EXHIBIT 3.1
SUBSCRIPTION AGREEMENT
THIS AGREEMENT is made as of the 12th day of February, 1997 (the "Effective
Date") by and between INTERNET LIQUIDATORS INTERNATIONAL INC., a corporation
having a principal place of business at 5915 Airport Rd., Suite 330,
Mississauga, Ontario L4V 1T1 ("Issuer"), and TORONTO STAR NEWSPAPERS LIMITED, a
corporation having a principal place of business at 1 Yonge Street, Toronto,
Ontario, M5E 1E6 ("Subscriber" or "Torstar").
BACKGROUND
1. As more particularly described herein, Subscriber wishes to acquire, and
Issuer wishes to provide, an interest in Issuer by Subscriber subscribing
for previously unissued common shares in the capital of Issuer and by
obtaining a warrant to acquire further common shares of Issuer. Issuer is
a public company.
2. In conjunction with the subscription, the Subscriber and Issuer will enter
into certain agreements which will allow Subscriber and certain related
entities to use and exploit certain technology of Issuer to interface and
or provide a link for certain of their on-line interactive users to an
auction service provided by Issuer on the Internet.
NOW THEREFORE in consideration of the premises, the mutual covenants contained
in this Agreement, and other good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), the Parties agree as follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions. In this Agreement, unless the context otherwise requires,
each capitalized term shall have the meaning attributed thereto in Schedule "A".
1.2 Schedules. The following are the schedules attached to and forming part of
this Agreement:
Schedule A Definitions
Schedule B Financial Statements
Schedule C Subsidiaries
Schedule D Options
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Schedule E Litigation
Schedule F Licences
Schedule G Major Shareholder Interests
Schedule H Material Contracts
Schedule I Encumbrances
Schedule J Intellectual Property Rights
Schedule K Opinion of Issuer Counsel
Schedule L E-Commerce Services Agreement
Schedule M Shareholders' Agreement
Schedule N Form of Warrant
1.3 Headings. The headings in this Agreement are for convenience of reference
only and shall not affect the construction or interpretation hereof.
1.4 Extended Meanings. Words in the singular include the plural and vice-versa
and words in one gender include all genders.
1.5 Entire Agreement. This Agreement and Schedules hereto constitute the
entire agreement between the Parties pertaining to the subject matter hereof and
supersede all prior agreements, understandings, negotiations and discussions,
oral or written, between the Parties. The execution of this Agreement has not
been induced by, nor do either of the Parties rely upon or regard as material,
any representations, warranties, conditions, other agreements or
acknowledgements not expressly made in this Agreement or in the agreements and
other documents to be delivered pursuant hereto.
1.6 Currency. Unless otherwise indicated, all dollar amounts referred to in
this Agreement are in Canadian funds.
1.7 Invalidity. If any of the provisions contained in this Agreement is found
by a court of competent jurisdiction to be invalid, illegal or unenforceable in
any respect, the validity, legality or enforceability of the remaining
provisions contained herein shall not be in any way affected or impaired
thereby.
1.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of Ontario and the federal laws of Canada applicable
therein and shall be treated, in all respects, as an Ontario contract. The
parties irrevocably attorn to the exclusive jurisdiction of the Courts of
Ontario in respect of the subject matter hereof.
1.9 Tender. Any tender of documents or money hereunder may be made upon the
Parties or their respective counsel and money shall be tendered by negotiable
cheque or draft and certified by a Canadian bank.
1.10 Performance on Holidays. If anything is required to be done or any action
is required to
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be taken pursuant to this Agreement on or by a specified date which is not a
Business Day, then such action shall be valid if taken on or by the next
succeeding Business Day.
1.11 Calculation of Time. In this Agreement, a period of days shall be deemed
to begin on the first day after the event which began the period and to end at
midnight (Toronto time) on the last day of the period, except that if the last
day of the period does not fall on a Business Day, the period shall terminate at
midnight (Toronto time) on the next Business Day.
ARTICLE 2
PURCHASE OF SHARES AND WARRANT
2.1 Purchase of Shares and Warrant. Subject to the terms of this Agreement,
Subscriber agrees to subscribe for and purchase, and Issuer agrees to issue and
sell to Subscriber, the Shares and the Warrant, all as provided in this
Agreement.
2.2 Subscription Price. The purchase price for the Shares shall be $.85 per
Share for an aggregate purchase price of $850,000 (the "Subscription Price").
Issuer acknowledges receipt of Subscriber's cheque for $42,500 as a deposit to
be applied against the Subscription Price.
2.3 Payment of Subscription Price. The unpaid balance of the Subscription
Price shall be paid by Subscriber to Issuer on the Closing.
2.4 Share and Warrant Certificate. Issuer shall deliver to Subscriber at the
Closing one share certificate representing the Shares and one warrant
certificate bearing appropriate legends to indicate the applicable hold period
representing the Warrant registered in the name of Subscriber. On Closing,
Issuer shall cause Subscriber to be entered on the books of Issuer as the holder
of the Shares and Warrant.
2.5 Place of Closing. The Closing shall take place at the Closing Time at the
offices of Gowling, Strathy & Henderson, Barristers & Solicitors, Commerce Court
West, Suite 4900, Toronto, Ontario, or at such other place as may be agreed upon
by Issuer and Subscriber.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Issuer. Issuer represents and warrants
to Subscriber as follows and acknowledge that Subscriber is relying upon such
representations and warranties in entering into this Agreement and completing
the transactions contemplated hereby.
3.1.1 Corporate Matters
(a) Issuer and each of the Subsidiaries is a corporation duly incorporated,
organized and validly existing in good standing under the laws of its
jurisdiction of incorporation. No proceedings have been taken or
authorized by any of Issuer, any Subsidiary or, to the best of Issuer's
knowledge, by any other Person with respect to the bankruptcy,
insolvency, liquidation, dissolution or winding up of Issuer or any of
the Subsidiaries.
(b) Issuer has all necessary power and capacity to execute and deliver, and
to observe and perform its covenants and obligations under this
Agreement and the Closing Documents to which it is a party. Issuer has
taken all corporate action and caused all necessary shareholder action
to authorize the execution and delivery of, and the observance and
performance of its covenants and obligations under, this Agreement and
the Closing Documents to which it is a party including, without
limitation, the issuance and delivery of the Shares and Warrant.
(c) Issuer and the Subsidiaries have all necessary power and authority to
own or lease the Assets and to carry on the Business as at present
carried on. Issuer and the Subsidiaries possess all Licences material to
the conduct of the Business. Neither the nature of the Business nor the
location or character of any of the Assets requires any of Issuer or the
Subsidiaries to be registered, licensed or otherwise qualified as an
extra-provincial or foreign corporation or to be in good standing in any
jurisdiction other than jurisdictions where it is duly registered,
licensed or otherwise qualified and in good standing for such purpose.
(d) This Agreement has been, and each Closing Document to which Issuer is a
party will on Closing be, duly executed and delivered by Issuer and this
Agreement constitutes, and each Closing Document to which Issuer is a
party will on Closing constitute, a valid and binding obligation of
Issuer enforceable against Issuer in accordance with its terms.
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(e) A true copy of the Articles and all by-laws of the Issuer each as
amended to date and currently in effect have been delivered to
Subscriber by Issuer. The Articles and such by-laws of the Issuer
constitute all of the constating documents and by-laws of such company,
are complete and correct and are in full force and effect, subject to
confirmation of Issuer's new general by-laws by its shareholders.
3.1.2 Authorized and Issued Capital of Issuer. The authorized capital of
Issuer consists of an unlimited number of common shares and an unlimited number
of preference shares. No more than 9,700,000 common shares are outstanding and
all such shares are fully paid and non-assessable shares. No preference shares
are outstanding. Except as listed in Schedule B, no other Voting Securities,
Convertible Securities or Rights of Issuer have been issued or are outstanding.
3.1.3 Options. Except as listed in Schedule D, no Person other than Subscriber
has any oral or written agreement, option, warrant, right, privilege or any
other right capable of becoming any of the foregoing (whether legal, equitable,
contractual or otherwise), for the purchase, subscription or issuance of any
Voting Securities, Convertible Securities or Rights of Issuer. Issuer has no
agreement or obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any shares of its capital stock or any interest therein or to
pay any dividend or make any other distribution in respect thereof. All of the
issued and outstanding shares of capital stock of the Issuer have been offered,
issued and sold by the Issuer in compliance with Applicable Law. There are no
pre-emptive rights, rights of first refusal, put or call rights or obligations
or anti-dilution rights with respect to the issuance, sale or redemption of the
Issuer's capital stock, other than rights to which the Subscriber is entitled as
set forth in this Agreement and the Closing Documents.
3.1.4 Subsidiaries. Issuer owns all of the issued shares and Voting
Securities, Convertible Securities and Rights of each Subsidiary. Neither Issuer
nor any Subsidiary holds or has agreed to acquire any shares, Voting Securities,
Convertible Securities or Rights of any other body corporate. None of Issuer or
the Subsidiaries is or has agreed to become a partner, member, owner, proprietor
or equity investor of or in any partnership, joint venture or other management
or business association or to acquire or lease any other business operation.
3.1.5 Insurance. Issuer and the Subsidiaries maintain valid policies of
insurance with respect to its properties and business of the kinds and in the
amounts not less than is customarily obtained by corporations of established
reputation engaged in the same or similar business and similarly situated.
There is no default under any such policy, nor, to the knowledge of Issuer, has
any event occurred which with notice, lapse of time or both would constitute a
material default thereunder.
3.1.6 Financial Statements. The Financial Statements:
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(a) have been prepared from and in accordance with the books and records of
Issuer and its Subsidiaries in accordance with Generally Accepted
Accounting Principles (except as disclosed in the notes thereto) applied
on a basis consistent with that of the preceding periods;
(b) present fairly the assets, liabilities (whether accrued, absolute,
contingent or otherwise) and financial condition of Issuer and the
Subsidiaries and the results of the operations of Issuer and the
Subsidiaries as at the date thereof and for the periods covered thereby;
and
(c) contain or reflect adequate reserves for all known or reasonably
anticipated liabilities and obligations of Issuer and the Subsidiaries
of any nature, whether absolute, contingent or otherwise, as at the date
thereof.
No information has come to the attention of Issuer that would render the
Financial Statements incomplete or inaccurate in any material respect.
3.1.7 Undisclosed Liabilities. None of Issuer or the Subsidiaries has any
known or reasonably anticipated liabilities (whether accrued, absolute,
contingent or otherwise) of any kind and whether due or to become due, except:
(a) liabilities disclosed or provided for in the Financial Statements; and
(b) liabilities incurred in the ordinary course of business from and after
the Financial Disclosure Date which are consistent with past practice,
are not, in the aggregate, material and adverse to the Business, Assets,
financial condition or results of operations of Issuer and the
Subsidiaries, and do not violate any covenant or obligation contained in
this Agreement or constitute a breach of any representation or warrant
made in or pursuant to this Agreement.
