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EXHIBIT 10.2
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT ("Loan
Agreement") is made as of July 30, 2001 (the "Effective Date"), by
XxxxXxxxxx.Xxx Corp., a Florida corporation, and its wholly-owned subsidiaries
Xceedx Technologies Inc. and Welcome To Search Engine Inc., corporations
organized under the laws of the province of British Columbia, Canada, (the
"Borrowers"), in favor of Xxx Enterprises, Incorporated, a Delaware corporation
(the "Lender").
RECITALS:
A. Borrowers and Lender are parties to a certain Loan and
Security Agreement dated as of August 16, 2000 (which, together with all
amendments and modifications thereto prior to the date hereof, is hereinafter
referred to as the "Existing Loan and Security Agreement"). Borrowers and Lender
desire to enter into this Loan and Security Agreement, which will initially
re-evidence the loans under the Existing Loan and Security Agreement and
thereafter provide for other extensions of credit and other financial
accommodations to Borrowers. The parties wish to provide for the terms and
conditions upon which all such extensions of credit or other financial
accommodations shall be made.
B. Lender has advanced to CityXpress three separate advances
consisting of: (x) an advance on August 17, 2000 in the amount of $125,000 in
accordance with the terms of this Agreement and the Promissory Note attached
hereto as EXHIBIT 1; (y) an advance as of August 28, 2000 in the amount of
$125,000 in accordance with the terms of this Agreement and the Promissory Note
attached hereto as EXHIBIT 2; (z) an advance on September 19, 2000 in the amount
of $40,000 in accordance with the terms of this Agreement and the Promissory
Note attached hereto as EXHIBIT 1.2 (EXHIBITS 1, 2, and 1.2 are collectively the
"Notes"). Lender has purchased and is purchasing from CityXpress Series A-R
Floating Rate Subordinated Convertible Debentures, Authorized Aggregate Issue
$3,000,000, Convertible for Common Stock of CityXpress (the "Debenture" or
"Debentures"), which Debentures are convertible into shares of Common Stock, par
value $.001 per share, of CityXpress (the "Common Stock"), as contemplated by a
certain Investment Agreement dated as of November 1, 2000, which was amended by
the First Amendment thereto dated as of July 30, 2001 (the "Investment
Agreement") by and between CityXpress and the Lender, and attached hereto as
EXHIBIT 3, such purchases being subject to the terms and conditions of the
Investment Agreement.
C. Borrowers desire to mortgage, pledge and grant to Lender, for
the benefit of Lender, a security interest in any and all present and
after-acquired versions of the computer software listed in SCHEDULE A hereto and
the Intellectual Property therein (hereinafter, collectively, the "Collateral"),
and all Proceeds (as hereinafter defined) thereof, to secure the payment of the
Obligations (as hereinafter defined).
NOW, THEREFORE, in consideration of the premises and to induce Lender
to enter into the Loan Agreement and to induce Lender to make the Loans (as
hereinafter defined) to Borrowers under the Loan Agreement, Borrowers hereby
agrees with Lender, as follows:
SECTION 1
DEFINED TERMS
The following terms shall have the following meanings:
1.1 "INTELLECTUAL PROPERTY" means any and all intellectual property rights
in the Collateral, including, without limitation, the following:
1.1.1 "COPYRIGHTS", which shall refer to all types of protective
rights granted (or applications therefor) for any work that constitutes
copyrightable subject matter, including without limitation, literary
works, musical works, dramatic works, pictorial, graphic and sculptural
works, motion pictures and other audiovisual works, sound recordings,
architectural works, recognized under U.S. or Canadian law and all
comparable rights recognized in foreign jurisdictions or conventions or
by treaty and including, without limitation, those works listed on
SCHEDULE A hereto. SCHEDULE A indicates in each case whether the
applicable Copyright is registered or the subject of a
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pending registration in the U.S. or Canadian Copyright Office and any
foreign jurisdictions. SCHEDULE A also indicates whether the Copyright
is the subject of any claim of co-ownership (including any claim of
ownership applicable to separate or preexisting works included in any
derivative or collective work), and, if so, whether the exercise of
Borrowers' rights therein are subject to (A) royalty obligations due
such co-owner, its successors or assigns, (B) restrictions on exercise,
assignment or sublicensing, or (C) revocation or termination. Unless
otherwise expressly noted, the listing of any work shall be construed
to include any separate or preexisting work included in a derivative or
collective work, and shall also be construed to include preliminary
drafts or versions and revisions thereof that are not separately
registered by Borrowers.
1.1.2 "PATENTS", which shall refer to all types of exclusionary or
protective rights granted (or applications therefor) for inventions
(including, without limitation, letters patent, plant patents, utility
models, inventor's certificates and the like), and all reissues and
extensions thereof and all renewals, divisions, continuations and
continuations-in-part thereof, recognized under U.S. or Canadian law
and all comparable rights recognized in foreign jurisdictions or
conventions or by treaty, including, without limitation, all such
rights listed in SCHEDULE A hereto. SCHEDULE A indicates in each case
whether the applicable Patent is issued or the subject of a pending
application in the U.S. or Canadian Patent Office and any foreign
jurisdictions. SCHEDULE A also indicates whether the Patent is the
subject of any claim of co-ownership, and, if so, whether the exercise
of Borrowers' rights therein are subject to (A) royalty obligations due
such co-owner, its successors or assigns, (B) restrictions on exercise,
assignment or sublicensing, or (C) revocation or termination.
1.1.3 "OTHER INTELLECTUAL PROPERTY", which shall refer to (1)
Know-How, (2) Inventions, and (3) Trade Secrets, as defined below.
(.1) "KNOW-HOW" means any knowledge or information relating
to a Patent or Copyright that is material to Borrowers'
business and that enables Borrowers to operate their business
with the accuracy, efficiency or precision necessary for
commercial success, or otherwise affords Borrowers a
commercial advantage for the possession or knowledge thereof,
whether or not currently constituting Trade Secret(s) or
Invention(s).
(.2) "INVENTION" means any new and useful process, machine,
manufacture, or composition of matter, or any new and useful
improvement thereof which is material to the operation of
Borrowers' businesses and developed by Borrowers, their
employees or agents, which could potentially be eligible for
protection as Patent(s), but whether or not currently the
subject of Patent(s).
(.3) "TRADE SECRET" means all information or other items
recognized as "trade secrets" under U.S. or Canadian law and
all comparable rights recognized in foreign jurisdictions or
conventions or by treaty.
1.2 "OBLIGATIONS" means (a) the Loans made in connection with this
Agreement as evidenced by the Notes payable to the order of Lender that shall be
due and payable as set forth in such Notes, and any renewals or extensions
thereof, (b) the full and prompt payment and performance of any and all other
indebtedness and other obligations of Borrowers to Lender, direct or contingent
(including but not limited to the Debentures purchased under the Investment
Agreement, obligations incurred as endorser, guarantor or surety), however
evidenced or denominated, and however and whenever incurred, including but not
limited to indebtedness incurred pursuant to any present or future commitment of
Lender to Borrowers, and (c) all future advances made by Lender for taxes,
levies, insurance and preservation of the Collateral and all attorney's fees,
court costs and expenses of whatever kind incident to the collection of any of
said indebtedness or other obligations and agreements contained herein,
including, without limitation, the expenses of Lender and interest provided for
in Section 7, and the enforcement and protection of the security interest
created under this Loan Agreement.
1.3 "PROCEEDS" means, without limitation, (a) all income, royalties,
damages and payments now and hereafter due and/or payable under or with respect
to the Intellectual Property, including (without limitation) damages and
payments for past or future infringements thereof, (b) the right to xxx and
recover for past, present, and future infringements of the Intellectual
Property, including all judgments and settlements in favor of Borrowers in
respect thereof, (c) any and all
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proceeds of any insurance, indemnity, warranty, guaranty or letter of credit
payable to Borrowers, from time to time with respect to any of the Collateral,
(d) all payments (in any form whatsoever) paid or payable to Borrowers from time
to time in connection with any taking of all or any part of the Collateral by
any governmental authority or any person acting under color of governmental
authority), and (e) all other amounts from time to time paid or payable or
received or receivable under or in connection with any of the Collateral.
SECTION 2
SECURITY INTEREST FOR THE LOANS
2.1 "LOANS" Lender has advanced to Borrowers three separate advances (the
"Loans") consisting of: (x) an advance on August 17, 2000 in the amount of
$125,000; (y) an advance as of August 28, 2000 in the amount of $125,000; and,
(z) an advance on September 19, 2000 in the amount of $40,000. The Notes shall
be due and payable on October 31, 2002."
2.2 PERFECTION OF SECURITY INTERESTS IN COLLATERAL. Borrowers and each of
them shall execute and deliver to Lender, concurrently with the execution of
this Agreement and at any time or times hereafter, at the request of Lender or
any of them, and whether before or after the occurrence of an Event of Default
as hereinafter defined, such financing statements or other documents as Lender
may request, in form and substance satisfactory to Lender, and Borrowers and
each of them shall do such other acts and things as Lender shall deem necessary
or desirable, in order to create, perfect, continue and preserve Lender's
security interests in the Collateral and to preserve the priority thereof.
Borrowers hereby authorize Lender, at any time and from time to time, to file
and/or record any such financing statements or other documents with such
authorities and in such jurisdictions as may be necessary to create, perfect,
continue and preserve Lender's security interests in the Collateral. Borrowers
further agrees that a photographic, photostatic or other reproduction of this
Agreement, a financing statement or other such document is sufficient as a
financing statement.
2.3 SALE OR HYPOTHECATION OF COLLATERAL. Borrowers shall not, at any time
following the Effective Date, directly or indirectly, whether voluntarily or
involuntarily, by operation of law or otherwise: (i) sell, assign, transfer,
exchange, lease, lend or dispose of any of the Collateral, or any of any
Borrowers' rights therein; nor (ii) cause, suffer or permit any of the
Collateral to be affected by any encumbrance, security interest or adverse claim
of any kind or nature whatsoever.
2.4 MAINTENANCE OF COLLATERAL, AFTER-ACQUIRED COLLATERAL. During the term
of this Agreement Borrowers shall make and maintain in full force and effect any
and all registrations of copyright and letters patent issued with respect to the
Collateral, and further covenant and agree that they shall, concurrently with
the registration of any claim to copyright in or issuance of any letters patent
with respect to any Collateral as described in paragraphs 1.1.1 and 1.1.2 in
which Borrowers or any of them acquire an interest after the Effective Date,
provide notice to Lender of such acquisition together with a copy of any written
evidence thereof sufficient to permit Lender to take such steps, pursuant to
paragraph 2.2 hereof, as may be necessary by Lender to perfect their security
interests in the Collateral to which such registration or letters pertain.
Borrowers or any of them shall not pledge, hypothecate or grant a security
interest in or to any intellectual property in which they acquire an interest
following the Effective Date hereof without first notifying Lender of any
Borrower's acquisition thereof and affording Lender a reasonable opportunity to
perfect its security interest therein, nor shall any Borrower enter into any
agreement with respect to any after-acquired Collateral which has the effect of
precluding Lender from obtaining a security interest therein which shall be
prior to that of any security interest acquired therein by a security agreement
entered into after the Effective Date hereof.
SECTION 3
GRANT OF SECURITY INTEREST
As collateral security for the prompt and complete payment and performance when
due (whether at the stated maturity, by acceleration or otherwise) of the
Obligations, Borrowers hereby assign and grant to Lender for the benefit of
Lender a security interest in all of Borrowers' right, title and interest in and
to the Collateral, including the Intellectual Property, now owned or held, in
whole or in part, or at any time hereafter acquired by Borrowers or in which
Borrowers now have or at any time in the future may acquire any right, title or
interest, including all Proceeds and products thereof.
SECTION 4
REPRESENTATIONS AND WARRANTIES CONCERNING THE INTELLECTUAL PROPERTY
Borrowers represent and warrant that:
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4.1 CORPORATE EXISTENCE. Borrowers are corporations duly organized in good
standing and are duly qualified as foreign corporations in good standing in all
jurisdictions where the nature of the business transacted by them or the
ownership of their assets makes such qualification necessary.
4.2 CORPORATE POWER. The execution and delivery by Borrowers of this
Agreement and all other related agreements necessary to perform any Borrower's
obligations hereunder and the performance of this Agreement and such other
related agreements: (i) are within such Borrower's corporate powers; (ii) are
duly authorized by such Borrower's Board of Directors and, if necessary, such
Borrower's stockholders; (iii) do not contravene such Borrower's Articles of
Incorporation, or Bylaws, or any indenture, agreement or understanding to which
any Borrower is a party or by which any Borrower or any of its properties is
bound; (iv) do not, as of the Effective Date, require any governmental consent,
registration or approval; (v) do not contravene any contractual or government
restriction binding upon Borrowers or any of them; and (vi) will not result in
the imposition of any lien, charge, security interest or encumbrance upon any
property of Borrowers or any of them under any existing indenture, mortgage,
deed of trust, loan or credit agreement or other material agreement or
instrument to which a Borrower is a party or by which it or any of its property
may be bound or affected.
4.3 FINANCIAL STATEMENTS. Attached hereto are true and complete copies, as
of (a) August 16, 2000 and attached as EXHIBIT 4, and (b) June 30, 2001 and
attached as EXHIBIT 4.1, of the consolidated unaudited balance sheets of the
Borrowers as of the respective date(s) and consolidated unaudited statements of
income of the Borrowers as of the respective date(s) (the aforementioned
financial statements referred to as the "Financial Statements"). The Financial
Statements have been prepared from the books and records of the Borrowers in a
manner consistent with the audited financial statements of the Borrowers and
present fairly the financial position and results of operations of the Borrowers
as of the date and for the period indicated, in each case in conformity with
U.S. generally accepted accounting principles ("GAAP"), except that the
Financial Statements are summary in nature and do not include the statement of
stockholders' equity and cash flows or notes and related disclosures required by
GAAP.
4.4 OTHER FINANCIAL INFORMATION. Any and all financial information
previously furnished to Lender in connection herewith pertaining to the
financial condition, assets, liabilities, business or prospects of Borrowers or
any of them or the value or condition of the Collateral is materially true and
correct, and such information hereafter furnished to Lender will be materially
true and correct when furnished.
4.5 PRIORITY. Upon the execution and delivery of this Agreement by
Borrowers and the filing of appropriate financing statements with the proper
governmental agencies, or, if applicable, upon Lender's taking possession of the
Collateral, Lender shall have a perfected security interest in and to the
Collateral and shall have first priority for the full amount of all the
obligations secured hereunder except as disclosed in SCHEDULE B.
4.6 PAYMENT OF TAXES. Borrowers have duly paid all franchise and annual
corporation taxes, impost, duties, or charges, levied, assessed or imposed upon
them, or upon any of their property, of whatsoever kind or description.
4.7 CORPORATE OFFICE. The principal place of business of Borrowers and the
place where Borrowers keep their books and records concerning the Collateral is
and will remain 000 - 0000 Xxxx Xxxxxxxx, Xxxxxxxxx, X.X. X0X0X0, or such other
address as Borrowers or any of them may designate in writing to Lender in
writing.
4.8 INTELLECTUAL PROPERTY RIGHTS. SCHEDULE A lists all Intellectual
Property in the Collateral which Borrowers have or claim a partial or entire
ownership interest and that is material to the operation of the present or
planned business of Borrowers. SCHEDULE A is complete, correct and current as of
the date of execution of this Agreement and contains all information required to
be listed or described therein. Except as otherwise indicated in SCHEDULE A,
Borrowers are the sole legal and beneficial owner of all the Owned Intellectual
Property listed in SCHEDULE A. Borrowers have taken reasonable and prudent
action to protect, preserve and enforce their rights under the Intellectual
Property. The scope and extent of Borrowers' interests in the Intellectual
Property and all applicable registrations thereof are truly and accurately set
forth on SCHEDULE A.
4.9 ENCUMBRANCES. SCHEDULE B lists or describes all liens, security
interests, pledges, assignments, and encumbrances with respect to the
Collateral. SCHEDULE B is complete, correct and current as of the date of
execution of this Agreement and contains all information required to be listed
or described therein.
4.10 THIRD PARTY RIGHTS. SCHEDULE C lists or describes all contracts
pursuant to which Borrowers have granted any right or interest in the Collateral
to any third party, or have received any such interest from any third party,
with the exception of license agreements made with end users or customers in the
ordinary course of business. SCHEDULE C is complete, correct
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and current as of the date of execution of this Agreement and contains all
information required to be listed or described therein.
4.11 ABSENCE OF ENCUMBRANCES. Except for ownership claims, restrictions and
other terms listed or disclosed in SCHEDULE A, B, and C, Borrowers' right, title
and interest in and to the Collateral are free and clear of any and all liens,
security interests, options, licenses, pledges, assignments, encumbrances and/or
agreements of any kind. To the best of Borrowers' knowledge, Borrowers' right,
title and interest in and to the Intellectual Property are sufficient to enable
Borrowers to operate their business as present and as planned without serious
risk of infringement or liability that has not been fully accrued or reserved.
4.12 TRANSFERS. All prior transfers and assignments by or to Borrowers,
directly or indirectly, of Intellectual Property have been duly and validly
recorded or registered as necessary to reflect the accurate state of ownership
thereof and vest indefeasibly in each Borrower the ownership it holds or claims
therein. For this purpose, the grant to or by Borrowers of any exclusive right
or license in Intellectual Property shall be considered a transfer or assignment
appropriate for recording or registration unless Borrowers' counsel specifically
advises Borrowers such action is unnecessary. Except as set forth in SCHEDULE D,
Borrowers have not, within the three (3) months prior to the date of execution
of this Agreement, executed and/or delivered any transfer or assignment of any
of the Intellectual Property, recorded or unrecorded.
4.13 SUITS. No actions or proceedings have been instituted or are pending
or, to Borrowers' knowledge, threatened against Borrowers or Borrowers'
licensees, sublicensees, agents, dealers, distributors or customers that
challenge Borrowers' claimed ownership status or rights in any Intellectual
Property or Borrowers' right to use or otherwise exploit the Intellectual
Property in their present or planned business. No holding, decision or judgment
has been rendered by any governmental authority which would limit, cancel or
question the validity of any of the Intellectual Property in any respect that
would conflict or interfere with the operation of Borrowers' present or planned
business or diminish the value of the Intellectual Property as claimed by
Borrowers.
4.14 INFRINGEMENTS BY THIRD PARTIES. To the best of Borrowers' knowledge
(but without prejudice to Borrowers' rights with respect thereto), no third
party is infringing or violating Borrowers' rights in Intellectual Property or
exceeding the scope of authorization or license under any contracts made by
Borrowers with third parties relating to such Intellectual Property (to the
extent granted to such third parties by Borrowers).
4.15 NON-INFRINGEMENT. The Intellectual Property does not infringe any
intellectual property right of any third person or entity.
4.16 BREACH OF THIRD PARTY AGREEMENTS. The transactions and other
undertakings by Borrowers contemplated by this Agreement do not constitute
transactions occurring outside the ordinary course of business with respect to
pre-existing contracts between Borrowers and any of their other creditors, nor
would they cause any Borrower to be deemed in default of any other agreement
with a third party.
SECTION 5
COVENANTS
Borrowers covenant and agree with Lender that, from and after the date of this
Loan Agreement until the Obligations are paid in full:
5.1 FINANCIAL STATEMENTS. Borrowers shall keep proper books and records in
which full and true entries will be made of all dealings and transactions of the
business and affairs of Borrowers or any of them, in accordance with GAAP, and
shall deliver to Lender within twenty (20) days following the end of each
monthly, quarterly and annual accounting period, such financial statements as
Lender may reasonably require, which shall be prepared in accordance with the
requirements and representations of Section 4.3.
5.2 MAINTENANCE OF CORPORATE EXISTENCE. Borrowers will maintain their
corporate existences and their right to carry on business and will continually
operate their business except for periodic shutdowns in the ordinary course of
business and interruptions caused by strike, labor dispute, lack of materials or
labor, catastrophe, or any other events over which they have no control.
5.3 COMPLIANCE WITH LAWS; PAYMENT OF TAXES. Borrowers shall comply with all
laws, statutes and regulations pertaining to their business and to their
ownership of the Collateral. Borrowers or any of them shall pay or cause to be
paid
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all taxes and other levies with respect to their business when the same become
due and payable, except such as are being contested in good faith by appropriate
proceedings, where the effect of such proceedings is to stay any enforcement in
respect of such unpaid taxes, and provided that, in any such case, Borrowers or
any of them shall set aside on their books reserves deemed by Lender to be
adequate to protect against liability for such taxes.
5.4 OWNERSHIP RIGHTS IN COLLATERAL. Borrowers shall, at all times, continue
and maintain their ownership of the Collateral, and shall do all things
necessary to maintain and keep their rights in the Collateral current pursuant
to any statutes, including but not limited to all applicable patent, copyright
and other intellectual property laws.
5.5 NOTIFICATIONS WITH REFERENCE TO COLLATERAL. Borrowers shall promptly
notify Lender in writing of any event which affects the value of the Collateral,
the ability of Borrowers or any of them or Lender to dispose of the Collateral,
or the rights and remedies of Lender in relation thereto, including, but not
limited to, the levy of any legal process against the Collateral and the
adoption of any order, arrangement or procedure affecting the Collateral,
whether governmental or otherwise. Borrowers shall also promptly notify Lender
in writing of any event which adversely affects the financial condition, assets,
liabilities, business, operations or prospects of Borrowers or any of them in
any material respect.
5.6 OTHER DOCUMENTS. Borrowers shall promptly deliver to Lender such
documents and information pertaining to the status or condition of Borrowers,
the collateral, and Lender's security interest therein as Lender may request
from time to time.
5.7 NEGATIVE COVENANTS. For so long as any unpaid balance of any loan made
pursuant hereto is outstanding:
5.7.1 MERGER. No Borrower may be a party to any consolidation or
merger.
5.7.2 NATURE OF BUSINESS. No Borrower may change the general
character of its business as conducted at the Effective Date, or engage
in any type of business not reasonably related to their business as
normally conducted.
5.7.3 EXPENSE REIMBURSEMENT. Borrowers may not reimburse any
expenses to their directors, officers, or employees which shall not
have been incurred for ordinary and necessary business purposes and
which shall not have been properly documented in accord with sound
business practices.
5.7.4 DIVIDENDS AND STOCK REDEMPTION. Borrowers shall not directly
or indirectly (i) redeem, purchase or otherwise retire any of their
shares of capital stock, (ii) declare or pay any dividends in any
fiscal year on any class or classes of stock, (iii) return capital of
Borrowers or any of them to their stockholders, or (iv) make any other
distribution on or with respect to any shares or class or classes of
stock.
5.7.5 NAME. No Borrower may change its corporate name.
5.8 UPDATES TO SCHEDULE A. At least once every three (3) months, commencing
on November 15, 2000, Borrowers will, at their sole expense, execute and deliver
an updated version of SCHEDULE A. Such SCHEDULE As updated shall be complete,
correct and current as of the date of delivery thereof and shall contain all
information required to be listed or described therein in order to be in
compliance with the provisions of Section 4 hereof (which, for such purpose,
shall apply as of the date of each such further delivery).
5.9 ASSIGNMENTS AND OTHER TRANSFERS. Borrowers will not transfer or assign,
or grant any exclusive license to, any of the Intellectual Property of material
value. Borrowers will not license, sublicense, waive, surrender or abandon any
of their Intellectual Property rights except in the ordinary course of business.
Notwithstanding such transfer, assignment, license, sublicense, waiver,
surrender or abandonment, the Collateral shall remain subject to the security
interest granted hereunder, except as released by Lender in writing in reference
thereto.
5.10 CLAIMS OF INFRINGEMENT OR OWNERSHIP. Borrowers will, at their sole
expense, promptly notify Lender in the event that any third party threatens or
asserts any action or proceedings against Borrowers or Borrowers' licensees,
sublicensees, agents, dealers, distributors or customers that challenge
Borrowers' claimed ownership status or rights in any Intellectual Property or
Borrowers' right to use or otherwise exploit the Intellectual Property in their
present or planned business.
5.11 TIMELY PAYMENT OF LICENSE FEES. Borrowers agree to pay or cause to be
paid all royalties, fees and other amounts due from Borrowers under all
contracts with third parties relating to the Intellectual Property, except to
the extent that such
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payments are not material to the present and planned business of Borrowers and
lapse or delay in payment is otherwise not prejudicial to Borrowers.
5.12 PRESERVATION OF RIGHTS. Borrowers will, at their sole expense, follow
good practices in an ordinary and prudent manner to protect, preserve and
enforce their rights in Intellectual Property, including but not limited to
registration of all claims of ownership thereof with the appropriate
governmental authorities. Upon Lender's request, Borrowers will furnish Lender
with such information as Lender may require with regard to Borrowers' practices
in such regard.
5.13 MAINTENANCE OF RECORDS. Borrowers will maintain accurate and complete
records of their Intellectual Property. With regard to computer programs and
related technology included in such Intellectual Property, Borrowers will,
pursuant to an Escrow Agreement, the form of which is attached hereto as EXHIBIT
5, retain in at least one off-site repository identified to Lender current
copies of all source code, system documentation, statements of principles of
operation, and schematics, as well as pertinent commentary or explanation, that
may be necessary to render such materials understandable and usable by a trained
computer programmer, including but not limited to any proprietary languages,
workbenches tools or compilers. Also included with such materials shall be a
list of any third party programs (including compilers), "workbenches," tools,
and higher level languages used for the development, maintenance and
implementation of such computer programs and related technology.
5.14 ATTACHMENT OF SECURITY INTERESTS. Whenever Borrowers, either by
themselves or through any agent, employee, licensee or designee, shall file a
patent application or for the registration of any Copyright with the Canadian or
United States patent and/or trademark offices, the Canadian or United States
Copyright Offices, or any similar office or agency in any other country or any
political subdivision thereof, Borrowers shall (A) simultaneously file or record
evidence of Lender's security interest in the Collateral sufficient to meet the
requirements for Lender's security interest therein to be recognized, protected
and perfected and (B) report such filing to Lender within five (5) business days
after the last day of the fiscal quarter in which such filing occurs.
5.15 GOVERNMENTAL OBLIGATIONS. Borrowers will, at their sole expense, pay
promptly when due all taxes, assessments and governmental charges, if any, upon
or against the Borrowers or their property or operations, including (without
limitation) fees due to protect, preserve or enforce their Intellectual
Property, in each case before the same become delinquent and before penalties
accrue thereon or Borrowers' rights therein lapse or are prejudiced, unless and
to the extent that the same are being contested in good faith by appropriate
proceedings.
