-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NFW2xq5e5jk6yahVtefiiV6+i+jlneIhN1u2z19csZA1ifLSFSk7MudFltloPuFS tztVH4ZhO9EjngwblBWGUg== 0000909567-03-000673.txt : 20030520 0000909567-03-000673.hdr.sgml : 20030520 20030520154126 ACCESSION NUMBER: 0000909567-03-000673 CONFORMED SUBMISSION TYPE: 20-F PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030520 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADB SYSTEMS INTERNATIONAL LTD CENTRAL INDEX KEY: 0001079171 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 20-F SEC ACT: 1934 Act SEC FILE NUMBER: 001-14835 FILM NUMBER: 03712460 BUSINESS ADDRESS: STREET 1: 6725 AIRPORT RD STE 201 STREET 2: MISSISSAUGA ONTARIO CITY: CANADA L4V 1V2 STATE: A1 ZIP: 00000 BUSINESS PHONE: 9056727469 MAIL ADDRESS: STREET 1: 6725 AIRPORT RD STE 201 STREET 2: MISSISSAUGA ONTARIO CITY: CANADA L4V 1V2 STATE: A1 ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: ADB SYSTEMS INTERNATIONAL INC DATE OF NAME CHANGE: 20020424 FORMER COMPANY: FORMER CONFORMED NAME: BID COM INTERNATIONAL INC DATE OF NAME CHANGE: 19990210 20-F 1 t09678e20vf.txt FORM 20-F ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________. Commission File No. 000-30677 ADB SYSTEMS INTERNATIONAL LTD. (Exact name of Registrant as specified in its charter) NOT APPLICABLE (Translation of Registrant's name into English) ONTARIO, CANADA (Jurisdiction of incorporation or organization) 6725 AIRPORT ROAD, SUITE 201 MISSISSAUGA, ONTARIO L4V 1V2 (Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act. NONE Securities registered or to be registered pursuant to Section 12(g) of the Act. COMMON SHARES Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. NONE Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the Annual Report. 51,761,603 COMMON SHARES AS OF MAY 12, 2003 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) to such filing requirements for the past 90 days. Yes X No ______ Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ______ Item 18 X ================================================================================ - 1 - ADB SYSTEMS INTERNATIONAL LTD. ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 FORWARD LOOKING STATEMENTS From time to time, we make oral and written statements that may be considered "forward looking statements" (rather than historical facts). We are taking advantage of the "safe-harbour" provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements we may make from time to time, including the forward-looking statements in this Annual Report. You can identify these statements when you see words such as "may", "expect", "anticipate", "estimate", "believe", "intend", and other similar expressions. These forward-looking statements relate, among other items to: o our future capital needs; o future expectations as to profitability and operating results; o our ability to further develop business relationships and revenues; o our expectations about the markets for our products and services; o acceptance of our products and services; o competitive factors; o our ability to repay debt; o our ability to attract and retain employees; o new products and technological changes; o our ability to develop appropriate strategic alliances; o protection of our proprietary technology; o our ability to acquire complementary products or businesses and integrate them into our business; and o geographic expansion of our business. We have based these forward-looking statements largely on our current plans and expectations. Forward-looking statements are subject to risks and uncertainties, some of which are beyond our control. Our actual results could differ materially from those described in our forward-looking statements as a result of the factors described in the "Risk Factors" included elsewhere in this Annual Report, including, among others: o the timing of our future capital needs and our ability to raise additional capital when needed; o our limited operating history in our current business as a combined entity; o increasingly longer sales cycles; o potential fluctuations in our financial results and our difficulties in forecasting; o volatility of the stock markets and fluctuations in the market price of our stock; o your ability to buy and sell our shares on the Over the Counter Bulletin Board; o our ability to compete with other companies in our industry; o our ability to repay our debt to lenders; o our ability to retain and attract key personnel; - 2 - o risk of significant delays in product development; o failure to timely develop or license new technologies; o risks relating to any requirement to correct or delay the release of products due to software bugs or errors; o risk of system failure or interruption; o problems which may arise in connection with the acquisition or integration of new businesses, products, services, technologies or other strategic relationships; o risks associated with international operations; o risks associated with protecting our intellectual property, and potentially infringing the intellectual property rights of others; o uncertainty about the continued acceptance of the Internet as a viable commercial medium; and o sensitivity to the overall economic environment. We do not have, and do not undertake, any obligation to publicly update or revise any forward-looking statements contained in this Annual Report, whether as a result of new information, future events or otherwise. Because of these risks and uncertainties, the forward-looking statements and circumstances discussed in this Annual Report might not transpire. Trademarks or trade names which we own and are used in this Annual Report include: ADB(TM); PROCUREMATE(TM); WORKMATE(TM); BID BUDDY(TM); SEARCH BUDDY(TM); DYNAMIC BUYER(TM) and DYNAMIC SELLER(TM). Each trademark, trade name, or service mark of any other company appearing in this Annual Report belongs to its holder. - 3 - TABLE OF CONTENTS
Page ---- PART I.........................................................................................................6 ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS........................................6 ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE......................................................6 ITEM 3 - KEY INFORMATION..............................................................................6 A. Selected Financial Data...............................................................6 B. Capitalization and Indebtedness.......................................................8 C. Reasons For The Offer And Use Of Proceeds.............................................8 D. Risk Factors..........................................................................8 ITEM 4 - INFORMATION ON THE COMPANY..................................................................16 A. History and Development of the Company...............................................16 B. Business Overview....................................................................19 C. Organizational Structure.............................................................25 D. Property, Plants and Equipment.......................................................25 ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............................................26 ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES..................................................36 A. Directors And Senior Management......................................................36 B. Compensation.........................................................................38 C. Board Practices......................................................................40 D. Employees............................................................................41 E. Share Ownership......................................................................41 ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS...........................................42 A. Major Shareholders...................................................................42 B. Related Party Transactions...........................................................42 ITEM 8 - FINANCIAL INFORMATION.......................................................................43 ITEM 9 - THE OFFER AND LISTING.......................................................................43 ITEM 10 - ADDITIONAL INFORMATION.....................................................................45 A. Share Capital........................................................................45 B. Memorandum and Articles of Association...............................................45 C. Material Contracts...................................................................48 D. Exchange Controls....................................................................50 E. Taxation.............................................................................50 F. Dividends and Paying Agents..........................................................56 G. Statements by Experts................................................................56 H. Documents on Display.................................................................56
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Page ---- I. Subsidiary Information................................................................56 ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK....................................57 ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN DEBT SECURITIES.........................................57 PART II.........................................................................................................57 ITEM 13 - DEFAULT, DIVIDEND ARREARAGES AND DELINQUENCIES...............................................57 ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.................57 ITEM 15 - CONTROLS AND PROCEDURES......................................................................57 PART III........................................................................................................57 ITEM 17 - FINANCIAL STATEMENTS.........................................................................57 ITEM 18 - FINANCIAL STATEMENTS.........................................................................57 ITEM 19 - EXHIBITS.....................................................................................57
- 5 - Unless otherwise indicated, all references in this Annual Report to "dollars" or "$" are references to Canadian dollars. Our financial statements are expressed in Canadian dollars. Except as otherwise noted, certain financial information presented in this Annual Report has been translated from Canadian dollars to U.S. dollars at an exchange rate of Cdn$1.58 to US$1.00, the noon buying rate in New York City on December 31, 2002 for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York. These translations are not intended to suggest that Canadian dollars have been or could be converted into U.S. dollars at that or any other rate. On October 11, 2001, our shareholders approved a two-for-one share consolidation. Unless otherwise indicated, all share and option figures in this Annual Report that relate to the period prior to October 11, 2001 have been adjusted retroactively to reflect the share consolidation. References to the "Company" and "ADB" refer to ADB Systems International Ltd., as successor to ADB Systems International Inc. as a result of the implementation of the plan of arrangement described on page 18 under the heading "Major Developments." PART I ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS Not applicable. ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. ITEM 3 - KEY INFORMATION A. SELECTED FINANCIAL DATA The selected financial data set forth below should be read in conjunction with, and is qualified by reference to, our consolidated financial statements and the related notes, and the section "Operating and Financial Review and Prospects" included elsewhere in this Annual Report. The consolidated statement of operations data for the years ended December 31, 2002, 2001 and 2000 and consolidated balance sheet data as of December 31, 2002 and 2001, as set forth below, are derived from our consolidated audited financial statements and the related notes included elsewhere in this Annual Report. The consolidated statement of operations data for the years ended December 31, 1999 and 1998 and the consolidated balance sheet data as at December 31, 2000, 1999 and 1998 have been derived from our consolidated audited financial statements for those years, which are not included in this Annual Report. We have prepared our audited financial statements in accordance with accounting principles generally accepted in Canada, which differ in certain respects from accounting principles generally accepted in the United States. However, as applied to us, for all fiscal periods for which financial data is presented in this Annual Report, Canadian GAAP and U.S. GAAP were substantially identical in all material respects, except as disclosed in Note 20 of our consolidated financial statements. Historical results are not necessarily indicative of results to be expected for any future period. - 6 - STATEMENT OF OPERATIONS DATA:
YEAR ENDED DECEMBER 31 ------------------------------------------------------------------------ 2002 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- ---- (CDN$) (U.S.$) (1) (CDN$) (CDN$) (CDN$) (CDN$) (AUDITED) (IN THOUSANDS EXCEPT FOR PER SHARE DATA) Revenue.......................... 5,780 3,658 4,455 12,497 31,001 20,001 Less: Customer Acquisition Costs - - (60) (157) - - Net Revenue...................... 5,780 3,658 4,395 12,340 31,001 20,001 Expenses Direct expenses.................. - -- - 11,460 26,696 19,361 Advertising and promotion........ - -- - 5,040 11,870 12,594 General and administrative....... 6,288 3,979 7,622 16,236 12,405 5,751 Sales and marketing.............. 1,875 1,187 4,040 3,161 - - Software development and technology................... 4,101 2,595 3,691 1,802 1,001 889 Depreciation and amortization.... 2,602 1,647 1,572 1,130 621 201 Interest (income)................ (45) (28) (345) (467) (767) (88) Total expenses................... 15,021 9,507 16,580 38,362 51,826 38,708 Loss from operations............. (9,241) (5,849) (12,185) (26,022) (20,825) (18,707) Net Loss......................... (9,364) (5,827) (18,714) (20,366) (20,825) (18,707) Loss per common share(2)......... (0.22) (0.14) (0.64) (0.76) (0.84) (1.58) Weighted average number of common shares(2)................. 41,968 41,968 29,130 26,844 24,792 11,910 BALANCE SHEET DATA:(3)
As at December 31 -------------------------------------------------------------------------- 2002 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- ---- (Cdn$) (U.S.$)(1) (Cdn$) (Cdn$) (Cdn$) (Cdn$) (Audited) (in thousands) Working capital...................... (1,757) (1,112) 3,115 13,671 21,523 17,929 Total assets......................... 6,355 4,022 10,592 20,801 36,743 21,047 Long-term Deferred Revenue........... 33 1,195 1,289 - Shareholders equity.................. 1,198 758 8,014 15,860 28,985 18,622
- ----------------------- (1) Convenience translation into U.S. $. See Note 23 of our consolidated financial statements. (2) In October 2001, our shareholders approved a 2 for 1 share consolidation. All per share amounts have been adjusted retroactively to reflect the consolidation. See Note 9(g) of our consolidated financial statements for a discussion regarding the calculation of common shares outstanding and loss per common share. (3) We have not paid dividends since our formation. EXCHANGE RATES The following tables set forth, for the periods indicated, certain exchange rates based on the noon buying rate in New York City for cable transfers in Canadian dollars, as certified for customs purposes by the Federal Reserve Bank of New York. Such rates are the number of U.S. dollars per one Canadian dollar and are the inverse of the rates quoted by the Federal Reserve Board of New York for Canadian Dollars per U.S. $1.00. On April 18, 2003, the exchange rate was US$1.00 = Cdn$1.45. - 7 -
Year Ended December 31, ----------------------------------------------------------- Rate 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- ---- Average (1) during year .6344 .6449 .6725 .6744 .6710
(1) The average rate is the average of the exchange rates on the last day of each month during the year.
Month High during month Low during month ----- ----------------- ---------------- November 2002 .6426 .6288 December 2002 .6461 .6288 January 2003 .6570 .6349 February 2003 .6720 .6511 March 2003 .6822 .6709 April 2003
B. CAPITALIZATION AND INDEBTEDNESS Not applicable. C. REASONS FOR THE OFFER AND USE OF PROCEEDS Not applicable. D. RISK FACTORS The following is a summary of certain risks and uncertainties which we face in our business. This summary is not meant to be exhaustive. These Risk Factors should be read in conjunction with other cautionary statements which we make in this Annual Report and in our other public reports, registration statements and public announcements. WE WILL NEED ADDITIONAL CAPITAL AND IF WE ARE UNABLE TO SECURE ADDITIONAL FINANCING WHEN WE NEED IT, WE MAY BE REQUIRED TO SIGNIFICANTLY CURTAIL OR CEASE OUR OPERATIONS. The Company has not yet realized profitable operations and has relied on non-operational sources of financing to fund operations. Since we began our operations, we have been funded primarily through the sale of securities to investors in a series of private placements, sales of equity to, and investments from, strategic partners, gains from investments, option exercises and, to a limited extent, through cash flow from operations. The Company's ability to continue as a going concern will be dependent on management's ability to successfully execute its business plan, increase revenue and obtain additional forms of debt or equity financing. The Company expects that additional debt or equity financing such as the issuance of loans or debentures, issuance of shares, conversion of warrants and exercise of options in the amount of $2.25 million will be required in order for the Company to be able to fund its operations through 2003. The Company cannot provide assurance that efforts to raise such additional financings will be successful. Management believes that continued existence beyond 2003 is dependent on its ability to increase revenue from sales of existing products, and expand the scope of its product offering through the expansion of internally developed software and partnerships with third parties. - 8 - As of March 31, 2003, we had cash on hand and marketable securities of approximately $776,000. We do not have any committed sources of additional financing at this time and we are uncertain whether additional funding will be available when we need it on terms that will be acceptable to us or at all. If we are not able to obtain financing when we need it, we would be unable to carry out our business plan and would have to significantly curtail or cease our operations. We have included in Note 2 to our financial statements, a discussion about the ability of our company to continue as a going concern. Potential sources of financing include strategic relationships, public or private sales of our shares, debt, convertible securities or other arrangements. If we raise funds by selling additional shares, including common shares or other securities convertible into common shares, the ownership interests of our existing shareholders will be diluted. If we raise funds by selling preference shares, such shares may carry more voting rights, higher dividend payments or more favorable rights upon distribution than those for the common shares. If we incur debt, the holders of such debt may be granted security interests in our assets. Because of our potential long term capital requirements, we may seek to access the public or private equity or debt markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. WE ARE NOT PROFITABLE AND WE MAY NEVER BECOME PROFITABLE. We have accumulated net losses of approximately $96.9 million as of December 31, 2002. For the year ended December 31, 2002 our net loss was $9.364 million. We have never been profitable and expect to continue to incur losses for the foreseeable future. We cannot assure you that we will earn profits or generate positive cash flows from operations in the future. OUR LIMITED OPERATING HISTORY IN OUR CURRENT BUSINESS AS A COMBINED ENTITY MAKES EVALUATING OUR BUSINESS DIFFICULT. While we were founded in September 1995, until 1999 we operated solely as an online retailer of computer and other goods. Since 1999 we have shifted our focus to providing dynamic pricing solutions.. In October 2001 we acquired ADB Systemer ASA of Norway, a provider of enterprise asset management and electronic procurement software and services. While ADB Systemer has operated since 1988, we have only a limited operating history as a combined entity on which you can base your evaluation of our business and prospects. Our business and prospects must be considered in light of the risks, uncertainties and expenses frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets. Our business strategy may not be successful and we may not successfully address those risks. WE MAY EXPERIENCE INCREASINGLY LONGER SALES CYCLES A significant portion of our revenue in any quarter is derived from a relatively small number of contracts. We often experience sales cycles of six to eighteen months. If the length of our sales cycles increases, our revenues may decrease and our quarterly results would be adversely affected. In addition, our current and future expense levels are based largely on our investment plans and estimates of future revenues and are, to a large extent, fixed. We may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Any significant shortfall in revenues relative to our planned expenditures would have a material adverse effect on our business, financial condition, cash flows and results of operations POTENTIAL FLUCTUATIONS IN OUR FINANCIAL RESULTS MAKE FINANCIAL FORECASTING DIFFICULT Our operating results have varied on a quarterly basis in the past and may fluctuate significantly as a result of a variety of factors, many of which are outside our control. Factors that may affect our quarterly operating results include: o general economic conditions as well as economic conditions specific to our industry; - 9 - o long sales cycles, which characterize our industry; o implementation delays, which can affect payment and recognition of revenue; o any decision by us to reduce prices for our solutions in response to price reductions by competitors; o the amount and timing of operating costs and capital expenditures relating to monitoring or expanding our business, operations and infrastructure; and o the timing of, and our ability to integrate, any future acquisition, technologies or products or any strategic investments or relationships into which we may enter. Due to these factors, our quarterly revenues and operating results are difficult to forecast. We believe that period-to-period comparisons of our operating results may not be meaningful and should not be relied upon as an indication of future performance. In addition, it is likely that in one or more future quarters, our operating results will fall below the expectations of securities analysts and investors. In such event, the trading price of our common shares would almost certainly be materially adversely affected. OUR SHARE PRICE HAS FLUCTUATED SUBSTANTIALLY AND MAY CONTINUE TO DO SO. The trading price of our common shares on The Toronto Stock Exchange and on the NASDAQ Over the Counter Bulletin Board ("OTCBB") has fluctuated significantly in the past and could be subject to wide fluctuations