3.1.8 Absence of Changes. Since the Financial Disclosure Date;
(a) Issuer and each of the Subsidiaries has conducted the Business in the
ordinary course, has not incurred any debt, obligation or liability out
of the ordinary course of business or of an unusual or extraordinary
nature and has used its best efforts to preserve the Business and the
Assets;
(b) there has not been any change in the condition of the Business or the
Assets or the financial condition or results of operations of any of
Issuer, the Subsidiaries or the Business other than changes in the
ordinary course of business, and such changes have not, either
individually or in the aggregate, been materially adverse or have had or
may be reasonably expected to have, either before or after the Closing
Time, a material adverse effect on the Business, the Assets or the
future prospects of any of Issuer, any of the Subsidiaries or the
Business; and
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(c) to the best of Issuer's knowledge, there has not been any change in, or
creation of, any Applicable Law, any revocation of any Licence or any
damage, destruction, loss, labour dispute or other event, development or
condition of any character (whether or not covered by insurance)
materially and adversely affecting any of Issuer, any Subsidiary, the
Business or the Assets or the future prospects of any of Issuer, the
Subsidiaries or the Business.
3.1.9 Tax Matters. Issuer and each of the Subsidiaries has filed all Tax
Returns within the times and in the manner prescribed by law. Issuer and each
Subsidiary has paid all Taxes due and payable and has paid all installments and
made all other remittances required to be made on account of Taxes payable by
them. No Tax Return has been reassessed nor has there been any notice of
reassessment by any taxing authority and there are no actions, audits,
assessments, reassessments, suits, appeals, proceedings, investigations or
claims now pending or, to the best of Issuer's knowledge, threatened against
Issuer or any Subsidiary in respect of Taxes or governmental charges by any
Governmental Agency relating to claims for additional Taxes or assessments with
reference to any of Issuer, the Subsidiaries, the Assets or the Business. There
is in effect no waiver of applicable limitation of liability statutes with
respect to any Taxes owed by Issuer or any Subsidiary. The provision for Taxes
reflected in the Financial Statements is adequate for all Tax liabilities,
whether or not yet due and payable and whether or not disputed or under appeal,
for the periods covered by the Financial Statements and for all prior periods
and none of Issuer or the Subsidiaries has any liability for any Tax in respect
thereof of any nature other than those described in the Financial Statements and
those arising in the ordinary course of its business since the Financial
Disclosure Date.
3.1.10 Absence of Conflicting Agreements. None of the execution and delivery
of, or the observance and performance by Issuer of any covenant or obligation
under this Agreement or any Closing Document to which it is a party including
the issuance of Shares pursuant to the exercise of the Warrant, or the Closing,
contravenes or results in, or will contravene or result in, a material violation
of or a material default under (with or without the giving of notice or lapse of
time, or both), or in the acceleration of any material obligation under:
(a) any Applicable Law;
(b) any Licence held by or for Issuer, a Subsidiary or the Business;
(c) the articles, by-laws, directors' or shareholders' resolutions of Issuer or
any Subsidiary; or
(d) any other agreement, lease, mortgage, security document, obligation or
instrument to which Issuer or any Subsidiary is a party, or by which it or
its Assets are bound.
The representation and warranty in Section 3.1.10(b) shall not apply to Generic
Software.
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3.1.11 Consents, Approvals, Etc. Subject to those certain filings with
Canadian securities authorities identified in Section 3.1.19, no consent,
approval, Licence, Order or authorization, registration, declaration or filing
with any Governmental Agency or other Person is required by Issuer or any
Subsidiary, or with respect to the Business, in connection with (a) the Closing
or (b) the execution and delivery by Issuer of, and the observance and
performance by Issuer of its obligations under, this Agreement and the Closing
Documents to which it is a party.
3.1.12 Restrictions on Business. Other than statutory provisions and
restrictions of general application to the Business, the Issuer or the
Subsidiaries, none of Issuer or any Subsidiary is a party to any agreement,
lease, mortgage, security document, obligation or instrument, or subject to any
restriction in its articles or by-laws or directors' or shareholders'
resolutions or subject to any restriction imposed by any Governmental Agency or
subject to any Applicable Law which could materially restrict or interfere with
the conduct of the Business or which could materially limit or restrict or
otherwise adversely affect the Assets or the financial condition of Issuer on a
consolidated basis.
3.1.13 Compliance with Applicable Law. Each of Issuer and the Subsidiaries has
conducted and is conducting the Business in compliance with all Applicable Law,
and is not in breach of any Applicable Law except for breaches which in the
aggregate are not material to Issuer and the Subsidiaries.
3.1.14 Litigation. Except as disclosed in Schedule E, there is no claim,
demand, suit, action, cause of action, dispute, proceeding, litigation,
investigation, grievance, arbitration, governmental proceeding or other
proceeding including appeals and applications for review, in progress against or
relating to Issuer or any Subsidiary or affecting the Shares, the Warrant, the
Assets or the Business which, if determined adversely, would materially and
adversely affect any of Issuer, any Subsidiary, the Shares, the Warrant, the
Business or the or Assets or the validity of the Agreement or any of the Closing
Documents, nor are any of the same pending or to the best of the knowledge of
Issuer threatened. To the knowledge of Issuer, no event has occurred and no
condition exists or the basis for which any of the foregoing might properly be
instituted or commenced. There is not at present outstanding against Issuer or
any Subsidiary any Order that materially and adversely affects Issuer, any
Subsidiary, the Business or the Assets in any way or that in any way relates to
this Agreement or the transactions contemplated hereby.
3.1.15 Title to Properties. Except as disclosed in the Financial Statements;
Issuer and the Subsidiaries have good and marketable title to all of the Assets,
free and clear of all Encumbrances.
3.1.16 Title to Shares and Warrants. The Shares and the Warrant shall be duly
authorized and created upon Closing shall be validly issued and outstanding and
the Shares shall be fully paid and non-assessable shares in the capital of
Issuer, free and clear of all rights, liens or other Encumbrances and the shares
issuable upon exercise of the Warrants upon payment of the
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exercise price, will be fully paid and non-assessable Shares, free and clear of
all rights, liens and Encumbrances.
3.1.17 No Expropriation. None of Issuer or any Subsidiary has received any
notice of expropriation of any of the Assets. Issuer is not aware of any
expropriation proceeding, pending or threatened against or affecting any of the
Assets.
3.1.18 Licences. The only Licences necessary or desirable for the operation of
the Business and the ownership of the Assets are listed in Schedule F and are in
full force and effect unamended. Issuer or each Subsidiary, as the case may be,
is in compliance in all material respects with all the terms and conditions
relating to such Licences and there are no proceedings in progress, or to the
best of the knowledge of Issuer, pending or threatened, which may result in
revocation, cancellation, suspension or any adverse modification of any of such
Licences. No Licence is void or voidable as a result of the completion of the
transactions contemplated hereby or by the Closing Documents or by the exercise
of the Warrant nor is any consent or approval of any Person required to assure
the continued validity and effectiveness of any Licence in connection with the
purchase of the Shares, this Agreement, any Closing Document or by the exercise
of the Warrant or the transactions contemplated hereby or thereby.
3.1.19 Securities Legislation. Issuer is a "reporting issuer" in Ontario and
is not in default under applicable securities legislation in such province. In
particular, without limiting the foregoing, Issuer is in compliance with its
obligations to make timely disclosure of all material changes relating to it and
since the date hereof (other than in respect of material change reports filed on
a confidential basis and thereafter made public or material change reports filed
on a confidential basis and in respect of which the material change never came
to fruition) no such disclosure has been made on a confidential basis and there
is no material change relating to Issuer which has occurred and with respect to
which the requisite material change statement has not been filed, except to the
extent that this Agreement constitutes a material change. Issuer is not in
default of any requirements of such securities legislation, and the issuance of
the Shares and the Warrant to Subscriber will be made in compliance with all
applicable Canadian securities legislation. Subject to the filing of a Form 27,
Material Change Report, Form 20, Report of a Trade under clause 72(1)(d) and a
press release following the Closing, the issuance of the Shares and Warrant to
Subscriber, and any subsequent exercise of rights under the Warrant, will not
result in any contravention of any applicable Canadian securities legislation or
the regulations thereunder (subject to filings required on Warrant exercise).
The issuance of the Shares and the Warrant is exempt from the registration and
prospectus requirements of securities legislation of the Province of Ontario and
no prospectus will be required and no other document must be filed, proceeding
taken or approval obtained in Ontario to permit the offering, issue, sale and
delivery of the Shares and the Warrant to Subscriber or for the exercise of the
Warrant other than the filing of those private placement reports, undertakings
and questionnaires referred to above.
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The Issuer's Shares are not listed or quoted for trading on any stock exchange
or other public market other than the Canadian Dealing Network.
3.1.20 Environmental Matters. To the best of Issuer's knowledge:
(a) Issuer, each Subsidiary, the Business and the Assets are in full
compliance with all Applicable Law in respect of environmental matters
and are not the subject of any remedial or control action or Order, or
any investigation or evaluation as to whether any remedial or control
action or Order is needed to respond to an actual or threatened release,
discharge, deposit, emission or spill of any hazardous substance,
pollutant or contaminant into the environment or any facility or
structure;
(b) none of Issuer or the Subsidiaries is or may be liable to any Person as
a result of an actual or alleged release, discharge, deposit, emission
or spill of any hazardous substance, contaminant or pollutant into the
environment or any facility or structure, nor has there been any
release, discharge, deposit, emission or spill of any hazardous
substance, contaminant or pollutant into the environment or into any
facility or structure, which is the subject of or, after the giving of
notice or the lapse of time would give rise to, any claim, demand, suit,
action, cause of action, dispute, proceeding or Order relating to the
violation of Applicable Law in respect of environmental matters, nor is
there any basis for any thereof being commenced; and
(c) Issuer and each Subsidiary has complied in all material respects with
all environmental reporting and inspection requirements of all
Governmental Agencies having jurisdiction over it. All pollution control
equipment operated as part of the Business is effective in meeting
applicable emissions limits and effluent pre-treatment standards.
3.1.21 Significant Shareholders. Except as set forth in Schedules "G" and "D"
there are no loans, leases, licences, guarantees, contracts, transactions,
understandings or other arrangements or any nature between the Issuer or any
Subsidiary and any officer, director or ten percent (10%) stockholder of the
Issuer or any family member or affiliate of the foregoing persons. All persons
owning ten percent (10%) or more of the presently outstanding common shares to
the knowledge of the Issuer, are listed as Schedule "G".