5.16 FURTHER ASSURANCES. When and as requested by Lender, Borrowers will, at
their sole expense, execute, deliver, and record, in such manner as Lender may
require, such further instruments and documents and take such further action as
Lender may reasonably request for the purpose of obtaining or preserving the
full benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or continuation
statements under the UCC in effect in any United States jurisdiction with
respect to the liens created hereby, and the recording of instruments confirming
Lender's security interest therein with applicable U.S., Canadian or foreign
authorities and agencies. Borrowers hereby authorize Lender to file any such
financing or continuation statement or other instrument without the signature of
Borrowers or, if applicable, by affixing the signature of Borrowers on
Borrowers' behalf, to the extent permitted by applicable law. A carbon,
photographic or other reproduction of this Loan Agreement shall be sufficient as
a financing statement for filing in any jurisdiction.
5.17 AVOIDANCE OF LIENS. Borrowers will not create, incur or permit to
exist, will take all commercially reasonable actions to defend the Collateral
against, and will take such other commercially reasonable action as is necessary
to remove, any lien or claim on or to the Collateral, other than the liens
created hereby, and other than as pursuant hereto or disclosed in Schedules A or
B, and will take all commercially reasonable actions to defend the right, title
and interest of Lender in and to any of the Collateral against the claims and
demands of all persons whomsoever. Borrowers will advise Lender promptly, in
reasonable detail, at Lender's address as set forth in the Loan Agreement, (i)
of any lien (other than liens created hereby or permitted under the Loan
Agreement) on, or claim asserted against, Collateral and (ii) of the occurrence
of any other event which could reasonably be expected to have a material adverse
effect on the aggregate value of the Collateral or on the liens created
hereunder.
SECTION 6
LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT
6.1 APPOINTMENT. Borrowers hereby irrevocably constitute and appoint Lender
and any officer or agent thereof, with full power of substitution, as their true
and lawful attorney-in-fact with full irrevocable power and authority in the
place and stead
8
of Borrowers and in the name of Borrowers or in its own name, from time to time
after the occurrence, and during the continuation of, an Event of Default in
Lender's discretion, for the purpose of carrying out the terms of this Loan
Agreement, to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of this Loan Agreement, and, without limiting the generality of the
foregoing, Borrowers hereby grant Lender the power and right, on behalf of
Borrowers without notice to or assent by Borrowers, to do the following:
(I) at any time when any Event of Default shall have occurred and
is continuing in the name of Borrowers or its own name, or otherwise,
to take possession of and endorse and collect any checks, drafts,
notes, acceptances or other instruments for the payment of moneys due
under, or with respect to, any Collateral and to file any claim or to
take any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by Lender for the purpose of collecting
any and all such moneys due with respect to such Collateral whenever
payable;
(II) to pay or discharge taxes and liens levied or placed on or
threatened against the Collateral, to effect any repairs or any
insurance called for by the terms of this Loan Agreement and to pay all
or part of the premiums therefor and the costs thereof; and
(III) (A) to direct any party liable for any payment under any of
the Collateral to make payment of any and all moneys due or to become
due thereunder directly to Lender or as Lender shall direct, (B) to ask
or demand for, collect, receive payment of and receipt for, any and all
moneys, claims and other amounts due or to become due at any time in
respect of or arising out of any Collateral, (C) to sign and endorse
any invoices, freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors, assignments, verifications,
notices and other documents in connection with any of the Collateral,
(D) to commence and prosecute any suits, actions or proceedings at law
or in equity in any court of competent jurisdiction to collect the
Collateral or any portion thereof and to enforce any other right in
respect of any Collateral, (E) to defend any suit, action or proceeding
brought against Borrowers with respect to any Collateral, (F) to
settle, compromise or adjust any suit, action or proceeding described
in the preceding clause and, in connection therewith, to give such
discharges or releases as Lender may deem appropriate, (G) to transfer,
assign, licensor or sublicense any Intellectual Property, throughout
the world for such term or terms, on such conditions, and in such
manner, as Lender shall in its sole discretion determine, and (H)
generally, to sell, transfer, pledge and make any agreement with
respect to or otherwise deal with any of the Collateral as fully and
completely as though Lender were the absolute owner thereof for all
purposes, and to do, at Lender's option and Borrowers' expense, at any
time, or from time to time, all acts and things which Lender deems
necessary to protect, preserve or realize upon the Collateral and the
liens of Lender thereon and to effect the intent of this Loan
Agreement, all as fully and effectively as Borrowers might do.
Borrowers hereby ratifies all that said attorneys shall lawfully do or
cause to be done by virtue hereof. This power of attorney is a power
coupled with an interest and shall be irrevocable.
6.2 EXECUTION OF INSTRUMENTS. Borrowers also authorizes Lender, at any time
and from time to time, to execute, in connection with the sale provided for in
Section 10 hereof, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.
6.3 LENDER NOT REQUIRED TO EXERCISE POWERS. The powers conferred on Lender
hereunder are solely to protect the interests of Lender in the Collateral and
shall not impose any duty upon Lender to exercise any such powers. Lender shall
be accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its partners, officers,
directors, employees or agents shall be responsible to Borrowers for any act or
failure to act hereunder, except for their own gross negligence or willful
misconduct or failure to comply with mandatory provisions of applicable law.
SECTION 7
PERFORMANCE BY LENDER OF BORROWERS' OBLIGATIONS
If Borrowers fail to perform or comply with any of their agreements contained
herein and Lender, as provided for by the terms of this Loan Agreement, shall
itself perform or comply, or otherwise cause performance or compliance, with any
such agreements, then the expenses of Lender incurred in connection with such
performance or compliance, including all attorney's fees and court costs related
thereto, together with interest thereon at the highest default rate provided in
the Note, shall be payable by Borrowers to Lender on demand shall constitute
Obligations secured hereby.
9
SECTION 8
PROCEEDS
It is agreed that if an Event of Default shall occur and be continuing, then (a)
all Proceeds received by Borrowers consisting of cash, checks and other cash
equivalents shall be held by Borrowers in trust for Lender, segregated from
other funds of Borrowers, and shall, forthwith upon receipt by Borrowers, be
turned over to Lender in the exact form received by Borrowers (duly endorsed by
Borrowers to Lender, if required), and, (b) any and all such Proceeds received
by Lender (whether from Borrowers or otherwise) shall promptly be applied by
Lender against, the Obligations (whether matured or unmatured), such application
to be in such order as set forth in the Loan Agreement.
SECTION 9
EVENTS OF DEFAULT
9.1 DEFAULT, RIGHTS AND REMEDIES OF LENDER.
9.1.1 DEFAULTS. If any of the following events ("Events of Default")
shall occur, then Lender may at its option and without demand or notice of any
kind declare the Loans or any of them immediately due and payable.
(a) Borrowers or any of them fail to pay the principal or
any interest or other fee due under the Loans, the Notes, the
Debentures or Investment Agreement;
(b) Borrowers or any of them fail or neglect to perform,
keep or observe any of their covenants, conditions or agreements
contained in any of the subsections of this Agreement, the Debentures,
the Investment Agreement or Registration Rights Agreement by and
between Lender and CityXpress dated as of November 1, 2000 (the
"Registration Rights Agreement") or become materially unable to provide
support of the Collateral to licensees thereof;
(c) Any warranty or representation now or hereafter made
by Borrowers or any of them in connection with this Agreement, the
Debentures or the Investment Agreement is untrue or incorrect at any
material respect when made or any schedule, certificate, statement,
report, financial data, notice or writing furnished at any time by
Borrowers or any of them to Lender is untrue or incorrect in any
material respect, on the date as of which the facts set forth herein
are stated or certified;
(d) A judgement and order requiring payment in excess of
$50,000 shall be rendered against Borrowers or any of them and such
judgment or order shall remain unsatisfied or undischarged and in
effect for ninety (90) consecutive days without judicial enforcement or
execution, provided that this subsection (d) shall not apply to any
judgment for which Borrowers or any of them are fully insured and with
respect to which the insurer has admitted in writing its liability for
a full payment thereof;
(e) A notice of xxxx, xxxx or assessment is filed or
recorded with respect to all or substantial parts of the assets of
Borrowers or any of them by any governmental authority, or any taxes or
debts owing at any time or times hereafter to any one or more of them
become a lien on all or a substantial part of any Borrower's property,
and such lien, levy or assessment is not discharged or released within
ten (10) days of a notice or attachment thereof;
(f) All or any part of any Borrower's property is
attached, seized, subjected to a writ or distress warrant, or is levied
upon, or comes within the possession of any receiver, trustee,
custodian, or assignee for the benefit of creditors and on or before
the 60th day thereafter such assets are not returned to Borrowers or
any of them and/or such writ, distress warrant or levy is not
dismissed, stayed or lifted;
10
(g) Any proceeding under the United States bankruptcy
laws or the laws of the Canada pertaining to insolvency or receivership
is filed by or against Borrowers or any of them;
(h) Any proceeding under a bankruptcy, reorganization,
arrangement of debt, insolvency, readjustment of debt or receivership
law or statute is filed by or against Borrowers or any of them or any
Borrower makes an assignment for the benefit of creditors or Borrowers
or any of them takes any corporate action to authorize any of the
foregoing;
(i) Borrowers or any of them cease to conduct a material
part of their business affairs in the ordinary course;
(j) Borrowers or any of them default in the performance
of or compliance with any term, condition or covenant deemed an "Event
of Default" or words of similar import under this Agreement, the Notes,
the Debentures, the Investment Agreement, or Registration Rights
Agreement any credit or loan agreement or facility with any third-party
lender, and Lender, after receipt of notice thereof from Borrowers,
deems itself insecure as a result thereof;
(k) Borrowers or any of them fail to comply with the
filing requirements of the Securities Exchange Act of 1934, as amended;
(l) Borrowers or any of them experience a change in or
disagreement with Ernst & Young, L.L.P., including but not limited to a
change in accountants, an adverse opinion, the receipt of an opinion
qualified or modified as to uncertainty, audit scope or procedures,
accounting principles or financial statement disclosure,, unless such
change or disagreement shall not represent or pertain to a material
adverse change to Borrowers' financial statements; or
(m) CityXpress shall fail to secure the following
"Qualifying Customer Agreements" between August 1, 2001 and October 31,
2001: (i) agreement(s) with one or more new customers to launch
CityXpress' products in a minimum of four newspapers within eight weeks
of the customer's signature of the agreement; (ii) agreements with
customers of CityXpress prior to August 1, 2001, to launch CityXpress'
products in a minimum of four newspapers; and (iii) agreements
resulting in two new E-Team assisted launches per month in each of the
months of August, September and October with newspapers, with
CityXpress' E-Team providing training services for the newspaper's
sales force. The agreements referred to in items (i) and (iii) of this
subsection 9.1.1(m) shall contain CityXpress' standard terms providing
for revenues from editorial content and for insertion fees from the
sale of CityXpress' promotional products to the newspaper's
advertisers. On the last business day of each of the monthly periods,
CityXpress shall submit to the Lender a written summary of Qualifying
Customer Agreements, by category by newspaper.
SECTION 10
REMEDIES UPON DEFAULT
Upon an Event of Default, Lender may pursue any or all of the following
remedies, without any notice to Borrowers except as required below:
10.1 NOTICE. If Lender shall give written notice of an Event of Default to
Borrowers, and Borrowers shall fail to cure such default within ten (10) days
following receipt of such notice, then and in that event Lender shall be
entitled to exercise the rights conferred in Paragraphs 10.2-10.5 of this
Section 10. During the ten-day cure period, Borrowers shall not dispose of,
conceal, transfer, sell or encumber any of the Collateral (including, but not
limited to, cash proceeds) without Lender's prior written consent, even if such
disposition is otherwise permitted hereunder in the ordinary course of business.
Any such disposition, concealment, transfer or sale after the giving of such
notice shall constitute a wrongful conversion of the Collateral. Lender may
obtain a temporary restraining order or other equitable relief to enforce
Borrowers' obligation to refrain from so impairing the Collateral.
10.2 POSSESSION OF COLLATERAL. Lender may take possession of any or all of
the Collateral, pursuant to the Escrow Agreement attached hereto as EXHIBIT 5.
To the extent Borrowers have failed to comply with the deposit requirements of
paragraph 5.13 of this Agreement or Borrowers have failed to comply with the
deposit requirements of the Escrow Agreement, Borrowers hereby agree to turn
over to Lender or its designee all property with respect to which such failure
of
11
compliance has occurred. With respect to any such property, Borrowers hereby
consent to Lender's entry into any of Borrowers' premises to take possession of
such items, and specifically consent to Lender's forcible entry thereto as long
as Lender causes no significant damage to the premises in the process of entry
(drilling of locks, cutting of chains and the like do not in themselves cause "
significant" damage for the purposes hereof) and provided that Lender
accomplishes such entry without a breach of the peace.
10.3 SETOFF. Lender may exercise its lien upon and right of setoff against
any monies, items, credits, deposits or instruments that Lender may have in its
possession and that belong to Borrowers or to any other person or entity liable
for the payment of any or all of the Obligations.
10.4 EXERCISE COLLATERAL LICENSE RIGHTS. Lender may exercise the rights
granted pursuant to the Collateral License Agreement attached hereto as EXHIBIT
6.
10.5 OTHER RIGHTS. Lender may exercise any right that it may have under any
other document evidencing or securing the Obligations or otherwise available to
Lender at law or equity.
SECTION 11
LIMITATION ON DUTIES REGARDING PRESERVATION OF COLLATERAL
Lender's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the
Uniform Commercial Code or otherwise, shall be to deal with it in the same
manner as Lender would deal with similar property for its own account. Neither
Lender nor any of its partners, directors, officers, employees or agents shall
be liable for failure to demand, collect or realize upon all or any part of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of Borrowers or
otherwise.
SECTION 12
MISCELLANEOUS
12.1 POWERS COUPLED WITH AN INTEREST. All authorizations and agencies herein
contained with respect to the Collateral are irrevocable and powers coupled with
an interest.
12.2 SEVERABILITY. Any provision of this Loan Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
12.3 SECTION HEADINGS. The section headings used in this Loan Agreement are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
12.4 NO WAIVER: CUMULATIVE REMEDIES. Lender shall not by any act (except by
a written instrument pursuant to Paragraph 12.5 hereof), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any default or Event of Default or in any breach of any of
the terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of Lender, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. A waiver by Lender of any
right or remedy hereunder on any occasion shall not be construed as a bar to any
right or remedy, which Lender would otherwise have on any future occasion. The
rights and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by law.
12.5 WAIVERS AND AMENDMENTS; SUCCESSORS AND ASSIGNS. None of the terms or
provisions of this Loan Agreement may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by Borrowers and
Lender, provided that any provision of this Loan Agreement may be waived by
Lender in a written letter or agreement executed by Lender or by facsimile
transmission from Lender. This Loan Agreement shall be binding upon the
successors and assigns of Borrowers and shall inure to the benefit of Lender and
its successors and assigns.
12.6 NOTICES. Any and all notices, elections or demands permitted or
required to be made under this Loan Agreement shall be in writing, signed by the
party giving such notice, election or demand and shall be delivered personally,
telecopied, or sent by certified mail or overnight via nationally recognized
courier service (such as Federal Express), to the other party at
12
the address set forth below, or at such other address as may be supplied in
writing and of which receipt has been acknowledged in writing. The date of
personal delivery or telecopy or two (2) business days after the date of mailing
(or the next business day after delivery to such courier service), as the case
may be, shall be the date of such notice, election or demand. For the purposes
of this Loan Agreement:
The Address of Lender is: Xxx Enterprises, Incorporated
400 Xxxxxx Building
000 X. Xxxx Xx.
Xxxxxxxxx, Xxxx 00000
The Address of Borrowers is: XxxxXxxxxx.Xxx Corp.
000 - 0000 Xxxx Xxxxxxxx
Xxxxxxxxx, X.X. X0X0X0
12.7 GOVERNING LAW. This Agreement shall be interpreted and construed
according to the laws of the State of Delaware, U.S.A., without regard to its
choice-of-law rules. As to substantive matters pertaining to intellectual
property, the applicable law of the situs of such property as determined by the
law of the State of Delaware shall control.
12.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
12.9 CONSENT TO JURISDICTION; EXCLUSIVE VENUE. Borrowers hereby irrevocably
consent to the Jurisdiction of the United States District Court for the Southern
District of Iowa and of all Iowa state courts sitting in Xxxxx County, Iowa, for
the purpose of any litigation to which Lender may be a party and which concerns
this Loan Agreement or the Obligations. It is further agreed that venue for any
such action shall lie exclusively with courts sitting in the United States
District Court for the Southern District of Iowa and of all Iowa state courts
sitting in Xxxxx County, Iowa unless Lender agrees to the contrary in writing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
BORROWERS: LENDER:
XxxxXxxxxx.Xxx Corp. Xxx Enterprises, Incorporated
/s/ Xxx Xxxxxxx /s/ Xxxxxxx Xxxxxxxx
--------------------------------------- -------------------------------
By: Xxx Xxxxxxx By:
Title: Chief Operating Officer and CFO ----------------------------
Title:
-------------------------
Xceedx Technologies Inc.
/s/ Xxx Xxxxxxx
---------------------------------------
By:
------------------------------------
Title:
---------------------------------
Welcome To Search Engine Inc.
/s/ Xxx Xxxxxxx
---------------------------------------
By:
------------------------------------
Title:
---------------------------------
13
EXHIBIT 1
PROMISSORY NOTE
14
EXHIBIT 1.2
PROMISSORY NOTE
15
EXHIBIT 3
INVESTMENT AGREEMENT DATED AS OF NOVEMBER 1, 2000, WHICH WAS
AMENDED BY THE FIRST AMENDMENT THERETO DATED AS OF JULY 30,
2001.
16
XXXXXXXXXX.XXX CORP.
FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURES
AUTHORIZED AGGREGATE ISSUE $1,500,000
SERIES A THROUGH F
CONVERTIBLE FOR COMMON STOCK OF THE COMPANY
MATURITY: OCTOBER 31, 2003
INVESTMENT AGREEMENT
BY AND BETWEEN
XXX ENTERPRISES, INCORPORATED
AND
XXXXXXXXXX.XXX CORP.
17
XXXXXXXXXX.XXX CORP.
FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURES
AUTHORIZED AGGREGATE ISSUE $1,500,000
SERIES A THROUGH F
CONVERTIBLE FOR COMMON STOCK OF THE COMPANY
MATURITY: OCTOBER 31, 2003
$250,000 SERIES A FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURES
$250,000 SERIES B FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURES
$250,000 SERIES C FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURES
$250,000 SERIES D FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURES
$250,000 SERIES E FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURES
$250,000 SERIES F FLOATING RATE SUBORDINATED CONVERTIBLE DEBENTURES
Dated as of November 1, 2000
XXX ENTERPRISES, INCORPORATED, a Delaware corporation (the
"Purchaser"), agrees with XxxxXxxxxx.xxx Corp., a Florida corporation (the
"Company"), as follows:
1. AUTHORIZATION OF DEBENTURES
The Company will authorize the issue and sale of:
(a) $250,000 Series A Floating Rate Subordinated Convertible
Debentures (the "Series A Debenture"), such term to include each Series
A Debenture delivered from time to time in accordance with this
Agreement);
(b) $250,000 Series B Floating Rate Subordinated Convertible
Debentures (the "Series B Debenture"), such term to include each Series
B Debenture delivered from time to time in accordance with this
Agreement);
(c) $250,000 Series C Floating Rate Subordinated Convertible
Debentures (the "Series C Debenture"), such term to include each Series
C Debenture delivered from time to time in accordance with this
Agreement);
(d) $250,000 Series D Floating Rate Subordinated Convertible
Debentures (the "Series D Debenture"), such term to include each Series
D Debenture delivered from time to time in accordance with this
Agreement);
18
(e) $250,000 Series E Floating Rate Subordinated Convertible
Debentures (the "Series E Debenture"), such term to include each Series
E Debenture delivered from time to time in accordance with this
Agreement); and
(f) $250,000 Series F Floating Rate Subordinated Convertible
Debentures (the "Series F Debenture"), such term to include each Series
F Debenture delivered from time to time in accordance with this
Agreement).
The Series A Debenture, Series B Debenture, Series C Debenture, Series D
Debenture, Series E Debenture and Series F Debenture shall be referred to in
this Agreement collectively as the "Debentures", such term to include any such
debentures issued in substitution therefor pursuant to Section 13 of this
Agreement. The Series A Debenture, Series B Debenture, Series C Debenture,
Series D Debenture, Series E Debenture and Series F Debenture shall be
substantially in the forms set out in EXHIBIT 1, EXHIBIT 2, EXHIBIT 3, EXHIBIT
4, EXHIBIT 5 and EXHIBIT 6 respectively, with such changes therefrom, if any, as
may be approved by Purchaser and the Company. Certain capitalized terms used in
this Agreement are defined in this Agreement or in SCHEDULE A. References to a
"Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an
Exhibit attached to this Agreement, and references to Sections are, unless
otherwise specified, references to Sections of this Agreement.
2. SALE AND PURCHASE OF DEBENTURE
Subject to the terms and conditions of this Agreement, the Company will
issue and sell to Purchaser and Purchaser will purchase from the Company, at the
Closing and Additional Closings provided for in Section 3, Debentures in the
principal amount and in the Series specified in EXHIBITS 1 through 6, at the
purchase price of 100% of the principal amount thereof, and Reference Rate of
interest, redemption and conversion rights and other terms and conditions as
provided therein.
3. CLOSING AND ADDITIONAL CLOSINGS
3.1 Closing.
The sale and purchase of the Series A Debenture to be purchased by
Purchaser shall occur at a closing (the "Closing") on October 31, 2000 (the
"Closing Date"). At the Closing the Company will deliver to Purchaser the Series
A Debenture to be purchased by Purchaser in the form of a single Debenture (or
such greater number of Debentures in denominations of at least $50,000 as
Purchaser may request) registered in Purchaser's name (or in the name of
Purchaser's nominee). The Company acknowledges receipt of Purchaser's $100,000
payment on October 3, 2000, and (b) Purchaser's $150,000 payment on October 13,
2000 for the Series A Debenture. If at the Closing the Company shall fail to
tender such Debenture to Purchaser as provided above in this Section 3, or any
of the conditions specified in Section 4 shall not have been fulfilled to
Purchaser's satisfaction, Purchaser shall, at Purchaser's election, be relieved
of all further obligations under this Agreement, without thereby waiving any
rights Purchaser may have by reason of such failure or such nonfulfillment. The
Company shall deliver to Purchaser an
19
Officer's Certificate and Secretary's Certificate dated the Closing Date in a
form reasonably acceptable to Purchaser's counsel.
3.2 Additional Closings.
The sale and purchase of the Series B - F Debentures to be purchased by
Purchaser shall occur at closings (the "Additional Closing") on the dates set
forth on SCHEDULE 3.2 (each an "Additional Closing Date"). At each Additional
Closing the Company will deliver the appropriate Series B - F Debentures to be
purchased by Purchaser in accordance with the each Additional Closing Date in
the form of a single Debenture (or such greater number of Debentures in
denominations of at least $50,000 as Purchaser may request) registered in
Purchaser's name (or in the name of Purchaser's nominee), against delivery by
Purchaser to the Company or its order of immediately available funds in the
amount of the purchase price therefor by wire transfer of immediately available
funds for the account of the Company or by Xxx check sent via courier for next
day delivery. If at any Additional Closing the Company shall fail to tender such
Debenture to Purchaser as provided above in this Section 3, or any of the
conditions specified in Section 4 shall not have been fulfilled to Purchaser's
reasonable satisfaction, Purchaser shall, at Purchaser's election, be relieved
of all further obligations under this Agreement, without thereby waiving any
rights Purchaser may have by reason of such failure or such nonfulfillment. The
Company shall deliver to Purchaser an Officer's Certificate and a Secretary's
Certificate dated the Additional Closing Date in a form reasonably acceptable to
Purchaser's counsel.
4. CONDITION TO CLOSING
The Purchaser's obligation to purchase and pay for the Debentures and
the Company's obligation to sell the Debentures to Purchaser at the Closing and
each Additional Closing is subject to the the condition that the Company shall
have performed and complied with all agreements and conditions contained in this
Agreement required to be performed or complied with by it prior to or at the
Closing and each Additional Closing after giving effect to the issue and sale of
the Debentures . No Default or Event of Default shall have occurred and be
continuing.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser on the Closing Date that:
5.1 Organization; Power and Authority.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, and is duly
qualified as a foreign corporation and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. The Company has the corporate power and authority to own or hold
under lease the Properties it purports to own or hold under lease, to transact
the business it transacts and proposes to transact,
20
to execute and deliver this Agreement and the Other Agreements and the
Debentures and to perform the provisions hereof and thereof.
5.2 Authorization, etc.
This Agreement and the Other Agreements and the sale of the Debentures
have been duly authorized by all necessary corporate action on the part of the
Company, and this Agreement constitutes, and upon execution and delivery of this
Agreement, each Other Agreement and each Debenture will constitute, a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by (a)
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and (b) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
5.3 No Undisclosed Liabilities.
Except as disclosed in the financial statements referred to in Section
5.5, such financial statements taken as a whole do not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein not misleading in light of the circumstances under
which they were made. With respect to the financial statements referred to in
Section 5.5, for the period ended September 30, 2000, there has been no change
in the financial condition, operations, business or Properties of the Company or
any of its Subsidiaries except changes disclosed in such financial statements
that individually or in the aggregate would not reasonably be expected to have a
Material Adverse Effect.
5.4 Organization and Ownership of Shares of Subsidiaries.
(a) SCHEDULE 5.4 is (except as noted therein) a complete and
correct list of the Company's Subsidiaries, showing, as to each
Subsidiary, the correct name thereof, the jurisdiction of its
organization, and the percentage of shares of each class of its capital
stock or similar equity interests outstanding owned by the Company and
each other Subsidiary.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in SCHEDULE 5.4 as being
owned by the Company and its Subsidiaries have been validly issued, are
fully paid and nonassessable and are owned by the Company or another
Subsidiary free and clear of any Lien (except as otherwise disclosed in
SCHEDULE 5.4).
(c) Each Subsidiary identified in SCHEDULE 5.4 is a
corporation or other legal entity duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization,
and is duly qualified as a foreign corporation or other legal entity
and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to
which the failure to be so qualified or in good standing would not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Each such Subsidiary has the corporate or
other power and
21
authority to own or hold under lease the Properties it purports to own
or hold under lease and to transact the business it transacts and
proposes to transact.
5.5 Financial Statements.
The Company has delivered to Purchaser copies of the financial
statements of the Company and its Subsidiaries as of the Closing, and additional
financial statements as required in Section 7.1 hereof. All of said financial
statements (including in each case the related schedules and notes) fairly
present in all material respects the consolidated financial position of the
Company and its Subsidiaries as of the respective dates specified in such
Schedule and the consolidated results of their operations and cash flows for the
respective periods so specified and have been prepared in accordance with GAAP
consistently applied throughout the periods involved except as set forth in the
notes thereto (subject, in the case of any interim financial statements, to
normal year-end adjustments).