in the future. The market prices for securities of technology companies have been highly volatile. These companies have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to their operating performance. Broad market and industry factors may materially and adversely affect the market price of our common shares, regardless of our operating performance. In addition, fluctuations in our operating results, and concerns regarding our competitive position can have an adverse and unpredictable effect on the market price of our shares. In the past, following periods of volatility in the market price of a company's securities, securities class-action litigation has often been instituted against that company. Such litigation, if instituted against us, could result in substantial costs and a diversion of management's attention and resources, which could have a material adverse effect on our business, results of operations, cash flow, financial condition and prospects. YOUR ABILITY TO BUY OR SELL OUR COMMON SHARES ON THE OTCBB MAY BE LIMITED On June 3, 2002, we transferred the listing of our common shares from the Nasdaq National Market to the Nasdaq SmallCap Market. On August 22, 2002, our common shares were delisted from the Nasdaq SmallCap Market because we did not satisfy the minimum bid price per share requirement for continued listing on that market. Our common shares immediately became eligible for and began trading on the OTCBB. The OTCBB is generally considered to be a less efficient market than the Nasdaq National Market or the Nasdaq SmallCap Market on which our shares previously traded. As a result, your ability to buy or sell our common shares on the OTCBB may be limited. In addition, since our shares are no longer listed on the Nasdaq National Market or Nasdaq SmallCap Market, our shares may be subject to the "penny stock" regulations described below. De-listing from the Nasdaq National Market and the Nasdaq SmallCap Market will not affect the listing of the common shares on The Toronto Stock Exchange. OUR COMMON SHARES MAY BECOME SUBJECT TO "PENNY STOCK" REGULATIONS WHICH MAY AFFECT YOUR ABILITY TO BUY OR SELL OUR COMMON SHARES. Our common shares have traded on the Nasdaq National and Small Cap Markets and on the OTCBB at prices below US$5.00 since April 2000 (on a pre-consolidation basis). As a result, our shares may become characterized as "penny stocks" which could severely affect market liquidity. The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. Securities and Exchange Commission regulations generally define a penny stock to be an equity security that has a market price of less than US$5.00 per share, subject to certain exceptions. Such exceptions include any - 10 - equity security listed on Nasdaq or a national securities exchange and any equity security issued by an issuer that has: o net tangible assets of at least US$2,000,000, if such issuer has been in continuous operation for three years; o net tangible assets of at least US$5,000,000, if such issuer has been in continuous operation for less than three years; or o average annual revenue of at least US$6,000,000, if such issuer has been in continuous operation for less than three years. Unless an exception is available, the regulations require, prior to any transaction involving a penny stock, delivery of a disclosure schedule explaining the penny stock market and the risks associated therewith. The penny stock regulations would adversely affect the market liquidity of our common shares by limiting the ability of broker/dealers to trade the shares and the ability of purchasers of our common shares to sell in the secondary market. Certain institutions and investors will not invest in penny stocks. THE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE. The market for asset lifecycle management solutions is rapidly evolving and intensely competitive. We face significant competition in each segment of our business (sourcing, procurement, enterprise asset management and asset disposition). We expect that competition will further intensify as new companies enter the different segments of our market and larger existing companies expand their product lines. If the global economy continues to lag, we could face increased competition, particularly in the form of lower prices. Many of our competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we. We cannot assure you that we will be able to compete with them effectively. If we fail to do so, it would have a material adverse effect on our business, financial condition, cash flows and results of operations. WE MAY NOT BE ABLE TO RETAIN OR ATTRACT THE HIGHLY SKILLED PERSONNEL WE NEED, IN PARTICULAR AS A RESULT OF OUR RECENT WORKFORCE REDUCTIONS. Our success is substantially dependent on the ability and experience of our senior management and other key personnel. We do not have long term employment agreements with any of our key personnel and maintain no "key person" life insurance policies. In 2002, we implemented a workforce reduction. We may experience some attrition during 2003 as a result of the reduction. We may need to hire new or additional personnel to respond to attrition or future growth of our business. However, there is significant competition for qualified personnel. We cannot be certain we will be able to retain existing personnel or hire additional, qualified personnel when needed. SIGNIFICANT DELAYS IN PRODUCT DEVELOPMENT WOULD HARM OUR REPUTATION AND RESULT IN LOSS OF REVENUE. If we experience significant product development delays, our position in the market would be harmed, and our revenues could be substantially reduced, which would adversely affect our operating results. As a result of the complexities inherent in our software, major new product enhancements and new products often require long development and test periods before they are released. On occasion, we have experienced delays in the scheduled release date of new or enhanced products, and we may experience delays in the future. Delays may occur for many reasons, including an inability to hire a sufficient number of developers, discovery of bugs and errors or a failure of our current or future products to conform to industry requirements. Any such delay, or the failure of new products or enhancements in achieving market acceptance, could materially impact our business and reputation and result in a decrease in our revenues. - 11 - WE MAY HAVE TO EXPEND SIGNIFICANT RESOURCES TO KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE Our industry is characterized by rapid technological change, changes in user and customer requirements, frequent new service or product introductions embodying new technologies and the emergence of new industry standards and practices. Any of these could hamper our ability to compete or render our proprietary technology obsolete. Our future success will depend, in part, on our ability to: o develop new proprietary technology that addresses the increasingly sophisticated and varied needs of our existing and prospective customers; o anticipate and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis; o continually improve the performance, features and reliability of our products in response to evolving market demands; and o license leading technologies. We may be required to make substantial expenditures to accomplish the foregoing or to modify or adapt our services or infrastructure. OUR BUSINESS COULD BE SUBSTANTIALLY HARMED IF WE HAVE TO CORRECT OR DELAY THE RELEASE OF PRODUCTS DUE TO SOFTWARE BUGS OR ERRORS We sell complex software products. Our software products may contain undetected errors or bugs when first introduced or as new versions are released. Our software products may also contain undetected viruses. Further, software we license from third parties and incorporate into our products may contain errors, bugs or viruses. Errors, bugs and viruses may result in any of the following: o adverse customer reactions; o negative publicity regarding our business and our products; o harm to our reputation; o loss of or delay in market acceptance; o loss of revenue or required product changes; o diversion of development resources and increased development expenses; o increased service and warranty costs; o legal action by our customers; and o increased insurance costs. SYSTEMS DEFECTS, FAILURES OR BREACHES OF SECURITY COULD CAUSE A SIGNIFICANT DISRUPTION TO OUR BUSINESS, DAMAGE OUR REPUTATION AND EXPOSE US TO LIABILITY. We host certain websites and sub-sites for our customers. Our systems are vulnerable to a number of factors that may cause interruptions in our ability to enable or host solutions for third parties, including, among others: o damage from human error, tampering and vandalism; - 12 - o breaches of security; o fire and power losses; o telecommunications failures and capacity limitations; and o software or hardware defects. Despite the precautions we have taken and plan to take, the occurrence of any of these events or other unanticipated problems could result in service interruptions, which could damage our reputation, and subject us to loss of business and significant repair costs. Certain of our contracts require that we pay penalties or permit a customer to terminate the contract if we are unable to maintain minimum performance levels. Although we continue to take steps to enhance the security of our systems and ensure that appropriate back-up systems are in place, our systems are not now, nor will they ever be, fully secure. OUR BUSINESS HAS UNDERGONE DRAMATIC EXPANSION AND RETRACTION PHASES SINCE OUR FORMATION. WE MAY NOT BE ABLE TO MANAGE FURTHER DRAMATIC EXPANSIONS AND RETRACTIONS IN FUTURE. Our business has undergone dramatic expansion and retraction since our formation, which has placed significant strain on our management resources. If we should grow or retract dramatically in future, there may be further significant demands on our management, administrative, operating and financial resources. In order to manage these demands effectively, we will need to expand and improve our operational, financial and management information systems and motivate, manage and retain employees. We cannot assure you that we will be able to do so, that our management, personnel or systems will be adequate, or that we will be able to achieve levels of revenue commensurate with the resulting levels of operating expenses. INTERNATIONAL SALES ACCOUNT FOR A SIGNIFICANT PORTION OF OUR REVENUE, WHICH EXPOSES US TO CERTAIN RISKS. We currently operate in Canada, Norway, Ireland, the United States and England. In the 2002 fiscal year, sales to customers outside North America represented approximately 62% of our revenues. There are risks inherent in doing business on a global level, including: o difficulties in managing and staffing an organization spread across several continents; o differing laws and regulatory requirements; o political and economic risks; o currency and foreign exchange fluctuations and controls; o tariffs, customs, duties and other trade barriers; o longer payment cycles and problems in collecting accounts receivable in certain countries; o export and import restrictions; o the need for product compliance with local language and business customs; o seasonal reductions in business activity during the summer months in Europe and elsewhere; and o potentially adverse tax consequences. Any of these risks could adversely affect the success of our global operations. ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISRUPTIONS TO OUR BUSINESS AND/OR DISTRACTIONS FOR OUR MANAGEMENT. We acquired ADB Systemer ASA of Norway in October 2001. In the future, we may seek to acquire other businesses or make investments in complementary businesses or technologies. We may not be able to acquire or - 13 - manage additional businesses profitably or successfully integrate any acquired businesses with our business. Businesses that we acquire may have liabilities that we underestimate or do not discover during our pre-acquisition investigations. Certain liabilities, even if we do not expressly assume them, may be imposed on us as the successor to the business. Further, each acquisition may involve other special risks that could cause the acquired businesses to fail to meet our expectations. For example: o the acquired businesses may not achieve expected results; o we may not be able to retain key personnel of the acquired businesses; o we may incur substantial, unanticipated costs, delays or other operational or financial problems when we try to integrate businesses we acquire with our own; o our management's attention may be diverted; or o our management may not be able to manage the combined entity effectively or to make acquisitions and grow our business internally at the same time. The occurrence of one or more of these factors could have a material adverse effect on our business, financial condition, cash flows and results of operations. In addition, we may incur debt or issue equity securities to pay for any future acquisitions or investments, which could dilute the ownership interest of our existing shareholders. IF WE ARE UNABLE TO SUCCESSFULLY PROTECT OUR INTELLECTUAL PROPERTY OR OBTAIN CERTAIN LICENSES, OUR COMPETITIVE POSITION MAY BE WEAKENED. Our performance and ability to compete are dependent in part on our technology. We rely on a combination of patent, copyright, trademark and trade secret laws as well as confidentiality agreements and technical measures, to establish and protect our rights in the technology we develop. We cannot guarantee that any patents issued to us will afford meaningful protection for our technology. Competitors may develop similar technologies which do not conflict with our patents. Others may challenge our patents and, as a result, our patents could be narrowed or invalidated. Our software is protected by common law copyright laws, as opposed to registration under copyright statutes. Common law protection may be narrower than that which we could obtain under registered copyrights. As a result, we may experience difficulty in enforcing our copyrights against certain third parties. The source code for our proprietary software is protected as a trade secret. As part of our confidentiality protection procedures, we generally enter into agreements with our employees and consultants and limit access to, and distribution of, our software, documentation and other proprietary information. We cannot assure you that the steps we take will prevent misappropriation of our technology or that agreements entered into for that purpose will be enforceable. In order to protect our intellectual property, it may be necessary for us to sue one or more third parties. While this has not been necessary to date, there can be no guarantee that we will not be required to do so in future to protect our rights. The laws of other countries may afford us little or no protection for our intellectual property. We also rely on a variety of technology that we license from third parties, including our database and Internet server software, which is used to perform key functions. These third party technology licenses may not continue to be available to us on commercially reasonable terms, or at all. If we are unable to maintain these licenses or obtain upgrades to these licenses, we could be delayed in completing or prevented from offering some products or services. OTHERS COULD CLAIM THAT WE INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS, WHICH MAY RESULT IN COSTLY AND TIME CONSUMING LITIGATION. Our success will also depend partly on our ability to operate without infringing upon the proprietary rights of others, as well as our ability to prevent others from infringing on our proprietary rights. We may be required at times to take legal action in order to protect our proprietary rights. Also, from time to time, we may receive notice from third parties claiming that we infringe their patent or other proprietary rights. In the past, certain third parties - 14 - have claimed that certain of our technology infringed their intellectual property rights. The Company does not believe it does or ever has infringed the intellectual property rights of any third party. The claim with the particular third party has been resolved through licensing arrangements. There can be no assurances that other third parties will not make similar claims in the future. We believe that infringement claims will increase in the electronic commerce sector as competition intensifies. Despite our best efforts, we may be sued for infringing on the patent or other proprietary rights of others. Such litigation is costly, and even if we prevail, the cost of such litigation could harm us. If we do not prevail or cannot fund a complete defense, in addition to any damages we might have to pay, we could be required to stop the infringing activity or obtain a license. We cannot be certain that any required license would be available to us on acceptable terms, or at all. If we fail to obtain a license, or if the terms of a license are burdensome to us, this could have a material adverse effect on our business, financial condition, cash flows and results of operations. OUR PRODUCT STRATEGY IS PARTIALLY DEPENDENT UPON THE CONTINUED ACCEPTANCE AND USE OF THE INTERNET AS A MEDIUM OF COMMERCE. Our success depends in part on the continued growth of the Internet and reliance on and use of the Internet by businesses. Because use of the Internet as a source of information, products and services is a relatively recent phenomenon, it is difficult to predict whether the number of users drawn to the Internet will continue to increase and whether the market for commercial use of the Internet will continue to develop and expand. The Internet may not be commercially viable for a number of reasons, including potentially inadequate development of the necessary network infrastructure, delayed development of enabling technologies and inadequate performance improvements. In addition, the Internet's viability as a commercial marketplace could be adversely affected by delays in the development of services or due to increased government regulation. Moreover, concern about the security of transactions conducted on the Internet and the privacy of users may also inhibit the growth of commerce on the Internet. If the use of the Internet does not continue to grow or grows more slowly than expected, or if the infrastructure for the Internet does not effectively support growth that may occur, our business would be materially and adversely affected. OUR BUSINESS IS SENSITIVE TO THE OVERALL ECONOMIC ENVIRONMENT. ANY SLOWDOWN IN INFORMATION TECHNOLOGY SPENDING BUDGETS COULD HARM OUR OPERATING RESULTS Any significant downturn in our customers' markets or in general economic conditions that results in reduced information technology spending budgets would likely result in a decreased demand for our products and services, longer selling cycles and lower prices, any of which may harm our business. WE ARE SUBJECT TO RISKS ASSOCIATED WITH EXCHANGE RATE FLUCTUATIONS. Substantially all of our revenues are in European currencies or U.S. dollars, while the majority of our operating expenses are in Canadian dollars and Norwegian kroner. We do not have any hedging programs in place to manage the potential exposure to fluctuations in the Canadian dollar or Norwegian kroner exchange rates. Fluctuations in the exchange rates of these currencies or the exchange rate of other currencies against the Canadian dollar or Norwegian kroner could have a material adverse effect on our business, financial condition, cash flows and results of operations. OUR PREFERENCE SHARES COULD PREVENT OR DELAY A TAKEOVER THAT SOME OR A MAJORITY OF SHAREHOLDERS CONSIDER FAVORABLE. Our Board of Directors, without any further vote of our shareholders, may issue preference shares and determine the price, preferences, rights and restrictions of those shares. The rights of the holders of common shares will be subject to, and may be adversely affected by, the rights of the holders of any series of preference shares that may be issued in the future. That means, for example, that we can issue preference shares with more voting rights, higher dividend payments or more favorable rights upon distribution than those for our common shares. If we issue certain types of preference shares in the future, it may also be more difficult for a third party to acquire a majority of - 15 - our outstanding voting shares and such issuance may, in certain circumstances, deter or delay mergers, tender offers or other possible transactions that may be favored by some or a majority of our shareholders. IT MAY BE DIFFICULT FOR YOU TO ENFORCE LEGAL CLAIMS AGAINST US OR OUR OFFICERS OR DIRECTORS. We are incorporated under the laws of the Province of Ontario, Canada. Certain of our directors and officers are residents of Canada, Norway and Ireland, and substantially all of our assets and the assets of such persons are located outside the United States. As a result, it may be difficult for holders of common shares to effect service of legal process within the United States upon those directors and officers who are not residents of the United States. It may also be difficult to realize in the United States upon judgments of courts of the United States without enforcing such judgments in our home jurisdiction or the jurisdiction of residence of the director or officer concerned. ITEM 4 - INFORMATION ON THE COMPANY OVERVIEW We develop and sell software products and services that allow our customers to source, buy, track, manage and sell assets, primarily in asset intensive industries. We refer to our product and services suite as asset lifecycle management solutions. Our solutions can reduce sourcing, procurement and tracking costs, improve tracking and monitoring of asset performance and reduce downtime. We acquired our Norwegian operations, ADB Systemer ASA ("ADB Systemer"), in October 2001. For over ten years, ADB Systemer has provided enterprise asset management solutions to customers in Norway and Europe. For the past three years, we have provided sales solutions to customers in North America and Europe and during the past two years we have introduced sourcing and procurement solutions to customers in North America and Europe. Our customer list includes a number of leading organizations, such as BP, GE Capital, Halliburton Productos, Prosafe, National Health Services (UK) Health Procurement Consortium, Permanent TSB, and Forest Oil. While our asset management solutions have traditionally been found largely in the oil and gas industry, our other solutions have been implemented in a number of industries. COMPANY BACKGROUND The name of our company is ADB Systems International Ltd. We are formed as a business corporation under the laws of Ontario, Canada. Our business began as Internet Liquidators Inc., a business corporation formed under the laws of Ontario, Canada, in September 1995. In May 1996, Internet Liquidators International Inc., also an Ontario company, acquired all of the shares of Internet Liquidators Inc. These two companies were amalgamated in January 1997. In June 1998, we changed our name from Internet Liquidators International Inc. to Bid.Com International Inc. Prior to October 24, 2000, we operated two national business-to-consumer auction sites at www.bid.com, one in the United States and one in Canada. Following an extensive strategic review by ADB's Board of Directors and management, ADB decided late in 2000 to focus on its software business. During 2002, Old ADB changed its name to Bid.com International Ltd. and resumed on-line retail activities. On October 11, 2001, we acquired substantially all of the shares of ADB Systemer, a Norway-based provider