3.1.22 Material Contracts. Except as set forth in Schedule "H" and otherwise
disclosed in this Agreement, neither Issuer nor any Subsidiary is a party or
subject to or bound by:
(a) any contract, lease or agreement creating any obligation of the Issuer
or any Subsidiary to pay to any third party $50,000 or more with respect
to any single such contract or agreement, except for purchase orders
entered into in the ordinary course of business;
(b) any contract or agreement for the sale, license, lease or disposition of
products in excess of $50,000;
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(c) any contract containing covenants directly or explicitly limiting the
freedom of the Issuer or any Subsidiary to compete in any line of
business or with any person or entity;
(d) any license agreement (as licensor or licensee) other than licenses to
off-the-shelf software;
(e) any contract or agreement or the purchase of any leasehold improvements,
equipment or fixed assets for a price in excess of $50,000;
(f) any indenture, mortgage, promissory note, loan agreement, guaranty or
other agreement or commitment for borrowing in excess of $50,000 or any
pledge or security arrangement except as disclosed in Schedule I;
(g) any material joint venture, partnership, manufacturing, development or
supply agreement;
(h) any employment contracts, or agreements with officers, directors,
employees or stockholders of the Issuer or any Subsidiary or persons or
organizations related to or affiliated with any such persons;
(i) any stock redemption or purchase agreements or other agreements
affecting or relating to the capital stock of the Issuer or any
Subsidiary, including without limitation any agreement relating to the
capital stock of the Issuer or any Subsidiary, including without
limitation any agreement relating to anti-dilution rights, registration
rights, voting arrangements, operating covenants or similar provisions;
(j) any pension, profit sharing, retirement or stock option plans;
(k) any royalty, dividend or similar arrangement based on the sales volume
of the Issuer or any Subsidiary;
(l) any acquisition, merger or similar agreement; or
(m) any other contract not executed in the ordinary course of business.
All of such agreements and contracts are valid, binding and in full
force and effect. Neither Issuer nor any Subsidiary, nor, to the knowledge of
the Issuer, any other party is in material default under any of such agreements
or contracts (nor, to the knowledge of the Issuer, has any event occurred which
with notice, lapse of time or both would constitute a material default
thereunder), except to the extent that any such default would not have a
material effect on the assets, liabilities, properties, business or proposals of
the Issuer or any Subsidiary, and the Issuer or any Subsidiary, has not received
notice of any alleged default under any such contract, or agreement.
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3.1.23 Intellectual Property Rights.
(a) Rights
Schedule "J" contains a true and complete list of all Intellectual
Property Rights which have been registered, or for which applications
for registration have been filed in any jurisdiction.
(b) Ownership
Except as set forth in Schedule "J" or "Permitted Encumbrances", the
Issuer is or at Closing will be the exclusive owner of the Technology
and all right, title and interest in and to the Technology, free and
clear of all Encumbrances, other than those Encumbrances arising in the
ordinary course of Issuer's Business, and the Issuer has no knowledge of
any claim of adverse ownership in any Technology. Issuer has not:
(i) granted any third party license or other right to any of the
Intellectual Property Rights; or
(ii) made any contract or arrangement whereby it may be liable for any
royalty or other compensation for the use of Intellectual Property
Rights.
(c) Validity
The Intellectual Property Rights are in good standing and to the best of
the Issuer's knowledge have not been used or enforced or failed to be
used or enforced in a manner that would result in the abandonment,
cancellation or unenforceability of any of the Intellectual Property
Rights. All registrations and filings necessary to preserve the rights
of the Issuer in and to the Intellectual Property Rights have been made.
(d) Complete
The Technology is sufficient and complete to enable the Issuer to carry
on the Business as currently carried on and to perform its obligations
under this Agreement and any related Closing Documents including the E-
Commerce Services Agreement.
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(e) Infringements by Issuer
Except as set forth in Schedule "J", there is no:
(i) (1) claim of adverse ownership or invalidity or other opposition
to or conflict with Issuer's ownership of the copyright,
trade marks or trade secrets forming part of the Technology
or the manner it is used in respect of the Business; or
(2) to the best of the knowledge of the Issuer, pending or
threatened suit, proceeding, claim, demand, action or
investigation of any nature or kind of which the Issuer has
received notice against Issuer relating to the Technology or
the manner it is used in respect of the Business; or
(ii) claim of which the Issuer has received notice (formal or
informal) or is otherwise aware that any products, software or
services manufactured, produced, used or sold by the Issuer or
any process, method, packaging, advertising, or material that the
Issuer employs in the manufacture, marketing, licensing or sale
of any such product, software or service, or the use of any of
the Technology breaches, violates, infringes or interferes with
any rights of any Person or requires payment for the use of any
copyright, trade mark or trade secret, know-how or technology of
another Person or, to the best of Issuer's knowledge any other
intellectual property of any Person.
(f) Licenses and Covenants Not to Sue
Schedule "J" sets forth a complete and correct list and brief description
of all judgments, covenants of Issuer not to sue, permits, grants,
franchises, licenses and other agreements and arrangements relating to any
of the Technology owned by Issuer which bind, obligate or otherwise
restrict it.
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(g) Third Party Infringements
There are no infringements of, passing-off related to, or other
interference with the Technology by third parties of which the Issuer has
received notice (formal or informal) or is otherwise aware..
(h) Protection of Confidentiality
Issuer has taken commercially reasonable precautions and made commercially
reasonable efforts to protect its trade secrets and secure the
confidentiality of its customer lists, and other proprietary information.
3.1.24 Major Suppliers and Customers. To the knowledge of the Issuer, no major
supplier or customer has any intention to change its relationship or any
material terms upon which it will conduct business with Issuer or the
Subsidiaries. There has been no interruption to or discontinuity in any
customer or supplier arrangements or relationships referred to in this Section
and Issuer and the Subsidiaries have not entered into any fixed price
commitments (whether written or oral) which extend beyond the Closing Date.
3.1.25 Material Change Reports. Since the Financial Disclosure Date, other
than in respect of material change reports filed on a confidential basis and in
respect of which the material change so reported did not come to fruition and
other than this Agreement:
(a) there has not been any material change in the assets, liabilities or
obligations (absolute, accrued, contingent or otherwise) of the Issuer or
its Subsidiaries which requires disclosure under applicable securities
legislation and that has not been publicly disclosed;
(b) there has not been any material change in the capital stock or long-term
debt of the Issuer or its Subsidiaries which requires disclosure under
applicable securities legislation and that has not been publicly disclosed;
and
(c) there has not been any material change in the business, business prospects,
condition (financial or otherwise) or results of the operations of the
Issuer or its Subsidiaries which requires disclosure under applicable
securities legislation and that has not been publicly disclosed.
3.1.26 Information Record. No portion of the Issuer's Information Record
contained a misrepresentation as at its date of public dissemination.
3.1.27 Reportable Disagreement. There has never been any reportable
disagreement (within the meaning of National Policy Statement No. 31 of the
Canadian Securities Administrators) with the present or any former auditor of
the Issuer.
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3.1.28 Canadian Dealing Network. The Issuer shall use its best efforts
exercised in a commercially reasonable manner to ensure that the Shares will
continue to be quoted on the Canadian Dealing Network upon their issue.
3.1.29 Employees. None of the employees of the Issuer or any Subsidiary is
represented by any labour union, and, to the best of Issuer's knowledge, there
is no labour strike or other labour trouble pending or threatened with respect
to the Issuer or any Subsidiary (including, without limitation, any
organizational drive).
3.1.30 Disclosure. No representation or warranty of Issuer in this Agreement
contains any untrue statement of a material fact or omits to state any material
fact necessary to make any such representation or warranty not misleading to a
prospective buyer of the Shares or Warrant seeking full information as to the
Business and the Assets. Without limiting the scope of the foregoing, none of
the Issuer or any Subsidiary is aware of any change, event or occurrence related
to the Business that has taken place or is pending that has, or in the future
would have, a material adverse effect on the value of the Shares, the Warrant,
the Assets or the Business which is not the result of general industry trends.
The copies of documents concerning Issuer, the Subsidiaries, the Business and
the Assets delivered to Subscriber on or prior to the date hereof are true and
complete.
3.2 Representations and Warranties of Subscriber. Subscriber represents and
warrants to Issuer as follows and acknowledges that Issuer is relying upon such
representations and warranties in connection with entering into this Agreement
and completing the transactions contemplated hereby.
3.2.1 Incorporation. Subscriber is a company duly incorporated, organized and
validly existing in good standing under the laws of Ontario.
3.2.2 Power, Capacity and Authority. Subscriber has all necessary power and
capacity to execute and deliver, and to observe and perform its covenants and
obligations under, this Agreement and the Closing Documents to which it is a
party. Subscriber has taken all corporate action necessary to authorize the
execution and delivery of, and the observance and performance of its covenants
and obligations under, this Agreement and the Closing Documents to which it is a
party.
3.2.3 Enforceability of Obligations. This Agreement has been, and the Closing
Documents to which Subscriber is a party will on Closing be, duly executed and
delivered by Subscriber and this Agreement constitutes, and each of the Closing
Documents to which Subscriber is a party will on Closing constitute, a valid and
binding obligation of Subscriber enforceable against Subscriber in accordance
with its terms.
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3.2.4 Absence of Conflicting Agreements. None of the execution and delivery
of, or the observance and performance of, by Subscriber of, any covenant or
obligation under, this Agreement or any Closing Document to which it is a party
or the Closing contravenes or results in (with or without the giving of notice
or lapse of time, or both) or will contravene or violate in any material respect
or result in any material breach or default of, or acceleration of any
obligation under:
(a) any Applicable Law to Subscriber;
(b) any Licence held by Subscriber;
(c) the articles, by-laws, directors' or shareholders' resolutions of
Subscriber; or
(d) any other agreement, lease, mortgage, security document, obligation or
instrument to which Subscriber is a party, or by which it or its assets
are bound.
3.2.5 Consents, Approvals, Etc. No consent, approval, Licence, Order or
authorization, registration, declaration or filing with any Governmental Agency
is required by Subscriber in connection with (a) the Closing or (b) the
execution and delivery by it of, or the observance and performance of its
obligations under, this Agreement or the Closing Documents to which it is a
party.
3.2.6 Relationship to Issuer. Subscriber is acting entirely at arm's length
with Issuer and is purchasing the Shares and Warrant as principal.
3.2.7 Knowledge. The Subscriber has no knowledge of any material fact which
would make any representation or warranty of Subscriber contained in this
Agreement untrue or misleading.