5.6 Compliance with Laws, Other Instruments, etc. The execution,
delivery and performance by the Company of this Agreement and the Debentures
will not
(a) contravene, result in any breach of, or constitute a
default under, or result in the creation of any Lien in respect of any
Property of the Company or any Subsidiary under, any indenture,
mortgage, deed of trust, loan, purchase or credit agreement, lease,
corporate charter or by-laws, or any other material agreement or
instrument to which the Company or any Subsidiary is bound or by which
the Company or any Subsidiary or any of their respective Properties may
be bound or affected;
(b) conflict with or result in a breach of any of the terms,
conditions or provisions of any order, judgment, decree, or ruling of
any court, arbitrator or Governmental Authority applicable to the
Company or any Subsidiary; or
(c) violate any provision of any statute or other rule or
regulation of any Governmental Authority applicable to the Company or
any Subsidiary.
5.7 Governmental Authorizations, etc.
No consent, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority is required in connection with the
execution, delivery or performance by the Company of this Agreement or the
Debentures.
5.8 Litigation; Observance of Statutes and Orders.
(a) Except as disclosed in SCHEDULE 5.8, there are no actions,
suits or proceedings pending or, to the knowledge of the Company,
threatened against or affecting the Company or any Subsidiary or any
Property of the Company or any Subsidiary in any court or before any
arbitrator of any kind or before or by any Governmental Authority
22
that, individually or in the aggregate, would reasonably be expected to
have a Material Adverse Effect.
(b) Neither the Company nor any Subsidiary is in default under
any order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority or is in violation of any applicable law,
ordinance, rule or regulation of any Governmental Authority, which
default or violation, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.
5.9 Taxes.
Except as disclosed in writing to the Purchaser, the Company and its
Subsidiaries have filed all income tax returns that are required to have been
filed in any jurisdiction, and have paid all taxes shown to be due and payable
on such returns and all other taxes and assessments payable by them, to the
extent such taxes and assessments have become due and payable and before they
have become delinquent, except for any taxes and assessments (a) the amount of
which is not individually or in the aggregate material or (b) the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which the Company or a Subsidiary,
as the case may be, has established adequate reserves in accordance with GAAP.
The Company and its Subsidiaries have previously furnished in writing to
Purchaser a complete and correct listing of any current violations of this
Section 5.9.
5.10 Title to Property, Leases.
The Company and its Subsidiaries have good and sufficient title to
their respective material Properties, including all such Properties reflected in
the most recent audited balance sheet referred to in Section 5.5 or purported to
have been acquired by the Company or any Subsidiary after said date (except as
sold or otherwise disposed of in the ordinary course of business), in each case
free and clear of Liens prohibited by this Agreement, except for those defects
in title and Liens that, individually or in the aggregate, would not have a
Material Adverse Effect. All material leases are valid and subsisting and are in
full force and effect in all material respects.
5.11 Licenses, Permits, etc.
Except as disclosed in SCHEDULE 5.11, the Company and its Subsidiaries
own or possess all licenses, permits, franchises, authorizations, patents,
copyrights, service marks, trademarks and trade names, or rights thereto, that
are material, without known conflict with the rights of others, except for those
conflicts that, individually or in the aggregate, would not have a Material
Adverse Effect.
5.12 Compliance with ERISA.
The Company and each Subsidiary have operated and administered each
employee benefit plan subject to ERISA in compliance with all applicable laws
except for such instances of
23
noncompliance as have not resulted in and could not reasonably be expected to
result in a Material Adverse Effect.
5.13 Private Offering by the Company.
Neither the Company nor anyone acting on its behalf has offered the
Debentures or any similar securities, for sale to, or solicited any offer to buy
any of the same from, or otherwise approached or negotiated in respect thereof
with, any Person other than Purchaser, and not more than 39 other Institutional
Investors, each of which has been offered the Debentures at a private sale for
investment. Neither the Company nor anyone acting on its behalf has taken, or
will take, any action that would subject the issuance or sale of the Debentures
to the registration requirements of Section 5 of the Securities Act.
5.14 Margin Regulations.
No part of the proceeds from the sale of the Debentures hereunder will
be used, directly or indirectly, for the purpose of buying or carrying any
margin stock within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System (12 CFR 207), or for the purpose of buying or carrying or
trading in any securities under such circumstances as to involve the Company in
a violation of Regulation X of said Board (12 CFR 224) or to involve any broker
or dealer in a violation of Regulation T of said Board (112 CFR 220). Margin
stock does not constitute more than 1 % of the value of the consolidated assets
of the Company and its Subsidiaries and the Company does not have any present
intention that margin stock will constitute more than 1% of the value of such
assets. As used in this Section, the terms "margin stock" and "purpose of buying
or carrying" shall have the meanings assigned to them in said Regulation G.
5.15 Existing Indebtedness.
The Company has disclosed to Purchaser a complete and correct list of
all outstanding Indebtedness of the Company and its Subsidiaries as of the date
hereof (the "Existing Indebtedness"), since which date there has been no
material change in the amounts, interest rates, sinking funds, installment
payments or maturities of the Indebtedness of the Company or its Subsidiaries.
Neither the Company nor any Subsidiary is in default and no waiver of default is
currently in effect in the payment of any principal or interest on any
Indebtedness of the Company or such Subsidiary, and no event or condition exists
with respect to any Indebtedness of the Company or any Subsidiary that would
permit (or that with notice or the lapse of time, or both, would permit) one or
more Persons to cause such Indebtedness to become due and payable before its
stated maturity or before its regularly scheduled dates of payment. SCHEDULE
5.15 contains a complete and correct listing of the Existing Indebtedness of the
Company to which the Debentures are subordinated (collectively, the "Senior
Existing Indebtedness").
5.16 Foreign Assets Control Regulations, etc.
Neither the sale of the Debentures by the Company hereunder nor its use
of the proceeds thereof will violate the Trading with the Enemy Act, as amended,
or any of the foreign assets
24
control regulations of the United States Treasury Department (31 CFR, Subtitle
B, Chapter V, as amended) or any enabling legislation or executive order
relating thereto.
5.17 Status under Certain Statutes.
Neither the Company nor any Subsidiary is subject to regulation under
the Investment Company Act of 1940, as amended, the Public Utility Holding
Company Act of 1935, as amended, the Transportation Acts (49 U.S.C.), as
amended, or the Federal Power Act, as amended.
5.18 Disclosure.
This Agreement (including without limitation the Schedules and Exhibits
hereto) does not contain any untrue statement of a material fact or omit a
material fact necessary to make the statements contained herein in the light of
the circumstances under which they were made, not misleading.
5.19 Transactions With Affiliates.
Except for employment agreements and stock option agreements which have
been previously been disclosed in the Company's Securities Act and Exchange Act
filings and which are listed on SCHEDULE 5.19 or Indebtedness listed in SCHEDULE
5.15, no director, officer, employee or stockholder of the Company, or member of
the family of any such person, or any corporation, partnership, trust or other
entity in which any such person, or any member of the family of any such person,
has a substantial interest or is an officer, director, trustee, partner or
holder of more than 5% of the outstanding capital stock thereof, is a party to
any Material transaction with the Company, including any Material contract,
agreement or other arrangement providing for the employment of, furnishing of
services by, rental of real or personal Property from, or otherwise requiring
payments to, any such person or firm.
5.20 Additional Disclosures.
The Company has provided Purchaser with the latest version of (a) its
Business Plan and (b) most recent draft of the Company's budget for the fiscal
year 2000, both of which are complete and correct as of the date hereof. The
Company will apply the proceeds from the sale of the Debentures consistent with
the Business Plan.
5.21 Authorized Capital Stock.
The authorized capital stock of the Company on this date of this
Agreement is set forth on SCHEDULE 5.21. The Company covenants and agrees that
at the time of any Conversion Date (as defined in Section 8.6), 6,902,429 shares
(reduced to reflect conversions previously made under Section 8.6) of the
Company's Common Stock, par value 0.001 per share ("Common Stock"), will be
validly authorized, issued and outstanding, fully paid and nonassessable, free
from all preemptive rights, taxes, Liens and charges with respect to the issue
thereof, with no personal liability attaching to the ownership thereof. On the
date of this Agreement, there are
25
6,902,429 shares of Common Stock reserved for issuance in connection with
Purchaser's conversion rights set forth in Section 8.6. The Company covenants
and agrees that it will at all times have authorized and reserved, free from
preemptive rights, a sufficient number of shares of Common Stock to provide for
issuance in connection with your conversion rights set forth in Section 8.6. The
Company further covenants and agrees the Company will from time to time take all
such action as may be required to assure that the stated or par value per share
of Common Stock is at all times equal to or less than the effective conversion
price per share of Common Stock issuable upon conversion of the Debentures. As
of the date of this Agreement SCHEDULE 5.21 sets forth shares of Common Stock
reserved for issuance in connection with options which have been granted or are
currently committed to be granted or have not yet been exercised. As of the date
of this Agreement the number of shares of Common Stock and number of
subscriptions, warrants, options, convertible securities and other rights
(contingent or other) to purchase or otherwise acquire equity securities of the
Company are set forth in SCHEDULE 5.21. The designations, powers, preferences
rights, qualifications, limitations and restrictions on the date of this
Agreement in respect of each class and series of authorized capital stock of the
Company are set forth in SCHEDULE 5.21. The Company on the date of this
Agreement has no obligation (contingent or other) to purchase, redeem or
otherwise acquire any of its equities securities or any interest therein or to
pay any dividend or make any other distribution in respect thereof except as set
forth in this Agreement, the Registration Rights Agreement of even date by and
between the Company and Purchaser (the "Registration Rights Agreement") and
SCHEDULE 5.21. The Company on the date of this Agreement is not a party to any
voting trusts or agreements, stockholders agreements, pledge agreements,
buy-sell agreements, agreements containing rights of first refusal or preemptive
rights, and there are no proxies relating to any securities of the Company,
except for this Agreement. To the knowledge of the Company's Chief Financial
Officer, assuming the accuracy of the representations and warranties contained
in SCHEDULE 5.21, all of the outstanding securities of the Company have been
issued in compliance with all applicable U.S. and Canadian securities laws
concerning the issuance of securities.
5.22 Intellectual Property; Proprietary Information of Third
Parties.
The Company is in compliance as of the date of this Agreement with all
of its representations, warranties and covenants with respect to the
Intellectual Property, as defined in the First Amendment to the Loan and
Security Agreement made and dated as of September 19, 2000 among Purchaser and
XxxxXxxxxx.Xxx Corp., a Florida corporation, and its Wholly-Owned Subsidiaries
Xceedx Technologies Inc. and Welcome To Search Engine Inc., corporations
organized under the laws of the province of British Columbia, Canada (the
"Borrowers"), which amends that certain Loan and Security Agreement dated as of
August 16, 2000, among the Borrowers and the Purchaser (the "Loan and Security
Agreement").
6. REPRESENTATIONS OF THE PURCHASER
6.1 Purchase for Investment.
Purchaser represents that the Debentures are being purchased for its
account and not with a view to the distribution or resale thereof, provided that
the disposition of Purchaser's Property
26
shall at all times be within Purchaser's control. Purchaser understands that the
Debentures have not been registered under the Securities Act (or similar
Canadian laws) and applicable U.S. blue sky laws and may be resold in the United
States only if registered pursuant to the provisions of the Securities Act and
applicable U.S. blue sky laws or if an exemption from registration is available,
except under circumstances where neither such registration nor such an exemption
is required by law, and that the Company is not required to register the
Debentures.
6.2 Organization; Power and Authority.
The Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, and is duly
qualified as a foreign corporation and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. The Purchaser has the corporate power and authority to own or
hold under lease the Properties it purports to own or hold under lease, to
transact the business it transacts and proposes to transact, to execute and
deliver this Agreement and the Other Agreements and the Debentures and to
perform the provisions hereof and thereof.
6.3 Authorization, etc.
This Agreement and the Other Agreements and the purchase of Debentures
have been duly authorized by all necessary corporate action on the part of the
Purchaser, and this Agreement constitutes, and upon execution and delivery this
Agreement and the Registration Rights Agreement will constitute, a legal, valid
and binding obligation of the Purchaser enforceable against the Purchaser in
accordance with its terms, except as such enforceability may be limited by (a)
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and (b) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
6.4 Disclosure.
Purchaser's representations and warranties do not contain any untrue
statement of a material fact or omit a material fact necessary to make the
statements contained herein, in the light of the circumstances under which they
were made, not misleading.
6.5 Government Authorization.
No consent, approval or authorization of, or registration, filing or
declaration with any Governmental Authority is required in connection with the
execution, delivery or performance by the Purchaser of this Agreement or the
Debentures.
7. INFORMATION AS TO COMPANY
7.1 Financial and Business Information.
The Company shall deliver to each holder of the Debentures:
27
(a) Quarterly Statements -- within 60 days after the end of
each quarterly fiscal period in each fiscal year of the Company (other
than the last quarterly fiscal period of each such fiscal year),
duplicate copies of,
(i) a consolidated balance sheet of the Company and
its Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries, for such quarter and (in the case of the second
and third quarters) for the portion of the fiscal year ending
with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified by a Senior Financial
Officer as fairly presenting, in all material respects, the financial
position of the companies being reported on and their results of
operations and cash flows, subject to changes resulting from year-end
adjustments, provided that delivery within the time period specified
above of copies of the Company's Quarterly Report on Form 10-QSB (or
equivalent form applicable to the Company) prepared in compliance with
the requirements therefor and filed with the Securities and Exchange
Commission shall be deemed to satisfy the requirements of this Section
7.1 (a);
(b) Annual Statements -- within 120 days after the end of each
fiscal year of the Company, duplicate copies of,
(i) a consolidated balance sheet of the Company and
its Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in accordance
with GAAP, and accompanied by an opinion thereon of independent
certified public accountants of recognized standing, which opinion
shall state that such financial statements present fairly, in all
material respects, the financial position of the companies being
reported upon and their results of operations and cash flows and have
been prepared in conformity with GAAP, and that the examination of such
accountants in connection with such financial statements has been made
in accordance with generally accepted auditing standards, and that such
audit provides a reasonable basis for such opinion in the
circumstances, provided that the delivery within the time period
specified above of the Company's Annual Report on Form 10-KSB (or
equivalent form applicable to the Company) for such fiscal year
(together with the Company's annual report to shareholders, if any,
prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in
accordance with the requirements therefor
28
and filed with the Securities and Exchange Commission shall be deemed
to satisfy the requirements of this Section 7.1(b);
(c) SEC and Other Reports -- promptly upon their becoming
available, one copy of (i) each financial statement, report, notice or
proxy statement sent by the Company or any Subsidiary to public
securities holders generally, and (ii) each regular or periodic report,
each registration statement (other than on Form S-8 or similar form)
that shall have become effective (without exhibits except as expressly
requested by such holder), and each final prospectus and all amendments
thereto filed by the Company or any Subsidiary with the Securities and
Exchange Commission;
(d) Notice of Default or Event of Default -- promptly, and in
any event within five days after a Responsible Officer becoming aware
of the existence of any Default or Event of Default, a written notice
specifying the nature and period of existence thereof and what action
the Company is taking or proposes to take with respect thereto;
(e) Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations,
affairs, financial condition, assets or Properties of the Company or
any of its Subsidiaries or relating to the ability of the Company to
perform its obligations hereunder and under the Debentures as from time
to time may be reasonably requested by any such holder of Debentures,
including, without limitation, a complete and correct version of its
Business Plan and Annual Budget in at least such form and content as
delivered to Purchaser as of the date hereof.
7.2 Officer's Certificate.
Each set of financial statements delivered to a holder of Debentures
pursuant to Section 7.1 (a) or Section 7.1 (b) hereof shall be accompanied by a
certificate of a Senior Financial Officer setting forth:
(a) Covenant Compliance -- the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Section 10.1 through Section 10.6,
inclusive, during the quarterly or annual period covered by the
statements then being furnished (including with respect to each such
Section, where applicable, the calculations of the maximum or minimum
amount, ratio or percentage, as the case may be, permissible under the
terms of such Sections, and the calculation of the amount, ratio or
percentage then in existence); and
(b) Event of Default -- a statement that such officer has
reviewed the relevant terms hereof and to the best of such officer's
knowledge no condition or event that constitutes a Default or an Event
of Default existed during the period covered by the statements or, if
any such condition or event existed or exists specifying the nature and
period of existence thereof and what action the Company shall have
taken or proposes to take with respect thereto.
29
7.3 Inspection.
The Company shall permit the representatives of each holder of
Debentures:
(a) No Default -- if no Default or Event of Default then
exists, at the expense of such holder and upon reasonable prior notice
to the Company, to visit the principal executive office of the Company,
to discuss the affairs, finances and accounts of the Company and its
Subsidiaries with the Company's officers, and, with the consent of the
Company (which consent will not be unreasonably withheld) to visit the
other offices and Properties of the Company and each Subsidiary, all at
such reasonable times and as often as may be reasonably requested in
writing; and
(b) Default -- if a Default or Event of Default then exists,
at the expense of the Company, to visit and inspect any of the offices
or Properties of the Company or any Subsidiary, to examine all their
respective books of account, records, reports and other papers, to make
copies and extracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective officers and independent
public accountants (and by this provision the Company authorizes said
accountants to discuss the affairs, finances and accounts of the
Company and its Subsidiaries), all at such times and as often as may be
requested.
8. REDEMPTION OF THE DEBENTURES
8.1 Optional Redemption. The Debentures will not be redeemable
prior to October 31, 2003, unless (x) the quoted price on any securities
exchange registered under the Securities Exchange Act of 1934 or through NASDAQ
of the Common Stock (the "Quoted Price") shall have equaled or exceeded 130% of
the Conversion Price (as defined in Section 8.6) for at least thirty consecutive
days ended with five trading days prior to the date notice of such optional
redemption is given, and (y) the Company delivers notice to the Purchaser that
the Company in good faith intends to file a registration statement for a United
States public offering within twenty days of such notice. The notice shall
provide for a redemption date (the "Optional Redemption Date") not less than
fifteen days from the date thereof. The Company will redeem the principal amount
of the Debentures at a redemption price of 100% of principal amount, plus
accrued interest to the Optional Redemption Date. The Company may redeem the
principal amount of the Debentures to be redeemed pursuant to this paragraph 8.1
by subtracting 100 percent of the principal amount of the Debentures that
Debenture Holder shall have converted to Common Stock, which the Debenture
Holder has delivered to the Company for cancellation. The Company may redeem the
amount of the Debentures only once pursuant to this Section 8.1.
8.2 Mandatory Redemption. The Company will redeem the principal
amount of the Debentures on October 31, 2003 (the "Mandatory Redemption Date"),
at a redemption price of 100% of principal amount, plus accrued interest to the
Mandatory Redemption Date. The Company may redeem the principal amount of the
Debentures to be redeemed pursuant to this Section 8.2 by subtracting 100
percent of the principal amount of the Debentures that Debenture Holder shall
have converted to Common Stock, which the Debenture Holder has delivered to the
Company for cancellation. The Company may redeem the amount of the Debentures
only once pursuant to this Section 8.2. There shall be no earlier redemption of
the Debentures without Purchaser's prior written consent.
30
8.3 Notice of Redemption.
Notice of the mandatory redemption date will be mailed at least thirty
days but not more than sixty days before the Mandatory Redemption Date to the
Debenture Holder at its registered address in accordance with the notice
provisions hereof in this Agreement.
8.4 Allocation of Partial Prepayments.
In the case of each partial prepayment of the Debentures, the principal
amount of the Debentures to be prepaid shall be allocated among all of the
Debentures at the time outstanding in proportion, as nearly as practicable, to
the respective unpaid principal amounts thereof not theretofore called for
prepayment, without distinguishing among the different Series.
8.5 Maturity; Surrender, etc.
In the case of each prepayment of Debentures pursuant to this Section
8, the principal amount of each Debenture to be prepaid shall mature and become
due and payable on the date fixed for such prepayment, together with interest on
such principal amount accrued to such date. From and after such date, unless the
Company shall fail to pay such principal amount when so due and payable,
together with the interest, as aforesaid, interest on such principal amount
shall cease to accrue. Any Debenture paid or prepaid in full shall be
surrendered to the Company and cancelled and shall not be reissued, and no
Debenture shall be issued in lieu of any prepaid principal amount of any
Debenture.
8.6 Conversion.
A Debenture Holder may convert any Debenture, in whole or in part, into
fully paid and non-assessable Common Stock of the Company at any time before the
close of business on the Optional Redemption Date or Mandatory Redemption Date,
as the case may be (each such conversion is a "Conversion Date"), subject at all
times thereafter to the benefits of the Registration Rights Agreement in
accordance with the terms thereof and the terms of the Debentures attached as
EXHIBITS 1 through 6. If the Debenture is called for redemption, the holder may
convert it at any time before the close of business on the Optional Redemption
Date or Mandatory Redemption Date, as the case may be. The Debenture shall be
converted, subject to adjustment as provided in Section 5 of each Debenture, on
the basis of the aggregate of (a) one (1) share of Common Stock of the Company
for each $0.2173 of principal debt balance due on the Debenture (the "Conversion
Price"), and (b) one (1) share of Common Stock of the Company times the quotient
of (i) the accrued interest on the Debenture to the Conversion Date divided by
(ii) the Quoted Price as defined in Section 8.1 hereof (the "Interest Conversion
Rate"). No fraction of a share of Common Stock shall be deliverable in payment
of principal or accrued interest on the Debenture, but any fraction of a share
shall be rounded upwards to the nearest whole share.
9. AFFIRMATIVE COVENANTS
The Company covenants that so long as any of the Debentures are
outstanding:
31
9.1 Compliance with Law.
The Company will, and will cause each of its Subsidiaries to, comply
with all laws, ordinances or governmental rules or regulations to which each of
them is subject, and will obtain and maintain in effect all licenses,
certificates, permits, franchises and other governmental authorizations
necessary to the ownership of their respective Properties or to the conduct of
their respective businesses, in each case to the extent necessary to ensure that
non-compliance with such laws, ordinances or governmental rules or regulations
or failures to obtain or maintain in effect such licenses, certificates,
permits, franchises and other governmental authorizations would not reasonably
be expected, individually or in the aggregate, to have a Material Adverse
Effect.
9.2 Insurance.
The Company will, and will cause each of its Subsidiaries to, maintain,
with financially sound and reputable insurers, insurance with respect to their
respective Properties and businesses against such casualties and contingencies,
of such types, on such terms and in such amounts (including deductibles,
co-insurance and self-insurance, if adequate reserves are maintained with
respect thereto) as is customary in the case of entities of established
reputations engaged in the same or a similar business and similarly situated.
9.3 Maintenance of Properties.
The Company will, and will cause each of its Subsidiaries to, maintain
and keep, or cause to be maintained and kept, their respective Properties in
good repair, working order and condition (other than ordinary wear and tear), so
that the business carried on in connection therewith may be properly conducted
at all times, provided that this Section shall not prevent the Company or any
Subsidiary from discontinuing the operation and the maintenance of any of its
Properties if such discontinuance is desirable in the conduct of its business
and the Company has concluded that such discontinuance would not, individually
or in the aggregate, have a Material Adverse Effect.
9.4 Payment of Taxes.
As soon as practical after the date hereof (but not more than 90 days
after the date hereof), the Company will, and will cause each of its
Subsidiaries to, file all income tax or similar tax returns required to be filed
in any jurisdiction and to pay and discharge all taxes shown to be due and
payable on such returns and all other taxes, assessments, governmental charges,
or levies payable by any of them, to the extent such taxes and assessments have
become due and payable and before they have become delinquent, provided that
neither the Company nor any Subsidiary need pay any such tax or assessment if
(a) the amount, applicability or validity thereof is contested by the Company or
such Subsidiary on a timely basis in good faith and in appropriate proceedings,
and the Company or a Subsidiary has established adequate reserves therefor in
accordance with GAAP on the books of the Company or such Subsidiary or (b) the
nonpayment of all such taxes and assessments in the aggregate would not
reasonably be expected to have a Material Adverse Effect.
32
9.5 Corporate Existence, etc.
The Company will at all times preserve and keep in full force and
effect its corporate existence. Subject to Section 10.3 and Section 10.4, the
Company will at all times preserve and keep in full force and effect the
corporate existence of each of its Subsidiaries and all rights and franchises of
the Company and its Subsidiaries unless, in the good faith judgment of the
Company, the termination of or failure to preserve and keep in full force and
effect such corporate existence, right or franchise would not, individually or
in the aggregate, have a Material Adverse Effect.
9.6 Update of Disclosure Materials.
The Company will update its disclosures to the Purchaser referenced in
Sections 5.9, 5.15 and 5.20.
10. NEGATIVE COVENANTS
The Company covenants that, so long as Purchaser has purchased all of
the Series A-F Debentures, and so long as any of the Debentures are outstanding:
10.1 Total Indebtedness.
The Company will not, and will not permit any Subsidiary to, at any
time, directly or indirectly create, incur, issue, assume, guaranty or otherwise
become liable with respect to any Indebtedness outstanding other than (a) the
Existing Indebtedness existing on the Closing Date and each Additional Closing
Date as contemplated under the terms of the Series A - F Debentures or (b)
Indebteness incurred in respect of and not exceeding the amount of any Lien
permitted under clauses (i), (ii), (iii), (iv), (v), and (vi) of Section
10.6(a), unless the consent of the Purchaser shall have been obtained.
10.2 Subsidiary Indebtedness.
The Company will not, at any time, permit any Subsidiary to have any
Indebtedness outstanding other than the Existing Indebtedness of a Subsidiary
existing on the Closing Date and described in SCHEDULE 5.15 or an extension,
renewal or refunding of the Existing Indebtedness, provided that the principal
amount of such extended, renewed or refunded Existing Indebtedness does not
exceed the principal amount of the Existing Indebtedness outstanding immediately
prior to such extension, renewal or refunding;
10.3 Mergers, Consolidations, etc.
The Company shall not consolidate with or merge with any other
corporation or convey, transfer or lease substantially all of its assets in a
single transaction or series of transactions to any Person or change its
jurisdiction of incorporation without obtaining the prior written consent
33
of Purchaser. No such conveyance, transfer or lease of substantially all of the
assets of the Company shall have the effect of releasing the Company or any
successor corporation that shall theretofore have become such in the manner
prescribed in this Section 10.3 from its liability under this Agreement or the
Debentures.