of enterprise asset management and electronic procurement software. As part of the acquisition of ADB Systemer, we changed our name to ADB Systems International Inc. and completed a two for one share consolidation. In this report, we refer to ADB Systems International Inc. as "Old ADB." - 16 - On August 30, 2002 we formed a new company called ADB Systems International Ltd., which we refer to in this report as the "Company" or "ADB". On October 31, 2002, the shareholders of Old ADB exchanged their shares of Old ADB for shares of the Company on a one-for-one basis. This exchange was implemented pursuant to a plan of arrangement approved by the shareholders of Old ADB on October 22, 2002 and by the Ontario Superior Court of Justice on October 24, 2002 (which we refer to in this report as the "Arrangement"). As a result of the Arrangement, the business of Old ADB, including all assets and liabilities of Old ADB (other than those related to retail activities), was transferred to the Company in the form of a return of capital. Old ADB subsequently changed its name to Bid.Com International Ltd. For more details on the Arrangement, see the next section under the heading "Major Developments". We are governed by the Ontario Business Corporations Act. Our principal business offices in North America are located at 6725 Airport Road, Suite 201, Mississauga, Ontario L4V 1V2, Canada and our telephone number is (905) 672-7467. In Norway, our principal business offices are located at Vingveien 2, 4050 Sola, Norway and our telephone number is +47 51 64 71 00. In the United States, our principal business office is located at 3001 North Rocky Point Drive East, Suite 200, Tampa, Florida 33607 and our telephone number is (813) 281-4825. Our shares trade on the Toronto Stock Exchange under the symbol "ADY" and are traded on the OTCBB under the symbol "ADBY". Additional information about our company can be obtained at our web site - www.adbsys.com. The information contained on our web site is not deemed to be part of this Annual Report. MAJOR DEVELOPMENTS On August 30, 2002, we entered into a series of agreements with The Brick Warehouse Corporation ("The Brick") which contemplated a series of transactions (which we collectively refer to as "The Brick Transaction") among The Brick, Old ADB and ADB. Pursuant to The Brick Transaction: o The Brick made a $2.0 million secured loan to Old ADB and ADB at an interest rate of 12% per annum; o ADB and Old ADB agreed to enter into Arrangement; and o The Brick and Old ADB will cooperate in online retail operations that will utilize the on-line retail technology, experience and expertise of ADB developed and operated under the name "Bid.Com International Inc." in the online sale of consumer products to be supplied by The Brick (which we refer to in this report as the "Retail Business"). The assets related to the Retail Business were not transferred pursuant to the Arrangement and continue to be held by Old ADB. The $2.0 million secured loan made by The Brick matures on June 30, 2003 or upon earlier demand by The Brick. At maturity, ADB has the right, at its option, to: (i) repay the loan in cash or (ii) transfer to The Brick all of the issued shares of Old ADB owned by ADB in satisfaction of the outstanding principal amount and accrued interest then owing to The Brick. The obligations of Old ADB and ADB are secured by a general security agreement delivered by ADB to The Brick covering all the property, and assets of ADB. The principal consequences of the Arrangement, which was effective as of October 31, 2002, are as follows: 1. Shareholders of Old ADB received from ADB one common share of ADB in exchange for each of their common shares of Old ADB. As a result (i) Old ADB became a wholly-owned subsidiary of ADB and (ii) each former shareholder of Old ADB owns the same number of shares in ADB that it owned in Old ADB prior to the exchange. 2. Old ADB transferred all of its assets (excluding specified assets related to the Retail Business) to ADB and ADB assumed all of the liabilities and obligations of Old ADB (excluding specified liabilities of - 17 - the Retail Business.). 3. The registered office, articles of incorporation, by-laws, directors and executive officers of Old ADB immediately prior to the Arrangement became the registered office, articles, by-laws, directors and executive officers of ADB upon consummation of the Arrangement. 4. ADB adopted the Stock Option Plan of Old ADB. Upon consummation of the Arrangement, all options, warrants or debt that was exercisable or convertible into shares of Old ADB became convertible into the same number of shares of ADB. 5. The articles of amalgamation of Old ADB were amended to: (i) change the name of Old ADB to Bid.Com International Ltd. and (ii) delete the authorized Preference Shares (as defined in such articles) and the rights, preferences and restrictions on the transfer of such Preference Shares. The following diagrams illustrate the corporate structure prior to the Arrangement and following the Arrangement. Prior to Arrangement [PRIOR TO ARRANGEMENT FLOWCHART] Following Arrangement [FOLLOWING ARRANGEMENT FLOWCHART] Upon completion of the Arrangement, the Toronto Stock Exchange approved the listing of the ADB common shares issued in exchange for Old ADB common shares or issuable upon the exercise of options or warrants or conversion of debt. ADB common shares are listed on the Toronto Stock Exchange for trading under the symbol "ADY". The shares of Old ADB ceased trading on the Toronto Stock Exchange on November 5, 2002. On April 2, 2003 an order was issued by the Ontario Securities Commission pursuant to which Old ADB has ceased to be a reporting issuer in all jurisdictions in Canada in which it was a reporting issuer. PRINCIPAL CAPITAL EXPENDITURES AND DIVESTITURES For a description of principal capital expenditures and divestitures, see Item 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS - REALIZED GAINS AND LOSSES ON MARKETABLE SECURITIES AND STRATEGIC INVESTMENTS and CAPITAL ASSETS. - 18 - INDUSTRY BACKGROUND AND OVERVIEW Asset management software has existed for more than thirty years, initially through computerized maintenance management systems (CMMS), and more recently including more comprehensive and robust enterprise asset management (EAM) and enterprise resource planning (ERP) solutions. The early CMMS systems automated daily management of assets, while ERP solutions consolidate basic asset information with financial information at the corporate level. EAM solutions encompass elements of both, serving as the next evolution of CMMS solutions by bridging the gap between asset management and corporate-level planning and tracking requirements. The key value proposition for EAM solutions is that they can provide a quick and quantifiable return on investment (ROI) and return on assets (ROA). Cost and productivity improvements can immediately and measurably benefit organizations, and thus are highly desirable to potential customers, particularly in difficult economic times where the focus is increasingly bottom line oriented. In addition to EAM solutions, we offer sourcing and procurement solutions as well as sales solutions. These are natural extensions to EAM solutions, as organizations seek to extend asset management and corporate-level planning and tracking onto other elements of the asset lifecycle. OUR PRODUCTS AND OFFERINGS SOFTWARE SOLUTIONS We offer solutions for all aspects of the asset lifecycle -- sourcing, buying, tracking, managing and selling. Below is a detailed description of our offerings: Dynamic Buyer (TM) Our Dynamic Buyer product automates the delivery of bidding information and documentation between the user and its suppliers, and can be used to automate the decision-making process involved in sourcing goods, by providing automated analysis and selection among competing bids, based on a variety of pre-determined factors. Our version 2.0 of this solution can be delivered on a hosted or client-server (licensed) basis. Key features available include: o Request for quotations functionality allowing users to post an on-line offer to purchase that can be viewed by pre-qualified suppliers. Suppliers can download documentation related to the offer and then bid on-line. Users have the choice of whether to let bidders see the details of all other bids. o Sealed bid functionality allowing users to post their product or service requirements to selected vendors. The sealed bid system differs from the request for quotation in that the vendors only have one opportunity to supply a bid. Only after the close of the auction is the user able to view the vendor bids. o The ability of users to assign values to criteria involved in the purchase decision, such as price, product availability, post-sales support and certification standards. Bidders input responses to questions relating to these criteria, and responses are weighted by the software for presentation to the user. o Posting of detailed technical information, question and answer forums, and automatic e-mail notification of amended or new buyer-posted documents. o Bidders or vendors can be pre-qualified by the user and provided with access to view and download only the documentation that the user specifies. Dynamic Buyer is licensed to customers and license fees for Dynamic Buyer are based on the number of individuals using the software. Service fees are charged separately. Dynamic Buyer is part of the suite of procurement solutions being provided to the National Health Service Health Procurement Consortium in the UK (NHS) ProcureMate (TM) ProcureMate is our web-based business to business e-Procurement solution. Using ProcureMate, users can automatically post purchase orders from their purchasing system onto a private-labeled, dedicated web site where suppliers can examine and respond to them online. Key features available include: - 19 - o Suppliers are notified automatically of new purchase orders through an email message with an embedded URL address that takes them directly to the web site and purchase order. o The system allows an online dialogue to take place between the user and its suppliers o ProcureMate includes a number of adaptors designed for direct plug-in to the supplier's enterprise resource planning (ERP) system, reducing manual efforts by the supplier and completing an electronic workflow from the person making the requisition to the supplier's staff picking items in their warehouse. o Functionality that eliminates ordering material that is in stock either locally or in remote warehouses, provides prioritized lists per location, and helps users to procure from master service agreements or direct from preferred suppliers. o Receipt of Distributed Goods. Goods received can be matched and accounted for directly against the purchase order, reducing manual efforts, paperwork and the chance for error. o The system facilitates the making of direct payment and electronic funds transfer. o Seamless integration of the customer's workflow and approvals into the procurement process. ProcureMate is licensed to customers and license fees for ProcureMate are based on the number of named users of the licensee. Service fees are charged separately. ProcureMate customers include BP Amoco (Norway), Forest Oil (USA), NHS, Vesta Insurance, and Hordaland HFK County, a large local government entity in Norway. WorkMate (TM) The core product behind our suite of asset lifecycle solutions is our WorkMate EAM solution. WorkMate is a client-server solution that operates as an extension of (and can be fully integrated with) a customer's existing ERP system. The WorkMate product (specifically the recently released version 2.8) incorporates asset maintenance, asset tracking, materials management and procurement functionality. WorkMate is designed for use by customers in asset intensive industries - - typically those where maintenance, repair and operations purchases outnumber raw material purchases by more than ten to one on a transaction volume basis. Examples of asset intensive industries are oil and gas, process industries (such as mining) and the utilities sector. The three main modules (procurement, materials management and maintenance functionality) may be licensed independently or together as a fully integrated system: o Procurement Module -- for sophisticated domestic and international purchasing operations. Key features include: requisitioning, quotations, purchase orders, contracts, cost controls and vendor catalogues. The procurement module also monitors supplier performance in terms of accuracy, punctuality and cost. o Materials Management Module - for managing inventory and logistics operations. Key features include: inventory status, goods receipt, stock issue, reordering, packing/unpacking, transportation, goods return and equipment rentals. This Module will log all movements of an item and generates the necessary financial transactions. o Maintenance Module -- for all types of maintenance, whether it is corrective, preventive or condition based. Customers can automate manual routines and track maintenance costs and equipment history. Each WorkMate module also includes workflow, asset tracking and reporting tools. WorkMate is a licensed client-server application and pricing is based on the number of named users of the customer. Implementation work required is estimated and offered at a fixed price or at hourly rates for consulting. Our WorkMate customers include some of the largest global players in the oil and gas sector, such as: BP (Norway), Halliburton Productus, Prosafe, and Forest Oil (USA). Dynamic Seller (TM) Dynamic Seller is an on-line sales solution incorporating one or more of the following pricing methods - top bid (ascending) auction, dutch (declining price) auction, hybrid auction or fixed price. We develop, host and maintain customer-branded web-sites or sub-sites for customers using our sales solutions. Dynamic Seller is delivered through an application service provider model (remotely through the internet). Key features available include: - 20 - o Conventional rising price auctions, under which the highest bids win the items auctioned. The rising price auction allows participants to competitively bid on available products and services by incrementally adjusting their bid positions. Our user interface allows users to easily identify current leading bidders, minimum new bids and initial bid pricing. Participants are informed of their bid status, stating whether they have won, been outbid, approved or declined via electronic mail. o Our patented Dutch (declining) auction format, in which a starting price is set and a limited time period is allocated for a fixed quantity of the product to be auctioned. As time advances, the price drops in small increments. The longer one waits, the lower the price. However, if a bidder waits too long the limited quantity of the product being auctioned may be sold out. The declining bid auction allows participants to bid in a real-time format utilizing on-screen data which provides the time and quantity remaining as well as the falling price of the items for sale. The bidders remain online and actively participate throughout the auction process. o Hybrid auction formats to meet a customer's particular needs. One example of a hybrid format is an auction which begins on a declining (Dutch Auction) basis until the first bid is received, and then converts to a rising price (Top Bid) auction to reflect demand. This format mimics the 'true auction' format seen in many off-line auctions. o Fixed price sales, under which the user posts the good or service and the price in a catalogue or directory format. The purchaser cannot bid on the price, but merely elects whether or not to purchase the good or service. Our customers are charged monthly hosting fees for the Dynamic Seller product, typically with some form of revenue sharing arrangements. Service fees are charged separately. Our Dynamic Seller customers include GE Capital (USA), and permanent TSB (Ireland). RELATED SERVICES In connection with our software offerings, we provide the following services to our customers: Consulting. A significant number of our customers request our advice regarding their business and technical processes, often in conjunction with a scoping exercise conducted both before and after the execution of a contract. This input can include comments with respect to the customer's sourcing or procurement processes, assisting in the development of technical specifications, and recommendations regarding internal workflow exercises. Customization and Implementation. Based generally upon the up-front scoping exercise, we are able to customize our solutions as required to meet the customer's particular needs. This process can take as little as a few days, or as long as many months, depending on the degree of customization, the resources applied by the customer and the customer's business requirements. We work closely with customers to ensure features and functionality meet their expectations. We also provide the professional services work required for the implementation of our customer solutions, including loading of data, mapping of business processes, and integration to other systems applications. Training. Upon completion of implementation (and often during implementation), we train customer personnel to utilize our Solutions through our administrative tools. Training can be conducted in one-on-one or group situations. We also conduct "train the trainer" sessions. Maintenance and Support. We provide regular software upgrades and ongoing support to our customers. THIRD PARTY OFFERINGS In addition to the sale of our core solutions and services, we have entered into marketing or co-marketing agreements with a number of companies that offer services that are complementary to our offerings. We market these complementary services to our customers and prospects and can earn a referral fee if these services are purchased. In some cases our marketing partner has agreed to market our solutions to its customers and prospects and can earn a referral fee. Our marketing partners include: Partner Service or Offering ------- ------------------- - 21 - AMEC Services Limited Engineering Services Xwave Solutions Inc. Professional Technology Services Production Access , Inc. Oil and Gas Data Management Solutions SEASONALITY We experience some seasonality as a result of lower activity in European markets during the summer months. STRATEGY We develop and sell software products and services that allow our customers to source, buy, track, manage and sell assets, primarily in asset intensive industries. We refer to our product and services suite as asset lifecycle management solutions. Our solutions can reduce sourcing, procurement and tracking costs, improve tracking and monitoring of asset performance and reduce downtime. Our business strategy is to expand our customer base, particularly in the oil and gas, health, public authorities, and financial services sectors, through superior software functionality and through the industry expertise of our employees. In particular, our strategy is comprised of the following key components: STRENGTHEN OUR POSITION AS AN EAM VENDOR AND IMPROVE OUR VISIBILITY IN OTHER AREAS OF THE ASSET LIFECYCLE. Gartner Group ranked ADB within their 'magic quadrant' of sixteen leading asset intensive mid-market EAM vendors globally in April 2002. Based on the relative pricing and functionality of our products as compared with those of our competitors, we believe our procurement and sourcing offerings are competitive, and strive to improve our ranking and visibility in our core industry sectors. MAINTAIN AND ENHANCE OUR TECHNOLOGY. Based on the relative pricing and functionality of our products as compared with those of our competitors, we consider our proprietary software offerings to be competitive, however it is critical that we continue to maintain and enhance our technology. ENTER INTO AND MAXIMIZE ALLIANCES. We have marketing and other relationships with AMEC, GE Capital, xwave, Production Access and a number of other leading companies in a broad range of industries. We believe that these and future relationships will help provide us with access to important industry participants and will help increase our brand awareness. SEEKING ACQUISITIONS AND STRATEGIC INVESTMENTS. We plan to seek to expand by seeking technologies, products, and services that complement our existing business. If appropriate opportunities are available, we may acquire businesses, technologies or products or enter into strategic relationships that may further diversify revenue sources and product offerings, expand our customer base or enhance our technology platform. CUSTOMERS We provide our solutions to customers in a variety of industries, including: oil and gas, health, public authorities, and financial services. The revenue structures and particular services provided vary depending upon the needs of the customer and the solution concerned. For licensed offerings we generally collect a license fee based on number of users, service fees for implementation and training, and support and maintenance fees. For hosted offerings, we generally collect an up-front implementation fee, monthly hosting fee, and a share of revenue or transaction volumes. The following is a representative list of some of the customers for whom we have implemented or are implementing our solutions:
Customer Solution(s) Industry Segment Geographic Location - -------- ----------- ---------------- ------------------- BP Norway AS (BP) ProcureMate; Oil and Gas Norway WorkMate
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Customer Solution(s) Industry Segment Geographic Location - -------- ----------- ---------------- ------------------- Prosafe Drilling Company WorkMate Oil and Gas Norway (Prosafe) Halliburton Productos WorkMate Oil and Gas Brazil (Halliburton) Forest Oil Corporation WorkMate Oil and Gas US (Forest Oil) Hordaland fylkeskommune (HFK) ProcureMate Public Authority Norway GE Commercial Equipment Dynamic Seller Leasing US Financing (GE) (financial/heavy equipment) Sandwell & West Birmingham ProcureMate Health UK Hospitals NHS Trust (NHS) permanent TSB Dynamic Seller Leasing (automotive) Ireland