3.3 Commission. Each Party represents and warrants to the other Party that
the other Party will not be liable for any brokerage commission, finder's fee or
other like payment in connection with the transactions contemplated hereby
because of any action taken by, or agreement or understanding reached by, the
first mentioned Party.
3.4 Qualification of Representations and Warranties. The representations or
warranties made by a Party under Sections 3.1.1(d), 3.1.18, 3.1.22 and 3.2.3 as
to the enforceability of this Agreement or the Closing Documents against such
Party are subject to the following qualifications:
(a) specific performance, injunctive relief and other equitable remedies are
discretionary and, in particular, may not be available where damages are
considered an adequate remedy; and
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(b) enforcement may be limited by bankruptcy, insolvency, liquidation,
reorganization, reconstruction and other similar laws generally
affecting enforceability of creditors' rights.
3.5 Non-Waiver. No investigations made by or on behalf of Subscriber at any
time shall waive, diminish the scope of or otherwise affect any representation
or warranty made by Issuer in this Agreement or any Closing Document or any
document delivered pursuant to any of them.
3.6 Survival of Issuer Representations, Warranties, Covenants and
Agreements. All representations, warranties, covenants and agreements made by
Issuer in or pursuant to this Agreement shall survive the Closing as follows:
(a) the representations and warranties set forth in Sections 3.1.1 to 3.1.4
inclusive, 3.1.9, 3.1.16, 3.1.21, 3.1.23, 3.1.28 and Section 3.3 shall
survive the Closing and continue without time limit;
(b) all of the other representations and warranties contained in this
Agreement or in any Closing Document shall survive only for a period of
2 years from the Closing Time. After such period, Issuer shall not have
any further liability hereunder with respect to such representations and
warranties except with respect to claims properly made within such
period; and
(c) the covenants and agreements of Issuer contained in this Agreement shall
survive the Closing and continue in accordance with Applicable Law.
3.7 Survival of Subscriber Representations, Warranties, Covenants and
Agreements. All representations warranties, covenants and agreements made by
Subscriber in or pursuant to this Agreement shall survive the Closing as
follows:
(a) the representations and warranties set forth in Sections 3.2.1 to 3.2.3
inclusive and Section 3.3 shall survive the Closing and continue without
time limit;
(b) all of the other representations and warranties contained in this
Agreement or in any Closing Document shall survive only for a period of
2 years from the Closing Time. After such period, Subscriber shall have
no further liability hereunder with respect to such representations and
warranties except with respect to claims properly made within such
period; and
(c) the covenants and agreements of Subscriber contained in this Agreement
shall survive the Closing and continue in accordance with Applicable
Law.
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3.8 Knowledge of Issuer. Where any representation or warranty contained in
this Agreement is expressly qualified by reference to the "knowledge" of Issuer,
it shall be deemed to refer to the knowledge of each of Issuer and any of the
Subsidiaries and Issuer confirms that it has made due and diligent inquiry of
such Persons (including without limitation appropriate officers of Issuer and
the Subsidiaries) as it considers necessary as to the matters that are the
subject of such representations and warranties.
ARTICLE 4
OTHER COVENANTS OF THE PARTIES
4.1 Obligation of Issuer. From the date hereof to the Closing Time, Issuer
shall act, and shall cause the Subsidiaries to act, as set forth in this Section
4.1.
4.1.1 Conduct Business in Ordinary Course. Except as otherwise contemplated or
permitted by this Agreement, Issuer and the Subsidiaries shall conduct the
Business in the ordinary course and shall not, without the prior written consent
of Subscriber, enter into any transaction which, if entered into before the date
hereof, could cause any representation or warranty of Issuer contained herein to
be incorrect or constitute a breach of any covenant or agreement of Issuer
contained herein.
4.1.2 Action by Issuer and Subsidiaries. Each of Issuer and the Subsidiaries
shall at their sole cost take all action which may be necessary to ensure that
the representations and warranties contained herein shall be true and correct in
all material respects at the Closing Time.
4.1.3 Access for Investigation. Each of Issuer and the Subsidiaries shall
permit Subscriber and its employees, agents, counsel and accountants or other
representatives, without interference to the ordinary conduct of the Business,
to have free and unrestricted access during business hours to the properties of
Issuer and the Subsidiaries and to all the books, accounts and records relating
to each of Issuer, the Subsidiaries, the Business, the Assets and to the
employees of the Business. Issuer and each of the Subsidiaries shall furnish to
Subscriber such financial and operating data and other information with respect
to the Business and the Assets as Subscriber shall from time to time reasonably
request. Issuer agrees that Subscriber may conduct such environmental
investigations and tests on the properties of Issuer and the Subsidiaries as
Subscriber considers necessary.
4.2 Actions to Satisfy Closing Conditions. Each of the Parties shall take
all such action as is within its power to control, and shall use reasonable
efforts to cause other actions to be taken which are not within its power to
control, so as to ensure compliance with and satisfaction of all conditions set
forth in Article 6 which are for the benefit of any Party. The Parties will
cooperate in exchanging such information and providing such assistance as may be
reasonably required in connection with the foregoing.
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4.3 Injunctions. If any court having jurisdiction over either Party or any
of the Subsidiaries issues any injunction, decree or similar order prior to the
Closing Time which would prohibit or materially restrict or hinder the Closing,
the Parties shall use their respective reasonable efforts to have such
injunction, decree or order delivered or otherwise eliminated as promptly as
possible and, in any event, prior to the Closing Time.
4.4 Disclosure. Issuer shall forthwith disclose in writing to Subscriber in
supplemental schedules any matter which has become known to it prior to the
Closing Time which is inconsistent in any material respect with any of the
representations and warranties contained herein. No such disclosure shall cure
any misrepresentation or breach of warranty for the purposes of Section 6.1.1
hereof.
4.5 Reporting Issuer Status. Issuer shall use its best efforts exercised in
a commercially reasonable manner to maintain its status as a reporting issuer
not in default of any requirements of the Securities Act (Ontario) (the
"Securities Act") and the regulations thereunder and shall use its best efforts
exercised in a commercially reasonable manner not to be in default of any
requirement of any securities laws or regulation to which Issuer is subject.
4.6 Securities Act Exemptions and Rights of Re-sale. Issuer and Subscriber
agree and understand that:
(a) the trades which will result from the issue of the Shares and the
Warrant will be exempt from registration and prospectus filing
requirements under Section 35(1)(5) and Section 72(1)(d) of the
Securities Act respectively and Section 27(1) of the Regulation under
the Securities Act subject only to the Issuer filing a report of the
trades as required by the Securities Act and Regulation, which report
the Issuer agrees to file immediately after Closing;
(b) the trades which will result from the exercise of the Warrant will be
exempt from registration and prospectus filing requirements under
Sections 35(1)(12) and 72(1)(f)(iii) of the Securities Act respectively;
and
(c) the Shares issued to Subscriber and any Shares acquired by Subscriber
through exercise of the Warrant are and will be subject to a hold period
of at least one year from the date of the initial exempt trade as
specified in Section 72(4) of the Securities Act and cannot be
distributed within such period.
4.7 Licensing. The Parties acknowledge that the Issuer is negotiating with a
third party for a licensing arrangement and equity injection at prices not less
than that provided herein which may involve the grant of territorial rights in
some or all of the Intellectual Property Rights, board of directors
representation, warrants to acquire a larger proportion of voting shares, which
may impact control, and source code escrow.
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ARTICLE 5
INDEMNIFICATION
5.1 Definitions. As used in this Article 5:
"Claim" means any act, omission or state of facts and any demand, action, suit
or proceeding which may constitute or give rise to a right to indemnification
under Sections 5.2 or 5.3 hereof;
"Direct Claim" means any Claim by an Indemnified Party against an Indemnifier
which does not result from a Third Party Claim;
"Indemnified Loss" means any loss, liability, damage, cost or expense relating
to, resulting from or arising out of any Claim (including, without limitation,
the costs and expenses of any action, suit, proceeding, demand, assessment,
judgment, settlement or compromise relating thereto and all interest, punitive
damages, fines and penalties and reasonable legal fees and expenses incurred in
connection therewith but excluding loss profits and consequential damages) which
is suffered or incurred by an Indemnified Party and for which such Indemnified
Party is entitled to indemnification under the provisions hereof;
"Indemnifier" means any Party obligated to provide indemnification under this
Agreement;
"Indemnified Party" means any Person entitled to indemnification under this
Agreement;
"Indemnity Payment" means any amount of Indemnified Loss required to be paid
pursuant to Sections 5.2 or 5.3 hereof; and
"Third Party Claim" means any Claim asserted against the Indemnified Party by
any Person who is not a Party or an Affiliate of such a Party.
5.2 Indemnification by Issuer. Subject to the limits set forth in Section
5.11, Issuer shall indemnify, defend and save harmless Subscriber and each of
its directors, officers, employees, agents and representatives from and against
any and all Indemnified Losses suffered or incurred by them, as a direct or
indirect result of:
(a) subject to Section 3.6 hereof, any misrepresentation or breach of
warranty made or given by Issuer in this Agreement, any Closing Document
or in any document delivered pursuant to any of them; or
(b) any failure by Issuer to observe or perform any covenant or obligation
contained in this Agreement, any Closing Document or in any document
delivered pursuant to any of them to be observed or performed by it.
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5.3 Indemnification by Subscriber. Subject to the limits set forth in
Section 5.11, Subscriber shall indemnify, defend and save harmless Issuer and
its subsidiaries and each of their respective directors, officers, employees,
agents and representatives from and against any and all Indemnified Losses
suffered or incurred by them, as a direct or indirect result of:
(a) subject to Section 3.7, any misrepresentation or breach of any warranty
made or given by Subscriber in this Agreement, any Closing Document or
in any document delivered pursuant to any or them; or
(b) any failure by Subscriber to observe or perform any covenant or
obligation contained in this Agreement, any Closing Document or in any
document delivered pursuant to any of them to be observed or performed
by it.
5.4 Notice of and the Defense of Third Party Claims. If an Indemnified Party
receives notice of the commencement or assertion of any Third Party Claim, the
Indemnified Party shall give the Indemnifier reasonably prompt written notice
thereof, but in any event no later than 30 calendar days after receipt of such
notice of such Third Party Claim. Such notice to the Indemnifier shall describe
the Third Party Claim in reasonable detail and shall indicate, if reasonably
practicable, the estimated amount of the Indemnified Loss that has been or may
be sustained by the Indemnified Party. The Indemnifier shall have the right to
participate in or, by giving notice to that effect to the Indemnified Party not
later than 30 calendar days after receipt of such notice of such Third Party
Claim and subject to the rights of any insurer or other third party having
potential liability therefor, to elect to assume the defense of any Third Party
Claim at the Indemnifier's own expense and by such Indemnifier's own counsel,
and the Indemnified Party shall co-operate in good faith in such defense. The
Indemnified Party shall have the right to participate in the defense of any
Third Party Claim assisted by counsel of its own choosing. If the Indemnified
Party has not received notice within such 30 calendar day period that the
Indemnifier has elected to assume the defence of such Third Party Claim, the
Indemnified Party may, at its option, elect to settle or compromise the Third
Party Claim or assume such defence, assisted by counsel of its own choosing and
the paid or incurred in connection therewith.