10.4 Sales of Assets.
(a) Transfers of Property. The Company will not, and will not
permit any Subsidiary to, sell (including, without limitation, any sale
and subsequent leasing as lessee of such Property), lease as lessor,
transfer, or otherwise dispose of a Substantial Part of the Property of
the Company and the Subsidiaries (individually, a "Transfer" and
collectively, "Transfers"), except Transfers from a Subsidiary to the
Company.
(b) Transfers of Subsidiary Stock. The Company will not, and
will not permit any Subsidiary to, Transfer any shares of the stock (or
any warrants, rights or options to purchase stock or other Securities
exchangeable for or convertible into stock) of a Subsidiary (such
stock, warrants, rights, options and other Securities herein called
"Subsidiary Stock"), nor will any Subsidiary issue, sell or otherwise
dispose of any of its own Subsidiary stock; provided, however, that the
foregoing restrictions do not apply to:
(i) the issuance by a Subsidiary of any of its own
Subsidiary stock to the Company or a Wholly-Owned Subsidiary;
(ii) Transfers by a Subsidiary of any of Subsidiary
Stock to the Company or a Wholly-Owned Subsidiary; and
(iii) the issuance by a Subsidiary of directors'
qualifying shares.
For purposes of determining the book value of Property constituting
Subsidiary Stock being Transferred as provided in clause (iv) above,
such book value shall be deemed to be the aggregate book value of all
assets of the Subsidiary that shall have issued such Subsidiary Stock.
(c) Subsidiary Mergers, etc. Any merger or consolidation of
any Subsidiary with or into any Person that results in a Person other
than the Company or a Wholly-Owned Subsidiary owning Subsidiary stock
of such Subsidiary shall be deemed to be a Transfer of the Subsidiary
stock of such Subsidiary.
10.5 Investments.
The Company will not, and will not permit any Subsidiary to, make any
Investment other than:
(a) Investments in Property to be used in the ordinary course
of business of the Company and the Subsidiaries;
34
(b) Investments consisting of current assets arising from the
sale of goods and services in the ordinary course of business of the
Company and the Subsidiaries;
(c) Investments in the ordinary course of business of the
Company and the Subsidiaries in one or more Subsidiaries or any
corporation that concurrently with such Investment becomes a
Subsidiary;
(d) Investments existing on the Closing Date and listed in
SCHEDULE 5.15;
(e) Investments in United States or Canadian Governmental
Securities, provided that such Investments mature within 365 days from
the date of acquisition thereof;
(f) Investments in certificates of deposit or banker's
acceptances maturing within 365 days from the date of acquisition
thereof issued by any bank or trustee;
(g) Investments in commercial paper having, at the time of
acquisition, an assigned rating of at least "Al" by S&P or "P1" by
Moody's (or an equivalent rating by another credit rating agency of
recognized national standing in the United States of America), provided
that such commercial paper matures within 270 days from the date of
acquisition thereof;
(h) Investments in Repurchase Agreements;
(i) Investments in any tax-exempt obligation of any State of
the United States of America or province of Canada or municipality
thereof that at the time of acquisition thereof have an assigned rating
of at least "AA" by S&P or "Aa2" by Moody's (or an equivalent rating by
another credit rating agency of recognized national standing in the
United States of America), provided that such obligations mature within
365 days from the date of acquisition thereof;
(j) Investments not otherwise included in clause (a) through
clause (i) above upon the prior written consent of the Purchaser.
10.6 Liens.
(a) Negative Pledge. The Company will not, and will not permit
any Subsidiary to, cause or permit, or agree or consent to cause or
permit in the future (upon the happening of a contingency or
otherwise), any of their respective Properties, whether now owned or
hereafter acquired, at any time to be subject to a Lien except:
(i) Liens for taxes, assessments or other similar
governmental charges that are not yet due and payable;
(ii) Liens incurred or deposits made in the ordinary
course of business in respect of statutory obligations or
claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like Persons, provided that
the
35
obligations secured by such Liens shall not be in default and
the title of the Company or the Subsidiary, as the case may
be, to, and its right to use, the Property subject to such
Lien, is not materially adversely affected thereby;
(iii) Liens incurred or deposits made in the ordinary
course of business not incurred in connection with the
borrowing of material amounts of money;
(iv) Liens, arising in connection with court
proceedings,
(A) in the nature of attachments, remedies
and judgments, provided that the execution or other
enforcement of such Liens is effectively stayed and
the claims secured thereby are being actively
contested in good faith and by appropriate
proceedings, and
(B) securing appeal bonds, supersedeas bonds
and other similar Liens arising in connection with
court proceedings (including, without limitation,
surety bonds and letters of credit) or any other
instrument serving a similar purpose,
provided that each judgment secured by a Lien described in
this clause (iv) is, within 60 days after entry thereof,
discharged or the enforcement thereof is stayed pending
appeal, or is discharged within 60 days after the expiration
of such stay;
(v) reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions
and other similar title exceptions or encumbrances affecting
real Property, provided they do not in the aggregate
materially detract from the value of such real Property or
materially interfere with their use in the ordinary conduct of
the owning Person's business;
(vi) Liens on Property of the Company or a
Subsidiary, provided that such Liens secure only obligations
owing to the Company or any other Subsidiary;
(vii) Liens outstanding on the Closing Date and
listed in SCHEDULE 5.15;
(viii) any Lien on Property that is acquired or
constructed by the Company or any Subsidiary after the Closing
Date that secures Indebtedness incurred by the owner of such
Property to pay for all or a portion of the related purchase
price or construction costs of such Property or any
improvement thereon, provided that
(A) such Lien shall not extend to or cover
any Property other than Property or any improvement
thereon acquired or constructed after the Closing
Date with the proceeds of the Indebtedness secured
thereby (and shall not secure Indebtedness other than
such Indebtedness) and, if required by the terms of
the instrument originally creating such Lien, other
Property that is an improvement to or is acquired for
specific use in connection with such acquired
Property;
36
(B) such Lien shall secure Indebtedness in
an amount not exceeding 100% of the lesser of (1) the
cost of acquisition or construction of the Property
to which such Indebtedness relates and (2) the Fair
Market Value of the Property to which such
Indebtedness relates, determined, in each case, at
the time of the incurrence of such Indebtedness; and
(C) such Lien shall be created
contemporaneously with, or within 180 days after, the
acquisition or substantial completion of such
Property;
(ix) any Lien existing on Property of a Person
immediately prior to its being consolidated with or merged
into the Company or a Subsidiary or its becoming a Subsidiary,
or any Lien existing on any Property acquired by the Company
or any Subsidiary at the time such Property is so acquired
(whether or not the Indebtedness secured thereby shall have
been assumed), provided that
(A) no such Lien shall have been created or
assumed in contemplation of such consolidation or
merger or such Person's becoming a Subsidiary or such
acquisition of Property; and
(B) each such Lien shall extend solely to
the item or items of Property so acquired and, if
required by the terms of the instrument originally
creating such Lien, other Property that is an
improvement to or is acquired for specific use in
connection with such acquired Property;
(x) Liens securing renewals, extensions (as to time)
and refinancing of Indebtedness secured by Liens permitted by
clause (vii), clause (viii) or clause (ix) of this Section
10.6(a), provided that
(A) the amount of Indebtedness secured by
each such Lien is not increased in excess of the
amount of Indebtedness outstanding on the date of
such renewal, extension or refinancing, and the
maturity of such Indebtedness is not shortened;
(B) none of such Liens is extended to
include any additional Property of the Company or any
Subsidiary; and
(C) immediately after such renewal,
extension or refunding, no Default or Event of
Default would exist.
(b) Equal and Ratable Lien; Equitable Lien. In case any
Property shall be subjected to a Lien in violation of Section 10.6(a),
the Company will forthwith make or cause to be made provision whereby
the Debentures will be secured equally and ratably as to such Property
with all other obligations secured thereby pursuant to such agreements
and instruments as shall be approved by the Purchaser (and, in
connection therewith, the Company shall pay any applicable stamp tax,
documentary tax, recording fee or tax or other similar tax), and the
Company will promptly cause to be delivered to
37
each holder of a Debenture an opinion of independent counsel
satisfactory to the Purchaser to the effect that such agreements and
instruments are enforceable (subject to customary bankruptcy exceptions
not related to fraudulent conveyances) in accordance with their terms,
and in any such case the Debentures shall have the benefit, to the
fullest extent that, and with such priority as, the holders of
Debentures may be entitled under applicable law, of an equitable Lien
on such Property (and any proceeds thereof) securing the Debentures
(provided that, notwithstanding the foregoing, each holder of
Debentures shall have the right to elect at any time, by delivery of
written notice of such election to the Company, to cause the Debentures
held by such holder not to be secured by such Lien or such equitable
Lien). Any violation of this Section 10.6 will constitute an Event of
Default, whether or not any such provision is made pursuant to this
Section 10.6(b).
10.7 Transactions with Affiliates.
The Company will not, and will not permit any Subsidiary to, enter
into, directly or indirectly, any Material transaction or Material group of
related transactions (including without limitation the purchase, lease, sale or
exchange of Properties of any kind or the rendering of any service) with any
Affiliate (other than the Company or another Subsidiary), except in the ordinary
course of business pursuant to the reasonable requirements of the Company's or
such Subsidiary's business and upon fair and reasonable terms no less favorable
to the Company or such Subsidiary than would be obtainable in a comparable
arm's-length transaction with a Person not an Affiliate.
11. EVENTS OF DEFAULT
An "Event of Default" shall exist if any of the following conditions or
events shall occur and be continuing:
(a) the Company defaults in the payment of any principal on
any Debenture or Note issued pursuant to the Loan and Security
Agreement when the same becomes due and payable, whether at maturity or
at a date fixed for prepayment or by declaration or otherwise; or
(b) the Company defaults in the payment of any interest on any
Debenture or Note issued pursuant to the Loan and Security Agreement
for more than five Business Days after the same becomes due and
payable; or
(c) the Company defaults in the performance of or compliance
with any term not referred to in clauses (a) and (b) of this Section 11
and contained in Section 10.1 through Section 10.6 hereofor under the
Other Agreements, including, without limitation, the Loan and Security
Agreement and such default is not remedied within 5 days after the
earlier of (i) a Responsible Officer obtaining actual knowledge of such
default and (ii) the Company receiving written notice of such default
from any holder of a Debenture (any such written notice to be
identified as a "notice of default" and to refer specifically to this
clause (c) of Section 11); or
(d) the Company defaults in the performance of or compliance
with any term contained herein (other than those referred to in clauses
(a), (b) and (c) of this Section 11)
38
and such default is not remedied within 30 days after the earlier of
(i) a Responsible Officer obtaining actual knowledge of such default
and (ii) the Company receiving written notice of such default from any
holder of a Debenture (any such written notice to be identified as a
"notice of default" and to refer specifically to this clause (d) of
Section 11); or
(e) any representation or warranty made in writing by or on
behalf of the Company or by any officer of the Company in this
Agreement or in any writing furnished in connection with the
transactions contemplated hereby proves to have been false or incorrect
in any material respect on the date as of which made; or
(f) (i) the Company or any Significant Subsidiary is in
default (as principal or as guarantor or other surety) in the payment
of any principal of or premium or interest on any Indebtedness that is
outstanding in an aggregate principal amount of at least $250,000
beyond any period of grace provided with respect thereto, or
(ii) the Company or any Significant Subsidiary is in
default in the performance of or compliance with any term of
any evidence of any Indebtedness in an aggregate outstanding
principal amount of at least $250,000 or of any mortgage,
indenture or other agreement relating thereto or any other
condition exists, and as a consequence of such default or
condition such Indebtedness has become, or has been declared
due and payable before its stated maturity or before its
regularly scheduled dates of payment; or
(g) the Company or any Significant Subsidiary
(i) is generally not paying, or admits in writing its
inability to pay, its debts as they become due,
(ii) files, or consents by answer or otherwise to
the filing against it of, a petition for relief or
reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any
bankruptcy, insolvency, reorganization, moratorium or other
similar law of any jurisdiction,
(iii) makes an assignment for the benefit of its
creditors,
(iv) consents to the appointment of a custodian,
receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its
Property,
(v) is adjudicated as insolvent or to be liquidated, or
(vi) takes corporate action for the purpose of any of the
foregoing; or
(h) a court or Governmental Authority of competent
jurisdiction enters an order appointing, without consent by the Company
or any of its Significant Subsidiaries, a custodian, receiver, trustee
or other officer with similar powers with respect to it or with
39
respect to any substantial part of its Property, or constituting an
order for relief or approving a petition for relief or reorganization
or any other petition in bankruptcy or for liquidation or to take
advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Company or
any of its Significant Subsidiaries, or any such petition shall be
filed against the Company or any of its Significant Subsidiaries and
such petition shall not be dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money
aggregating in excess of $50,000 are rendered against one or more of
the Company and its Significant Subsidiaries and which judgments are
not, within 90 days after entry thereof, bonded, discharged or stayed
pending appeal, or are not discharged within 90 days after the
expiration of such stay.
12. REMEDIES ON DEFAULT, ETC.
12.1 Acceleration.
(a) If an Event of Default with respect to the Company
described in clause (g) or clause (h) of Section 11 (other than an
Event of Default described in clause (g) (i) or described in clause
(g)(vi) by virtue of the fact that such clause encompasses clause
(g)(i)) has occurred, all the Debentures then outstanding shall
automatically become immediately due and payable.
(b) If any other Event of Default has occurred and is
continuing, the Purchaser may at any time at its or their option, by
notice or notices to the Company, declare all the Debentures then
outstanding to be immediately due and payable.
(c) If any Event of Default described in clause (a) or clause
(b) of Section 11 has occurred and is continuing, any holder or holders
of Debentures at the time outstanding affected by such Event of Default
may at any time, at its or their option, by notice or notices to the
Company, declare all the Debentures held by it or them to be
immediately due and payable.
Upon any Debentures becoming due and payable under this Section 12.1,
whether automatically or by declaration, such Debentures will forthwith mature
and the entire unpaid principal amount of such Debentures, plus (x) all accrued
and unpaid interest thereon (to the full extent permitted by applicable law),
shall all be immediately due and payable, in each and every case without
presentment, demand, protest or further notice, all of which are hereby waived.
12.2 Other Remedies.
If any Default or Event of Default has occurred and is continuing, and
irrespective of whether any Debentures have become or have been declared
immediately due and payable under Section 12.1, the holder of any Debenture at
the time outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
40
Debenture, or for an injunction against a violation of any of the terms hereof
or thereof, or in aid of the exercise of any power granted hereby or thereby or
by law or otherwise.
12.3 Rescission.
At any time after any Debentures have been declared due and payable
pursuant to clause (b) or clause (c) of Section 12.1, the Purchaser, by written
notice to the Company, may rescind and annul any such declaration and its
consequences if (a) the Company has paid all overdue interest on the Debentures,
all principal on any Debentures that are due and payable and are unpaid other
than by reason of such declaration, and all interest on such overdue principal
and (to the extent permitted by applicable law) any overdue interest in respect
of the Debentures, (b) all Events of Default and Defaults, other than
non-payment of amounts that have become due solely by reason of such
declaration, have been cured or have been waived pursuant to Section 17, and (c)
no judgment or decree has been entered for the payment of any monies due
pursuant hereto or to the Debentures. No rescission and annulment under this
Section 12.3 will extend to or affect any subsequent Event of Default or Default
or impair any right consequent thereon.
12.4 No Waivers or Election of Remedies, Expenses, etc.
No course of dealing and no delay on the part of any holder of any
Debenture in exercising any right, power or remedy shall operate as a waiver
thereof or otherwise prejudice such holder's rights, powers or remedies. No
right, power or remedy conferred by this Agreement or by any Debenture upon any
holder thereof shall be exclusive of any other right, power or remedy referred
to herein or therein or now or hereafter available at law, in equity, by statute
or otherwise. Without limiting the obligations of the Company under Section 15,
the Company will pay to the holder of each Debenture on demand such further
amount as shall be sufficient to cover all costs and expenses of such holder
incurred in any enforcement or collection under this Section 12, including,
without limitation, reasonable attorneys' fees, expenses and disbursements.
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF DEBENTURES.
13.1 Registration of Debentures.
The Company shall keep at its principal executive office a register for
the registration and registration of transfers of Debentures. The name and
address of each holder of one or more Debentures, each transfer thereof and the
name and address of each transferee of one or more Debentures shall be
registered in such register. Prior to due presentment for registration of
transfer, the Person in whose name any Debenture shall be registered shall be
deemed and treated as the owner and holder thereof for all purposes hereof, and
the Company shall not be affected by any notice or knowledge to the contrary.
The Company shall give to any holder of a Debenture, promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Debentures.
13.2 Transfer and Exchange of Debentures.
Upon surrender of any Debenture at the principal executive office of
the Company for registration of transfer or exchange (and in the case of a
surrender for registration of transfer,
41
duly endorsed or accompanied by a written instrument of transfer duly executed
by the registered holder of such Debenture or its attorney duly authorized in
writing and accompanied by the address for notices of each transferee of such
Debenture or part thereof), the Company shall execute and deliver, at the
Company's expense (except as provided below), one or more new Debentures (as
requested by the holder thereof) in exchange therefor, of the same Series as
such surrendered Debenture and in an aggregate principal amount equal to the
unpaid principal amount of the surrendered Debenture. Except with respect to the
transfer of a Debenture from the Purchaser to an Affiliate, the Company may
reasonably require an opinion of counsel of the transferee that such transfer is
exempt from the registration requirements of the Securities Act and applicable
U.S. blue sky laws. Each such new Debenture shall be payable to such Person as
such holder may request and shall be substantially in the form of EXHIBIT 1,
EXHIBIT 2, EXHIBIT 3, EXHIBIT 4, EXHIBIT 5 or EXHIBIT 6 as applicable. Each such
new Debenture shall be dated and bear interest from the date to which interest
shall have been paid on the surrendered Debenture or dated the date of the
surrendered Debenture if no interest shall have been paid thereon. The Company
may require payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any such transfer of Debentures. Debentures shall
not be transferred in denominations of less than $100,000, provided that if
necessary to enable the registration of transfer by a holder of its entire
holding of Debentures, one Debenture may be in a denomination of less than
$100,000. Any transferee, by its acceptance of a Debenture registered in its
name (or the name of its nominee), shall be deemed to have made the
representation set forth in Section 6.1.
13.3 Replacement of Debentures.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the ownership of and the loss, theft, destruction or mutilation of any
Debenture (which evidence shall be, notice from Purchaser of such ownership and
such loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such
Debenture is, or is a nominee for, an original Purchaser or is a
"qualified institutional buyer" (as such term is defined in Rule
144A(a)(1) under the Securities Act), such Person's own unsecured
agreement of indemnity shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a new
Debenture, dated and bearing interest from the date to which interest shall have
been paid on such lost, stolen, destroyed or mutilated Debenture or dated the
date of such lost, stolen, destroyed or mutilated Debenture if no interest shall
have been paid thereon.
42
14. PAYMENTS ON XXXXXXXXXX
00.0 Xxxxx of Payment.
Subject to Section 14.2, payments of principal and interest becoming
due and payable on the Debentures shall be made at the principal office of the
Purchaser. The Purchaser may at any time, by notice to the Company of a
Debenture, change the place of payment of the Debentures.
14.2 Home Office Payment.
So long as Purchaser or Purchaser's nominee shall be the holder of any
Debenture, and notwithstanding anything contained in Section 14.1 or in such
Debenture to the contrary, the Company will pay all sums becoming due on such
Debenture for principal and interest by the method and at the address specified
for such purpose by Purchaser, or by such other method or at such other address
as Purchaser shall have from time to time specified to the Company in writing
for such purpose, without the presentation or surrender of such Debenture or the
making of any notation thereon, except that upon written request of the Company
made concurrently with or reasonably promptly after payment or prepayment in
full of any Debenture, Purchaser shall surrender such Debenture for
cancellation, reasonably promptly after any such request (and in any event
within 45 days of such request), to the Company at its principal executive
office or at the place of payment most recently designated by the Company
pursuant to Section 14.1. Prior to any sale or other disposition of any
Debenture held by Purchaser or Purchaser's nominee Purchaser will, at
Purchaser's election, either endorse thereon the amount of principal paid
thereon and the last date to which interest has been paid thereon or surrender
such Debenture to the Company in exchange for a new Debenture or Debentures
pursuant to Section 13.2. The Company will afford the benefits of this Section
14.2 to any Institutional Investor that is the direct or indirect transferee of
any Debenture purchased by Purchaser under this Agreement and that has made the
same agreement relating to such Debenture as Purchaser has made in this Section
14.2.
15. EXPENSES, ETC.
15.1 Transaction Expenses.
The Company will pay all costs and expenses (including reasonable
attorneys' fees of a special counsel and, if reasonably required, local or other
counsel) incurred by Purchaser or holder of a Debenture (provided that if the
interests of all of the holders of the Debentures are substantially identical,
the Company shall be obligated to pay the reasonable attorneys' fees of a
special counsel and, if reasonably required, local or other counsel,
representing all of the holders of the Debentures) in connection with: (a) the
costs and expenses incurred in enforcing or defending (or determining whether or
how to enforce or defend) any rights under this Agreement or the Debentures or
in responding to any subpoena or other legal process or informal investigative
demand issued in connection with this Agreement or the Debentures, or by reason
of being a holder of any Debenture, and (b) the costs and expenses, including
financial advisors' fees, incurred in connection with the insolvency or
bankruptcy of the Company or any Subsidiary or in connection with any work-out
or restructuring of the transactions contemplated hereby and by the Debentures.
The Company will pay, and will save Purchaser and each other holder of a
Debenture harmless from, all claims in respect of any fees, costs or expenses,
if any, of brokers and finders (other than those retained by Purchaser).
43
15.2 Survival.
The obligations of the Company under this Section 15 will survive the
payment or transfer of any Debenture, the enforcement, amendment or waiver of
any provision of this Agreement or the Debentures, and the termination of this
Agreement; provided, however, that the period of survival (i) with respect to
the representations and warranties in Sections 5.1 and 5.2 shall continue
indefinitely; and (ii) in the case of any other representation and warranty in
Section 5, shall end upon the conversion of the last Debenture to Common Stock.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT
All representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Debentures, the purchase or
transfer by Purchaser of any Debenture or portion thereof or interest therein
and the payment of any Debenture until conversion of the last Debenture to
Common Stock, and may be relied upon by any subsequent holder of a Debenture,
regardless of any investigation made at any time by or on behalf of Purchaser or
any other holder of a Debenture. All statements contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant to this
Agreement shall be deemed representations and warranties of the Company under
this Agreement. Subject to the preceding sentence, this Agreement and the
Debentures embody the entire agreement and understanding between Purchaser and
the Company and supersede all prior agreements and understandings relating to
the subject matter hereof.
17. AMENDMENT AND WAIVER
17.1 Requirements.
This Agreement and the Debentures may be amended, and the observance of
any term hereof or of the Debentures may be waived (either retroactively or
prospectively), with (and only with) the written consent of the Company and the
Purchaser, except that (a) no amendment or waiver of any of the provisions of
Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it is used
therein), will be effective as to Purchaser unless consented to by Purchaser in
writing, and (b) no such amendment or waiver may, without the written consent of
the holder of each Debenture at the time outstanding affected thereby, (i)
subject to the provisions of Section 12 relating to acceleration or rescission,
change the amount or time of any prepayment or payment of principal of, or
reduce the rate or change the time of payment or method of computation of
interest of the Debentures.
17.2 Solicitation of Holders of Debentures.
(a) Solicitation. The Company will provide each holder of the
Debentures (irrespective of the amount of Debentures then owned by it)
with sufficient information, sufficiently far in advance of the date a
decision is required, to enable such holder to make an informed and
considered decision with respect to any proposed amendment, waiver or
consent in respect of any of the provisions hereof or of the
Debentures. The Company will deliver executed or true and correct
copies of each amendment, waiver or consent effected pursuant to the
provisions of this Section 17 to each holder of
44
outstanding Debentures promptly following the date on which it is
executed and delivered by, or receives the consent or approval of, the
requisite holders of Debentures.
(b) Payment. The Company will not directly or indirectly pay
or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to any
holder of Debentures as consideration for or as an inducement to the
entering into by any holder of Debentures of any waiver or amendment of
any of the terms and provisions hereof unless such remuneration is
concurrently paid, or security is concurrently granted, on the same
terms, ratably to each holder of Debentures then outstanding even if
such holder did not consent to such waiver or amendment.
17.3 Binding Effect, etc.
Any amendment or waiver consented to as provided in this Section 17
applies equally to all holders of Debentures and is binding upon them and upon
each future holder of any Debenture and upon the Company without regard to
whether such Debenture has been marked to indicate such amendment or waiver. No
such amendment or waiver will extend to or affect any obligation, covenant,
agreement, Default or Event of Default not expressly amended or waived or impair
any right consequent thereon. No course of dealing between the Company and the
holder of any Debenture nor any delay in exercising any rights hereunder or
under any Debenture shall operate as a waiver of any rights of any holder of
such Debenture.
18. NOTICES
Any notices required or permitted to be sent hereunder shall be
delivered personally or mailed by certified mail return receipt requested, or
delivered by overnight courier service to the following addresses, or such other
addresses as shall be given by notice delivered hereunder, or transmitted by
facsimile transmission, and shall be deemed to have been given upon delivery if
delivered personally, when confirmation of transmission is received if
transmitted by facsimile, three business days after mailing if mailed, or one
business day after delivery to the courier if delivered by overnight courier
service:
If to the Purchaser, to the addresses set forth on the stock record
books of the Company;
with a copy to:
Xxx Enterprises, Incorporated
000 X. Xxxx Xxxxxx
Xxxxxxxxx, Xxxx 00000
Attention: Xxxxxxx X. Xxxxxxxx
Phone: (000) 000-0000
Fax: (000) 000-0000
00
Xxxx & Xxxxxxxx
000 X. Xxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: C. Xxxx Xxxxxxxx III, Esq.
Phone: (000) 000-0000
Fax: (000) 000-0000
If to the Company:
XxxxXxxxxx.xxx Corp.
000 - 0000 Xxxx Xxxxxxxx
Xxxxxxxxx, XX X0X 0X0
Attention: President
Phone: (000) 000-0000
Fax: (000) 000-0000
with a copy to:
Xxxxx X. Xxxxxxxx, Esq.
Duane, Morris & Heckscher, LLP
000 X. Xxxxx Xxxxx Xxxx, Xxx. 0000
Xxxxxxx, XX 00000-0000
Phone: (000) 000-0000
Notices under this Section 18 will be deemed given only when actually received.
