page 17 of 22
PRINCIPAL OCCUPATION WITHIN THE PRECEDING FIVE
YEARS (CURRENT AND FOR PAST FIVE YEARS UNLESS
NAME OFFICE TERM AS OFFICER OTHERWISE NOTED)
- ------------------------- --------------------------- -------------------- ---------------------------------------------------
Sacha Diab Vice President, Partners Nov. 2004 - present Vice President, Partners, Points International Ltd.
Toronto, Ontario and Points.com Inc. (Nov. 2004 - Present)
Director, Business Development and other positions,
Points.com Inc. (Aug. 2000 - Nov. 2004)
Vice President, Partners, Triad Communication (1998
- 2000)
Michael Glass Vice President, Product Aug. 2004 - present Vice President, Product Development, Points
Seattle, Washington Development International Ltd. and Point.s.com Inc. (Aug. 2004
- Present)
Senior Director, .NET Platform Strategy, Microsoft
Corporation (Dec. 2001 - Aug. 2004)
Product Unit Manager, Microsoft Learning
Technologies, Microsoft Corporation (Nov. 1998 -
Dec. 2001)
Jerry J. Philip Vice President, Business Feb. 2002 - present Vice President, Business Development, Points.com
Oakville, Ontario Development Inc. (Mar. 2000 - present) and Points International
Ltd. (Feb. 2002 - present)
Senior Manager, other positions, Canadian Airlines
(1995 - Mar. 2000)
Jason Sikora Vice President, Marketing Nov. 2004 - present Vice President, Marketing, Points International
Markham, Ontario Ltd. and Points.com Inc. (Nov. 2004 - present)
Director, Interactive Marketing, Grey Worldwide -
Canada (Jan. 2001 - Nov. 2004)
Director, Interactive Marketing & Strategic
Partnerships, Chapters Online (Dec. 1998 - Jan.
2001)
SECURITY HOLDINGS
As of the date of this AIF, as a group, the directors and officers of the
Corporation beneficially owned, directly or indirectly, or exercised control or
direction over, 11,227,746 Common Shares representing approximately 15.2% of the
issued and outstanding Common Shares.
BOARD COMMITTEES
AUDIT COMMITTEE
Pursuant to the CBCA, the Corporation is required to have an audit committee
("Audit Committee" or "Committee") comprised of not fewer than three directors,
the majority of whom are not officers or employees of the Corporation or any of
its affiliates.
The Audit Committee of the Corporation is comprised of the following four
directors: Douglas Carty (Chair), Eric Korman (Series Two Preferred Share holder
nominee), Marc Lavine, and John Thompson. None of the members of the Audit
Committee is an officer or employee of the Corporation. The holder of the Series
Two Preferred Share has the right to elect one member to the Audit Committee and
the Committee size is set to four directors. The Audit Committee's mandate can
be found in the investor relations section of the Corporation's Web site,
www.points.com, and this mandate is incorporated by reference herein.
Page 18 of 22
The board of directors believes that each of the members of the Audit Committee
possesses a high level of financial literacy and expertise. Each member of the
Committee has been determined by the board of directors to be an independent
director. In addition, each member of the Audit Committee has personally
acknowledged to the Corporation that his education and experience would qualify
him as "financially literate", as defined under Canadian securities laws.
Mr. Carty (Chair of the Committee) holds a Master of Business Administration
from the University of Western Ontario (subsequently renamed the Ivey School of
Business) and a Bachelor of Arts. (Honours) from Queen's University. Mr. Carty
is the Chief Financial Officer of Laidlaw International Ltd., a NYSE listed
issuer, and is responsible for the preparation of all internal and external
financial reports.
Mr. Korman received his Master of Business Administration from the J. L. Kellogg
Graduate School of Management at Northwestern University, and his Bachelor of
Arts with Honours in economics from Emory University. Mr. Korman is the Senior
Vice President Mergers and Acquisitions at InterActiveCorp, requiring him to be
able to understand and value very complex businesses through financial analysis.
Mr. Lavine holds an Honours Business Administration degree from the Ivey School
of Business at the University of Western Ontario. Mr. Lavine is the Chief
Executive Officer, President and Chairman of the board of directors of Chrysalis
Capital Corporation and has held the positions of director, audit committee
member, Chief Executive Officer, President and Chief Financial Officer at two
additional TSX or TSX Venture Exchange listed issuers (including the
Corporation).
Mr. Thompson holds an Honours degree in Business Administration from the
University of Western Ontario and is a Chartered Accountant. Prior to spending
three years at a merchant bank, Mr. Thompson spent 21 years at Loblaws Companies
Limited, most recently holding the position of Executive Vice President.
External Auditor Service Fees (By Category)
The aggregate fees billed by the Corporation's external auditor in the last two
fiscal years were as follows:
2004 2003
-------- -------
Audit Fees $ 49,750 $37,500
Audit-Related Fees (1) 22,250 7,500
Tax Fees (2) 2,150 16,470
All Other Fees (3) 42,152 22,650
Total Fees $116,302 $84,120
Page 19 of 22
Notes
(1) Audit-related fees primarily relate to the review of interim financial
periods and accounting advice.
(2) Tax fees primarily relate to advice for the Corporation's tax returns,
Scientific Research & Experimental Design claim, the tax treatment of
non-resident directors' compensation, the tax treatment of employee stock
options and other tax matters.
(3) In 2004, $41,152 of All Other Fees is related to the MilePoint Acquisition
and, in 2003, $13,550 is related to the investment by InterActiveCorp,
$4,500 is related to the OSC's continuous disclosure review and $5,600 is
related to other matters.