5.5 Assistance for Third Party Claims. In the event of any Third Party
Claim, the Indemnifier and the Indemnified Party will use all reasonable efforts
to make available to the Party which is undertaking and controlling the defense
of such Third Party Claim,
(a) those employees whose assistance, testimony or presence is necessary to
assist such Party in evaluating and in defending any Party Claim; and
(b) all documents, records and other materials in the possession of such
Party reasonably required by such Party for its use in defending any
Third Party Claim,
and shall otherwise cooperate with the Party defending such Third Party Claim.
The Indemnifier
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shall be responsible for all expenses associated with making such documents,
records and materials available and for all expenses of any employees made
available by the Indemnified Party to the Indemnifier hereunder, which expense
shall be equal to an amount to be mutually agreed upon per person per hour or
per day for each day or portion thereof that such employees are assisting the
Indemnifier but such expenses shall not exceed the actual cost to the
Indemnified Party associated with such employees.
5.6 Settlement of Third Party Claims. If an Indemnifier elects to assume the
defence of any Third Party Claim as provided in Section 5.4 hereof, the
Indemnifier shall not be liable for any legal expenses subsequently incurred by
the Indemnified Party in connection with the defence thereof. However, if the
Indemnifier fails to take reasonable steps necessary to defend diligently such
Third Party Claim within 30 calendar days after receiving notice from the
Indemnified Party that the Indemnified Party bona fide believes on reasonable
grounds that the Indemnifier has failed to take such steps, the Indemnified
Party may, at its option, elect to assume the defence of and to compromise or
settle the Third Party Claim assisted by counsel of its own choosing and the
Indemnifier shall be liable for all costs and expenses paid or incurred in
connection therewith. Without the prior written consent of the Indemnified
Party, the Indemnifier shall not enter into any compromise or settlement of any
Third Party Claim which would lead to liability or create any financial or other
material obligation on the part of the Indemnified Party for which the
Indemnified Party is not entitled to indemnification hereunder. If a firm offer
is made to settle a Third Party Claim without leading to liability or the
creation of a financial or other obligation on the part of the Indemnified Party
for which the Indemnified Party is not entitled to indemnification hereunder and
the Indemnifier desires to accept such offer, the Indemnifier shall give written
notice to the Indemnified Party to that effect. If the Indemnified Party fails
to consent to such firm offer within 30 calendar days after its receipt of such
notice, the Indemnified Party may continue to contest or defend such Third Party
Claim and, in such event, the maximum liability of the Indemnifier with respect
to such Third Party Claim shall be (a) the amount of the offer of settlement
which the Indemnified Party refused to accept plus the costs and expenses of the
Indemnified Party prior to the date the Indemnifier notifies the Indemnified
Party of the offer of settlement and (b) the actual out-of-pocket amount the
Indemnified Party is obligated to pay as a result of continuing to pursue such
matter, whichever is the lesser. An Indemnifier shall be entitled to recover
from the Indemnified Party any, additional expenses incurred by such Indemnifier
as a result of the decision of the Indemnified Party to contest or defend such
Third Party Claim.
5.7 Direct Claims. Any Direct Claim shall be asserted by giving the
Indemnifier reasonably prompt written notice thereof, but in any event not later
than 30 calendar days after the Indemnified Party becomes aware of such Direct
Claim, and the Indemnifier shall have a period of 30 calendar days within which
to respond in writing to such Direct Claim. If the Indemnifier does not so
respond within such 30 calendar day period, the Indemnifier shall be deemed to
have rejected such Claim, in which event the Indemnified Party shall be free to
pursue such remedies as may be available to the Indemnified Party.
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5.8 Failure to Give Timely Notice. A failure to give timely notice as
provided in this Article 5 shall not affect the rights or obligations of either
Party, except and only to the extent that, as a result of such failure, any
Party which was entitled to receive such notice was deprived of its right to
recover any payment under its applicable insurance coverage or was otherwise
directly and materially damaged as a result of such failure.
5.9 Reductions and Subrogation. If the amount of any Indemnified Loss, at
any time subsequent to the making of an Indemnity Payment, is reduced by (a) any
net tax benefit or (b) any recovery, settlement or otherwise under or pursuant
to any insurance coverage, or pursuant to any claim, recovery, settlement or
payment by or against any other Person, the amount of such reduction (less any
costs, expenses (including taxes) or premiums incurred in connection therewith),
together with interest thereon from the date of payment thereof at the Prime
Rate, shall promptly be repaid by the Indemnified Party to the Indemnifier. Upon
making any Indemnity Payment, the Indemnifier shall, to the extent of such
Indemnity Payment, be subrogated to all rights of the Indemnified Party against
any third party that is not an affiliate (as defined in the Act) of the
Indemnified Party in respect of the Indemnified Loss to which the Indemnity
Payment relates but only if the Indemnifier shall then be in compliance with its
obligations under this Agreement in respect of such Indemnified Loss. Until the
Indemnified Party recovers full payment of its Indemnified Loss, any and all
claims of the Indemnifier against any such third party on account of such
Indemnity Payment shall be postponed and subordinated in right of payment to the
Indemnified Party's rights against such third party. Without limiting the
generality or effect of any other provision hereof, the Indemnified Party and
Indemnifier shall duly execute upon request all instruments reasonably necessary
to evidence and perfect the above-described postponement and subordination
rights.
5.10 Interest on Indemnified Losses. All Indemnified Losses shall bear
interest at a rate per annum equal to the Prime Rate, calculated and payable
monthly, both before and after Judgment, with interest on overdue interest at
the same rate, from the date that the Indemnified Party disbursed funds,
suffered damages or losses or incurred a loss, liability or expense in respect
of an Indemnified Loss, to the date of payment by the Indemnifier to the
Indemnified Party.
5.11 Limitation.
(a) No claims for indemnification may be made hereunder by Subscriber
against Issuer in respect of any Indemnified Losses arising in
connection with any misrepresentation or breach of warranty made or
given by Issuer in this Agreement, any Closing Document or in any
document delivered pursuant to any of them, unless and until the
Indemnified Losses suffered or incurred by Subscriber and by all of its
directors, officers, employees, agents or representatives collectively,
in respect of all such misrepresentations or breaches of warranty,
exceed Twenty-five Thousand Dollars ($25,000) in the aggregate
(excluding claims each of which is less than $1,000), in which event the
amount of all such Indemnified Losses including such Twenty-five
Thousand Dollars ($25,000) amount (but excluding claims of less than
$1,000) may be recovered by Subscriber.
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(b) No claims for indemnification may be made hereunder by Issuer against
Subscriber in respect of any Indemnified Losses arising in connection
with any misrepresentation or breach of warranty made or given by
Subscriber in this Agreement, any Closing Document or in any document
delivered pursuant to any of them, unless and until the Indemnified
Losses suffered or incurred by Issuer and by all of its directors,
officers, employees, agents or representatives collectively, in respect
of all such misrepresentations or breaches of warranty, exceed Twenty-
five Thousand Dollars ($25,000) in the aggregate (excluding claims each
of which is less than $1,000) in which event the amount of all such
Indemnified Losses including such Twenty-five Thousand Dollars ($25,000)
amount (but excluding claims of less than $1,000) may be recovered by
Issuer.
5.12 Rights-in Addition. The rights of indemnity set forth in this Article 5
are in addition and supplemental to any other rights, actions, claims or causes
of action which may arise in respect of this Agreement, the Closing Documents
and the transactions contemplated hereby.
5.13 Determination of Indemnified Loss. In determining the amount of any
Indemnified Loss hereunder the market price of any securities of Issuer held by
the Indemnified Party shall be only one factor to be taken into account.
ARTICLE 6
CONDITIONS PRECEDENT
6.1 Subscriber's Conditions. The obligation of Subscriber to complete the
purchase of the Shares and Warrant shall be subject to the prior satisfaction
of, or compliance with, at or before the Closing Time, each of the conditions
precedent set out in this Section 6.1, each of which is acknowledged to be for
the exclusive benefit of Subscriber and may be waived by Subscriber in whole or
in part in writing and upon such terms and conditions, if any as Subscriber may
require.
6.1.1 Accuracy of Representations and Performance of Covenants. All of the
representations and warranties of Issuer made in or pursuant to this Agreement
shall be true and correct in all respects as at the Closing Time and with the
same effect as if made at and as of the Closing Time and as if any time at which
such representation or warranty were accurate read the "Closing Time" (except as
such representations and warranties may be affected by the occurrence of events
or transactions expressly contemplated and permitted hereby) and, as at the
Closing Time, Issuer shall have observed or performed in all respects, all of
its covenants and obligations hereunder to be observed or performed by it at or
before the Closing Time and Subscriber shall have received immediately prior to
the Closing Time a certificate from the chief executive officer and the chief
financial officer of Issuer confirming the foregoing to the best of his
knowledge, information and belief, after due enquiry.
6.1.2 No Material Adverse Change. No material adverse change shall have
occurred since
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the Financial Disclosure Date with respect to any of Issuer, the Subsidiaries,
the Business or the Assets or the future prospects for any of Issuer, the
Subsidiaries or the Business and Subscriber shall have received immediately
prior to Closing a certificate from the chief executive officer and the chief
financial officer of Issuer confirming that no such material adverse change has
occurred.
6.1.3 Litigation. No court order shall have been entered that enjoins,
restrains, changes or prohibits the consummation of any of the transactions
contemplated hereby, and no Party, or any of either Party's directors, officers,
advisors, employees or agents, shall be a defendant or third party to or
threatened with, any litigation or proceedings before any court or Governmental
Agency which, in the opinion of the Subscriber, acting reasonably, could prevent
or restrict Subscriber or Issuer from observing and performing any of their
respective covenants and obligations pursuant to this Agreement or the Closing
Documents.
6.1.4 Receipt of Closing Documentation. All actions and proceedings taken on
or prior to the Closing in connection with the performance by Issuer of its
covenants and obligations under this Agreement shall be satisfactory to
Subscriber acting reasonably and Subscriber shall have received copies of the
Closing Documents and all such documentation or other evidence as it may
reasonably request in connection with the Closing in form (as to certification
and otherwise) and substance satisfactory to Subscriber.