19. REPRODUCTION OF DOCUMENTS
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by Purchaser at the Closing (except the
Debentures themselves), and (c) financial statements, certificates and other
information previously or hereafter furnished to Purchaser, may be reproduced by
Purchaser by any photographic, photostatic, microfilm, microcard, miniature
photographic or other similar process and Purchaser may destroy any original
document so reproduced. The Company agrees and stipulates that, to the extent
permitted by applicable law, any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made by Purchaser in the regular course of business) and any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence. This Section 19 shall not prohibit the
Company or any other holder of Debentures from contesting any such reproduction
to the same extent that it could contest the original, or from introducing
evidence to demonstrate the inaccuracy of any such reproduction.
20. CONFIDENTIAL INFORMATION
For the purposes of this Section 20, "Confidential Information" means
information delivered to Purchaser by or on behalf of the Company or any
Subsidiary in connection with the
46
transactions contemplated by or otherwise pursuant to this Agreement that is
proprietary in nature and that was clearly marked or labeled or otherwise
adequately identified when received by Purchaser as being confidential
information of the Company or such Subsidiary, provided that such term does not
include information that
(a) was publicly known or otherwise known to Purchaser prior
to the time of such disclosure;
(b) subsequently becomes publicly known through no act or
omission by Purchaser or any Person acting on Purchaser's behalf;
(c) otherwise becomes known to Purchaser other than through
disclosure by the Company or any Subsidiary; or
(d) constitutes financial statements delivered to Purchaser
under Section 7.1 that are otherwise publicly available,
Purchaser will maintain the confidentiality of such Confidential Information in
accordance with procedures adopted by Purchaser in good faith to protect
confidential information of third parties delivered to Purchaser, provided that
Purchaser may deliver or disclose Confidential Information to
(i) Purchaser's directors, officers, employees,
agents, attorneys and affiliates, (to the extent such
disclosure reasonably relates to the administration of the
investment represented by Purchaser's Debentures);
(ii) Purchaser's financial advisors and other
professional advisors who agree to hold confidential the
Confidential Information substantially in accordance with the
terms of this Section 20;
(iii) any other holder of any Debenture;
(iv) any Institutional Investor to which Purchaser
sells or offers to sell such Debenture or any part thereof or
any participation therein (if such Person has agreed in
writing prior to its receipt of such Confidential Information
to be bound by the provisions of this Section 20);
(v) any Person from which Purchaser offers to
purchase any Security of the Company (if such Person has
agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 20);
(vi) any federal or state regulatory authority having
jurisdiction over Purchaser;
(viii) the National Association of Insurance
Commissioners or any similar organization, or any nationally
recognized rating agency that requires access to information
about Purchaser's investment portfolio; or
47
(viii) any other Person to which such delivery or
disclosure may be necessary or appropriate:
(w) to effect compliance with any law, rule,
regulation or order applicable to Purchaser,
(x) in response to any subpoena or other
legal process,
(y) in connection with any litigation to
which Purchaser is a party,
or
(z) if an Event of Default has occurred and
is continuing, to the extent Purchaser may reasonably
determine such delivery and disclosure to be
necessary or appropriate in the enforcement or for
the protection of the rights and remedies under
Purchaser's Debentures and this Agreement.
Each holder of a Debenture, by its acceptance of a Debenture, will be deemed to
have agreed to be bound by and to be entitled to the benefits of this Section 20
as though it were a party to this Agreement. On reasonable request by the
Company in connection with the delivery to any holder of a Debenture of
information required to be delivered to such holder under this Agreement or
requested by such holder (other than a holder that is a party to this Agreement
or its nominee), such holder will enter into an agreement with the Company
embodying the provisions of this Section 20.
21. SUBSTITUTION OF PURCHASER
Purchaser shall have the right to substitute any one of Purchaser's
Affiliates as the purchaser of the Debentures that Purchaser has agreed to
purchase hereunder, by written notice to the Company, which notice shall be
signed by both Purchaser and such Affiliate, shall contain such Affiliate's
agreement to be bound by this Agreement and shall contain a confirmation by such
Affiliate of the accuracy with respect to it of the representations set forth in
Section 6. Upon receipt of such notice, wherever the word "Purchaser" is used in
this Agreement (other than in this Section 21), such word shall be deemed to
refer to such Affiliate in lieu of Purchaser. In the event that such Affiliate
is so substituted as a purchaser hereunder and such Affiliate thereafter
transfers to Purchaser all of the Debentures then held by such Affiliate, upon
receipt by the Company of notice of such transfer, wherever the word "Purchaser"
is used in this Agreement (other than in this Section 21), such word shall no
longer be deemed to refer to such Affiliate, but shall refer to Purchaser, and
Purchaser shall have all the rights of an original holder of the Debentures
under this Agreement.
22. MISCELLANEOUS
22.1 Successors and Assigns.
All covenants and other agreements contained in this Agreement by or on
behalf of any of the parties hereto bind and inure to the benefit of their
respective successors and assigns
48
(including, without limitation, any subsequent holder of a Debenture) whether so
expressed or not.
22.2 Payments Due on Non-Business Days.
Anything in this Agreement or the Debentures to the contrary
notwithstanding, any payment of principal or interest on any Debenture that is
due on a date other than a Business Day shall be made on the next succeeding
Business Day without including the additional days elapsed in the computation of
the interest payable on such next succeeding Business Day.
22.3 Severability.
Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
22.4 Construction.
Each covenant contained herein shall be construed (absent express
provision to the contrary) as being independent of each other covenant contained
herein, so that compliance with any one covenant shall not (absent such an
express contrary provision) be deemed to excuse compliance with any other
covenant. Where any provision herein refers to action to be taken by any Person,
or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
22.5 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be an original but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
22.6 Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND
THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF IOWA
EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE
THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
22.7 No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under this
Agreement for any claim based on, in
49
respect of, or by reason of such obligations or their creation. Purchaser by
executing this Agreement waives and releases all such liability. The waiver and
release are part of the consideration for the issue of each Debenture.
If Purchaser is in agreement with the foregoing, please sign the form
of agreement on the accompanying counterpart of this Agreement and return it to
the Company, whereupon the foregoing shall become a binding agreement between
Purchaser and the Company.
PURCHASER: COMPANY:
XXX ENTERPRISES, INCORPORATED XXXXXXXXXX.XXX CORP.
/s/ Xxxxxxx Xxxxxxxx /s/ Xxxx Xxxxxx
By: By:
------------------------------- ------------------------------------
Xxxxxxx X. Xxxxxxxx Xxxx X. Xxxxxx
Vice President - Interactive Media President & Chief Executive Officer
50
FIRST AMENDMENT TO
INVESTMENT AGREEMENT
THIS FIRST AMENDMENT TO INVESTMENT AGREEMENT (this "Amendment") is made
and dated as of July 30, 2001 between XXX ENTERPRISES, INCORPORATED, a Delaware
corporation (the "Purchaser"), and XXXXXXXXXX.XXX CORP., a Florida corporation
(the "Company"), and amends that certain Investment Agreement dated as of
November 1, 2000, between the Company and the Purchaser (the "Investment
Agreement").
RECITALS
WHEREAS, Company and Purchaser desire to enter into this First
Amendment to Investment Agreement, which will initially re-evidence the
purchases under the Investment Agreement and thereafter provide for additional
purchases and other financial accommodations to Company;
WHEREAS, the parties wish to provide for the terms and conditions upon
which all such purchases or other financial accommodations shall be made;
WHEREAS, all terms used herein shall have the same meanings as in the
Investment Agreement unless otherwise defined herein. All references to the
Investment Agreement shall mean the Investment Agreement as hereby amended;
NOW THEREFORE, in consideration of any purchase or advance or grant of
credit (including any advance or grant of credit by renewal or extension)
heretofore or hereafter made to Company by Purchaser, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Purchaser and the Company hereby agree to amend the Investment
Agreement as follows:
1. AMENDMENTS. Effective as of July 30, 2001, the Investment
Agreement shall be amended in the following respects:
1.1 Authorization of Debentures. Section 1 is hereby deleted in
its entirety and the following is substituted therefor:
"The Company will authorize the issue and sale of:
(a) $250,000 Series A Floating Rate Subordinated
Convertible Debentures (the "Series A Debenture"), such term
to include each Series A Debenture delivered from time to time
in accordance with this Agreement);
51
(b) $250,000 Series B Floating Rate Subordinated
Convertible Debentures (the "Series B Debenture"), such term
to include each Series B Debenture delivered from time to time
in accordance with this Agreement);
(c) $250,000 Series C Floating Rate Subordinated
Convertible Debentures (the "Series C Debenture"), such term
to include each Series C Debenture delivered from time to time
in accordance with this Agreement);
(d) $250,000 Series D Floating Rate Subordinated
Convertible Debentures (the "Series D Debenture"), such term
to include each Series D Debenture delivered from time to time
in accordance with this Agreement);
(e) $250,000 Series E Floating Rate Subordinated
Convertible Debentures (the "Series E Debenture"), such term
to include each Series E Debenture delivered from time to time
in accordance with this Agreement);
(f) $250,000 Series F Floating Rate Subordinated
Convertible Debentures (the "Series F Debenture"), such term
to include each Series F Debenture delivered from time to time
in accordance with this Agreement);
(g) $310,000 Series G Floating Rate Subordinated
Convertible Debentures (the "Series G Debenture"), such term
to include each Series G Debenture delivered from time to time
in accordance with this Agreement);
(h) $200,000 Series H Floating Rate Subordinated
Convertible Debentures (the "Series H Debenture"), such term
to include each Series H Debenture delivered from time to time
in accordance with this Agreement);
(i) $200,000 Series I Floating Rate Subordinated
Convertible Debentures (the "Series I Debenture"), such term
to include each Series I Debenture delivered from time to time
in accordance with this Agreement);
(j) $50,000 Series J Floating Rate Subordinated
Convertible Debentures (the "Series J Debenture"), such term
to include each Series J Debenture delivered from time to time
in accordance with this Agreement);
(k) $50,000 Series K Floating Rate Subordinated
Convertible Debentures (the "Series K Debenture"), such term
to include each Series K Debenture delivered from time to time
in accordance with this Agreement);
(l) $100,000 Series L Floating Rate Subordinated
Convertible Debentures (the "Series L Debenture"), such term
to include each Series L Debenture delivered from time to time
in accordance with this Agreement);
52
(m) $100,000 Series M Floating Rate Subordinated
Convertible Debentures (the "Series M Debenture"), such term
to include each Series M Debenture delivered from time to time
in accordance with this Agreement);
(n) $100,000 Series N Floating Rate Subordinated
Convertible Debentures (the "Series N Debenture"), such term
to include each Series N Debenture delivered from time to time
in accordance with this Agreement);
(o) $100,000 Series O Floating Rate Subordinated
Convertible Debentures (the "Series O Debenture"), such term
to include each Series O Debenture delivered from time to time
in accordance with this Agreement);
(p) $100,000 Series P Floating Rate Subordinated
Convertible Debentures (the "Series P Debenture"), such term
to include each Series P Debenture delivered from time to time
in accordance with this Agreement);
(q) $100,000 Series Q Floating Rate Subordinated
Convertible Debentures (the "Series Q Debenture"), such term
to include each Series Q Debenture delivered from time to time
in accordance with this Agreement); and
(r) $90,000 Series R Floating Rate Subordinated
Convertible Debentures (the "Series R Debenture"), such term
to include each Series R Debenture delivered from time to time
in accordance with this Agreement).
The Series A Debenture, Series B Debenture, Series C
Debenture, Series D Debenture, Series E Debenture, Series F
Debenture, Series G Debenture, Series H Debenture, Series I
Debenture, Series J Debenture, Series K Debenture, Series L
Debenture, Series M Debenture, Series N Debenture, Series O
Debenture, Series P Debenture, Series Q Debenture and Series R
Debenture shall be referred to in this Agreement collectively
as the "Debentures" (the Series R Debenture, together with the
Series I Debenture, Series J Debenture, Series K Debenture,
Series L Debenture, Series M Debenture, Series N Debenture,
Series O Debenture, Series P Debenture and Series Q Debenture,
are sometimes collectively referred to as the "Discretionary
Purchase Debentures"), such term to include any such
debentures issued in substitution therefor pursuant to Section
13 of this Agreement. The Series A Debenture, Series B
Debenture, Series C Debenture, Series D Debenture, Series E
Debenture, Series F Debenture, Series G Debenture, Series H
Debenture, Series I Debenture, Series J Debenture, Series K
Debenture, Series L Debenture, Series M Debenture, Series N
Debenture, Series O Debenture, Series P Debenture, Series Q
Debenture and Series R Debenture shall be substantially in the
forms set out in EXHIBIT 1, EXHIBIT 2, EXHIBIT 3, EXHIBIT 4,
EXHIBIT 5, EXHIBIT 6, EXHIBIT 7, EXHIBIT 8, EXHIBIT 9, EXHIBIT
10, EXHIBIT 11, EXHIBIT 12, EXHIBIT 13, EXHIBIT 14, EXHIBIT
15, EXHIBIT 16, EXHIBIT 17 AND EXHIBIT 18 respectively, with
such changes therefrom, if any, as may be approved by
Purchaser and the Company. Certain capitalized terms used in
this Agreement are defined in this Agreement or in SCHEDULE A.
References to a "Schedule" or an
53
"Exhibit" are, unless otherwise specified, to a Schedule or an
Exhibit attached to this Agreement, and references to Sections
are, unless otherwise specified, references to Sections of
this Agreement."
1.2 Sale and Purchase of Debenture. Section 2 is hereby deleted in
its entirety and the following is substituted therefor:
"Subject to the terms and conditions of this Agreement, the
Company will issue and sell to Purchaser and Purchaser will
purchase from the Company, at the Closing, Additional Closings
and Additional Discretionary Purchase Closings provided for in
Section 3, Debentures in the principal amount and in the
Series specified in EXHIBITS 1 through 18, at the purchase
price of 100% of the principal amount thereof, and Reference
Rate of interest, redemption and conversion rights and other
terms and conditions as provided therein."
1.3 Additional Closings. Section 3.2 is hereby deleted in its
entirety and the following is substituted therefor:
"The sale and purchase of the Series B-I Debentures to be
purchased by Purchaser shall occur at closings (the
"Additional Closing") on the dates set forth on SCHEDULE 3.2
(each an "Additional Closing Date"). The Company acknowledges
receipt of Purchaser's $60,000 payment on July 30, 2001 and
Purchaser's $250,000 payment on August 10, 2001 for the Series
G Debenture. At each Additional Closing the Company will
deliver the appropriate Series B-H Debentures to be purchased
by Purchaser in accordance with each Additional Closing Date
in the form of a single Debenture (or such greater number of
Debentures in denominations of at least $50,000 as Purchaser
may request) registered in Purchaser's name (or in the name of
Purchaser's nominee), against delivery by Purchaser to the
Company or its order of immediately available funds in the
amount of the purchase price therefor by wire transfer of
immediately available funds for the account of the Company or
by Purchaser check sent via courier for next day delivery. If
at any Additional Closing the Company shall fail to tender
such Debenture to Purchaser as provided above in this Section
3, or any of the conditions specified in Section 4 shall not
have been fulfilled to Purchaser's reasonable satisfaction,
Purchaser shall, at Purchaser's election, be relieved of all
further obligations under this Agreement, without thereby
waiving any rights Purchaser may have by reason of such
failure or such nonfulfillment. The Company shall deliver to
Purchaser an Officer's Certificate and a Secretary's
Certificate dated the Additional Closing Date in a form
reasonably acceptable to Purchaser's counsel."
1.4 Additional Closings of Discretionary Purchase Debentures.
Section 3.3 is hereby added as follows:
"Subject to the terms and conditions of this Agreement, the
sale and purchase of the Series J-R Debentures to be purchased
by Purchaser shall occur at closings on
54
the dates set forth on Schedule 3.2 (each an "Additional
Discretionary Purchase Closing" and each an "Additional
Discretionary Purchase Closing Date"). At each Additional
Discretionary Purchase Closing the Company will deliver the
appropriate Series J-R Debentures to be purchased by Purchaser
in accordance with each Additional Discretionary Purchase
Closing Date in the form of a single Debenture (or such
greater number of Debentures in denominations of at least
$50,000 as Purchaser may request) registered in Purchaser's
name (or in the name of Purchaser's nominee), against delivery
by Purchaser to the Company or its order of immediately
available funds in the amount of the purchase price therefor
by wire transfer of immediately available funds for the
account of the Company or by Purchaser check sent via courier
for next day delivery. If at any Additional Discretionary
Purchase Closing the Company shall fail to tender such
Debenture to Purchaser as provided above in this Section 3, or
any of the conditions specified in Section 4 shall not have
been fulfilled, Purchaser shall, at Purchaser's election, be
relieved of all further obligations under this Agreement,
without thereby waiving any rights Purchaser may have by
reason of such failure or such nonfulfillment. The Company
shall deliver to Purchaser an Officer's Certificate and a
Secretary's Certificate dated the Additional Discretionary
Purchase Closing Date in a form reasonably acceptable to
Purchaser's counsel."
1.5 Condition to Closing. Section 4 is hereby deleted in its
entirety and the following is substituted therefor:
"The Purchaser's obligation to purchase and pay for the
Debentures and the Company's obligation to sell the Debentures
to Purchaser at the Closing, each Additional Closing and each
Discretionary Purchase Closing is subject to the condition
that the Company shall have performed and complied with all
agreements and conditions contained in this Agreement required
to be performed or complied with by it prior to or at the
Closing, each Additional Closing and each Additional
Discretionary Purchase Closing after giving effect to the
issue and sale of the Debentures. No Default or Event of
Default shall have occurred and be continuing. The purchase of
each Discretionary Purchase Debenture is subject to
Purchaser's sole and absolute discretion, irrespective of
whether the Company shall have performed and complied with all
agreements and conditions contained in this Agreement required
to be performed and complied with by it prior to each
Additional Discretionary Purchase Closing."
1.6 Representations and Warranties of the Company. The first
sentence of Section 5 is hereby deleted in its entirety and the following is
substituted therefor:
"The Company represents and warrants to Purchaser on the
Closing Date and on the Additional Closing Date for the Series G Debenture
that:"
1.7 No Undiclosed Liabilities. Section 5.3 is hereby deleted in
its entirety and the following is substituted therefor:
55
"Except as disclosed in the financial statements referred to
in Section 5.5, such financial statements taken as a whole do
not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements
therein not misleading in light of the circumstances under
which they were made. As of the Closing Date, with respect to
the financial statements referred to in Section 5.5, for the
period ended September 30, 2000, there has been no change in
the financial condition, operations, business or Properties of
the Company or any of its Subsidiaries except changes
disclosed in such financial statements that individually or in
the aggregate would not reasonably be expected to have a
Material Adverse Effect. With respect to the financial
statements referred to in Section 5.5, for the period ended
June 30, 2001, there has been no change in the financial
condition, operations, business or Properties of the Company
or any of its Subsidiaries except changes disclosed in such
financial statements that individually or in the aggregate
would not reasonably be expected to have a Material Adverse
Effect."
1.8 Financial Statements. Section 5.5 is hereby deleted in its
entirety and the following is substituted therefor:
"The Company has delivered to Purchaser copies of the
financial statements of the Company and its Subsidiaries as of
(a) the Closing attached as Schedule 5.5 and (b) June 30, 2001
attached as Schedule 5.5.1, and additional financial
statements as required in Section 7.1 hereof. All of said
financial statements (including in each case the related
schedules and notes) fairly present in all material respects
the consolidated financial position of the Company and its
Subsidiaries as of the respective dates specified in such
Schedule and the consolidated results of their operations and
cash flows for the respective periods so specified and have
been prepared in accordance with GAAP consistently applied
throughout the periods involved except as set forth in the
notes thereto (subject, in the case of any interim financial
statements, to normal year-end adjustments)."
1.9 Additional Disclosures. Section 5.20 is hereby deleted in its
entirety and the following is substituted therefor:
"The Company has provided Purchaser with the latest version of
(a) its Business Plan and (b) most recent draft of the
Company's budget for the fiscal year 2000 and 2001, both of
which are complete and correct as of the date hereof. The
Company will apply the proceeds from the sale of the
Debentures consistent with the Business Plan."
1.10 Authorized Capital Stock. Section 5.21 is hereby deleted in
its entirety and the following substituted therefor:
"The authorized capital stock of the Company on this date of
this Agreement is set forth on SCHEDULE 5.21. The Company
covenants and agrees that at the time
56
of any Conversion Date (as defined in Section 8.6), 15,425,156
shares (reduced to reflect conversions previously made under
Section 8.6) of the Company's Common Stock, par value 0.001
per share ("Common Stock"), will be validly authorized, issued
and outstanding, fully paid and nonassessable, free from all
preemptive rights, taxes, Liens and charges with respect to
the issue thereof, with no personal liability attaching to the
ownership thereof. On the date of this Agreement, there are
15,425,156 shares of Common Stock reserved for issuance in
connection with Purchaser's conversion rights set forth in
Section 8.6. The Company covenants and agrees that it will at
all times have authorized and reserved, free from preemptive
rights, a sufficient number of shares of Common Stock to
provide for issuance in connection with your conversion rights
set forth in Section 8.6. The Company further covenants and
agrees the Company will from time to time take all such action
as may be required to assure that the stated or par value per
share of Common Stock is at all times equal to or less than
the effective conversion price per share of Common Stock
issuable upon conversion of the Debentures. As of the date of
this Agreement SCHEDULE 5.21 sets forth shares of Common Stock
reserved for issuance in connection with options which have
been granted or are currently committed to be granted or have
not yet been exercised. As of the date of this Agreement the
number of shares of Common Stock and number of subscriptions,
warrants, options, convertible securities and other rights
(contingent or other) to purchase or otherwise acquire equity
securities of the Company are set forth in SCHEDULE 5.21. The
designations, powers, preferences rights, qualifications,
limitations and restrictions on the date of this Agreement in
respect of each class and series of authorized capital stock
of the Company are set forth in SCHEDULE 5.21. The Company on
the date of this Agreement has no obligation (contingent or
other) to purchase, redeem or otherwise acquire any of its
equities securities or any interest therein or to pay any
dividend or make any other distribution in respect thereof
except as set forth in this Agreement, the Registration Rights
Agreement dated November 1, 2000 by and between the Company
and Purchaser (the "Registration Rights Agreement") and
SCHEDULE 5.21. The Company on the date of this Agreement is
not a party to any voting trusts or agreements, stockholders
agreements, pledge agreements, buy-sell agreements, agreements
containing rights of first refusal or preemptive rights, and
there are no proxies relating to any securities of the
Company, except for this Agreement. To the knowledge of the
Company's Chief Financial Officer, assuming the accuracy of
the representations and warranties contained in SCHEDULE 5.21,
all of the outstanding securities of the Company have been
issued in compliance with all applicable U.S. and Canadian
securities laws concerning the issuance of securities."
1.11 Intellectual Property; Proprietary Information of Third
Parties. Section 5.22 is hereby deleted in its entirety and the following is
substituted therefor:
"The Company is in compliance as of the date of this Agreement
and will be in compliance on the Additional Closing Date for
the Series G Debenture with all of its representations,
warranties and covenants with respect to the Intellectual
57
Property, as defined in the Amended and Restated Loan and
Security Agreement made and dated as of July 30, 2001 among
Purchaser and XxxxXxxxxx.Xxx Corp., a Florida corporation, and
its Wholly-Owned Subsidiaries Xceedx Technologies Inc. and
Welcome To Search Engine Inc., corporations organized under
the laws of the province of British Columbia, Canada (the
"Borrowers"), which amends and supercedes that certain Loan
and Security Agreement dated as of August 16, 2000, as
amended, among the Borrowers and the Purchaser (the "Loan and
Security Agreement")."
1.12 Conversion. Section 8.6 is hereby deleted in its entirety and
the following is substituted therefor:
"A Debenture Holder may convert any Debenture, in whole or in
part, into fully paid and non-assessable Common Stock of the
Company at any time before the close of business on the
Optional Redemption Date or Mandatory Redemption Date, as the
case may be (each such conversion is a "Conversion Date"),
subject at all times thereafter to the benefits of the
Registration Rights Agreement in accordance with the terms
thereof and the terms of the Debentures attached as EXHIBITS 1
through 18. If the Debenture is called for redemption, the
holder may convert it at any time before the close of business
on the Optional Redemption Date or Mandatory Redemption Date,
as the case may be. The Series A-F Debentures shall be
converted, subject to adjustment as provided in each
Debenture, on the basis of the aggregate of (a) one (1) share
of Common Stock of the Company for each $0.2173 of principal
debt balance due on the Debenture (the " Series A-F Debentures
Conversion Price"), and (b) one (1) share of Common Stock of
the Company times the quotient of (i) the accrued interest on
the Debenture to the Conversion Date divided by (ii) the
Quoted Price as defined in Section 8.1 hereof (the "Interest
Conversion Rate"). The Series G-R Debentures shall be
converted, subject to adjustment as provided in each
Debenture, on the basis of the aggregate of (a) one (1) share
of Common Stock of the Company for each $0.1760 of principal
debt balance due on the Debenture (the "Series G-R Debentures
Conversion Price"), and (b) one (1) share of Common Stock of
the Company times the Interest Conversion Rate. No fraction of
a share of Common Stock shall be deliverable in payment of
principal or accrued interest on the Debenture, but any
fraction of a share shall be rounded upwards to the nearest
whole share."
1.13 Reservation of Common Stock. Section 9.7 is hereby added as
follows:
"The Company shall at all times keep reserved out of its
authorized but unissued shares of Common Stock, solely for the
purpose of effecting the conversion of the Debentures into
Common Stock, sufficient shares of Common Stock to allow for
such conversions."
1.14 Other Agreements. Section 9.8 is hereby added as follows:
58
"The Company will not enter into any agreement, or any
amendment or modification of any existing agreement, which
expressly restricts or prohibits the Company from performing
this Agreement or the Other Agreements."
1.15 Total Indebtedness. Section 10.1 is hereby deleted in its
entirety and the following is substituted therefor:
"The Company will not, and will not permit any Subsidiary to,
at any time, directly or indirectly create, incur, issue,
assume, guaranty or otherwise become liable with respect to
any Indebtedness outstanding other than (a) the Existing
Indebtedness existing on the date hereof and as contemplated
under the terms of the Series A-R Debentures or (b)
Indebtedness incurred in respect of and not exceeding the
amount of any Lien permitted under clauses (i), (ii), (iii),
(iv), (v), and (vi) of Section 10.6(a), unless the consent of
the Purchaser shall have been obtained."
