SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D)
of the
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported) November 3, 1999
JAWS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
7371 98-0167013
(Commission File Number) (IRS Employer Identification Number)
1013 17TH AVENUE SW T2T 0A7
CALGARY, ALBERTA CANADA
(Address of principal executive offices)
(403) 508-5055
(Registrant's telephone number, including area code)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
- --------------------------------------------------
On November 3, 1999, JAWS Technologies Inc., a Nevada corporation (the
"Company"), entered into an agreement, the effect of which was that the Company
acquired all of the issued and outstanding common shares of the capital stock of
Pace Systems Group Inc., an Ontario Corporation ("Pace") from all the
shareholders of Pace (the "Sellers"). The consideration to be paid by the
Company to the Sellers for the transaction was determined on an arms-length
basis through negotiations between the Sellers, the Company and their respective
advisors. The consideration to be paid by the Company is a maximum issuance of
1,731,932 common shares of the capital stock of the Company, valued at $1.70 USD
per share, to be released over the next two years. The consideration was
determined by using an evaluation method of 2.29 times the gross revenues of
Pace resulting in a purchase price of approximately $2,944,284 USD. When
determining the purchase price for Pace, the Company considered the value of all
the assets of Pace including: physical assets as reported in the audited
financials dated July 31, 1999, historical revenues, customer lists and all
other assets including leases and goodwill. Additionally the value of the key
employees of Pace was considered to be an integral part of the goodwill and
value of Pace. The terms of the purchase, as described in the Share Purchase
Agreement, as amended, include performance revenue targets and also include the
employment of Peter Labrinos, James Wang, Aidan O'Brien and Joseph Iuso.
The Pace assets were acquired indirectly from the Sellers: Peter Labrinos,
President of Pace Systems, James Wang, Aidan O'Brien, Joseph Iuso, Vasiliki
Labrinos, Panagiotis Labrinos, Cindy Wang, Joseph T. Lee and Mam Ling Wang.
Prior to the transactions described above, there was no material
relationship between the Sellers or any other officers, directors or
shareholders and the Company or any of its affiliates, any director or officer
of the Company or any associate of any such director or officer.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
- ----------------------------------------------
Financial Statements
(a) Audited financial statements for Pace at July 31, 1999 and 1998
(filed herewith).
(b) JAWS' third quarter financials ending September 30, 1999 (filed
herewith).
(c) Financial Data Schedule (filed herewith).
(d) Pro forma unaudited financial statements are to be filed by
amendment.
(e) Consent of Ernst & Young LLP for JAWS financials are to be filed by
amendment.
(f) Consent of Ernst & Young LLP for Pace financials are to be filed by
amendment.
Exhibits
Exhibit A - Share Purchase Agreement dated November 3, 1999 between JAWS
Technologies Inc. and the Shareholders of Pace Systems Group Inc. (filed
herewith).
Exhibit B - Amending Agreement dated November 3, 1999 between JAWS
Technologies, Vendors (as defined in the agreement) and Pace Systems Group Inc.
(filed herewith).
Exhibit C - Escrow Agreement dated November 3, 1999 between JAWS
Technologies Inc. and Pace Systems Group Inc. (filed herewith).
Exhibit D - Support Agreement dated November 3, 1999 between JAWS
Technologies Inc. and Pace Systems Group Inc. (filed herewith).
Exhibit E - Voting Exchange Trust Agreement dated November 3, 1999 between
JAWS Technologies Inc. and Pace Systems Group Inc. (filed herewith).
Exhibit F - Terms and Conditions of JAWS Technologies Inc. Preferred Voting
Stock (filed herewith).
Exhibit G - Exchangeable Share Provision (filed herewith).
Exhibit H - Press Release dated November 2, 1999 (filed herewith).
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
JAWS TECHNOLOGIES, INC.
By:/s/Robert J. Kubbernus
------------------------
Robert J. Kubbernus, President
Date: November 15, 1999
F - 3
INDEPENDENT AUDITORS' REPORT
To the Director
PACE SYSTEMS GROUP
We have audited the accompanying balance sheets of PACE SYSTEMS GROUP as at July
31, 1999 and 1998 and the related statements of income (loss) and comprehensive
income (loss) and deficit and cash flows for the years ended July 31, 1999 and
1998. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Corporation as at July 31,
1999 and July 31, 1998 and the results of its operations and its cash flows for
the years ended July 31, 1999 and 1998, in conformity with accounting principles
generally accepted in the United States.
Toronto, Canada,
October 1, 1999. Chartered Accountants
PACE SYSTEMS GROUP
BALANCE SHEETS
[all amounts are expressed in Cdn. dollars]
As at July 31
1999 1998
$. . . . . . . . . . . . . . . . . . . $
ASSETS
CURRENT
Cash . . . . . . . . . . . . . . . . . . 12,734 236,125
Accounts receivable. . . . . . . . . . . 350,831 193,813
Income taxes recoverable . . . . . . . . - 2,238
TOTAL CURRENT ASSETS . . . . . . . . . . 363,565 432,176
- ----------------------------------------
Fixed assets, net [note 2] . . . . . . . 9,870 6,129
- ----------------------------------------
373,435 438,305
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT
Accounts payable and accrued liabilities 129,045 542,501
Due to related parties [note 4]. . . . . 262,854 605
TOTAL CURRENT LIABILITIES. . . . . . . . 391,899 543,106
- ----------------------------------------
Commitment [note 6]
STOCKHOLDERS' DEFICIENCY
Authorized - 100 common shares
Issued
100 common shares at $1 [note 3] . . . . 100 100
Deficit. . . . . . . . . . . . . . . . . (18,564) (104,901)
TOTAL STOCKHOLDERS' DEFICIENCY . . . . . (18,464) (104,801)
- ----------------------------------------
373,435 438,305
See accompanying notes
On behalf of the Board:
Director Director
PACE SYSTEMS GROUP
STATEMENTS OF INCOME (LOSS) AND
COMPHRENSIVE INCOME (LOSS) AND DEFICIT
[all amounts are expressed in Cdn. dollars]
Year ended July 31
1999 1998
$ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
REVENUE
Consulting fees . . . . . . . . . . . . . . . . . . . . . . . . 1,901,187 1,626,094
Subcontracting [note 4] . . . . . . . . . . . . . . . . . . . . 1,580,883 1,604,394
GROSS PROFIT. . . . . . . . . . . . . . . . . . . . . . . . . . 320,354 21,700
- ---------------------------------------------------------------
General and administrative. . . . . . . . . . . . . . . . . . . 232,198 116,392
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . 1,819 1,599
234,017 117,991
NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) FOR THE YEAR 86,337 (96,291)
Deficit, beginning of year. . . . . . . . . . . . . . . . . . . (104,901) (8,610)
- ---------------------------------------------------------------
DEFICIT, END OF YEAR. . . . . . . . . . . . . . . . . . . . . . (18,564) (104,901)
- ---------------------------------------------------------------
See accompanying notes
PACE SYSTEMS GROUP
STATEMENTS OF CASH FLOWS
[all amounts are expressed in Cdn. dollars]
Year ended July 31
1999 1998
$ $
OPERATING ACTIVITIES
Net income (loss) for the year 86,337 (96,291)
Adjustments to reconcile loss to cash flows used
in operating activities:
Depreciation 1,819 1,599
Net change in non-cash working capital balances
related to operations [note 11] (568,236) 69,284
CASH USED IN OPERATING ACTIVITIES (480,080) (25,408)
- -------------------------------------
INVESTING ACTIVITIES
Purchase of fixed assets (5,560) -
CASH USED IN INVESTING ACTIVITIES (5,560) -
- -------------------------------------
FINANCING ACTIVITIES
Due to related parties 262,249 (2,010)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 262,249 (2,010)
- -----------------------------------------------------
NET DECREASE IN CASH DURING THE YEAR (223,391) (27,418)
Cash, beginning of year 236,125 263,543
- --------------------------
CASH, END OF YEAR 12,734 236,125
- --------------------
See accompanying notes
F - 27
PACE SYSTEMS GROUP
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICES
Pace Systems Group [the "Corporation"] was incorporated in 1986 under the laws
of Ontario. The Corporation's purpose is providing consulting services to
companies relating to information systems.
The accompanying financial statements reflect all adjustments which are in the
opinion of management, necessary to reflect a fair presentation for the periods
being presented.
These financial statements have, in management's opinion, been properly prepared
in accordance with accounting principles generally accepted in the United
States. The more significant accounting policies are summarized below:
REVENUE RECOGNITION
Consulting fees is recognized when the service is rendered or earned.
USE OF ESTIMATES
Because a precise determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements for a period necessarily
involves the use of estimates which would affect the amount of recorded assets,
liabilities, revenue and expenses. Actual amounts could differ from these
estimates.
FIXED ASSETS
Fixed assets are recorded at cost less accumulated depreciation. Depreciation
is provided on a declining balance basis at rates which are designed to amortize
the cost of the assets over their estimated useful lives as follows.
Furniture and fixtures 20%
Computer hardware 30%
INCOME TAXES
The Corporation accounts for deferred income tax based on the liability method.
Under the liability method, deferred income taxes are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities denominated in foreign currencies are translated
into Canadian dollars at the rates of exchange prevailing at the balance sheet
date. Non-monetary assets and liabilities denominated in foreign currencies are
translated into Canadian dollars at historic rates. Revenue and expenses
denominated in foreign currencies are translated into Canadian dollars at the
prevailing rates at the transaction dates. Exchange gains and losses are
included in income.
CASH
Cash comprises of cash on hand and balances with banks.
2. FIXED ASSETS
Fixed assets consist of the following:
1999
-------------
ACCUMULATED. . . . . . . . . . . . NET BOOK
COST . . . . . . . . . . . . . . . . DEPRECIATION VALUE
$. . . . . . . . . . . . . . . . . . $ $
Furniture and fixtures . . . . . . . . 67,949 58,340 9,609
Computer hardware. . . . . . . . . . . 1,279 1,018 261
- --------------------------------------
69,228 59,358 9,870
1998
-------------
ACCUMULATED. . . . . . . . . . . . NET BOOK
COST . . . . . . . . . . . . . . . . DEPRECIATION VALUE
$. . . . . . . . . . . . . . . . . . $ $
Furniture and fixtures . . . . . . . . 62,388 56,632 5,756
Computer hardware. . . . . . . . . . . 1,279 906 373
- --------------------------------------
63,667 57,538 6,129
3. SHARE CAPITAL
Share capital consists of the following:
1999 1998
$. . . . . . . . . . . . . . . . . . . $
AUTHORIZED
Limited to 100 common shares
ISSUED
100 common shares. . . . . . . . . . . . 100 100
- ----------------------------------------
On August 20, 1999, the Articles of Incorporation were amended to change the
amount of authorized common shares to unlimited.
4. RELATED PARTY TRANSACTIONS
As at July 31, the Corporation has outstanding account balances with its
shareholder and related parties as follows:
1999 1998
$. . . . . . . . . . . . . . . . . . $
1322669 Ontario Inc. . . . . . . . . . 262,395 -
Shareholder. . . . . . . . . . . . . . 459 605
- --------------------------------------
DUE TO SHAREHOLDER AND RELATED PARTIES 262,854 605
- --------------------------------------
The amount due to the shareholder is unsecured, non-interest bearing and is due
on demand.
1322669 is wholly owned by the Corporation's sole shareholder.
During the year, the Corporation incurred expenses with related parties which
are $369,645.
Included in sub-contractor expenses are amounts incurred with related parties as
follows:
1999 1998
$. . . . . . . . . $
PAID TO
1322669 Ontario Inc. 359,835 -
Shareholder's spouse 9,800 49,346
- --------------------
369,635 49,346
5. INCOME TAXES
The income tax benefit differs from the amount computed by applying the Canadian
federal\ statutory tax rates to the income (loss) before income taxes for the
following reasons:
1999 1998
$. . . . . . . . . . . . . . . . . . . . . $
(22%) (22%)
Income tax (benefit) at Cdn. Statutory rate. 19,000 (22,000)
Increase (decrease) in taxes resulting from:
Deferred tax asset valuation allowance . . . - 22,000
Tax benefit of loss Carryforwards. . . . . . (19,000) -
- --------------------------------------------
- -
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The components of the
Company's deferred tax assets are as follows:
1999 1998
$. . . . . . . . . . . . . . . . . . $
Deferred tax assets (liabilities):
Tax benefit of loss Carryforwards. . . - 22,000
- --------------------------------------
Deferred tax assets net of liabilities - 22,000
- --------------------------------------
Valuation allowance. . . . . . . . . . - (22,000)
- -------------------------------------- ----- --------
Net deferred tax assets. . . . . . . . - -
The Company has provided a valuation allowance for the full amount of deferred
tax assets in light of its history of operating losses.
6. COMMITMENT
The Corporation is committed to the following future minimum annual lease
payments for leasing office space:
$
2000. 74,476
2001. 74,476
2002. 43,445
- -----
Total 192,397
- -----
Under the operating leases for office space, the Corporation is also required to
pay for operating expenses. These amounts vary from year to year dependent upon
usage and are, therefore, not included in the future minimum annual lease
payments shown above.
7. SEGMENTED INFORMATION
The Company's activities are conducted in one operating segment with all
activities relating to development and sale of encryption software. To date,
all the activities have occurred in Canada, the United States and Europe.
8. FINANCIAL INSTRUMENTS
Financial instruments comprising cash, accounts receivable, accounts payable and
accrued liabilities, approximate their fair value. It is management's opinion
that the Company is not exposed to significant currency or credit risks arising
from these financial instruments.
9. CREDIT RISKS
Accounts receivable are subject to concentration of credit risk. As at the year
end 43% of accounts receivable is outstanding with two customers.
10. RECENT PRONOUNCEMENTS
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities", the implementation of which has been delayed one year. The
Company does not acquire derivatives or engage in hedging activities.
11. CONSOLIDATED STATEMENT OF CASH FLOWS
The net change in non-cash working capital balances related to operations
consists of the following:
1999 1998
$. . . . . . . . . . . . . . . . . . . $
Accounts receivable. . . . . . . . . . . (157,018) (172,608)
Income taxes recoverable . . . . . . . . 2,238 (2,238)
Accounts payable and accrued liabilities (413,456) 246,368
Income taxes payable . . . . . . . . . . - (2,238)
- ----------------------------------------
Change relating to operating activities. (568,236) 69,284
- ----------------------------------------
12. ECONOMIC DEPENDENCE
Approximately 29% of the Corporation's sales were made to two customers. These
customers accounted for 24% of the Corporation's accounts receivable balance at
year end.
Approximately 31% of the Corporation's subcontracting expenses were provided by
two vendors. These vendors accounted for 23% of the Corporation's accounts
payable balance at year end.
13. SUBSEQUENT EVENTS
In October 1999, the Corporation's sole shareholder agreed to sell all of the
Corporation's issued shares to Jaws Technologies Inc. The Corporation has been
dealing with Jaws Technologies Inc. as a customer in the ordinary course of
business during 1999.
JAWS TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(all amounts are expressed in U.S. dollars)
(see basis of presentation - note 1)
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
$. . . . . . . . . . . . . . . . . . . . . . . . . . . $ $
- -------------------------------------------------------- ------------ ------------
(unaudited)
ASSETS
CURRENT
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 664,428 33,732 111
Term deposits [note 4]. . . . . . . . . . . . . . . . . 27,000 - -
Accounts receivable. . . . . . . . . . . . . . . . . . . 421,138 7,243 -
Due from related parties [note 7]. . . . . . . . . . . . - 13,118 -
Prepaid expenses and deposits. . . . . . . . . . . . . . 86,828 140,456 7,500
1,199,394 194,549 7,611
Fixed assets, net of $82,292 (December 31, 1998 -
13,461; December 31, 1997 - $1,160) accumulated
depreciation [note 5] . . . . . . . . . . . . . . . . . 498,004 78,830 2,320
1,697,398 273,379 9,931
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT
Accounts payable and accrued liabilities . . . . . . . . 897,947 428,600 32,976
Current portion of capital lease obligations payable
[note 12]. . . . . . . . . . . . . . . . . . . . . . . . 14,119 - -
Due to related parties [note 7]. . . . . . . . . . . . . 196,258 197,115 -
Due to stockholders [note 7] . . . . . . . . . . . . . . 2,044 74,717 78,159
1,110,368 700,432 111,135
Capital lease obligations payable [note 12]. . . . . . . 66,989 - -
Convertible debentures [note 8]. . . . . . . . . . . . . 1,091,348 146,606 -
1,158,337 146,606 78,159
COMMITMENTS [NOTE 10]
STOCKHOLDERS' DEFICIENCY
Authorized
95,000,000 common shares at $0.001 par value
5,000,000 preferred shares at $0.001 par value
Common stock issued and paid-up [note 6] . . . . . . . . 15,114 10,612 4,000
Capital in excess of par value . . . . . . . . . . . . . 5,369,891 2,212,153 31,650
Contributed surplus. . . . . . . . . . . . . . . . . . . 1,241,607 425,559 -
Cumulative translation adjustment. . . . . . . . . . . . (145,643) (8,842) -
Deficit. . . . . . . . . . . . . . . . . . . . . . . . . (7,052,276) (3,213,141) (136,854)
(571,307) (573,659) (101,204)
------------ ------------ ---------
1,697,398 273,379 9,931
------------ ------------ ---------
See accompanying notes
On behalf of the Board:
Director Director
JAWS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT AND COMPREHENSIVE LOSS
(all amounts are expressed in U.S. dollars)
PERIOD FROM
INCORPORATION
JANUARY 27, TO
NINE MONTHS ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31,
--------------- --------------
1999 1998 1998 1997
--------------- -------------- ------------
$ $ $
(unaudited)
REVENUE [note 7] . . . . . . . . . . 372,630 28,440 29,068 -
EXPENSES [NOTE 7]
Accounting and legal . . . . . . . . 246,909 105,372 186,128 69,952
Advertising and promotion. . . . . . 234,398 194,764 218,574 35,000
Consulting . . . . . . . . . . . . . 438,655 685,375 514,894 30,731
Depreciation and amortization. . . . 67,462 8,877 14,041 580
Directors' fees. . . . . . . . . . . 97,501 - 33,333 -
Management fees. . . . . . . . . . . 147,036 - - -
Amortization of deferred financing
fees [note 8]. . . . . . . . . . . . 75,601 - 5,158 -
Foreign exchange loss. . . . . . . . 10,248 - (431) -
Non cash interest expense. . . . . . 833,115 - 381,688 -
Interest expense and bank charges. . 6,197 - 2,869 -
Investor relations . . . . . . . . . 100,255 - 258,016 -
Office and administration. . . . . . 110,638 - 83,143 -
Other. . . . . . . . . . . . . . . . 291,420 76,649 52,928 591
Rent . . . . . . . . . . . . . . . . 180,840 13,523 29,637 -
Sub-contracting costs. . . . . . . . 337,712 - - -
Travel . . . . . . . . . . . . . . . 281,643 120,342 132,646 -
Wages and employee benefits. . . . . 752,135 124,599 283,728 -
Software development costs
[note 3]. . . . . . . . . . . . . . - 909,003 909,003 -
4,211,765 2,238,504 3,105,355 136,854
LOSS FOR THE PERIOD [NOTE 10]. . . . (3,839,135) (2,210,064) (3,076,287) (136,854)
- ------------------------------------ --------------- -------------- ------------ ----------
OTHER COMPREHENSIVE LOSS
Foreign currency translation
adjustment . . . . . . . . . . . . . (136,801) (29,847) (8,842) -
COMPREHENSIVE LOSS . . . . . . . . . (3,975,936) (2,239,911) (3,085,129) (136,854)
DEFICIT, BEGINNING OF PERIOD . . . . (3,213,141) (136,854) (136,854) -
LOSS FOR THE PERIOD. . . . . . . . . (3,839,135) (2,210,064) (3,076,287) (136,854)
DEFICIT, END OF PERIOD . . . . . . . (7,052,276) (2,346,918) (3,213,141) (136,854)
Loss per common share [note 9] . . . (0.30) (0.31) (0.42) (0.03)
Weighted average number of shares
outstanding. . . . . . . . . . . . . 12,837,302 7,101,869 7,405,421 4,000,000
See accompanying notes
JAWS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
(all amounts are expressed in U.S. dollars)
CAPITAL IN
-----------
PAR EXCESS OF CONTRIBUTED
SHARES VALUE PAR VALUE SURPLUS
$ $ $
BALANCE, JANUARY 27, 1997
Issuance of common stock for cash . . 4,000,000 4,000 56,000 60,000
Less share issue costs. . . . . . . . - - (24,350) (24,350)
BALANCE, DECEMBER 31, 1997. . . . . . 4,000,000 4,000 31,650 -
- ------------------------------------- ----------- ---------- ------------- ----------
Issuance of common stock for
services [note 6] . . . . . . . . . . 400,000 400 199,600 -
- ------------------------------------- ----------- ---------- ------------- ----------
Issuance of common stock on
acquisition of subsidiary [note 4]. . 1,500,000 1,500 838,248 -
Issuance of common stock for cash . . 2,800,000 2,800 1,017,200 -
Warrants issued with issuance of
convertible debentures [note 8] . . . - - - 342,857
Equity component of convertible
debentures [note 8] . . . . . . . . . - - - 118,462
Equity component of financing fees
[note 8]. . . . . . . . . . . . . . . - - - (11,760)
Equity component of financing fees
[note 8]. . . . . . . . . . . . . . . - - - (24,000)
Issue of common stock upon
conversion of convertible debentures
[note 8]. . . . . . . . . . . . . . . 1,912,317 1,912 211,886 -
Financing fee associated with
converted debentures [note 8] . . . . - - (21,117) -
Share issue costs . . . . . . . . . . - - (65,314)
BALANCE, DECEMBER 31, 1998. . . . . . 10,612,317 10,612 2,212,153 425,559
(UNAUDITED)
- -------------------------------------
Issuance of common stock for cash . . 317,188 317 101,183 -
Equity component of convertible
debentures [note 8] . . . . . . . . . - - - 424,575
Equity component of financing fees
[note 8]. . . . . . . . . . . . . . . - - - (14,000)
Issuance of common stock for cash . . 4,044,761 4,044 2,867,756 -
Equity component of convertible
debenture [note8] . . . . . . . . . . - - - 193,292
Equity component of financing fee
[note 8]. . . . . . . . . . . . . . . - - - (19,329)
Warrants issued with issuance of
convertible debentures [note 8] . . . - - - 341,538
Equity component of financing fee
[note 8]. . . . . . . . . . . . . . . - - - (110,028)
Issuance of common stock in
settlement of trade payable . . . . . 141,000 141 188,799 -
BALANCE, SEPTEMBER 30, 1999 . . . . . 15,115,266 15,114 5,369,891 1,241,607
See accompanying notes
JAWS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all amounts are expressed in U.S. dollars)
PERIOD FROM
INCORPORATION
JANUARY 27, TO
NINE MONTHS ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31,
--------------- --------------
1999 1998 1998 1997
--------------- -------------- ------------
$ $ $
(unaudited)
- -----------------------------------------
CASH FLOWS USED IN OPERATING ACTIVITIES
Loss for the period . . . . . . . . . . . (3,839,135) (2,210,064) (3,076,287) (136,854)
Adjustments to reconcile loss to cash
flows used in operating activities:
Consulting expense not involving the
payment of cash [note 6]. . . . . . . . . - 200,000 200,000 -
Depreciation and amortization . . . . . . 67,462 8,877 14,041 580
Amortization of deferred financing
fees. . . . . . . . . . . . . . . . . . . 75,601 - 5,158 -
Software development costs. . . . . . . . - 909,189 909,003 -
Non-cash interest expense on warrants . . - - 257,143 -
Non-cash interest expense on
convertible debentures. . . . . . . . . . 755,792 - 118,462 -
Non-cash interest expense on
convertible debenture conversion and
accrued interest . . . . . . . . . . . . 77,323 - 6,083 -
Changes in non-cash working capital
balances [note 13]. . . . . . . . . . . . 121,341 364,410 439,422 25,476
(2,741,731) (727,588) (1,126,975) (110,798)
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of fixed assets. . . . . . . . . (542,329) (134,474) (115,584) (2,900)
Purchase of term deposits [note 4]. . . . (27,000) - - -
(569,329) (134,474) (115,584) (2,900)
--------------- -------------- ------------ ---------
CASH FLOWS GENERATED BY (USED IN)
FINANCING ACTIVITIES
Proceeds from the issuance of common
stock, net of issue costs . . . . . . . . 3,024,314 954,686 954,686 35,650
Repayment of stockholder advances . . . . (72,673) (117,044) (78,159) 78,159
Proceeds from stockholder advances. . . . - 24,309 20,273 -
Proceeds on issue of convertible
debenture . . . . . . . . . . . . . . . . 1,100,000 - 420,000 -
Financing fees on issue of convertible
debenture . . . . . . . . . . . . . . . . (110,000) - (42,000) -
3,941,641 861,951 1,274,800 113,809
--------------- -------------- ------------ ---------
INCREASE (DECREASE) IN CASH . . . . . . . 630,696 (111) 32,241 111
Cash acquired on acquisition of
subsidiary. . . . . . . . . . . . . . . . - - 1,380 -
Cash, beginning of period . . . . . . . . 33,732 111 111 -
CASH, END OF PERIOD . . . . . . . . . . . 664,428 - 33,732 111
See accompanying notes
F - 1
JAWS TECHNOLGOIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Jaws Technologies, Inc., (the "Company") was incorporated on January 27, 1997
under the laws of the State of Nevada as "E-Biz" Solutions, Inc. On March 27,
1998, "E-Biz" Solutions, Inc. changed its name to Jaws Technologies, Inc. The
business purpose is developing and selling encryption software. These activities
are carried out through the Company's wholly owned Canadian subsidiary.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company has a working capital deficiency of $505,883 at December
31, 1998, a deficit of $3,213,141 at December 31, 1998 and $7,052,276 as at
September 30, 1999 and net operating cash outflows of $2,741,616 for the nine
month period ended September 30, 1999. Although it has a positive working
capital balance of $89,026 at September 30, 1999, the Company's continuation as
a going concern is dependent on its ability to generate sufficient cash flow, to
meet its obligations on a timely basis, to obtain additional financing as may be
required, and ultimately to attain successful operations. However, no assurance
can be given at this time as to whether the Company will achieve any of these
conditions. These factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern
for a reasonable period of time.
Management believes that additional funding will be required to finance expected
operations until a market has been developed for the Company's software.
Management intends to seek additional financing through future private or public
offerings of stock and through the exercise of stock options.
The accompanying financial statements reflect all adjustments which are, in the
opinion of management, necessary to reflect a fair presentation for the periods
being presented.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements have, in management's opinion, been properly prepared
in accordance with accounting principles generally accepted in the United
States.
USE OF ESTIMATES
Because a precise determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements for a period necessarily
involves the use of estimates which would affect the amount of recorded assets,
liabilities, revenues and expenses. Actual amounts could differ from these
estimates.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Jaws Technologies, Inc., an Alberta, Canada
corporation ("Jaws Alberta"), and Jaws Technologies (Ontario) Inc. an Ontario
Canada corporation ("Jaws Ontario"), after elimination of intercompany accounts
and transactions.
FIXED ASSETS
Fixed assets are recorded at cost and are depreciated at the following annual
rates which are designed to amortize the cost of the assets over their estimated
useful lives.
Furniture and fixtures - 20% diminishing balance
Computer hardware - 33% straight line
Computer software for internal use - 33% straight line
Leasehold improvements - 20% straight line
SOFTWARE DEVELOPMENT
Software development costs are expensed when technological feasibility has not
yet been established. Subsequent to establishing technological feasibility,
such costs are capitalized until the commencement of commercial sales.
FINANCING FEES
Financing fees associated with that portion of the 10% convertible debentures
classified as debt are deferred and amortized over the life of the debentures.
Financing fees associated with that portion of the convertible debentures
classified as contributed surplus is charged to that account. The pro rata
portion of financing fees associated with converted debentures is charged to
share capital in excess of par value.
REVENUE RECOGNITION
Revenue from selling encryption software is recognized when the software is
delivered. Consulting fees are recognized when the services are rendered or
earned.
ADVERTISING
Advertising costs are expensed as incurred.
INCOME TAXES
The Company follows the liability method of accounting for the tax effect of
temporary differences between the carrying amount and the tax basis of the
company's assets and liabilities. Temporary differences arise when the
realization of an asset or the settlement of a liability would give rise to
either an increase or decrease in the Company's income taxes payable for the
year or later period. Deferred income taxes are recorded at the income tax
rates that are expected to apply when the deferred tax liability is settled or
the deferred tax asset is realized. When necessary, valuation allowances are
established to reduce deferred income tax assets to the amount expected to be
realized. Income tax expense is the tax payable for the period and the change
during the period in deferred income tax assets and liabilities.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's subsidiaries is the Canadian dollar.
Accordingly, assets and liabilities of the subsidiaries are translated at the
year-end exchange rate and revenues and expenses are translated at average
exchange rates. Gains and losses arising from the translation of the financial
statements of the subsidiaries are recorded in a "Cumulative Translation
Adjustment" account in stockholders' equity.
LOSS PER COMMON SHARE
The loss per common share has been calculated based on the weighted average
number of common shares outstanding during the period. Diluted earnings per
share, assuming all warrants, options and conversion features were exercised,
does not differ from basic earnings per share.
STOCK OPTIONS
The Company applies the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations in accounting for its stock option plans. Accordingly,
no compensation cost is recognized in the accounts as options are granted with
an exercise price that approximates the prevailing market price.
PRIOR YEAR AMOUNTS
Certain prior year amounts have been reclassified to conform to the presentation
adopted in 1999.
3. ACQUISITION
On February 10, 1998 the Company issued 1,500,000 restricted common shares, as
well as options to purchase 400,000 shares of its restricted common stock at
$0.50 per share in exchange for all of the outstanding common stock of Jaws
Alberta. The options issued in connection with the acquisition have been
ascribed no value. Jaws Alberta was a development stage company which at the
time of acquisition was in the process of creating a new encryption software
product. The acquisition has been accounted for by the purchase method.
The purchase price, and thereby the amounts allocated to software and the shares
issued, net of other assets and liabilities acquired, was determined based on
estimates by management as to the replacement cost for the encryption software
development which had been incurred by Jaws Alberta prior to the acquisition
date. The purchase price has been allocated to the net assets acquired based on
their estimated fair values as follows:
$
---------
Net assets acquired
Non-cash working capital . . . . . . (5,087)
Software under development . . . . . 909,003
Fixed assets . . . . . . . . . . . . 2,891
Due to stockholders. . . . . . . . . (54,443)
Net assets acquired, excluding cash. 852,364
- ------------------------------------ ---------
Acquisition costs. . . . . . . . . . (13,996)
Cash acquired. . . . . . . . . . . . 1,380
Net assets acquired for common stock 839,748
The amount allocated to software under development relates to encryption
software and its related algorithms, including the "L5" software. This
software, at the time of purchase, was not completely developed, tested or
otherwise available for sale and therefore has been immediately expensed in the
accompanying consolidated statements of loss and deficit. Coding and testing
activities for this software were completed on July 31, 1998.
The operating results of the acquired company are included in the consolidated
statements of loss, deficit and comprehensive loss from the date of acquisition.
Pro forma loss and pro forma loss per common share for the nine month period
ended September 30, 1998, giving effect to the acquisition of Jaws Alberta as at
January 1, 1998 are $2,217,462 and $0.31 respectively (year ended December 31,
1998 - $3,083,685 and $0.42 respectively). Pro forma revenue does not differ
from that recorded for the period to September 30, 1998, being $28,440, or for
the period to December 31, 1998, being $29,068.
4. TERM DEPOSITS
The term deposits are on deposit with a Canadian Chartered Bank. These deposits
have been pledged as security for certain corporate credit cards, and as such
are not available for the Company's general use. These deposits earn interest
at 2.95 percent per annum and mature May 9, 2000.
5. FIXED ASSETS
SEPTEMBER 30, 1999
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
-------------
$ $ $
------------- ------------- --------
Furniture and fixtures . . . . . . 261,184 29,978 231,206
- ---------------------------------- ------------- ------------- --------
Computer hardware. . . . . . . . . 122,815 27,769 95,046
Computer software for internal use 33,937 6,680 27,257
Leasehold improvements . . . . . . 162,360 17,865 144,495
580,296 82,292 498,004
DECEMBER 31,
1998
-------------
ACCUMULATED. . . . . . . . . . NET BOOK
COST . . . . . . . . . . . . . . DEPRECIATION VALUE
- ----------------------------------
$. . . . . . . . . . . . . . . . $ $
Furniture and fixtures . . . . . . 31,758 6,482 25,276
- ---------------------------------- ------------- ------------- --------
Computer hardware. . . . . . . . . 47,371 5,534 41,837
Computer software for internal use 13,162 1,445 11,717
92,291 13,461 78,830
6. SHARE CAPITAL
AUTHORIZED
95,000,000 common shares at $0.001 par value (increased from 20,000,000 April 8,
1999)
5,000,000 preferred shares at $0.001 par value
COMMON STOCK ISSUED
During 1998, the 400,000 restricted common shares issued for services provided
by two consultants in relation to the establishment of the capital structure of
the Company. The shares were recorded at their estimated fair value of
$200,000.
COMMON STOCK HELD IN ESCROW
Upon entering into the 10% convertible debenture agreement (see note 8) the
Company placed 9,500,000 shares in escrow relating to the $2 million of
financing. In addition, 1,071,429 shares and 357,143 shares were placed in
escrow relating to the purchasers' and agent's warrants issued in relation to
the 10% convertible debenture agreement.
OPTIONS
As at September 30, 1999, the Company has issued 2,360,600 options to purchase
common stock to the Company's directors, officers and employees. Of the total
issued, none have been exercised as at September 30, 1999. Details of the stock
options outstanding at September 30, 1999 are as follows:
NUMBER OF OPTIONS EXERCISE PRICE EXPIRY DATE
- ----------------- -------------- -------------------
200,000 0.15 February 22, 2008
50,000 0.23 June 30, 2008
35,000 0.23 June 30, 2008
31,000 0.33 June 30, 2008
143,000 0.37 June 30, 2008
22,000 0.40 June 30, 2008
400,000 0.48 August 1, 2000
706,500 0.48 June 30, 2008
82,500 0.58 June 30, 2008
71,000 0.62 June 30, 2008
10,000 0.65 June 30, 2008
36,000 0.69 June 30, 2008
20,000 0.71 June 30, 2008
62,000 0.73 June 30, 2008
43,500 0.75 June 30, 2008
75,000 0.77 June 30, 2008
5,000 0.81 June 30, 2008
47,500 0.82 June 30, 2008
250,000 0.87 June 30, 2008
5,600 0.98 June 30, 2008
65,000 2.44 June 30, 2008
2,360,600
- -----------------
The fair value of each option granted to date is estimated on the date of grant
using the Black Scholes option-pricing model with the following assumptions:
expected volatility of 167%, risk-free interest rate of 4.87%; no payment of
common share dividends; and expected life of 10 years. Had compensation cost
for these plans been determined based upon the fair value at grant date,
consistent with the methodology prescribed in Statement of Financial Accounting
Standards No. 123, "accounting for Stock-Based compensation," the Company's loss
and loss per common share for the nine month period ended September 30, 1999
would have been $4,220,310 and $0.33 respectively (year ended December 31, 1998:
$3,324,618 and $0.45 respectively).