6.1.5 Opinion of Counsel for Issuer. Subscriber shall have received an opinion
dated the Closing Date from counsel for Issuer in the form of the opinion
attached hereto as Schedule K. In giving such opinion, counsel to Issuer may
rely on certificates of senior officers of Issuer as to factual matters provided
such certificates are attached to the opinion. Such opinion shall also cover
such other matters as Subscriber or its counsel may reasonably request.
6.1.6 Closing Documents. Each of the following documents shall have been
executed and delivered by the parties thereto other than Subscriber:
(a) the E-Commerce Services Agreement in the form of Schedule L including
the Source Code escrow agreement attached as a Schedule thereto;
(b) the Shareholders' Agreement in the form of Schedule M; and
(c) the Warrant Agreement in the form of Schedule N.
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6.1.7 Board Representation. The board of directors of Issuer shall have, on or
prior to the Closing Date, resolved to increase the board of directors of Issuer
by one and to appoint one nominee of Subscriber as a director of Issuer, such
resolution to be conditional upon the Closing and to take effect immediately
after the Closing, and Subscriber shall have received a copy of such resolution
certified by the secretary of Issuer in form and substance satisfactory to
Subscriber.
6.1.8 Cease Trade Orders. There shall be no cease trade orders in force by any
securities regulatory authorities or any other impediments (other than "control
block" and "hold period" restrictions) to the general free trading of the
Shares, the Warrant and the shares underlying the Warrant.
6.2 Issuer's Conditions. The obligation of Issuer to complete the issuance
of the Shares shall be subject to the satisfaction of or compliance with, at or
before the Closing Time, each of the conditions precedent set out in this
Section 6.2, each of which is hereby acknowledged to be for the exclusive
benefit of Issuer and may be waived by Issuer in whole or in part in writing
upon such terms and conditions, if any, as Issuer may require.
6.2.1 Accuracy of Representations and Performance of Covenants. All of the
representations and warranties of Subscriber made in or pursuant to this
Agreement shall be true and correct in all respects as at the Closing Time with
the same effect as if made at and as of the Closing Time and as if any time at
which such representation or warranty were accurate read the "Closing Time"
(except as such representations and warranties may be affected by the occurrence
of events or transactions expressly contemplated and permitted hereby) and, as
at the Closing Time, Subscriber shall have observed or performed in all
respects, all of its obligations and covenants hereunder to be observed or
performed by it at or before the Closing Time and Issuer shall have received
immediately prior to Closing Time a certificate from two senior officers of
Subscriber confirming the foregoing to the best of their knowledge, information
and belief, after due enquiry.
6.2.2 Litigation. No court order shall have been entered that enjoins,
restrains, changes or prohibits the consummation of any of the transactions
contemplated hereby, and no Party, nor any of either Party's directors,
officers, advisors, employees or agents, shall be a defendant or third party to
or threatened with any litigation or proceedings before any court or
Governmental Agency which, in the opinion of Issuer, acting reasonably, could
prevent or restrict Issuer or Subscriber from observing and performing any of
their respective obligations and covenants pursuant to this Agreement or the
Closing Documents.
- 27 -
6.2.3 Receipt of Closing Documentation. All Closing Documents and all actions
and proceedings taken on or prior to the Closing in connection with the
performance by Subscriber of its covenants and obligations under this Agreement
shall be satisfactory to Issuer and Issuer shall have received copies of the
Closing Documents and all such documentation or other evidence as they may
reasonably request for the Closing in form (as to certification otherwise) and
substance satisfactory to it.
6.3 Waiver. Party may waive, by notice to the other Party, any condition set
forth in this Article 6 which is for its exclusive benefit. No waiver by a Party
of any condition, in whole or in part, shall operate as a waiver of any other
condition.
6.4 Failure to Satisfy Conditions. If any condition set forth in Sections
6.1 or 6.2 is not satisfied on or before the Closing Time, the Party entitled to
the benefit of such condition (the "First Party") may send notice in writing to
the other Party that this Agreement is to be terminated. Upon termination, the
First Party shall be released from all obligations hereunder, and unless the
First Party can show that the condition or conditions which have not been
satisfied and for which the First Party has terminated this Agreement are
reasonably capable of being performed or caused to be performed by the other
Party or have not been satisfied by reason of a default by the other Party
hereunder, then the other Party shall also be released from all obligations
hereunder.
6.5 Destruction or Expropriation. If, prior to the Closing Time, there
occurs any material destruction or damage by fire or other cause or hazard to
any of the Assets, or if the Assets or any material part of them are
expropriated or forcefully taken by any Governmental Agency or if notice of
intention to expropriate a material part of the Assets has been filed in
accordance with Applicable Law, then Subscriber may, at its option, terminate
this Agreement by notice to Issuer.
ARTICLE 7
GENERAL
7.1 Expenses. Each Party shall pay all expenses it incurs in authorizing,
preparing, executing and performing this Agreement and the transactions
contemplated hereunder, whether or not the Closing occurs, including all fees
and expenses of its legal counsel, bankers, investment bankers, brokers,
accountants or other representatives or consultants.
7.2 Time. Time is of the essence of this Agreement and each of its
provisions.
- 28 -
7.3 Notice. Any notice or other communication (in this Section a "Notice")
required or permitted to be given or made hereunder shall be in writing and
shall be well and sufficiently given or made if:
(a) delivered in person during normal business hours on a Business Day and
left with a receptionist or other responsible employee of the relevant
party at the applicable address set forth below;
(b) sent by prepaid first class mail; or
(c) sent by any electronic means of sending messages, including facsimile
transmission, which produces a paper record (an "Electronic
Transmission"), charges prepaid and confirmed by prepaid first class
mail;
in the case of a Notice to Subscriber addressed to it at:
Toronto Star Newspapers Limited
1 Yonge Street
Toronto, Ontario
M4E 1E6
Attention: VP Strategic Planning & New Media
Fax No.: (416) 869-4762
and in the case of a Notice to Issuer addressed to it at:
Internet Liquidators International Inc.
5915 Airport Rd.,
Suite 330
Mississauga, Ontario
L4V 1T1
Attention: Paul Godin
Fax No.: (905) 672-5705
- 29 -
with a copy to:
Gowling, Strathy & Henderson
Barristers & Solicitors
Commerce Court West
Suite 4900
Toronto, Ontario
M5L 1J3
Attention: David Pamenter
Fax No.: (416) 862-7661
Any Notice given or made in accordance with this Section 7.3 shall be deemed to
have been given or made and to have been received:
(a) on the day it was delivered, if delivered as aforesaid;
(b) on the fifth Business Day (excluding each day during which there exists
any general interruption of postal services due to strike, lockout or
other cause) after it was mailed, if mailed as aforesaid; and
(c) on the day of sending if sent by Electronic Transmission during normal
business hours of the addressee on a Business Day and, if not, then on
the first Business Day after the sending thereof.
Any Party may from time to time change its address for notice by giving Notice
to other Party in accordance with the provisions of this Section 7.3.
7.4 Public Announcements. Before the Closing Date, neither Party shall make
any public statement or issue any press release concerning the transactions
contemplated by this Agreement except as may be necessary, in the opinion of
counsel to the Party making such disclosure, to comply with the requirements of
all Applicable Law. If any such public statement or release is so required, the
Party making such disclosure shall consult with the other Party prior to making
such statement or release, and the Parties shall use all reasonable efforts,
acting in good faith, to agree upon a text for such statement or release which
is satisfactory to both Parties.
- 30 -
7.5 Assignment. None of this Agreement nor any right or obligation hereunder
is assignable in whole or in part by either Party without the prior written
consent of the other Party. Notwithstanding the foregoing, Subscriber may,
without the consent of Issuer, assign this Agreement and its rights hereunder to
any wholly-owned subsidiary on condition that Subscriber remains liable to
observe and perform all of its covenants and obligations hereunder. Subject
thereto, this Agreement shall enure to the benefit of and be binding upon the
Parties and their respective successors (including any successor by reason of
amalgamation or statutory arrangement of either Party) and permitted assigns.
7.6 Further Assurances. Each Party shall do such acts and execute and
deliver such further agreements, documents, conveyances, deeds, assignments,
transfers and the like, and shall cause the doing of such acts and the execution
and delivery of such further items as are within its power and as the other
Party may in writing at any time and from time to time reasonably request, in
order to give full effect to the provisions of this Agreement and the Closing
Documents.
7.7 Dispute Resolution Process. If any dispute, disagreement, controversy or
claim arising out of or relating to this Agreement including, without
limitation, its application, interpretation, performance, breach, termination,
enforcement or damages, or remedies arising out of the breach of or non-
compliance therewith, shall be finally determined by arbitration before a single
arbitrator to be commenced and conducted in the English language in Toronto in
accordance with the International Commercial Arbitration Act (Ontario) which
adopts the UNCITRAL Model Law on International Commercial Arbitration and the
rules provided therein (the "Model Law"). The Parties hereto agree that:
(a) subject to mutual agreement between the Parties to the contrary, the
arbitrator shall be a person who is legally trained and trained as a
professional arbitrator and who has a minimum of five (5) years
experience in the licensing of computer software;
(b) neither of them shall apply to the Courts of Ontario or any other
jurisdiction to attempt to enjoin, delay, impede or otherwise interfere
with or limit the scope of the arbitration or the powers of the arbitral
tribunal provided for in the Model Law;
(c) the award of the arbitral tribunal shall be a final and conclusive award
and judgment with respect to all matters properly before the arbitral
tribunal in accordance with the Model Law and neither Party shall appeal
such award in any manner whatever to any court, tribunal or other
authority; and
(d) the award of the arbitral tribunal may be entered and enforced by any
court in any jurisdiction having jurisdiction over the Parties hereto or
the subject matter of the award or the properties or assets of either of
the Parties hereto.
- 31 -
Notwithstanding the foregoing, either Party may apply to the courts of the
Province of Ontario or any other jurisdiction for injunctive or other equitable
remedies to protect its rights to Confidential Information.
IN WITNESS WHEREOF the Parties have duly executed this Agreement.
INTERNET LIQUIDATORS INTERNATIONAL INC.