1.16 Events of Default. Section 11(c) is hereby deleted in its
entirety and the following is substituted therefor:
"(c) the Company defaults in the performance of or compliance
with any term not referred to in clauses (a) and (b) of this
Section 11 and contained in Section 10.1 through Section 10.7
hereto or under the Other Agreements, including, without
limitation, the Loan and Security Agreement and such default
is not remedied within 5 days after the earlier of (i) a
Responsible Officer obtaining actual knowledge of such default
and (ii) the Company receiving written notice of such default
from any holder of a Debenture (any such written notice to be
identified as a 'notice of default' and to refer specifically
to this clause (c) of Section 11); or"
1.17 Events of Default. Section 11(i) is hereby deleted in its
entirety and the following is substituted therefor:
"(i) A judgement and order requiring payment in excess of
$50,000 shall be rendered against the Company and its
Significant Subsidiaries or any of them and such judgment or
order shall remain unsatisfied or undischarged and in effect
for ninety (90) consecutive days without judicial enforcement
or execution, provided that this subsection (i) shall not
apply to any judgment for which the Company and its
Significant Subsidiaries or any of them are fully insured and
with respect to which the insurer has admitted in writing its
liability for a full payment thereof."
1.18 Events of Default. Section 11(j) is hereby added as follows:
"Company shall fail to secure the following 'Qualifying
Customer Agreements' between August 1, 2001 and October 31,
2001: (i) agreement(s) with one or more new customers to
launch the Company's products in a minimum of four newspapers
within eight weeks of the customer's signature of the
agreement; (ii)
59
agreements with customers of the Company prior to August 1,
2001, to launch the Company's products in a minimum of four
newspapers; and (iii) agreements resulting in two new E-Team
assisted launches per month in each of the months of August,
September and October with newspapers, with Company's E-Team
providing training services for the newspaper's sales force.
The agreements referred to in items (i) and (iii) of this
subsection 11(j) shall contain the Company's standard terms
providing for revenues from editorial content and for
insertion fees from the sale of the Company's promotional
products to the newspaper's advertisers. On the last business
day of each of the monthly periods, the Company shall submit
to the Purchaser a written summary of Qualifying Customer
Agreements, by category by newspaper."
1.19 Transfer and Exchange of Debentures. The third sentence of
Section 13.2 is hereby deleted in its entirety and the following is substituted
therefor:
"Each such new Debenture shall be payable to such Person as
such holder may request and shall be substantially in the form
of EXHIBIT 1, EXHIBIT 2, EXHIBIT 3, EXHIBIT 4, EXHIBIT 5,
EXHIBIT 6, EXHIBIT 7, EXHIBIT 8, EXHIBIT 9, EXHIBIT 10,
EXHIBIT 11 EXHIBIT 12, EXHIBIT 13, EXHIBIT 14, EXHIBIT 15,
EXHIBIT 16, EXHIBIT 17 OR EXHIBIT 18 as applicable."
1.20 Schedules. The following defined terms in Schedule A are
hereby deleted and the following are substituted therefor:
"'HOLDER' means, with respect to any Debenture, the Person in
whose name such Debenture is registered in the register
maintained by the Company pursuant to Section 13.1.
'OTHER AGREEMENTS' shall mean the Debentures, Loan and
Security Agreement, the Notes issued thereunder, Registration
Rights Agreement and Collateral License Agreement dated as of
July 30, 2001 and any other instrument delivered pursuant
hereto or thereto.
'SERIES' means any or all of any series of Debentures issued
hereunder."
1.21 Schedules. Schedule 3.2 is hereby deleted in its entirety and
the attached Schedule 3.2 is substituted therefor.
1.22 Schedules. Schedule 5.5 and Schedule 5.5.1 are hereby added to
this Agreement.
1.23 Schedules. Schedule 5.15 is hereby deleted in its entirety and
the attached Schedule 5.15 is substituted therefor.
1.23 Schedules. Schedule 5.21 is hereby deleted in its entirety and
the attached Schedule 5.21 is substituted therefor.
60
1.25 Exhibits. Exhibits 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17 and
18 are hereby added to the Investment Agreement in the form attached hereto.
2. REPRESENTATIONS AND WARRANTIES. The Company represent and
warrant to the Purchaser that, on and as of the date hereof, and after giving
effect to this Amendment:
2.1 AUTHORITY. The Company has all the necessary corporate power
to make, execute and deliver this Amendment and the Debentures, and this
Amendment is the legal, valid and enforceable obligation of the Company it
purports to be.
2.2 NO LEGAL OBSTACLE TO AMENDMENT. Neither the execution of this
Amendment, the making by the Company of any sales under the Investment
Agreement, nor the performance of the Investment Agreement has constituted or
resulted in or will constitute or result in a breach of the provisions of any
contract to which the Company is a party, or the violation of any law, judgment,
decree or governmental order, rule or regulation applicable to the Company, or
result in the creation under any agreement or instrument of any security
interest, lien, charge or encumbrance upon any of the assets of the Company. No
approval or authorization of any governmental authority is required to permit
the execution, delivery or performance by the Company of this Amendment and the
Other Agreements, or the transactions contemplated hereby or thereby, or the
making of any sales to Purchaser under the Investment Agreement.
2.3 INCORPORATION OF CERTAIN REPRESENTATIVES. The representations
and warranties set forth in Section 5 of the Investment Agreement are true and
correct in all respects on and as of the date hereof as though made on and as of
the date hereof.
2.4 DEFAULT. No unmatured Event of Default or Event of Default has
occurred and is continuing under the Investment Agreement.
3. MISCELLANEOUS.
3.1 EFFECTIVENESS OF THE AMENDMENT; EXECUTION IN COUNTERPARTS.
Except as hereby expressly amended, the Investment Agreement shall remain in
full force and effect and is hereby ratified and confirmed in all respects. This
Amendment shall become effective upon the execution hereof by each of the
Company and the Purchaser and delivery of the same to the Purchaser. This
Amendment may be executed in any number of counterparts and all of such
counterparts taken together shall be deemed to constitute one and the same
instrument.
3.2 WAIVERS. This Amendment is specific in time and in intent and
does not constitute, nor should it be construed as, a waiver of any other right,
power or privilege under the Investment Agreement, any Other Agreement or under
any agreement, contract, indenture, document or instrument mentioned in the
Investment Agreement; nor does it preclude any exercise thereof, nor shall any
future waiver of any right, power, privilege or default hereunder, or under any
agreement, contract, indenture, document or instrument mentioned in this
Amendment, constitute a waiver of any other default of the same or of any other
term or provision.
61
3.3 JURISDICTION. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED UNDER THE LAWS OF THE STATE OF IOWA.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the date first written above.
COMPANY: PURCHASER:
XXXXXXXXXX.XXX CORP. XXX ENTERPRISES, INCORPORATED
/s/ Xxx Xxxxxxx /s/ Xxxxxxx Xxxxxxxx
--------------------------------- ----------------------------------
By: By:
------------------------------ -------------------------------
Title: Title:
--------------------------- ----------------------------
62
SCHEDULE 3.2
SCHEDULE OF ADDITIONAL CLOSING DATES
Closing Date
------------
Series A $250,000 Floating Rate Subordinated Convertible Debenture November 10, 2000
Series B $250,000 Floating Rate Subordinated Convertible Debenture November 10, 2000
Series C $250,000 Floating Rate Subordinated Convertible Debenture December 1, 2000
Series D $250,000 Floating Rate Subordinated Convertible Debenture January 1, 2001
Series E $250,000 Floating Rate Subordinated Convertible Debenture March 1, 2001
Series F $250,000 Floating Rate Subordinated Convertible Debenture May 1, 2001
Series G $310,000 Floating Rate Subordinated Convertible Debenture August 10, 2001
Series H $200,000 Floating Rate Subordinated Convertible Debenture September 1, 2001
Series I $200,000 Floating Rate Subordinated Convertible Debenture October 1, 2001
Series J $50,000 Floating Rate Subordinated Convertible Debenture November 1, 2001
Series K $50,000 Floating Rate Subordinated Convertible Debenture December 1, 2001
Series L $100,000 Floating Rate Subordinated Convertible Debenture January 2, 2002
Series M $100,000 Floating Rate Subordinated Convertible Debenture February 1, 2002
Series N $100,000 Floating Rate Subordinated Convertible Debenture March 1, 2002
Series O $100,000 Floating Rate Subordinated Convertible Debenture April 1, 2002
Series P $100,000 Floating Rate Subordinated Convertible Debenture May 1, 2002
Series Q $100,000 Floating Rate Subordinated Convertible Debenture June 1, 2002
Series R $90,000 Floating Rate Subordinated Convertible Debenture July 1, 2002
63
EXHIBIT 1
FORM OF $250,000 SERIES A FLOATING RATE SUBORDINATED
CONVERTIBLE DEBENTURE
64
EXHIBIT 4
FINANCIAL STATEMENTS
THE ATTACHED FINANCIAL STATEMENTS FOR THE COMPANY AS AT AUGUST 16, 2000
The statements used for this exhibit were the June 30, 2000 year-end
financial statements.
65
Consolidated Financial Statements
XXXXXXXXXX.XXX CORP.
June 30, 2000
66
REPORT OF INDEPENDENT AUDITOR
To the Board of Directors and Shareholders of
XXXXXXXXXX.XXX CORP.
We have audited the accompanying consolidated balance sheets of XXXXXXXXXX.XXX
CORP. (the "Company") as of June 30, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
XxxxXxxxxx.xxx Corp. at June 30, 2000 and 1999 and the consolidated results of
its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has a limited source of revenue
and is dependent on its ability to raise capital from shareholders or other
sources to sustain operations. These factors, along with other matters as set
forth in Note 1, raise substantial doubt that the Company will be able to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
Vancouver, Canada,
August 23, 2000. Chartered Accountants
67
XXXXXXXXXX.XXX CORP.
CONSOLIDATED BALANCE SHEETS
[See Nature of Operations and Basis of Presentation - Note 1]
As at June 30 (Expressed in U.S. dollars)
2000 1999
$ $
-------------------------------------------------------------------------------------------------
ASSETS [note 9]
CURRENT
Cash and cash equivalents 38,963 234,214
Accounts receivable, net of allowance for doubtful accounts
of nil in 2000 and 1999 28,903 1,917
Other receivables 26,220 27,433
Prepaid expenses and other 159,557 38,762
-------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 253,643 302,326
Property and equipment, net [note 6] 67,348 99,769
eCommerce technology, net of amortization of $668,950
at June 30, 2000 and $196,750 at June 30, 1999 747,534 1,219,734
-------------------------------------------------------------------------------------------------
TOTAL ASSETS 1,068,525 1,621,829
=================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Bank indebtedness [note 7] -- 7,999
Accounts payable and accrued liabilities [note 8] 361,921 280,154
Demand instalment loan [note 9] 167,213 72,704
Shareholders' loans [note 10] 252,900 --
Deferred revenue 1,206 6,190
-------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 783,240 367,047
Deferred tax liability [note 13] 253,100 413,100
Commitments [note 11]
STOCKHOLDERS' EQUITY (DEFICIT)
Share capital [note 12]
Common stock - $0.001 par value
Authorized shares: 50,000,000
Issued and outstanding: 23,008,098 at June 30, 2000 and
19,893,333 at June 30, 1999 14,497 11,383
Common stock to be issued - nil at June 30, 2000 and
627,860 at June 30, 1999 -- 266,790
Additional paid in capital 5,687,761 3,282,029
Other comprehensive income 19,625 19,625
Deficit (5,689,698) (2,738,145)
-------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 32,185 841,682
-------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 1,068,525 1,621,829
=================================================================================================
See accompanying notes
On behalf of the Board:
Director Director
68
XXXXXXXXXX.XXX CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
[See Nature of Operations and Basis of Presentation - Note 1]
Years ended June 30 (Expressed in U.S. dollars)
2000 1999
$ $
-------------------------------------------------------------------------------------------------
REVENUE
Hosting fees 52,196 8,400
License fees 5,961 3,310
Initial set-up fees 10,060 --
Training fees 64,903 --
-------------------------------------------------------------------------------------------------
TOTAL REVENUES 133,120 11,710
Cost of sales 211,204 510
-------------------------------------------------------------------------------------------------
GROSS PROFIT (LOSS) (78,084) 11,200
OPERATING EXPENSES
Sales and marketing 321,660 154,903
Product development and technology 684,093 508,862
Finance and administration 990,895 860,077
Amortization of eCommerce technology 472,200 196,750
-------------------------------------------------------------------------------------------------
2,468,848 1,720,592
-------------------------------------------------------------------------------------------------
Operating loss (2,546,932) (1,709,392)
OTHER INCOME (EXPENSE)
Interest expense (17,117) (3,939)
Interest and miscellaneous income 668 2,353
Foreign exchange gain 15,944 --
-------------------------------------------------------------------------------------------------
Total other expense (505) (1,586)
-------------------------------------------------------------------------------------------------
Loss before income taxes (2,547,437) (1,710,978)
Deferred income tax recovery [note 13] 160,000 68,900
-------------------------------------------------------------------------------------------------
NET LOSS FOR THE YEAR (2,387,437) (1,642,078)
=================================================================================================
COMPREHENSIVE LOSS
Net loss for the year (2,387,437) (1,642,078)
Foreign currency translation -- (5,894)
-------------------------------------------------------------------------------------------------
COMPREHENSIVE LOSS FOR THE YEAR (2,387,437) (1,647,972)
=================================================================================================
NET LOSS PER COMMON SHARE [NOTE 12(d)]
Basic and diluted (0.14) (0.12)
-------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES [NOTE 12(d)]
Basic and diluted 21,091,604 13,588,904
=================================================================================================
See accompanying notes
69
XXXXXXXXXX.XXX CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
[See Nature of Operations and Basis of Presentation - Note 1]
COMMON
STOCK
COMMON ISSUED COMMON
COMMON STOCK TO BE AND STOCK TO BE
STOCK ISSUED OUTSTANDING ISSUED
# # $ $
---------------------------------------------------------------------------------------------------------------------------
Deemed outstanding as of June 30, 1998 [note 1] 800 1,756,380 -- 276,903
Deemed common shares issued for cash received
in the prior year [note 12(a)] 160,000 (160,000) -- (17,033)
Deemed common shares issued for services rendered
in the prior year [note 12(a)] 160,000 (160,000) -- (30,521)
Deemed common shares issued for investment in
the prior year [note 12(a)] 40,000 (40,000) -- (3,406)
Deemed common shares issued for services rendered
in the prior year [note 12(a)] 4,499,200 -- -- --
Deemed common shares issued for services rendered
in the current year [note 12(a)] 1,337,248 -- -- --
Deemed common shares issued for cash [note 12(a)] 237,667 -- -- --
Deemed common shares issued to charitable
organizations [note 12(a)] 80,000 -- -- --
Prior year's subscription shares issued in the
current year, net of share
issue costs of $10,187 [note 12(a)] 1,396,380 (1,396,380) -- (225,943)
Deemed common shares issued pursuant to private
placement, net of
issue costs of $32,487 [note 12(a)] 598,705 -- -- --
-------------------------------------------------------------------------------------------------------------------------
DEEMED OUTSTANDING AS OF JANUARY 7, 1999 8,510,000 -- -- --
=========================================================================================================================
Acquisition of XxxxXxxxxx.xxx by WelcomeTo
[note 2] 5,100,000 -- 5,100 --
Acquisition of Xceedx [note 4] 6,250,000 -- 6,250 --
Shares to be issued for services rendered
[note 12(a)] -- 450,000 -- --
Finders fees acquisition costs [note 2] -- -- -- --
Shares issued pursuant to private placement
[note 12(a)] 33,333 -- 33 --
Shares to be issued [note 12(a)] -- 177,860 -- 266,790
Net loss for the period -- -- -- --
Foreign currency translation -- -- -- --
-------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AS OF JUNE 30, 1999 19,893,333 627,860 11,383 266,790
=========================================================================================================================
Shares issued pursuant to share subscriptions
[note 12(a)] 177,860 (177,860) 178 (266,790)
Shares issued for services [note 12(a)] 450,000 (450,000) 450 --
Shares issued pursuant to private placement,
net of share
issue costs of $16,667 [note 12(a)] 2,234,438 -- 2,234 --
Shares issued for services rendered or to be
rendered [note 12(a)] 252,467 -- 252 --
Stock based compensation [notes 10(b) and 12(b)] -- -- -- --
Beneficial conversion feature of warrants
[note 12(a)] -- -- -- --
Net loss for the year -- -- -- --
-------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AS OF JUNE 30, 2000 23,008,098 -- 14,497 --
=========================================================================================================================
(Expressed in U.S. dollars)
ADDITIONAL OTHER TOTAL
PAID IN COMPREHENSIVE STOCKHOLDERS'
CAPITAL INCOME DEFICIT EQUITY (DEFICIT)
$ $ $ $
-----------------------------------------------------------------------------------------------------------------------------
Deemed outstanding as of June 30, 1998 [note 1] 5 25,519 (1,096,067) (793,640)
Deemed common shares issued for cash received
in the prior year [note 12(a)] 17,033 -- -- --
Deemed common shares issued for services rendered
in the prior year [note 12(a)] 30,521 -- -- --
Deemed common shares issued for investment in
the prior year [note 12(a)] 3,406 -- -- --
Deemed common shares issued for services rendered
in the prior year [note 12(a)] 863,718 -- -- 863,718
Deemed common shares issued for services rendered
in the current year [note 12(a)] 253,936 -- -- 253,936
Deemed common shares issued for cash [note 12(a)] 40,337 -- -- 40,337
Deemed common shares issued to charitable
organizations [note 12(a)] 15,207 -- -- 15,207
Prior year's subscription shares issued in the
current year, net of share
issue costs of $10,187 [note 12(a)] 225,943 -- -- --
Deemed common shares issued pursuant to private
placement, net of
issue costs of $32,487 [note 12(a)] 143,318 -- -- 143,318
-------------------------------------------------------------------------------------------------------------------------
DEEMED OUTSTANDING AS OF JANUARY 7, 1999 1,593,424 25,519 (1,096,067) 522,876
=========================================================================================================================
Acquisition of XxxxXxxxxx.xxx by WelcomeTo
[note 2] 719,889 -- -- 724,989
Acquisition of Xceedx [note 4] 868,750 -- -- 875,000
Shares to be issued for services rendered
[note 12(a)] 225,000 -- -- 225,000
Finders fees acquisition costs [note 2] (225,000) -- -- (225,000)
Shares issued pursuant to private placement
[note 12(a)] 99,966 -- -- 99,999
Shares to be issued [note 12(a)] -- -- -- 266,790
Net loss for the period -- -- (1,642,078) (1,642,078)
Foreign currency translation -- (5,894) -- (5,894)
-------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AS OF JUNE 30, 1999 3,282,029 19,625 (2,738,145) 841,682
=========================================================================================================================
Shares issued pursuant to share subscriptions
[note 12(a)] 266,612 -- -- --
Shares issued for services [note 12(a)] (450) -- -- --
Shares issued pursuant to private placement,
net of share
issue costs of $16,667 [note 12(a)] 1,007,268 -- -- 1,009,502
Shares issued for services rendered or to be
rendered [note 12(a)] 290,518 -- -- 290,770
Stock based compensation [notes 10(b) and 12(b)] 277,668 -- -- 277,668
Beneficial conversion feature of warrants
[note 12(a)] 564,116 -- (564,116) --
Net loss for the year -- -- (2,387,437) (2,387,437)
-------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AS OF JUNE 30, 2000 5,687,761 19,625 (5,689,698) 32,185
=========================================================================================================================
See accompanying notes
70
XXXXXXXXXX.XXX CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[See Nature of Operations and Basis of Presentation - Note 1]
Years ended June 30 (Expressed in U.S. dollars)
2000 1999
$ $
----------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss for the year (2,387,437) (1,642,078)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization 472,200 196,750
Depreciation 44,741 28,801
Gain on disposal of property and equipment -- (28)
Shares issued for services rendered 152,055 269,143
Deferred income tax recovery (160,000) (68,900)
Stock based compensation 277,668 --
Foreign exchange gain (15,944) --
Changes in operating assets and liabilities:
Accounts receivable (26,986) (778)
Other receivables 1,213 --
Prepaid expenses and other 17,920 (37,240)
Accounts payable and accrued liabilities 70,825 202,303
Deferred revenue (4,984) 6,190
----------------------------------------------------------------------------------------------------------
NET CASH (USED IN) OPERATING ACTIVITIES (1,558,729) (1,045,837)
----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale of property and equipment -- 1,221
Purchase of property and equipment (1,378) (99,040)
Cash acquired on acquisition of subsidiaries [notes 1 and 4] -- 763,500
----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,378) 665,681
----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Borrowings under bank indebtedness (7,999) 7,999
Proceeds from demand instalment loan 169,057 --
Repayments of demand loans (74,548) (2,662)
Proceeds from shareholders' loans 252,900 --
Proceeds from stock issued and to be issued, net of share issue costs 1,009,502 510,107
Proceeds from exercise of warrants -- 40,337
----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,348,912 555,781
----------------------------------------------------------------------------------------------------------
Effect of foreign exchange rate changes on cash 15,944 (2,189)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE YEAR (195,251) 173,436
Cash and cash equivalents, beginning of year 234,214 60,778
----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR 38,963 234,214
----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE
Interest paid 17,117 2,257
==========================================================================================================
See accompanying notes
71
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
These consolidated financial statements are the continuing financial statements
of WelcomeTo Search Engine ("WelcomeTo"), a British Columbia corporation which
was incorporated on October 27, 1997. On January 7, 1999, WelcomeTo acquired
100% of the common shares of XxxxXxxxxx.xxx Corp. ("XxxxXxxxxx.xxx"), a United
States non-operating company traded on the NASDAQ OTC Bulletin Board. After the
acquisition on January 7, 1999, the accounting entity continued under the name
of XxxxXxxxxx.xxx [note 2].
XxxxXxxxxx.xxx Corp. ("Company") is a software developer and Internet publisher,
that allows internet consumers to locate and purchase products and services from
online companies in their regional markets. The Company intends to build
alliances with media companies who own newspaper and television stations and
provide them with a suite of Internet products that can be profitably sold to
businesses looking for cost-effective means of establishing and promoting an
eCommerce presence in both their regional markets. The Company currently
operates in only one industry segment and its marketing efforts are currently
targeted to the North American market. The Company was considered a development
stage company in the year ended June 30, 1999.
The Company's consolidated financial statements for the year ended June 30, 2000
have been prepared on a going concern basis which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course
of business. The Company incurred a net loss of $2,387,437 for the year ended
June 30, 2000 and has a working capital deficiency of $529,597 and deficit of
$5,689,698 at June 30, 2000. The ability of the Company to continue as a going
concern is dependent upon its ability to achieve profitable operations and to
obtain additional capital. Management expects to raise additional capital
through private placements and other types of venture fundings. The outcome of
these matters cannot be predicted at this time. No assurances can be given that
the Company will be successful in raising sufficient additional capital.
Further, there can be no assurance, assuming the Company successfully raises
additional funds, that the Company will achieve positive cash flow. If the
Company is unable to obtain adequate additional financing, management will be
required to curtail the Company's operating expenses. These consolidated
financial statements do not include any adjustments to the specific amounts and
classifications of assets and liabilities which might be necessary should the
Company be unable to continue in business.
72
2. REVERSE ACQUISITION
Pursuant to a share purchase agreement dated January 7, 1999, the shareholders
of WelcomeTo sold their 100% interest in WelcomeTo to XxxxXxxxxx.xxx in
consideration for 8,510,000 shares of XxxxXxxxxx.xxx which represented a
controlling interest of approximately 62.5%. This transaction is considered an
acquisition of XxxxXxxxxx.xxx (the accounting subsidiary/legal parent) by
WelcomeTo (the accounting parent/legal subsidiary) and has been accounted for as
a purchase of the net assets of XxxxXxxxxx.xxx by WelcomeTo in these
consolidated financial statements because XxxxXxxxxx.xxx had no business
operations at the time of the acquisition. The reverse acquisition resulted in
$225,000 of one-time costs which were paid by the issuance of shares. The costs
of recapitalization have been charged against stockholders' equity.
These consolidated financial statements are issued under the name of
XxxxXxxxxx.xxx, but are a continuation of the financial statements of the
accounting acquirer, WelcomeTo. WelcomeTo's assets and liabilities are included
in the consolidated financial statements at their historical carrying amounts.
The results of operations of XxxxXxxxxx.xxx have been included in the
consolidated statement of operations from the date of acquisition, January 7,
1999.
For purposes of the acquisition, the fair value of the net assets of
XxxxXxxxxx.xxx of $724,989 is ascribed to the 5,100,000 previously outstanding
common shares of XxxxXxxxxx.xxx deemed to be issued in the acquisition as
follows:
$
----------------------------------------------------------
Net assets acquired
Cash 750,000
Accounts payable (25,011)
----------------------------------------------------------
724,989
Deemed consideration
5,100,000 shares of XxxxXxxxxx.xxx 724,989
==========================================================
Prior to the reverse acquisition on January 7, 1999, the deemed number of
outstanding shares of XxxxXxxxxx.xxx was equal to the 8,510,000 common shares
which were issued to the shareholders of WelcomeTo in the acquisition. These
shares have been allocated to the changes in the combined issued and outstanding
common stock and additional paid-in-capital of WelcomeTo up to January 7, 1999.
73
3. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared by management in
accordance with accounting principles generally accepted in the United States.
The Company's significant accounting policies are summarized below.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from these estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of XxxxXxxxxx.xxx
Corp. and its wholly-owned subsidiaries: WelcomeTo Search Engine Inc. (British
Columbia, Canada) and Xceedx Technologies Inc. (British Columbia, Canada). All
significant intercompany balances and transactions have been eliminated on
consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid financial instruments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents are recorded at cost, which approximates market value.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed on a
straight-line basis over the estimated useful life of the assets as follows:
Computer equipment and software 3 years
Office furniture and equipment 5 years
Leasehold improvements Lease term
74
3. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
ECOMMERCE TECHNOLOGY
eCommerce technology arose as part of the acquisition of Xceedx Technologies
Inc. and is being amortized on a straight-line basis over its useful life, which
is 36 months.
WEB-SITE DEVELOPMENT COSTS
Web-site development costs have been expensed as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company monitors the recoverability of long-lived assets, including capital
and intangible assets, based upon estimates using factors such as future asset
utilization, business climate and future non-discounted cash flows expected to
result from the use of the related assets or to be realized on sale. The
Company's policy is to write down assets to their fair value in the period when
it is likely that the carrying amount of the asset will not be recovered.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation to employees based on
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations, whereby the intrinsic value of options
granted is recorded at the measurement date. Compensation expense is calculated
based on the difference, on the date of grant, between the fair value of the
Company's stock and the exercise price and is recorded over the vesting period
of the options. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation" for stock options granted to employees.
Stock options granted to non-employees are accounted for under SFAS No. 123
using the fair value method. Compensation expense is calculated using the Black
Scholes pricing model and recorded over the period the services are rendered.