During 1998, the Company had entered into a Put Option agreement with an
investor which allowed the Company to require the investor to purchase up to
25,000,000 shares of the common stock of the Company. In addition, the investor
was to be granted warrants to purchase up to 3,000,000 shares of common stock.
On April 26, 1999, the Company and the investor agreed to cancel the agreement
in exchange for warrants to the investor to purchase up to 1,000,000 shares of
common stock at an exercise price of $0.70 per share. The warrants expire April
15, 2002.
On June 21, 1999, the Company issued 834,000 share purchase warrants, which
entitle the holder to purchase 834,000 common shares at $2.25 per share until
June 20, 2001. On August 26, 1999 the Company issued 141,000 common shares at
$1.34 per common share in settlement of a trade payable.
7. RELATED PARTY TRANSACTIONS
Amounts due to related parties consist of the following amounts:
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
$ $ $
- ----------------------------- --------
DUE FROM RELATED PARTIES
Futurelink Corp.. . . . . . . - 9,073 -
Futurelink/Sysgold Ltd. . . . - 4,045 -
- 13,118 -
DUE TO RELATED PARTIES
Officers and stockholders . . 12,849 43,588 -
Futurelink Corp.. . . . . . . 18,602 32,175 -
Willson Stationers Ltd. . . . 7,304 1,352 -
Directors . . . . . . . . . . 157,503 120,000 -
196,258 197,115 -
DUE TO STOCKHOLDERS
Bankton Financial Corporation - 15,775 -
Cameron Chell . . . . . . . . 2,044 1,957 -
Hampton Park Ltd. . . . . . . - 56,985 -
Other stockholder . . . . . . - - 78,159
2,044 74,717 78,159
Effective July 31, 1999 the Company entered into an agreement with Pace Systems
Group Inc., a related party (see note 17), whereby Pace assigned certain of its
revenue contracts to the Company. During the period from July 31 to September
30, 1999 the Company earned $337,988 from these contracts, which is included in
revenues on the accompanying financial statements. The Company also incurred
sub-contracting costs in respect of these contracts, in the amount of $337,712
which is included in expenses in the accompanying financial statements.
During the year ended December 31, 1998, the Company incurred $76,612 in fees
associated with computer services provided by Futurelink Corp., an entity of
which certain directors are also directors of the Company. There were $28,289
fees incurred during the period ended September 30, 1999. The Company provided
sales to Futurelink Corp. during the period ended September 30, 1999 in the
amount of $2,925 (December 31, 1998 - $9,073). The fees charged by and sales
provided to Futurelink Corp. are recorded at their exchange amounts.
During the year ended December 31, 1998, the Company provided services of $4,045
to Futurelink/Sysgold Ltd., an entity of which certain directors are also
directors of the Company. This amount was included in due from related parties
at December 31, 1998. These services are provided on normal commercial terms and
conditions. No services were provided to Futurelink/Sysgold Ltd. during the
period ended September 30, 1999.
Office and administration expenses for the nine month period ended September 30,
1999, include $11,858 (December 31, 1998 - $8,035) paid to Willson Stationers
Ltd., an entity of which certain directors are also directors and officers of
the Company. These transactions are recorded at their exchange amounts.
Consulting fees for the year ended December 31, 1998, include $198,168 to
officers and stockholders of the Company for services provided.
Due to stockholders represents advances received by the Company. The amount due
to Hampton Park Ltd., a company owned by a stockholder, bears interest at 8% per
annum and has no set repayment terms. The remaining amounts due to stockholders
do not carry interest and have no set repayment terms. All stockholders have
indicated they do not intend to demand repayment within the next year.
The Company entered into an agreement to lease premises from a stockholder. The
lease began on November 1, 1998 and is for a five year term. The minimum rent
is $9.42 per square foot per annum with 9,920 square feet of net rentable area.
Additional rent is estimated at $4.03 per square foot of net rentable area per
annum. The net rent expense recognized in the nine month period ended September
30, 1999 was $67,870 (year ended December 31, 1998 - $3,991).
8. CONVERTIBLE DEBENTURES
SEPTEMBER 30, DECEMBER 31
1999 1998
$ $
----------- ----------
PRINCIPAL
Net balance outstanding, beginning of period . . . . . . . . . 146,606 -
Funds advanced to date . . . . . . . . . . . . . . . . . . . . 1,100,000 420,000
Debentures converted during the period . . . . . . . . . . . . - (210,000)
1,246,606 210,000
FINANCING FEES
Fees paid on funds advanced to date. . . . . . . . . . . . . . (110,000) (42,000)
Intrinsic value associated with equity component of debentures 33,329 11,760
Fees paid through issuance of warrants to agent. . . . . . . . (341,538) (85,714)
Intrinsic value associated with equity component of debentures 110,027 24,000
Amortization of financing fees to date . . . . . . . . . . . . 75,601 5,158
Financing fees associated with debentures converted to date. . - 21,117
(232,581) (65,679)
INTEREST EXPENSE
Accrued interest expense . . . . . . . . . . . . . . . . . . . 77,323 2,285
NET BALANCE OUTSTANDING, END OF PERIOD . . . . . . . . . . . . 1,091,348 146,606
On September 25, 1998 the Company entered into an agreement to issue 10%
convertible debentures in series of $200,000 up to a total of $2,000,000,
subject to the Company meeting certain conditions, which mature on October 31,
2001. The holders have the right to convert the debentures in increments of at
least $100,000, at a price equal to the lower of $0.28 and 78% of the average
closing bid price of the Company's common stock for the three trading days
immediately preceding the Notice of Conversion served on the Company. For the
$500,000 of convertible debentures that were issued on January 26, 1999,
$250,000 of debentures can be converted at a fixed price of $0.40 per common
share and the remaining $250,000 can be converted into shares at a fixed rate of
$0.28 per common share. The Company may prepay any or all of the outstanding
principal amounts at any time, upon thirty days' notice, subject to the holders'
right to convert into common shares. A financing fee of 10% is charged on the
principal sum of each convertible debenture issued. Interest is payable on the
maturity date. At the holders' election, interest can be settled in common
stock of the Company based on market prices.
On April 16, 1999, the Company drew down an additional $600,000 of financing
under the 10% convertible debenture agreement, which can be converted into
common stock at a fixed price of $0.65 per common share.
On April 27, 1999, the debenture agreement was amended to include (among others)
the following changes:
(i) the total amount available under the debenture agreement was increased
from $2,000,000 to $5,000,000.
(ii) the financing fee applicable to the additional $3,000,000 available was
set at 8% of the principal sum issued.
(iii) the balance of the financing not yet drawn, $3,480,000, has a fixed
conversion price of $0.40 per share.
(iv) an additional 923,077 share purchase warrants were issued, which give
the holder the right to purchase one common share for each warrant held, at a
price of $0.65 per warrant.
Through September 30, 1999, the Company has issued convertible debentures
totalling $1,520,000 of which $736,329 was recorded as contributed surplus with
an offsetting amount charged as interest on long term debt. Of the debentures
issued, $210,000 principal plus $3,798 interest was converted into 1,912,317
shares on November 30, 1998, based on a conversion price of $.1118 (being 78% of
the average closing bid price of the Company's common stock for the three
trading days preceding the Notice of Conversion). Interest totalling $79,608
has been accrued and included in the convertible debenture balance outstanding
at September 30, 1999. These shares will be formally issued when the Company's
SB-2 Registration Statement has been declared effective.
At the time of the initial funding on October 1, 1998, the Company issued
1,428,572 common share purchase warrants (357,143 to the agent and 1,071,429 to
the ultimate subscriber of the issue). Each warrant gives the holder the right
to purchase one common share of the Company at $0.28 until October 31, 2001. An
amount of $342,857 has been included in contributed surplus as the estimated
value attributed to these warrants as they were exercisable upon issuance. In
addition, the warrants issued to the agent have been treated as a financing fee
in the amount of $85,714. The value of these fees associated with the equity
component of the 10% convertible debentures has been charged to contributed
surplus in the amount of $24,000. The remaining balance is being amortized over
the life of the 10% convertible debentures.
Through September 30, 1999 the Company has paid financing fees on the 10%
convertible debentures totalling $152,000. The fees associated with the equity
component of the 10% convertible debentures, being $45,089, have been charged to
contributed surplus. The remaining amount, which has been recorded as a
reduction of the debenture principal, is being amortized over the life of the
10% convertible debentures, unless the debentures are converted. If converted,
the pro rata portion of the financing fees associated with the converted
debentures is charged to capital in excess of par value. During 1998, $21,117
has been charged to capital in excess of par value relating to $210,000 of
convertible debentures which were converted.
The additional share purchase warrants issued on April 27, 1999 as described in
(iv) above have been recorded as contributed surplus at their estimated value of
$341,538, as they were exercisable upon issuance. An offsetting amount of
$110,027 attributable to the equity portion of the related debentures has been
recorded as a charge against contributed surplus; the remainder has been charged
as a discount to debt and is being amortized over the life of the debt.
The Company is currently in the process of filing a form SB-2 Registration
Statement qualifying the shares to be issued on conversion of the debentures
with the Securities and Exchange Commission. Until such time as the common
shares are registered, a charge of 0.986% per day will apply against the initial
amount funded. Further, as registration did not occur within 120 days of
initial funding, a charge of 0.1644% per day will apply for each day thereafter.
The initial amount funded on October 1, 1998 was $200,000. An amount of $82,200
for the penalty of late filing of the Registration Statement, and has been
included in accounts payable.
9. LOSS PER SHARE
Loss per common share is loss for the period divided by the weighted average
number of common shares outstanding. The effect on earnings per share of the
exercise of options and warrants, and the conversion of the convertible
debentures is anti-dilutive.
10. INCOME TAXES
The income tax benefit differs from the amount computed by applying the U.S. federal
statutory tax rates to the loss before income taxes for the following reasons:
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER
1999 1998 1998 31, 1997
$ $ $ $
------------ ---------- ------------ ---------
(34%) (35%) (34%) (34%)
Income tax benefit at U.S. statutory rate (1,305,306) (773,522) (1,045,938) (46,530)
Increase (decrease) in taxes resulting
from:
Deferred tax asset valuation
allowance . . . . . . . . . . . . . . . . 1,252,586 968,663 1,106,172 46,530
Non-deductible expenses . . . . . . . . . 275,600 - 128,162 -
Foreign tax rate differences. . . . . . . (222,880) (195,141) (188,396) -
Income tax benefit. . . . . . . . . . . . - - - -
For financial reporting purposes, loss before income taxes includes the
following components:
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1998 1998 1997
$ $ $ $
------------ ------------ ------------ ----------
Pre-tax loss:
United States (1,740,449) (1,167,839) (1,302,313) (136,854)
Foreign . . . . (2,098,686) (1,042,225) (1,773,974) -
(3,839,135) (2,210,064) (3,076,287) (136,854)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The components of the
Company's deferred tax assets are as follows:
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
$ $ $
------------ ------------ ---------
Deferred tax assets (liabilities):
Net operating loss
carryforwards. . . . . . . . . . . . . 1,937,094 697,768 -
Start-up costs . . . . . . . . . . . . 31,024 37,999 46,333
Depreciation . . . . . . . . . . . . . 36,474 6,201 197
Debt issue costs . . . . . . . . . . (4,680) 5,137 -
Software costs . . . . . . . . . . . 811,194 405,597 -
Deferred tax assets net of liabilities 2,811,102 1,152,702 46,530
- -------------------------------------- ------------ ------------ ---------
Valuation allowance. . . . . . . . . . (2,811,102) (1,152,702) (46,530)
Net deferred tax assets. . . . . . . . - - -
The Company has provided a valuation allowance for the full amount of deferred
tax assets in light of its history of operating losses since its inception.
The Company has U.S. operating losses carried forward of $1,931,000 which expire
as follows:
$
--------
2018 936,000
2019 995,000
The availability of these loss carryforwards to reduce future taxable income
could be subject to limitations under the Internal Revenue Code of 1986, as
amended. Certain ownership changes can significantly limit the utilization of
net operating loss carryforwards in the period following the ownership change.
The Company has not determined whether such changes have occurred and the effect
such changes could have on its ability to carry forward all or some of the U.S.
net operating losses.
The Company has non-capital losses carried forward for Canadian income tax
purposes of $1,931,000. These losses expire as follows:
$
2003 45,000
2004 7,000
2005 918,000
2006 2,020,000
11. COMMITMENTS
The Company is committed to the following minimum lease payments under operating
leases for premises and equipment:
$
Remainder of 1999 28,236
2000 112,943
2001 94,932
2002 94,641
2003 78,867
12. CAPITAL LEASE OBLIGATIONS PAYABLE
The future minimum lease payments at September 30, 1999 under capital leases are
as follows:
Remainder of 1999. . . . . . . . . . . . . . . . . 7,965
2000 22,344
2001 22,344
2002 21,486
2003 20,627
2004 11,868
Total future minimum lease payments. . . . . . . . 106,634
Less: imputed interest . . . . . . . . . . . . . . (25,526)
Balance of obligations under capital leases. . . . 81,108
- -------------------------------------------------- --------
Less: current portion included in accounts payable
and accrued liabilities. . . . . . . . . . . . . . (14,119)
Long term obligation under capital leases. . . . . 66,989
13. NET CHANGE IN NON-CASH WORKING CAPITAL
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1998 1998 1997
----------
$ . . . . . . . . . . . . . $
- ----------------------------- ----------
Accounts receivable . . . . . (413,895) (20,088) (7,243) -
Due from related parties. . . 13,118 - (13,118) -
Prepaid expenses and deposits 53,628 (19,612) (132,956) (7,500)
Accounts payable and accrued
liabilities . . . . . . . . . 469,347 404,110 395,624 2,976
Due to related parties. . . . (857) - 197,115 -
Change relating to operating
activities. . . . . . . . . . 121,341 364,410 439,422 25,476
14. SEGMENTED INFORMATION
The Company's activities are conducted in one operating segment with all
activities relating to the development and sale of encryption software. These
activities are planned to be carried out in Canada and the United States. To
date, all the activities have occurred in Canada.
15. FINANCIAL INSTRUMENTS
Financial instruments comprising cash, accounts receivable, amounts due from
related parties, deposits, accounts payable and accrued liabilities, amounts due
to related parties, capital lease obligations, and amounts due to stockholders
approximate their fair value. It is management's opinion that the Company is
not exposed to significant currency or credit risks arising from these financial
instruments.
The estimated fair value as at September 30, 1999 of the 10% convertible
debentures is $864,934 (December 31, 1998 - $189,000). This is based on the
estimated present value of the principal and interest of the debenture.
The Company is subject to cash flow risk to the extent of the fixed 10% simple
interest rate being charged on the convertible debentures. The effective annual
interest rate realized by the Company, exclusive of the amounts relating to the
conversion feature of the 10% convertible debentures and the warrants, was 10%
(December 31, 1998 - 10%).
16. RECENT PRONOUNCEMENTS
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities", which will be effective for fiscal years beginning after
June 15, 2000. The Company does not acquire derivatives or engage in hedging
activities.
17. SUBSEQUENT EVENTS
a) Effective on November 3, 1999, the Company acquired all of the
outstanding common shares of Pace Systems Group Inc. ("Pace"). As consideration
for this purchase, the Company will issue 1,731,932 common shares, valued at
$1.70 per share, representing total consideration of $2,944,284.
b) On November 2, 1999 the Company entered into a pre-acquisition agreement
with Offsite Data Services Ltd. (Offsite), a company incorporated in the
Province of Alberta and listed on the Alberta Stock Exchange, whereby the
companies have agreed to combine their business interests through an offer by
the Company to purchase all of the outstanding shares of Offsite. The offer is
expected to be mailed before November 30, 1999.
JAWS TECHNOLOGIES, INC.
FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from the financial
statements as of and for the six months ended September 30, 1999. You should read the
financial statements in their entirety for a full explanation of this summary
financial information. (In thousands, except EPS.)
ITEM NUMBER . ITEM DESCRIPTION AMOUNT
- ------------- --------------------------------------------------------- ------------
5-02(1) . . . Cash and cash items. $ 664,428
5-02(2) . . . Marketable securities 27,000
5-02(3)(a)(1) Notes and interest receivable-trade accts 421,138
5-02(4) . . . Allowances for doubtful accounts 0
5-02(6) . . . Inventory 0
5-02(9) . . . Total current assets 1,199,394
5-02(13). . . Property, plant and equipment 580,296
5-02(14). . . Accumulated depreciation 82,292
5-02(18). . . Total assets 1,697,398
5-02(21). . . Total current liabilities 1,110,368
5-02(22). . . Bonds, mortgages and similar debt 1,091,348
5-02(28). . . Preferred stock-mandatory redemption 0
5-02(29). . . Preferred stock-no mandatory redemption 0
5-02(30). . . Common stock 15,114
5-02(31). . . Other stockholder's equity (586,421)
5-02(32). . . Total liabilities and stockholder's equity 1,697,398
5-03(b)1(a) . Net sales tangible products 372,630
5-03(b)1. . . Total revenues 372,630
5-03(b)2(a) . Cost of tangible goods sold 0
5-03(b)2. . . Total costs and expenses applicable to sales and revenues 337,712
5-03(b)3. . . Other costs expenses 2,959,140
5-03(b)5. . . Provision for doubtful accounts and notes 0
5-03(b)(8). . Interest and amortization of debt discount 7914,913
5-03(b)(10) . Income before taxes and other items (3,839,135)
5-03(b)(11) . Income tax expense 0
5-03(b)(14) . Income/loss continuing operations (3,839,135)
5-03(b)(15) . Discontinued operations 0
5-03(b)(17) . Extraordinary items 0
5-03(b)(18) . Cumulative effect-changes in accounting principles 0
5-03(b)(19) . Net income or loss (3,839,135)
5-03(b)(20) . Earnings per share-primary (0.30)
5-03(b)(20) . Earnings per share-fully diluted N/A
Exhibit A - Page 1
EXHIBIT A
SHARE PURCHASE AGREEMENT
THIS AGREEMENT made the 3rd day of November, 1999
BETWEEN:
JAWS TECHNOLOGIES, INC. a corporation incorporated under the
laws of the State of Nevada, U.S.A.,
(herein called "JAWS" or the "Purchaser")
- AND -
THOSE PARTIES HERETO WHO ARE HEREIN DEFINED
AS AND WHO EXECUTE THIS AGREEMENT
AS VENDORS, (herein collectively called the
"Vendors " and individually a "Vendor")
WHEREAS the Vendors wish to sell and convey their respective Vendor's Rights to
the Purchaser and the Purchaser wishes to purchase and receive such Vendor's
Rights from such Vendors in exchange for the Purchase Consideration.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the premises
hereto and the mutual covenants, warranties, representations, agreements and
payments herein set forth, the Parties hereto agree as follows:
ARTICLE 1.
INTERPRETATION
ARTICLE 1. INTERPRETATIONSECTION 1.1 DEFINITIONSSECTION 1.1
DEFINITIONS
In this Agreement, including the premises hereto, this clause and any Schedules
hereto, the words and phrases set forth below shall have the meaning ascribed
thereto below, namely:
"BUSINESS DAY" means a day other than a Saturday or Sunday or a statutory
holiday in the City of Toronto, in the Province of Ontario.
"CLOSING DATE" means the effective date November 3, 1999 or such other date as
the parties may mutually determine.
"CLOSING TIME" means 10:00 a.m. on the Closing Date or as agreed upon by the
parties.
PaceAcquistion10/28/99
"CORPORATION" means Pace Systems Group Inc.
"CORPORATION'S ASSETS" means all the Property owned or held by the Corporation
or to which the Corporation is entitled as more particularly described in
Schedule "A".
"CORPORATION'S FINANCIAL STATEMENTS" means the most recent audited and unaudited
financial statements of the Corporation dated July 31, 1999, copies of which are
attached as Schedule "B".
"CORPORATION'S SHARES" means the common voting shares in the capital of the
Corporation, as the same exist at the date hereof and at the Closing Date.
"ESCROW AGENT" means Beard Winter LLP, Barristers & Solicitors;
"ESCROW AGREEMENT" means the escrow agreement between JAWS, the Corporation,
each of the Vendors and the Escrow Agent, dated as of the Closing Date;
"JAWS ASSETS" means all the Property owned or held by JAWS or to which JAWS is
entitled as more particularly described in Schedule "C".
"JAWS" means JAWS Technologies, Inc., a Nevada Corporation, whose common shares
trade on the OTC Bulletin Board in the United States of America.
"JAWS FINANCIAL STATEMENTS" means the most recent audited and unaudited
financial statements of the JAWS dated the fiscal year ending December 31, 1998
and the quarter ending June 30, 1999, copies of which are attached as Schedule
"D".
"JAWS SHARES" means 1,731,932 common shares in the capital stock of JAWS, to be
issued from the Treasury of JAWS as the Purchase Consideration.
"PROPERTY" means the interests of the Corporation or the Purchaser, as the case
may be, in and to all property, assets and rights, including, without limiting
the generality of the foregoing, the entire interest of such Party in and to:
(a) all contracts, agreements, documents, production sales contracts,
books, records and reports relating to the provision of products and services
to its customers and any and all rights in relation thereto;
(b) all intellectual property and rights developed, acquired or
incorporated into the products and services of the Corporation or the Purchaser,
as the case may be, or purchased in the course of carrying on the business of
the Corporation or the Purchaser, as the case may be.
"PARTY" or "PARTIES" means a party or parties to and bound by this Agreement.
"PERMITTED ENCUMBRANCES" means, in respect of the Corporation's Assets or the
Purchaser's Assets, as the case may be:
Exhibit A - Page 3
(c) inchoate liens, taxes, assessments or governmental charges which
are due or which are not delinquent;
(d) inchoate liens incurred or created in the ordinary course of
business as security in favour of any other person who is conducting the
development or operation of the property to which such liens relate for the
Corporation's or the Purchaser's share of the costs and expenses of such
development or operation, as the case may be, the payment of which is not then
due;
"PERSON" means any individual, corporation, body corporate, partnership, joint
venture, association, group, trust, or other legal entity and includes any duly
constituted government of or in Canada and any minister, department, commission,
board, bureau, agency, authority, instrumentality or court and the like of any
such government.
"PURCHASE CONSIDERATION" means the JAWS Shares.
"PURCHASE PRICE" means Four Million Three Hundred Seventy Four Thousand Eight
Hundred Fifty Five ($ 4,374,855) Dollars CDN.
"PURCHASER'S ASSETS" means the Property owned or held by the Purchaser or to
which the Purchaser is entitled.
"REGULATIONS" means all applicable statutes, laws, rules, orders, regulations,
directives or other instruments (and all applicable requirements thereunder) of
any governmental agencies or authorities in Canada or the United States of
America having jurisdiction over the Parties, the Corporation, the Corporation's
Assets, the Purchaser's Assets, or the specific property or matter in question,
in effect from time to time.
"VENDOR" means each of:
Peter Labrinos;
Vasiliki Labrinos;
Panagiotis Labrinos;
James Wang;
Cindy Wang;
Aidan O'Brien;
Joseph Iuso;
Joseph T. Lee;
Mam Ling Wang.
and "VENDORS" means all or any of them.
"VENDOR'S RIGHTS" means, in respect of a Vendor, all:
(a) the Vendor's Shares,
(b) other securities issued by the Corporation and held by the Vendor
(other than options granted to employees, consultants, officers or directors all
of which shall be exercised prior to the Closing Date and acquired hereunder),
(c) amounts owing to the Vendor, by the Corporation, whether presently
due or otherwise,
(d) dividends declared but not paid prior to the Closing Date, and
(e) rights to acquire any securities of the Corporation, from the
Corporation or from any other Person, howsoever granted or acquired.
"VENDOR'S SHARES" means, in respect of a Vendor, all the issued and outstanding
Corporation's Shares owned by the Vendor, or to which the Vendor is entitled, at
the Closing Date, including:
Peter Labrinos- 433.08
Vasiliki Labrinos 288.70
Panagiotis Labrinos 173.22
James Wang- 548.56
Cindy Wang- 346.44
Aidan O'Brien- 75
Joseph Iuso- 75
Joseph T. Lee- 30
Mam Ling Wang 30
SECTION 1.2 EXPANDED MEANINGS1.2 EXPANDED MEANINGS
Unless the context otherwise necessarily requires, the following provisions
shall govern the interpretation of this Agreement:
1.2.1 words used herein importing the singular number only shall
include the plural and vice versa, and words importing the use of any gender
shall include all genders;
1.2.2 the terms "in writing" or "written" include printing,
typewriting, or any electronic means of communication by which words are capable
of being visually reproduced at a distant point of reception, including by
telecopier or telex; and
1.2.3 references herein to any agreement or instrument, including this
Agreement, shall be deemed to be references to the agreement or instrument as
varied, amended, modified, supplemented or replaced from time to time, and any
specific references herein to any enactment shall be deemed to be references to
such enactment as the same may be amended or replaced from time to time.
1.2.4 "THIS AGREEMENT" "THE AGREEMENT" "HERETO", "HEREIN", "HEREBY",
"HEREUNDER", "HEREOF" and similar expressions refer to this Share Purchase
Agreement and not to any particular Article, Section, Subsection, clause,
subdivision or other portion hereof and include any and every instrument
amending, supplementing or replacing this agreement.
SECTION 1.3 ENTIRE AGREEMENT1.3 ENTIRE AGREEMENT
This Agreement together with the agreements and other documents to be executed
and delivered pursuant hereto, constitute the entire agreement between the
Parties and supersedes all other prior agreements, understandings, negotiations
and discussions, whether oral or written, of the Parties and there are no
warranties, representations, covenants or other agreements between the Parties
except as specifically set forth herein. No supplement, modification or waiver
or termination of this Agreement shall be binding unless executed in writing by
the Party to be bound thereby. No waiver of any of the provisions of this
Agreement shall be valid unless in writing and no such waiver shall constitute
nor be deemed to constitute a waiver of any other provisions (whether or not
similar) nor shall such waiver constitute a continuing waiver unless other-wise
expressly provided.
SECTION 1.4 HEADINGS AND TABLE OF CONTENTS1.4 HEADINGS AND TABLE OF
CONTENTS
The division of this Agreement into articles, sections and other subdivisions,
the provision of a table of contents and the insertion of headings are for
convenience of reference only and shall not affect or be utilized in the
construction or interpretation hereof.
SECTION 1.5 SEVERABILITY1.5 SEVERABILITY
If any one or more of the provisions or parts thereof contained in this
Agreement should be or become invalid, illegal or unenforceable in any respect
in any jurisdiction, the remaining provisions or parts thereof contained herein
shall be and shall be conclusively deemed to be, as to such jurisdiction,
severable therefrom and:
1.5.1 the validity, legality or enforceability of such remaining
provisions or parts thereof shall not in any way be affected or impaired by the
severance of the provisions or parts thereof severed; and
1.5.2 the invalidity, illegality or unenforceability of any provision
or any part thereof contained in this Agreement in any jurisdiction shall not
effect or impair such provision or part thereof or any other provisions of this
Agreement in any other jurisdiction.
SECTION 1.6 NOT A BUSINESS DAYSECTION 1.6 NOT A BUSINESS DAY
In the event that any day on or before which any action is required to be taken
hereunder is not a Business Day, then such action shall be required to be taken
on or before the requisite time on the next succeeding day that is a Business
Day.
SECTION 1.7 CONSENTS AND APPROVALSSECTION 1.7 CONSENTS AND APPROVALS
It shall be a condition hereof that any consent or approval of any Party hereto,
required hereby, shall be obtained in writing prior to the event for which it is
required.
Exhibit A - Page 5
SECTION 1.8 SCHEDULES1.8 SCHEDULES
The following are the Schedules referred to and incorporated in this Agreement,
which are deemed to be a part hereof:
Schedule "A" - Corporation's Assets
Schedule "B" - Corporation's Financial Statements
Schedule "C" - JAWS' Assets
Schedule "D" - JAWS' Financial Statements
ARTICLE 2.
PURCHASE AND SALE
ARTICLE 2. PURCHASE AND SALESECTION 2.1 PURCHASE AND SALESECTION
2.1 PURCHASE AND SALE
Subject to the terms and conditions of this Agreement, each Vendor hereby sells,
assigns, transfers and conveys to the Purchaser and the Purchaser purchases and
acquires from each Vendor its Vendor's Rights, effective as of the Closing Date,
to have and hold the same together with all benefits and advantages to be
derived therefrom, absolutely, subject only to the terms and conditions of this
Agreement, at and for the Purchase Consideration equal to the Purchase Price.
SECTION 2.2 BREAKUP FEE
The Vendors jointly and severally agree to pay $25,000 to the Purchaser, as
liquidated damages, for failing to consummate the transaction as agreed to
herein. The Purchaser agrees to the Vendors collectively $25,000 as liquidated
damages, for failing to consummate the transaction as agreed to herein.
ARTICLE 3.
PAYMENT
ARTICLE 3. PAYMENTSECTION 3.1 PAYMENT OF PURCHASE
CONSIDERATIONSECTION 3.1 PAYMENT OF PURCHASE CONSIDERATION
Purchase Consideration equal to the Purchase Price shall be payable by JAWS to
the Vendor by the issuance to the Vendor, from the treasury of JAWS, the JAWS
Shares, subject to section 3.2 and the Escrow Agreement, as follows:
SHAREHOLDERS NO. OF JAWS SHARES
Peter Labrinos. . . 375,040
- ------------------- ------------------
Vasiliki Labrinos . 250,000
- ------------------- ------------------
Panagiotis Labrinos 150,000
- ------------------- ------------------
James Wang. . . . . 475,040
- ------------------- ------------------
Cindy Wang. . . . . 300,000
- ------------------- ------------------
Aidan O'Brien . . . 64,947
- ------------------- ------------------
Joeseph Iuso. . . . 64,947
- ------------------- ------------------
Joseph T. Lee . . . 25,979
- ------------------- ------------------
Mam Ling Wang . . . 25,979
- ------------------- ------------------
SECTION 3.2 ESCROW PROVISIONS
3.2.1 JAWS Share Releases - The JAWS Shares shall be issued every 6 months, subject to each of the Vendors being employed by
the Purchaser (except for Vendors Joseph T. Lee and Mam Ling Wang) and subject to sections 3.2.2 and 3.2.3, as follows:
# OF SHARES # OF SHARES # OF SHARES
# OF SHARES TO BE TO BE TO BE # OF SHARES TO
TO BE RELEASED 6 RELEASED 12 RELEASED 18 BE RELEASED
RELEASED ON MONTHS AFTER MONTHS AFTER MONTHS AFTER 24 MONTHS
THE CLOSING THE CLOSING THE CLOSING THE CLOSING AFTER THE
VENDOR DATE DATE DATE DATE CLOSING DATE TOTAL
- ------------------- ------------ ------------ ------------ ----------- -------------- ------
Peter Labrinos 75,008 75,008 75,008 75,008 75,008
- ------------------- ------ ------ ------ ------ ------
Vasiliki Labrinos 50,000 50,000 50,000 50,000 50,000
- ------------------- ------ ------ ------ ------ ------
Panagiotis Labrinos 30,000 30,000 30,000 30,000 30,000
- ------------------- ------ ------ ------ ------ ------
Jim Wang 95,008 95,008 95,008 95,008 95,008
- ------------------- ------ ------ ------ ------ ------
Cindy Wang 60,000 60,000 60,000 60,000 60,000
- ------------------- ------ ------ ------ ------ ------
Aidan O'Brien 12,989 12,989 12,989 12,989 12,989
- ------------------- ------ ------ ------ ------ ------
Joseph Isuso 12,989 12,989 12,989 12,989 12,989
- ------------------- ------ ------ ------ ------ ------
Joseph T. Lee 5,196 5,196 5,196 5,196 5,196
- ------------------- ------ ------ ------ ------ ------
Mam Ling Wang 5,196 5,196 5,196 5,196 5,196
- ------------------- ------ ------ ------ ------ ------
RELEASED ON
THE CLOSING
VENDOR
- -------------------
Peter Labrinos. . . 75,008
- ------------------- -------
Vasiliki Labrinos . 250,000
- ------------------- -------
Panagiotis Labrinos 150,000
- ------------------- -------
Jim Wang. . . . . . 475,040
- ------------------- -------
Cindy Wang. . . . . 300,000
- ------------------- -------
Aidan O'Brien . . . 64,946
- ------------------- -------
Joseph Isuso. . . . 64,946
- ------------------- -------
Joseph T. Lee . . . 25,980
- ------------------- -------
Mam Ling Wang . . . 25,980
- ------------------- -------
Exhibit A - Page 7
3.2.2 Holdback Provisions - The JAWS Shares releasable on the 24 month
anniversary shall make up the holdback shares (the "Holdback Shares").
3.2.2.1 If on the 12 month anniversary date of the Closing Date
actual gross revenues attributable to the Vendors (the "1st Years Gross
Revenues") for the previous twelve months equal or exceed Two Million
($2,000,000 CDN) Dollars (the "Projected Amount") then 50% of the Holdback
Shares shall be released. If the 1st Years Gross Revenues are less than the
Projected Amount on the 12 month anniversary of the Closing Date then the amount
of the Holdback Shares to be released shall be calculated in accordance with the
following equation:
Gross Revenue X Holdback Shares/2 = The number of shares to be released
- --------------
Projected Gross Revenue on the 12 month release
date.
3.2.2.2 If on the 24 month anniversary date of the Closing Date actual gross
revenues attributable to the Vendors (the "The 2nd Years Gross Revenues") for
the previous twelve months equal or exceed Two Million ($2,000,000 CDN) Dollars
(the "Projected Amount") then the remaining Holdback Shares shall be released.
If the 2nd Years Gross Revenues are less than the Projected Amount on the 24
month anniversary of the Closing Date then the amount of the Holdback Shares to
be released shall be calculated in accordance with the following equation:
Gross Revenue X Holdback Shares/2 = The number of shares to be released
- --------------
Projected Gross Revenue on the 24 month release
date.
3.2.2.3 If the aggregate of the 1st Years Gross Revenues and the 2nd Years
Gross Revenues exceed $4,000,000 than all the Holdback Shares shall be released.
3.2.3 Cancellation of Shares - If the Holdback Shares are not
completely released in accordance with the 3.2.2.1, 3.2.2.2 or 3.2.2.3 above,
then the Holdback Shares shall be returned to the treasury of JAWS and
cancelled.
3.2.4 Statutory Holdback - The issuance of the JAWS Shares in
accordance with the above table will be subject to statutory hold periods equal
to one year from the date consideration is received by JAWS for the JAWS Shares.
ARTICLE 4.