By:
-------------------------------------
(Duly Authorized Officer)
By:
-------------------------------------
(Duly Authorized Officer)
TORONTO STAR NEWSPAPERS
LIMITED
By:
-------------------------------------
(Duly Authorized Officer)
CP Doc #: 31478-1
February 12, 1997
SCHEDULE "A"
DEFINITIONS
In this Agreement, unless the subject matter or context is inconsistent
therewith:
"Act" means the Business Corporations Act (Ontario) as amended or restated and
any successor legislation of comparable effect;
"Advertising Credits" means a credit to purchase advertising from the
Subscriber;
"Agreement" means this Subscription Agreement and all schedules annexed to this
Agreement as the same may be amended from time to time in accordance with the
provisions hereof or thereof; "hereof", "hereto" and "hereunder" and similar
expressions mean and refer to this Agreement and not to any particular article
or section; except where the context specifically requires, "Article" or
"Section" means and refers to the specified article or section of this
Agreement;
"Articles" means the articles of amalgamation of Issuer dated January 9, 1997;
"Applicable Law" means any domestic or foreign statute, law, ordinance, rule,
regulation, regulatory policy or guideline, by-law (zoning or otherwise) or
Order that applies to Issuer, the Subsidiaries, the Business, the way the
Business is carried on or to the Shares or Warrant;
"Assets" means all of the assets and undertaking of Issuer and the Subsidiaries,
both tangible and intangible, including goodwill;
"Business" means collectively the businesses carried on by Issuer and the
Subsidiaries including the maintenance of an internet website under the URL
www.internetliquidators.com which offers consumer products for sale via credit
card transactions through an auction and storefront mall format, for both retail
and wholesale suppliers;
"Business Day" means any day of the week other than a Saturday, Sunday or
statutory or civic holiday observed in Toronto, Ontario;
"Closing" means the issuance of the Shares and Warrant by Issuer to Subscriber
and the completion of all other transactions contemplated in connection with the
purchase of the Shares and Warrant;
"Closing Date" means February 12, 1997, or such other Business Day as the
Parties agree in writing as the date on which the Closing is to take place;
"Closing Document" means any document delivered at or subsequent to the Closing
Time as
provided in or pursuant to, this Agreement;
"Closing Time" means 11:00 a.m. (Toronto time) on the Closing Date or such other
time on that date as the Parties agree that the Closing shall take place;
"Confidential Information" means all information relating to either Party or to
such Party's business, products, sales, customers, trade secrets, technology or
financial position to which access is obtained or granted hereunder, which when
disclosed to the other Party is marked or otherwise designated as confidential,
provided, however, that Confidential Information shall not include any data or
information which:
(i) is or becomes publicly available through no fault of the other Party;
(ii) is already in the rightful possession of the other Party prior to its
receipt from the other Party;
(iii) is independently developed by the other Party;
(iv) is rightfully obtained by the other Party from a third party not
subject to an obligation of confidentiality;
(v) is disclosed with the written consent of the Party whose information
it is; or
(vi) is disclosed pursuant to court order or other legal compulsion;
"Convertible Security" means a security of Issuer convertible into or
exchangeable for one or more Voting Securities of Issuer;
"Encumbrance" means any encumbrance of any kind whatever and includes a security
interest, mortgage, lien, hypothec, pledge, hypothecation, assignment, charge,
trust or deemed trust (whether contractual, statutory or otherwise arising),
adverse claim, or any other option, right or claim of others of any kind
whatever affecting the Assets, Shares or Warrant, as applicable and any
restrictive covenant or other agreement, restriction or limitation (registered
or unregistered) on the Assets, Shares or Warrant, as applicable;
"Financial Disclosure Date" means final day reviewed by any of the Financial
Statements and being December 31, 1996;
"Financial Statements" means the unaudited consolidated balance sheet of Issuer
as at December 31, 1996 and the unaudited consolidated statement of loss of
Issuer for the 12 month period ended December 31, 1996;
"Generally Accepted Accounting Principles" means generally accepted accounting
principles from time to time approved by the Canadian Institute of Chartered
Accountants, or any successor institute, applicable as at the date on which any
calculation or determination is required to be made in accordance with generally
accepted accounting principles, and where the Canadian Institute of Chartered
Accountants includes a recommendation in its Handbook concerning the treatment
of any accounting matter, such recommendation shall be regarded as the only
generally accepted accounting principle applicable to the circumstances that it
covers;
"Generic Software" means mass-market software which is readily substitutable by
the Business with minimum cost or interruption to the Business;
"Governmental Agency" means any domestic or foreign government whether federal,
provincial, state or municipal and any governmental agency, authority,
commission or instrumentality of any kind whatever;
"Information Record" means any statement contained in any press release,
material change report, financial statement or other document of Issuer or any
Subsidiary which has been or is publicly disseminated pursuant to any applicable
securities laws prior to the Closing Time;
"Intellectual Property Rights" includes: (A) any and all proprietary rights
provided under (i) patent law, (ii) copyright law, (iii) trade-mark law, (iv)
design patent or industrial design law, (v) semi-conductor chip or mask work
law, or (vi) any, other statutory provision or common law principle applicable
to the Issuer, the Subsidiaries, the Business or Assets which may provide a
right in either (a) ideas, formulae, algorithms, concepts, inventions or know-
how generally, including trade law, or (b) the expression or use of such ideas,
formulae, algorithm, concepts inventions or know-how; and (B) any and all
applications, registrations, license, sub-licenses, franchise agreements or any
other evidence of a right in any of the foregoing;
"Licence" means any licence, permit, approval, right, privilege, concession or
franchise;
"ordinary course" when used in relation to the conduct by Issuer and the
Subsidiaries of the Business means any transaction which constitutes an ordinary
day-to-day business activity of Issuer and the Subsidiaries conducted in a
commercially reasonable and businesslike manner consistent with the past
practices of Issuer and the Subsidiaries;
"Order" means any order (draft or otherwise), judgment, injunction, decree,
award or writ of any, court, tribunal, arbitrator, Governmental Agency or other
Person;
"Parties" means Issuer and Subscriber collectively, and "Party" means any one of
them;
"Person" shall be broadly interpreted and includes an individual, body
corporate, partnership, joint venture, trust, association, unincorporated
organization, the Crown, any Governmental Agency or any other entity recognized
by law;
"Permitted Encumbrances" means inchoate liens and all statutory liens, charges,
obligations and encumbrances not required by law to be registered;
"Prime Rate" for any day means the rate of interest expressed as a rate per
annum that The Royal Bank of Canada establishes at its head office in Toronto as
the reference rate of interest that it will charge on that day for Canadian
dollar demand loans to its customers in Canada and which it at present refers to
as its prime rate;
"Regulatory Filings" means all material and reports filed, or required to be
filed, with applicable securities regulatory authorities and any stock exchange
on which the securities of the relevant body corporate are listed;
"Rights" means any options, rights, warrants or subscription privileges issued
or granted by Issuer (whether or not currently exercisable or exercisable on
conditions) to purchase Voting Securities or Convertible Securities of Issuer;
"Shares" means the 1,000,000 common shares in the capital stock of Issuer to be
subscribed hereunder by Subscriber from Issuer;
"Subscription Price" has the meaning ascribed to that term in Section 2.2;
"Subsidiaries" means the bodies corporate listed in Schedule C, and "Subsidiary"
means any one of them;
"Taxes" means all federal, provincial, local, foreign or other taxes, imposts,
rates, levies, assessments and Government fees or dues lawfully levied, assessed
or imposed against Issuer and the Subsidiaries or in respect of the Business,
including income, premium, sales, excise, use, property, capital, goods and
services, business transfer and value added taxes and custom and import duties
and includes all interest, fines and penalties with respect thereto;
"Tax Returns" means all reports and returns filed or required to be filed by
Issuer and the Subsidiaries in respect of Taxes;
"Technical Information" means all right, title and interest in and to all know-
how of Issuer including
(i) all information of a scientific, technical or business nature whether
in oral,
written, graphic, machine readable, electronic or physical form; and
(ii) all patterns, plans, designs, research data, research plans, trade
secrets and other proprietary know-how, processes, formulas, drawings,
technology, computer software and related manuals, unpatented blue
prints, flow sheets, equipment and parts lists, instructions, manuals,
records and procedures;
"Technology" means the Intellectual Property Rights and the Technical
Information;
"Voting Securities" means the common shares of Issuer and all other securities
of Issuer of any kind or class having power to vote for the election of
directors either under all circumstances or in certain circumstances or in
certain events (whether such circumstances or events exist or have occurred);
and
"Warrant" means the warrant for the purchase of common shares in the capital of
the Issuer to be issued to Subscriber hereunder in the form set out in Schedule
"N".
SCHEDULE "B"
FINANCIAL STATEMENTS
Unaudited consolidated financial statements of Internet Liquidators
International Inc. for the twelve month period ended December 31, 1996.
Incorporated by Reference. See Registration Statement (File No. 001-14835) on
Form 20-F.
SCHEDULE "C"
SUBSIDIARIES
Internet Liquidators USA, Inc.
a. Articles
Articles of Incorporation dated May 6, 1996
b. By-laws
By-laws dated May 6, 1996
SCHEDULE "D"
OUTSTANDING OPTIONS AND WARRANTS
I. Option Holders:
Internet Liquidators International Inc.
---------------------------------------
Optionee
No. of Date of Grant Exercise Expiry
Options Price Date
- ------------------------------------------------------------------------------------
Paul Dodin 25, 000 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
Dr. Duncan
Copeland 25, 000 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
Jeffrey Lymburner 25, 000 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
Christopher Lobb 25, 000 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
T. Christopher
Bulger 100, 000 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
Brent Bowes 100, 000 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
Rob Joynt 12, 500 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
Nathan Feedman 12, 500 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
Jeff Stephens 5, 000 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
Bruce Fowler 5, 000 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
Shannon McMahon 5, 000 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
Rose Szot 5, 000 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
HDL Capital
Corporation 475, 000 May 1, 1996 $1.25 April 30, 1999
- ------------------------------------------------------------------------------------
Frank Clegg 50, 000 September 16, 1996 $0.99 September 15, 1998
- ------------------------------------------------------------------------------------
CP Doc #: 29918-1
SCHEDULE "E"
LITIGATION
As of the date hereof, there is currently no outstanding or contemplated
litigation involving or that may involve Internet Liquidators International Inc.
SCHEDULE "F"
LICENSES
INTERNET LIQUIDATORS INTERNATIONAL INC.
THIRD PARTY SOFTWARE LICENCES PURCHASED
TO JANUARY 30, 1997
[confidential material filed separately with the SEC]
See attached papers.
CP 29729-1
March 23, 1999
SCHEDULE "G"
MAJOR SHAREHOLDER INTERESTS
The following is a list of shareholders owning greater than 10% of the issued
and outstanding shares in the capital of Internet Liquidators International
Inc.:
Smythe Group Company - 1,850,000 shares
1184041 Ontario Inc. - 1,812,500 shares
CP-29729-1
March 23, 1999
SCHEDULE "H"
MATERIAL CONTRACTS
Product Suppliers:
List of Suppliers (as of January 30, 1997)
Draft Supplier Agreements (Four Versions)
Draft Marked-up Version of Agreement with W3 Edge Inc.