75
3. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
FOREIGN CURRENCY TRANSLATION
Through March 31, 2000, the functional currency of the Company was the Canadian
dollar, while the reporting currency in the consolidated financial statements
was the U.S. dollar. Asset and liability accounts were translated into U.S.
dollars at the exchange rate in effect at the balance sheet date. Revenue and
expense amounts were translated at the average exchange rate for the year. Gains
or losses resulting from this process were recorded in stockholders' equity as
an adjustment to other comprehensive loss.
Effective April 1, 2000, the functional currency of the Company changed to the
U.S. dollar. Accordingly, for the Canadian subsidiaries, monetary assets and
liabilities are translated into U.S. dollars at exchange rates prevailing at the
balance sheet date and non-monetary items are translated at exchange rates
prevailing at the historic rate. Revenue and expenses are translated at the
average exchange rate for the year. Gains or losses arising on this foreign
currency translation are recorded in income.
REVENUE RECOGNITION
The Company enters into sales contracts that may encompass multiple elements,
including hosting fees and initial set-up fees. The total fee for a multiple
element arrangement is allocated to each element based upon objective evidence
of the fair value of each element. Fair value is established through the
Company's policy to charge customers the same price as when the element is sold
separately. Hosting fees are recognized monthly as the services are performed.
An initial set-up fee is recognized when the client's web site is activated for
the world wide web, at which time the Company retains no material conditions or
obligations to the customer.
In addition, the Company recognizes revenues from license fees and training
fees. License fees are recognized monthly as the services are performed.
Training fees are recognized in the period services are performed.
Cash received in advance of services rendered are treated as deferred revenue.
76
3. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
PRODUCT DEVELOPMENT COSTS
Product development costs incurred after technological feasibility of a product
is established are capitalized. Technological feasibility is generally not
established until substantially all related product development is complete and
the product is released. In accordance with this policy, all product development
costs incurred to date have been expensed as incurred.
ADVERTISING COSTS
Advertising costs are expensed as incurred and amounted to $192,042 in the year
ended June 30, 2000 [1999 - $38,694].
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse. Recognition of deferred tax assets
is limited to amounts considered by management to be more likely than not of
realization in future periods.
LOSS PER COMMON SHARE
The basic loss per common share is computed by dividing income (loss) available
to common stockholders by the weighted average number of common shares
outstanding for the year.
The basic loss per common share for the years ended June 30, 2000 and 1999 was
calculated by dividing income (loss) available to common stockholders by the
weighted average number of shares deemed to be outstanding such that:
- The number of shares outstanding from the beginning of the fiscal
period to the date of the reverse acquisition on January 7, 1999 is
deemed to be the number of shares issued by XxxxXxxxxx.xxx to
WelcomeTo.
- The number of shares outstanding from the date of the reverse
acquisition to the end of each fiscal year is deemed to be the weighted
average number of shares of XxxxXxxxxx.xxx outstanding in each period.
77
3. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
LOSS PER COMMON SHARE (CONT'D.)
Diluted loss per common share is computed giving effect to all potential
dilutive options and warrants that were outstanding during the period. For the
years ended June 30, 2000 and 1999, all outstanding options and warrants were
anti-dilutive.
COMPREHENSIVE LOSS
Comprehensive loss includes all changes in stockholders' equity (deficit) during
the year except those resulting from capital transactions. Other comprehensive
income represents foreign currency translation adjustments for all years
presented.
RECENT PRONOUNCEMENTS
In December 1999, the United States Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB 101), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements of all public registrants. The
provisions of SAB 101 are effective for the Company's fourth quarter ending June
30, 2001. The Company has not determined the impact of SAB 101, if any, on the
consolidated financial statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation" (FIN No. 44). This statement is effective for certain transactions
from December 15, 1998 and is to be applied commencing July 1, 2000. The Company
believes its existing stock based compensation policies are in compliance with
FIN No. 44 and therefore, the adoption of FIN No. 44 will have no material
impact on the Company's financial condition, results of operations or cash
flows.
In March 2000, the Financial Accounting Standards Board issued EITF 00-2
"Accounting for Web Site Development Costs." EITF 00-2 will be effective for the
Company's year end June 30, 2001. The Company does not expect that EITF 00-2
will have a material impact on its consolidated financial statements.
78
3. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
FINANCIAL INSTRUMENTS
Amounts reported for cash equivalents, accounts receivable, other receivables
and accounts payable and accrued liabilities approximate their fair values due
to the relatively short periods to maturity of the instruments. The carrying
value of the demand instalment loan and shareholders' loans approximates fair
value due to variable market interest rates being charged on outstanding
balances.
COMPARATIVE FIGURES
Certain comparative figures have been reclassified from statements previously
presented to conform to the presentation adopted in the current year.
79
4. BUSINESS ACQUISITION
On January 27, 1999, the Company acquired 100% of the issued and outstanding
share capital of Xceedx Technologies Inc., a company whose principal business
was developing and selling eCommerce software products. The acquisition has been
accounted for using the purchase method of accounting, in which the results of
operations are included in the Company's accounts from the date of acquisition.
Details of this acquisition are as follows:
#
OF SHARES $
------------------------------------------------------------------------------
Purchase price 875,000
------------------------------------------------------------------------------
Consideration given:
Common shares issued January 27, 1999 6,250,000 875,000
------------------------------------------------------------------------------
The purchase price has been allocated according to the estimated fair values of
the assets and liabilities of Xceedx Technologies Inc. as follows:
$
------------------------------------------------------------------------------
Cash 13,500
Accounts receivable and prepaids 10,822
Property and equipment 6,727
eCommerce technology 1,416,484
Accounts payable and accrued liabilities (22,643)
Loan payable (67,890)
Deferred tax liability (482,000)
------------------------------------------------------------------------------
Net assets 875,000
------------------------------------------------------------------------------
The allocation to net assets includes incurred liabilities of $9,352 in respect
of acquisition costs.
80
4. BUSINESS ACQUISITION (CONT'D.)
Unaudited pro forma financial information for the acquisition as if the business
had been acquired at the beginning of the fiscal year ended June 30, 1999 is
presented as follows:
1999
$
--------------------------------------------------------
Revenue 92,423
Net loss 1,905,084
--------------------------------------------------------
Net loss per common share (0.11)
--------------------------------------------------------
The unaudited pro forma information does not include the operating savings or
synergies anticipated as a result of the combined operations.
5. CREDIT RISK AND OTHER
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of cash and cash equivalents and accounts
receivable. The Company performs ongoing credit evaluations of its customers and
maintains allowances for potential credit losses which, when realized, have been
within range of management's expectations.
For the year ended June 30, 2000, approximately 89% of the Company's total
revenues were generated through sales to one customer [1999 - nil]. At June 30,
2000, approximately 87% of the Company's accounts receivable balance was due
from this customer [1999 - nil]. In addition, the Company utilizes a business
directory listing provided to the Company by a supplier pursuant to an annual
license agreement.
81
6. PROPERTY AND EQUIPMENT
2000 1999
------------------------------ --------------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION
$ $ $ $
--------------------------------------------------------------------------------------------------
Computer equipment and software 127,510 69,207 116,628 28,501
Office furniture and equipment 6,078 1,961 4,579 189
Leasehold improvements 7,692 2,764 7,753 501
-------------------------------------------------------------------------------------------------
141,280 73,932 128,960 29,191
-------------------------------------------------------------------------------------------------
NET BOOK VALUE 67,348 99,769
=================================================================================================
7. BANK INDEBTEDNESS
At June 30, 1999, the Company had a credit facility available with the Canadian
Imperial Bank of Commerce. This credit facility was arranged in three types of
credits as follows:
Credit A A $10,183 revolving demand credit with interest at the bank's
prime rate plus 1% per annum. As at June 30, 1999, the amount
outstanding under this facility was $7,999. The Bank's prime
rate at June 30, 1999 was 6.25%.
Credit B $75,809 of demand term loan with interest at the bank's prime
rate plus 1% per annum, with monthly principal instalments of
$445 per month. As at June 30, 1999, the amount outstanding
under this facility was $72,704.
Credit C $6,110 pledged in favor of CIBC Merchant VISA against
potential liability from account operations in accepting VISA
and Mastercard deposits. As at June 30, 1999 this facility was
not utilized.
Covenants under this credit facility required the Company's subsidiary to
maintain a minimum stockholders' equity in excess of a specified amount, not to
make capital expenditures in excess of a specified amount; and to obtain
approval prior to payment of dividends and advancing loans to other parties.
This credit facility was restructured in January 2000 into a demand instalment
loan [note 9].
82
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
2000 1999
$ $
--------------------------------------------------------
Trade accounts payable 314,311 245,019
Employee compensation -- 7,980
Accrued liabilities 47,610 27,155
--------------------------------------------------------
361,921 280,154
--------------------------------------------------------
9. DEMAND INSTALMENT LOAN
In January 2000, the Company refinanced its demand term loan [note 7], whereby
it increased the loan amount to $169,687 (Cdn $250,000). The loan bears interest
at the bank prime rate plus 1% and is repayable in equal monthly principal and
interest instalments of $1,563 through February 2015, unless the loan is called
on demand by the bank.
Annual principal repayments for this loan for the years succeeding June 30, 2000
are:
$
-------------------------------------------
2001 6,461
2002 6,987
2003 7,516
2004 8,115
2005 8,744
Thereafter 129,390
-------------------------------------------
167,213
-------------------------------------------
The loan is collateralized by a general security agreement on substantially all
of the Company's assets, the maintenance of a compensating balance of $16,860
(Cdn. $25,000) that was provided by one of the Company's officers, a collateral
mortgage security for $168,600 (Cdn. $250,000) providing the bank a first
security interest in the personal property of two of the Company's officers,
personal guarantees from two of the Company's officers [note 12] and the
assignment of a life insurance policy on the Company's president.
At June 30, 2000 the bank prime rate was 7.5% [1999 - 6.25%].
83
10. RELATED PARTY TRANSACTIONS
[A] SHAREHOLDERS' LOANS
During the year ended June 30, 2000, the Company entered into unsecured
shareholder loan agreements with the Company's chief executive officer and chief
financial officer. The demand loans outstanding at June 30, all of which are
without stated terms of repayment unless otherwise stated, are summarized below:
ANNUAL
INTEREST BALANCE OUTSTANDING
RATE AT AT JUNE 30,
JUNE 30, 2000 2000 1999
% $ $
------------------------------------------------------------------------------------------------------------------
Loans payable bearing interest at 10% and repayable in equal
monthly principal and interest instalments of $1,510. 10.00 168,600 --
Loan payable bearing interest at the CIBC Visa monthly interest rate. 19.50 16,860 --
Loan payable bearing interest at the Scotia XxXxxx monthly interest rate. 9.50 16,860 --
Loan payable bearing interest at 4.5% per annum. 4.50 33,720 --
Loan payable bearing interest at Toronto Dominion Bank monthly
TD Select Line rate. 10.25 16,860 --
------------------------------------------------------------------------------------------------------------------
252,900
==================================================================================================================
Interest incurred on the loans amounted to $2,874 for the year ended June 30,
2000.
84
10. RELATED PARTY TRANSACTIONS (CONT'D.)
[B] OTHER
On June 13, 2000, the Company granted 541,600 warrants to two of the Company's
officers, as consideration for their guarantee of the demand instalment loan
[note 9] and as consideration for the shareholder loans [note 10(a)]. Each
warrant is exercisable for one common share of the Company at a price of $.25
per share through June 13, 2002. The estimated fair value of these warrants at
the date of issuance of $48,744 was recorded as an expense in the consolidated
statement of operations for the year ended June 30, 2000. The Black Scholes
option pricing model was used to value the warrants with the following
assumptions: no dividend yield; risk-free interest rate of 6.0%; expected
volatility of 1.09; and an expected life of 1.5 years.
11. COMMITMENTS
The Company leases its building premises and certain office equipment under
operating leases expiring through fiscal year 2003. Future minimum lease
commitments under these operating leases through fiscal year 2003 are as
follows:
$
------------------------------------------
2001 132,000
2002 121,000
2003 80,000
------------------------------------------
333,000
------------------------------------------
Rent expense for the year ended June 30, 2000 amounted to approximately $86,402
[1999 - $44,188].
85
12. SHARE CAPITAL
[A] COMMON STOCK
On June 10, 1998, the Company agreed to reacquire and cancel 110 common shares
of the Company from certain shareholders. In exchange for these shares, in
November 1998, the Company issued 360,000 common shares upon amendment of the
authorized capital of the Company. The cost to reacquire these shares and
commitment to issue new shares was recorded as a reduction in common stock and
corresponding increase in stock subscriptions. This transaction was recorded
using the carrying values of the common stock reacquired of $50,960.
In November 1998, Company issued 1,396,380 common shares at $0.17 (Cdn. $0.25)
per share for total cash proceeds of $236,130 less issue costs of $10,187.
In November 1998, the Company issued 4,499,200 common shares to certain
officers, directors and employees of the Company in exchange for services
provided in the period ended June 30, 1998. In addition, the Company issued
1,337,248 common shares to certain officers, directors and employees of the
Company in exchange for services provided in July and August 1998. These common
shares were issued at the fair value of the common stock of approximately $0.19
(Cdn. $0.28) per share, which was based on third party stock subscriptions. The
Company recorded compensation expense of $253,936 during the year ended June 30,
1999.
In November 1998, the Company issued 237,667 common shares at $0.17 (Cdn. $0.25)
per share for total cash proceeds of $40,337.
In November 1998, the Company issued 80,000 shares to two charitable
organizations for services rendered in July and August 1998. These shares were
recorded at the fair value of the common stock of approximately $0.19 per share
(Cdn $0.28), which was based on third party stock subscription agreements.
In November 1998, the Company issued 274,900 common shares at $0.17 (Cdn. $0.25)
per share, 210,471 common shares at $0.34 (Cdn. $0.50) per share, and 113,334
common shares at $0.51 (Cdn. $0.75) per share pursuant to third party stock
subscription agreements. The Company received total cash proceeds of $175,805
less issue costs of $32,487.
In January 1999, the Company incurred one-time finders fee costs of $225,000
related to the reverse acquisition of the Company. These costs were paid by the
issuance of 450,000 common shares at $0.50 (Cdn. $0.74) per share, after the
year ended June 30, 1999.
86
12. SHARE CAPITAL (CONT'D.)
[A] COMMON STOCK (CONT'D.)
On March 15, 1999, the Company issued 33,333 common shares pursuant to stock
subscription agreements at a price of $3.00 per share for cash of $99,999.
In August 1999, the Company issued 177,860 common shares at $1.50 per share, for
$266,790, net of financing commissions payable. The net cash proceeds were
received prior to June 30, 1999. Each common share issued has an attached
warrant which entitles the holder to acquire one common share for $1.50 each for
a one year period, and $2.00 each after one year. The warrants expire on June
10, 2001.
On August 15, 1999, the Company issued 100,000 units to a vendor for marketing
and advertising services. Each unit comprised one common share and one warrant
entitling the vendor to acquire one common share for $1.50 each for a one year
period, and $2.00 each after one year [note 12(c)]. On May 18, 2000, the Company
issued an additional 140,000 units to this vendor for marketing and advertising
services. Each unit comprised one common share and one warrant entitling the
vendor to acquire one common share for $.25 each for a one year period, and $.75
each after one year [note 12(c)]. The Company has recorded, in additional paid
in capital, the units issued at their fair value of $281,200. Of this amount,
approximately $142,500 has been recorded as an expense in the consolidated
statement of operations for the year ended June 30, 2000 and the remainder has
been recorded as a prepaid expense to be amortized over the period the services
are rendered. The Black Scholes option pricing model was used to value the
warrants with the following assumptions: no dividend yield; risk free interest
rate of 6.0%; expected volatility of 1.09 and an expected life of 1.5 years.
87
12. SHARE CAPITAL (CONT'D.)
[A] COMMON STOCK (CONT'D.)
In October and December 1999, the Company issued 99,521 common shares and
warrants to acquire 99,521 common shares for cash proceeds of $136,069. Each
common share has one attached warrant which entitles the holder to acquire one
common share for exercise prices of $1.25 to $1.50 during the first year and
$1.75 to $2.00 during the second year. The warrants expire September 30, 2001 to
October 13, 2001. Pursuant to the subscription agreements, if at any time until
March 31, 2000 the Company issued common shares at a share price of less than
the subscription price paid by the investors, then additional common shares and
warrants would be issued, such that the effective issue price of the common
shares issued is equal to the lower price paid. In January 2000, the Company
issued an additional 172,617 common shares for no additional consideration,
pursuant to this subscription agreement. In addition, the number of warrants
granted was increased by 172,617 to 272,138 and the exercise price decreased to
$.50 during the first year and $.75 during the second year.
In March 2000, the Company issued 12,467 common shares at $.77 per share to a
vendor for marketing services with a fair market value of $9,570.
During the year ended June 30, 2000, the Company issued 1,962,300 units for cash
proceeds of $890,100 before share issue costs of $16,667. Each unit comprised
one common share and one warrant entitling the holder to acquire one common
share [note 12(c)]. The proceeds of $1,026,169 have been allocated to the common
shares and the warrants based on their relative fair values. The beneficial
conversion feature of the warrants has been determined to be $564,116 and has
been charged to the deficit.
[B] STOCK OPTIONS
On August 25, 1999, the Board of Directors approved the creation of the
Corporate Stock Option Plan ("Plan") pursuant to which the Company has reserved
2,000,000 shares of common stock. The terms and vesting period of options are
determined by the directors at the date of grant. The majority of the options
granted to date are exercisable over a four year period and vest on a cumulative
basis at 1/3 per year.
88
12. SHARE CAPITAL (CONT'D.)
[B] STOCK OPTIONS (CONT'D.)
In August 1999, the Company granted 675,000 stock options to employees below the
fair market value of the underlying common shares on the date of grant.
Compensation expense of $226,898, calculated based on the intrinsic value
method, has been recorded in the consolidated statement of operations for the
year ended June 30, 2000.
Stock option transactions for the year ended June 30, 2000 are summarized below:
OUTSTANDING OPTIONS
SHARES ------------------------------
AVAILABLE WEIGHTED AVERAGE
UNDER OPTION SHARES EXERCISE PRICE
# # $
--------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 -- -- --
Reserve shares 2,000,000 -- --
Granted, July 13, 1999 (675,000) 675,000 1.50
May 15, 2000 (872,500) 872,500 0.25
June 27, 2000 (200,000) 200,000 0.25
Forfeited -- (110,000) 1.50
-------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2000 252,500 1,637,500 0.68
-------------------------------------------------------------------------------------
The following table summarizes information about stock options that are
outstanding at June 30, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-----------------------------------------------------------------
RANGE OF NUMBER WEIGHTED- WEIGHTED- NUMBER WEIGHTED-
EXERCISE OUTSTANDING AT AVERAGE AVERAGE OUTSTANDING AT AVERAGE
PRICES JUNE 30, 2000 REMAINING EXERCISE PRICE JUNE 30, 2000 EXERCISE PRICE
$ # CONTRACTUAL LIFE $ # $
-------------------------------------------------------------------------------------------------
0.25 1,072,500 3.71 yrs 0.25 200,000 0.25
1.50 565,000 3.04 yrs 1.50 -- 1.50
-------------------------------------------------------------------------------------------------
1,637,500 200,000
-------------------------------------------------------------------------------------------------
89
12. SHARE CAPITAL (CONT'D.)
[B] STOCK OPTIONS (CONT'D.)
The weighted average fair value of options granted during the year ended June
30, 2000 was as follows:
WEIGHTED
AVERAGE
OPTIONS FAIR VALUE
# $
----------------------------------------------------------------------
Exercise price:
Equal to fair market value 1,072,500 0.19
Greater than fair market value -- --
Less than fair market value 675,000 2.21
----------------------------------------------------------------------
1,747,500 0.97
----------------------------------------------------------------------
Pro forma information regarding net income and earnings per share is required by
Statement of Financial Accounting Standard ("SFAS") No. 123, which also requires
that the information be determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The fair
value of each option granted during the year was estimated at the date of grant
using a Black-Scholes pricing model with the following weighted average
assumptions: risk free interest rates of 6%; dividend yield of nil; volatility
factors of the expected market price of the Company's common stock of 1.09 and a
weighted average expected life of the option of 3.8 years.
90
12. SHARE CAPITAL (CONT'D.)
[B] STOCK OPTIONS (CONT'D.)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period. The Company's pro forma
information for the year ended June 30, 2000 is as follows:
$
-------------------------------------------------------------------------------------------
Net loss As reported (2,387,437)
Beneficial conversion feature of warrants [note 12(a)] As reported (564,116)
APB 25 compensation expense As recorded 228,924
SFAS 123 compensation expense Pro forma (788,645)
-------------------------------------------------------------------------------------------
Pro forma net loss Pro forma (3,511,274)
-------------------------------------------------------------------------------------------
Pro forma net loss per common share:
Basic and diluted Pro forma (0.17)
-------------------------------------------------------------------------------------------
[C] WARRANTS
The following represents a summary of warrants outstanding June 30, 2000:
OUTSTANDING WARRANTS
--------------------------------------------------------------
EXERCISE PRICE
SHARES YEAR 1 YEAR 2
GRANT DATE # $ $ EXPIRY DATE
----------------------------------------------------------------------------------------------------
June 10, 1999 177,860 1.50 2.00 June 10, 2001
July 14, 1999 45,260 1.50 2.00 July 14, 2001
August 15, 1999 100,000 1.50 2.00 August 15, 2001
September 30, 1999 465,800 0.50 0.75 September 30, 2001
October 13, 1999 132,138 0.50 0.75 October 13, 2001
December 10, 1999 408,000 0.50 0.75 December 10, 2001
January 18, 2000 138,000 0.50 0.75 January 18, 2002
January 31, 2000 500,000 0.50 0.75 January 31, 2002
May 1, 2000 405,240 0.25 0.75 May 1, 2002
May 18, 2000 280,000 0.25 0.75 May 18, 2002
June 13, 2000 541,600 0.25 0.25 June 13, 2002
----------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2000 3,193,898
====================================================================================================
91
12. SHARE CAPITAL (CONT'D.)
[D] LOSS PER COMMON SHARE
The following table sets forth the computation of basic and diluted
loss per share:
2000 1999
$ $
--------------------------------------------------------------------------------------------
NUMERATOR
Net loss for the year (2,387,437) (1,642,078)
Beneficial conversion feature of warrants [note 12(a)] (564,116) --
--------------------------------------------------------------------------------------------
Net loss attributable to common shareholders (2,951,553) (1,642,078)
DENOMINATOR
Weighted average number of common shares outstanding 21,091,604 13,588,904
Basic and diluted loss per common share (0.14) (0.12)
============================================================================================
For the years ended June 30, 2000 and 1999, all of the Company's common
shares issuable upon the exercise of stock options and warrants were
excluded from the determination of diluted loss per share as their
effect would be anti-dilutive.
92
13. INCOME TAXES
The Company is subject to United States Federal Taxes at an approximate rate of
35%. It is also subject to Canadian Federal and British Columbia provincial
taxes of approximately 45%. No current provision or benefit for income taxes has
been recorded for the years ended June 30, 2000 or 1999 as the Company has
incurred operating losses and has no carryback potential.
The Company's deferred income tax recovery at June 30 comprises:
2000 1999
$ $
-----------------------------------------------------------------
United States (160,000) (68,900)
Canada -- --
-----------------------------------------------------------------
(160,000) (68,900)
-----------------------------------------------------------------
The reconciliation of income tax attributable to continuing operations computed
at the U.S. federal statutory tax rates to income tax expense for the years
ended June 30 is:
2000 1999
$ $
-------------------------------------------------------------------------------------------------
Tax at U.S. statutory rates (812,000) (599,000)
Lower (higher) effective income taxes of other country (210,000) (171,000)
Deferred tax assets not recognized for accounting purposes 467,000 --
Net operating losses not recognized for accounting purposes 286,000 670,000
Non-deductible expenses 139,000 1,000
Other (30,000) 30,100
-------------------------------------------------------------------------------------------------
Income tax recovery (160,000) (68,900)
-------------------------------------------------------------------------------------------------
93
13. INCOME TAXES (CONT'D.)
Net deferred tax assets (liabilities) consist of the following at June 30:
2000 1999
$ $
-------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS
Loss carryforwards 1,059,000 720,000
Tax value in excess of book value 613,000 --
Valuation allowance for future tax assets (1,672,000) (720,000)
-------------------------------------------------------------------------------------------------
Net deferred tax assets -- --
-------------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITY
Excess book versus tax difference on eCommerce technology (253,100) (413,100)
-------------------------------------------------------------------------------------------------
The tax losses expire as follows:
$
-------------------------------------------------------------------------------------------------
CANADIAN
2004 170,000
2005 1,360,000
2007 842,000
-------------------------------------------------------------------------------------------------
2,372,000
-------------------------------------------------------------------------------------------------
94
14. SEGMENT INFORMATION
Predominantly all of the Company's assets and employees are located in Canada
for the years presented. The following table represents total revenues based on
the location of the customer.
2000 1999
$ $
---------------------------------------------------------------------------
U.S.A. 121,992 2,549
Canada 11,128 9,161
---------------------------------------------------------------------------
Total revenues 133,120 11,710
---------------------------------------------------------------------------
15. SUBSEQUENT EVENT
On August 16, 2000, the Company entered into a loan and security agreement with
its major customer. Under this loan agreement, the Company entered into two
$125,000 promissory notes that bear interest at the Wall Street Journal prime
rate and mature in November 2000. As part of these promissory note agreements,
the Company is obligated to grant the note holder the option to acquire
2,223,285 common shares of the Company. The terms and exercise price of the
options are being negotiated. In connection with the agreement, the Company
entered into a collateral license agreement covering the licensing of the
Company's software to its major customer in the event of a default pursuant to
the loan and security agreement.
95
EXHIBIT 5
ESCROW AGREEMENT
96
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this 'Agreement"), made and entered into as of the 16th
day of August, 2000, (the "Effective Date"), by and among XxxxXxxxxx.Xxx Corp.,
a Florida corporation, and its wholly-owned subsidiaries Xceedx Technologies
Inc. and WelcomeTo Search Engine Inc., corporations organized under the laws of
the province of British Columbia, Canada (the "Licensors"), Xxx Enterprises,
Incorporated, a Delaware corporation (the "Licensee") and Fort Xxxx Escrow
Services, Inc. ("Escrow Agent").
RECITALS
A. Licensors and Licensee are parties to a certain Loan and Security
Agreement, dated August 16, 2000, (together with any and all amendments now or
hereafter made thereto, hereinafter called the "Loan Agreement"), which provides
for (1) Licensee from time to time to extend credit to or for the account of
Licensors and (2) the grant by Licensors to Licensee of a security interest in
certain Collateral, including, without limitation, Licensors' Intellectual
Property therein. Licensors and Licensees are also parties to a certain
Collateral License Agreement dated August 16, 2000, referred to herein as the
"Collateral License Agreement", which grants Licensee certain rights in respect
of the Collateral.