REPRESENTATIONS
ARTICLE 4. REPRESENTATIONSSECTION 4.1 REPRESENTATIONS OF THE
VENDORSECTION 4.1 REPRESENTATIONS OF THE VENDOR
Each Vendor hereby separately represents and warrants to and with the Purchaser
in respect of its Vendor's Rights that:
4.1.1 Restrictions - There are no restrictions in either the constating
documents or the by-laws of the Corporation, each as amended, nor are there any
collateral agreements or rights of first refusal or other pre-emptive rights of
purchase, which would arise by reason of the execution of this Agreement,
completion of the sale or otherwise and affect the transferability of the
Vendor's Rights from the Vendor to the Purchaser.
4.1.2 Title to the Vendor's Rights - The Vendor has good and marketable
title to the Vendor's Rights, free and clear of any mortgages, liens, charges,
security interests, adverse claims, pledges, encumbrances, options, pre-emptive
rights of purchase (such as rights of first refusal), restrictions, claims or
demands of any kind or nature whatsoever.
4.1.3 Assets of the Corporation - Other than the Corporation's Assets
and as disclosed in the Corporation's Financial Statements, the Corporation has
no property, assets or undertakings of any nature or kind whatsoever.
4.1.4 Insurance - During the period from the date of the Corporation's
Financial Statements until the Closing Time:
4.1.4.1 the Corporation's Assets shall be insured by the Corporation
against loss or damage under contracts of insurance with reputable insurers
which insurance is customary for the Corporation's business; and
4.1.4.2 all third Party insurable liabilities of the Corporation shall
be insured against on an occurrence basis under the contracts of insurance.
4.1.5 Policies of Insurance - In connection with any and all policies
of insurance:
4.1.5.1 neither the Vendor nor the Corporation:
(a) has misrepresented or omitted to disclose to the insurers
thereunder or in connection therewith any material fact or is in default with
respect to any of the provisions contained in any such insurance policy,
(b) has failed to give any notice or present any claim under any such
policy in due and timely fashion, and no such claim is outstanding and in
dispute,
4.1.5.2 the Corporation is the named insured with loss payable to it on
those policies owned by it or obtained for their benefit; and
4.1.5.3 there is no outstanding request, notice or order from any insurer
for any modification to or remedial action in respect of any of the insured
assets or premises included in the Corporation's Assets.
4.1.6 Capital Structure - The authorized share capital of the
Corporation consists of an unlimited number of common shares and an unlimited
number of exchangeable shares of which only 2,000 Corporation Common Shares are
issued and outstanding as fully paid and non-assessable and no Corporation
Exchangeable Shares are issued and outstanding as fully paid and non-assessable.
No securities, options, warrants or other rights to purchase shares or other
securities of the Corporation have been authorized or agreed to be issued or are
outstanding except as contemplated by this Agree-ment.
4.1.7 Financial Statements of the Corporation - The Corporation's
Financial Statements have been prepared in accordance with applicable law and
with generally accepted accounting principles consistently applied and present
fairly the financial position as at the dates indicated and the results of
operation of the Corporation for the period indicated and no material adverse
change in such financial position or such results of operations has occurred
since the date thereof.
4.1.8 No Undisclosed Liabilities - The Corporation is not subject
to any liability or liabilities, absolute or contingent, which individually or
in the aggregate are material, and which are not disclosed, or which are in
excess of the amounts disclosed or reserved for in, the balance sheet of the
Corporation or which are not otherwise disclosed in this Agreement, other than
liabilities of the same nature as those set forth in the Corporation's Financial
Statements or disclosed herein and reasonably incurred in the usual and ordinary
course of business to the Closing Date, provided that the same do not materially
and adversely affect the financial position of the Corporation.
4.1.9 Material Contracts - To the knowledge of the Vendor after
reasonably enquiry, the Corporation is not in default under any material
contract, nor is the Vendor aware of any default by any other Party under any
material contract, and the Vendor is not aware of any facts or circumstances
which would, with the giving of notice or the lapse of time, give rise to a
default by the Corporation under a material contract.
4.1.10 Taxes - With respect to its taxes:
4.1.10.1 the Corporation has, at the prescribed times:
(a) filed all tax returns required to be filed by it in all applicable
jurisdictions,
(b) made and remitted all required or desirable deductions or
withholdings at source, and
(c) paid all taxes, levies, assessments, reassessments, penalties,
interest and fines due and payable by it;
4.1.10.2 all such tax returns properly reflect, and do not in any
respect understate, the taxable income or the liability for taxes of the
Corporation in the relevant tax year or calendar year;
4.1.10.3 adequate provision has been made in the Corporation's
Financial Statements for all taxes, governmental charges, and assessments,
whether relating to income, sales, real or personal property, or other types of
taxes, governmental charges, or assessments, including interest and penalties
thereon, payable in respect of the business or assets of the Corporation or
otherwise, for all relevant periods;
Exhibit A - Page 9
4.1.10.4 Canadian federal and provincial income tax assessments have
been issued to the Corporation covering all past periods up to and including the
Corporation's fiscal year ending in July 31, 1999, and such assessments, if any
amounts were owing in respect thereof, have been paid;
4.1.10.5 assessments for all other applicable federal and provincial
taxes and levies have been issued and any amounts owing thereunder have been
paid;
4.1.10.6 there are no actions, suits or other proceedings or
investigations or claims in progress, pending or threatened against the
Corporation in respect of any taxes, governmental charges, or assessments and,
in particular, there are no currently outstanding reassessments or written
enquiries that have been issued or raised by any governmental authority relating
to any such taxes, governmental charges and assessments;
4.1.10.7 to the knowledge of the Vendor and the Corporation, there is
no basis for any adverse reassessment by any taxing authority for any year
remaining open for reassessment; and
4.1.10.8 the Corporation has not waived any statutory period for
assessment of any tax.
Without limiting the generality of the foregoing, the Corporation is in absolute
compliance with all registration, timely reporting, and remittance obligations
in respect of all provincial and federal sales tax legislation and of the goods
and services tax.
4.1.11 No Indebtedness to Corporation - The Vendor is not indebted to
the Corporation.
4.1.12 Accounts Receivable Collectible - All accounts receivable are
bona fide, good and collectable without set off or counterclaim and all such
accounts receivable shall be paid in a timely fashion subject to a reasonable
reserve for bad debts.
4.1.13 Amounts In Trust - There are no amounts deposited in trust, for
the benefit of any third party, with the Corporation as at the date hereof.
4.1.14 Shareholder's Equity - The total shareholders equity in the
Corporation will, on the Closing Date, be exactly as stated in the definition of
Vendor's Shares in section 1.1 of this Agreement.
4.1.15 No Material Adverse Change - There has been no material adverse
change in the business, assets, liabilities or financial condition of the
Corporation since date of the Corporation's Financial Statements.
4.1.16 Distributions to Shareholders - Since the date of the
Corporation's Financial Statements, the Corporation has not declared or made any
payment of any dividend or other distribution in respect of any shares in its
capital or purchased or redeemed any such shares or effected any sub-division,
consolidation, reclassification or other modification of its share capital which
has not been approved in writing by the Purchaser prior to the Closing Date.
4.1.17 Withholding Amounts - The Corporation has withheld all amounts
required to be withheld, including without limiting the generality of the
foregoing, all amounts required to be withheld under the Income Tax Act
(Canada), for unemployment insurance and for the Canada Pension Plan and any
other amounts required by law to be withheld from any payments made to any of
their officers, directors and employees, and has paid the same to the proper
taxing authority or receiving offices all in connection with the Corporation's
Assets or the business of the Corporation.
4.1.18 Corporate Records - the corporate records and minute books of
the Corporation contain all minutes of the meetings of directors and
shareholders of the Corporation are complete, accurate and up-to-date and the
stock register of the Corporation is complete and accurate in all material
respects.
4.1.19 Breach of Order - The Corporation is not in, and has not
received notice of any, material default under any order, writ, injunction or
decree of any court or governmental agency or authority having jurisdiction, nor
any agreement or obligation by which the Corporation is bound or to which it is
subject and which materially affects or relates to the Corporation.
4.1.20 No Subsidiaries - The Corporation does not have any interest
(either directly or indirectly) in any other entity, nor is it a Party to or
bound by any agreement to acquire such an interest.
4.1.21 Employees - There are no written employment contracts or
incentive plans in effect between the Corporation and any employee in respect of
which either the Corporation or the Purchaser shall have any obligations
subsequent to the Closing Date except in accordance with the Iconix contract
that provides for the grant of options by Iconix to Peter Labrinos.
4.1.22 Guarantee and Indemnity Agreements - The Corporation is not a
party as guarantor or indemnitor to any agreements of guarantee or indemnity for
debts or obligations of the Vendor or any other person.
4.1.23 Debt Instruments - On the Closing Date the Corporation will not
have any outstanding bonds, debentures, mortgages, notes or other evidence of
indebtedness other than trade debts, trade accounts or similar obligations
entered into in the ordinary course of the Corporation's business (to a maximum
aggregate amount of $1,000.00), and the Corporation is not under any obligation
to create or issue any bonds, debentures, mortgages, notes or other
indebtedness.
4.1.24 Incentive Payments - The Corporation has not received any
incentives, credits, grants or other governmental assistance pursuant to the
Regulations in effect at the relevant time which will have to be repaid by the
Corporation, or if accrued in the books and records of the Corporation, will be
disallowed.
4.1.25 Workers' Compensation - All payments due to The Workers'
Compensation Board (or similar body in any other jurisdiction) in respect of the
Corporation are current.
4.1.26 Bank Accounts - All information with respect to all deposits of
money with any bank, trust company, treasury branch or other entity empowered or
authorized to receive and hold deposits of money and includes any and all
deposit certificates or receipts or other instrument of like tenor, held for or
in the name of the Corporation, have been provided to the Purchaser.
4.1.27 Execution of Agreement - The execution and delivery of this
Agreement and each and every agreement or document to be executed and delivered
hereunder and the consummation of the transactions contemplated herein will not
violate, nor be in conflict with, any provision of any agreement or instrument
to which the Vendor is a party or is bound, or any judgment, decree, order,
statute, rule or regulation applicable to the Vendor.
4.1.28 Binding Obligation - This Agreement has been duly executed and
delivered by the Vendor and constitutes legal, valid and binding obligations of
the Vendor enforceable in accordance with its terms.
4.1.29 Broker's Fees - The Vendor has not incurred any obligation or
liability, contingent or otherwise, for brokers' or finders' fees in respect of
this transaction for which the Purchaser shall have any obligation or liability.
4.1.30 Residency - The Vendor is not a non-resident of Canada within
the meaning of the Income Tax Act (Canada).
4.1.31 Defaults under Statutes - The Corporation has not received any
notices of any breach of any statutes, regulations, rules, orders and
directives, including but not limited to those pertaining to environmental
matters, of all governmental agencies, departments and authorities having
jurisdiction over the business of the Corporation.
4.1.32 Operating Records - The books and records of the Corporation
disclose all material transactions entered into by the Corporation or on its
behalf to the Closing Date.
4.1.33 Deterrence - Except for information relating to general economic
climate and general industry conditions and any changes of law, Vendor has no
information or knowledge of any fact relating to the Vendor's Rights, the
Corporation's business or the Corporation's ownership and operation of the
Corporation's Assets not disclosed to the Purchaser which, if known to the
Purchaser, might reasonably be expected to deter the Purchaser from completing
the transactions herein contemplated.
Exhibit A - Page 11
4.1.34 Title - The Vendor does not warrant title to the Corporation's
Assets, provided however, the Vendor does represent and warrant that the
Corporation has not done anything whereby any of the Corporation's interest in
and to the Corporation's Assets may be cancelled or determined, nor have they
encumbered or alienated same and the Corporation's Assets shall be, at the
Closing Date, free and clear of all liens, encumbrances, adverse claims, demands
and royalties created by, through or under the Vendor or the Corporation except
for the Permitted Encumbrances or as expressly set forth in Schedule "A".
Except as otherwise provided herein, neither the Vendor nor the Corporation has
received notice of any material defect in the Corporation's title to the
Corporation's Assets.
4.1.35 Notices of Default - To the best of the Vendor's knowledge,
information and belief the Corporation has received no notices of default
relating to the Corporation's Assets or any of them.
4.1.36 Lawsuits - The Corporation is not a party to any action, suit or
other legal, administrative or arbitration proceeding or government
investigation, actual or threatened, which might reasonably be expected to
result in impairment or loss of the Corporation's interest in the Corporation's
Assets or any part thereof, and there is no particular circumstance, matter or
thing known to the Vendor which could reasonably be anticipated to give rise to
any such action, suit or other legal, administrative or arbitration proceeding
or government investigation.
4.1.37 Financial Commitments - There are no financial commitments which
are outstanding or due, or that hereafter may become due in respect of the
Corporation or the Corporation's Assets, or operations in respect of the
Corporation's Assets and which shall become the responsibility of the Purchaser.
4.1.38 Pre-emptive Rights - To the best of the Vendor's knowledge,
information and belief, all rights of first refusal or other pre-emptive rights
applicable to any disposition of the Corporation's Assets have been waived or
satisfied in all respects.
4.1.39 No Other Assets or Obligations - The Corporation has no other
assets, obligations or liabilities, other than the Corporation's Assets, and as
disclosed in Schedule "A" and Schedule "B" hereto.
SECTION 4.2 REPRESENTATIONS OF JAWSSECTION 4.2 REPRESENTATIONS OF JAWS
JAWS hereby represents and warrants to and with each Vendor in respect of the
purchase of the Vendors' Rights that:
4.2.1 Organization of Jaws - JAWS is a corporation duly organized
and existing under the laws of its jurisdiction of incorporation and the laws of
those jurisdictions in which it is required to be registered.
4.2.2 Corporate Authority - JAWS has all the requisite power and
authority to enter into this Agreement, to purchase and pay for and accept title
to the Vendor's Rights on the terms described herein and to perform the
Purchaser's and Jaws' other obligations under this Agreement.
4.2.3 Execution of Agreement - The execution and delivery of this
Agreement and each and every agreement or document to be executed and delivered
hereunder and the consummation of the transactions contemplated herein will not
violate, nor be in conflict with, any provision of this Agreement or instrument
to which JAWS is a party or is bound, or any judgment, decree, order, statute,
rule or regulation applicable to JAWS or the constating documents or bylaws of
JAWS.
4.2.4 Binding Obligation - This Agreement has been duly executed
and delivered by JAWS and constitutes a legal, valid and binding obligation of
JAWS enforceable in accordance with its terms.
4.2.5 Broker's Fees - JAWS has not incurred any obligation or
liability, contingent or otherwise, for brokers' or finders' fees in respect of
this transaction for which the Vendor shall have any obligation or liability.
4.2.6 Capital Structure - The authorized share capital of JAWS
consists only of:
95,000,000 shares of common stock, par value $.001 per share;
5,000,000 shares of preferred stock, par value $.001 per share; and
As of October 20, 1999 there were 13,202,949 shares of common stock issued and
outstanding and no shares of preferred stock issued or outstanding. The fully diluted
capitalization of JAWS is as follows:
Consideration ($) to
be received by
JAWS Number
--------------------- ---------
SHARES ISSUED AND OUTSTANDING AS OF NOVEMBER 3,
1999 . . . . . . . . . . . . . . . . . . . . . . . . . 13,485,949
- ------------------------------------------------------ ---------------------
Shares Issuable upon Conversion of the advanced
amounts of the Thomson Kernaghan debenture.. . . . . . 5,103,251
- ------------------------------------------------------ ---------------------
TOTAL CURRENT CAPITALIZATION . . . . . . . . . . . . . 18,589,200
- ------------------------------------------------------ ---------------------
Common Stock Underlying Thomson Kernaghan
Warrants $400,000 @ 0.28
600,000 @ 0.65. . . . . . . . . . . . . . . . . . . . $ 400,000 1,428,572
600,000 . . . . . . . . . . . . . . . . . . . . . . . 923,077
- ------------------------------------------------------ ---------------------
Common Stock Underlying Bristol Asset Management
Warrants $700,000 @ 0.70 . . . . . . . . . . . . . . . $ 700,000 1,000,000
- ------------------------------------------------------ --------------------- ---------
Common Stock Underlying Private Placement Warrants
Private Placement (391,099 @ $1.00 / 391,099 @ $2.00). $ 1,173,297 782,198
Private Placement ( 834,000 @ $2.25) . . . . . . . . . $ 1,876,500 834,000
Private Placement (166,000 @ $2.25). . . . . . . . . . $ 373,500 166,000
- ------------------------------------------------------ --------------------- ---------
TOTAL WARRANTS . . . . . . . . . . . . . . . . . . . . $ 5,123,297 5,133,847
- ------------------------------------------------------ --------------------- ---------
Common Stock Underlying Stock Options
Common Stock issuable upon director compensation (to . 2,392,600
July 30, 1999). . . . . . . . . . . . . . . . . . . . 320,755
- ------------------------------------------------------ ---------------------
TOTAL (FULLY DILUTED). . . . . . . . . . . . . . . . . 26,436,402
- ------------------------------------------------------ ---------------------
4.2.7 Jaws's Financial Statements - JAWS Financial Statements have been
prepared in accordance with applicable law and with Generally Accepted
Accounting Principles consistently applied and present fairly the financial
position as at the dates indicated and the results of operation of JAWS for the
period indicated and no material adverse change in such financial position or
such results of operations has occurred since the date thereof.
4.2.8 No Undisclosed Liabilities - JAWS is not subject to any liability or
liabilities, absolute or contingent, which individually or in the aggregate are
material, and which are not disclosed, or which are in excess of the amounts
disclosed or reserved for in, the balance sheet of JAWS or which are not
otherwise disclosed in this Agreement, other than liabilities of the same nature
as those set forth in JAWS's Financial Statements or disclosed herein and
reasonably incurred in the usual and ordinary course of business to the Closing
Date, provided that the same do not materially and adversely affect the
financial position of JAWS.
4.2.9 Material Contracts - To the knowledge of JAWS after reasonably
enquiry, JAWS is not in default under any material contract, nor is JAWS aware
of any default by any other party under any material contract, and JAWS is not
aware of any facts or circumstances which would, with the giving of notice or
the lapse of time, give rise to a default by JAWS under a material contract.
4.2.10 Taxes - With respect to its taxes:
4.2.10.1 JAWS has, at the prescribed times:
(i) filed all tax returns required to be filed by it in all applicable
jurisdictions,
(ii) made and remitted all required or desirable deductions or withholdings
at source, and
(iii) paid all taxes, levies, assessments, reassessments, penalties, interest
and fines due and payable by it.
4.2.10.2 all such tax returns properly reflect, and do not in any
respect understate, the taxable income or the liability for taxes of JAWS in the
relevant tax year or calendar year;
Exhibit A - Page 13
4.2.10.3 adequate provision has been made in JAWS's Financial
Statements for all taxes, governmental charges, and assessments, whether
relating to income, sales, real or personal property, or other types of taxes,
governmental charges, or assessments, including interest and penalties thereon,
payable in respect of the business or assets of JAWS or otherwise, for all
relevant periods;
4.2.10.4 American federal and state income tax statements have been
issued to JAWS covering all past periods up to and including JAWS's fiscal year
ending in 1998, and such assessments, if any amounts were owing in respect
thereof, have been paid;
4.2.10.5 assessments for all other applicable taxes and levies have
been issued and any amounts owing thereunder have been paid;
4.2.10.6 there are no actions, suits or other proceedings or
investigations or claims in progress, pending or threatened against JAWS in
respect of any taxes, governmental charges, or assessments and, in particular,
there are no currently outstanding reassessments or written enquiries that have
been issued or raised by any governmental authority relating to any such taxes,
governmental charges and assessments;
4.2.10.7 to the knowledge of JAWS, there is no basis for any adverse
reassessment by any taxing authority for any year remaining open for
reassessment; and
4.2.10.8 JAWS have not waived any statutory period for assessment of
any tax.
Without limiting the generality of the foregoing, JAWS is in absolute compliance
with all registration, timely reporting, and remittance obligations in respect
of all tax legislation.
4.2.11 Accounts Receivable Collectible - All accounts receivable are bona
fide, good and collectable without set off or counterclaim and all such accounts
receivable shall be paid in a timely fashion.
4.2.12 Amounts In Trust - There are no amounts deposited in trust, for the
benefit of any third party with JAWS as at the date hereof.
4.2.13 Shareholder's Equity - The total shareholders equity in JAWS will, on
the Closing Date, be not less than that disclosed by JAWS's Financial
Statements.
4.2.14 No Material Adverse Change - There has been no material adverse
change in the business, assets, liabilities or financial condition of JAWS since
date of JAWS's Financial Statements.
4.2.15 Distributions to Shareholders - Since the date of JAWS' Financial
Statements, JAWS have not declared or made any payment of any dividend or other
distribution in respect of any shares in its capital or purchased or redeemed
any such shares or effected any sub-division, consolidation, reclassification or
other modification of its share capital which has not been approved in writing
by JAWS prior to the Closing Date.
4.2.16 Withholding Amounts - JAWS has withheld all amounts required to be
withheld, including without limiting the generality of the foregoing, all
amounts required to be withheld under the Income Tax Act (Canada), for
unemployment insurance and for the Canada Pension Plan and any other amounts
required by law to be withheld from any payments made to any of their officers,
directors and employees, and has paid the same to the proper taxing authority or
receiving offices all in connection with JAWS' Assets.
4.2.17 Corporate Records - the corporate records and minute books of JAWS
contain all minutes of the meetings of directors and shareholders of JAWS are
complete, accurate and up-to-date and the stock register of JAWS is complete and
accurate in all material respects.
4.2.18 Breach of Order - JAWS is not in, and has not received notice of any,
material default under any order, writ, injunction or decree of any court or
governmental agency or authority having jurisdiction, nor any agreement or
obligation by which JAWS is bound or to which it is subject and which materially
affects or relates to JAWS.
4.2.19 No Subsidiaries - JAWS does not have any interest (either directly or
indirectly) in any other entity, nor is it a party to or bound by any agreement
to acquire such an interest other than as disclosed to the Vendors except for
JAWS Technologies Inc. (Alberta) and JAWS Technologies (Ontario) Inc.
4.2.20 Guarantee and Indemnity Agreements - JAWS is not a party as guarantor
or indemnitor to any agreements of guarantee or indemnity for debts or
obligations.
4.2.21 Debt Instruments - On the Closing Date JAWS will not have any
outstanding bonds, debentures, mortgages, notes or other evidence of
indebtedness other than trade debts, trade accounts or similar obligations
entered into in the ordinary course of JAWS's business (to a maximum aggregate
amount of $1,000.00), and JAWS is not under any obligation to create or issue
any bonds, debentures, mortgages, notes or other indebtedness other than as
disclosed to the Vendors.
4.2.22 Incentive Payments - JAWS has not received any incentives, credits,
grants or other governmental assistance pursuant to the Regulations in effect at
the relevant time which will have to be repaid by JAWS, or if accrued in the
books and records of JAWS, will be disallowed.
4.2.23 Workers' Compensation - All payments due to The Workers' Compensation
Board (or similar body in any other jurisdiction) in respect of JAWS are
current.
4.2.24 Bank Accounts - All information with respect to the any and all
deposits of money with any bank, trust company, treasury branch or other entity
empowered or authorized to receive and hold deposits of money and includes any
and all deposit certificates or receipts or other instrument of like tenor, held
for or in the name of JAWS, have been provided to JAWS.
4.2.25 Defaults under Statutes - JAWS has not received any notices of any
breach of any statutes, regulations, rules, or orders.
4.2.26 Operating Records - The books and records of JAWS disclose all
material transactions entered into by JAWS or on its behalf to the Closing Date.
Exhibit A - Page 15
4.2.27 Deterrence - Except for information relating to general economic
climate and general industry conditions and any changes of law, JAWS has no
information or knowledge of any fact relating to JAWS's business or JAWS's
ownership and operation of JAWS's Assets not disclosed to the Vendors which, if
known to the Vendors, might reasonably be expected to deter the Vendors from
completing the transactions herein contemplated.
4.2.28 Title - JAWS and Jaws does not warrant title to JAWS' Assets.
4.2.29 Lawsuits - JAWS is not a party to any action, suit or other legal,
administrative or arbitration proceeding or government investigation, actual or
threatened, which might reasonably be expected to result in impairment or loss
of JAWS's interest in JAWS' Assets or any part thereof, and there is no
particular circumstance, matter or thing known to JAWS which could reasonably be
anticipated to give rise to any such action, suit or other legal, administrative
or arbitration proceeding or government investigation.
4.2.30 Financial Commitments - There are no financial commitments which are
outstanding or due, or that hereafter may become due in respect of JAWS or
JAWS's Assets, or operations in respect of JAWS's Assets and which shall become
the responsibility of JAWS that have not been disclosed by JAWS.
4.2.31 No Other Assets or Obligations - JAWS has no other assets,
obligations or liabilities, other than JAWS's Assets, and as disclosed in
Schedule "C" hereto.
ARTICLE 5.
VENDOR'S COVENANTS
ARTICLE 5. VENDOR'S COVENANTSSECTION 5.1 COVENANTS OF THE VENDOR5.1
COVENANTS OF THE VENDOR
Each Vendor hereby separately covenants to and with the Purchaser as follows.
5.1.1 Tax Returns and Other Records - The Vendor shall cause the Corporation
to deliver to the Purchaser any information, books, accounts, records, tax
returns or other data and information relating to the Corporation on or as soon
after the Closing Date as reasonably possible.
5.1.2 Filing Tax Information - The Vendor shall cause the Corporation to
complete and file on a timely basis all returns, forms and elections required to
be filed by the Corporation in respect of its taxation year ending immediately
before the Closing Date and shall cause the Corporation to pay any tax, interest
or penalties payable in respect thereof and the expenses of the preparation and
filing of same.
5.1.3 Securities Law Compliance Regarding Purchaser's Securities Received -
The Vendor acknowledges that the Purchaser's securities acquired hereunder may
be subject to resale restrictions under applicable securities legislation and
policies and hereby agrees that the Vendor will comply with all relevant
securities legislation and policies concerning any resale of such securities and
will consult with the Vendor's own legal advisors with respect to complying with
all applicable restrictions applying to any such resale.
5.1.4 Compliance for this Trade - If required by applicable securities
legislation, policy or order of any securities commission, stock exchange or
other regulatory authority, subject always to the conditions precedent contained
in section 10.2 hereof, the Vendor will execute, deliver, file and otherwise
assist the Purchaser in filing, such reports, undertakings and other documents
with respect to this transaction.
5.1.5 Compliance with Future Stock Exchange Requirements - Subject always to
the conditions precedent contained in section 10.2 hereof, the Vendor agrees
that if the Vendor is required by any stock exchange or securities commission to
give any undertakings, to file any personal information or to escrow all or any
of the JAWS' Common Shares received hereunder in order for the Purchaser or any
successor corporation to meet the requirements of such stock exchange or
securities commission in connection with any offering or listing of shares of
the Purchaser or successor corporation, the Vendor will give all such
undertakings, file such personal information and/or enter into such escrow as
shall be required for such purpose.
ARTICLE 6.
NO MERGER AND SURVIVAL
ARTICLE 6. NO MERGER AND SURVIVALSECTION 6.1 NON-MERGERSECTION 6.1
NON-MERGER
The covenants, representations and warranties set forth in Articles 4. and 5.
shall be deemed to apply to all assignments, conveyances, transfers and
documents conveying any of the Vendor's Rights from the Vendor to the Purchaser
and there shall not be any merger of any covenant, representation or warranty in
such assignments, transfers or documents notwithstanding any rule of law, equity
or statute to the contrary and all such rules are hereby waived.
SECTION 6.2 SURVIVALSECTION 6.2 SURVIVAL
The covenants, representations and warranties set forth in Articles 4. and 5.
shall survive the closing of the purchase and sale of the Vendor's Rights and,
notwithstanding such closing or any investigation made by or on behalf of the
Vendor or the Purchaser, shall continue in full force and effect for the benefit
of the other Party, provided, however, that:
6.2.1 the covenants, representations and warranties of the Vendor and JAWS,
except those relating to the tax liability of the Corporation and JAWS, as the
case may be, shall terminate at the expiry of one year following the Closing
Date;
6.2.2 those covenants, representations and warranties of the Vendor and JAWS
relating to the tax liability of the Corporation and JAWS, as the case may be,
shall, unless resulting from any misrepresentations made or fraud committed in
filing a return or supplying information for the purposes of any Regulations or
any other legislation imposing tax on the Corporation and JAWS, as the case may
be, terminate at the expiry of the last of the limitation periods contained in
the applicable Regulations or any other legislation imposing tax on the
Corporation subsequent to the expiry of which an assessment, reassessment, or
other form of recognized document assessing liability for any year ended or
deemed to have ended prior to the Closing Date cannot be issued to the
Corporation and JAWS, as the case may be; and
6.2.3 there shall be no limit on the covenants, representations and
warranties of the Vendor and JAWS relating to tax liability of the Corporation
and JAWS, as the case may be based upon any misrepresentations made or fraud
committed in filing a return or in supplying information for the purposes of any
Regulations or other legislation imposing tax on the Corporation and JAWS.
ARTICLE 7.
INDEMNITY
ARTICLE 7. INDEMNITYSECTION 7.1 INDEMNITYSECTION 7.1 INDEMNITY
The Vendors shall jointly and severally indemnify and save the Purchaser and the
Corporation, or both, harmless from and against any loss whatsoever arising out
of, under or pursuant to:
7.1.1 all claims, liabilities, contracts, undertakings and arrangements of
the Corporation, including, without limiting the generality of the foregoing,
any liabilities for federal, provincial, sales, excise, income, corporate and
any other taxes of the Corporation, existing at the Closing Date and not
disclosed in, provided for or included in the Corporation's Financial Statements
save and except those liabilities;
7.1.1.1 disclosed in this Agreement or any Schedule hereto, or
7.1.1.2 accruing or incurred in the ordinary course of business
subsequent to the date of the Corporation's Financial Statements and up to the
Closing Date; and
7.1.1.3 any and all reassessments for income tax, sales tax, excise tax
and any interest or penalty for any period ending on or before the Closing Date
for which no adequate reserve has been provided in the Corporation's Financial
Statements in respect of any matter arising prior to the Closing Date.
ARTICLE 8.
PRE-CLOSING MATTERS
ARTICLE 8. PRE-CLOSING MATTERSSECTION 8.1 COVENANTS OF THE
VENDORS8.1 COVENANTS OF THE VENDORS
During the period from the date hereof to the Closing Time:
8.1.1 each Vendor shall use its best efforts to cause all of the conditions
for the benefit of the Purchaser to be fulfilled at or before the Closing Time;
Exhibit A - Page 19
8.1.2 no Vendor shall submit or entertain any offers from any other Person
in respect of and shall not enter into discussions with any other Person
relating to a proposed disposition by the Vendors of any interest in the
Corporation or a disposition by the Corporation of the Corporation's Assets or
any part thereof; and
8.1.3 no Vendor shall permit, cause or acquiesce in the issuance of any
securities by the Corporation to any Person, except pursuant to the exercise of
existing rights described in section 5.1.6 hereof or as agreed to by the
parties.
SECTION 8.2 COVENANTS OF JAWS8.2 COVENANTS OF JAWS
During the period from the date hereof to the Closing Time:
8.2.1 JAWS shall use their best efforts to cause all of the conditions for
the benefit of the Vendors to be fulfilled at or before the Closing Time;
8.2.2 the Purchaser shall not submit or entertain any offers from any other
Person in respect of and shall not enter into discussions with any other Person
relating to a proposed disposition by the Purchaser of any interest in the
Purchaser or a disposition by the Purchaser of the Purchaser's Assets or any
part thereof; and
8.2.3 the Purchaser shall not permit, cause or acquiesce in the issuance of
any securities by the Purchaser to any Person, except pursuant to the exercise
of existing rights or as disclosed
SECTION 8.3 EXAMINATION AND INVESTIGATION BY PURCHASER8.3 EXAMINATION
AND INVESTIGATION BY PURCHASER
The Vendors shall permit or cause the Corporation to permit employees, advisors
and representatives of the Purchaser full and complete access to all facilities
and premises and all current and historical records and information of every
nature and kind within the Vendors' or the Corporation's possession or control
which relate to the acquisition, exploration, development, construction,
operation, maintenance, or ownership of any of the Corporation's Assets or the
conduct of its business or with respect to the incorporation, organization,
operations, or financial position of the Corporation or the acquisition or
ownership of the shares of the Corporation for the purposes of reviewing same
and such employees, advisors, and representatives shall be permitted to make
copies of such records and information as they may deem advisable. Each Vendor
shall use their best efforts to make available, or cause the Corporation to make
available, to the Purchaser any pertinent information that is possessed by
another Person or which is relevant to acquisition, exploration, development,
construction, operation, maintenance, and ownership of the Corporation's Assets
or the conduct of its business. The Purchaser and its employees, advisors, and
representatives shall be entitled to make copies of such information as they
reasonably consider necessary. the Vendors shall not require the return or
destruction of any information prior to the Closing Time.
SECTION 8.4 EXAMINATION AND INVESTIGATION BY VENDORS8.4 EXAMINATION AND
INVESTIGATION BY VENDORS
JAWS shall permit employees and advisors and representatives of the Vendors full
and complete access to all facilities and premises and all current and
historical records and information of every nature and kind within the
Purchaser's or JAWS' possession or control which relate to the acquisition or
ownership of any of the Purchaser's Assets or JAWS Shares or the conduct of
their business or with respect to the incorporation, organization, operations,
or financial position of the Purchaser or JAWS or the acquisition or ownership
of JAWS Shares for the purposes of reviewing same and such employees, advisors,
and representatives shall be permitted to make copies of such records and
information as they may deem advisable. JAWS shall use their best efforts to
make available to the Vendors any pertinent information that is possessed by
another Person or which is relevant to acquisition and ownership of the
Purchaser's Assets or JAWS Shares or the conduct of their business. The Vendors
and their employees, advisors, and representatives shall be entitled to make
copies of such information as they reasonably consider necessary. JAWS shall
not require the return or destruction of any information prior to the Closing
Time.
SECTION 8.5 CORPORATION'S FINANCIAL STATEMENTS8.5 CORPORATION'S
FINANCIAL STATEMENTS
To the extent not previously delivered, the Vendors shall cause the Corporation
as soon as practical, to deliver the Corporation's Financial Statements to the
Purchaser.
SECTION 8.6 JAWS' FINANCIAL STATEMENTS8.6 JAWS' FINANCIAL STATEMENTS
To the extent not previously delivered, the Purchaser shall deliver JAWS
Financial Statements to the Vendor.
ARTICLE 9.