FOR INFORMATION REGARDING THE PRINCIPAL MARKET SEGMENTS IN WHICH THE COMPANY COMPETES, SEE NOTE 22 TO THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. SALES AND MARKETING We market our services primarily through our direct sales force. Our sales organization is regional, with personnel located in our principal offices in Toronto, Dublin, and Stavanger. Our marketing efforts are focussed on targeted marketing campaigns, rather than broad based "awareness" campaigns. Potential customers are identified through direct contact, responses to requests for information, attendance at trade shows, and industry contacts. We principally focus on trade show participation, seminar series for specific industries or professionals, and outgoing lead generation. We use reference customers to assist us in our marketing efforts, both through direct contact with potential customers and through site branding and case studies. We also rely on our alliance partners to assist in our marketing efforts. TECHNOLOGY PLATFORM ADB has devoted significant resources to developing its proprietary software technology. The technology platform is constructed using distributed software technologies which allow rapid redevelopment and deployment of new software technology in order to take advantage of emerging business opportunities. The company's technology platform is based on Microsoft core applications, including the Windows NT operating system and a SQL server relational database, all residing on scaleable hardware. The software is constructed using an advanced proprietary XML framework and resides on an N-tier architecture. The support of open systems allows integration with a large variety of existing commercial, proprietary and legacy applications. RESEARCH AND DEVELOPMENT Based on the relative pricing and functionality of our products as compared with those of competitors, we believe that our proprietary software provides a competitive advantage, and that our future success depends, in part, on our ability to continue developing and enhancing that software. Therefore, we have focused our research and development efforts on the continued development of our proprietary software offerings. Presently, 12 of our staff members are dedicated to product development. Our ongoing research and development efforts are aimed at the continued 'productization' of specific elements of our software, enhancing the features and functionality of our existing software components, the development of new software components, and the integration of superior third party technology into our - 23 - environment. Productization involves the development of 'generic' applications to reduce programming time and costs for customer implementations. Our research and development expenditures were approximately $4.101 million for the year ended December 31, 2002, $3.691 million for the year ended December 31, 2001, and $1.802 million for the year ended December 31, 2000, including salaries and related expenses of our personnel engaged in research and development. Research and development activities in 2002 included the development of version 2.0 of our DYNAMIC BUYER Solution and the development of a new materials tracking module within our WorkMate application. INTELLECTUAL PROPERTY We rely on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality agreements and technical measures, to establish and protect our proprietary rights. In March 1999 and July 2001, we received patents from the U.S. Patent and Trademark Office covering the process whereby we conduct Dutch auctions over electronic distribution channels. We have patent applications pending in Canada covering the same technology. We also continue to explore other patent opportunities, and may have other applications pending from time to time. We do not believe, however, that our ability to obtain patents is material to our success or results. Our proprietary software is subject to common law copyright protection, but we do not have, and do not intend to pursue, any registered copyrights. Common law protection may be narrower than that which we could obtain under registered copyrights. As a result, we may experience difficulty in enforcing our copyrights against certain third party infringements. The source code for our proprietary software is protected as a trade secret. Our major trademarks or tradenames include: ADB; POWERED BY ADB; PROCUREMATE, WORKMATE, DYNAMIC SELLER and DYNAMIC BUYER. Except for DYNAMIC SELLER and DYNAMIC BUYER, which are unregistered, all of these trademarks and tradenames are the subject of pending applications for registration in one or all of the United States, Canada and Norway. We also claim rights in other unregistered trademarks. Our competitive position is also dependent upon our unpatented trade secrets. In an effort to protect our trade secrets, and as part of our confidentiality procedures, we generally enter into confidentiality and non-disclosure agreements with our employees and consultants and generally limit access to and distribution of our software, documentation and other proprietary information. Additionally, we limit physical access to our premises, software and hardware and employ security measures to protect against damage or theft. COMPETITION The market for each solution comprising our asset lifecycle management suite is intensely competitive. Many of the companies we compete with have much greater financial, technical, research and development resources than us. In order to remain and become more competitive, we will need to make continued investments in product development and improve our market visibility and financial situation. Although we offer a broad range of asset lifecycle management solutions, we face significant competition in each of the component product areas: Sourcing - FreeMarkets, Inc., Procuri, Inc., B2E Markets, Inc., Emptoris, Inc., Moai Technologies, Inc. Procurement - MRO Software, Inc., Ariba, Inc., Commerce One Operations, Inc. and broader ERP solution providers such as SAP AG, J.D. Edwards & Company, and Oracle Corporation - 24 - EAM - related solutions - MRO Software, Inc., Indus International Inc., Mincom Ltd., (and broader ERP solution providers such as SAP AG, J.D. Edwards & Company, and Oracle Corporation) Sales solutions - Fairmarket, Inc., Ariba, Inc., Commerce One Operations, Inc., Siebel Systems Inc. In addition, many organizations use in-house developers to develop solutions for certain elements of the asset lifecycle, or use third party exchanges or aggregations sites, such as eBay Inc., FreeMarkets, Inc., or industry-specific exchanges such as Covisint. ORGANIZATIONAL STRUCTURE LIST OF SUBSIDIARIES Unless otherwise indicated, ADB Systems International Ltd. ("ADB"), or one of its subsidiaries, owns 100% of the outstanding capital stock of the following companies:
Name of Subsidiary Country of Incorporation ------------------ ------------------------ ADB Systemer AS (1) Norway ADB Systems International Limited Ireland ADB Systems Limited England Bid.Com (U.K.) Limited England ADB Systems, Inc. USA (Delaware) Bid.Com USA, Inc. USA (Florida) Bid.Com International Inc. Canada (Ontario) Bid.Com International Pty. Ltd. (2) Australia Internet Liquidators USA, Inc. (2) USA (Florida)
(1) As of December 31, 2002, ADB owned 98.3% of the outstanding voting shares of ADB Systemer AS. Under Norwegian corporate law, ADB may trigger compulsory acquisition of the remaining shares at any time. The remaining shareholders each have the same right. The value for the shares acquired shall be as agreed, failing which the value shall be determined by arbitration. (2) Dormant. ADB anticipates dissolving these companies in 2003. PROPERTY, PLANTS AND EQUIPMENT The table below lists the locations of our facilities and summarizes certain information about each location.
Location Use Square Feet Term of Lease (Approximate) -------- --- ------------- -------------- 6725 Airport Road, Executive, Administrative, 10,165 Expires Oct. 2004 Suite 201 Engineering and Marketing Mississauga, Ontario Vingveien 2, Executive, Administrative, 13,493 (1) Expires July 2003 4050, Sola Norway Engineering and Marketing Administrative, 423 Expires Jan. 2004 52 Broomhill Rd., Engineering and Marketing Suite 108 Broomhill Industrial Estate Tallaght, Dublin 24 Ireland 3000 Cathedral Hill Marketing no dedicated Dec 2003 Guildford, Surrey, England space 3001 North Rocky Point Executive 143 Expires Apr 2003 Drive East, Tampa, Florida
- 25 - (1) We have sublet a portion (consisting approximately 1272 square feet) of these premises to a third party. In addition, we have sub-let our leased office space in Tonsberg, Norway that we occupied as our branch office until March 31, 2001. The space is 2,851 square feet in size, and the lease expires in October 2005. The rent paid by the Company for the Tonsberg premises is $4,378 per month and it receives $3,247 per month from the sub-tenant. We believe that we have adequate space for our current needs. As we expand, we expect that suitable additional space will be available on commercially reasonable terms. We do not own any real estate nor do we currently own or lease warehouse space. ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH "ITEM 3.A - SELECTED FINANCIAL DATA" AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES INCLUDED ELSEWHERE IN THIS ANNUAL REPORT. IN ADDITION TO HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. SEE "FORWARD-LOOKING STATEMENTS". History and Overview We deliver asset lifecycle management solutions that help companies source, manage and sell assets for maximum value. ADB works with a growing number of customers and partners in a variety of sectors including oil and gas, health, government, and financial services. Prior to October 24, 2000, we operated two national business-to-consumer auction sites at www.bid.com, one in the United States and one in Canada. Following an extensive strategic review by ADB's Board of Directors and management, ADB decided late in 2000 to focus on its software business. During 2002, Old ADB changed its name to Bid.com International Ltd. and resumed on-line retail activities. On October 11, 2001, we acquired substantially all of the shares of ADB Systemer ASA, a Norway-based provider of enterprise asset management and electronic procurement software. As part of the acquisition of ADB Systemer, we changed our name to ADB Systems International Inc. (Old ADB) and completed a two for one share consolidation. Effective October 31, 2002, we implemented a plan of arrangement whereby: o the shareholders of Old ADB exchanged their shares of Old ADB for shares of the Company on a one-for-one basis; o the business of Old ADB, including all assets and liabilities of Old ADB (other than those related to retail activities), was transferred to the Company in the form of a return of capital; and o Old ADB changed its name to Bid.Com International Ltd. For more information about our background and history and our recent plan of arrangement, see "Item 4 - Information on the Company" on page 16 of this report. - 26 - Comparison of Years Ended December 31, 2002 and December 31, 2001 ACQUISITION OF ADB SYSTEMER ASA. On October 11, 2001, we acquired substantially all of the shares of ADB Systemer, a Norway-based provider of enterprise asset management and electronic procurement software. The acquisition of ADB Systemer resulted in a significant broadening of our product offerings, customer base, and ability to penetrate new markets. The cost of the acquisition was $13.762 million, including a $2.293 million cash outlay. Approximately 93 percent of the purchase price was attributed to software and related intellectual property and goodwill, valued at $3.383 million and $9.476 million respectively. In 2001, the acquisition contributed $818,000 in revenue and improved expense control through the integration and restructuring of worldwide operations. With the adoption of new standards in accounting for business combinations and goodwill, we were required to test the fair value of the goodwill against its carrying value. It was determined that a goodwill impairment of $9.476 million be recorded. This impairment charge represented a non-cash expense. No future goodwill amortization expense will be required to be recorded. NET INCOME (LOSS). Our net loss for the year ended December 31, 2002 was $9.364 million, an improvement of 50.0 percent over the net loss of $18.714 million reported for the year ended December 31, 2001. Excluding items outside of the normal course of operations, our loss was $9.241 million, as compared to $12.185 million in 2001, an improvement of 24.2 percent. The 2002 year represented our first full year of operations as ADB Systems International. Expenses for the combined entity for 2002 were substantially lower when compared to 2001 due to synergies achieved as a result of the acquisition of ADB Systemer in Norway along with significant cost reduction that remained in effect since implementation in 2001. In addition, the inclusion of the first full year of revenues generated from our acquisition of ADB Systemer in Norway resulted in increased revenue in 2002 when compared to 2001. As compared to 2001, we experienced a net savings of $2.165 million in sales and marketing costs and $1.334 million in general and administrative expenses primarily due to the impact of cost reductions for the full year that were implemented in 2001. REVENUE. Revenue is derived from software licensing and related services from consulting, implementation, application hosting, training, maintenance and support activities. Revenue increased to $5.780 million for the year ended December 31, 2002 from $4.455 million for the year ended December 31, 2001, representing an increase of 29.7 percent. As mentioned, the increase in revenue is primarily due to the inclusion of the first full year of revenue generated from our acquisition of ADB Systemer in Norway. Revenues generated in Norway for 2002 accounted for $3.126 million compared to $741,000 in 2001. Revenue declined in both North America and Ireland and UK during 2002 compared to 2001 as these existing businesses refocused their marketing efforts on the new product offerings made available by the acquisition of ADB Systemer. Revenue outside North America was $3.598 million for the year ended December 31, 2002, compared to $1.634 million for the year ended December 31, 2001. As mentioned above the acquisition of ADB Systemer in Norway contributed to the significant increase in revenue outside North America. CUSTOMER ACQUISITION COSTS. Customer acquisition costs reflect non-cash expenses incurred in securing customer agreements. Specifically, these costs represent the calculated value of share purchase warrants issued to GE Capital in return for certain contracts using the Cox-Rubinstein binomial valuation model. There were no customer acquisition costs recorded in 2002 compared to $60,000 for the year ended December 31, 2001. - 27 - GENERAL AND ADMINISTRATIVE. General and administrative expenses include, primarily: all salaries and related expenses (including benefits and payroll taxes) other than fees to independent contractors for research and development, technology staff compensation (which is included in software development and technology expenses), and sales and marketing staff compensation (which is included in sales and marketing expenses); occupancy costs; foreign exchange gains or losses; professional fees; insurance; investor relations; regulatory filing fees; and travel and related costs. General and administrative expenses decreased to $6.288 million for the year ended December 31, 2002, as compared to $7.622 million for the year ended December 31, 2001, representing a decline of 17.5 percent. As indicated previously, the organization-wide restructuring plan implemented during the 2001 year resulted in substantial reductions that were maintained throughout the entire 2002 year. Savings resulting from the reduction in our workforce totaled $860,000. Cost containment efforts and greater reliance on internal staff resulted in $437,000 savings in professional fees. Rent and occupancies costs were also reduced by $136,000 as offices were closed in the U.S. and the U.K. SALES AND MARKETING. Sales and marketing costs include all salaries and related expenses of sales and marketing personnel as well as business development expenses such as advertising, sales support materials, and trade show costs. For the year ended December 31, 2002, sales and marketing costs amounted to $1.875 million, as compared to $4.040 million for 2001, a decrease of 53.6 percent. This decrease is attributable to lower staffing levels in the sales department combined with decreased advertising, tradeshow and lead generation activities throughout 2002. SOFTWARE DEVELOPMENT AND TECHNOLOGY. Software development and technology expenses consist of costs associated with acquired and internally developed software, and research and development expenses, including fees to independent contractors and salaries and related expenses of personnel engaged in these activities. Software development and technology expenses increased to $4.101 million for the year ended December 31, 2002 from $3.691 million for the year ended December 31, 2001, an increase of 11.1 percent. The increase in software development expenses was largely attributable to the acquisition of ADB Systemer ASA in 2001. A large portion of the Norwegian subsidiary's expenses related to software development and technology even after staff reductions and budget cuts were implemented. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was $2.602 million for the year ended December 31, 2002 as compared to $1.572 million for the year ended December 31, 2001, an increase of 65.5 percent. This increase was primarily due to the continued depreciation of certain software acquired as a result of the ADB Systemer acquisition. INTEREST EXPENSE. Interest expense reflects interest incurred from debt instruments and loans. Interest expense for the year ended December 31, 2002 was $200,000. Accrued interest of $68,000 was recorded during the year related to a demand loan while $132,000 related to interest charges on secured subordinated notes. INTEREST INCOME. Interest income reflects interest from investments in cash and marketable securities. Interest income was $45,000 for the year ended December 31, 2002, as compared to $345,000 for the year ended December 31, 2001, a decline of 87.0 percent. This decline was largely attributable to lower cash deposits and money market funds on hand throughout 2002. REALIZED GAINS AND LOSSES ON DISPOSAL OF MARKETABLE SECURITIES, STRATEGIC INVESTMENTS AND CAPITAL ASSETS, AND RECOVERY OF ASSETS. Realized losses on disposal of marketable securities and strategic investments amounted to $85,000 for the year ended December 31, 2002, compared to a gain of $6.722 million for the year ended December 31, 2001. These losses are outside of the normal course of operations but are not considered extraordinary items. - 28 - Realized gains generated in 2001 resulted from the disposal of equity interest in Point2 Internet Systems Inc. and disposal of most of our shares in America Online Inc. (AOL). During 2002, the Company disposed of its remaining shares in AOL resulting in a realized loss of $143,000. Realized gains in 2002 included $41,000 from the sale of strategic investments in SCS Solars and MegaWheels and $23,000 from the sale of capital assets. UNREALIZED GAINS AND LOSSES ON REVALUATION OF MARKETABLE SECURITIES AND STRATEGIC INVESTMENTS, AND PROVISION FOR IMPAIRMENT OF ASSETS. Unrealized gains and losses on marketable securities and strategic investments, and provisions for impairment of assets are the result of an assessment by management as to the recoverability of the value of certain assets and are not realized losses. Unrealized gains and losses are outside the normal course of operations but are not considered extraordinary. Unrealized losses for the year ended December 31, 2002 were $24,000, compared to a loss of $2.435 million for the year ended December 31, 2001. We conduct an assessment of our strategic investment portfolio at the end of each fiscal period by analyzing the financial performance of the companies we invested in as well as general market conditions. In 2002, we recorded impairment provisions totaling approximately $24,000 compared to $1.510 million 2001. As our investments are all in companies in the technology sector, the market performance of these holdings has been dramatically affected by economic conditions. GOODWILL IMPAIRMENT. Goodwill impairment in 2002 was $14,000 compared to $9.476 million in 2001. The goodwill impairment recorded in 2001 was a result of our acquisition of ADB Systemer for a total consideration of $13.762 million. Of this amount, we attributed $9.476 million to goodwill. With the adoption of new accounting standards for business combinations and goodwill, we were required to test the fair value of the goodwill against its carrying value. It was determined that a goodwill impairment loss of $9.476 million be recorded. This impairment charge is a non-cash expense, and no future goodwill amortization expense will be recorded relating to this transaction. The goodwill impairment recorded in 2002 relates to a change in goodwill arising on purchase of shares from minority interests during the year. RESTRUCTURING CHARGES. In April and September, 2001 we implemented cost-reduction measures intended to ensure future viability. The $959,000 in restructuring charges for 2001 relate to these staff reductions and associated measures. As there was no formal restructuring announcement in 2002, these charges were minimal and therefore included in general and administrative expenses. RETAIL ACTIVITIES SETTLEMENT. The Company ceased its on-line retail activities in October 2000, however, in 2001 it was required to settle certain amounts payable relating to product sales of previous years. These amounts, which totaled $381,000, were not previously anticipated and did not reoccur in 2002. The Company's non-consolidated subsidiary, Bid.Com Ltd., recommenced on-line retail activities in 2002. Comparison of Years Ended December 31, 2001 and December 31, 2000 ACQUISITION OF ADB SYSTEMER ASA. On October 11, 2001, we acquired substantially all of the shares of ADB Systemer, a Norway-based provider of enterprise asset management and electronic procurement software. The acquisition of ADB Systemer resulted in a significant broadening of our product offerings, customer base, and ability to penetrate new markets. The cost of the acquisition was $13.762 million, including a $2.293 million cash outlay. Approximately 93 per of the purchase price was attributed to software and related intellectual property and goodwill, valued at $3.383 million and $9.476 million respectively. In 2001, the acquisition contributed $818,000 in revenue and improved expense control through the integration and restructuring of worldwide operations. With the adoption of new standards in accounting for business combinations and goodwill, we were required to test the fair value of the goodwill against its carrying value. It was determined that a goodwill impairment of $9.476 - 29 - million be recorded. This impairment charge represents a non-cash expense. As a result of the new accounting standards, no future goodwill amortization expense will be required to be recorded. NET INCOME (LOSS). Our net loss for the year ended December 31, 2001 was $18.714 million, an improvement of 8.1 percent over the net loss of $20.366 million reported for the year ended December 31, 2000. Excluding items outside of the normal course of operations, our loss was $12.185 million, as compared to $26.022 million in 2000, an improvement of 53.2 percent. This improvement is a result of significant cost-reduction measures as well as the refocus of our business model from providing on-line retail auctions to providing on-line enabling services to other businesses seeking to use its on-line retailing technologies. 