B. Licensee has required the execution of this Escrow Agreement as a
condition of advancing loans to Licensors under the Loan Agreement.
C. Escrow Agent is willing to accept the Escrow required herein on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises set forth herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree to the following:
TERMS AND CONDITIONS
SECTION 1
DEFINITIONS
1.1 INCORPORATION OF LOAN AGREEMENT. The Loan Agreement and the terms and
provisions thereof are hereby incorporated herein in their entirety by this
reference. Terms used herein that are not defined in this Agreement shall have
the meanings ascribed to them in the Loan Agreement.
1.2 SOURCE CODE. "Source Code" refers to humanly readable computer
programming code for the Collateral as defined in the Loan Agreement.
1.3 DEPOSIT; DEPOSITED MATERIALS. The Deposit (also sometimes referred to
as the "Deposited Materials") shall consist of a copy of current version of the
Source Code, and shall include all Updates delivered to the Escrow Agent from
time to time pursuant to this Agreement, plus any pertinent commentary or
explanation that may be necessary to render the Source Code understandable and
useable by a trained computer-programming expert. The Source Code shall include
system documentation, statements of principles of operation, and schematics, all
as necessary or useful for the effective understanding and use of the Source
Code. Insofar as the "development environment" employed by Licensors for the
development, maintenance, and implementation of the Source Code includes any
device, programming, or documentation not commercially available to the Licensee
on reasonable terms through readily known sources other than the Licensors, the
Source Code shall include all such devices, programming, or documentation. The
foregoing reference to such "development environment" is intended to apply to
any programs, including compilers, "workbenches," tools, and higher-level (or
"proprietary") languages, used by the Licensors for the development,
maintenance, and implementation of the source code corresponding to the
collateral. Finally, a listing of commercially available compilers, workbenches,
tools and higher-level languages used by Licensors for the development,
maintenance and implementation of the source code corresponding to the
Collateral shall also comprise part of the Deposit.
1.4 UPDATES. An Update is a copy of the current Source Code version of each
modification or revision to the Collateral that (a) corrects errors, problems,
or defects caused by or resulting from an incorrect functioning of the
Collateral, (b) supports new releases of the Collateral made available generally
to licensees of Licensors, or (c) provides other updates or corrections.
97
SECTION 2
REPRESENTATIONS AND WARRANTIES OF LICENSORS
2.1 RIGHT TO DEPOSIT. Licensors represent and warrant that they,
collectively or individually, have the right to make the Deposit with the Escrow
Agent.
2.2 COLLATERAL CORRESPONDS WITH SOURCE CODE. Licensors represent and
warrant that the Source Code deposited with the Escrow Agent will at all times
be the source code version of the current release of the Collateral.
2.3 USABILITY OF SOURCE CODE. Licensors represent and warrant that the
Source Code is and shall be understandable and useable by a trained
computer-programming contractor. Licensors further represent and warrant that
the Collateral does not involve any proprietary languages or programming
components that such a contractor could not reasonably be expected to
understand, except to the extent the Deposit contains sufficient commentary to
enable such contractor to understand and use such languages or components.
Licensors further represent and warrant that the Source Code includes all of the
devices, programming, and documentation necessary for the maintenance of the
Collateral by the Licensee upon release of the Source Code pursuant to this
Agreement, except for devices, programming, and documentation commercially
available to the Licensee on reasonable terms through readily known sources
other than the Licensors.
SECTION 3
PURPOSE OF AGREEMENT; DEPOSITS
3.1 PURPOSE OF DEPOSITS. The Deposited Materials are intended to provide
assurance to Licensee of access to, and right of use thereof, if Licensors
cause, suffer or permit an Event of Default as defined in the Loan Agreement.
Escrow Agent shall release the materials placed on Deposit in escrow pursuant to
this Agreement only in accordance with the terms of this Agreement.
3.2 INITIAL DEPOSIT. Escrow Agent agrees to accept from Licensors, and
Licensors agree to deliver the Deposit to Escrow Agent within ten (10) days of
the Effective Date. Escrow Agent shall hold the Deposit in accordance with the
terms hereof.
3.3 SUBSEQUENT ADDITIONS. Escrow Agent agrees to accept updates from
Licensors as part of the Deposit, and Licensors agree to deposit the same within
ten (10) days after each Update is made generally available.
3.4 RECEIPTS. Escrow Agent will issue a receipt to Licensors for all
material deposited with Escrow Agent, accompanied by a general list or
description of the materials so deposited. In the event that an Update or series
of Updates supersede a prior version of the Collateral in its entirety,
Licensors may require Escrow Agent to return or destroy the materials on deposit
representing such prior version of the Collateral by so notifying the Escrow
Agent and all Licensee in writing, provided that any such action on the part of
the Escrow Agent may not commence until at least one (1) year after the delivery
of the Source Code for all Updates that so supersede the prior version of the
Collateral.
3.5 NOTIFICATION OF DEPOSITS. Simultaneous with the delivery to Escrow
Agent of the Deposit or any Update, as the case may be, Licensors shall deliver
to Escrow Agent a written statement specifically identifying all items deposited
and stating that the Deposit or any Update, as the case may be, so deposited has
been inspected by Licensors and is complete and accurate. Escrow Agent shall,
within ten (10) business days of receipt of any Deposit or Update, send
notification to Licensors and Licensee that it has received from Licensors such
materials.
3.6 CARE REQUIRED OF ESCROW AGENT. Escrow Agent shall exercise reasonable
care to protect and safeguard all Deposited Materials delivered pursuant to this
Agreement and shall segregate and label such materials according to the date of
delivery and any other identifying information supplied by Licensors.
3.7 VERIFICATION AND TESTING. Licensee may appoint either (a) an
independent firm of certified public accountants of national reputation (which
shall certify for the benefit of Licensors that it does not, and does not intend
to, conduct business in competition with Licensors) or (b) an independent,
professional computer-programming consultant mutually agreeable to Licensors and
Licensee, to inspect, compile, test, and review the Deposit (subject to
appropriate undertakings of confidentiality and restrictions on subsequent use
or disclosure) at any time, and Escrow Agent shall permit such inspections and
testing promptly upon request. Except as otherwise authorized by Licensors
(which authorization will not be unreasonably withheld), such inspections and
testing shall be conducted at the principal offices of the Escrow Agent.
98
3.8 ESCROW AGENT'S VERIFICATION SERVICES. Upon receipt of a written request
from Licensee, Escrow Agent and Licensee may enter into a separate agreement
pursuant to which Escrow Agent will agree, upon certain terms and conditions, to
inspect the Deposited Materials for the purpose of verifying their relevance,
completeness, currency, accuracy and functionality ("Technical Verification
Agreement"). Upon written request from Licensors, Escrow Agent will issue to
Licensors a copy of any written technical verification report rendered in
connection with such engagement. If Escrow Agent and Licensee enter into such
Technical Verification Agreement, Licensors shall reasonably cooperate with
Escrow Agent by providing its facilities, computer systems, and technical and
support personnel for technical verification whenever reasonably necessary. If
requested by Licensee, Licensors shall permit one employee of Licensee to be
present at Licensor's facility during any such verification of the Deposit
Materials.
3.9 DUPLICATION OF DEPOSITED MATERIALS. Escrow Agent may duplicate the
Deposited Materials by any means in order to comply with the terms and
provisions of this Agreement, provided that Licensee shall bear the expense of
duplication. Alternatively, Fort Xxxx, by notice to Licensors, may reasonably
require Licensors to promptly duplicate the Deposit Materials.
SECTION 4
RELEASE
4.1 RELEASE AT DIRECTION OF LICENSORS. Escrow Agent shall release the
Deposited Materials to Licensee In the event Licensors or any of them notify
Escrow Agent to effect delivery of the Deposited Materials to Licensee at a
specific address, the notification being accompanied by a check payable to
Escrow Agent in the amount of one hundred dollars ($100.00). Such delivery shall
be made within five (5) business days after receipt of the notification and
check specified herein.
4.2 RELEASE UPON OCCURRENCE OF AN EVENT OF DEFAULT. If Licensors or any of
them suffer an Event of Default at any time or for any reason, Licensee may
notify Escrow Agent of such occurrence (the "Occurrence") in writing and demand
release of the Deposited Materials to Licensee, such notice to be accompanied by
the following: (a) reliable evidence of such Occurrence; (b) evidence
satisfactory to Escrow Agent that Licensee has previously notified Licensors of
such Occurrence in writing; (c) specific instructions for delivery of the
Deposited Material to the Licensee; and, (d) a check payable to Escrow Agent in
the amount of one hundred dollars ($100.00).
4.2.1 OBJECTION PERIOD. Escrow Agent shall, within five (5) business
days after receipt of such notification, send to Licensors a
photostatic copy of such notice and accompanying documentation by and
form of mail or delivery which results in a receipt for delivery or
attempted delivery. Licensors shall have thirty (30) days from the
first date on which delivery of such notice is attempted or
accomplished ("Objection Period") to notify Escrow Agent of its
objection ("Objection Notice") to the release of the Deposited
Materials to Licensee and to request that the issue of Licensee's
entitlement to a copy of the Deposited Materials be submitted to
arbitration in accordance with the provisions of Paragraph 4.3.
4.2.2 LAPSE OF OBJECTION PERIOD. If, at the end of the Objection
Period, Escrow Agent has not received an Objection Notice from
Licensors, then Escrow agent shall promptly deliver the Deposited
Materials to Licensee in accordance with the Licensee's instructions
upon payment of Escrow Agent's then outstanding fees.
4.3 ARBITRATION.
4.3.1 PROCEDURE FOR ARBITRATION. If Licensors shall send an
Objection Notice to Escrow Agent during the Objection Period, the
matter shall be submitted to, and settled by arbitration by, a panel of
three (3) arbitrators chosen by the Atlanta Regional Office of the
American Arbitration Association in accordance with the rules of the
American Arbitration Association; provided, however, that
notwithstanding anything in such rules to the contrary, the arbitration
panel shall convene hearing on the Objection to release not later than
thirty days from the date upon which such objection is received by the
Escrow Agent and shall be limited in duration to one (1) day for the
presentation of each side's evidence. Post-hearing briefs on the
evidence shall not be permitted and the arbitrators shall render their
decision within fifteen (days) following conclusion of the hearing. At
least one (1) arbitrator shall be reasonably familiar with the computer
software industry. The decision of the arbitrators shall be binding and
conclusive on all parties involved, and judgment upon their decision
may be entered in a court of competent jurisdiction at the request of
either party. All costs of the arbitration incurred by Escrow Agent,
including reasonable attorneys' fees and costs, shall be paid by the
party which does not prevail
99
in the arbitration; provided, however, if the arbitration is settled
prior to a decision by the arbitrators, the Licensors and Licensee
shall each pay 50% of all such costs.
4.3.2 ABANDONMENT OF OBJECTION. Licensors may, at any time prior to
the commencement of arbitration proceedings, notify Escrow Agent that
Licensors have withdrawn the Objection Notice. Upon receipt of any such
notice from Licensors, Escrow Agent shall reasonably promptly deliver
the Deposit Materials to Licensee in accordance with Licensee's
instructions.
4.4 EFFECT OF BANKRUPTCY UNDER U.S. LAW. In the event that Licensors or
their representatives reject or terminate the Collateral License Agreement or
this Agreement in breach of the provisions thereof or hereof, including as
contemplated under Section 365 of the United Bankruptcy Code, it is acknowledged
that this Agreement contemplates the manner in which Licensee may retain its
rights in the Collateral, including associated Intellectual Property, if
Licensee chooses to do so in accordance with Section 365(n) of the Bankruptcy
Code. This Agreement serves as a contract supplementary to the Collateral
License Agreement and any other license agreement by or among the parties or any
two of them, which relates to the Collateral. It is the parties' intent that the
rights Licensee shall be entitled to retain shall be of the scope provided in
the Collateral License Agreement in all items delivered or required to be
delivered under this Agreement. Further, such rights shall be subject to no
restriction following an election by Licensors to reject or terminate the
Collateral License Agreement or this Agreement. Such rights shall be exclusive
and either renewable or perpetual to the extent so provided under the Collateral
License Agreement.
SECTION 5
FEES AND PAYMENTS
5.1 ESCROW FEES. Licensors and Licensee shall pay to Escrow Agent the
applicable fees in accordance with Exhibit A as compensation for Escrow Agent's
services under this Agreement. The first year's fees are due upon receipt of the
signed contract or Deposit Materials, whichever comes first, and shall be paid
in U.S. Dollars.
5.2 PAYMENT. Escrow Agent shall issue an invoice to Licensee following
execution of this Agreement ("Initial Invoice"), on the commencement of any
Additional Term hereunder, and in connection with the performance of any
additional services hereunder. Payment is due upon receipt of invoice. All fees
and charges are exclusive of, and Licensee is responsible for the payment of,
all sales, use and like taxes. Escrow Agent shall have no obligations under this
Agreement until the Initial Invoice has been paid in full by Licensee.
5.3 NONPAYMENT. In the event of non-payment of any fees or charges invoiced
by Escrow Agent, Escrow Agent shall give notice of non-payment of any fee due
and payable hereunder to the Licensee and, in such an event, the Licensee shall
have the right to pay the unpaid fee within ten (10) days after receipt of
notice from Escrow Agent. If Licensee fails to pay in full all fees due during
such ten (10) day period, Escrow Agent shall give notice of non-payment of any
fee due and payable hereunder to Licensors and, in such event, Licensors shall
have the right to pay the unpaid fee within ten (10) days of receipt of such
notice from Escrow Agent. Upon payment of the unpaid fee by either the Licensors
or Licensee, as the case may be, this Agreement shall continue in full force and
effect until the end of the applicable term. Failure to pay the unpaid fee under
this paragraph by both Licensors and Licensee shall result in termination of
this Agreement.
SECTION 6
LIMITATION UPON OBLIGATION OF ESCROW AGENT
6.1 LIMITED DUTY OF INQUIRY. Escrow Agent shall not be required to inquire
into the truth of any statements or representations contained in any notices,
certificates, or other documents required or permitted hereunder, and it may
assume that the signatures on any such documents are genuine, that the persons
signing on behalf of any party thereto are duly authorized to issue such
document, and that all actions necessary to render any such documents binding on
any party thereto have been duly undertaken. Without limiting the foregoing,
Escrow Agent may in its discretion require from Licensors or Licensee additional
documents which it deems to be necessary or appropriate to aid it in the course
of performing its obligations hereunder.
6.2 RIGHT TO INTERPLEADER. In the event Escrow Agent receives conflicting
demands from Licensors and Licensee respecting the release of the Deposited
Material to Licensee hereunder, Escrow Agent may, in its sole discretion, file
an interpleader action with respect thereto in any court of competent
jurisdiction and deposit the Source Code with the clerk of the court or withhold
release of the Source Code until instructed otherwise by court order. Provided,
however, that Escrow Agent may not file interpleader in connection with any
matter submitted to arbitration after Escrow Agent's receipt of an Objection
Notice from Licensors and the parties under this Agreement submit the matter to
such arbitration as described in Section 4 of this Agreement. Any and all costs
incurred by Escrow Agent in connection with an
100
interpleader action, including reasonable attorneys' fees and costs, shall be
borne 50% by each of Licensors and Licensee.
6.3 RELEASE AND INDEMNIFICATION OF ESCROW AGENT. Licensors severally, and
Licensee do hereby (a) release, and agree to indemnify and hold harmless, Escrow
Agent from and against any and all liability for losses, damages, and expenses
(including attorneys' fees) that may be incurred by it on account of any action
taken by Escrow Agent in good faith pursuant to this Agreement, and (b) agree to
defend and indemnify Escrow Agent from and against any and all claims, demands,
or actions arising out of or resulting from any action taken by Escrow Agent in
good faith pursuant to this Agreement.
6.4 LIMITATION OF LIABILITY. Except for gross negligence or willful
misconduct, Escrow Agent shall not be liable to Licensors or to Licensee for any
act or omission by Escrow Agent in connection with this Agreement. Any liability
of Escrow Agent regardless of the cause shall be limited $500,000. In no event
will Escrow Agent be liable for special, indirect, incidental or consequential
damages or costs (including legal fees and expenses) arising under this
Agreement, even if Escrow Agent has been advised of the possibility of such
damages or costs.
6.5 NATURAL DEGENERATION; UPDATED VERSION. The parties acknowledge that as
a result of the passage of time alone, the Deposited Materials are susceptible
to loss of quality ("Natural Degeneration"). It is further acknowledged that
Escrow Agent shall have no liability or responsibility to any person or entity
for any Natural Degeneration. For the purpose of reducing the risk of Natural
Degeneration, Licensors shall deliver to Escrow Agent a new copy of the Deposit
Materials at least once every three years.
SECTION 7
INDEPENDENT CONTRACTOR STATUS
Nothing herein shall be construed to create a partnership, joint venture, or
agency relationship between or among the parties hereto. Without limiting the
generality of the foregoing, Escrow Agent is an independent contractor, and is
not an employee or agent of either the Licensors or Licensee.
SECTION 8
TERM OF AGREEMENT
8.1 TERM. The term of this Agreement shall commence on the Effective Date
hereof and shall continue from year to year until this Agreement is terminated
hereunder.
8.2 TERMINATION. This Agreement shall terminate:
8.2.1 BY CONSENT. By mutual consent of Licensors and all Licensee at
any time;
8.2.2. BY ESCROW AGENT. By Escrow Agent at any time, provided that
Escrow Agent has given Licensors and Licensee notice to that effect in
writing at least ninety (90) days before the contemplated date of
termination, whereupon Licensors shall diligently attempt to identify
an independent successor Escrow Agent, reasonably acceptable to all
Licensee, who is agreeable to assuming all further obligations of
Escrow Agent hereunder;
8.2.3 AUTOMATICALLY. In the event that the Deposited Material is
released to Licensee in accordance with the terms of this Agreement; or
thirty (30) days after Licensors or Licensee issue to all other parties
hereto a written certificate averring that Licensors severally are no
longer subject to any Obligation under the Loan Agreement; provided
that such termination shall not occur on such basis if Licensee
disputes any such certificate submitted by Licensors by sending
Licensors and Escrow Agent notice to that effect in writing within such
period.
8.3 EFFECT OF TERMINATION. Upon termination of this Agreement the Deposited
Materials shall be delivered to Licensors, except that in the event of
termination at the instance solely of the Escrow Agent, such copies shall be
delivered to the successor Escrow Agent.
SECTION 9
MISCELLANEOUS
9.1 COMPLIANCE WITH LAWS. The parties hereto agree that they shall comply
with all applicable laws and regulations of governmental bodies or agencies in
their respective performance of their obligations under this Agreement.
101
9.2 CONFIDENTIALITY. Escrow Agent will hold and release the Deposited
Materials only in accordance with the terms and conditions hereof, and will
maintain the confidentiality of the Deposited Materials.
9.3 NO UNDISCLOSED AGENCY; NO ASSIGNMENT. Each party represents that it is
acting on its own behalf and is not acting as an agent for or on behalf of any
third party; and further agrees that it may not assign its rights or obligations
under this Agreement without the prior written consent of the other parties
hereto (except that an assignment by any Licensee of such rights requires only
the consent of Licensors, and an assignment by Licensors requires only the
consent of all Licensee).
9.4 NOTICES. All notices, requests, demands or other communications
required or permitted to be given or made under this Agreement shall be in
writing and shall be delivered by hand or by commercial overnight delivery
service which provides for evidence of receipt, or mailed by certified mail,
return receipt requested, postage prepaid. If delivered personally or by
commercial overnight delivery service, the date on which the notice, request,
instruction or document is delivered shall be the date on which delivery is
deemed to be made, and if delivered by mail, the date on which such notice,
request, instruction or document is received shall be the date on which delivery
is deemed to be made. Any party may change its address for the purpose of this
Agreement by notice in writing to the other parties as provided herein.
9.5 GOVERNING LAW. All questions concerning the validity, operation,
interpretation, and construction of this Agreement shall be governed by and
determined in accordance with the laws of the State of Georgia.
9.6 NO WAIVER. No party shall, by mere lapse of time, without giving notice
or taking other action hereunder, be deemed to have waived any breach by the
other party(ies) of any of the provisions of this Agreement. Further, the waiver
by any party of any particular breach of this Agreement by any other party shall
not be construed to constitute a continuing waiver of such breach or of any
other breaches of the same or other provisions of this Agreement.
9.7 PARTIAL INVALIDITY. If any provision of this Agreement is held illegal,
unenforceable, or in conflict with any law of any federal, state, or local
government having jurisdiction over this Agreement, the validity of the
remaining provisions hereof shall not be affected thereby.
9.8 COMPLETE STATEMENT OF AGREEMENT. The parties hereto acknowledge that
each has read this Agreement, understands it, and agrees to be bound by its
terms. The parties further agree that this Agreement is the complete and
exclusive statement of their agreement with respect to the subject matter
hereof, and supersedes all oral or written proposals, understandings,
representations, warranties, covenants, and communications between the parties
relating hereto. This Agreement is intended by the parties to constitute an
agreement completely independent of any other agreement between or among any
combination of the parties hereto, whether or not any such other agreement
involves the Licensed Program, except to the limited extent necessary to define
the scope of Support Services for purposes of this Agreement. The continuing,
contingent, or future rights or obligations of any party under any other
agreement whatsoever shall not be regarded as necessary or implied consideration
for the execution, validity, or performance of this Agreement.
9.9 MULTIPLE COUNTERPARTS. This Agreement may be signed in one or more
counterparts each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
Agreement.
9.10 REMEDIES. The description of the possible occurrences that would
constitute an Event of Default, and the consequences thereof, shall create no
presumption that Licensors may or should be permitted to reject or terminate the
Collateral License Agreement under applicable law. The parties agree that such a
rejection or termination would be highly prejudicial to Licensee's interests,
and enforcement of the Agreement will not provide a complete or adequate remedy
for the harm to Licensee's interests.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as set forth below.
ESCROW AGENT: LICENSEE:
ESCROW SERVICES, INC. Xxx Enterprises, Incorporated
/s/ Xxxxxx Xxxxxx
---------------------------------- -----------------------------
By: By: Xxxxxx X. Xxxxxx
------------------------------- Title: Vice President - Finance
Title:
-------------------------------
0000 Xxxxxxxx Xxxxxxx, Xxxxx 000 000 Xxxxxx Xxxxxxxx
Xxxxxxxx, XX 00000 XXX 000 X. Xxxx Xxxxxx
Phone: 0-000-000-0000 Xxxxxxxxx, XX 00000-000
Fax: 0-000-000-0000 Phone: 000-000-0000
E-mail: xxxx@xxxxxxxxxxxxxx.xxx Fax:000-000-0000
E-mail: xxxx.xxxxxxxx@xxx.xxx
102
LICENSORS:
XxxxXxxxxx.xxx Corp. WelcomeTo Search Engine Inc.
/s/ Xxxx Xxxxxx /s/ Xxxx Xxxxxx
---------------------------- -----------------------------
By: Xxxx X. Xxxxxx
Title: President and CEO By:
000 - 0000 Xxxx Xxxxxxxx --------------------------
Xxxxxxxxx, XX X0X 0X0 Title:
Phone: 000-000-0000 ----------------------
Fax: 000-000-0000
Email: xxxxxxx@xxxxxxxxxx.xxx
Xceedx Technologies Inc.
----------------------------------
By:
-------------------------------
Title:
----------------------------
103
EXHIBIT A
FEE SCHEDULE
FEES TO BE PAID BY LICENSEE SHALL BE AS FOLLOWS:
Initialization fee (one time only) $ 850
($ 765 for current clients)
Annual maintenance/storage fee
[ ] includes two Deposit Material updates $ 1000
[ ] includes one cubic foot of storage space
[ ] if Licensors is outside North America - $ 1100/Product
ADDITIONAL SERVICES AVAILABLE:
Additional Updates $ 150/Product
(above two per year)
Additional Storage Space $ 150/Cubic foot
Due Only Upon Licensee's or Licensor's
Request for Release of Deposit Materials $ 100/Product per Licensee for
initial 2 hrs. and $50/hour for
each additional hour
Escrow Agent benefits its clients by offering extended services including:
software testing & verification, media conversion, document capture & retrieval,
image processing, high-speed laser printing, data conversion, information
software and IT consultancy.
Fees due in full, in US dollars, upon receipt of signed contract or
deposit material, whichever comes first. Thereafter, fees shall be
subject to their current pricing, provided that such prices shall not
increase by more than 10% per year. The renewal date for this Agreement
will occur on the anniversary of the first invoice. If other currency
acceptance is necessary, please contact your Account Manager to make
arrangements.
104
EXHIBIT B
B1. PRODUCT NAME: XpressWorks SpecialSections
Version # : 1.1
Prepared and Confirmed by: ________________________________________________
Title: _________________________________________ Date: ___________________
Signature: _______________________________________________________________
Type of deposit:
__X_ Initial Deposit
____ Update Deposit to replace current deposits
____ Other (please describe)_________________________________
Items Deposited:
Quantity Media Type Description of Material
A) ___________ _____________________ _________________________________________________
B) ___________ _____________________ _________________________________________________
C) ___________ _____________________ _________________________________________________
(please copy page as necessary)
[APPENDIX A]
105
SCHEDULE A
COLLATERAL
DESCRIPTION REGISTRATION/CLAIM
1. ECommerce Tools for Business
2. [Proprietary] Search Engine
3. XpressDepartment Store
4. XpressStores Online
5. XpressStores Pro
6. XpressStores Enterprise
7. Banners, etc.
8. XpressCoupons
9. XpressEditorial Content Engine
106
SCHEDULE B
ENCUMBRANCES
1. Canadian Imperial Bank of Commerce (CIBC) Demand Installment Loan(the
"Senior Existing Indebtedness"). The loan bears interest at the bank prime rate
plus 1% and is repayable in equal monthly principal and interest installments of
$2,468 (Cdn.) from February 2000 through February 2015, unless the loan is
called on demand by the bank. The loan is collateralized by a general security
agreement on substantially all of the Company's assets, a collateral mortgage
security for $166,238 (Cdn. $250,000) providing the bank first security interest
in the personal property of two of the Company's officers, the assignment of a
life insurance policy on the Company's president and the personal guarantees of
two of the Company's officers. At of year-end on June 30, 2001, the balance
outstanding was $161,830 and as of August 9, 2001 the balance was approximately
$161,195.
107
SCHEDULE C
THIRD PARTY CONTRACTS
None other than Xxx Enterprises, Incorporated