NON-DISCLOSURE AND USE OF INFORMATION
ARTICLE 9. NON-DISCLOSURE AND USE OF INFORMATIONSECTION 9.1 USE OF
CORPORATION'S INFORMATIONSECTION 9.1 USE OF CORPORATION'S INFORMATION
Notwithstanding the obligations of the Vendors to provide information to the
Purchaser pursuant to Article 8 hereof:
9.1.1 the Vendors and the Corporation shall not be under any obligation to
give such access or furnish such information if to do so would cause the
Corporation to be in violation of any confidentiality agreement with any Person,
if such Person has refused to permit the release of such information to the
Purchaser following exercise by the Corporation of its best efforts to obtain
consent to such release when the exercise of such best efforts was requested by
the Purchaser;
9.1.2 any information provided to the Purchaser or any employee, advisor and
representative of the Purchaser hereunder which is not publicly disclosed, is
confidential or is proprietary in nature ("the Corporation's Information") shall
be kept confidential and shall not, without the prior written consent of the
Corporation, be disclosed by a recipient in any manner whatsoever, in whole or
in part, and shall not be used by the Purchaser or any such employee, advisor or
representative (other than in connection with this transaction) or following the
termination of this Agreement in the acquisition of any securities of the
Corporation or any of the Corporation's Assets in another transaction for a
period of one year following the termination of this Agreement. The
Corporation's Information shall be revealed only to employees, advisors and
representatives who need to know it for the purpose of implementing the
transaction who will be informed of the confidential nature of the Corporation's
Information and agree to act in accordance herewith;
9.1.3 the term the Corporation's Information shall not include information
which:
9.1.3.1 is or becomes generally available to the public other than as a
result of a disclosure by the Purchaser or any other recipient of the
Corporation's Information hereunder, or
9.1.3.2 is or becomes available to the Purchaser or any other recipient of
the Corporation's Information hereunder on a non-confidential basis from a
source other than the Corporation which is not prohibited from disclosing such
Corporation's Information to the Purchaser by a legal, contractual or fiduciary
obligation to the Corporation; and
9.1.4 in the event that the Purchaser or any other recipient of the
Corporation's Information hereunder becomes legally obliged to disclose any of
the Corporation's Information, the Purchaser shall provide the Corporation with
prompt notice of such obligation (and in any event not less than 24 hours prior
to the time that such the Corporation's Information is required to be disclosed)
so that the Corporation may seek a protective order or other appropriate remedy
and/or waive compliance with this Subsection. In the event that such protective
order or other remedy is not obtained, or that the Corporation waives compliance
with this Subsection, the Purchaser or any other recipient of the Corporation's
Information hereunder shall furnish only that portion of the Corporation's
Information which is legally required to be disclosed and exercise their best
efforts to obtain reliable assurance that confidential treatment will be
accorded the Corporation's Information.
SECTION 9.2 USE OF PURCHASER'S INFORMATIONSECTION 9.2 USE OF PURCHASER'S
INFORMATION
Notwithstanding the obligations of JAWS to provide information to the Vendors
pursuant to Article 8 hereof:
9.2.1 JAWS shall not be under any obligation to give such access or furnish
such information if to do so would cause JAWS to be in violation of any
confidentiality agreement with any Person, if such Person has refused to permit
the release of such information to the Purchaser following exercise by the
Purchaser of its best efforts to obtain consent to such release when the
exercise of such best efforts was requested by the Purchaser;
9.2.2 any information provided to the Vendors or the Corporation or any
employee, advisor and representative of the Vendors or the Corporation hereunder
which is not publicly disclosed, is confidential or is proprietary in nature
("the Purchaser's Information") shall be kept confidential and shall not,
without the prior written consent of the Purchaser, be disclosed by a recipient
in any manner whatsoever, in whole or in part, and shall not be used by the
Vendors or the Corporation or any such employee, advisor or representative
(other than in connection with this transaction) or following the termination of
this Agreement in the acquisition of any securities of the Purchaser or any of
the Purchaser's Assets in another transaction for a period of one year following
the termination of this Agreement. The Purchaser's Information shall be
revealed only to employees, advisors and representatives who need to know it for
the purpose of implementing the transaction who will be informed of the
confidential nature of the Purchaser's Information and agree to act in
accordance herewith;
Exhibit A - Page 19
9.2.3 the term the Purchaser's Information shall not include information
which:
9.2.3.1 is or becomes generally available to the public other than as a
result of a disclosure by the Vendors or the Corporation or any other recipient
of the Purchaser's Information hereunder, or
9.2.3.2 is or becomes available to the Vendors or the Corporation or any
other recipient of the Purchaser's Information hereunder on a non-confidential
basis from a source other than the Purchaser which is not prohibited from
disclosing such Purchaser's Information to the Vendors or the Corporation by a
legal, contractual or fiduciary obligation to the Purchaser; and
9.2.4 in the event that the Vendors or the Corporation or any other
recipient of the Purchaser's Information hereunder becomes legally obliged to
disclose any of the Purchaser's Information, the Vendors or the Corporation
shall provide the Purchaser with prompt notice of such obligation (and in any
event not less than 24 hours prior to the time that such the Purchaser's
Information is required to be disclosed) so that the Purchaser may seek a
protective order or other appropriate remedy and/or waive compliance with this
Subsection. In the event that such protective order or other remedy is not
obtained, or that the Purchaser waives compliance with this Subsection, the
Vendors, the Corporation or any other recipient of the Purchaser's Information
hereunder shall furnish only that portion of the Purchaser's Information which
is legally required to be disclosed and exercise their best efforts to obtain
reliable assurance that confidential treatment will be accorded the Purchaser's
Information.
SECTION 9.3 PRESS RELEASESSECTION 9.3 PRESS RELEASES
All press releases or other similar public written communications of any sort by
the JAWS, the Vendors or the Corporation relating to this transaction and this
Agreement and the method of release for publication thereof, will be subject to
the approval of the Purchaser and the Vendors. The Purchaser and the Vendors
will deal expeditiously with a request for approval of such a written
communication. The Vendors and the Purchaser will cooperate in relation to
other public communications with respect to their respective businesses or this
transaction with a view to achieving consistency in the content of such
communication and ensuring that such communications are consistent with this
Agreement.
ARTICLE 10.
CONDITIONS PRECEDENT TO THE PERFORMANCE UNDER THIS AGREEMENT
ARTICLE 10. CONDITIONS PRECEDENT TO THE PERFORMANCE UNDER THIS
AGREEMENTSECTION 10.1 PURCHASER'S CONDITIONS10.1 PURCHASER'S CONDITIONS
The obligation of the Purchaser to complete the purchase of the Vendor's Rights
shall be subject to the satisfaction of, or com-pliance with, at or before the
Closing Time, each of the following conditions (each of which is hereby
acknowledged to be inserted for the exclusive benefit of the Purchaser and may
be unilaterally waived by the Purchaser in whole or in part):
10.1.1 Truth and Accuracy of Representations - All of the
representations and warranties of the Vendors set forth in this Agreement shall
be true and correct as at the Closing Time with the same force and effect as
though made at the Closing Time except to the extent affected by the
transactions contemplated by this Agreement.
10.1.2 Satisfactory Due Diligence - All requests for information about
the Vendors and the Corporation shall have been responded to by the Vendors and
the Corporation to the satisfaction of the Purchaser in its sole discretion and
the Purchaser shall have received all documentation required to be delivered to
the Purchaser at or before the Closing Time in accordance with this Agreement.
10.1.3 Revenue - The Purchasers auditors shall have completed and
provided audited statements to the Purchaser in order to accurately calculate
the Purchase Price.
10.1.4 Compliance with Agreement - All of the terms, covenants,
agreements and conditions of this Agreement to be complied with or performed by
the Vendors at or before the Closing Time shall have been complied with or
performed.
10.1.5 Receipt of Closing Documentation - The Purchaser shall have
received all documentation required to be delivered to the Purchaser at or
before the Closing Time in accordance with this Agreement.
10.1.6 Approvals - All approvals relating to the consummation of
the transactions hereby contemplated shall have been obtained from the relevant
regulatory bodies;
10.1.7 Discharges - All liens, charges, encumbrances, security
interests and other claims, whatsoever, registered or made by any Person on or
against the Vendor's Rights shall have been discharged or provision therefor,
satisfactory to the Purchaser shall have been made at or before the Closing
Time.
10.1.8 Legal Formalities - All actions and proceedings and all
instruments and documents required to implement this Agreement or any other
agreements incidental thereto, and all other legal matters relating to the
purchase of the Vendor's Rights by the Purchaser shall have been approved as to
form and legality by counsel for the Purchaser.
10.1.9 Condition of Corporation's Financial Statements - The
Purchaser shall have received the Corporation's Financial Statements in
accordance with Section 8.5 and shall be satisfied with the financial condition
of the Corporation based on the contents of the Corporation's Financial
Statements.
10.1.10 No Restrictions - No action or proceeding, judicial (at law or
in equity) or extra-judicial, shall be pending or threatened by any Person to
enjoin, restrict or prohibit:
10.1.10.1 the purchase and sale of the Vendor's Rights
contemplated hereby or the subsequent use, benefit and enjoyment thereof; or
10.1.10.2 the right of the Corporation or the Purchaser from and after the
Closing Time to conduct, expand and develop the business of the Corporation.
Exhibit A - Page 23
10.1.11 Opinion of Counsel to Vendors - The Vendors shall have
delivered to the Purchaser and Purchaser's counsel a favourable opinion of
counsel to the Vendors as to:
10.1.11.1 the legal status, power and authority of the Vendors to execute
and perform the terms of this Agreement and any other agreement, document or
instrument required to be delivered by the Vendors hereunder;
10.1.11.2 the valid, binding and enforceable nature of all such agreements,
documents and instruments;
10.1.11.3 any other matters which, in the opinion of counsel for the
Purchaser, are material in connection with the transactions herein contemplated;
and
Provided that counsel for the Vendors, in rendering the opinions required in
this Section, may rely as to any factual matters on a certificate or
certificates provided to them by the Vendors, which certificate or certificates
shall be attached to such opinions and as to the laws of any jurisdiction other
than the Province of Alberta, may rely on opinions addressed to them from other
counsel satisfactory to counsel for the Vendors, and which opinions from other
counsel shall also be addressed to the Purchaser and to counsel for the
Purchaser.
10.1.12 No Change of Laws - After the date hereof and prior to the
Closing Time, there shall have been no change in the laws in force in any
jurisdiction in which any of the Corporation's business is carried on, or any of
the Corporation's Assets are located including, without limitation, amendment to
or repeal of existing statutes, regulations, rules or policies and enactment or
implementation of new statutes, regulations, rules or policies, nor the
occurrence of any general or specific event which, in the opinion of the
Purchaser, could materially adversely affect the Corporation's Assets, the
conduct of its business, or the transactions contemplated herein or the ability
of the Corporation to conduct, expand or develop its business or to own or
operate the Corporation's Assets after the Closing Time, and no such change
shall have been proposed.
10.1.13 Concurrent Closings - All of the conditions precedent to the
obligations of the Purchaser to complete the transactions herein contemplated or
contemplated in the other agreements contemplated or required hereby and
Schedules hereto shall have been fulfilled or satisfactorily performed in
accordance therewith including, without limitation, the delivery of all
documents required to be delivered thereunder.
10.1.14 No Change in Operations - Except as agreed to in writing by the
Purchaser, the Corporation shall not and the Vendors shall take such steps as
may be necessary to cause the Corporation not to:
10.1.14.1 acquire or agree to acquire any assets or acquire or agree to
acquire by amalgamating, merging or consolidating with, purchasing substantially
all of the assets of or otherwise, any business or any corporation, partnership,
association or other business organization or division thereof;
10.1.14.2 and will not agree to sell, lease or otherwise dispose of or
grant any option with respect to any of its assets;
10.1.14.3 guarantee the payment of indebtedness or incur indebtedness
for money borrowed or issue any debt securities; or
10.1.14.4 grant any director, any officer or any employee who has a
policy making function or who manages a principal business unit, any increase in
compensation or in severance or termination pay (whether or not such
compensation or pay is payable in cash), or enter into any employment agreement
with any such director, officer or employee, or hire or promote any Person.
10.1.15 No Damage - No destruction, material damage, appropriation,
expropriation or seizure of any of the Corporation's Assets or Vendor's Rights
or of all the Corporation's Assets shall have occurred.
10.1.16 Statutory Restrictions - There shall be no impediment,
prohibition or restriction existing and no offence would occur or result at the
Closing Time under any applicable statute or regulation to which the
transactions contemplated hereby would be subject, by the Closing of the
transactions contemplated hereby.
SECTION 10.2 VENDORS' CONDITIONSSECTION 10.2 VENDORS' CONDITIONS
The obligation of each Vendor to complete the sale of the Vendor's Rights shall
be subject to the satisfaction of, or compliance with, at or before the Closing
Time, each of the following conditions (each of which is hereby acknowledged to
be inserted for the exclusive benefit of each Vendor and may be unilaterally
waived by each Vendor in whole or in part):
10.2.1 Truth and Accuracy of Representations - All of the
representations and warranties of JAWS set forth in this Agreement shall be true
and correct as at the Closing Time with the same force and effect as though made
at the Closing Time.
10.2.2 Performance of Obligations - All of the terms, covenants,
agreements and conditions of this Agreement to be complied with or performed by
the Purchaserat or before the Closing Time shall have been complied with or
performed.
10.2.3 Employment Agreements - The Purchaser shall have delivered to
each of the Vendors, a satisfactory employment agreement and/or consulting
services agreement.
10.2.4 Taxation Provisions - The Vendors shall have received tax
advice, satisfactory to the Vendors and the Vendors counsel, providing a
mechanism whereby capital gains related to this transaction can be deferred
until such time as JAWS shares are tradable.
10.2.5 Opinion of Purchaser's Counsel - The Purchaser shall have
delivered to the Vendors and to counsel for the Vendors a favourable opinion of
the Purchaser's counsel and JAWS counsel as to:
10.2.5.1 the legal status, power and authority of JAWS to execute and
perform the terms of this Agreement and any other agreement, document or
instrument required to be delivered by JAWS hereunder;
10.2.5.2 the valid, binding and enforceable nature of all such
agreements, documents and instruments; and
10.2.5.3 as to any other matters which, in the opinion of counsel for
the Vendors, are material in connection with the transactions contemplated
hereby.
Provided that counsel for JAWS, in rendering the opinion required in this
Section, may rely as to any factual matters on the certificate or certificates
provided to them by the president, any vice-president or the secretary of the
Purchaser, as the case may be, which certificate or certificates shall be
attached to such opinion, and as to the laws of any jurisdiction other than the
Province of Alberta, may rely on opinions addressed to them from other counsel
satisfactory to counsel for the Purchaser or JAWS, as the case may be, and which
opinions from other counsel shall also be addressed to the Vendors and to
counsel for the Vendors.
SECTION 10.3 RIGHTS OF JAWS10.3 RIGHTS OF JAWS
If any of the conditions for the exclusive benefit of JAWS as set forth in
Section 10.1 shall not have been fulfilled at or prior to the Closing Time, JAWS
shall be entitled, by notice to the Vendors prior to the time of completion of
the Closing:
10.3.1 to terminate their obligations hereunder and this Agreement
effective as of the time of such notice; or
10.3.2 to proceed with the Closing as contemplated by Article 11.
If no such notice is given prior to the completion of the Closing, JAWS shall be
deemed to have elected to proceed with the Closing as contemplated by Article
11.
SECTION 10.4 RIGHTS OF THE VENDORS10.4 RIGHTS OF THE VENDORS
If any of the conditions for the exclusive benefit of the Vendors set forth in
Section 10.2 shall not have been fulfilled at or prior to the Closing Time, the
Vendors shall be entitled, by notice to the Purchaser and JAWS prior to the
time of completion of the Closing:
10.4.1 to terminate their obligations hereunder and this Agreement
effective as of the time of such notice; or
10.4.2 to proceed with the Closing as contemplated by Article 11.
If no such notice is given prior to the completion of the Closing, the Vendors
shall be deemed to have elected to proceed with the Closing as contemplated by
Article 11.
Exhibit A - Page 23
SECTION 10.5 RIGHTS OF TERMINATION10.5 RIGHTS OF TERMINATION
If this Agreement has been terminated pursuant to Section 10.3.1 or Section
10.4.1 hereof, all Parties to this Agreement shall be released from all their
obligations under this Agreement, save and except with respect to pay a break up
fee as set out in Section 2.2 of this Agreement.
ARTICLE 11.
CLOSING
ARTICLE 11. CLOSINGSECTION 11.1 PLACE OF CLOSING AND CLOSING
TIME11.1 PLACE OF CLOSING AND CLOSING TIME
The Closing shall take place at the Closing Time at the offices of Beard Winter
LLP, Barristers & Solicitors, or at such other place as may be agreed upon by
the Vendors and the Purchaser; Provided However, if the Parties are diligently
pursuing completion of the conditions precedent to Closing, the Parties hereby
agree that the Time for Closing shall be extended for such reasonable period as
shall be necessary to complete such matters.
SECTION 11.2 DELIVERIES BY VENDORS11.2 DELIVERIES BY VENDORS
At the Closing Time and at the place of the Closing, each Vendor shall:
11.2.1 deliver to the Purchaser certificates or other instruments
representing or evidencing the Vendor's Rights duly endorsed for transfer or
assignment to the Purchaser;
11.2.2 deliver to the Purchaser a certified copy of a resolution
of the directors of the Corporation consenting to the transfer of the Vendor's
Rights and authorizing the registration of such transfer on the appropriate
registers of the Corporation;
11.2.3 deliver to the Purchaser one or more certificates or other
instruments representing or evidencing the Vendor's Rights, registered in the
name of the Purchaser duly signed by the proper officers of the Corporation and
evidence satisfactory to the Purchaser that it is registered as the holder
thereof on the appropriate registers of the Corporation;
11.2.4 deliver to the Purchaser at the Closing Time the
resignations of all of the directors and officers of the Corporation effective
immediately upon the delivery thereof, together with a complete release and
discharge by such directors and officers of any and all claims against the
Corporation which may have arisen prior to the Closing Time;
11.2.5 deliver to the Purchaser a certificate signed by each
Vendor to the effect that the representations and warranties of the Vendor
herein contained are true and correct as at the Closing Time;
11.2.6 deliver to the Purchaser a letter from the Corporation's
auditors acknowledging that the Purchaser is relying upon such auditors' opinion
with respect to the audited Corporation's Financial Statements in connection
with the Purchaser's purchase of the Vendor's Rights;
11.2.7 the opinion of counsel to the Vendors referred to in
Section 10.1.11;
11.2.8 deliver to the Purchaser such other documents as the
Purchaser may reasonably request.
SECTION 11.3 DELIVERIES OF JAWS AT CLOSING11.3 DELIVERIES OF JAWS AT
CLOSING
At the Closing Time and at the Place of Closing, JAWS shall deliver to each
Vendor:
11.3.1 deliver to each Vendor one or more certificates or other
instruments representing or evidencing the Purchase Consideration herein payable
to each Vendor, in accordance with Section 3.1 hereof and subject to the
provisions in 3.2;
11.3.2 certified resolutions of JAWS authorizing the transactions
contemplated hereby;
11.3.3 the opinion of counsel to the Purchaser and the opinion of
counsel to JAWS referred to in Section 10.2.5;
11.3.4 a certificate signed by an officer of JAWS to the effect
that the representations and warranties of JAWS, herein contained are true and
correct as at the Closing Time;
11.3.5 deliver to the Vendors a letter from JAWS auditors
acknowledging that the Vendors are relying upon such auditors' opinion with
respect to the audited JAWS Financial Statements in connection with the Vendor's
sale of its Vendor's Rights; and
11.3.6 such other documents as Vendors may reasonably request.
SECTION 11.4 CLOSING ESCROW11.4 CLOSING ESCROW
All payments or documents delivered by any Person at the Closing Time shall be
deemed not to have been delivered until each of the Vendors and JAWS has
declared that it is satisfied with the form and substance of the payments or
documents to be delivered to such Person and all conditions to the delivery or
release of any payments or documents to be delivered at the Closing Time by
Parties other than the Vendors or the Purchaser shall have been satisfied.
ARTICLE 12.
MISCELLANEOUS
ARTICLE 12. MISCELLANEOUSSECTION 12.1 GOVERNING LAW AND
ATTORNMENTSECTION 12.1 GOVERNING LAW AND ATTORNMENT
This Agreement shall, in all respects, be subject to and be interpreted,
construed and enforced in accordance with the laws in effect within the Province
of Ontario. Each Party hereby expressly attorns to the jurisdiction of the
courts of the Province of Ontario and all courts of appeal therefrom.
Exhibit A - Page 25
SECTION 12.2 TIME OF THE ESSENCESECTION 12.2 TIME OF THE ESSENCE
Time shall in all respects be of the essence of this Agreement.
SECTION 12.3 NOTICESSECTION 12.3 NOTICES
The address for notices of each of the Parties shall be as follows:
JAWS TECHNOLOGIES, INC.
1013 17th Avenue S.W.,
Calgary, Alberta T2T OA7
Attention: Robert Kubbernus
Facsimile No.: (403) 508-5058
Telephone No.: (403) 508-5055
PETER LABRINOS, JAMES WANG, AIDEN O'BRIEN, JOSEPH IUSO,
JOSEPH T. LEE AND MAM LING WANG
C/O PACE SYSTEMS GROUP INC.
Suite 307
1 Concord Gate
Don Mills, Ontario, M3C 3N9
Attention: Peter Labrinos
Facsimile No.: (416) 444-4442
Telephone No.: (416) 444-9273
Each of the Parties may from time to time change their address for service
herein by giving written notice to the other Party. Any notice, required or
contemplated hereunder, may be served by personal service upon an officer or
director of a Party or by telecopy, facsimile transmission or mailing the same,
except during periods of actual or anticipated postal disruptions, by prepaid
registered post in a properly addressed envelope addressed to the Party at its
address for service hereunder, as the same may be amended from time to time in
accordance herewith. Any notice given by service upon an officer or director of
a Party shall be deemed to be given on the date of such service. Any notice
given by mail shall be deemed to be given to and received by the addressee on
the fifth Business Day after the mailing thereof. Any notice given by telecopy
or facsimile transmission shall be deemed to be given to and received by the
addressee on the next Business Day after the sending thereof.
SECTION 12.4 PRIOR AGREEMENTSSECTION 12.4 PRIOR AGREEMENTS
This Agreement shall supersede and replace any and all prior agreements between
the Parties relating to the sale and purchase of the Vendor's Rights and may be
amended only by written instrument signed by all Parties.
SECTION 12.5 FURTHER ASSURANCESSECTION 12.5 FURTHER ASSURANCES
Each Party hereto shall, from time to time, and at all times hereafter at the
request of any other Party hereto, but without further consideration, do all
such further acts and execute and deliver all such further instruments, notices,
releases and documents as shall be reasonably required in order to fully perform
and carry out the terms hereof.
This instrument states the entire agreement between the Parties.
SECTION 12.6 ENUREMENTSECTION 12.6 ENUREMENT
This Agreement shall be binding upon and shall enure to the benefit of and be
binding upon the Parties and their respective successors, receivers,
receiver-managers, trustees and permitted assigns, as the case may be.
IN WITNESS WHEREOF the Parties hereto have duly executed this Agreement as of
the date first above written.
JAWS TECHNOLOGIES, INC.
Per:___________________________ Per: _____________________________
Riaz Mamdani, . . . . . . . . . CFO Vikki, Robinson, Corporate Secretary
Authorized Signing Officer
_______________________________ __________________________________
Peter Labrinos. . . . . . . . . Witness
_______________________________ __________________________________
Vasiliki Labrinos . . . . . . . Witness
_______________________________ __________________________________
Panagiotis Labrinos . . . . . . Witness
_______________________________ __________________________________
James Wang. . . . . . . . . . . Witness
_______________________________ __________________________________
Cindy Wang. . . . . . . . . . . Witness
_______________________________ __________________________________
Aidan O'brien . . . . . . . . . Witness
_______________________________ __________________________________
Joseph Iuso . . . . . . . . . . Witness
_______________________________ __________________________________
Joseph T. Lee . . . . . . . . . Witness
_______________________________ __________________________________
Mam Ling Wang . . . . . . . . . Witness
Exhibit A - Page 27
SCHEDULE "A" TO THAT SHARE PURCHASE AGREEMENT DATED THE 3RD, DAY OF NOVEMBER,
1999, AMONG THE SHAREHOLDERS OF PACE SYSTEMS GROUP AND JAWS TECHNOLOGIES, INC.
AS PURCHASER
CORPORATION'S ASSETS
See Audited Financials dated July 31, 1999.
Exhibit A - Page 1
SCHEDULE "B" TO THAT SHARE PURCHASE AGREEMENT DATED THE 3RD, DAY OF NOVEMBER,
1999, AMONG THE SHAREHOLDERS OF PACE SYSTEMS GROUP AND JAWS TECHNOLOGIES, INC.
AS PURCHASER
CORPORATION'S FINANCIAL STATEMENTS
Exhibit A - Page 29
SCHEDULE "C" TO THAT SHARE PURCHASE AGREEMENT DATED THE 3RD, DAY OF NOVEMBER,
1999, AMONG THE SHAREHOLDERS OF PACE SYSTEMS GROUP AND JAWS TECHNOLOGIES, INC.
AS PURCHASER
JAWS Assets
See Audited Financials dated December 31, 1998 and Quarterly Financials dated
March 30, 1999, and June 30, 1999.
- ------
SCHEDULE "D" TO THAT SHARE PURCHASE AGREEMENT DATED THE 3RD, DAY OF NOVEMBER,
1999, AMONG THE SHAREHOLDERS OF PACE SYSTEMS GROUP AND JAWS TECHNOLOGIES, INC.
AS PURCHASER
JAWS Financial Statements
- -
form 8-k(4).doc
Exhibit B - Page 4
EXHIBIT B
AMENDING AGREEMENT
THIS AMENDING AGREEMENT dated the 3rd day of November, 1999 to be effective
as of the 15th day of October, 1999.
AMONG:
JAWS TECHNOLOGIES, INC., a corporation incorporated pursuant to the laws of the
State of Nevada (the "Purchaser")
- and -
THOSE PARTIES HERETO WHO ARE DEFINED AS AND WHO EXECUTE THIS AGREEMENT AS
VENDORS (herein collectively called the "Vendors" and individually a "Vendor")
- and -
PACE SYSTEMS GROUP, INC., a corporation incorporated under the laws of the
Province of Ontario ("Pace")
WHEREAS the parties are party to that share purchase agreement made the 3rd
day of November, 1999 to be effective the 15th day of October, 1999 between Jaws
Technologies, Inc. and the shareholders of Pace Systems Group, Inc. collectively
referred to as the Vendors (the "Share Purchase Agreement"); and
WHEREAS pursuant to the provisions of the Share Purchase Agreement and the
terms of the Amending Agreement, the parties to the Share Purchase Agreement
agree to permit a reorganization of the Articles of Incorporation of Pace and to
execute such further documents and agreements and give such further assurances
and undertake such further action as might be necessary to give effect hereto.
NOW THEREFORE the parties agree as follows:
- -
form 8-k(4).doc
ARTICLE 1
INTERPRETATION
ARTICLE 1.1 Capitalized terms shall, unless otherwise defined herein, be
given the same meaning as is ascribed to such terms in the Share Purchase
Agreement, the Support Agreement, the Exchangeable Share Provisions and the
Voting and Exchange Trust Agreement.
ARTICLE 1.2 The Share Purchase Agreement, as amended and supplemented by
the provisions of this Agreement, shall remain in full force and effect as if
the provisions thereof and hereof were contained in one agreement. To the
extent that there is any conflict between the terms of the Share Purchase
Agreement and the terms of this Agreement, this Agreement shall govern.
ARTICLE 1
IMPLEMENTING THE TRANSACTION
ARTICLE 1.1 The parties agree that the purchase and sale of the
Corporation's Shares shall be carried out in the following manner:
- -
form 8-k(4).doc
(a) Pace shall file Articles of Amendment creating Exchangeable Shares
having the terms and conditions set out in Schedule "A" hereto (the
"Exchangeable Shares");
(a) The Vendors shall exchange their respective interests in the
Corporation's Shares for such number of Exchangeable Shares equal to that number
of JAWS Shares that equals the Purchase Consideration as calculated in
accordance with Section 3.1 and 3.2.1 of the Share Purchase Agreement which
shares shall be issued in accordance with the Escrow Provisions agreed to by the
parties;
(a) Jaws shall subscribe for 100 common shares in the share capital of Pace
at a subscription price of $1 per share.
(a) The Purchaser shall create a special voting share (the "Special Voting
Share") having the terms and conditions set out in Schedule "B" hereto and shall
issue to and deposit with the Trustee such Special Voting Share in consideration
of the payment to the Purchaser of U.S. $1, to be held by the Trustee as trustee
for an on behalf of, and for the use and benefit of, the holders of the
Exchangeable Shares, in accordance with the Voting and Exchange Trust Agreement,
hereinafter defined;
(a) The Purchaser and Pace will execute and deliver the Support Agreement
attached hereto as Schedule "C" (the "Support Agreement");
(a) The Purchaser, Pace and the Trustee will execute and deliver the Voting
and Exchange Trust Agreement attached hereto as Schedule "D" (the "Voting and
Exchange Trust Agreement"); and
(a) The Purchaser shall reserve for issuance such number of shares of JAWS
Shares as shall be necessary for the issuance on exchange of the Exchangeable
Shares.
- -
form 8-k(4).doc
ARTICLE 3
CERTAIN RIGHTS OF THE PURCHASER
TO ACQUIRE EXCHANGEABLE SHARES
ARTICLE 3.1 (a) The Purchaser shall have the overriding right (the
"Liquidation Call Right"), in the event of and notwithstanding the proposed
liquidation, dissolution or winding-up of Pace pursuant to Article 5 of the
Exchangeable Share Provisions, to purchase from all but not less than all of the
holders (other than the Purchaser) of Exchangeable Shares on the Liquidation
Date all but not less than all of the Exchangeable shares held by each such
holder on payment by the Purchaser to the holder of the Exchangeable Share Price
applicable on the last Business Day prior to the Liquidation Date (the
"Liquidation Call Purchase Price"). In the event of the exercise of the
Liquidation Call Right by the Purchaser, each holder shall be obligated to sell
all the Exchangeable Shares held by the holder to the Purchaser on the
Liquidation Date on payment by the Purchaser to the holder of the Liquidation
Call Purchase Price for each such share.
Exhibit B - Page 3
(b) To exercise the Liquidation Call Right, the Purchaser or any of its
subsidiaries, must notify the Trustee and Pace in writing, of the Purchaser's or
its subsidiaries' intent to exercise such right at least 55 days before the
Liquidation Date in the case of a voluntary liquidation, dissolution or
winding-up of Pace and at least five Business Days before the Liquidation Date
in the case of an involuntary liquidation, dissolution or winding-up of Pace.
The Trustee will notify the holders of Exchangeable Shares as to whether or not
the Purchaser or any of its subsidiaries has exercised the Liquidation Call
Right forthwith after the expiry of the date by which the same may be exercised
by the Purchaser. If the Purchaser exercises the Liquidation Call Right on the
Liquidation Date the Purchaser will purchase and the holders will sell all of
the Exchangeable Shares then outstanding for a price per share equal to the
Liquidation Call Purchase Price.
(b) For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Liquidation Call Right, the Purchaser or its subsidiary shall
deposit with the Trustee, on or before the Liquidation Date, the Exchangeable
Share Consideration representing the total Liquidation Call Purchase Price.
Provided that such Exchangeable Share Consideration has been so deposited with
the Transfer Agent, on and after the Liquidation Date the rights of each holder
of Exchangeable Shares will be limited to receiving such holder's proportionate
part of the total Liquidation Call Purchase Price payable by the Purchaser or
one of its subsidiaries without interest upon presentation and surrender by the
holder of certificates representing the Exchangeable Shares held by such holder
and the holder shall on and after the Liquidation Date be considered and deemed
for all purposes to be the holder of the JAWS Shares delivered to such holder.
Upon surrender to the Transfer Agent of a certificate or certificates
representing Exchangeable Shares, together with such other documents and
instruments as may be required to effect a transfer of Exchangeable Shares under
applicable law and such additional documents and instruments as the Transfer
Agent may reasonably require, the holder of such surrendered certificate or
certificates shall be entitled to receive in exchange therefor, and the Transfer
Agent on behalf of the Purchaser or its subsidiary shall deliver to such holder,
the Exchangeable Share Consideration to which the holder is entitled. If the
Purchaser or one of its subsidiaries does not exercise the Liquidation Call
Right in the manner described above, on the Liquidation Date the holders of the
Exchangeable Shares will be entitled to receive in exchange therefor the
liquidation price otherwise payable by Pace in connection with the liquidation,
dissolution or winding-up of Pace pursuant to Article 5 of the Exchangeable
Share Provisions. Notwithstanding the foregoing, until such Exchangeable Share
Consideration is delivered to the holder, the holder shall be deemed to still be
a holder of Exchangeable Shares for purposes of all voting rights with respect
thereto under the Voting and Exchange Trust Agreement.
- -
form 8-k(4).doc
ARTICLE 4.2 (a) The Purchaser or any of its subsidiaries shall have
the overriding right (the "Redemption Call Right"), notwithstanding the proposed
redemption of the Exchangeable Shares by Pace pursuant to Article 7 of the
Exchangeable Share Provisions, to purchase from all but not less than all of the
holders (other than the Purchaser or any of its subsidiaries) of Exchangeable
Shares on the Automatic Redemption Date all but not less than all of the
Exchangeable Shares held by each such holder on payment by the Purchaser or any
of its subsidiaries to the holder the Exchangeable Share Price applicable on the
last Business Day prior to the Automatic Redemption Date (the "Redemption Call
Purchase Price"). In the event of the exercise of the Redemption Call Right by
the Purchaser or any of its subsidiaries, each holder shall be obligated to sell
all the Exchangeable Shares held by the holder to the Purchaser on the Automatic
Redemption Date on payment by the Purchaser or any of its subsidiaries to the
holder of the Redemption Call Purchase Price for each such share.
- -
form 8-k(4).doc
(b) To exercise the Redemption Call Right, the Purchaser or any of its
subsidiaries must notify the Transfer Agent and Pace in writing, as agent for
the holders of Exchangeable Shares, of the Purchaser's or any of its
subsidiaries' intention to exercise such right at least 60 days before the
Automatic Redemption Date. The Transfer Agent will notify the holders of the
Exchangeable Shares as to whether or not the Purchaser or any of its
subsidiaries has exercised the Redemption Call Right forthwith after the date by
which the same may be exercised by the Purchaser or any of its subsidiaries. If
the Purchaser of any of its subsidiaries exercises the Redemption Call Right on
the Automatic Redemption Date, the Purchaser or any of its subsidiaries will
purchase and the holders will sell all of the Exchangeable Shares then
outstanding for a price per share equal to the Redemption Call Purchase Price.