2001 represented a full year of operations under a business-to-business model of software licensing and related services. The revised business model resulted in significantly lower revenues and lower losses from operating activities. An organization-wide restructuring plan during the year resulted in significant cost savings in general and administrative expenses, with minimal impact on revenue and technology-related activities. As compared to 2000, we experienced a net savings of $8.614 million in general and administrative expenses, largely as a result of corporate-wide restructurings. A portion of these savings were re-invested in areas that are expected to support future growth, notably $879,000 in additional sales and marketing expenses and $1.889 million in additional software development and technology expenses. REVENUE. Revenue is derived from software licensing and related services from consulting, implementation, application hosting, training, maintenance and support activities. Prior to October 24, 2000, revenue also includes on-line retail sales of merchandise and associated shipping revenue. Revenue declined to $4.455 million for the year ended December 31, 2001 from $12.497 million for the year ended December 31, 2000, representing a decline of 64.4 percent. The decline in revenue resulted from the curtailment of the Company's on-line retail operations in 2000. Revenue from software licensing and related services improved to $4.455 million for the year ended December 31, 2001 from $2.402 million for the year ended December 31, 2000, an increase of 85.5 percent. This improvement is attributable to reduced focus on retail operations, the addition of the operations of ADB Systemer in October 2001, and the termination of several customer agreements during the year that resulted in the acceleration of deferred revenue. Retail operations generated $10.095 million of total revenue for the year ended December 31, 2000. Revenue outside North America was $1.634 million for the year ended December 31, 2001, compared to $86,000 for the year ended December 31, 2000, an increase of 1,800 percent. Sales penetration of the Ireland and UK operations and the acquisition of ADB Systemer contributed to the significant increase in revenue outside North America. With the acquisition of ADB Systemer, it is anticipated that revenue outside North America will account for the majority of our revenue in 2002, with reliance on European clients, particularly Norwegian, lessening over time. CUSTOMER ACQUISITION COSTS. Customer acquisition costs reflect non-cash expenses incurred in securing customer agreements. Specifically, these costs represent the calculated value of share purchase warrants issued to GE Capital in return for certain contracts using the Cox-Rubinstein binomial valuation model. For the year ended December 31, 2001, these costs amounted to $60,000. In 2000, the costs amounted to $157,000. The decrease was the result of our decline in share price, which reduced the fair value of the share purchase warrants. The GE warrants have now been fully expensed. GENERAL AND ADMINISTRATIVE. General and administrative expenses include, primarily: all salaries and related expenses (including benefits and payroll taxes) other than fees to independent contractors for research and development, technology staff compensation (which is included in software development and technology expenses), and sales and marketing staff compensation (which is included in sales and marketing expenses); occupancy costs; foreign exchange gains or losses; professional fees; insurance; investor relations; regulatory filing fees; and travel and related costs. - 30 - General and administrative expenses dropped to $7.622 million for the year ended December 31, 2001, as compared to $16.236 million for the year ended December 31, 2000, a decline of 53.1 percent. As indicated previously, the organization-wide restructuring plan implemented during the year resulted in substantial reductions in headcount and related office overheads. Savings from reduced headcount as a result of these measures totaled $2.725 million. A rationalization of professional fee and investor relations budgets through greater reliance on internal staff resulted in $2.245 million in savings notwithstanding reductions in headcount. A decrease in share purchase warrant and bad debt expenses resulted in an additional $1.514 million in savings. The balance of the savings were attributable to lower travel costs, occupancy costs, and the closure of the Australian, New York, and Sacramento offices. SALES AND MARKETING. Sales and marketing costs include all salaries and related expenses of sales and marketing personnel as well as business development expenses such as advertising, sales support materials, and trade show costs. For the year ended December 31, 2001, sales and marketing costs amounted to $4.040 million, as compared to $3.161 million for 2000, an increase of 27.8 percent. This increase is attributable to higher staffing levels in the sales department combined with increased tradeshow and lead generation activities in the first three quarters of 2001. SOFTWARE DEVELOPMENT AND TECHNOLOGY. Software development and technology expenses consist of costs associated with acquired and internally developed software, and research and development expenses, including fees to independent contractors and salaries and related expenses of personnel engaged in these activities. Software development and technology expenses increased to $3.691 million for the year ended December 31, 2001 from $1.802 million for the year ended December 31, 2000, an increase of 104.8 percent. The increase in software development expenses was largely attributable to the development of Dyn@mic Buyer version 2.0 (a second release of the Company's sourcing solution), custom work for clients, and development relating to Dyn@mic Seller, our sell-side solution. Salary expense for technology-related personnel increased $1.388 million over 2000, partly as a result of capitalization of $541,000 of core software development costs in 2000, and increased hiring to further software development, service clients, and decreased reliance on non-employee development consultants. The acquisition of ADB Systemer in the fourth quarter resulted in an additional $473,000 in technology-related costs. A significant portion of the 2000 software development and technology expense was borne in the fourth quarter of 2000, when virtually all of such resources were dedicated to software and services activities. During the second and third quarters of fiscal 2000, a significant amount of time and expense was devoted to development of core technology for customer applications and as a result the Company capitalized $286,000 of software development expense in the second quarter and $255,000 in the third quarter of 2000. No core software development was incurred in the fourth quarter of 2000. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was $1.572 million for the year ended December 31, 2001 as compared to $1.130 million for the year ended December 31, 2000, an increase of 39.1 percent. This increase was primarily due to the depreciation in the fourth quarter of 2001 of certain software acquired as a result of the ADB Systemer acquisition. DIRECT EXPENSES. Direct expenses related solely to retail operations, and reflected negotiated reserve prices with vendors for the supply of goods sold by the Company prior to October 24, 2000. Direct expenses were $11.460 million (113.5 percent of retail revenue) for the year ended December 31, 2000. No direct expenses were incurred in 2001. ADVERTISING AND PROMOTION. Advertising and promotion expenses related to retail operations and consisted primarily of advertising and marketing fees, promotional pricing expenses, and expenses paid to marketing partners from which we purchased advertising space. Advertising and promotional expenses did not include salaries and related expenses of sales and marketing personnel which were included in sales and marketing costs. - 31 - No advertising and promotional expenses related to retail operations were incurred in 2001. INTEREST INCOME. Interest income reflects interest from investments in cash and marketable securities. Interest income was $345,000 for the year ended December 31, 2001, as compared to $467,000 for the year ended December 31, 2000, a decline of 26.1 percent. This decline was largely attributable to lower cash and money market funds on hand in 2001 and decreasing interest rates. REALIZED GAINS AND LOSSES ON DISPOSAL OF MARKETABLE SECURITIES AND STRATEGIC INVESTMENTS, AND RECOVERY OF ASSETS. Realized gains on disposal of marketable securities and strategic investments amounted to $6.722 million for the year ended December 31, 2001, compared to $20.946 million for the year ended December 31, 2000. These gains are outside of the normal course of operations but are not considered extraordinary items. The disposal of the equity position in Point2 Internet Systems Inc. (amounting to a net gain of $2.249 million) coupled with a realized gain on the disposal of America Online Inc. (AOL) shares (a net gain of $3.656 million) accounted for most of the gain in 2001. The Company also recovered a $811,000 receivable from Point2 that had been provided for in 2000. In 2000, the gain relates primarily to the disposal of the strategic investment in Quack.com. As a result of AOL's acquisition of Quack.com, the Company converted its $1.221 million investment in Quack.com into shares of AOL valued at $21.918 million, effective August 31, 2000. Further gains of $249,000 were realized in association with the disposal of some shares of AOL in the fourth quarter of 2000. UNREALIZED GAINS AND LOSSES ON REVALUATION OF MARKETABLE SECURITIES AND STRATEGIC INVESTMENTS, AND PROVISION FOR IMPAIRMENT OF ASSETS. Unrealized gains and losses on marketable securities and strategic investments, and provisions for impairment of assets are the result of an assessment by management as to the recoverability of the value of certain assets and are not realized losses. Unrealized losses are outside the normal course of operations but are not considered extraordinary. Unrealized losses for the year ended December 31, 2001 were $2.435 million, compared to $11.697 million for the year ended December 31, 2000. An assessment of the strategic investment portfolio is conducted at the end of each fiscal period by analyzing the financial performance of the companies invested in as well as general market conditions. In 2001, impairment provisions totaling $1.528 million were recorded compared to $5.600 million in 2000. As investments are all in companies in the technology sector, the market performance of these holdings has been dramatically affected by economic conditions. In 2000, the Company revalued its marketable securities, which were largely comprised of shares of AOL, resulting in an adjustment of $4.846 million to reflect market value. The Company also reviewed its investment in Point2 and provided $802,000 in 2000 for a receivable from Point2. In May, 2001, the Company sold its equity interest in Point2 to the management of Point2 for $2.603 million in cash. RESTRUCTURING CHARGES. In April and September, 2001 cost-reduction measures intended to ensure future viability were implemented. The $959,000 in restructuring charges for 2001 relate to these staff reductions and associated measures. There were no such charges in 2000. RETAIL ACTIVITIES SETTLEMENT. The Company ceased its on-line retail activities in October 2000, however in 2001 it was required to settle certain amounts payable relating to a supplier issue from previous years. These amounts, which totaled $381,000, were not previously anticipated. GOODWILL IMPAIRMENT. The Company acquired ADB Systemer in October of 2001 for a total consideration of $13.762 million. Of this amount, $9.476 million was attributed to goodwill. With the adoption of new accounting standards for business combinations and goodwill, the Company was required to test the fair value of the goodwill against its carrying value. It was determined that a goodwill impairment loss of $9.476 million be recorded. This impairment charge is a non-cash expense, and no future goodwill amortization expense will be recorded. In 2000, the Company reviewed its investment in Point2, and determined that the goodwill associated with this investment - 32 - had become impaired. As a result, a goodwill impairment provision of $3.593 million was recorded. In May, 2001, the equity interest in Point2 was sold to the management of Point2 for $2.603 million in cash. CRITICAL ACCOUNTING POLICIES. The accounting policies followed by the Company have a critical effect on the financial reporting of the Company. These policies involve complex judgments and estimates which affect the amount of revenue recognized, the recognition and amortization of assets and liabilities and the recoverability of assets. The valuation and recoverability of assets is generally based on the projected cash flows from these assets. These significant accounting policies are discussed in Notes 2, 3 and 20 of the financial statements. The Company does not have any off-balance sheet special purpose entities. LIQUIDITY AND CAPITAL RESOURCES FUNDING (OVERVIEW). The Company has been funded to date primarily through a series of private placements of equity, sales of equity to and investments from strategic partners, gains from investments, option exercises and cash flow from operations. Since inception, the Company has received aggregate net proceeds of $81.7 million from debt and equity financing and has realized $23.7 million in gains on investment disposals. FUNDING (1999). On September 30, 1999, the Company issued 1,854,678 special warrants at a price of $9.25 per warrant which were exchangeable into 1,854,678 common shares and 1,854,678 share purchase warrants for no additional consideration. Gross proceeds were $17,155,772 from which was deducted commission of $857,789 (five percent) and estimated expenses of approximately $250,000 to yield net proceeds of $16,047,983. The share purchase warrants expired on September 30, 2001. FUNDING (2000). In June 2000, the Company issued to Acqua Wellington Value Fund Ltd. a total of 900,790 common shares and common share purchase warrants to purchase 360,316 common shares, for proceeds of U.S. $2.1 million. The Company sold the common shares and warrants to Acqua Wellington in units, at a purchase price of US$2.3313 per unit. Each unit was comprised of one common share and four-tenths (0.40) of a common share purchase warrant. Each whole warrant was exercisable to acquire one common share for two years at an exercise price of US$2.68 per warrant (one-half warrant at U.S. $5.36 post-consolidation). The purchase price was determined based on a formula tied to the market price of common shares during the 15 day trading period ended June 8, 2000. On August 31, 2000, the Company exchanged its shares in Quack.com Inc., which had a cost of $1.221 million, for shares in AOL valued at $21.918 million, resulting in a gain of $20.697 million. During 2000 and 2001, the Company liquidated some of its shares in AOL to fund operations. In January 2002, the remainder of the AOL holdings was liquidated. FUNDING (2001). During 2001, the Company continued to liquidate its AOL position to fund operations. In addition, the Company disposed of its equity position in Point2 for $2.6 million and recovered a $811,000 receivable from Point2 that had been provided for in 2000. In October 2001, with the acquisition of ADB Systemer, the Company paid $2.293 million in cash to the shareholders of ADB Systemer in connection with the acquisition. As a result of that acquisition, cash of $814,000 held by ADB Systemer was acquired. FUNDING (2002). On April 25, 2002, the Company entered into an agreement with Stonestreet for a $1.1 million private placement. The Company issued 3.3 million common shares at US $0.21 per share and warrants exercisable into 1 million common shares at US $0.35 per share. The warrants were exercised on December 17, 2002, providing an additional $550,000 in gross proceeds to the Company. On August 30, 2002, the Company entered into a private placement agreement of secured subordinated notes (Series A, B and D notes) with Stonestreet and a group of private investors for total gross proceeds of $1 million. - 33 - Pursuant to the agreement with Stonestreet dated April 25, 2002, on August 30, 2002, the Company also issued a $120,000 secured subordinated note (Series C note) in exchange for the waiver of certain US registration rights granted to Stonestreet. On August 30, 2002, ADB entered into a series of agreements with a lender, an unrelated party, whereby the lender granted to ADB and ADB Systems International Inc. ("Old ADB") a secured loan in the aggregate principal amount of $2,000,000 and bearing interest at the rate of 12% per annum. As part of this transaction, ADB and Old ADB implemented the Arrangement (as defined below). ADB was created on August 30, 2002. Upon implementation of a plan of arrangement approved by the shareholders of ADB on October 22, 2002 and approval by the Ontario Superior Court of Justice effective October 31, 2002 (the Arrangement), the shareholders of ADB exchanged their shares for shares of the Company on a one-for-one basis. All assets and liabilities of ADB, other than those related to its retail activities, were transferred to the Company as of that date in the form of a return of capital. Old ADB subsequently changed its name to Bid.Com International Ltd. ("Bid.Com Ltd.") The Company and the lender entered into an arrangement whereby online retail operations utilizing the online retail technology, experience and expertise of ADB developed and operated under the name "Bid.Com International Inc." in the on-line selling of consumer products to be supplied by the lender will be conducted by Bid.Com Ltd. The loan matures on June 30, 2003 or upon earlier demand and the Company will have the right after the earlier of June 1, 2003 and demand for payment to repay the loan in cash or to transfer to the lender 100% of the issued shares of Bid.Com Ltd. acquired by the Company as a consequence of the Arrangement for proceeds equal to the outstanding principal amount and accrued interest then owing to the lender. The obligations of the Company and Bid.Com Ltd. are secured by a general security agreement delivered by the Company to the lender and a pledge of the shares of the Company's Norwegian subsidiary. The Company owns 100 per cent of the issued and outstanding shares of Bid.Com Ltd., but has determined that, for accounting purposes, consolidation of Bid.Com Ltd. is not appropriate. This determination is based upon the Company's evaluation of its continuing ability to determine the strategic operating policies of Bid.Com Ltd. without the cooperation of others, its ability to obtain future economic benefits from the resources of Bid.Com Ltd., and its exposure to the related risks of ownership. Therefore, the Company accounts for its investment in Bid.Com Ltd. on the equity basis. On October 22, 2002, after obtaining shareholder approval, the above-noted debt instruments became convertible into units at $0.12 per unit at the option of the holder. Each Series A, B, and D unit consists of one common share and one-half common share purchase warrant. Series C notes also became convertible into common shares at a conversion price of $0.12 per share at the option of the holder or at the option of the Company. Upon conversion, the Company will issue 9.333 million common shares for no additional consideration and 4.167 million warrants exercisable into an equal number of common shares at $0.14 per share. FUNDING (2003): During the period January 1 to May 14, 2003 833,333 common shares were issued to an officer of the Company for proceeds of $200,000. CAPITAL ASSETS. At a total of $43,000, there were no significant additions to capital assets for the year ended December 31, 2002. Redundant capital assets were liquidated to improve the Company's working capital position. Net proceeds from disposal of capital assets totaled $167,000 for the year ended December 31, 2002. For the year ended December 31, 2001, additions totaled $317,000, primarily for computer hardware and server equipment associated with building infrastructure to support business-to-business activities. During 2000 the Company invested $1.426 million in capital assets primarily for computer hardware, equipment, furniture and fixtures and leasehold improvements. INTANGIBLE ASSETS. The Company incurred $1.024 million of costs associated with all funding activities during the year, which was recorded to deferred financing charges. The deferred financing charges will be fully amortized by June 30, 2003 on a straight-line basis to coincide with the maturing of the demand loan. - 34 - PRESENT STATUS. The Company has not earned profits to date and, at December 31, 2002, has an accumulated deficit of $96.947 million. The Company has generated negative cash flow from operations since inception. The Company has expended and expects to continue to expend substantial funds to continue to develop technology, build an infrastructure to support our business development efforts and expand other areas of our business including the acquisition of, or strategic investments in, complementary products, businesses or technologies. As a result, the Company expects to incur losses in 2003 and there can be no assurance that it will ever achieve profitability. Operating results have varied on a quarterly basis in the past and may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of the Company's control. As of December 31, 2002, and March 31, 2003 (unaudited), the Company had cash on hand and marketable securities of $1.357 million and $776,000 respectively. At this time, additional debt or equity financings such as issuance of loans or debentures, issuance of shares, conversion of warrants and exercise of options in the amount of $2.25 million are estimated to be required for 2003. The Company cannot provide assurance that efforts to raise such additional financings will be successful. The actual amount of funds that will be required during the interim period will be determined by many factors, some of which are beyond the Company's control. As a result, it may require funds sooner or in greater amounts than currently anticipated. The Company does not have additional committed sources of financing at this time and there can be no assurance that it will be able to obtain financing when needed on commercially reasonable terms or at all. If adequate funds are not available or not available on acceptable terms when needed, the business, operations, financial condition and future prospects will be materially adversely affected. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of the Company's shareholders will be reduced, shareholders may experience additional dilution and such securities may have rights, preferences and privileges senior to those of the Company's common shares. FOREIGN CURRENCY RATE FLUCTUATIONS. While the Company's financial statements are in Canadian dollars, revenue is also generated in Norwegian krone, US dollars and other currencies. The Company incurs the majority of its expenses in Canadian dollars and Norwegian krone. As a result, the Company may suffer losses due to fluctuations in exchange rates between the Canadian dollar or Norwegian krone and currencies of other countries. The Company does not currently engage in foreign exchange hedging activities or use other financial instruments in this regard. INTEREST RATE AND INVESTMENT RISK. The primary objective of the Company's investment activities is to preserve principal while at the same time maximizing income received from investments without significantly increasing risk. The investment portfolio is primarily comprised of cash, marketable securities, and short-term interest bearing certificates. NET OPERATING LOSSES FOR TAX PURPOSES. We have available an aggregate of approximately $13.646 million dollars of net operating losses for tax purposes that may be used to reduce taxable income in future years, of which $3.992 million expires in 2008, $1.576 million expires in 2009, $2.927 million expires in 2010, $1.044 million expires in 2011, $2.967 million expires in 2012 and $1.140 million expires in 2013. Our net operating losses are subject to assessment of our tax returns by taxation authorities. - 35 - ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. DIRECTORS AND SENIOR MANAGEMENT The following table sets forth the name, age and position of each of our directors and executive officers. This information is supplied based on our records and information furnished by our executive officers and directors.