HUMAN RESOURCES AND CORPORATE GOVERNANCE COMMITTEE
The Human Resources and Corporate Governance Committee is comprised of four
members of the board: Messrs. Fleming (Chairman of the Committee), Korman,
Kranias and McCutcheon. The Human Resources and Corporate Governance Committee
reviews the performance of the executive officers, the performance of the
Corporation (including its separate divisions and subsidiaries) and establishes
the compensation package for executive officers.
In connection with the IAC Investment, the number of members of each of these
board committees will be limited to four, with one member of each committee
being a director elected by the holder of the Series Two Preferred Share.
CORPORATE CEASE TRADE ORDERS OR BANKRUPTCIES
In October 1996, J. Grant McCutcheon joined the board of directors of Innovadent
Technologies Ltd. ("Innovadent") as the nominee of Innovadent's largest
shareholder and secured lender. Innovadent made a proposal to creditors in May
1998, which was accepted. In April 1999, the Ontario Securities Commission
issued a cease trade order against Innovadent for failure to file financial
statements and, in August 1999, Innovadent filed a notice of intent to make a
proposal to creditors. Mr. McCutcheon resigned from the board of Innovadent on
August 31, 1999.
In July of 1996, Mr. Carty was appointed to the position of Chief Financial
Officer of Canadian Airlines Corporation ("CANADIAN"). In March of 2000,
Canadian filed for bankruptcy protection under the Companies Creditors
Arrangement Act.
CONFLICTS OF INTEREST
See "Risk Factors - Conflicts of Interest" above.
LEGAL PROCEEDINGS
The Corporation is not, to its knowledge, subject to any material legal
proceedings. Please see "Description of the business - Core business - Points
Solutions - Intangible Property" for disclosure of the successfully concluded
MyPoints trademark dispute.
INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
INDEBTEDNESS BY AN OFFICER
The Corporation provided a loan to Mr. Robert MacLean, the Corporation's Chief
Executive Officer, to induce and assist Mr. MacLean in relocating from Calgary
to Toronto and assume a leadership position with the Corporation. The following
table sets forth certain details of Mr. MacLean's indebtedness. Mr. MacLean's
loan had an initial 18-month term that commenced on February 24, 2000. The
initial term to maturity expired on August 24, 2001 but was extended to
Page 20 of 22
December 31, 2004. Interest accrues on the principal outstanding at the Canada
Revenue Agency prescribed interest rate with accrued interest payable together
with principal on the loan maturity date.
Amount Amount
outstanding Amount outstanding on Largest amount
Fiscal year Security for at beginning forgiven during December 31 of outstanding
ending indebtedness of fiscal year fiscal year(1), (2), (3) fiscal year during fiscal year
- ----------- --------------------- -------------- ------------------------ ----------------------- ------------------------
2002 Options in Points.com $75,000 $25,000 principal plus $50,000 principal plus $75,000 principal plus
Inc. $8,680 accrued interest $1,135 accrued interest $8,680 accrued interest
2003 Options in Points.com $50,000 $25,000 principal plus $25,000 $50,000 principal plus
Inc. $1,650 accrued interest $513.29 accrued interest
2004 Options in Points.com $25,000 $25,000 principal plus Nil $25,000 principal plus
Inc. $825 accrued interest $825 accrued interest
Notes:
(1) $25,000 of principal and $8,680 of interest was forgiven on April 24, 2002.
(2) $25,000 of principal was forgiven on April 24, 2003 and $1,650 of accrued
interest was forgiven on December 31, 2003.
(3) The remaining $25,000 of principal and $825 of accrued interest was
forgiven on April 24, 2004.
SHARES OF THE CORPORATION ISSUED IN EXCHANGE FOR PROPERTY
The Corporation has granted to holders of options to acquire common shares of
Points.com the right to put to the Corporation the common shares of Points.com
in exchange for Common Shares having a fair market value equal to the fair
market value of the common shares of Points.com so put. The Corporation has used
a ratio of 2.5039 Common Shares per Points.com common share for this purpose. In
fiscal years 2003 and 2004, certain officers, directors and former directors
exercised stock options in Points.com and exercised their put rights.
Points.com Common Shares Points International Ltd.
Acquired Upon Exercise of Shares Issued in Exchange for
Fiscal Year Options Points.com Shares
- ----------- ------------------------- -----------------------------
2002 39,600 99,155
2003 930,529 2,329,954
2004 524,554 1,313,433
Notes:
(1) Subsequent to year end, 475,600 common shares in Points.com were exchanged
for 1,190,856 Common Shares of the Corporation.
Page 21 of 22
(2) Subsequent to year end, 75,000 options in Points.com were conditionally
exercised. See the heading "PCI Option Extension" in the Corporation's
Management Information Circular for additional information.
TRANSFER AGENT
Computershare Trust Company of Canada
600, 530 8th Avenue S.W.
Calgary, Alberta T2P 3S8
Canada
MATERIAL CONTRACTS
The Corporation is party to three material contracts that were entered into
outside of the ordinary course of business: (i) the Investor's Rights Agreement;
(ii) the Debenture and certain amendments thereto, each of which is described in
the material change report of the Corporation dated March 21, 2003 which is
incorporated by reference herein; and (iii) the Waiver. This material change
report is available at www.sedar.com.
ADDITIONAL INFORMATION
Additional information can be found on Sedar at www.sedar.com.
Additional information, including directors' and officers' remuneration and
indebtedness, principal holders of Points International's securities, options to
purchase securities and interests of insiders in material transactions, if
applicable, is contained in the Corporation's information circular for its most
recent annual meeting of shareholders.
Additional information can also be found in the Corporation's most recent MD&A,
dated March 8, 2005.
Page 22 of 22