(b) For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Redemption Call Right, the Purchaser or any of its subsidiaries
shall deposit with the Transfer Agent, on or before the Automatic Redemption
Date, the Exchangeable Share Consideration representing the total Redemption
Call Purchase Price. Provided that such Exchangeable Share Consideration has
been so deposited with the Transfer Agent, on and after the Automatic Redemption
Date the rights of each holder of Exchangeable Shares will be limited to
receiving such holder's proportionate part of the total Redemption Call Purchase
Price payable by the Purchaser or any of its subsidiaries without interest upon
presentation and surrender by the holder of certificates representing the
Exchangeable Shares held by such holder and the holder shall on and after the
Automatic Redemption Date be considered and deemed for all purposes to be the
holder of the JAWS Shares delivered to such holder. Upon surrender to the
Transfer Agent of a certificate or certificates representing Exchangeable
Shares, together with such other documents and instruments as may be required to
effect a transfer of Exchangeable Shares under applicable law and such
additional documents and instruments as the Transfer Agent may reasonably
require, the holder of such surrendered certificate or certificates shall be
entitle to receive in exchange therefore, and the Transfer Agent on behalf of
the Purchaser or any of its subsidiaries shall deliver to such holder, the
Exchangeable Share Consideration to which the holder is entitled. If the
Purchaser or any of its subsidiaries does not exercise the Redemption Call Right
in the manner described above, on the Automatic Redemption Date the holders of
the Exchangeable Shares will be entitled to receive in exchange therefor the
redemption price otherwise payable by Pace in connection with the redemption of
the Exchangeable Shares pursuant to Article 7 of the Exchangeable Share
Provisions. Notwithstanding the foregoing, until such Exchangeable Share
Consideration is delivered to the holder, the holder shall be deemed to still be
a holder of Exchangeable Shares for purposes of all voting rights with respect
thereto under the Voting and Exchange Trust Agreement.
Exhibit B - Page 5
ARTICLE 4
ADDITIONAL COVENANTS OF PURCHASER AND VENDORS
ARTICLE 4.2 The Purchaser covenants and agrees with the Vendors that:
(a) it will place on the agenda for its next shareholders meeting the
creation of the Purchaser's Special Voting Share, recommend to its stockholders
the approval of such resolutions as may be necessary for the creation and
issuance of such share and issue such share to the Trustee immediately after
receipt of approval from the shareholders;
(a) it shall perform or cause the performance of all obligations under
the Share Purchase Agreement this Agreement and perform or cause the performance
of all obligations under the Support Agreement, the Voting and Exchange Trust
Agreement and issue JAWS Shares in exchange for the Exchangeable Shares in the
manner provided for in the Exchangeable Share Provisions, the Support Agreement
and the Voting and Exchange Trust Agreement;
(a) it will not permit an amendment to its Articles or that of Pace or
issue or create any additional shares in either without the prior written
consent of the Vendors, so long as any of the Exchangeable Shares are
outstanding.
ARTICLE 5.2 The Vendors covenant and agree with the Purchaser that the
Vendors will exercise their rights of retraction in respect of all of the
Exchangeable Shares outstanding when the number of Exchangeable Shares
outstanding is less than ten percent (10%) of the initial amount of Exchangeable
Shares issued.
[the remainder of this page left blank intentionally]
IN WITNESS WHEREOF the parties hereto have executed this Agreement on the
date first above written.
JAWS TECHNOLOGIES, INC.
Per: ____________________________
Per: ____________________________
______________________________ ________________________________
Witness PETER LABRINOS, or his nominee
______________________________ ________________________________
Witness JAMES WANG, or his nominee
______________________________ ________________________________
Witness AIDAN O'BRIEN, or his nominee
______________________________ ________________________________
Witness JOSEPH IUSO, or his nominee
______________________________ ________________________________
Witness JOSEPH T. LEE, or his nominee
______________________________ ________________________________
Witness MAM LING WANG, or his nominee
PACE SYSTEMS GROUP INC.
Per: ____________________________
Per: ____________________________
Exhibit C - Page 7
EXHIBIT C
THIS ESCROW AGREEMENT made this 3rd day of November, 1999.
AMONG:
JAWS TECHNOLOGIES, INC.,
-------------------------
a corporation incorporated under
the laws of the State of Nevada
(herein referred to as "JAWS")
OF THE FIRST PART
- and -
PACE SYSTEMS GROUP INC.,
--------------------------
a corporation incorporated under
the laws of the Province of Ontario
(herein referred to as "PACE")
OF THE SECOND PART
- and -
EACH OF THE HOLDERS OF THE
-------------------------------
EXCHANGEABLE SHARES OF PACE
- ------------------------------
SYSTEMS GROUP INC. AS SET OUT
- ----------------------------------
ON SCHEDULE "A" HERETO
- -------------------------
(herein collectively referred to as the "VENDORS")
OF THE THIRD PART
- and -
BEARD WINTER LLP,
------------------
a limited liability partnership constituted
under the laws of the Province of Ontario
(herein referred to as the "ESCROW AGENT")
OF THE FOURTH PART
WHEREAS by a Certificate of Amendment dated October 15, 1999, the
authorized capital of Pace was amended by the creation of an unlimited number of
exchangeable shares (the "Exchangeable Shares");
AND WHEREAS Jaws and the Vendors have entered into a Share Purchase
Agreement dated November 3, 1999, as amended (the "Share Purchase Agreement");
AND WHEREAS the Share Purchase Agreement provides that certain of the
Exchangeable Shares of Pace issued to the Vendors on November 3, 1999 are to be
held in escrow and released from escrow in accordance with the provisions of the
Share Purchase Agreement;
AND WHEREAS the Escrow Agent has agreed to undertake and perform its duties
according to the terms and conditions hereof;
NOW THEREFORE this Escrow Agreement witnesseth that in consideration of
mutual covenants herein contained and other good and valuable consideration, the
parties hereto agree one with the other as follows:
ARTICLE ONE - ESCROW
--------------------
1.01 ESCROW SHARES
--------------
On November 3, 1999, the parties hereto agree that such number of
exchangeable shares as specified beside each Vendor's name in Schedule "A"
hereto (collectively the "Escrow Shares") shall be placed and deposited into
escrow with the Escrow Agent which Escrow Shares shall be evidenced by Share
Certificates issued in the name of each Vendor as set forth in Schedule "B".
1.02 DEALING WITH ESCROW SHARES
-----------------------------
The parties hereby agree that the holding of the Escrow Shares by the
Escrow Agent and the release of the Escrow Shares by the Escrow Agent and the
respective duties and obligations of the parties shall be governed solely by the
provisions of this Escrow Agreement.
ARTICLE TWO - RELEASE FROM ESCROW
---------------------------------
2.01 CIRCUMSTANCES FOR RELEASE FROM ESCROW
-----------------------------------------
The Escrow Agent shall release such number of Escrow Shares pursuant to a
written direction from Pace, Jaws and Peter Labrinos, as the representative of
the holders of the Exchangeable Shares, who shall provide such direction in
accordance with the provisions of Article 3 of the Share Purchase Agreement.
2.02 TERMINATION OF ESCROW
-----------------------
This Escrow Agreement, and any rights and obligations attendant hereto or
devolving herefrom, shall terminate and have no further force or effect upon the
release by the Escrow Agent of all of the Escrow Shares in accordance with the
provisions hereof.
ARTICLE THREE - ESCROW AGENT
----------------------------
3.01 RIGHTS, DUTIES, LIABILITIES AND INDEMNITIES OF ESCROW AGENT
------------------------------------------------------------------
The acceptance by the Escrow Agent of its duties and obligations under this
Escrow Agreement is subject to the following terms and conditions, which shall
govern and control the rights, duties, liabilities and immunities of the Escrow
Agent;
(i) the Escrow Agent is not party to, nor is it bound by, any agreement
which may be evidenced by, or arises out of, this Escrow Agreement;
(ii) the Escrow Agent acts hereunder as depositary only and is not
responsible or liable in any manner whatsoever for the sufficiency, correctness,
genuineness or validity of any instrument deposited with it, or for the form or
execution of such instrument, or for the identity or authority or right of any
person or party executing or depositing it;
(iii) the Escrow Agent shall be protected in acting upon any written notice,
request, waiver, consent, receipt, or other paper or document signed or
apparently signed by the proper person, party or parties pursuant or relating to
the terms and conditions of this Escrow Agreement;
(iv) the Escrow Agent shall not be required to defend any legal proceedings
which may be instituted against it in respect of or arising out of anything
herein contained unless requested so to do by a party hereto and indemnified and
funded to its reasonable satisfaction against the cost and expense of such
defence; and
(v) the Escrow Agent shall not be liable for any error of judgment, or for
any act done or omitted by it in good faith, or for any mistake of fact or law,
or for anything which it may do or omit from doing in connection herewith,
except as may result or arise by virtue of its own wilful misconduct, or that of
its agents.
3.02 DEALING WITH ESCROW SHARES IN EVENT OF DISPUTE
-----------------------------------------------------
In the event the Escrow Agent receives written notice of any disagreement
between Jaws, Pace or a holder of the Escrow Shares resulting in demands or
adverse claims of any nature whatsoever being made in connection with the Escrow
Shares, the Escrow Agent shall refuse to comply with any demands or claims on it
as long as such disagreement shall continue and, in so refusing, the Escrow
Agent may make no delivery or other disposition of the Escrow Shares and, in so
doing, the Escrow Agent shall not be or become liable in any way or to any
person or party for its failure or refusal to comply with such conflicting
demands or adverse claims, and it shall be entitled to continue to refrain from
acting and to refuse to act until the Escrow Agent receives a written direction
from all of the parties to the dispute to release the Escrow Shares in a
designated manner.
3.03 INDEMNITY OF ESCROW AGENT
----------------------------
Each of the parties hereto jointly and severally agree to indemnity and
hold harmless the Escrow Agent for any claims, losses, damages, costs and
expenses, including fees, disbursements and out-of pocket expenses of any agent
or legal counsel, related to the execution of its obligations.
3.04 REPLACEMENT OF ESCROW AGENT
------------------------------
It is understood and agreed that the Escrow Agent may resign upon giving
written notice to all parties and the Escrow Agent shall be obliged to resign
upon receipt of a written notice requesting such resignation signed by each of
the other parties hereto. Such resignation shall take effect thirty (30) days
after such notice is given or such earlier time as each of the other parties
hereto agrees to, unless at or prior to such date a successor Escrow Agent shall
be appointed by each of the other parties hereto, in which case such resignation
shall take effect immediately upon the appointment of such successor Escrow
Agent.
3.05 ADVISORS TO THE ESCROW AGENT
--------------------------------
The Escrow Agent may retain such independent counsel or other advisors as
it may reasonably require for the purpose of discharging its duties hereunder,
and may or may not rely on the advice or opinion so obtained. The parties
hereto, other than the Escrow Agent, shall reimburse the Escrow Agent for any
reasonable fees, expenses or disbursements of such counsel or advisors in
accordance with Section 3.06.
3.06 FEES
----
Jaws and Pace jointly and severally agree to pay to the Escrow Agent
reasonable compensation for all of the services rendered under this Escrow
Agreement and will reimburse the Escrow Agent for all reasonable expenses
(including but not limited to taxes, compensation paid to experts, agents and
advisors and travel expenses) and disbursements including the cost and expense
of any suit or litigation of any character and any proceedings before any
governmental agency reasonably incurred by the Escrow Agent in connection with
its rights and duties under this Escrow Agent; provided that Jaws and Pace shall
have no obligation to reimburse the Escrow Agent for any expenses or
disbursements paid, incurred or suffered by the Escrow Agent in any suit or
litigation in which the Escrow Agent is determined to have acted in bad faith or
with negligence or wilful misconduct.
ARTICLE FOUR - GENERAL
----------------------
4.01 FURTHER ASSURANCES
-------------------
Each of the parties hereto shall from time to time execute and deliver all
such further documents and instruments and do all acts and things as any of the
other parties may reasonably require to effectively carry out or better evidence
or perfect the full intent and meaning of this Escrow Agreement.
4.02 TIME OF THE ESSENCE
----------------------
Time shall be of the essence of this Agreement.
4.03 BENEFIT OF THE AGREEMENT
---------------------------
This Agreement shall enure to the benefit of and be binding upon the
respective heirs, estate trustees, personal representatives, successors and
assigns of the parties hereto.
4.04 ENTIRE AGREEMENT
-----------------
This Escrow Agreement shall constitute the entire agreement between the
parties hereto with respect to the subject matter hereof and cancels and
supersedes any prior understandings and agreements between the parties hereto
with respect thereto. There are no representations, warranties, terms,
conditions, undertakings or collateral agreements, express, implied or
statutory, between the parties with respect to the subject matter hereof other
than as expressly set forth in this Escrow Agreement.
4.05 AMENDMENTS AND WAIVER
-----------------------
No modification of or amendment to this Escrow Agreement shall be valid or
binding unless set forth in writing and duly executed by all of the parties
hereto whose rights are affected by amendment and no waiver of any breach of any
term or provision of this Escrow Agreement shall be effective or binding unless
made in writing and signed by the party purporting to give the same and, unless
otherwise provided, shall be limited to the specific breach waived.
4.06 ASSIGNMENT
----------
This Escrow Agreement may not be assigned by any party hereto without the
written consent of the other parties hereto.
4.07 NOTICE
------
Any demand, notice, statutory declaration, direction or other communication
to be given in connection with this Agreement shall be given in writing
simultaneously to all of the parties hereto and shall be given by personal
delivery, registered mail, or by telecopier addressed to the recipients as
follows:
(a) In the case of Jaws: Jaws Technologies, Inc.
1013 17th Avenue S.W.
Calgary, Alberta
T2T 0A7
Telecopier: (403) 508-5058
(b) In the case of Pace: Pace Systems Group Inc.
1 Concorde Gate
Suite 307
Don Mills, Ontario
M3C 3N6
Telecopier: (416) 444-9273
(c) In the case of the Vendors: c/o Peter Labrinos
Pace Systems Group Inc.
1 Concorde Gate
Suite 307
Don Mills, Ontario
M3C 3N6
Telecopier: (416) 444-9273
(d) In the case of the Escrow Agent: Beard Winter LLP
Barristers and Solicitors
Suite 900
150 King Street West
Toronto, Ontario
M5H 2K4
Telecopier: (416) 593-7760
or to other such address, individual, or electronic communication number as may
be designated by notice given by any part to the other parties. Any demand,
notice or other communication given by personal delivery shall be conclusively
deemed to have been given on the day of actual delivery thereof and, if given by
registered mail, on the third business day following the deposit thereof in the
mail and, if given by electronic communication, on the day of transmittal
thereof if given during the normal business hours of the recipient and on the
business day during which such normal business hours next occur if not given
during such hours on any day. If the party giving any demand, notice or other
communication knows or ought reasonably to know of any difficulties with the
postal system which might affect the delivery of mail, any such demand, notice
or other communication shall not be mailed but shall be given by personal
delivery or by electronic communication.
4.08 GOVERNING LAW
--------------
This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the laws of Canada applicable therein.
IN WITNESS WHEREOF the parties have executed this Agreement.
SIGNED, SEALED AND DELIVERED )
IN THE PRESENCE OF )
) _________________________________
) PETER LABRINOS
)
) _________________________________
) VASILIKI LABRINOS
)
) _________________________________
) PANAGIOTIS LABRINOS
)
) _________________________________
) JAMES WANG
)
) _________________________________
) CINDY WANG
)
) _________________________________
) AIDAN O'BRIEN
)
) _________________________________
) JOSEPH IUSO
)
) _________________________________
) JOSEPH T. LEE
)
) _________________________________
) MAM LING WANG
JAWS TECHNOLOGIES INC.
Per:
_________________________________
Name:
Title:
PACE SYSTEMS GROUP INC.
Per:
_________________________________
Name:
Title:
BEARD, WINTER
Per:
_________________________________
Name: Julian L. Doyle
Title: Partner
SCHEDULE "A"
ESCROW SHARES
NAME OF SHAREHOLDER TOTAL NUMBER OF EXCHANGEABLE
SHARES HELD IN ESCROW
Peter Labrinos. . . 375,040
- ------------------- -------
Vasiliki Labrinos . 250,000
- ------------------- -------
Panagiotis Labrinos 150,000
- ------------------- -------
James Wang. . . . . 475,040
- ------------------- -------
Cindy Wang. . . . . 300,000
- ------------------- -------
Aidan O'Brien . . . 64,947
- ------------------- -------
Joeseph Iuso. . . . 64,947
- ------------------- -------
Joseph T. Lee . . . 25,979
- ------------------- -------
Mam Ling Wang . . . 25,979
- ------------------- -------
Exhibit C - Page 8
SCHEDULE "B"
ESCROW SHARE CERTIFICATES
NAME OF SHAREHOLDER NUMBER OF EXCHANGEABLE SHARES TO BE RELEASED
# OF SHARES TO BE # OF SHARES TO # OF SHARES TO # OF SHARES TO
RELEASED 6 BE RELEASED 12 BE RELEASED 18 BE RELEASED 24
MONTHS AFTER MONTHS AFTER MONTHS AFTER MONTHS AFTER
THE CLOSING THE CLOSING THE CLOSING THE CLOSING
VENDOR DATE DATE DATE DATE TOTAL
- ------------------- ----------- ----------- ----------- ----------- -------
Peter Labrinos. . . 75,008 75,008 75,008 75,008 75,008
- ------------------- ----------- ----------- ----------- ----------- -------
Vasiliki Labrinos . 50,000 50,000 50,000 50,000 250,000
- ------------------- ----------- ----------- ----------- ----------- -------
Panagiotis Labrinos 30,000 30,000 30,000 30,000 150,000
- ------------------- ----------- ----------- ----------- ----------- -------
Jim Wang. . . . . . 95,008 95,008 95,008 95,008 475,040
- ------------------- ----------- ----------- ----------- ----------- -------
Cindy Wang. . . . . 60,000 60,000 60,000 60,000 300,000
- ------------------- ----------- ----------- ----------- ----------- -------
Aidan O'Brien . . . 12,989 12,989 12,989 12,989 64,946
- ------------------- ----------- ----------- ----------- ----------- -------
Joseph Isuso. . . . 12,989 12,989 12,989 12,989 64,946
- ------------------- ----------- ----------- ----------- ----------- -------
Joseph T. Lee . . . 5,196 5,196 5,196 5,196 25,980
- ------------------- ----------- ----------- ----------- ----------- -------
Mam Ling Wang . . . 5,196 5,196 5,196 5,196 25,980
- ------------------- ----------- ----------- ----------- ----------- -------
Exhibit D - Page 7
Exhibit D - Page 1
EXHIBIT D
MEMORANDUM OF AGREEMENT dated the 3rd day of November.
BETWEEN:
JAWS TECHNOLOGIES INC., A CORPORATION INCORPORATED UNDER THE LAWS OF THE STATE
OF NEVADA (HEREINAFTER REFERRED TO AS "JAWS")
- and -
PACE SYSTEMS GROUP INC., A CORPORATION INCORPORATED UNDER THE LAWS OF THE
PROVINCE OF ALBERTA AND HAVING ITS HEAD AND PRINCIPAL OFFICE AT CALGARY, ALBERTA
(HEREINAFTER REFERRED TO AS "PACE")
SUPPORT AGREEMENT
-----------------
WHEREAS pursuant to the provisions of a Share Purchase Agreement dated the
3rd day of November, 1999 among Jaws and all of the shareholders of Pace, and
any amendments thereto (hereinafter referred to as the "Share Purchase
Agreement") the parties agreed that Jaws and Pace would deliver this Support
Agreement; and
WHEREAS Pace has amended its Articles of Incorporation creating an infinite
number of Exchangeable Shares having the attributes as set out in the Articles
of Amendment of Pace attached hereto as Schedule "A" (the "Exchangeable
Shares"); and
WHEREAS pursuant to the Share Purchase Agreement the parties agreed to
exchange all the common shares of Pace (the "Purchased Shares") for 1,731,932
Exchangeable Shares or such number as shall be determined pursuant to the terms
of the Share Purchase Agreement;
WHEREAS the Exchangeable Shares shall be issued to the shareholders of Pace
in accordance with the terms of Section 3.1 and 3.2.1 of the Share Purchase
Agreement and the terms of the Escrow Agreement as executed between the parties;
and
WHEREAS the parties hereto wish to provide for and establish a procedure
whereby Jaws will take certain actions and make certain payments and deliveries
necessary to ensure that Pace will be able to make certain payments and to
deliver or cause to be delivered shares of Jaws Common Stock in satisfaction of
the obligations of Pace under the Exchangeable Share provisions with respect to
the payment and satisfaction of dividends, Liquidation Amounts, Retraction
Prices and Redemption Prices, all in accordance with the Exchangeable Share
Provisions;
NOW THEREFORE in consideration of the respective covenants and agreements
provided in this Agreement and for other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties agree as
follows:
Definitions
Interpretation
Defined Terms. Each term denoted herein by initial capital letters and not
otherwise defined herein shall have the meaning attributed thereto in the
Exchangeable Share Provisions, unless the context requires otherwise.
Interpretation Not Affected by Headings, etc. The division of this
Agreement into articles, sections and paragraphs and the insertion of headings
are for convenience of reference only and shall not affect the construction or
interpretation of this Agreement.
Number, Gender, etc. Words importing the singular number only shall include
the plural and vice versa. Words importing the use of any gender shall include
all genders.
Date for any Action. If any date on which any action is required to be
taken under this Agreement is not a Business Day, such action shall be required
to be taken on the next succeeding Business Day.
Implementing the Transaction
2.1 The parties agree that the Effective Date for all agreements shall
November 3rd , 1999 and that the Exchangeable Shares shall be issued by Pace to
the shareholders of Pace in accordance with the terms and conditions of the
Share Purchase Agreement as more particularly set forth in Section 3.1 and 3.2.1
of the said Agreement and the terms of the Escrow Agreement as executed between
the parties.
2.2 The parties agree that the purchase and sale of the Purchased Shares
shall be carried out in the following manner:
Pace shall file Articles of Amendment creating exchangeable shares having
the terms and conditions set out in Schedule "A" hereto (the "Exchangeable
Shares");
Jaws shall create a Special Voting Preferred Share (the "Voting Share")
having the terms and conditions set out in Schedule "B" hereto and shall issue
to and deposit with the Trustee such Voting Share, in consideration of the
payment to Jaws of U.S. $1, to be held by the Trustee as trustee for and on
behalf of, and for the use and benefit of, the holders of the Exchangeable
Shares, in accordance with the Voting and Exchange Trust Agreement, hereinafter
defined;
The shareholders of Pace shall exchange their common shares of Pace for
such number of Exchangeable Shares equal in number to that number of JAWS shares
as set out in Section 3.1 of the Share Purchase Agreement;
Jaws shall subscribe for 100 common shares in the share capital of Pace at
a subscription price of $1 per share.
Jaws, Pace and the Trustee will execute and deliver the Voting and Exchange
Trust Agreement attached hereto as Schedule "C" (the "Voting and Exchange Trust
Agreement"); and
Jaws shall reserve for issuance such number of shares of Common Stock as
shall be necessary for the issuance on exchange of the Exchangeable Shares.
COVENANTS OF JAWS AND PACE
Covenants of Jaws Regarding Exchangeable Shares. Jaws covenants and agrees that
so long as any Exchangeable Shares are outstanding, it will:
not declare or pay any dividend on Jaws Common Stock unless (A) Pace will
have sufficient assets, funds and other property available to enable the due
declaration and the due and punctual payment in accordance with applicable law
of an equivalent dividend on the Exchangeable Shares and (B) shall
simultaneously declare or pay, as the case may be, an equivalent dividend on the
Exchangeable Shares, in each case in accordance with the Exchangeable Share
Provisions;
advise Pace sufficiently in advance of the declaration by Jaws of any
dividend on Jaws Common Stock and take all such other actions as are necessary,
in cooperation with Jaws, to ensure that the respective declaration date, record
date and payment date for a dividend on the Exchangeable Shares shall be the
same as the record date, declaration date and payment date for the corresponding
dividend on Jaws Common Stock;
ensure that the record date for any dividend declared on Jaws Common Stock
is not less than 10 calendar days after the declaration date for such dividend;
take all such actions and do all such things as are necessary or desirable
to enable and permit Pace, in accordance with applicable law, to pay and
otherwise perform its obligations with respect to the satisfaction of the
Liquidation Amount in respect of each issued and outstanding Exchangeable Share
upon the liquidation, dissolution or winding-up of Pace, including without
limitation all such actions and all such things as are necessary or desirable to
enable and permit Pace to cause to be delivered shares of Jaws Common Stock to
the holders of Exchangeable Shares in accordance with the provisions of Article
5 of the Exchangeable Share Provisions;
take all such actions and do all such things as are necessary or desirable
to enable and permit Pace, in accordance with applicable law, to pay and
otherwise perform its obligations with respect to the satisfaction of the
Retraction Price and the Redemption Price, including without limitation all such
actions and all such things as are necessary or desirable to enable and permit
Pace to cause to be delivered shares of Jaws Common Stock to the holders of
Exchangeable Shares, upon the retraction or redemption of the Exchangeable
Shares in accordance with the provisions of Article 6 or Article 7 of the
Exchangeable Share Provisions, as the case may be; and
not exercise its vote as a direct or indirect shareholder to initiate the
voluntary liquidation, dissolution or winding-up of Pace nor take any action or
omit to take any action that is designed to result in the liquidation,
dissolution or winding-up of Pace.
Reservation of Shares of Jaws Common Stock. Jaws hereby represents, warrants
and covenants that it has irrevocably reserved for issuance and will at all
times keep available, free from preemptive and other rights, out of its
authorized and unissued capital stock such number of shares of Jaws Common Stock
(or other shares or securities into which Jaws Common Stock may be reclassified
or changed as contemplated by Section 2(e) hereof) (i) as is equal to the sum of
(A) the number of Exchangeab1e Shares issued and outstanding from time to time
and (B) the number of Exchangeable Shares issuable upon the exercise of all
rights to acquire Exchangeable Shares outstanding from time to time and (ii) as
are now and may hereafter be required to enable and permit Jaws to meet its
obligations hereunder, under the Voting and Exchange Trust Agreement, under the
Exchangeable Share Provisions and under any other security or commitment
pursuant to the Share Purchase Agreement with respect to which Jaws may now or
hereafter be required to issue shares of Jaws Common Stock.
Notification of Certain Events. In order to assist Jaws to comply with its
obligations hereunder, Pace covenants and agrees to give Jaws notice of each of
the following events at the time set forth below:
in the event of any determination by the Board of Directors of Pace to
institute voluntary liquidation, dissolution or winding-up proceedings with
respect to Pace or to effect any other distribution of the assets of Pace among
its shareholders for the purpose of winding-up its affairs, at least 60 days
prior to the proposed effective date of such liquidation, dissolution,
winding-up or other distribution;
immediately, upon the earlier of (A) receipt by Pace of notice of, or (B)
Pace otherwise becoming aware of, any threatened or instituted claim, suit,
petition or other proceedings with respect to the involuntary liquidation,
dissolution or winding-up of Pace or to effect any other distribution of the
assets of Pace among its shareholders for the purpose of winding-up its affairs;
immediately, upon receipt by Pace of a Retraction Request (as defined in
the Exchangeable Share Provisions); and,
as soon as practicable upon the issuance by Pace of any Exchangeable Shares
or rights to acquire Exchangeable Shares.
Delivery of Shares of Jaws Common Stock. In furtherance of its obligations
hereunder, upon notice of any event which requires Jaws to cause to be delivered
shares of Jaws Common Stock to any holder of Exchangeable Shares, Jaws shall and
covenants and agrees to forthwith issue and deliver the requisite shares of Jaws
Common Stock to or to the order of the former holder of the surrendered
Exchangeable Shares, as Jaws shall direct. All such shares of Jaws Common Stock
shall be duly issued as fully paid and non-assessable and shall be free and
clear of any lien, claim, encumbrance, security interest or adverse claim.
Equivalence. Jaws covenants and agrees that it will not without the prior
approval of Pace and the prior approval of the holders of the Exchangeable
Shares given in accordance with Section 9.2 of the Exchangeable Share
Provisions:
issue or distribute shares of Jaws Common Stock (or securities exchangeable
for or convertible into or carrying rights to acquire shares of Jaws Common
Stock) to the holders of all or substantially all of the then outstanding Jaws
Common Stock by way of stock dividend or other distribution; or
issue or distribute rights, options or warrants to the holders of all or
substantially all of the then outstanding shares of Jaws Common Stock entitling
them to subscribe for or to purchase shares of Jaws Common Stock (or securities
exchangeable for or convertible into or carrying rights to acquire shares of
Jaws Common Stock); or
unless
Jaws is permitted under applicable law to issue or distribute the economic
equivalent on a per share basis of such rights, options, securities, shares,
evidences of indebtedness or other assets to holders of the Exchangeable Shares;
and
Jaws shall issue or distribute the economic equivalent on a per share basis
of such rights, options, securities, shares, evidences of indebtedness or other
assets simultaneously to holders of the Exchangeable Shares.
Jaws will not without the prior approval of Pace and the prior approval of the
holders of the Exchangeable Shares given in accordance with Section 9.2 of the
Exchangeable Share Provisions:
subdivide, divide or change the then outstanding shares of Jaws Common
Stock into a greater number of shares of Jaws Common Stock; or
reduce, combine or consolidate or change the then outstanding shares of
Jaws Common Stock into a lesser number of shares of Jaws Common Stock; or
reclassify or otherwise change the shares of Jaws Common Stock or effect an
amalgamation, merger, reorganization or other transaction affecting the shares
of Jaws Common Stock;
unless
Jaws is permitted under applicable law to simultaneously make the same or
an equivalent change to, or in the rights of holders of, the Exchangeable
Shares; and
the same or an equivalent change is made to, or in the rights of the
holders of, the Exchangeable Shares.
Jaws will ensure that the record date for any event referred to in section 3.5
or 3.6 above, or (if no record date is applicable for such event) the effective
date for any such event, is not less than 10 calendar days after the date on
which such event is declared or announced by Jaws (with simultaneous notice
thereof to be given by Jaws to Pace).
Tender Offers, etc. In the event that a tender offer, share exchange offer,
issuer bid, take-over bid or similar transaction with respect to Jaws Common
Stock (an "Offer") is proposed by Jaws or is proposed to Jaws or its
shareholders and is recommended by the Board of Directors of Jaws, or is
otherwise effected or to be effected with the consent or approval of the Board
of Directors of Jaws, Jaws shall take all such actions and do all such things as
are necessary or desirable to enable and permit holders of Exchangeable Shares
to participate in such Offer to the same extent and on an equivalent basis as
the holders of shares of Jaws Common Stock, without discrimination, including,
without limiting the generality of the foregoing, Jaws will use its good faith
efforts expeditiously to (and shall, in the case of a transaction proposed by
Jaws or where Jaws is a participant in the negotiation thereof) ensure that
holders of Exchangeable Shares may participate in all such Offers without being
required to retract Exchangeable Shares as against Jaws (or, if so required, to
ensure that any such retraction shall be effective only upon, and shall be
conditional upon, the closing of the Offer and only to the extent necessary to
tender or deposit to the Offer).
Ownership of Outstanding Shares. Without the prior approval of Pace and the
prior approval of the holders of the Exchangeable Shares given in accordance
with Section 9.2 of the Exchangeable Share Provisions, Jaws covenants and agrees
in favour of Pace that, as long as any outstanding Exchangeable Shares are owned
by any person or entity other than Jaws or any of its Subsidiaries, Jaws will be
and remain the direct or indirect beneficial owner of all issued and outstanding
shares in the capital of Pace and all outstanding securities of Pace carrying or
otherwise entitled to voting rights in any circumstances, in each case other
than the Exchangeable Shares.
Jaws Not to Vote Exchangeable Shares. Jaws covenants and agrees that it will
appoint and cause to be appointed proxy holders with respect to all Exchangeable
Shares held by Jaws and its Subsidiaries for the sole purpose of attending each
meeting of holders of Exchangeable Shares in order to be counted as part of the
quorum for each such meeting. Jaws further covenants and agrees that it will
not, and will cause its Subsidiaries not to, exercise any voting rights which
may be exercisable by holders of Exchangeable Shares from time to time pursuant
to the Exchangeable Share Provisions or pursuant to the provisions of any
corporate statute by which Jaws may be governed with respect to any Exchangeable
Shares held by it or by its Subsidiaries in respect of any matter considered at
any meeting of holders of Exchangeable Shares.
Due Performance. On and after the Effective Date, Jaws shall duly and timely
perform all of its obligations provided for under the Share Purchase Agreement,
this agreement and all of the agreements to which it is a party in connection
with the transactions contemplated under the Share Purchase Agreement including
any obligations that may arise upon the exercise of Pace rights under the
Exchangeable Share Provisions.
General
Term. This Agreement shall come into force and be effective as of the date
hereof and shall terminate and be of no further force and effect at such time as
no Exchangeable Shares (or securities or rights convertible into or exchangeable
for or carrying rights to acquire securities Exchangeable Shares) are held by
any party other than Jaws and any of its Subsidiaries.
Changes in Capital of Jaws and Pace. Notwithstanding the provisions of Section
4.4 hereof, at all times after the occurrence of any event effected pursuant to
Section 3.5 or 3.8 hereof, as a result of which either Jaws Common Stock or the
Exchangeable Shares or both are in any way changed, this Agreement shall
forthwith be amended and modified as necessary in order that it shall apply with
full force and effect, mutatis mutandis, to all new securities into which Jaws
Common Stock or the Exchangeable Shares or both are so changed and the parties
hereto shall execute and deliver an agreement in writing giving effect to and
evidencing such necessary amendments and modifications.
Severability. If any provision of this Agreement is held to be invalid, illegal
or unenforceable, the validity, legality or enforceability of the remainder of
this Agreement shall not in any way be affected or impaired thereby and this
Agreement shall be carried out as nearly as possible in accordance with its
original terms and conditions.
Amendments, Modifications, etc. This Agreement may not be amended or modified
except by an agreement in writing executed by Jaws and Pace and approved by the
holders of the Exchangeable Shares in accordance with Section 9.2 of the
Exchangeable Share Provisions.
Ministerial Amendments. Notwithstanding the provisions of section 3(d), the
parties to this Agreement may in writing, at any time and from time to time,
without the approval of the holders of the Exchangeable Shares, amend or modify
this Agreement for the purposes of:
adding to the covenants of either or both parties for the protection of the
holders of the Exchangeable Shares;
making such amendments or modifications not inconsistent with this
Agreement as may be necessary or desirable with respect to matters or questions
which, in the opinion of the board of directors of each of Jaws and Pace, it may
be expedient to make, provided that each such board of directors shall be of the
opinion that such amendments or modifications will not be prejudicial to the
interests of the holders of the Exchangeable Shares; or
making such changes or corrections which, on the advice of counsel to Jaws
and Pace, are required for the purpose of curing or correcting any ambiguity or
defect or inconsistent provision or clerical omission or mistake or manifest
error, provided that the board of directors of each of Jaws and Pace shall be of
the opinion that such changes or corrections will not be prejudicial to the
interests of the holders of the Exchangeable Shares.
Meeting to Consider Amendments. Pace, at the request of Jaws, shall call a
meeting or meetings of the holders of the Exchangeable Shares for the purpose of
considering any proposed amendment or modification requiring approval of such
shareholders. Any such meeting or meetings shall be called and held in
accordance with the by-laws of Pace, the Exchangeable Share Provisions and all
applicable laws.
Amendments Only in Writing. No amendment to or modification or waiver of any of
the provisions of this Agreement otherwise permitted hereunder shall be
effective unless made in writing and signed by both of the parties hereto.
Inurement. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and the holders, from time to time, of Exchangeable Shares and
each of their respective heirs, successors and assigns.