Name Age Position - ---- --- -------- Directors Jeffrey Lymburner(1) 46 Director and Chief Executive Officer T. Christopher Bulger(2)(3) 46 Director Alexander Foote 51 Director Paul Godin,(2)(3) 50 Director Jim Moskos 40 Director and President, ADB Technology Group Ken Sexton (2)(3) 49 Director Jan Pedersen(4) 45 President, Norwegian Operations Glen Whyte 46 Director Executive Officers (other than Messrs. Lymburner, Pedersen and Moskos) Mark Wallace 43 President Aidan Rowsome 42 Vice-President, Global Sales
- ------------------------ (1) Mr. Lymburner is acting Chairman of the Board of Directors. (2) Member of Audit Committee. (3) Member of the Management Resources and Compensation Committee (4) Nominee of certain of the prior shareholders of ADB Systemer ASA pursuant to a Board Representation Agreement. See "Board Practices" below. The vacancies on the Corporate Governance Committee will be filled following the 2003 annual general meeting on June 25, 2003. The business experience of each of our directors and executive officers for at least the last five years is as follows: Directors JEFFREY LYMBURNER, Oldsmar, Florida DIRECTOR SINCE MAY 28, 1996 Acting Chairman Mr. Lymburner has been our Chief Executive Officer since August 1, 1999 and was a founding shareholder of our company. From the Company's inception to October 11, 2001, he also held the title of President. Prior to the founding of our company, Mr. Lymburner was President of Completely Mobile Inc., a cellular and wireless data company, from 1990 to 1995. T. CHRISTOPHER BULGER, Toronto, Ontario DIRECTOR SINCE MAY 28, 1996 Chairman of the Management Resources and Compensation Committee and Member of the Audit Committee - 36 - Mr. Bulger is the Chairman and CEO of Megawheels Technologies Inc., an automotive advertising and retail technologies company. He was previously President and Chief Executive Officer of eLab Technology Ventures Inc., a venture capital firm associated with the Royal Bank of Canada, from December 1999 until December 2001. Mr. Bulger served as Executive Vice President of our company from September 1998 to December 1999 and Chief Financial Officer of our company from April 1996 to September 1998. ALEXANDER FOOTE, Ottawa, Ontario DIRECTOR SINCE APRIL 16, 2003 Mr. Foote is President and founder of Footeworks Inc., an information technology consulting firm. From September 1999 to February 2002, Mr. Foote was Vice President, Branch Manager Ottawa, of Sierra Systems Inc., a technology professional services firm. From June 1980 to September 1999, Mr. Foote was President of Systems Interface Inc., a technology professional services firm. PAUL GODIN, Kettleby, Ontario DIRECTOR SINCE MAY 28, 1996 Member of the Management Resources and Compensation Committee and Member of the Audit Committee Mr. Godin is a private investor. From September 1999 to March 2001, Mr. Godin was the Chairman of The Art Vault International Limited. Aside from being one of the founding shareholders of our company, Mr. Godin was Chief Executive Officer from the company's inception to August 1, 1999, and Chairman of the Board of Directors from June 17, 1996 to June 14, 2000. Prior to the founding of our company in September, 1995, Mr. Godin was Senior Vice-President, Corporate Sales and Marketing for Completely Mobile Inc., a Canadian company which designed and implemented wireless data systems. JIM MOSKOS, Toronto, Ontario DIRECTOR SINCE JUNE 7, 1999 Mr. Moskos has been President of the ADB Technology Group since October 19, 1999. Mr. Moskos served as Vice President - Technology of our company from September 1997 to October 19, 1999. From September 1994 to August 1997, Mr. Moskos was Senior Technology Manager for the Canadian Department of Indian Affairs and Northern Development responsible for setting the technical direction for all aspects of application development. JAN PEDERSEN, Stavanger, Norway Director since June 12, 2002 Mr. Pedersen has been a director of our company since June 2002 and President of our Norwegian Operations since October 2001. Prior to that, Mr. Pedersen founded and acted as CEO of ADB Systemer ASA since 1988. KEN SEXTON, Aurora, Ohio DIRECTOR SINCE OCTOBER 5, 2000 Chairman of the Audit Committee Mr. Sexton has been Executive Vice President and Chief Financial Officer of Peregrine Systems, Inc. since June 25, 2002. From December 1998 to February 2002, he was Senior Vice President of Finance and Administration and Chief Financial Officer of Merant, an e-business software company. Prior thereto he was Chief Financial Officer of Intersolv, an enterprise software product company from 1991. Mr. Sexton is a Certified Public Accountant (CPA) and holds a bachelor of science degree in business. GLEN WHYTE, Toronto, Ontario Director since April 16, 2003 Mr. Whyte is Associate Dean, Curriculum, Rotman School of Management, University of Toronto - a position he was appointed to in 2001. In 2000, Mr. Whyte was the Conway Chair in Business Ethics, Rotman School of - 37 - Management. From 1998 to 1999, Mr. Whyte was the Simon Reisman Chair at the Treasury Board of Canada Secretariat. In 1998, Mr. Whyte was Full Professor, Organizational Behaviour and Human Resource Management, Rotman School of Management. EXECUTIVE OFFICERS (OTHER THAN MESSRS. LYMBURNER, MOSKOS, AND PEDERSEN) MARK WALLACE was appointed President on October 11, 2001. From November 1999 to October 2001, Mr. Wallace served as our Chief Operating Officer. He was our Executive Vice-President, General Counsel and Secretary from May 1999 to November 1999. From 1991 to May 1999, Mr. Wallace held several positions with AT&T Canada Corp., including Vice-President, General Counsel and Secretary and a member of the senior executive team. AIDAN ROWSOME, our Vice-President, Global Sales, has been with our company since August 1999 when he joined as Managing Director, Europe. From June 1998 to July 1999, Mr. Rowsome was Chief Operations Officer for Nua Internet Consultancy, responsible for all project operations. Prior to that, Mr. Rowsome spent 8 years as General Manager, European Operations for Quarterdeck Corporation, now part of the Symantec Group. For a discussion of certain transactions involving directors and executive officers, see Item 7 - MAJOR SHAREHOLDERS and RELATED PARTY TRANSACTIONS and Note 19 to Consolidated Financial Statements. B. COMPENSATION SUMMARY COMPENSATION TABLE The following table provides a summary of compensation earned during the most recently completed fiscal year by our Chief Executive Officer and our four highest paid executives, other than the Chief Executive Officer, who earned in excess of $100,000.
AWARDS PAYOUTS ANNUAL COMPENSATION ------------------- ------- ------------------- RESTRICTED OPTIONS/ SHARES OR OTHER SARS RESTRICTED LTIP ALL OTHER SALARY BONUS COMPENSATION GRANTED SHARE UNITS PAYOUT COMPENSATION NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) (#) (2) ($) ($) ($) - ---------------------------- ---- ------- ----- ------------ ------- ------------ ------ ------------ Jeffrey Lymburner............. 2002 157,760 Nil 25,242 110,000 Nil Nil Nil CEO (3) 2001 317,987 Nil 12,720 271,875 Nil Nil Nil 2000 267,684 Nil 4,498 50,000 Nil Nil Nil Mark Wallace.................. 2002 200,000 Nil 22,800 226,667 Nil Nil Nil President (4) 2001 250,000 Nil 12,000 115,625 Nil Nil Nil 2000 250,000 Nil 12,000 37,500 Nil Nil Nil James Moskos.................. 2002 200,000 Nil 12,000 214,167 Nil Nil Nil President, Technology Group 2001 250,000 Nil 12,000 115,625 Nil Nil Nil 2000 231,250 Nil 12,000 37,500 Nil Nil Nil Jan Pedersen.................. 2002 165,500 47,000 214,167 Nil Nil Nil President, Norwegian 2001 205,276 2,953 4,000 37,500 Nil Nil Nil Operations (5) 2000 175,000 10,000 12,000 37,500 Nil Nil Nil Aidan Rowsome 2002 168,000 5,500 16,500 163,125 Nil Nil Nil Vice-President, Global Sales (6) 2001 200,140 75,163 15,595 44,530 Nil Nil Nil 2000 164,875 30,859 Nil 33,334 Nil Nil Nil
1. Received on account of car reimbursement expenses, income derived from the exercise of options and automobile leases. - 38 - 2. All numbers have been adjusted to reflect the two for one consolidation of our shares in October, 2001. 3. Mr. Lymburner's salary is U.S. $100,000. He also served as President from August, 1998 to October, 2001. 4. Joined the Company on May 17, 1999. Mr. Wallace was Executive Vice President, General Counsel and Corporate Secretary from May 1999 to November 1999 and Chief Operating Officer from November 1999 to October, 2001. 5. Joined our company on October 11, 2001, upon the acquisition of ADB Systemer. 6. Joined our company as Managing Director, Europe in August 1999. Became our Vice-President, Global Sales in October 2001. Messrs. Lymburner, Wallace, Moskos, Pedersen and Rowsome have volunteered salary reductions in the 2002 and 2003 calendar years, ranging from fifteen percent to fifty percent. In exchange for the foregone salary, the executives were granted stock options, vesting quarterly in arrears, in an amount equal to the amount of foregone salary divided by the exercise price of the options (being the market price of the Company's shares on the day prior to the date of the grant). These salary reductions took effect January 1, 2002. The salary reductions will not affect any severance entitlement for the individuals concerned. The following table sets forth details of the option grants to our Chief Executive Officer and our four highest paid executives, other than the Chief Executive Officer, who earned in excess of $100,000 during the fiscal year ended December 31, 2002.