Service Supplier Agreements (as of January 30, 1997):
Agreement between RV Storage & Assembly Co. Ltd. and Internet Liquidators Inc.
dated February 2, 1996.
Automated Shipping System Letter of Agreement between United Parcel Service and
Internet Liquidators Inc. dated April 2, 1996.
Courier Service Agreement between Purolator Courier Ltd. and Internet
Liquidators Inc. dated February 21, 1996.
Premium Finance Agreement between AIG Credit Corp. of Canada and Internet
Liquidators International Inc. dated October 8, 1996.
Visa Agreement between the Bank of Nova Scotia and Internet Liquidators Inc.
dated February 21, 1996.
Mastercard Agreement between the Bank of Montreal and Internet Liquidators Inc.
dated March 13, 1996.
Credit Card Processing Agreement between First USA Merchant Services, Inc. and
Internet Liquidators USA, Inc. dated July 17, 1996.
American Express Agreement between Amex Bank of Canada and Internet Liquidators
Inc. dated July 20, 1996.
Employment Contractor Agreements:
Employment Agreement between Paul Godin and Internet Liquidators Inc. dated
January 1, 1996
Employment Agreement between Jeffrey Lymburner and Internet Liquidators Inc.
dated January 1, 1996.
Designated Insured Persons and Company Reimbursement Policy between Aetna and
Internet Liquidators International, Inc. dated October 10, 1996.
Indemnity Agreement between Frank Clegg and Internet Liquidators International
Inc. dated September 16, 1996.
Engagement Letter between HDL Capital Corporation Agreement and Internet
Liquidators International Inc. dated August 22, 1996.
Toronto Star Newspapers Limited Agreements
Subscription Agreement dated February 12, 1997 between Toronto Star Newspapers
Limited ("Torstar") and Internet Liquidators International Inc. ("IL").
Warrant certificate dated February 12, 1997 executed by IL evidencing the
Warrant.
Shareholders' Agreement dated February 12, 1997 between Torstar, IL, 1184041
Ontario Inc. ("1184041") and the Smythe Group Company ("Smythe").
E-Commerce Services Agreement dated February 12, 1997 between Torstar and IL.
Master Preferred Escrow Agreement dated February 12, 1997 between Torstar, IL
and Data Securities International, Inc.
IP Rights and Non-Competition Agreement dated February 12, 1997 between Torstar,
IL, 1184041, Smythe, Paul Godin and Jeff Lymburner.
CP Doc #: 133607-1
SCHEDULE "I"
ENCUMBRANCES
Standard Mercantile Bancorp Limited Partnership re: Loan Agreement with Internet
Liquidators International Inc. dated October 18, 196
General Security Agreement between Internet Liquidators International Inc. and
Standard Mercantile Bancorp, Limited Partnership dated October 18, 1996.
Indenture of Guarantee between Internet Liquidators International Inc. and
Standard Mercantile Bancorp, Limited Partnership dated October 18, 1996.
CP-29729-1
March 23, 1999
SCHEDULE "J"
INTELLECTUAL PROPERTY RIGHTS
. see attached copy of letter from MacBeth & Johnson, Barristers &
Solicitors, to Brent Bowes of Internet Liquidators Inc. dated August 29,
1996.
. IP Rights and Non-Competition Agreement between Toronto Star Newspapers
Limited, Paul Godin, 1184041 Ontario Inc., Jeff Lymburner, Smythe Group
Company and Internet Liquidators International Inc. made the 12th day of
February, 1997. A copy of the agreement is contained in Schedule "H".
SCHEDULE L
E-COMMERCE SERVICES AGREEMENT
Incorporated by reference. See Exhibit 3.2.
CP-29729-1
March 23, 1999
CP Doc #: 133607-1
SCHEDULE M
SHAREHOLDERS' AGREEMENT
Agreement has been terminated.
SCHEDULE "N"
THIS WARRANT WILL BE VOID AND OF NO VALUE OR EFFECT UNLESS EXERCISED PRIOR TO
THE EXPIRY TIME.
COMMON SHARE PURCHASE WARRANT
INTERNET LIQUIDATORS INTERNATIONAL INC.
(the "Company")
(Amalgamated under the laws of Ontario)
No. TS-1
Right to Purchase Common Shares
THIS IS TO CERTIFY that for value received, Toronto Star Newspapers Limited
("Torstar"), the registered holder hereof, is entitled to exercise its rights
under this Warrant, in whole or in part, at any time, and from time to time,
from 9:00 a.m. (Toronto time) February 12, 1997 (the "Effective Date") to 4:00
p.m. (Toronto time) January 30, 1998 (the "Expiry Time"), to purchase 500,000
fully paid and non-assessable common shares without par value in the capital of
the Company as provided below (the "Common Shares"), as such Common Shares are
presently constituted, upon and subject to the terms and conditions hereinafter
referred to and at a subscription price as provided below (the "Exercise
Price"):
36. The Exercise Price for each Common Share shall be Cdn. $1.25 per
Common Share.
37. The Exercise Price to be paid by Torstar to the Company under this
Warrant will be paid in cash.
38. Transfer taxes and other taxes related to the issuance of Common
Shares pursuant to the exercise of this Warrant, if any, and other
ancillary expenses related to the issuance of such Common Shares shall be
paid by the Company.
39. If at any time there shall be a reclassification of the Common
Shares outstanding at any time or change of the Common Shares into other
shares or securities, or any other capital reorganization affecting the
Common Shares, or a consolidation, amalgamation or merger of the Company
with or into any other corporation (other than a consolidation,
amalgamation or merger which does not result in any reclassification of
the outstanding Common Shares or a change of the Common Shares into other
shares or securities), or a transfer of the undertaking or assets of the
Company as an entirety or substantially as an
entirety to another corporation or other entity (any of such events being
called a "Capital Reorganization"), Torstar shall be entitled to receive
upon the exercise of the Warrant, and shall accept for the same aggregate
consideration, in lieu of the number of Common Shares to which it was
theretofore entitled upon the exercise of the Warrant, the kind and amount
of shares or other securities or property which it would have been
entitled to receive as a result of such Capital Reorganization if, on the
effective date thereof, it had been the registered holder of the number of
Common Shares to which it was theretofore entitled upon such exercise. If
determined appropriate by the Company, appropriate adjustments shall be
made as a result of any such Capital Reorganization in the application of
the provisions set forth in this paragraph with respect to the rights and
interests thereafter of Torstar to the end that the provisions set forth
in this paragraph with respect to the rights and interests thereafter of
Torstar to the end that the provisions set forth in this paragraph shall
thereafter correspondingly be made applicable as nearly as may reasonably
be in relation to any shares, other securities or of the property
thereafter deliverable upon the exercise of the Warrant.
40. The right to purchase Common Shares in the capital of the Company
may only be exercised by Torstar within the time hereinbefore set out by:
(1) duly completing in the manner indicated and executing the
subscription form annexed hereto, and
(2) surrendering this Warrant to the Company, at its registered office in
Toronto, together with a certified cheque payable to the order of the
Company at par for the subscription price of the Common Shares
subscribed for.
41. Subject to the terms and conditions of this Warrant, upon such
surrender and payment, Torstar shall be deemed for all purposes the holder
of record of such Common Shares and the Company covenants that it will
(subject to the provisions of this Warrant) cause a certificate or
certificates representing such Common Shares to be personally delivered to
Torstar at the address specified in such subscription form or if no
specification is made then to the address appearing in the register of
warrants maintained by the Company pursuant to this Warrant.
42. Torstar may subscribe for and purchase any lesser number of whole
Common Shares than the number of Common Shares purchasable under this
Warrant and in such event shall be entitled to receive a new Warrant in
respect of the balance of the Common Shares purchasable under this Warrant
not then subscribed for and purchased. To the extent that this Warrant
confers the right to purchase a fraction of a Common Share, the Company
shall not be required to issue such fractional Common Shares.
43. The holding of this Warrant shall not constitute Torstar a
shareholder of the Company or entitle Torstar to any right or interest in
respect thereof except as herein expressly provided.
44. This Warrant may be transferred or assigned by Torstar to any
entity of which Torstar owns or has the right to acquire, whether directly
or indirectly, 50.1% or more of the outstanding securities entitled to
vote for the election of directors (or equivalent governing body) of such
entity provided Torstar complies with the Securities Act (Ontario) and the
Regulations thereunder, failing which any transfer or assignment shall be
null and void.
45. In case this Warrant shall become mutilated or be lost, destroyed
or stolen, the Company, in the reasonable exercise of its discretion, may
issue a new Warrant of like date and tenor as the one mutilated, lost,
destroyed or stolen in exchange for and in place of, and upon surrender
and cancellation of such mutilated Warrant or in lieu of and in
substitution for such lost, destroyed or stolen Warrant, and the
substituted Warrant shall be in like form and shall be entitled to like
benefits herewith.
46. The applicant for the issue of a new Warrant pursuant to the above
paragraph shall bear the cost of the issue thereof and in case of loss,
destruction or theft shall, as a condition precedent to the issue thereof,
furnish to the Company such evidence of ownership and of the loss,
destruction or theft of the Warrant so lost, destroyed or stolen as shall
be satisfactory to the Company in the reasonable exercise of its
discretion and such applicant may also be required to furnish an indemnity
in amount and form satisfactory to the Company in the reasonable exercise
of its discretion, and shall pay the reasonable charges of the Company in
connection therewith.
47. This Agreement shall be governed by and construed in accordance
with the laws of the Province of Ontario and the laws of Canada and the
parties hereby irrevocably attorn to the exclusive jurisdiction of the
Courts of the Province of Ontario in respect of the subject matter hereof
(excluding any provisions that would result in the application of the laws
of another jurisdiction).
IN WITNESS WHEREOF the Company has caused this Warrant to be signed by its duly
authorized officers as of the 12th day of February, 1997.
INTERNET LIQUIDATORS
INTERNATIONAL INC.
By:
---------------------------------
(Duly Authorized Officer)
By:
---------------------------------
(Duly Authorized Officer)
SUBSCRIPTION FORM
TO: INTERNET LIQUIDATORS INTERNATIONAL INC. (the "Company")
The undersigned registered holder of the within Warrant hereby exercises
the right to purchase and hereby subscribes for such number of Common Shares
without par value in the capital of the Company at the subscription price per
share in effect on the date hereof according to the terms of the within Warrant
and herewith makes payment of the subscription price in full for the said number
of Common Shares. Such Common Shares are to be issued as follows:
Name Address in Full Number of Shares/%
---- --------------- ------------------
DATED this ____ day of ____________, 19____.
TORONTO STAR NEWSPAPERS LIMITED
By:
---------------------------------
(Duly Authorized Officer)
Address in Full:
CP Doc #: 31477-1
February 12, 1997