Notices to Parties. All notices and other communications between the parties
shall be in writing and shall be deemed to have been given if delivered
personally or by confirmed telecopy to the parties at the following addresses
(or at such other address for either such party as shall be specified in like
notice):
(i) if to Jaws at:
Jaws Technologies, Inc.
1013 - 17th Avenue S.W.
Calgary, AB T2T 0A7
Attention: Robert Kubbernus, President
(ii) if to Pace at:
Pace Systems Group, Inc.
Suite 307, 1 Concorde Gate
Don Mills, Ontario M3C 3N9
Attention: Peter Labrinos, President
Any notice or other communication given personally shall be deemed to have been
given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of confirmed receipt thereof
unless such day is not a Business Day in which case it shall be deemed to have
been given and received upon the immediately following Business Day.
Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, and all of which taken together shall
constitute one and the same instrument.
Jurisdiction. This Agreement shall be construed and enforced in accordance
with the laws of the Province of Ontario and the laws of Canada applicable
therein.
Attornment. Jaws agrees that any action or proceeding arising out of or
relating to this Agreement may be instituted in the courts of Alberta, waives
any objection which it may have now or hereafter to the venue of any such action
or proceeding, irrevocably submits to the jurisdiction of the said courts in any
such action or proceeding, agrees to be bound by any judgment of the said courts
and not to seek, and hereby waives, any review of the merits of any such
judgment by the courts of any other jurisdiction and hereby appoints Jaws at its
registered office in the Province of Alberta as Jaws's attorney for service of
process.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
JAWS TECHNOLOGIES, INC.
Per: _________________________________
Per: _________________________________
PACE SYSTEMS GROUP INC.
Per: _________________________________
Per: _________________________________
Exhibit E - Page 19
EXHIBIT E
MEMORANDUM OF AGREEMENT made as of the 3rd day of November, 1999,
AMONG:
JAWS TECHNOLOGIES INC., a corporation incorporated under the laws of the State
of Nevada (hereinafter referred to as "Jaws")
- and -
PACE SYSTEMS GROUP INC., a corporation incorporated under the laws of the
Province of Ontario (hereinafter referred to as "Pace")
- and -
IAN H. KENNEDY, Barrister and Solicitor, whose principal office is 1013 - 17th
Avenue S.W., Calgary, Alberta (hereinafter referred to as the Trustee")
VOTING AND EXCHANGE TRUST AGREEMENT
-----------------------------------
WHEREAS pursuant to the provisions of a Share Purchase Agreement dated the
3rd day of November, 1999, and the amendments thereto, among Jaws, Pace and all
of the shareholders of Pace (hereinafter referred to as the Share Purchase
Agreement"), the Exchangeable Shares Provisions and the Support Agreement
between Jaws and Pace; and
WHEREAS pursuant to the provisions of the Share Purchase Agreement the
parties agreed to amend the Articles of Incorporation of Pace creating an
unlimited number of Exchangeable Shares having the attributes as set out in the
Articles of Amendment of Pace (the "Exchangeable Shares"); and
WHEREAS pursuant to the Share Purchase Agreement, the parties agreed to
exchange 100 common shares of Pace for approximately 1,731,932 Exchangeable
Shares or such number of Exchangeable Shares in accordance with the provisions
of Section 3.1.3 of the Share Purchase Agreement; and
WHEREAS the Articles of Amendment of Pace set forth the rights, privileges,
restrictions and conditions (collectively, the "Exchangeable Share Provisions")
attaching to the Exchangeable Shares;
WHEREAS Jaws agreed to provide voting rights in Jaws to each holder (other
than Jaws and its Subsidiaries) from time to time of Exchangeable Shares, such
voting rights per Exchangeable Share to be equivalent to the voting rights per
share of Jaws Common Stock (the "Jaws Common Stock"); and
WHEREAS Jaws is to grant to and in favor of the holders (other than Jaws
and its Subsidiaries) from time to time of Exchangeable Shares the right, in the
circumstances set forth herein, to require Jaws to purchase from each such
holder all or any part of the Exchangeable Shares held by the holder; and
WHEREAS the parties desire to make appropriate provision and to establish a
procedure whereby voting rights in Jaws shall be exercisable by holders (other
than Jaws and its Subsidiaries) from time to time of Exchangeable Shares by and
through the Trustee, which will hold legal title to one (1) share of Jaws
Special Preferred Voting Stock (the "Jaws Special Voting Stock") to which voting
rights attach for the benefit of such holders and whereby the rights to require
Jaws to purchase Exchangeable Shares from the holders thereof (other than Jaws
and its Subsidiaries) shall be exercisable by such holders from time to time of
Exchangeable Shares by and through the Trustee, which will hold legal title to
such rights for the benefit of such holders; and
WHEREAS these recitals and any statements of fact in this Agreement are
made by Jaws and Pace and not by the Trustee;
NOW THEREFORE in consideration of the respective covenants and agreements
provided in this Agreement and for other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties agree as
follows:
Definitions and Interpretation
Definitions. In this Agreement, the following terms shall have the following
meanings:
"Aggregate Equivalent Vote Amount" means, with respect to any matter,
proposition or question on which holders of Jaws Common Stock are entitled to
vote, consent or otherwise act, the product of (i) the number of shares of
Exchangeable Shares issued and outstanding and held by Holders multiplied by
(ii) the Equivalent Vote Amount.
"Automatic Exchange Rights" means the benefit of the obligation of Jaws to
effect the automatic exchange of shares of Jaws Common Stock for Exchangeable
Shares pursuant to Section 5 (k) hereof.
"Board of Directors" means the Board of Directors of Pace.
"Business Day" has the meaning attributed thereto in the Exchangeable Share
Provisions.
"Equivalent Vote Amount" means, with respect to any matter, proposition or
question on which holders of Jaws Common Stock are entitled to vote, consent or
otherwise act, the number of votes to which a holder of one share of Jaws Common
Stock is entitled with respect to such matter, proposition or question.
"Exchange Right" has the meaning attributed thereto in Article 5 hereof.
"Exchangeable Share Consideration" has the meaning attributed thereto in the
Exchangeable Share Provisions.
"Exchangeable Share Price" has the meaning attributed thereto in the
Exchangeable Share Provisions.
"Exchangeable Share Provisions" has the meaning attributed thereto in the
recitals hereto.
"Exchangeable Shares" has the meaning attributed thereto in the recitals hereto.
"Jaws Common Stock" has the meaning attributed thereto in the recitals hereto.
"Jaws Consent" has the meaning attributed thereto in Section 4(b) hereof. "Jaws
Meeting" has the meaning attributed thereto in Section 4(b) hereof. "Jaws
Special Voting Stock" has the meaning attributed thereto in the recitals hereto.
"Jaws Successor" has the meaning attributed thereto in subsection 11 (a) hereof.
"Holder Votes" has the meaning attributed thereto in Section 4(b) hereof.
"Holders" means the registered holders from time to time of Exchangeable Shares,
other than Jaws and its Subsidiaries.
"Insolvency Event" means the institution by Pace of any proceeding to be
adjudicated a bankrupt or insolvent or to be dissolved or wound-up, or the
consent of Pace to the institution of bankruptcy, insolvency, dissolution or
winding-up proceedings against it, or the filing of a petition, answer or
consent seeking dissolution or winding-up under any bankruptcy, insolvency or
analogous laws, including without limitation the Companies' Creditors'
Arrangement Act (Canada) and the Bankruptcy and Insolvency Act (Canada), and the
failure by Pace to contest in good faith any such proceedings commenced in
respect of Pace within 15 days of becoming aware thereof, or the consent by Pace
to the filing of any such petition or to the appointment of a receiver, or the
making by Pace of a general assignment for the benefit of creditors, or the
admission in writing by Pace of its inability to pay its debts generally as they
become due, or Pace not being permitted, pursuant to liquidity or solvency
requirements of applicable law, to redeem any Retracted Shares pursuant to
Section 6.6 of the Exchangeable Share Provisions.
"Liquidation Call Right" has the meaning attributed thereto in the Exchangeable
Share Provisions.
"Liquidation Event" has the meaning attributed thereto in subsection 5(k)(ii)
hereof.
"Liquidation Event Effective Date" has the meaning attributed thereto in
subsection 5 (k) (iii) hereof.
"List" has the meaning attributed thereto in Section 4(f) hereof.
"Officers' Certificate" means, with respect to Jaws or Pace, as the case may be,
a certificate signed by any two of the Chairman of the Board, the Vice-Chairman
of the Board, the President, any Vice-President or any other senior officer of
Jaws or Pace, as the case may be.
"Person" includes an individual, partnership, corporation, company,
unincorporated syndicate or organization, trust, trustee, executor,
administrator and other legal representative.
"Redemption Call Right" has the meaning attributed thereto in the Exchangeable
Share Provisions.
"Retracted Shares" has the meaning attributed thereto in Section 5(g) hereof.
"Retraction Call Right" has the meaning attributed thereto in the Exchangeable
Share Provisions.
"Share Purchase Agreement" has the meaning attributed thereto in the recitals
hereof.
"Subsidiary" has the meaning attributed thereto in the Exchangeable Share
Provisions.
"Support Agreement" means that certain support agreement made as of even date
hereof between Pace and Jaws.
"Trust" means the trust created by this Agreement.
"Trust Estate" means the Voting Share, any other securities, the Exchange Right,
the Automatic Exchange Rights and any money or other property which may be held
by the Trustee from time to time pursuant to this Agreement.
"Trustee" means Ian H. Kennedy, Barrister and Solicitor, 1013 17th Avenue,
Calgary, Alberta T2T 0A7 and, subject to the provisions of Article 10 hereof,
includes any successor trustee or permitted assigns.
"Voting Rights" means the voting rights attached to the Voting Share.
"Voting Share" means the one (1) share of Jaws Special Voting Stock, U.S. $1.00
par value, issued by Jaws to and deposited with the Trustee, which entitles the
holder of record to a number of votes at meetings of holders of Jaws Common
Stock equal to the Aggregate Equivalent Vote Amount.
Interpretation Not Affected by Headings, etc. The division of this Agreement
into articles, sections and paragraphs and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation of this Agreement.
Number, Gender, etc. Words importing the singular number only shall include the
plural and vice versa. Words importing the use of any gender shall include all
genders.
Date for any Action. If any date on which any action is required to be taken
under this Agreement is not a Business Day, such action shall be required to be
taken on the next succeeding Business Day.
Purpose of Agreement
The purpose of this Agreement is to create the Trust for the benefit of the
Holders, as herein provided. The Trustee will hold the Voting Share in order to
enable the Trustee to exercise the Voting Rights and will hold the Exchange
Right and the Automatic Exchange Rights in order to enable the Trustee to
exercise such rights, in each case as Trustee for and on behalf of the Holders
as provided in this Agreement. The Trust is hereby constituted on the 15th day
of October, 1999 by the granting of the Exchange Rights and Automatic Exchange
Rights to the Trustee notwithstanding that the Voting Share entitling the
Trustee to Voting Rights is delivered after the date hereof.
Voting Share
Issuance and Ownership of the Voting Share. Immediately following approval by
the directors of Jaws of the creation and issuance of the Voting Share, Jaws
shall issue to and deposit with the Trustee the Voting Share to be hereafter
held of record by the Trustee as trustee for and on behalf of, and for the use
and benefit of the Holders and in accordance with the provisions of this
Agreement in consideration for the payment by the Trustee of $1.00 (the receipt
and sufficiency of which is hereby acknowledged) for and on behalf of the
Holders. During the term of the Trust and subject to the terms and conditions of
this Agreement, the Trustee shall possess and be vested with full legal
ownership of the Voting Share and shall be entitled to exercise all of the
rights and powers of an owner with respect to the Voting Share, provided that
the Trustee shall:
hold the Voting Share and the legal title thereto as trustee solely for the use
and benefit of the Holders in accordance with the provisions of this Agreement;
and
except as specifically authorized by this Agreement, have no power or authority
to sell, transfer, vote or otherwise deal in or with the Voting Share and the
Voting Share shall not be used or disposed of by the Trustee for any purpose
other than the purposes for which this Trust is created pursuant to this
Agreement.
Legended Share Certificates. Pace will cause each certificate representing
Exchangeable Shares to bear an appropriate legend notifying the Holders of their
right to instruct the Trustee with respect to the exercise of the Voting Rights
with respect to the Exchangeable Shares held by a Holder.
Safe Keeping of Certificate. The certificate representing the Voting Share shall
at all times be held in safe keeping by the Trustee or its agent.
Exercise of Voting Rights
Voting Rights. The Trustee, as the holder of record of the Voting Share, shall
be entitled to all of the Voting Rights, including the right to consent to or to
vote in person or by proxy the Voting Share, on any matter, question or
proposition whatsoever that may properly come before the stockholders of Jaws or
in connection with a Jaws Consent (in each case, as hereinafter defined). The
Voting Rights shall be and remain vested in and exercised by the Trustee.
Subject to Section 7(m) hereof, the Trustee shall exercise the Voting Rights
only on the basis of instructions received pursuant to this Article 4 from
Holders entitled to instruct the Trustee as to the voting thereof at the time at
which a Jaws Consent is sought or a Jaws Meeting is held. To the extent that no
instructions are received from a Holder with respect to the Voting Rights to
which such Holder is entitled, the Trustee shall not exercise or permit the
exercise of such Holder's Vote.
Number of Votes. With respect to all meetings of stockholders of Jaws at which
holders of shares of Jaws Common Stock are entitled to vote (a "Jaws Meeting")
and with respect to all written consents sought by Jaws from its stockholders
including the holders of shares of Jaws Common Stock (a "Jaws Consent" ), each
Holder shall be entitled to instruct the Trustee to cast and exercise, in the
manner instructed, a number of votes equal to the Equivalent Vote Amount for
each Exchangeable Share owned of record by such Holder on the record date
established by Jaws or by applicable law for such Jaws Meeting or Jaws Consent,
as the case may be (the "Holder Votes") in respect of each matter, question or
proposition to be voted on at such Jaws Meeting or to be consented to in
connection with such Jaws Consent.
Mailings to Shareholders. With respect to each Jaws Meeting and Jaws Consent,
the Trustee will mail or cause to be mailed (or otherwise communicate in the
same manner as Jaws utilizes in communications to holders of Jaws Common Stock,
subject to the Trustee's ability to provide this method of communication and
upon being advised in writing of such method) to each of the Holders named in
the List on the same day as the initial mailing or notice (or other
communication) with respect thereto is given by Jaws to its stockholders:
a copy of such notice, together with any proxy or information statement and
related materials to be provided to stockholders of Jaws;
a statement that such Holder is entitled to instruct the Trustee as to the
exercise of the Holder Votes with respect to such Jaws Meeting or Jaws Consent,
as the case may be, or, pursuant to Section 4(g) hereof, to attend such Jaws
Meeting and to exercise personally the Holder Votes thereat;
a statement as to the manner in which such instructions may be given to the
Trustee, including an express indication that instructions may be given to the
Trustee to give:
a proxy to such Holder or his designee to exercise personally the Holder Votes;
or
a proxy to a designated agent or other representative of the management of Jaws
to exercise such Holder Votes;
(iv) a statement that if no such instructions are received from the Holder,
the Holder Votes to which such Holder is entitled will not be exercised;
(v) a form of direction whereby the Holder may so direct and instruct the
Trustee as contemplated herein; and
(vi) a statement of (A) the time and date by which such instructions must be
received by the Trustee in order to be binding upon it, which in the case of a
Jaws Meeting shall not be later than the close of business on the Business Day
prior to such meeting, and (B) the method for revoking or amending such
instructions.
The materials referred to above are to be provided by Jaws to the Trustee, but
shall be subject to review and comment by the Trustee.
For the purpose of determining Holder Votes to which a Holder is entitled in
respect of any such Jaws Meeting or Jaws Consent, the number of Exchangeable
Shares owned of record by the Holder shall be determined at the close of
business on the record date established by Jaws or by applicable law for
purposes of determining stockholders entitled to vote at such Jaws Meeting or to
give written consent in connection with such Jaws Consent. Jaws will notify the
Trustee in writing of any decision of the board of directors of Jaws with
respect to the calling of any such Jaws Meeting or the seeking of any such Jaws
Consent and shall provide all necessary information and materials to the Trustee
in each case promptly and in any event in sufficient time to enable the Trustee
to perform its obligations contemplated by this Section 4(c).
Copies of Stockholder Information. Jaws will deliver to the Trustee copies of
all proxy materials (including notices of Jaws Meetings but excluding proxies to
vote shares of Jaws Common Stock), information statements, reports (including
without limitation all interim and annual financial statements) and other
written communications that are to be distributed from time to time to holders
of Jaws Common Stock in sufficient quantities and in sufficient time so as to
enable the Trustee to send those materials to each Holder at the same time as
such materials are first sent to holders of Jaws Common Stock. The Trustee will
mail or otherwise send to each Holder, at the expense of Jaws, copies of all
such materials (and all materials specifically directed to the Holders or to the
Trustee for the benefit of the Holders by Jaws) received by the Trustee from
Jaws at the same time as such materials are first sent to holders of Jaws Common
Stock. The Trustee will make copies of all such materials available for
inspection by any Holder at the office of the Trustee in the city of Calgary.
Other Materials. Immediately after receipt by Jaws or any stockholder of Jaws of
any material sent or given generally to the holders of Jaws Common Stock by or
on behalf of a third party, including without limitation dissident proxy and
information circulars (and related information and material) and tender and
exchange offer circulars (and related information and material), Jaws shall use
its best efforts to obtain and deliver to the Trustee copies thereof in
sufficient quantities so as to enable the Trustee to forward such material
(unless the same has been provided directly to Holders by such third party) to
each Holder as soon as possible thereafter. As soon as practicable after receipt
thereof, the Trustee will mail or otherwise send to each Holder, at the expense
of Jaws, copies of all such materials received by the Trustee from Jaws. The
Trustee will also make copies of all such materials available for inspection by
any Holder at the office of the Trustee in the city of Calgary.
List of Persons Entitled to Vote. Pace shall, (i) prior to each annual, general
and special Jaws Meeting or the seeking of any Jaws Consent and (ii) forthwith
upon each request made at any time by the Trustee in writing, prepare or cause
to be prepared a list (a List of the names and addresses of the Holders arranged
in alphabetical order and showing the number of Exchangeable Shares held of
record by each such Holder, in each case at the close of business on the date
specified by the Trustee in such request or, in the case of a List prepared in
connection with a Jaws Meeting or a Jaws Consent, at the close of business on
the record date established by Jaws or pursuant to applicable law for
determining the holders of Jaws Common Stock entitled to receive notice of
and/or to vote at such Jaws Meeting or to give consent in connection with such
Jaws Consent. Each such List shall be delivered to the Trustee promptly after
receipt by Pace of such request or the record date for such meeting or seeking
of consent, as the case may be, and in any event within sufficient time as to
enable the Trustee to perform its obligations under this Agreement. Jaws agrees
to give Pace written notice (with a copy to the Trustee) of the calling of any
Jaws Meeting or the seeking of any Jaws Consent together with the record dates
therefor, sufficiently prior to the date of the calling of such meeting or
seeking of such consent so as to enable Pace to perform its obligations under
this Section 4(f).
Entitlement to Direct Votes. Any Holder named in a List prepared in connection
with any Jaws Meeting or any Jaws Consent will be entitled (i) to instruct the
Trustee in the manner described in Section 4(c) hereof with respect to the
exercise of the Holder Votes to which such Holder is entitled or (ii) to attend
such meeting and personally to exercise thereat (or to exercise with respect to
any written consent), as the proxy of the Trustee, the Holder Votes to which
such Holder is entitled.
Stockholder Proposals. The Trustee shall forthwith submit to Jaws any
stockholder proposal (within the meaning of the United States Securities
Exchange Act of 1934) received by the Trustee from a Holder. Such stockholder
proposal may be considered at any meeting of Jaws at which the holders of Jaws
Common Stock are entitled to submit stockholder proposals. Jaws agrees to accept
all stockholder proposals submitted by the Trustee that are received by Jaws
within the applicable time limitation under the United States Securities
Exchange Act of 1934, provided that not more than one proposal is submitted on
behalf of any one Holder.
Voting by Trustee, and Attendance of Trustee Representative, at Meeting.
In connection with each Jaws Meeting and Jaws Consent, the Trustee shall
exercise, either in person or by proxy, in accordance with the instructions
received from a Holder pursuant to Section 4(c) hereof, the Holder Votes as to
which such Holder is entitled to direct the vote (or any lesser number thereof
as may be set forth in the instructions); provided, however, that such written
instructions are received by the Trustee from the Holder prior to the time and
date fixed by it for receipt of such instructions in the notice given by the
Trustee to the Holder pursuant to Section 4(c) hereof.
The Trustee shall cause such representatives as are empowered by it to sign and
deliver, on behalf of the Trustee, proxies for Voting Rights to attend each Jaws
Meeting at the expense of Jaws. Upon submission by a Holder (or its designee) of
identification satisfactory to the Trustee's representatives, and at the
Holder's request, such representatives shall sign and deliver to such Holder (or
its designee) a proxy to exercise personally the Holder Votes as to which such
Holder is otherwise entitled hereunder to direct the vote, if such Holder either
(A) has not previously given the Trustee instructions pursuant to Section 4(c)
hereof in respect of such meeting, or (B) submits to the Trustee's
representatives written revocation of any such previous instructions. At such
meeting, the Holder exercising such Holder Votes shall have the same rights as
the Trustee to speak at the meeting in respect of any matter, question or
proposition, to vote by way of ballot at the meeting in respect of any matter,
question or proposition and to vote at such meeting by way of a show of hands in
respect of any matter, question or proposition.
(g) Distribution of Written Materials. Any written materials to be
distributed by the Trustee to the Holders pursuant to this Agreement shall be
delivered or sent by mail (or otherwise communicated in the same manner as Jaws
utilizes in communications to holders of Jaws Common Stock) to each Holder at
its address as shown on the books of Pace. Pace shall provide or cause to be
provided to the Trustee for this purpose, on a timely basis and without charge
or other expense:
current lists of the Holders; and
upon the request of the Trustee, mailing labels to enable the Trustee to carry
out its duties under this Agreement.
The materials referred to above are to be provided by Jaws to the Trustee, but
shall be subject to review and comment by the Trustee.
Termination of Voting Right. Except as otherwise provided herein or in the
Exchangeable Share Provisions, all of the rights of a Holder with respect to the
Holder Votes exercisable in respect of the Exchangeable Shares held by such
Holder, including the right to instruct the Trustee as to the voting of or to
vote personally such Holder Votes and including the right to submit a
stockholder proposal to the Trustee in accordance with Section 4(h) hereof,
shall be deemed to be surrendered by the Holder to Jaws and such Holder Votes
and the Voting Rights represented thereby shall cease immediately upon the
delivery by such Holder to the Trustee of the certificates representing such
Exchangeable Shares in connection with the exercise by the Holder of the
Exchange Right or the occurrence of the automatic exchange of Exchangeable
Shares for shares of Jaws Common Stock, as specified in Article 5 hereof (unless
in either case Jaws shall not have delivered the Exchangeable Share
Consideration deliverable in exchange therefor to the Trustee for delivery to
the Holders), or upon the redemption of Exchangeable Shares pursuant to Article
6 or Article 7 of the Exchangeable Share Provisions, or upon the effective date
of the liquidation, dissolution or winding-up of Pace pursuant to Article 5 of
the Exchangeable Share Provisions, or upon the purchase of Exchangeable Shares
from the holder thereof by Jaws pursuant to the exercise by Jaws of the
Retraction Call Right, the Redemption Call Right or the Liquidation Call Right.
Exchange Right and Automatic Exchange
Grant and Ownership of the Exchange Right. Jaws hereby grants to the Trustee as
trustee for and on behalf of, and for the use and benefit of, the Holders (i)
the right (the "Exchange Right'), upon the occurrence and during the continuance
of an Insolvency Event, to require Jaws to purchase from each or any Holder all
or any part of the Exchangeable Shares held by such Holders, and (ii) the
Automatic Exchange Rights, all in accordance with the provisions of this
Agreement.
Jaws hereby acknowledges receipt from the Trustee as trustee for and on behalf
of the Holders of good and valuable consideration (and the adequacy thereof) for
the grant of the Exchange Right and the Automatic Exchange Rights by Jaws to the
Trustee. During the term of the Trust and subject to the terms and conditions of
this Agreement, the Trustee shall possess and be vested with full legal
ownership of the Exchange Right and the Automatic Exchange Rights and shall be
entitled to exercise all of the rights and powers of an owner with respect to
the Exchange Right and the Automatic Exchange Rights, provided that the Trustee
shall:
hold the Exchange Right and the Automatic Exchange Rights and the legal title
thereto as trustee solely for the use and benefit of the Holders in accordance
with the provisions of this Agreement; and
except as specifically authorized by this Agreement, have no power or authority
to exercise or otherwise deal in or with the Exchange Right or the Automatic
Exchange Rights, and the Trustee shall not exercise any such rights for any
purpose other than the purposes for which this Trust is created pursuant to this
Agreement.
Legended Share Certificates. Pace will cause each certificate representing
Exchangeable Shares to bear an appropriate legend notifying the Holders of:
their right to instruct the Trustee with respect to the exercise of the Exchange
Right in respect of the Exchangeable Shares held by a Holder; and
the Automatic Exchange Rights.
(c) General Exercise of Exchange Right. The Exchange Right shall be and
remain vested in and exercised by the Trustee. Subject to Section 7(m) hereof,
the Trustee shall exercise the Exchange Right only on the basis of instructions
received pursuant to this Article 5 from Holders entitled to instruct the
Trustee as to the exercise thereof. To the extent that no instructions are
received from a Holder with respect to the Exchange Right, the Trustee shall not
exercise or permit the exercise of the Exchange Right.
Purchase Price. The purchase price payable by Jaws for each Exchangeable Share
to be purchased by Jaws under the Exchange Right shall be an amount equal to the
Exchangeable Share Price on the last Business Day prior to the day of closing of
the purchase and sale of such Exchangeable Share under the Exchange Right. In
connection with each exercise of the Exchange Right, Jaws will provide to the
Trustee an Officer's Certificate setting forth the calculation of the
Exchangeable Share Price for each Exchangeable Share. The Exchangeable Share
Price for each such Exchangeable Share so purchased may be satisfied only by
Jaws issuing and delivering or causing to be delivered to the Trustee, on behalf
of the relevant Holder, the Exchangeable Share Consideration representing the
total Exchangeable Share Price.
Exercise Instructions. Subject to the terms and conditions herein set forth, a
Holder shall be entitled, upon the occurrence and during the continuance of an
Insolvency Event, to instruct the Trustee to exercise the Exchange Right with
respect to all or any part of the Exchangeable Shares registered in the name of
such Holder. To cause the exercise of the Exchange Right by the Trustee, the
Holder shall deliver to the Trustee, in person or by certified or registered
mail, at its principal offices in Calgary, Alberta or at such other places in
Canada as the Trustee may from time to time designate by written notice to the
Holders, the certificates representing the Exchangeable Shares which such Holder
desires Jaws to purchase, duly endorsed in blank, and accompanied by such other
documents and instruments as may be required to effect a transfer of
Exchangeable Shares under applicable law and the bylaws of Pace and such
additional documents and instruments as the Trustee may reasonably require
together with (i) a duly completed form of notice of exercise of the Exchange
Right, contained on the reverse of or attached to the Exchangeable Share
certificates, stating (A) that the Holder thereby instructs the Trustee to
exercise the Exchange Right so as to require Jaws to purchase from the Holder
the number of Exchangeable Shares specified therein, (B) that such Holder has
good title to and owns all such Exchangeable Shares to be acquired by Jaws free
and clear of all liens, claims and encumbrances, (C) the names in which the
certificates representing Jaws Common Stock issuable in connection with the
exercise of the Exchange Right are to be issued and (D) the names and addresses
of the persons to whom the Exchangeable Share Consideration should be delivered
and (ii) payment (or evidence satisfactory to the Trustee, Pace and Jaws of
payment) of the taxes (if any) payable as contemplated by Section 5(h) of this
Agreement. If only a part of the Exchangeable Shares represented by any
certificate or certificates delivered to the Trustee are to be purchased by Jaws
under the Exchange Right, a new certificate for the balance of such Exchangeable
Shares shall be issued to the Holder at the expense of Pace.
Delivery of Exchangeable Share Consideration; Effect of Exercise. Promptly after
receipt of the certificates representing the Exchangeable Shares which the
Holder desires Jaws to purchase under the Exchange Right (together with such
documents and instruments of transfer and a duly completed form of notice of
exercise of the Exchange Right), duly endorsed for transfer to Jaws the Trustee
shall notify Jaws and Pace of its receipt of the same, which notice to Jaws and
Pace shall constitute exercise of the Exchange Right by the Trustee on behalf of
the Holder of such Exchangeable Shares, and Jaws shall immediately thereafter
deliver or cause to be delivered to the Trustee, for delivery to the Holder of
such Exchangeable Shares (or to such other persons, if any, properly designated
by such Holder), the Exchangeable Share Consideration deliverable in connection
with the exercise of the Exchange Right; provided, however, that no such
delivery shall be made unless and until the Holder requesting the same shall
have paid (or provided evidence satisfactory to the Trustee, Pace and Jaws of
the payment of) the taxes (if any) payable as contemplated by Section 5(h) of
this Agreement. Immediately upon the giving of notice by the Trustee to Jaws and
Pace of the exercise of the Exchange Right, as provided in this Section 5 (f),
the closing of the transaction of purchase and sale contemplated by the Exchange
Right shall be deemed to have occurred, and the Holder of such Exchangeable
Shares shall be deemed to have transferred to Jaws all of its right, title and
interest in and to such Exchangeable Shares and in the related interest in the
Trust Estate and shall cease to be a holder of such Exchangeable Shares and
shall not be entitled to exercise any of the rights of a holder in respect
thereof, other than the right to receive his proportionate part of the total
purchase price therefor, unless such Exchangeable Share Consideration is not
delivered by Jaws to the Trustee, for delivery to such Holder (or to such other
persons, if any, properly designated by such Holder), within three Business Days
of the date of the giving of such notice by the Trustee, in which case the
rights of the Holder shall remain unaffected until such Exchangeable Share
Consideration is delivered by Jaws and any cheque included therein is paid.
Concurrently with such Holder ceasing to be a holder of Exchangeable Shares, the
Holder shall be considered and deemed for all purpose to be the holder of the
shares of Jaws Common Stock delivered to it pursuant to the Exchange Right.
Exercise of Exchange Right Subsequent to Retraction. In the event that a Holder
has exercised its right under Article 6 of the Exchangeable Share Provisions to
require Pace to redeem any or all of the Exchangeable Shares held by the Holder
(the Retracted Shares") and is notified by Pace pursuant to Section 6.6 of the
Exchangeable Share Provisions that Pace will not be permitted as a result of
liquidity or solvency requirements of applicable law to redeem all such
Retracted Shares, subject to receipt by the Trustee of written notice to that
effect from Pace and provided that Jaws shall not have exercised the Retraction
Call Right with respect to the Retracted Shares and that the Holder has not
revoked the retraction request delivered by the Holder to Pace pursuant to
Section 6.1 of the Exchangeable Share Provisions, the retraction request will
constitute and will be deemed to constitute notice from the Holder to the
Trustee instructing the Trustee to exercise the Exchange Right with respect to
those Retracted Shares which Pace is unable to redeem. In any such event, Pace
hereby agrees with the Trustee and in favor of the Holder immediately to notify
the Trustee of such prohibition against Pace redeeming all of the Retracted
Shares and immediately to forward or cause to be forwarded to the Trustee all
relevant materials delivered by the Holder to Pace (including without limitation
a copy of the retraction request delivered pursuant to Section 6. I of the
Exchangeable Share Provisions) in connection with such proposed redemption of
the Retracted Shares and the Trustee will thereupon exercise the Exchange Right
with respect to the Retracted Shares that Pace is not permitted to redeem and
will require Jaws to purchase such shares in accordance with the provisions of
this Article 5.
Stamp or Other Transfer Taxes. Upon any sale of Exchangeable Shares to Jaws
pursuant to the Exchange Right or the Automatic Exchange Rights, the share
certificate or certificates representing Jaws Common Stock to be delivered in
connection with the payment of the total purchase price therefor shall be issued
in the name of the Holder of the Exchangeable Shares so sold or in such names as
such Holder may otherwise direct in writing without charge to the holder of the
Exchangeable Shares so sold, provided, however, that such Holder (i) shall pay
(and neither Jaws, Pace nor the Trustee shall be required to pay) any
documentary, stamp, transfer or other similar taxes that may be payable in
respect of any transfer involved in the issuance or delivery of such shares to a
person other than such Holder or (ii) shall have established to the satisfaction
of the Trustee, Jaws and Pace that such taxes, if any, have been paid.
Notice of Insolvency Event. Pace and Jaws shall give written notice thereof to
the Trustee immediately upon the occurrence of an Insolvency Event or any event
which with the giving of notice or the passage of time or both would be an
Insolvency Event. As soon as practicable after receiving notice from Pace and
Jaws or from any other Person of the occurrence of an Insolvency Event, the
Trustee will mail to each Holder, at the expense of Jaws, a notice of such
Insolvency Event in the form provided by Jaws, which notice shall contain a
brief statement of the right of the Holders with respect to the Exchange Right.
Reservation of Shares of Jaws Common Stock. Jaws hereby represents, warrants and
covenants that it has irrevocably reserved for issuance and will at all times
keep available, free from pre-emptive and other rights, out of its authorized
and unissued capital stock such number of shares of Jaws Common Stock (i) as is
equal to the sum of (A) the number of Exchangeable Shares issued and outstanding
from time to time and (B) the number of Exchangeable Shares issuable upon the
exercise of all rights to acquire Exchangeable Shares outstanding from time to
time and (ii) as are now and may hereafter be required to enable and permit Pace
and Jaws to meet their respective obligations hereunder, under the Support
Agreement, under the Exchangeable Share Provisions and under any other security
or commitment pursuant to the Share Purchase Agreement with respect to which
Jaws may now or hereafter be required to issue shares of Jaws Common Stock.
Automatic Exchange on Liquidation of Jaws
Jaws will give the Trustee written notice of each of the following events at the
time set forth below:
(A) in the event of any determination by the board of directors of Jaws to
institute voluntary liquidation, dissolution or winding-up proceedings with
respect to Jaws or to effect any other distribution of assets of Jaws among its
stockholders for the purpose of winding-up its affairs, at least 60 days prior
to the proposed effective date of such liquidation, dissolution, winding-up or
other distribution; and
(B) immediately, upon the earlier of (I) receipt by Jaws of notice of and
(II) Jaws otherwise becoming aware of any threatened or instituted claim, suit,
petition or other proceedings with respect to the involuntary liquidation,
dissolution or winding-up of Jaws or to effect any other distribution of assets
of Jaws among its stockholders for the purpose of winding-up its affairs.
(ii) Immediately following receipt by the Trustee from Jaws of notice of any
event (a "Liquidation Event") contemplated by Section 5 (k) (i) above, the
Trustee will give notice thereof to the Holders. Such notice will be provided by
Jaws to the Trustee and shall include a brief description of the automatic
exchange of Exchangeable Shares for shares of Jaws Common Stock provided for in
Section 5(k) (iii) below.