MARKET VALUE OF SECURITIES % OF TOTAL UNDERLYING SECURITIES UNDER OPTIONS/SARS OPTIONS/SARS ON OPTIONS/SARS GRANTED TO EXERCISE OR BASE THE DATE OF GRANTED EMPLOYEES IN PRICE GRANT EXPIRATION NAME (#) FINANCIAL YEAR ($/SECURITY) ($/SECURITY) DATE - ----- ---------------- -------------- ---------------- ---------------- ---------- Jeffrey Lymburner 60,000 3.6% 0.36 0.36 5/10/04 50,000 3.0% 0.48 0.48 11/27/04 Mark Wallace 104,167 6.2% 0.48 0.48 11/27/04 60,000 3.6% 0.36 0.36 5/10/04 62,500 3.7% 0.48 0.48 11/27/04 James Moskos 104,167 6.2% 0.48 0.48 11/27/04 60,000 3.6% 0.36 0.36 5/10/04 50,000 3.0% 0.48 0.48 11/27/04 Jan Pedersen 104,167 6.2% 0.48 0.48 11/27/04 60,000 3.6% 0.36 0.36 5/10/04 50,000 3.0% 0.48 0.48 11/27/04 Aidan Rowsome 53,125 3.2% 0.48 0.48 11/27/04 60,000 3.6% 0.36 0.36 5/10/04 50,000 3.0% 0.48 0.48 11/27/04
Certain of the options described in this table were granted in respect of the salary reductions on the terms described above. The other options were performance incentive options, most of which vest only upon the attainment of specified business and financial results and some of which vested and became exercisable the date of their grant. During 2002, we did not provide any pension, retirement or similar benefits to our directors and officers as a group. Our employees based in Ireland and the United Kingdom participate in a retirement savings arrangement where employee contributions to personal retirement savings accounts are matched by the Company to a maximum of six percent of salary. This arrangement does not represent a future pension obligation to the Company. Mr. Rowsome participates in this plan. Jeff Lymburner has entered into a non-competition and salary protection agreement with our company, dated February 21, 1997, which provides, among other things, that he (i) will not compete with our company for a period of 12 months, which may be extended by us to 24 months, following the termination of his employment with our company, in consideration of which we will pay his full annual salary during such period; and (ii) if his employment with us is terminated other than by reason of death, disability or cause (as such terms are defined in - 39 - such agreements), we will continue to pay his full annual salary for 12 months (or 24 months if we exercise our option to extend the non-competition restrictions for 24 months) following the date of termination. Mark Wallace has entered into an employment agreement with our company which sets out his salary as President of the Company, as described in Item 6, and, among other things, that in the event of termination of his employment other than by death, disability or cause, he is to receive a payment in the amount of 12 months salary. Jan Pedersen has entered into a two-year employment agreement with our company which sets out his salary as the Company's President of Norwegian operations, as described in Item 6, and, among other things, provides for payment of 12 months salary in the event of termination of his employment before expiry of the two year term other than by death, disability or cause. Under the agreement, Mr. Pedersen is entitled to an annual retention bonus of $100,000. COMPENSATION OF DIRECTORS Our directors presently receive no fees or other compensation for acting as directors, attending meetings of the Board or committees of the Board or for the signing of any resolution of directors or documents on behalf of the Company. All directors are reimbursed for reasonable out-of-pocket travel and other expenses incurred by them in attending meetings of the Board or committees of the Board. C. BOARD PRACTICES Our articles of incorporation currently provide for a Board of Directors consisting of not less than 3 and not more than 15 directors, to be elected annually. The Ontario Business Corporations Act provides that, where a minimum and maximum number of directors is provided for in the articles of a company, the directors of that company may, if empowered by special resolution of the shareholders, by a resolution determine the number of directors to be elected at each annual meeting of the shareholders. Our Board of Directors has the authority to fix the number of directors to a number within the minimum and maximum number of directors as set forth in the articles, and has determined by resolution that the size of the Board is 8 directors. On September 7, 2001, we entered into an agreement (the "Board Representation Agreement") with LimeRock Partners LLC ("LR"), Jan Pedersen ("Pedersen"), and Sandnes Investering, Rogaland Investering, AIG Private Bank Ltd. and Karstein Gjersvik (together, the "Other Nominating Shareholders") in connection with the acquisition of ADB Systemer ASA of Sola, Norway. LR, Pedersen and the Other Nominating Shareholders were the largest shareholders of ADB Systemer. Pursuant to the Board Representation Agreement, LR and Pedersen were entitled, immediately following the acquisition of ADB Systemer ASA, to nominate one person each to our Board of Directors. Also pursuant to the Board Representation Agreement, the Other Nominating Shareholders as a group were entitled to nominate one person to our Board of Directors effective at our 2002 annual shareholders meeting on June 12, 2002. The Board representation rights conferred on LR, Pedersen and the Other Nominating Shareholders are subject to their continued ownership of at least 50% of the shares received by them upon the acquisition of ADB Systemer. These rights are also subject to the satisfaction of Canadian residency and other regulatory issues. LR has sold all of its shareholdings in ADB and, therefore, pursuant to the Board Representation Agreement, no longer has a right to nominate a person to the Board of Directors. For the 2003 annual shareholders meeting, Pedersen has advised that he will serve as his own nominee and the Other Nominating Shareholders have declined to exercise their right to nominate a member to the Board. Our Board of Directors presently consists of 8 directors. Under Canadian law, a majority of our Board of directors and of each of our Board Committees must be residents of Canada, subject to certain exceptions. Each of our directors holds office until the next annual meeting of shareholders, until his successor has been elected and qualified, or his earlier resignation or removal. Our executive officers are appointed by our Board of directors and serve at the discretion of our Board of Directors. - 40 - Except for Jeff Lymburner's and Jan Pedersen's salary protection agreements, no director has any contract or arrangement with us entitling them to benefits upon termination of their directorship. The three committees of the Board are the Audit Committee, Management Resources and Compensation Committee, and the Corporate Governance Committee. The Audit Committee, all of whose members are independent, meets with Management and our auditors on a periodic basis, before the release of quarterly results and before submission of our annual financial statements to the Board. The Committee is responsible for the review and assessment of our audit practices and internal controls, inquiry of the auditors as to cooperation in access and disclosure by Management and the ultimate approval of our annual financial statements for submission to the Board and to the shareholders. The Management Resources and Compensation Committee is responsible for recommendations to the Board regarding the appointment or removal of executive officers, reviewing the performance of the executive officers and fixing their compensation. The committee is also responsible for administering our stock option plan and ensuring that salary and benefit programs are continuously suitable for acquiring, retaining and motivating employees. The Corporate Governance Committee, all of whose members are independent, oversees the implementation of the governance guidelines enunciated above and, where it deems appropriate, will develop modifications to same. D. EMPLOYEES As of May 12, 2003 we employed a total of 49 full-time employees and no part-time employees as follows:
North America Ireland and UK Norway ------------- -------------- ------ Sales and Marketing 5 1 2 Technical Services 5 1 9 Product Group 3 0 10 Finance and Admin 5 1 2 Executive 3 1 1 -- -- -- TOTAL 21 4 24 == == ==
The number of our employees as of May 12, 2003 represents a 26% decrease in our workforce as compared with the number of our employees as of December 31, 2001. None of our employees is represented by a labor union, and we consider our employee relations to be good. E. SHARE OWNERSHIP The following table sets forth certain information concerning share and option ownership of each of our directors and officers as of May 12, 2003:
NUMBER OF PERCENTAGE OF COMMON SHARES RANGE OF RANGE OF COMMON SHARES NUMBER OF COMMON UNDERLYING OPTIONS EXERCISE PRICES EXPIRATION BENEFICIALLY NAME SHARES OWNED (1) (2) OF OPTIONS DATES OF OPTIONS OWNED (3) ---- ---------------- ------------------ --------------- ---------------- -------------- Christopher Bulger 9,250 94,000 $0.36-$12.70 02/08/03-11/27/04 * Sandy Foote - 25,000- $0.32- May 6, 2005- * Paul Godin 372,483 93,250 $0.36 - $12.70 02/08/03-11/27/04 * Jeffrey Lymburner 1,401,766 401,875 $0.36-$12.70 02/08/03/11/27/04 3.5% Jim Moskos 21,375 367,292 $0.36-$5.58 08/01/03-11/27/04 * Ken Sexton - 92,000 $0.36-$6.84 10/05/03-11/27/04 *
- 41 -
PERCENTAGE OF NUMBER OF COMMON RANGE OF RANGE OF COMMON SHARES NUMBER OF COMMON UNDERLYING OPTIONS EXERCISE PRICES EXPIRATION BENEFICIALLY NAME SHARES OWNED (1) (2) OF OPTIONS DATES OF OPTIONS OWNED (3) ---- ----------------- ------------------ --------------- ---------------- -------------- Glen Whyte - 25,000- $0.32- May 6, 2005- * * Mark Wallace - 293,230 $0.48-$5.58 08/01/03-11/27/04 * Jan Pedersen 1,264,519 262,292 $036-$0.64 12/04/03-11/27/04 2.9% Aidan Rowsome - 210,989 $0.36 - $15.20 03/01/03-11/27/04 *
* Represents less than 1%. (1) All numbers adjusted to reflect the two for one consolidation of our shares in October 2001. (2) Represents shares owned beneficially by the named individual other than those shares which may be acquired under our company's option plans. Unless otherwise noted, all persons referred to above have sole voting and sole investment power. (3) Includes all shares which the named individual has the right to acquire under all vested and unvested options and warrants granted to such individual under our company's option plan. (4) This information is based on 51,761,603 common shares outstanding as of May 12, 2003. Common shares subject to options exercisable within 60 days are deemed outstanding for computing the percentage ownership of the person holding the options but are not deemed outstanding for computing the percentage ownership of any other person. ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. MAJOR SHAREHOLDERS To our knowledge, no person beneficially owns, directly or indirectly, or exercises control or direction over more than 5% of our issued and outstanding common shares. This information is based on our records, information provided to us by directors and executive officers and a review of any Schedules 13D and 13G filed prior to May 12, 2003 by our shareholders with the Securities and Exchange Commission and insider reports filed with the Ontario Securities Commission. The Company's major shareholders do not have any voting rights that differ from the rights of our other shareholders. As of May 12, 2003, we had 1,733 shareholders of record holding 51,761,603 common shares, of which 708 shareholders holding 4,107,245 common shares had an address of record in the United States. Common shares held by CEDE & Co. in the United States on such date amounted to 3,310,171 or 6.39% of our issued common shares, which shares are held for participants' accounts. We are not aware of any other corporation, foreign government, or other person or entity that directly or indirectly owns or controls our company, severally or jointly. We are not aware of any arrangements which may result in a change in control of our company. B. RELATED PARTY TRANSACTIONS On April 4, 2000, we completed a transaction with The Art Vault International Limited, a company previously listed on the Canadian Venture Exchange, under which we agreed to provide our online auction technology and related services to enable the implementation of The Art Vault's online auction of art and antiquities. In consideration for our license and services, we received 2,500,000 shares of The Art Vault and a share of future profits. Paul Godin, a director of our company, was the founding shareholder, an executive officer and a director of The Art Vault. Azim Fancy, then one of our directors, was a director and shareholder of The Art Vault. Charles Walker and James Moskos, also directors of our company, were shareholders of The Art Vault. In March 2001, The Art Vault made an assignment in bankruptcy under the laws of the Province of Ontario, due to economic conditions and a lack of available funding. As their license and services agreements were fully paid up, the - 42 - assignment had no material economic effect on these agreements. Our investment in The Art Vault was written down to zero. In October 2001, we acquired ADB Systemer ASA of Norway. Jan Pedersen, John Reynolds and Martin Bekkeheien were all shareholders of ADB Systemer, and officers or directors. At the time of the acquisition, none of these individuals were directors, officers or shareholders of our company. On August 30, 2002, the Company entered into a private placement agreement of secured subordinated notes (Series A, B and D notes) with a group of private investors for total gross proceeds of $1.12 million. The notes are secured by a general security agreement on the property and assets of ADB. The following officers and directors of the Company were among the investors that purchased the Series D notes: Chris Bulger, a director of the Company, purchased $20,000 of Series D notes that have not yet been converted. Paul Godin, a director of the Company, purchased $25,000 of Series D notes that were converted on December 13, 2002 to 208,333 common shares and 104,167 share purchase warrants. Jeff Lymburner, CEO and a director of the Company, purchased $75,000 of Series D notes that have not yet been converted. Aidan Rowsome, VP Global Sales of the Company, purchased $15,000 of Series D notes that were converted on February 3, 2003 to 125,000 common shares and 62,500 share purchase warrants. On May 9, 2003, the Company issued 666,666 common shares to Jeff Lymburner, CEO of the Company, in consideration of gross proceeds of $200,000 as part of a private placement financing. For additional information regarding related party transactions, see Part I - Item 4 under the heading "Major Developments" and Note 19 to Notes to Consolidated Financial Statements. ITEM 8 - FINANCIAL INFORMATION See the Consolidated Financial Statements and notes thereto accompanying this Annual Report beginning on page F-1. LEGAL PROCEEDINGS Neither we, nor any of our subsidiaries, is a party to, or the subject of, any material legal proceedings. DIVIDEND POLICY We have not declared or paid any cash dividends on our common shares. We currently intend to retain any future earnings for use in the operation and expansion of our business. We do not anticipate paying any cash dividends on our common shares in the foreseeable future. We have not issued any preference shares. The dividend entitlement of any preference shares issued will be determined by our Board of Directors. SIGNIFICANT CHANGES None. ITEM 9 - THE OFFER AND LISTING Our common shares are listed on The Toronto Stock Exchange and are quoted for trading on the OTCBB. Our common shares were quoted on the Nasdaq National Market from April 20, 1999 until June 3, 2002 and were quoted on the Nasdaq SmallCap Market from June 3, 2002 until August 21, 2002 at which time they were delisted because we did not satisfy the minimum bid price per share requirement for continued listing on that market. The shares were listed on the Nasdaq exchanges from April 20, 1999 until October 17, 2001 under the symbol "BIDS" - 43 - and from October 18, 2001 until August 21, 2002 under the symbol "ADBI". Our common shares have been quoted for trading on the OTCBB since August 22, 2002 under the symbol "ADBY". From June 6, 1996 to February 8, 1998, our common shares were quoted for trading on the Canadian Dealing Network under the symbol "ILII." Our common shares were traded on The Toronto Stock Exchange from February 9, 1998 to July 17, 1998 under the symbol "ILI" and from July 18, 1998 to October 17, 2001 under the symbol "BII". Since October 18, 2001, our common shares have been traded on the Toronto Stock Exchange under the symbol "ADY". See Item 3-D - Risk Factors - YOUR ABILITY TO BUY OR SELL OUR COMMON SHARES ON THE OTCBB MAY BE LIMITED. The following tables set forth the range of high and low sales prices (rounded to the nearest hundredth) as reported by Canadian Dealing Network (through February 8, 1998), The Toronto Stock Exchange (beginning February 8, 1998) and Nasdaq (beginning April 20, 1999) during the calendar quarters indicated. Note that all numbers have been adjusted to reflect the two-for-one share consolidation completed in October 2001. THE TORONTO STOCK EXCHANGE
High Low ------- ------- (Cdn $) (Cdn $) ANNUAL MARKET PRICES 1998 Calendar Year 12.00 1.12 1999 Calendar Year 67.30 7.30 2000 Calendar Year 26.20 1.94 2001 Calendar Year 3.40 0.29 2002 Calendar Year 0.93 0.07 QUARTERLY MARKET PRICES 2001 CALENDAR YEAR First Quarter 3.40 1.46 Second Quarter 2.42 1.02 Third Quarter 1.39 0.76 Fourth Quarter 0.80 0.29 2002 CALENDAR YEAR First Quarter 0.50 0.28 Second Quarter 0.45 0.22 Third Quarter 0.25 0.09 Fourth Quarter 0.93 0.07 2003 CALENDAR YEAR First Quarter 0.85 0.17 MONTHLY MARKET PRICES November 2002 0.70 0.15 December 2002 0.93 1.57 January 2003 0.85 0.52 February 2003 0.58 0.22 March 2003 0.25 0.17 April 2003 0.40 0.19
- 44 - NASDAQ AND OTCBB
High Low High Low ---- --- ---- --- (Cdn $) (Cdn $) (U.S. $) (U.S. $) ANNUAL MARKET PRICES 1999 Calendar Year 57.12 11.18 38.62 7.50 2000 Calendar Year 26.60 1.60 19.26 1.06 2001 Calendar Year 3.30 0.30 2.18 0.19 2002 Calendar Year 0.93 0.06 0.59 0.04 QUARTERLY MARKET PRICES 2001 CALENDAR YEAR First Quarter 3.30 1.48 2.18 0.94 Second Quarter 1.12 0.52 0.73 0.34 Third Quarter 0.68 0.38 0.43 0.24 Fourth Quarter 0.80 0.30 0.50 0.19 2002 CALENDAR YEAR First Quarter 0.53 0.27 0.34 0.17 Second Quarter 0.42 0.22 0.27 0.16 Third Quarter 0.25 0.06 0.16 0.04 Fourth Quarter 0.93 0.08 0.59 0.05 2003 CALENDAR YEAR First Quarter 0.85 0.17 0.54 0.11 MONTHLY MARKET PRICES November 2002 0.71 0.16 0.45 0.10 December 2002 0.93 0.57 0.59 0.36 January 2003 0.85 0.54 0.54 0.35 February 2003 0.54 0.21 0.35 0.14 March 2003 0.26 0.17 0.17 0.11 April 2003 0.43 0.20 0.29 0.13
United States dollar amounts are converted to Canadian dollars at the noon buying rate in New York City for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York for the date of such sales prices. ITEM 10 - ADDITIONAL INFORMATION A. SHARE CAPITAL Not applicable. B. MEMORANDUM AND ARTICLES OF ASSOCIATION The Articles of Arrangement for ADB are on file with the Ministry of Consumer and Commercial Relations for the Province of Ontario under Ontario Corporation Number 1539169. Our articles do not include a stated purpose. Directors Directors of our company need not be shareholders. In accordance with our by-laws and the Ontario Business Corporations Act, a majority of our directors must be residents of Canada, subject to certain exceptions. In addition, directors must be at least 18 years of age, of sound mind, and not bankrupt. Neither our articles or by-laws, nor the Ontario Business Corporations Act, impose any mandatory retirement age for directors. - 45 - A director who is a party to, or who is a director or officer of or has a material interest in any person who is a party to, a material contract or transaction or proposed material contract or transaction with our company shall disclose to the company the nature and extent of his interest at the time and in the manner provided by the Ontario Business Corporations Act. The Ontario Business Corporations Act prohibits such a director from voting on any resolution to approve the contract or transaction unless the contract or transaction: o is an arrangement by way of security for money lent to or obligations undertaken by the director for the benefit of the company or an affiliate; o relates primarily to his or her remuneration as a director, officer, employee or agent of the company or an affiliate; o is for indemnity or insurance; or o is with an affiliate. Our Board of Directors may, on behalf of the company and without authorization of our shareholders: o borrow money upon the credit of the company; o issue, reissue, sell or pledge bonds, debentures, notes or other evidences or indebtedness or guarantees of our company, either secured or unsecured; o subject to certain disclosure requirements of the Ontario Business Corporations Act, give, directly or indirectly, financial assistance to any person by means of a loan, a guarantee or otherwise on behalf of our company to secure performance or any present or future indebtedness, liability or obligation of any person; and o mortgage, hypothecate, pledge or otherwise create a security interest in all or any currently owned or subsequently acquired real or personal property of our company, movable or immovable, including without limitation book debts, rights, powers, franchises and undertakings, to secure any bonds, debentures, notes or other evidences of indebtedness or guarantee or any other obligation of the company. Common Shares Our articles authorize the issuance of an unlimited number of common shares. The holders of the common shares of our company are entitled to receive notice of and to attend all meetings of the shareholders of our company and have one vote for each common share held at all meetings of the shareholders of our company, except for meetings at which only holders of another specified class or series of shares of the company are entitled to vote separately as a class or series. Subject to the prior rights of the holders of preference shares of our company and to any other shares ranking senior to the common shares with respect to priority in the payment of dividends, the holders of common shares are entitled to receive dividends and our company will pay dividends, as and when declared by our Board of Directors, out of moneys properly applicable to the payment of dividends, in such amount and in such form as our Board of Directors may from time to time determine, and all dividends which our Board of Directors may declare on the common shares shall be declared and paid in equal amounts per share on all common shares at the time outstanding. In the event of the dissolution, liquidation or winding-up of the company, whether voluntary or involuntary, or any other distribution of assets of the company among its shareholders for the purpose of winding up its affairs, subject to the prior rights of the holders of preference shares and to any other shares ranking senior to the common shares with respect to priority in the distribution of assets upon dissolution, liquidation or winding-up, the holders of the common shares will be entitled to receive the remaining property and assets of the company. There are no redemption or sinking-fund provisions that attach to the common shares, nor are there any provisions that discriminate against existing or prospective holders of common shares as a result of owning a substantial number of shares. The holders of our common shares are not liable to further capital calls by the company. Preference Shares - 46 - Our articles of incorporation authorize the issuance of an unlimited number of preference shares, in one or more series. The Ontario Business Corporations Act does not impose restrictions upon our Board of Directors issuing preference shares of the type authorized by our articles of incorporation. Our Board of Directors may fix, before issuing, the number of preference shares of each series, the designation, rights, privileges, restrictions and conditions attaching to the preference shares of each series, including any voting rights, any right to receive dividends (which may be cumulative or non-cumulative and variable or fixed) or the means