(iii) In order that the Holders will be able to participate on a PRO RATA
basis with the holders of Jaws Common Stock in the distribution of assets of
Jaws in connection with a Liquidation Event, immediately prior to the effective
time (the "Liquidation Event Effective Time") of a Liquidation Event all of the
then outstanding Exchangeable Shares shall be automatically exchanged for shares
of Jaws Common Stock. To effect such automatic exchange, Jaws shall be deemed to
have purchased each Exchangeable Share outstanding immediately prior to the
Liquidation Event Effective Time and held by Holders, and each Holder shall be
deemed to have sold the Exchangeable Shares held by it at such time, for a
purchase price per share equal to the Exchangeable Share Price applicable at
such time. In connection with such automatic exchange, Jaws shall provide to the
Trustee an Officers' Certificate setting forth the calculation of the purchase
price for each Exchangeable Share.
(iv) The closing of the transaction of purchase and sale contemplated by
Section 5(k)(iii) above shall be deemed to have occurred immediately prior to
the Liquidation Event Effective Time, and each Holder of Exchangeable Shares
shall be deemed to have transferred to Jaws all of the Holder's right, title and
interest in and to such Exchangeable Shares and the related interest in the
Trust Estate and shall cease to be a holder of such Exchangeable Shares and Jaws
shall deliver to the Holder the Exchangeable Share Consideration deliverable
upon the automatic exchange of Exchangeable Shares. Concurrently with such
Holder ceasing to be a holder of Exchangeable Shares, the Holder shall be
considered and deemed for all purposes to be the holder of the shares of Jaws
Common Stock issued to it pursuant to the automatic exchange of Exchangeable
Shares for Jaws Common Stock and the certificates held by the Holder previously
representing the Exchangeable Shares exchanged by the Holder with Jaws pursuant
to such automatic exchange shall thereafter be deemed to represent the shares of
Jaws Common Stock issued to the Holder by Jaws pursuant to such automatic
exchange. Upon the request of a Holder and the surrender by the Holder of
Exchangeable Share certificates deemed to represent shares of Jaws Common Stock,
duly endorsed in blank and accompanied by such instruments of transfer as Jaws
may reasonably require, Jaws shall deliver or cause to be delivered to the
Holder certificates representing the shares of Jaws Common Stock of which the
Holder is the holder.
Restrictions on Issuance of Jaws Special Voting Stock
During the term of this Agreement, Jaws will not issue any shares of Jaws
Special Voting Stock in addition to the Voting Share.
Concerning the Trustee
Powers and Duties of the Trustee. The rights, powers and authorities of the
Trustee under this Agreement, in its capacity as trustee of the Trust, shall
include:
receipt and deposit of the Voting Share from Jaws as trustee for and on behalf
of the Holders in accordance with the provisions of this Agreement;
granting proxies and distributing materials to Holders as provided in this
Agreement;
voting the Holder Votes in accordance with the provisions of this Agreement;
receiving the grant of the Exchange Right and the Automatic Exchange Rights
from Jaws as trustee for and on behalf of the Holders in accordance with the
provisions of this Agreement;
exercising the Exchange Right and enforcing the benefit of the Automatic
Exchange Rights, in each case in accordance with the provisions of this
Agreement, and in connection therewith receiving from Holders Exchangeable
Shares and other requisite documents and distributing to such Holders the shares
of Jaws Common Stock and cheques, if any, to which such Holders are entitled
upon the exercise of the Exchange Right or pursuant to the Automatic Exchange
Rights, as the case may be;
holding title to the Trust Estate;
investing any monies forming, from time to time, a part of the Trust Estate as
provided in this Agreement;
taking action at the direction of a Holder or Holders to enforce the obligations
of Jaws under this Agreement; and
taking such other actions and doing such other things as are specifically
provided in this Agreement.
In the exercise of such rights, powers and authorities the Trustee shall have
(and is granted) such incidental and additional rights, powers and authority not
in conflict with any of the provisions of this Agreement as the Trustee, acting
in good faith and in the reasonable exercise of its discretion, may deem
necessary, appropriate or desirable to effect the purpose of the Trust. Any
exercise of such discretionary rights, powers and authorities by the Trustee
shall be final, conclusive and binding upon all persons. For greater certainty,
the Trustee shall have only those duties as are set out specifically in this
Agreement.
The Trustee shall not be bound to give any notice or do or take any act, action
or proceeding by virtue of the powers conferred on it hereby unless and until it
shall be specifically required to do so under the terms hereof; nor shall the
Trustee be required to take any notice of, or to do or to take any act, action
or proceeding as a result of any default or breach of any provision hereunder,
unless and until notified in writing of such default or breach, which notices
shall distinctly specify the default or breach desired to be brought to the
attention of the Trustee and in the absence of such notice the Trustee may for
all purposes of this Agreement conclusively assume that no default or breach has
been made in the observance or performance of any of the representations,
warranties, covenants, agreements or conditions contained herein.
None of the provisions contained in this Agreement shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
exercise of any of its rights, powers, duties or authorities unless funded,
given funds, security and indemnified; such costs and expenses shall be paid for
by Jaws. The Trustee shall not be required to take any action until it has
received reasonable funding, security and indemnity against the costs, expenses
and liabilities which may be incurred by the Trustee.
Dealings with Transfer Agents, Registrars, etc. Jaws irrevocably authorize the
Trustee, from time to time, to:
consult, communicate and otherwise deal with the respective registrars and
transfer agents, and with any such subsequent registrar or transfer agent, of
the Jaws Common Stock; and
requisition, from time to time, (A) from any such registrar or transfer agent
any information readily available from the records maintained by it which the
Trustee may reasonably require for the discharge of its duties and
responsibilities under this Agreement and (B) from the transfer agent of Jaws
Common Stock, and any subsequent transfer agent of such shares, the share
certificates issuable upon the exercise from time to time of the Exchange Right
and pursuant to the Automatic Exchange Rights in the manner specified in Article
5 hereof.
Jaws irrevocably authorizes and agrees to direct its registrars and transfer
agents to comply with all such requests. Jaws covenants that it will supply its
transfer agent with duly executed share certificates for the purpose of
completing the exercise from time to time of the Exchange Right and the
Automatic Exchange Rights, in each case pursuant to Article 5 hereof.
Books and Records. The Trustee shall keep available for inspection by Jaws and
Pace, at the Trustee's principal office in Calgary, Alberta, correct and
complete books and records of account relating to the Trustee's actions under
this Agreement, including without limitation all information relating to
mailings and instructions to and from Holders and all transactions pursuant to
the Voting Rights, the Exchange Right and the Automatic Exchange Rights for the
term of this Agreement. On or before August 31, 2000, and on or before August 31
in every year thereafter, so long as the Voting Share is on deposit with the
Trustee, the Trustee shall transmit to Jaws and Pace a brief report with respect
to:
the property and funds comprising the Trust Estate as of that date;
the number of exercises of the Exchange Right, if any, and the aggregate number
of Exchangeable Shares received by the Trustee on behalf of Holders in
consideration of the issue and delivery by Jaws of shares of Jaws Common Stock
in connection with the Exchange Right, during the calendar year ended on such
date; and
all other actions taken by the Trustee in the performance of its duties at the
expense of Jaws under this Agreement which it had not previously reported.
Income Tax Returns and Reports. The Trustee shall, to the extent necessary,
prepare and file or cause to be prepared and filed on behalf of the Trust
appropriate United States and Canadian income tax returns and any other returns
or reports as may be required by applicable law, may obtain the advice and
assistance of such experts as the Trustee may consider necessary or advisable.
If requested by the Trustee, Jaws shall retain such experts for purposes of
providing such advice and assistance.
Actions by Holders. No Holder shall have the right to institute any action, suit
or proceeding or to exercise any other remedy authorized by this Agreement for
the purpose of enforcing any of its rights or for the execution of any trust or
power hereunder unless the Holder has requested the Trustee to take or institute
such action, suit or proceeding and furnished the Trustee with the funding,
security and indemnity referred to in Section 7(f) hereof and the Trustee shall
have failed to act within a reasonable time thereafter. In such case, but not
otherwise, the Holder shall be entitled to take proceedings in any court of
competent jurisdiction such as the Trustee might have taken; it being understood
and intended that no one or more Holders shall have any right in any manner
whatsoever to affect, disturb or prejudice the rights hereby created by any such
action, or to enforce any right hereunder or under the Voting Rights, the
Exchange Right or the Automatic Exchange Rights, except subject to the
conditions and in the manner herein provided, and that all powers and trusts
hereunder shall be exercised and all proceedings at law shall be instituted, had
and maintained by the Trustee, except only as herein provided, and in any event
for the equal benefit of all Holders.
Reliance upon Declarations. The Trustee shall not be considered to be in
contravention of any of its rights, powers, duties and authorities hereunder if,
when required, it acts and relies in good faith upon lists, mailing labels,
notices, statutory declarations, certificates, opinions, reports or other papers
or documents furnished pursuant to the provisions hereof or required by the
Trustee to be furnished to it in the exercise of its rights, powers, duties and
authorities hereunder and such lists, mailing labels, notices, statutory
declarations, certificates, opinions, reports or other papers or documents
comply with the provisions of Section 7(i) hereof, if applicable, and with any
other applicable provisions of this Agreement.
Evidence and Authority to Trustee. Pace and/or Jaws shall furnish to the Trustee
evidence of compliance with the conditions provided for in this Agreement
relating to any action or step required or permitted to be taken by Pace and/or
Jaws or the Trustee under this . Agreement or as a result of any obligation
imposed under this Agreement, including, without limitation, in respect of the
Voting Rights or the Exchange Right or the Automatic Exchange Rights and the
taking of any other action to be taken by the Trustee at the request of or on
the application of Pace and/or Jaws forthwith if and when:
such evidence is required by any other section of this Agreement to be furnished
to the Trustee in accordance with the terms of this Section 7(h); or
the Trustee, in the exercise of its rights, powers, duties and authorities under
this Agreement, gives Pace and/or Jaws written notice requiring it to furnish
such evidence in relation to any particular action or obligation specified in
such notice.
Such evidence shall consist of an Officers' Certificate of Pace and/or Jaws or a
statutory declaration or a certificate made by persons entitled to sign an
Officer's Certificate stating that any such condition has been complied with in
accordance with the terms of this Agreement.
Whenever such evidence relates to a matter other than the Voting Rights or the
Exchange Right or the Automatic Exchange Rights, and except as otherwise
specifically provided herein, such evidence may consist of a report or opinion
of any solicitor, auditor, accountant, appraiser, valuer, engineer or other
expert or any other person whose qualifications give authority to a statement
made by him provided that if such report or opinion is furnished by a director,
officer or employee of Pace and/or Jaws it shall be in the form of an Officers'
Certificate or a statutory declaration.
Each statutory declaration, certificate, opinion or report furnished to the
Trustee as evidence of compliance with a condition provided for in this
Agreement shall include a statement by the person giving the evidence:
(i) declaring that he has read and understands the provisions of this
Agreement relating to the condition in question;
(ii) describing the nature and scope of the examination or investigation
upon which he based the statutory declaration, certificate, statement or
opinion; and
(iii) declaring that he has made such examination or investigation as he
believes is necessary to enable him to make the statements or give the opinions
contained or expressed therein.
Experts, Advisors and Agents. The Trustee may:
in relation to these presents act and rely on the opinion or advice of or
information obtained from or prepared by any solicitor, auditor, accountant,
appraiser, valuer, engineer or other expert, whether retained by the Trustee or
by Pace and/or Jaws or otherwise, and may employ such assistants as may be
necessary to the proper determination and discharge of its powers and duties and
determination of its rights hereunder and may pay proper and reasonable
compensation for all such legal and other advice or assistance as aforesaid; and
employ such agents and other assistants as it may reasonably require for the
proper determination and discharge of its powers and duties hereunder, and may
pay reasonable remuneration for all services performed for it (and shall be
entitled to receive reasonable remuneration for all services performed by it) in
the discharge of the trusts hereof and compensation for all disbursements, costs
and expenses made or incurred by it in the determination and discharge of its
duties hereunder and in the management of the Trust.
Investment of Monies Held by Trustee. Unless otherwise provided in this
Agreement, any monies held by or on behalf of the Trustee which under the terms
of this Agreement may or ought to be invested or which may be on deposit with
the Trustee or which may be in the hands of the Trustee may be invested and
reinvested in the name or under the control of the Trustee in securities in
which, under the laws of the Province of Alberta trustees are authorized to
invest trust unit monies, provided that such securities are stated to mature
within two years after their purchase by the Trustee, and the Trustee shall so
invest such monies on the written direction of Pace. Pending the investment of
any monies as hereinbefore provided, such monies may be deposited in the name of
the Trustee in any chartered bank in Canada or, with the consent of Pace, in the
deposit department of the Trustee or any other loan or company authorized to
accept deposits under the laws of Canada or any province thereof at the rate of
interest then current on similar deposits.
Trustee Not Required to Give Security. The Trustee shall not be required to give
any bond or security in respect of the execution of the trusts, rights, duties,
powers and authorities of this Agreement or otherwise in respect of the
premises.
Trustee Not Bound to Act on Request. Except as in this Agreement otherwise
specifically provided, the Trustee shall not be bound to act in accordance with
any direction or request of Pace and/or Jaws or of the directors thereof until a
duly authenticated copy of the instrument or resolution containing such
direction or request shall have been delivered to the Trustee, and the Trustee
shall be empowered to act and rely upon any such copy purporting to be
authenticated and believed by the Trustee to be genuine.
Conflicting Claims. If conflicting claims or demands are made or asserted with
respect to any interest of any Holder in any Exchangeable Shares, including any
disagreement between the heirs, representatives, successors or assigns
succeeding to all or any part of the interest of any Holder in any Exchangeable
Shares resulting in conflicting claims or demands being made in connection with
such interest, then the Trustee shall be entitled, at its sole discretion, to
refuse to recognize or to comply with any such claim or demand. In so refusing,
the Trustee may elect not to exercise any Voting Rights, Exchange Right or
Automatic Exchange Rights subject to such conflicting claims or demands and, in
so doing, the Trustee shall not be or become liable to any person on account of
such election or its failure or refusal to comply with any such conflicting
claims or demands. The Trustee shall be entitled to continue to refrain from
acting and to refuse to act until:
the rights of all adverse claimants with respect to the Voting Rights, Exchange
Right or Automatic Exchange Rights subject to such conflicting claims or demands
have been adjudicated by a final judgment of a court of competent jurisdiction;
or
all differences with respect to the Voting Rights, Exchange Right or Automatic
Exchange Right subject to such conflicting claims or demands have been
conclusively settled by a valid written agreement binding on 'all such adverse
claimants, and the Trustee shall have been furnished with an executed copy of
such agreement.
If the Trustee elects to recognize any claim or comply with any demand made by
any such adverse claimant, it may in its discretion require such claimant to
furnish such surety bond or other security satisfactory to the Trustee as it
shall deem appropriate fully to indemnify it as between all conflicting claims
or demands.
Acceptance of Trust. The Trustee hereby accepts the Trust created and provided
for by and in this Agreement and agrees to perform the same upon the terms and
conditions herein set forth and to hold all rights, privileges and benefits
conferred hereby and by law in trust for the various persons who shall from time
to time be Holders, subject to all the terms and conditions herein set forth.
Compensation
Jaws and Pace jointly and severally agree to pay to the Trustee reasonable
compensation for all of the services rendered by it under this Agreement and
will reimburse the Trustee for all reasonable expenses (including but not
limited to taxes, compensation paid to experts, agents and advisors and travel
expenses) and disbursements, including the cost and expense of any suit or
litigation of any character and any proceedings before any governmental agency
reasonably incurred by the Trustee in connection with its rights and duties
under this Agreement; provided that Jaws and Pace shall have no obligation to
reimburse the Trustee for any expenses or disbursements paid, incurred or
suffered by the Trustee in any suit or litigation in which the Trustee is
determined to have acted in bad faith or with negligence or willful misconduct.
Indemnification and Limitation of Liability
Indemnification of the Trustee. Jaws and Pace jointly and severally agree to
indemnify and hold harmless the Trustee, its partners, employees, agents,
successors and assigns (collectively, the "Indemnified Parties") against all
claims, losses, damages, costs, penalties, fines and reasonable expenses
(including reasonable expenses of the legal counsel on a solicitor and his own
client basis) which, without fraud, negligence, willful misconduct or bad faith
on the part of such Indemnified Party, may be paid, incurred or suffered by the
indemnified Party by reason of or as a result of the Trustee's acceptance or
administration of the Trust, its compliance with its duties set forth in this
Agreement, or any written or oral instructions delivered to the Trustee by Jaws
or Pace pursuant hereto. In no case shall Jaws or Pace be liable under this
indemnity for any claim against any of the Indemnified Parties unless Jaws and
Pace shall be notified by the Trustee of the written assertion of a claim or of
any action commenced against the Indemnified Parties, promptly after any of the
Indemnified Parties shall have received any such written assertion of a claim or
shall have been served with a summons or other first legal process giving
information as to the nature and basis of the claim. Subject to (ii), below,
Jaws and Pace shall be entitled to participate at their own expense in the
defense and, if Jaws or Pace so elect at any time after receipt of such notice,
either of them may assume the defense of any suit brought to enforce any such
claim. The Trustee shall have the right to employ separate counsel in any such
suit and participate in the defense thereof but the fees and expenses of such
counsel shall be at the expense of the Trustee unless: (i) the employment of
such counsel has been authorized by Jaws or Pace, such authorization not to be
unreasonably withheld; or (ii) the named parties to any such suit include both
the Trustee and Jaws or Pace and the Trustee shall have been advised by counsel
acceptable to Jaws or Pace that there may be one or more legal defenses
available to the Trustee that are different from or in addition to those
available to Jaws or Pace and that an actual or potential conflict exists (in
which case Jaws and Pace shall not have the right to assume the defense of such
suit on behalf of the Trustee but shall be liable to pay the reasonable fees and
expenses of counsel for the Trustee).
Limitation of Liability. The Trustee shall not be held liable for any loss which
may occur by reason of depreciation of the value of any part of the Trust Estate
or any loss incurred on any investment of funds pursuant to this Agreement
except to the extent that such loss is attributable to the fraud, willful
misconduct or bad faith on the part of the Trustee.
Change of Trustee
Resignation. The Trustee, or any trustee hereafter appointed, may at any time
resign by giving written notice of such resignation to Jaws and Pace specifying
the date on which it desires to resign, provided that such notice shall not be
given less than 30 days before such desired resignation date unless Jaws and
Pace otherwise agree. Upon receiving such notice of resignation, Jaws and Pace
shall promptly appoint a successor trustee by written instrument in duplicate,
one copy of which shall be delivered to the resigning trustee and one copy to
the successor trustee. Failing acceptance by a successor trustee, a successor
trustee may be appointed by an order of the Alberta Court of Queen's Bench upon
application of one or more of the parties hereto.
Removal. The Trustee, or any Trustee hereafter appointed, may be removed with or
without cause, at any time on 30 days prior notice by written instrument
executed by Jaws and Pace, in duplicate, one copy of which shall be delivered to
the trustee so removed and one copy to the successor trustee, provided that, in
connection with such removal, provision is made for a replacement trustee
similar to that contemplated in Section 10(a).
Successor Trustee. Any successor trustee appointed as provided under this
Agreement shall execute, acknowledge and deliver to Jaws and Pace and to its
predecessor trustee an instrument accepting such appointment. Thereupon the
resignation or removal of the predecessor trustee shall become effective and
such successor trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, duties and obligations of its
predecessor under this Agreement, with like effect as if originally named as
trustee in this Agreement. However, on the written request of Jaws and Pace or
of the successor trustee, the trustee ceasing to act shall, upon payment of any
amounts then due it pursuant to the provisions of this Agreement, execute and
deliver an instrument transferring to such successor trustee all the rights and
powers of the trustee so ceasing to act. Upon the request of any such successor
trustee, Jaws, Pace and such predecessor trustee shall execute any and all
instruments in writing for more fully and certainly vesting in and confirming to
such successor trustee all such rights and powers.
Notice of Successor Trustee. Upon acceptance of appointment by a successor
trustee as provided herein, Jaws and Pace shall cause to be mailed notice of the
succession of such trustee hereunder to each Holder specified in a List. If Jaws
or Pace shall fail to cause such notice to be mailed within 10 days after
acceptance of appointment by the successor trustee, the successor trustee shall
cause such notice to be mailed at the expense of Jaws and Pace.
Jaws Successors
Certain Requirements in Respect of Combination, etc. Jaws shall not enter into
any transaction (whether by way of reconstruction, reorganization,
consolidation, merger, transfer, sale, lease or otherwise) whereby all or
substantially all of its undertaking, property and assets would become the
property of any other Person or, in the case of a merger, of the continuing
corporation resulting therefrom unless:
such other Person or continuing corporation (the "Jaws Successor, by operation
of law, becomes, without further action, bound by the terms and provisions of
this Agreement or, if not so bound, executes, prior to or contemporaneously with
the consummation of such transaction an agreement supplemental hereto and such
other instruments (if any) as are satisfactory to the Trustee and in the opinion
of legal counsel to the Trustee are necessary or advisable to evidence the
assumption by the Jaws Successor of liability for all monies payable and
property deliverable hereunder and the covenant of such Jaws Successor to pay
and deliver or cause to be delivered the same and its agreement to observe and
perform all the covenants and obligations of Jaws under this Agreement; and
such transaction shall, to the satisfaction of the Trustee and in the opinion of
legal counsel to the Trustee, be upon such terms as substantially to preserve
and not to impair in any material respect any of the rights, duties, powers and
authorities of the Trustee or of the Holders hereunder.
Vesting of Powers in Successor. Whenever the conditions of Section 11 (a) hereof
have been duly observed and performed, the Trustee, if required, by Section 11
(a) hereof, the Jaws Successor and Pace shall execute and deliver the
supplemental agreement provided for in Article 12 hereof and thereupon the Jaws
Successor shall possess and from time to time may exercise each and every right
and power of Jaws under this Agreement in the name of Jaws or otherwise and any
act or proceeding by any provision of this Agreement required to be done or
performed by the board of directors of Jaws or any officers of Jaws may be done
and performed with like force and effect by the directors or officers of such
Jaws Successor.
Wholly-Owned Subsidiaries. Nothing herein shall be construed as preventing the
amalgamation or merger of any wholly-owned subsidiary of Jaws with or into Jaws
or the winding-up, liquidation or dissolution of any wholly-owned subsidiary of
Jaws provided that all of the assets of such subsidiary are transferred to Jaws
or another wholly-owned subsidiary of Jaws, and any such transactions are
expressly permitted by this Article 11.
Amendments and Supplemental Agreements
Amendments, Modifications, etc. This Agreement may not be amended or modified
except by an agreement in writing executed by Pace, Jaws and the Trustee and
approved by the Holders in accordance with Section 9.2 of the Exchangeable Share
Provisions.
Ministerial Amendments. Notwithstanding the provisions of Section 12(a) hereof,
the parties to that agreement may in writing, at any time and from time to time,
without the approval of the Holders, amend or modify this Agreement for the
purposes of:
adding to the covenants of any or all of the parties hereto for the protection
of the Holders hereunder;
making such amendments or modifications not inconsistent with this Agreement as
may be necessary or desirable with respect to matters or questions which, in the
opinion of the board of directors of each of Jaws and Pace and in the opinion of
the Trustee and its counsel having in mind the best interests of the Holders as
a whole, it may be expedient to make, provided that such boards of directors and
the Trustee and its counsel shall be of the opinion that such amendments and
modifications will not be prejudicial to the interests of the Holders as a
whole; or
making such changes or corrections which, on the advice of counsel to Pace, Jaws
and the Trustee, are required for the purpose of curing or correcting any
ambiguity or defect or inconsistent provision or clerical omission or mistake or
manifest error, provided that the Trustee and its counsel and the board of
directors of each of Pace and Jaws shall be of the opinion that such changes or
corrections will not be prejudicial to the interests of the Holders as a whole.
Meeting to Consider Amendments. Pace, at the request of Jaws, shall call a
meeting or meetings of the Holders for the purpose of considering any proposed
amendment or modification requiring approval pursuant hereto. Any such meeting
or meetings shall be called and held in accordance with the bylaws of Pace, the
Exchangeable Share Provisions and all applicable laws.
Changes in Capital of Jaws and Pace. At all times after the occurrence of any
event effected pursuant to Section 2(e) or Section 2(f) of the Support
Agreement, as a result of which either Jaws Common Stock or the Exchangeable
Shares or both are in any way changed, this Agreement shall forthwith be amended
and modified as necessary in order that it shall apply with full force and
effect, mutatis mutandis, to all new securities into which Jaws Common Stock or
the Exchangeable Shares or both are so changed and the parties hereto shall
execute and deliver a supplemental agreement giving effect to and evidencing
such necessary amendments and modifications.
Execution of Supplemental Agreements. No amendment to or modification or waiver
of any of the provisions of this Agreement otherwise permitted hereunder shall
be effective unless made in writing and signed by all of the parties hereto.
From time to time Pace (when authorized by a resolution of its Board of
Directors), Jaws (when authorized by a resolution of its board of directors) and
the Trustee may, subject to the provisions of these presents, and they shall,
when so directed by these presents, execute and deliver by their proper
officers, agreements or other instruments supplemental hereto, which thereafter
shall form part hereof, for any one or more of the following purposes:
evidencing the succession of any Jaws Successors to Jaws and the covenants
of and obligations assumed by each such Jaws Successors in accordance with the
provisions of Article 11, and the successor of any successor trustee in
accordance with the provisions of Article 10;
making any additions to, deletions from or alterations of the provisions
of this Agreement or the Voting Rights, the Exchange Right or the Automatic
Exchange Rights which, in the opinion of the Trustee and its counsel, will not
be prejudicial to the interests of the Holders as a whole or are in the opinion
of counsel to the Trustee necessary or advisable in order to incorporate,
reflect or comply with any legislation the provisions of which apply to Jaws,
Pace, the Trustee or this Agreement; and
for any other purposes not inconsistent with the provisions of this
Agreement, including without limitation to make or evidence any amendment or
modification to this Agreement as contemplated hereby, provided that, in the
opinion of the Trustee and its counsel, the rights of the Trustee and the
Holders as a whole will not be prejudiced thereby.
Termination
Term. The Trust created by this Agreement shall continue until the earliest to
occur of the following events:
no outstanding Exchangeable Shares are held by a Holder;
each of Pace and Jaws elects in writing to terminate the Trust and such
termination is approved by the Holders of the Exchangeable Shares in accordance
with Section 9.2 of the Exchangeable Share Provisions; and
twenty-one (21) years after the death of the last survivor of the descendants of
His Majesty King George Vl of the United Kingdom of Great Britain and Northern
Ireland living on the date of the creation of the Trust.
Survival of Agreement. This Agreement shall survive any termination of the Trust
and shall continue until there are no Exchangeable Shares outstanding held by a
Holder, provided, however, that the provisions of Articles 8 and 9 hereof shall
survive any such termination of this Agreement.
General
Severability. If any provision of this Agreement is held to be invalid, illegal
or unenforceable, the validity, legality or enforceability of the remainder of
this Agreement shall not in any way be affected or impaired thereby and the
agreement shall be carried out as nearly as possible in accordance with its
original terms and conditions.
Inurement. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns and to the
benefit of the Holders.
Notices to Parties. All notices and other communications between the parties
hereunder shall be in writing and shall be deemed to have been given if
delivered personally or by confirmed telecopy to the parties at the following
addresses (or at such other address for such party as shall be specified in like
notice):
(i) if to Jaws at:
1013 - 17th Avenue S.W.
Calgary, AB T2T 0A7
Attention: Robert Kubbernus, President
(ii) if to Pace at:
Suite 307, 1 Concorde Gate
Don Mills, Ontario M3C 3N9
Attention: Peter Labrinos, President
(iii) if to the Trustee at:
Ian H. Kennedy
Barrister and Solicitor
1013 - 17th Avenue S.W.
Calgary, AB T2T 0A7
Any notice or other communication given personally shall be deemed to have been
given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of receipt thereof unless
such day is not a Business Day in which case it shall be deemed to have been
given and received upon the immediately following Business Day.
Notice of Holders. Any and all notices to be given and any documents to be
sent to any Holders may be given or sent to the address of such Holder shown on
the register of Holders of Exchangeable Shares in any manner permitted by the
Exchangeable Share Provisions and shall be deemed to be received (if given or
sent in such manner) at the time specified in such Exchangeable Share
Provisions, the provisions of which the Exchangeable Share Provisions shall
apply mutatis mutandis to notices or documents as aforesaid sent to such
Holders.
Risk of Payments by Post. Whenever payments are to be made or documents are
to be sent to any Holder by the Trustee, by Pace or by Jaws or by such Holder to
the Trustee or to Jaws or Pace, the making of such payment or sending of such
document sent through the post shall be at the risk of Pace or Jaws, in the case
of payments made or documents sent by the Trustee or Pace or Jaws, and the
Holder, in the case of payments made or documents sent by the Holder.
Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which taken together shall constitute
one and the same instrument.
Jurisdiction. This Agreement shall be construed and enforced in accordance
with the laws of the Province of Alberta and the laws of Canada applicable
therein.
Attornment. Jaws agrees that any action or proceeding arising out of or
relating to this Agreement may be instituted in the courts of Alberta, waives
any objection which it may have now or hereafter to the venue of any such action
or proceeding, irrevocably submits to the jurisdiction of the said courts in any
such action or proceeding, agrees to be bound by any judgment of the said courts
and agrees not to seek, and hereby waives, any review of the merits of any such
judgment by the courts of any other jurisdiction and hereby appoints Pace at its
registered office in the Province of Alberta as Jaws's attorney for service of
process.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
duly executed as of the date first above written.
JAWS TECHNOLOGIES INC.
Per: _______________________________
Per: _______________________________
PACE SYSTEMS GROUP INC.
Per: _______________________________
Per: _______________________________
IAN H. KENNEDY, BARRISTER & SOLICITOR
Per: _______________________________
Per: _______________________________
Exhibit E - Page 1
EXHIBIT F
TERMS AND CONDITIONS OF JAWS TECHNOLOGIES, INC.
PREFERRED VOTING STOCK
SECTION 1 Special Preferred Voting Stock Designated. A series of Preferred
Stock, consisting of one share of such stock, is hereby designated as "Special
Preferred Voting Stock". The outstanding share of Special Preferred Voting
Stock shall be entitled at any relevant date to the number of votes (including
for purposes of determining the presence of a quorum) determined in accordance
with the terms and conditions of the "Exchangeable Shares", the "Support
Agreement" and the "Share Purchase Agreement" (hereinafter referred to as the
"Purchase Agreement") on all matters presented to the holders of Common Stock of
the Corporation, with the Special Preferred Voting Stock and Common Voting Stock
voting together as a single class. The Special Preferred Voting Stock shall
have no other voting rights except as required by law. No dividend shall be
paid to the holder of Special Preferred Voting Stock. The share of Special
Preferred Voting Stock shall be entitled to $1.00 on liquidation of the
Corporation in preference to any shares of Common Stock of the Corporation, but
only after the liquidation preference of any other shares of Preferred Stock of
the Corporation has been paid in full. The Special Preferred Voting Stock is
not convertible into any other class or series of the capital stock of the
Corporation or into cash, property or other rights, and may not be redeemed,
except pursuant to the last sentence of this Section 1. The share of Special
Preferred Voting Stock purchased or otherwise acquired by the Corporation shall
be deemed retired and shall be canceled and may not thereafter be reissued or
otherwise disposed of by the Corporation. So long as any Exchangeable Shares
shall be outstanding, the number of shares comprising the Special preferred
Voting Stock shall not be increased or decreased and no other term of the
Special preferred Voting Stock shall be amended, except upon the approval of the
holder of the outstanding shares of Special preferred Voting Stock. As such
time as no Exchangeable Shares shall be outstanding, the Special Preferred
Voting Stock shall automatically be redeemed, with the $1.00 liquidation
preference due and payable upon such redemption.
SECTION 2. Restriction. So long as the share of Special Voting Stock is
outstanding, the Corporation shall (i) fully comply with all terms of the
Exchangeable Shares and with all contractual obligations of the Corporation
associated with such Exchangeable Shares and (ii) not amend, change or repeal
this Section 2 except upon the unanimous approval of the holder of the
outstanding share of Special preferred Voting Stock.
11
Exhibit G - Page 11
Exhibit G - Page 1
EXHIBIT G
SCHEDULE "A"
2 EXCHANGEABLE SHARE PROVISIONS
An unlimited number of Exchangeable Shares in the capital of the
Corporation having the following rights, privileges, restrictions and
conditions:
ARTICLE I
INTERPRETATION
1.1 For the purposes of these share provisions:
"AGGREGATE EQUIVALENT VOTE AMOUNT" means, with respect to any matter,
proposition or question on which holders of Jaws Common Stock are entitled to
vote, consent or otherwise act, the product of (i) the number of shares of
Exchangeable Shares issued and outstanding and held by holders thereof (other
than Jaws and its Subsidiaries) multiplied by (ii) the number of votes to which
a holder of one share of Jaws Common Stock is entitled with respect to such
matter, proposition or question.
"JAWS" means Jaws Technologies, Inc., a corporation organized and existing under
the laws of the State of Nevada and includes any successor corporation and
Subsidiary.
"JAWS CALL NOTICE" has the meaning ascribed thereto in Section 6.3 of these
share provisions.
"JAWS COMMON STOCK" mean the shares of common stock of Jaws, with a par value of
U.S. $0.01 per share, having voting rights of one vote per share, and any other
securities into which such shares may be changed.
"JAWS DIVIDEND DECLARATION DATE" means the date on which the board of directors
of Jaws declares any dividend on the Jaws Common Stock.
"JAWS SPECIAL" Share means the share of Special Preferred Voting Stock of Jaws
with a par value of U.S. $0.01 and having voting rights at meetings of holders
of Jaws Common Stock equal to the Aggregate Equivalent Vote Amount.
"AUTOMATIC REDEMPTION DATE" means the date for the automatic redemption by the
Corporation of Exchangeable Shares pursuant to Article 7 of these share
provisions, which date shall be the fifth anniversary of the date of the first
issuance of Exchangeable Shares.
"BOARD OF DIRECTORS" means the Board of Directors of the Corporation.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day when banks
are not open for business in Calgary, Alberta.
"CORPORATION" means Pace Systems Group Inc.
"CURRENT MARKET PRICE" means, in respect of a share of Jaws Common Stock on any
date, the average of the closing prices of Jaws Common Stock during a period of
20 consecutive trading days ending not more than five trading days before such
date on such U.S. stock exchange or automated quotation system on which the Jaws
Common Stock is listed or quoted, as the case may be, as may be selected by the
Board of Directors for such purpose; provided, however, that if in the opinion
of the Board of Directors the public distribution or trading activity of Jaws
Common Stock during such periods does not create a market which reflects the
fair market value of a share of Jaws Common Stock, then the Current Market Price
of a share of Jaws Common Stock shall be determined by the Board of Directors
based upon the advice of such qualified independent financial advisors as the
Board of Directors may deem to be appropriate, and provided further that any
such selection, opinion or determination by the Board of Directors shall be
conclusive and binding.
"EXCHANGEABLE SHARE CONSIDERATION" means, for any acquisition of Exchangeable
Shares pursuant to these share provisions, the Share Purchase Agreement, the
Support Agreement or the Voting and Exchange Trust Agreement the following:
certificates representing the aggregate number of shares of Jaws Common
Stock deliverable in connection with such acquisition;
a cheque or cheques payable at par at any branch of the bankers of the
payor in the amount of declared and unpaid cash dividends deliverable in
connection with such acquisition; and
such stock or property constituting any declared and unpaid non-cash
dividends deliverable in connection with such acquisition;
provided that any such stock or property shall be duly issued as fully paid and
non-assessable, in the case of stock, and free and clear of any lien, claim and
encumbrance, security interest or adverse claim and provided further that such
consideration shall be paid less any tax required to be deducted and withheld
therefrom and without interest.
"EXCHANGEABLE SHARE PRICE" means, for each Exchangeable Share:
the Current Market Price of a share of Jaws Common Stock, which shall be
satisfied in full by causing to be delivered one share of Jaws Common Stock,
plus
an additional amount equal to the full amount of all cash dividends
declared and unpaid on such Exchangeable Share; plus
the stock or other non-cash assets, if any, representing non-cash dividends
declared and unpaid on such Exchangeable Share.
"EXCHANGEABLE SHARES" mean the Exchangeable Shares of the Corporation having the
rights, privileges, restrictions and conditions set forth herein.
"LIQUIDATION AMOUNT" has the meaning attributed thereto in Section 5.1 of these
share provisions.
"LIQUIDATION CALL RIGHT" means the overriding right of Jaws, in the event of a
proposed liquidation, dissolution or winding-up of the Corporation, to purchase
all of the outstanding Exchangeable Shares from the holders thereof on the
effective date of any such liquidation, dissolution or winding- up in exchange
for shares of Jaws Common Stock.
"LIQUIDATION DATE" has the meaning attributed thereto in Section 5.1 of these
share provisions.
"PACE" means Pace Systems Group Inc., a corporation duly incorporated pursuant
to the laws of the Province of Ontario.
"PURCHASE PRICE" has the meaning attributed thereto in Section 6.3 of these
share provisions.
"REDEMPTION CALL PURCHASE PRICE" means, for each Exchangeable Share:
the Current Market Price of a share of Jaws Common Stock, which shall be
satisfied in full by causing to be delivered one share of Jaws Common Stock,
plus
an additional amount equal to the full amount of all cash dividends
declared and unpaid on such Exchangeable Share; plus
the stock or other non-cash assets, if any, representing non-cash dividends
declared and unpaid on such Exchangeable Share.
"REDEMPTION CALL RIGHT" means the overriding right pursuant to the Support
Agreement of Jaws to purchase all of the outstanding Exchangeable Shares from
the holders thereof on the Automatic Redemption Date in exchange for shares of
Jaws Common Stock.
"REDEMPTION PRICE" has the meaning attributed thereto in Section 7.1 of these
share provisions.
"RETRACTED SHARES" has the meaning attributed thereto in Subsection 6.1 (i) of
these share provisions.
"RETRACTION CALL RIGHT" means the overriding right of Jaws, in the event of a
proposed retraction of Exchangeable Shares by a holder thereof, to purchase from
such holder on the Retraction Date the Exchangeable Shares tendered for
retraction in exchange for shares of Jaws Common Stock pursuant to the
Exchangeable Share Provisions.
"RETRACTION DATE" has the meaning attributed thereto in Subsection 6.1 (ii) of
these share provisions.
"RETRACTION PRICE" has the meaning attributed thereto in Section 6.1 of these
share provisions.
"RETRACTION REQUEST" has the meaning attributed thereto in Section 6.1 of these
share provisions.
"SHARE PURCHASE AGREEMENT" means the share purchase agreement between Jaws
Technologies Inc., Jaws Technologies (Ontario) Inc. and the shareholders of Pace
dated the 15th day of October, 1999.
"SUBSIDIARY" of any person means each partnership, joint venture, corporation,
association or other business entity of which more than 50% of the total voting
power of shares of stock or units of ownership or beneficial interest entitled
to vote in the election of directors (or members of a comparable governing body)
is owned or controlled, directly or indirectly, by such person.
"SUPPORT AGREEMENT" means the support agreement between Jaws and the
Corporation, made as of October 15, 1999.
"TRUSTEE" means Ian H. Kennedy, Barrister and Solicitor, 1013 17th Avenue,
Calgary, Alberta T2T 0A7, or any successor trustee appointed under the
provisions of the Voting and Exchange Trust Agreement.
"VOTING AND EXCHANGE TRUST AGREEMENT" means the Voting and Exchange Trust
Agreement among the Corporation, Jaws and the Trustee, made as of October 15,
1999.
ARTICLE II
RANKING OF EXCHANGEABLE SHARES
The Exchangeable Shares shall be entitled to a preference over all other
shares of the Corporation, with respect to the payment of dividends and the
distribution of assets in the event of the liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary, or any other
distribution of the assets of the Corporation among its shareholders for the
purpose of winding-up its affairs.
ARTICLE III
DIVIDENDS
A holder of an Exchangeable Share shall be entitled to receive and the
Board of Directors shall, subject to applicable law, on each Jaws Dividend
Declaration Date, declare a dividend on each Exchangeable Share (a) in the case
of a cash dividend declared on the Jaws Common Stock, in an amount in cash for
each Exchangeable Share equal to the cash dividend declared on each share of
Jaws Common Stock or (b) in the case of a stock dividend declared on the Jaws
Common Stock to be paid in Jaws Common Stock, such number of Exchangeable Shares
for each Exchangeable Share as is equal to the number of shares of Jaws Common
Stock to be paid on each share of Jaws Common Stock or (c) in the case of a
dividend declared on the Jaws Common Stock in property other than cash or
securities of Jaws in such type and amount of property for each Exchangeable
Share as is the same as the type and amount of property declared as a dividend
on each share of Jaws Common Stock or (d) in the case of a dividend declared on
the Jaws Common Stock to be paid in securities of Jaws other than Jaws Common
Stock, in such number of either such securities or economically equivalent
securities of the Corporation, as the Board of Directors determines, for each
Exchangeable Share as is equal to the number of securities of Jaws to be paid on
each share of Jaws Common Stock. Such dividends shall be paid out of money,
assets or property of the Corporation properly applicable to the payment of
dividends, or out of authorized but unissued shares of the Corporation.
Cheques of the Corporation payable at par at any branch of the bankers of
the Corporation shall be issued in respect of any cash dividends contemplated by
Subsection 3.1 (a) hereof and the sending of such a cheque to each holder of an
Exchangeable Share (less any tax required to be deducted and withheld from such
dividends paid or credited by the Corporation) shall satisfy the cash dividend
represented thereby unless the cheque is not paid on presentation. Certificates
registered in the name of the registered holder of Exchangeable Shares shall be
issued or transferred in respect of any stock dividends or dividends payable in
other securities contemplated by Subsections 3.1 (b) or (d) hereof and the
sending of such a certificate to each holder of an Exchangeable Share shall
satisfy the stock dividend or dividend payable in other securities represented
thereby. Such other type and amount of property in respect of any dividends
contemplated by Subsection 3.1 (c) hereof shall be issued, distributed or
transferred by the Corporation in such manner as it shall determine and the
issuance, distribution or transfer thereof by the Corporation to each holder of
an Exchangeable Share shall satisfy the dividend represented thereby (subject to
any adjustment for the tax required to be deducted and withheld from such
dividends paid or credited by the Corporation). No holder of an Exchangeable
Share shall be entitled to recover by action or other legal process against the
Corporation any dividend that is represented by a cheque that has not been duly
presented to the Corporation's bankers for payment or that otherwise remains
unclaimed for a period of six years from the date on which such dividend was
payable.
The record date for the determination of the holders of Exchangeable Shares
entitled to receive payment of, and the payment date for, any dividend declared
on the Exchangeable Shares under Section 3.1 hereof shall be the same dates as
the record date and payment date, respectively, for the corresponding dividend
declared on the Jaws Common Stock.
If on any payment date for any dividends declared on the Exchangeable
Shares under Section 3.1 hereof the dividends are not paid in full on all of the
Exchangeable Shares then outstanding, any such dividends that remain unpaid
shall be paid on a subsequent date or dates determined by the Board of Directors
on which the Corporation shall have sufficient moneys, assets or property
applicable to the payment of such dividends (subject to any adjustment for the
tax required to be deducted and withheld from such dividends paid or credited by
the Corporation).
Except as provided in this Article 3, the holders of Exchangeable Shares
shall not be entitled to receive dividends in respect thereof.
ARTICLE IV
CERTAIN RESTRICTIONS
So long as any of the Exchangeable Shares are outstanding, the Corporation
shall not at any time without, but may at any time with, the approval of the
holders of the Exchangeable Shares given as specified in Section 9.2 of these
share provisions:
pay any dividends on any other shares of the Corporation;
redeem or purchase or make any capital distribution in respect of any other
shares of the Corporation;
redeem or purchase any other shares of the Corporation;
issue any Exchangeable Shares or any other shares of the Corporation
ranking equally with, or superior to, the Exchangeable Shares other than by way
of stock dividends (including rights to acquire Exchangeable Shares) to the
holders of such Exchangeable Shares or distributions of securities as
contemplated by the Support Agreement; or
amend the articles or by-laws of the Corporation.
ARTICLE V
DISTRIBUTION ON LIQUIDATION
In the event of the liquidation, dissolution or winding-up of the
Corporation or any other distribution of the assets of the Corporation among its
shareholders for the purpose of winding-up its affairs, a holder of Exchangeable
Shares shall be entitled, subject to applicable law, to receive from the assets
of the Corporation in respect of each Exchangeable Share held by such holder on
the effective date (the 'Liquidation Date') of such liquidation, dissolution or
winding-up, before any distribution of any part of the assets of the Corporation
to the holders of any other shares of the Corporation an amount equal to the
Exchangeable Share Price applicable on the last Business Day prior to the
Liquidation Date (the "Liquidation Amount").
On or promptly after the Liquidation Date, and subject to the exercise by
Jaws of the Liquidation Call Right, the Corporation shall cause to be delivered
to the holders of the Exchangeable Shares the Liquidation Amount for each such
Exchangeable Share upon presentation and surrender of the certificates
representing such Exchangeable Shares, together with such other documents and
instruments as may be required to effect a transfer of Exchangeable Shares under
applicable law and the by-laws of the Corporation at the registered office of
the Corporation. Payment of the total Liquidation Amount for such Exchangeable
Shares shall be made by delivery to each holder, at the address of the holder
recorded in the securities register of the Corporation for the Exchangeable
Shares or by holding for pick up by the holder at the registered office of the
Corporation of the Exchangeable Share Consideration representing the total
Liquidation Amount. On and after the Liquidation Date, the holders of the
Exchangeable Shares shall cease to be holders of such Exchangeable Shares and
shall not be entitled to exercise any of the rights of holders in respect
thereof, other than the right to receive their proportionate part of the total
Liquidation Amount, unless payment of the total Liquidation Amount for such
Exchangeable Shares shall not be made upon presentation and surrender of share
certificates in accordance with the foregoing provisions, in which case the
rights of the holders shall remain unaffected until the total Liquidation Amount
has been paid in the manner hereinbefore provided. The Corporation shall have
the right at any time on or after the Liquidation Date to deposit or cause to be
deposited the Exchangeable Share Consideration in respect of the Exchangeable
Shares represented by certificates that have not at the Liquidation Date been
surrendered by the holders thereof in a custodial account or for safe keeping,
in the case of non-cash items, with any chartered bank or trust company in
Canada. Upon such deposit being made, the rights of the holders of Exchangeable
Shares after such deposit shall be limited to receiving their proportionate part
of the total Liquidation Amount for such Exchangeable Shares so deposited,
against presentation and surrender of the said certificates held by them,
respectively, in accordance with the foregoing provisions. Upon such payment or
deposit of such Exchangeable Share Consideration, the holders of the
Exchangeable Shares shall thereafter be considered and deemed for all purposes
to be the holders of the Jaws Common Stock delivered to them.
After the Corporation has satisfied its obligations to pay the holders of
the Exchangeable Shares the Liquidation Amount per Exchangeable Share pursuant
to Section 5.1 of these share provisions, such holders shall not be entitled to
share in any further distribution of the assets of the Corporation.
ARTICLE VI
RETRACTION OF EXCHANGEABLE SHARES BY HOLDER
A holder of Exchangeable Shares shall be entitled at any time, subject to
the exercise by Jaws of the Retraction Call Right and otherwise upon compliance
with the provisions of this Article 6, to require the Corporation to redeem any
or all of the Exchangeable Shares registered in the name of such holder for an
amount equal to the Exchangeable Share Price applicable on the last Business Day
prior to the Retraction Date (the "Retraction Price"). To effect such
redemption, the holder shall present and surrender at the registered office of
the Corporation the certificate or certificates representing the Exchangeable
Shares which the holder desires to have the Corporation redeem, together with
such other documents and instruments as may be required to effect a transfer of
Exchangeable Shares under applicable law and the by-laws of the Corporation
together with a duly executed statement (the Retraction Request') in the form of
Exhibit A hereto or in such other form as may be acceptable to the Corporation:
specifying that the holder desires to have all or any number specified therein
of the Exchangeable Shares represented by such certificate or certificates (the
'Retracted Shares') redeemed by the Corporation;
stating the Business Day on which the holder desires to have the Corporation
redeem the Retracted Shares (the "Retraction Date"), provided that the
Retraction Date shall be not less than 10 Business Days nor more than 30
Business Days after the date on which the Retraction Request is received by the
Corporation and further provided that, in the event that no such Business Day is
specified by the holder in the Retraction Request, the Retraction Date shall be
deemed to be the tenth Business Day after the date on which the Retraction
Request is received by the Corporation; and
acknowledging the overriding right (the "Retraction Call Right") of Jaws to
purchase all but not less than all of the Retracted Shares directly from the
holder and that the Retraction Request shall be deemed to be a revocable offer
by the holder to sell the Retracted Shares to Jaws in accordance with the
Retraction Call Right on the terms and conditions set out in Section 6.3 below.
Subject to the exercise by Jaws of the Retraction Call Right, upon receipt
by the Corporation in the manner specified in Section 6.1 hereof of a
certificate or certificates representing the number of Exchangeable Shares which
the holder desires to have the Corporation redeem, together with a Retraction
Request, and provided that the Retraction Request is not revoked by the holder
in the manner specified in Section 6.7, the Corporation shall redeem the
Retracted Shares effective at the close of business on the Retraction Date and
shall cause to be delivered to such holder the total Retraction Price with
respect to such shares. If only a part of the Exchangeable Shares represented by
any certificate are redeemed (or purchased by Jaws pursuant to the Retraction
Call Right), a new certificate for the balance of such Exchangeable Shares shall
be issued to the holder at the expense of the Corporation.
Upon receipt by the Corporation of a Retraction Request, the Corporation
shall immediately notify Jaws thereof. In order to exercise the Retraction Call
Right, Jaws must notify the Corporation in writing of its determination to do so
(the "Jaws Call Notice") within seven Business Days of notification to Jaws by
the Corporation of the receipt by the Corporation of the Retraction Request. If
Jaws does not so notify the Corporation within such seven Business Day period,
the Corporation will notify the holder as soon as possible thereafter that Jaws
will not exercise the Retraction Call Right. If Jaws delivers the Jaws Call
Notice within such seven Business Day time period, and provided that the
Retraction Request is not revoked by the holder in the manner specified in
Section 6.7, the Retraction Request shall thereupon be considered only to be an
offer by the holder to sell the Retracted Shares to Jaws in accordance with the
Retraction Call Right. In such event, the Corporation shall not redeem the
Retracted Shares and Jaws shall purchase from such holder and such holder shall
sell to Jaws on the Retraction Date the Retracted Shares for a purchase price
(the "Purchase Price") per share equal to the Retraction Price per share. For
the purposes of completing a purchase pursuant to the Retraction Call Right,
Jaws shall deposit with the Trustee, on or before the Retraction Date the
Exchangeable Share Consideration representing the total Purchase Price. Provided
that such Exchangeable Share Consideration has been so deposited with the
Trustee, the closing of the purchase and sale of the Retracted Shares pursuant
to the Retraction Call Right shall be deemed to have occurred as at the close of
business on the Retraction Date and, for greater certainty, no redemption by the
Corporation of such Retracted Shares shall take place on the Retraction Date. In
the event that Jaws does not deliver an Jaws Call Notice within such seven
Business Day period or otherwise comply with these Exchangeable Share provisions
in respect thereto, and provided that Retraction Request is not revoked by the
holder in the manner specified in Section 6.7, the Corporation shall redeem the
Retracted Shares on the Retraction Date and in the manner otherwise contemplated
in this Article 6.
The Corporation or Jaws, as the case may be, shall deliver or cause the
Trustee to deliver to the relevant holder, at the address of the holder recorded
in the securities register of the Corporation for the Exchangeable Shares or at
the address specified in the holders Retraction Request or by holding for pick
up by the holder at the registered office of the Corporation the Exchangeable
Share Consideration representing the total Retraction Price or the total
Purchase Price, as the case may be, and such delivery of such Exchangeable Share
Consideration to the Trustee shall be deemed to be payment of and shall satisfy
and discharge all liability for the total Retraction Price or total Purchase
Price, as the case may be, unless any cheque included therein is not paid on due
presentation.
On and after the close of business on the Retraction Date, the holder of
the Retracted Shares shall cease to be a holder of such Retracted Shares and
shall not be entitled to exercise any of the rights of a holder in respect
thereof, other than the right to receive his proportionate part of the total
Retraction Price or total Purchase Price, as the case may be, unless upon
presentation and surrender of certificates in accordance with the foregoing
provisions, payment of the total Retraction Price or the total Purchase Price,
as the case may be, shall not be made, in which case the rights of such holder
shall remain unaffected until the total Retraction Price or the total Purchase
Price, as the case may be, has been paid in the manner hereinbefore provided. On
and after the close of business on the Retraction Date, provided that
presentation and surrender of certificates and payment of the total Retraction
Price or the total Purchase Price, as the case may be, has been made in
accordance with the foregoing provisions, the holder of the Retracted Shares so
redeemed by the Corporation or purchased by Jaws shall thereafter be considered
and deemed for all purposes to be a holder of the Jaws Common Stock delivered to
it.
Notwithstanding any other provision of this Article 6, the Corporation
shall not be obligated to redeem Retracted Shares specified by a holder in a
Retraction Request to the extent that such redemption of Retracted Shares would
be contrary to liquidity or solvency requirements or other provisions of
applicable law. If the Corporation believes that on any Retraction Date it would
not be permitted by any of such provisions to redeem the Retracted Shares
tendered for redemption on such date, and provided that Jaws shall not have
exercised the Retraction Call Right with respect to the Retracted Shares, the
Corporation shall only be obligated to redeem Retracted Shares specified by a
holder in a Retraction Request to the extent of the maximum number that may be
so redeemed (rounded down to a whole number of shares) as would not be contrary
to such provisions and shall notify the holder at least seven Business Days
prior to the Retraction Date as to the number of Retracted Shares which will not
be redeemed by the Corporation. In any case in which the redemption by the
Corporation of Retracted Shares would be contrary to liquidity or solvency
requirements or other provisions of applicable law, the Corporation shall redeem
Retracted Shares in accordance with Section 6.2 of these share provisions on a
PRO RATA basis and shall issue to each holder of Retracted Shares a new
certificate, at the expense of the Corporation, representing the Retracted
Shares not redeemed by the Corporation pursuant to Section 6.2 hereof. Provided
that the Retraction Request is not revoked by the holder in the manner specified
in Section 6.7, the holder of any such Retracted Shares not redeemed by the
Corporation pursuant to Section 6.2 of these share provisions as a result of
liquidity or solvency requirements of applicable law shall be deemed by giving
the Retraction Request to require Jaws to purchase such Retracted Shares from
such holder on the Retraction Date or as soon as practicable thereafter on
payment by Jaws to such holder of the Purchase Price for each such Retracted
Share, all as more specifically provided in the Voting and Exchange Trust
Agreement, and Jaws shall make such purchase.
A holder of Retracted Shares may, by notice in writing given by the holder
to the Corporation before the close of business on the Business Day immediately
preceding the Retraction Date, withdraw its Retraction Request in which event
such Retraction Request shall be null and void and, for greater certainty, the
revocable offer constituted by the Retraction Request to sell the Retracted
Shares to Jaws shall be deemed to have been revoked.
ARTICLE VII
REDEMPTION OF EXCHANGEABLE SHARES BY THE CORPORATION
Subject to applicable law and the Redemption Call Right, the Corporation
shall on the Automatic Redemption Date redeem the whole of the then outstanding
Exchangeable Shares for an amount equal to the Exchangeable Share Price
applicable on the last Business Day prior to the Automatic Redemption Date (the
"Redemption Price").
In any case of a redemption of Exchangeable Shares under this Article 7,
the Corporation shall, at least 60 days before the Automatic Redemption Date,
send or cause to be sent to each holder of Exchangeable Shares a notice in
writing of the redemption by the Corporation or the purchase by Jaws under the
Redemption Call Right, as the case may be, of the Exchangeable Shares held by
such holder.
On or after the Automatic Redemption Date and subject to the exercise by
Jaws of the Redemption Call Right, the Corporation shall cause to be delivered
to the holders of the Exchangeable Shares to be redeemed the Redemption Price
for each such Exchangeable Share upon presentation and surrender at the
registered office of the Corporation the certificates representing such
Exchangeable Shares, together with such other documents and instruments as may
be required to effect a transfer of Exchangeable Shares under applicable law and
the by-laws of the Corporation. Payment of the total Redemption Price for such
Exchangeable Shares shall be made by delivery to each holder, at the address of
the holder recorded in the securities register of the Corporation or by holding
for pick up by the holder at the registered office of the Corporation of the
Exchangeable Share Consideration representing the total Redemption Price. On and
after the Automatic Redemption Date, the holders of the Exchangeable Shares
called for redemption shall cease to be holders of such Exchangeable Shares and
shall not be entitled to exercise any of the rights of holders in respect
thereof, other than the right to receive their proportionate part of the total
Redemption Price, unless payment of the total Redemption Price for such
Exchangeable Shares shall not be made upon presentation and surrender of
certificates in accordance with the foregoing provisions, in which case the
rights of the holders shall remain unaffected until the total Redemption Price
has been paid in the manner hereinbefore provided. The Corporation shall have
the right at any time after the sending of notice of its intention to redeem the
Exchangeable Shares as aforesaid to deposit or cause to be deposited the
Exchangeable Share Consideration with respect to the Exchangeable Shares so
called for redemption, or of such of the said Exchangeable Shares represented by
certificates that have not at the date of such deposit been surrendered by the
holders thereof in connection with such redemption, in a custodial account or
for safe keeping, in the case of non-cash items, with any chartered bank or
trust company in Canada named in such notice. Upon the later of such deposit
being made and the Automatic Redemption Date, the Exchangeable Shares in respect
whereof such deposit shall have been made shall be redeemed and the rights of
the holders thereof after such deposit or Automatic Redemption Date, as the case
may be, shall be limited to receiving their proportionate part of the total
Redemption Price for such Exchangeable Shares so deposited, against presentation
and surrender of the said certificates held by them, respectively, in accordance
with the foregoing provisions. Upon such payment or deposit of such Exchangeable
Share Consideration, the holders of the Exchangeable Shares shall thereafter be
considered and deemed for all purposes to be holders of the Jaws Common Stock
delivered to them.
ARTICLE VIII
VOTING RIGHTS
Except as required by applicable law and the provisions hereof, the holders
of the Exchangeable Shares shall not be entitled as such to receive notice of or
to attend any meeting of the shareholders of the Corporation or to vote at any
such meeting.
ARTICLE IX
AMENDMENT AND APPROVAL
The rights, privileges, restrictions and conditions attaching to the
Exchangeable Shares may be added to, changed or removed but, except as
hereinafter provided, only with the approval of the holders of the Exchangeable
Shares given as hereinafter specified.
Any approval given by the holders of the Exchangeable Shares to add to,
change or remove any right, privilege, restriction or condition attaching to the
Exchangeable Shares or any other matter requiring the approval or consent of the
holders of the Exchangeable Shares shall be deemed to have been sufficiently
given if it shall have been given in accordance with applicable law subject to a
minimum requirement that such approval be evidenced by resolution passed by not
less than two-thirds of the votes cast on such resolution by persons represented
in person or by proxy at a meeting of holders of Exchangeable Shares duly called
and held at which the holders of at least 30% (excluding Exchangeable Shares
beneficially owned by Jaws or its Subsidiaries) of the outstanding Exchangeable
Shares at that time are present or represented by proxy. If at any such meeting
the holders of at least 30% (excluding Exchangeable Shares beneficially owned by
Jaws or its Subsidiaries) of the outstanding Exchangeable Shares at that time
are not present or represented by proxy within one-half hour after the time
appointed for such meeting then the meeting shall be adjourned to such date not
less than 10 days thereafter and to such time and place as may be designated by
the Chairman of such meeting. At such adjourned meeting the holders of
Exchangeable Shares present or represented by proxy thereat may transact the
business for which the meeting was originally called and a resolution passed
thereat by the affirmative vote of not less than two- thirds of the votes cast
on such resolution by holders of Exchangeable Shares represented in person or by
proxy at such meeting shall constitute the approval or consent of the holders of
the Exchangeable Shares.
ARTICLE X
RECIPROCAL CHANGES, ETC. IN RESPECT OF JAWS COMMON STOCK
Each holder of an Exchangeable Share acknowledges that the Support
Agreement provides, in part, that Jaws will not without the prior approval of
the Corporation and the prior approval of the holders of the Exchangeable Shares
given in accordance with Section 9.2 of these share provisions:
issue or distribute Jaws Common Stock (or securities exchangeable for or
convertible into or carrying rights to acquire Jaws Common Stock) to the holders
of all or substantially all of the then outstanding Jaws Common Stock by way of
stock dividend or other distribution; or
(i) issue or distribute rights, options or warrants to the holders of all or
substantially all of the then outstanding Jaws Common Stock entitling them to
subscribe for or to purchase shares of Jaws Common Stock (or securities
exchangeable for or convertible into or carrying rights to acquire shares of
Jaws Common Stock);
unless the Corporation is permitted under applicable law to issue or distribute
the economic equivalent on a per share basis of such rights, options,
securities, shares, or other assets to holders of the Exchangeable Shares and
the Corporation shall issue or distribute the economic equivalent on a per share
basis of such rights, options, securities, shares or other assets simultaneously
to holders of the Exchangeable Shares.
Each holder of an Exchangeable Share acknowledges that the Support Agreement
further provides, in part, that Jaws will not without the prior approval of the
Corporation and the prior approval of the holders of the Exchangeable Shares
given in accordance with Section 9.2 of these share provisions:
subdivide, redivide or change the then outstanding shares of Jaws Common Stock
into a greater number of shares of Jaws Common Stock, or
reduce, combine or consolidate or change the then outstanding shares of Jaws
Common Stock into a lesser number of shares of Jaws Common Stock, or
reclassify or otherwise change the shares of Jaws Common Stock or effect an
amalgamation, merger, reorganization or other transaction affecting the shares
of Jaws Common Stock,
unless the Corporation is permitted under applicable law to simultaneously make
the same or an equivalent change to, or in the rights of holders of, the
Exchangeable Shares and the same or an equivalent change is made to, or in the
rights of the holders of, the Exchangeable Shares.
The Support Agreement further provides, in part, that the aforesaid provisions
of the Support Agreement shall not be changed without the approval of the
holders of the Exchangeable Shares given in accordance with Section 9.2 of these
share provisions.
ARTICLE XI
ACTIONS BY THE CORPORATION UNDER SUPPORT AGREEMENT
The Corporation shall take all such actions and do all such things as shall
be necessary or advisable to perform and comply with and to ensure performance
and compliance by Jaws with all provisions of the Support Agreement and the
Voting Trust and Exchange Agreement in accordance with the terms thereof
including, without limitation, taking all such actions and doing all such things
as shall be necessary or advisable to enforce to the fullest extent possible for
the direct benefit of the Corporation all rights and benefits in favour of the
Corporation under or pursuant thereto.
The Corporation shall not propose, agree to or otherwise give effect to any
amendment to, or waiver or forgiveness of its rights or obligations under, the
Support Agreement or the Voting Trust and Exchange Agreement or without the
approval of the holders of the Exchangeable Shares given in accordance with
Section 9.2 of these share provisions other than such amendments, waivers and/or
forgiveness as may be necessary or advisable for the purposes of.
adding to the covenants of the other party or parties to such agreement for
the protection of the Corporation or the holders of Exchangeable Shares; or
making such provisions or modifications not inconsistent with such
agreement as may be necessary or desirable with respect to matters or questions
arising thereunder which, in the opinion of the Board of Directors, it may be
expedient to make, provided that the Board of Directors shall be of the opinion,
after consultation with counsel, that such provisions and modifications will not
be prejudicial to the interests of the holders of the Exchangeable Shares; or
making such changes in or corrections to such agreement which, on the
advice of counsel to the Corporation, are required for the purpose of curing or
correcting any ambiguity or defect or inconsistent provision or clerical
omission or mistake or manifest error contained therein, provided that the Board
of Directors shall be of the opinion, after consultation with counsel, that such
changes or corrections will not be prejudicial to the interests of the holders
of the Exchangeable Shares.
ARTICLE XII
LEGEND
The certificates evidencing the Exchangeable Shares shall contain or have
affixed thereto a legend, in form and on terms approved by the Board of
Directors, with respect to the Support Agreement and the Redemption Call Right,
and the Voting and Exchange Trust Agreement (including the provisions with
respect to the voting rights, exchange right and automatic exchange thereunder).
ARTICLE XIII
MISCELLANEOUS
Any notice, request or other communication to be given to the Corporation
by a holder of Exchangeable Shares shall be in writing and shall be valid and
effective if given by mail (postage prepaid) or by telecopy or by delivery to
the registered office of the Corporation and addressed to the attention of the
President. Any such notice, request or other communication, if given by mail,
telecopy or delivery, shall only be deemed to have been given and received upon
actual receipt thereof by the Corporation.
Any presentation and surrender by a holder of Exchangeable Shares to the
Corporation of certificates representing Exchangeable Shares in connection with
the liquidation, dissolution or winding-up of the Corporation or the retraction
or redemption of Exchangeable Shares shall be made by registered mail (postage
prepaid) or by delivery to the registered office of the Corporation addressed to
the attention of the President of the Corporation. Any such presentation and
surrender of certificates shall only be deemed to have been made and to be
effective upon actual receipt thereof by the Corporation. Any such presentation
and surrender of certificates made by registered mail shall be at the sole risk
of the holder mailing the same.
Any notice, request or other communication to be given to a holder of
Exchangeable Shares by or on behalf of the Corporation shall be in writing and
shall be valid and effective if given by mail (postage prepaid) or by delivery
to the address of the holder recorded in the securities register of the
Corporation or, in the event of the address of any such holder not being so
recorded, then at the last known address of such holder. Any such notice,
request or other communication, if given by mail, shall be deemed to have been
given and received on the fifth Business Day following the date of mailing and,
if given by delivery, shall be deemed to have been given and received on the
date of delivery. Accidental failure or omission to give any notice, request or
other communication to one or more holders of Exchangeable Shares shall not
invalidate or otherwise alter or affect any action or proceeding to be taken by
the Corporation pursuant thereto.
All Exchangeable Shares acquired by the Corporation upon the redemption or
retraction thereof shall be canceled.
EXHIBIT H
JAWS TECHNOLOGIES INC. ANNOUNCES ACQUISITION OF
TORONTO-BASED PACE SYSTEMS GROUP
"JAWS TO ENTER INTERNATIONAL FINANCIAL INFORMATION TECHNOLOGY MARKETS"
TORONTO, Canada, November 2, 1999 - JAWS Technologies Inc. announced today that
it intends to acquire Toronto-based PACE Systems Group Inc. PACE is a
successful, private company founded in 1985 with an impressive history of
providing financial information technology security solutions to some of the
largest financial organizations in North America and Europe.
"The acquisition of PACE provides an excellent opportunity for JAWS Technologies
to apply our professional information security services (ISS) model directly
within the financial markets," said Robert Kubbernus, Chairman and CEO, JAWS
Technologies Inc. "PACE brings us 16 of Canada's most highly qualified
financial information and technology specialists who have developed excellent
relationships with clients including several major Canadian and international
banks, Sun Life Trust, Interac Association, ING DIRECT, SNS Assure, Future Shop,
Grand & Toy, ISM (Vienna Stock Exchange) and IBM in the development of software
for the Toronto Stock Exchange's trading system," said Kubbernus.
In the terms of the acquisition, JAWS will issue up to a maximum of 1.7 million
shares over the next two years at an issue price of $1.70 per share. The terms
of the purchase also include performance targets and retention contracts for key
PACE employees.
"JAWS' new sales office in Toronto will be immediately incorporated into the
PACE structure, however, the combined entity will be integrated under the JAWS'
identity," said Kubbernus. "We are at a very exciting juncture in JAWS' growth
plan and look forward to working with our new employees and clients."
It is anticipated that the acquisition of PACE should immediately allow for a $2
million annualized increase in JAWS' revenue not including the advantages given
to new sales of JAWS' products and services which will be generated through this
acquisition.
"Over the past twelve months I have been investigating the right opportunities
to allow PACE to effectively meet the demands of our customers," said Peter
Labrinos, President, PACE Systems Group. "With the dramatic increase in
worldwide demand for information security services, we needed to find a strong
and aggressive partner to help us meet 50% year-over-year growth projections.
In JAWS, we found an ideal combination of services, products and current
relationships that will allow us together, to compete as a significant North
American and international information security services company."
ABOUT JAWS TECHNOLOGIES
JAWS Technologies has quickly become a world leader in the provision of
information security technology products and consulting services. JAWS
Technologies is based in Calgary, Canada and has offices in Toronto, Canada and
Pasadena, California, USA. Throughout the world JAWS Technologies now has over
twenty strategic partners, approximately 100 corporate clients, over 300
authorized re-sellers and has distributed approximately 550,000 copies of JAWS
XMail. JAWS Technologies is currently traded on the NASD-OTC BB, under the
symbol JAWZ. For more information, visit the company's website at
www.jawstech.com or call 1-888-301-5297.
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Forward-looking statements and comments in this press release are made pursuant
to safe harbor provisions of the Securities Exchange Act of 1934. Such
statements relating to, among other things, the prospects for the companies to
complete the transaction and enhance operating results, are necessarily subject
to risks and uncertainties, some of which are significant in scope and nature.
These risks may be further discussed in periodic reports and registration
statements to be filed by the Company form time to time with the Securities and
Exchange Commission in the future.