of determining the dividends, the dates of payment, any terms and conditions of redemption or purchase, any conversion rights, and any rights on the liquidation, dissolution or winding-up of the company, any sinking fund or other provisions, the whole to be subject to the issue of a Certificate of Amendment setting forth the designation, rights, privileges, restrictions and conditions attaching to the preference shares of the series. Our articles of incorporation require that preference shares of each series must, with respect to the payment of dividends and the distribution of assets or the return of capital in the event of the liquidation, dissolution or winding-up of the company, whether voluntary or involuntary, rank on a parity with the preference shares of every other series and be entitled to preference over the common shares and over any other shares ranking junior to the preference shares. The preference shares of one series shall participate ratably with the preference shares of every other series in respect of all dividends and similar amounts. The holders of our preference shares are not liable to further capital calls by the company. None of our preference shares are currently issued or outstanding. Action Necessary to Change the Rights of Shareholders In order to change the rights of our shareholders, we would need to amend our articles of incorporation to effect the change. Such an amendment would require the approval of holders of two-thirds of the shares cast at a duly called special meeting. If we wish to amend the rights of holders of a specific class of shares, such approval would also be required from the holders of that class. A shareholder is entitled to dissent in respect of such a resolution and, if the resolution is adopted and the company implements such changes, demand payment of the fair value of its shares. Meetings of Shareholders An annual meeting of shareholders is held each year for the purpose of considering the financial statements and reports, electing directors, appointing auditors and for the transaction of other business as may be brought before the meeting. The President, the Chairman of the Board or the Board of Directors has the power to call a special meeting of shareholders at any time. Notice of the time and place of each meeting of shareholders must be given not less than 21 days, nor more than 50 days, before the date of each meeting to each director, to the auditor and to each shareholder who at the close of business on the record date for notice is entered in the securities register as the holder of one or more shares carrying the right to vote at the meeting. Notice of a meeting of shareholders called for any other purpose other than consideration of financial statements and auditors' report, election of directors and reappointment of the incumbent auditor, must state the nature of the business in sufficient detail to permit the shareholder to form a reasoned judgment on, and must state the text of, any special resolution or by-law to be submitted to the meeting. The only persons entitled to be present at a meeting of shareholders are those entitled to vote thereat, the directors of the company, the auditor of the company and others who although not entitled to vote are entitled or required to be present at the meeting. Any other person may be admitted only on the invitation of the chairman of the meeting or with the consent of the meeting. If a corporation is winding-up, the Ontario Business Corporations Act permits a liquidator appointed by the shareholders, during the continuance of a voluntary winding-up, to call and attend meetings of the shareholders. In circumstances where a court orders a meeting of shareholders, the court may direct how the meeting may be held, including the parties entitled, or required, to attend the meeting. Limitations on Rights to Own Securities There is no limitation imposed by Canadian law or by the articles or other charter documents on the right of a non-resident to hold or vote common shares or preference shares with voting rights, other than as provided in the Investment Canada Act, as amended by the World Trade Organization Agreement Implementation Act. The Investment Canada Act generally prohibits implementation of a reviewable investment by an individual, government or agency thereof, corporation, partnership, trust or joint venture that is not a "Canadian," as defined in the Investment Canada Act (a "non-Canadian"), unless, after review, the minister responsible for the Investment Act is satisfied that the investment is likely to be a net benefit to Canada. - 47 - An investment in our voting shares by a non-Canadian (other than a "World Trade Organization Investor," as defined below) would be reviewable under the Investment Canada Act if it were an investment to acquire direct control of our company, and the value of our assets were $5.0 million or more. An investment in our voting shares by a World Trade Organization Investor would be reviewable under the Investment Canada Act if it were an investment to acquire direct control of our company, and the value of our assets equaled or exceeded $209 million. A non-Canadian, whether a World Trade Organization Investor or otherwise, would acquire control of us for purposes of the Investment Canada Act if he or she acquired a majority of our voting shares. The acquisition of less than a majority, but at least one-third of our voting shares, would be presumed to be an acquisition of control of our company, unless it could be established that we were not controlled in fact by the acquirer through the ownership of voting shares. In general, an individual is a World Trade Organization Investor if he or she is a "national" of a country (other than Canada) that is a member of the World Trade Organization ("World Trade Organization Member") or has a right of permanent residence in a World Trade Organization Member. A corporation or other entity will be a World Trade Organization investor if it is a "World Trade Organization investor-controlled entity" pursuant to detailed rules set out in the Investment Canada Act. The United States is a World Trade Organization Member. Certain transactions involving our voting shares would be exempt from the Investment Canada Act, including: (a) an acquisition of our voting shares if the acquisition were made in connection with the person's business as a trader or dealer in securities; (b) an acquisition of control of our company in connection with the realization of a security interest granted for a loan or other financial assistance and not for any purpose related to the provisions of the Investment Canada Act; and (c) an acquisition of control of our company by reason of an amalgamation, merger, consolidation or corporate reorganization, following which the ultimate direct or indirect control in fact of our company, through the ownership of voting interests, remains unchanged. Change of Control Our authorized capital consists of an unlimited number of preference shares. The Board of Directors, without any further vote by the common shareholders, has the authority to issue preference shares and to determine the price, preferences, rights and restrictions, including voting and dividend rights, of these shares. The rights of the holders of common shares are subject to the rights of holders of any preference shares that the Board of Directors may issue in the future. That means, for example, that we can issue preference shares with more voting rights, higher dividend payments or more favorable rights upon dissolution, than the common shares. If we issued certain types of preference shares in the future, it may also be more difficult for a third-party to acquire a majority of our outstanding voting shares. Our articles do not contain any provisions that govern the ownership threshold above which shareholder ownership must be disclosed. C. MATERIAL CONTRACTS The following is a summary of our company's material contracts entered into since January 1, 2001. 1. Option Agreement dated February 19, 2001 between Bid.Com International Inc. and Wendell Willick, pursuant to which we granted Mr. Willick, the senior executive with Point2 Internet Systems Inc., the option to acquire our interest in Point2 for $2.6 million. 2. Amendment to Option Agreement dated May 2, 2001 between Bid.Com International Inc. and Wendell Willick, pursuant to which the expiration date for the option contained in the option agreement was extended from May 14, 2001 to May 31, 2001. 3. Board Support Agreement, dated as of September 7, 2001 between Bid.Com International Inc. and ADB Systemer ASA. Pursuant to the terms of this agreement, Bid.Com committed to proceed with an offer to acquire all of the shares of ADB Systemer, and the Board of Directors of ADB Systemer committed to support such offer. - 48 - 4. Board Representation Agreement, dated as of September 7, 2001 between Bid.Com International Inc. and LimeRock Partners LLC ("LR"), Jan Pedersen ("Pedersen"), and Sandnes Investering, Rogaland Investering, AIG Private Bank Ltd. and Karstein Gjersvik (together, the "Other Nominating Shareholders"). This agreement was entered into in connection with the acquisition of ADB Systemer ASA of Sola, Norway. LR, Pedersen and the Other Nominating Shareholders were the largest shareholders of ADB Systemer. Pursuant to the Board Representation Agreement, LR and Pedersen were entitled, immediately following the acquisition of ADB Systemer ASA, to nominate one member of our Board of Directors. Also pursuant to the Board Representation Agreement, the Other Nominating Shareholders as a group were entitled to nominate one member of our Board of Directors at our 2002 annual shareholders meeting on June 12, 2002. The board representation rights conferred on LR, Pedersen and the Other Nominating Shareholders are subject to their continued ownership of at least 50% of the shares received by them upon the acquisition of ADB Systemer. LR has since sold all of its common shares in ADB and has therefore relinquished its right to nominate a person to the Board of Directors. These rights are also subject to the satisfaction of Canadian residency and other regulatory issues. 5. Employment Agreement, dated as of September 7, 2001 between Bid.Com International Inc. and Jan Pedersen. Pursuant to the terms and conditions of this agreement, Pedersen agrees to remain in the employ of our company for a minimum of two years. The agreement provides for payment of 12 months salary in the event of termination of his employment before expiration of the two year term other than by death, disability or cause. Under the agreement, Mr. Pedersen is entitled to an annual retention bonus of $100,000. 6. Subscription Agreement, dated as of April 25, 2002, between ADB Systems International Inc. and Stonestreet Limited Partnership, whereby we agreed to issue 3.3 million common shares at a purchase price of US $0.21 per share, and warrants exercisable into 1,050,000 common shares at an exercise price of US $0.35 per share. The warrants have a term of three years. We agreed to register the shares and warrants with the Securities and Exchange Commission. The purchase price was determined in the context of the market. 7. Warrant issued April 25, 2002 to Stonestreet Limited Partnership by ADB Systems International Inc. entitling the holder to acquire 1 million common shares of ADB at an exercise price of US $0.35 per share. The warrant had a term of three years and was exercised in full on December 17, 2002. 8. Warrant issued April 25, 2002 to Stonestreet Corporation by ADB Systems International Inc. entitling the holder to acquire 50,000 common shares of ADB at an exercise price of US $0.35 per share. The warrant has a term of three years. 9. Pursuant to the terms of a loan agreement (the "Loan Agreement"), The Brick has agreed to loan to ADB the principal amount of $2.0 million to be advanced in three installments, namely (a) the sum of $1.0 million advanced on August 30th, (b) the sum of $0.5 million advanced on August 30th to be held in an [escrow] account and to be used only to pay the expenses of implementing the Arrangement (any surplus remaining upon the Arrangement becoming effective will be released to ADB as part of the loan while any shortfall will be for the account of ADB) and (c) the sum of $0.5 million to be advanced following the effective date of the Arrangement, subject to certain conditions. The loan bears interest at 12%, compounded monthly, and is secured by a general security agreement on the assets of ADB and a pledge of the shares of ADB's Norwegian subsidiary. The loan matures on the earlier of June 30, 2003 or upon demand for repayment by The Brick. Upon maturity, ADB will have the right to repay the loan in cash or to transfer to The Brick 100% of the issued shares of Old ADB acquired by ADB as a consequence of the Arrangement in satisfaction of the outstanding principal amount and accrued interest then owing to The Brick. 10. As part of the Arrangement and pursuant to a general conveyance and assumption agreement (the "General Conveyance and Assumption Agreement") between Old ADB and ADB, Old ADB transferred all of its assets (excluding only the assets of the Retail Business) to ADB and ADB assumed all of the liabilities of Old ADB (excluding only specified liabilities in connection with the Retail Business), including Old ADB's liabilities under the Loan Agreement. - 49 - 11. Under the terms of a supply, services and licensing agreement (the "Supply Services and Licensing Agreement"), ADB will provide administrative and technical services to Old ADB for the Bid.Com online retailing activities. 12. Pursuant to subscription agreements dated August 30, 2002, ADB issued a total of CDN$1,120,000 principal amount of secured subordinated convertible notes (collectively the "Notes") in four series. The material terms and conditions attaching to each series are as follows: (a) SERIES A NOTES: $408,000 aggregate principal amount of 8% secured convertible notes, series A (the "Series A Notes") due December 31, 2004 which are convertible at the option of the holder at any time after the date of shareholder approval which was obtained on October 22, 2002 into a maximum of 3,400,000 units at a subscription price of $0.12 per unit. Each unit consists of one common share and one-half of one common share purchase warrant, each whole warrant being exercisable for one common share at a price of $0.14 and having an expiry date of December 31, 2004. (b) SERIES B NOTES: $216,000 aggregate principal amount of 8% secured convertible notes, series B (the "Series B Notes") due December 31, 2004 which are convertible at the option of the holder at any time after the later of the date of shareholder approval which was obtained on October 22, 2002 and December 20, 2002, into a maximum of 1,800,000 units at a subscription price of $0.12 per unit. Each unit consists of one common share and one-half of one common share purchase warrant, each whole warrant exercisable for one common share at a price of $0.14 and having an expiry date of December 31, 2004. (c) SERIES C NOTES: $120,000 aggregate principal amount of secured convertible notes, series C (the "Series C Notes") due December 31, 2004 which are convertible at any time at the option of ADB and by the holder at any time after the date of shareholder approval which was obtained on October 22, 2002 or December 20, 2002 into a maximum of 1,000,000 shares at a conversion price of $0.12 per share. The Series C Notes bear interest at 8% only from and after maturity or an event of default. The Series C Notes have been issued in satisfaction of a $120,000 fee payable by ADB for the termination and waiver of certain US registration rights granted to Stonestreet Limited Partnership, a private placement investor, pursuant to a subscription agreement dated April 25, 2002. (d) SERIES D NOTES: $376,000 aggregate principal amount of 8% secured convertible notes, series D (the "Series D Notes") due December 31, 2004 which are convertible into a maximum of 4,699,999 units at a conversion price of $0.12 per unit. Each unit consists of one common share and one-half of one common share purchase warrant, each whole warrant exercisable for one common share at a price of $0.14 and having an expiry date of December 3, 2004. A total of $135,000 principal amount of Series D Notes are being acquired by four directors and/or senior officers of ADB. As at December 31, 2002, the Company had issued a total of 7.625 million common shares and 3.313 million warrants upon conversion of debt instruments. None of the 3.313 million warrants had been converted into common shares at December 31, 2002. D. EXCHANGE CONTROLS There is no law, government decree or regulation in Canada restricting the export or import of capital or affecting the remittance of dividends, interest or other payments to a non-resident holder of common shares, other than withholding tax requirements. E. TAXATION CANADIAN FEDERAL INCOME TAX CONSIDERATIONS The following summary describes material Canadian federal income tax consequences generally applicable to a holder of our common shares who is not a resident of Canada, and who, for purposes of the Income Tax Act (Canada), (i) holds such shares as capital property and (ii) deals at arm's length with us. Generally, common shares will be considered capital property to a holder provided that such holder does not hold such securities in the course of carrying on a business and has not acquired such securities in a transaction or transactions considered to be an - 50 - adventure or concern in the nature of trade which includes a transaction or transactions of the same kind and carried on in the same manner as a transaction or transactions of an ordinary trader or dealer in property of the same kind. This summary is based upon the current provisions of the Income Tax Act and the regulations thereunder and on an understanding of the published administrative practices of the Canadian Customs and Revenue Agency. This summary does not take into account or anticipate any possible changes in law, or the administration thereof, whether by legislative, governmental or judicial action, except proposals for specific amendment thereto which have been publicly announced by the Canadian Minister of Finance prior to the date hereof. This summary does not address all aspects of Canadian federal income tax law that may be relevant to shareholders based upon their particular circumstances, and does not deal with provincial, territorial or foreign income tax consequences, which might differ significantly from the consequences under Canadian federal income tax law. Shareholders are advised to consult their tax advisors regarding the application of the Canadian federal income tax law to their particular circumstances, as well as any Canadian provincial, territorial or other tax consequences or any U.S. federal, state or local tax consequences or other foreign income tax consequences of the acquisition, ownership and disposition of our common shares. TAXATION OF DIVIDENDS. A holder of a common share who is not resident in Canada for purposes of the Income Tax Act will be subject to Canadian withholding tax on dividends paid or credited, or deemed under the Income Tax Act to be paid or credited, to the holder of the common share. The rate of withholding tax under the Income Tax Act on dividends is 25% of the amount of the dividend. Such rate may be reduced under the provisions of an applicable international tax treaty to which Canada is a party. Under the tax treaty that Canada has entered into with the United States, the rate of Canadian withholding tax applicable in respect of dividends paid or credited by a Canadian corporation to a shareholder resident in the United States, is generally reduced to 15%, or 5% in the case of a corporate holder which owns 10% or more of the voting shares. A foreign tax credit for the tax withheld may be available under applicable US tax law to a US holder against U.S. federal income tax liability. Moreover, pursuant to Article XXI of the Canada-U.S. Treaty, an exemption from Canadian withholding tax generally is available in respect of dividends received by certain trusts, companies and other organizations whose income is exempt from tax under the laws of the United States. DISPOSITION OF COMMON SHARES. A non-resident holder of a common share will not be subject to tax under the Income Tax Act in respect of a capital gain realized on the disposition of a common share unless the common share constitutes or is deemed to constitute "taxable Canadian property" as defined in the Income Tax Act. Shares of a corporation that are listed on a prescribed stock exchange (which includes shares traded on certain U.S. stock exchanges, including the Nasdaq National Market), are generally not considered to be taxable Canadian property. However, such shares are considered taxable Canadian property in the hands of a non-resident holder if, at any time during the 60-month period immediately preceding disposition by the holder, 25% or more of our issued shares of any class were owned by the non-resident holder together with persons with whom the non-resident did not deal at arm's length. An interest in or option in respect of common shares or other securities convertible into or exchangeable for common shares could constitute taxable Canadian property if the common shares that could be acquired upon the exercise of the option, the conversion or exchange rights or in which there is such interest are themselves taxable Canadian property. Taxable Canadian property also includes any common share held by a non-resident if the non-resident used the common share in carrying on a business (other than an insurance business) in Canada, or, if the non-resident is a non-resident insurer, any common share that is its "designated insurance property" for the year. A non-resident whose common shares constitute or are deemed to constitute taxable Canadian property will realize upon the disposition or deemed disposition of a common share, a capital gain (or a capital loss) to the extent that the proceeds of disposition are greater than (or less than) the aggregate of the adjusted cost base to the holder of a common share and any reasonable costs of disposition. - 51 - One-half of any capital gain realized by a holder (a taxable capital gain) will be included in computing the holder's income. One-half of any capital loss realized by a holder may, subject to certain restrictions applicable to holders that are corporations, normally be deducted from the holder's taxable capital gains realized in the year of disposition, the three preceding taxation years or any subsequent taxation years, subject to detailed rules contained in the Income Tax Act. A purchase by us of our common shares (other than a purchase of our common shares on the open market in a manner in which shares would normally be purchased by any member of the public in the open market) will give rise to a deemed dividend under the Income Tax Act equal to the difference between the amount we paid on the purchase and the paid-up capital of such shares determined in accordance with the Income Tax Act. The paid-up capital of such shares may be less than the cost of such shares to the holder. Any such dividend deemed to have been received by a non-resident holder will be subject to non-resident withholding tax as described above. The amount of any such deemed dividend will reduce the proceeds of disposition of the common share to the non-resident holder for the purpose of computing the amount of the non-resident holder's capital gain or loss under the Income Tax Act. Even if the common shares constitute taxable Canadian property to a non-resident holder and their disposition would give rise to a capital gain, an exemption from tax under the Income Tax Act may be available under the terms of an applicable international tax treaty to which Canada is a party. A holder resident in the United States for purposes of the Canada-U.S. Treaty will generally be exempt from Canadian tax in respect of a gain on the disposition of common shares provided that the value of the common shares is not derived principally from real property situated in Canada. Our common shares would qualify for this exemption, however Article XIII paragraph 5 of the Canada-U.S. Treaty provides that the treaty exemption does not apply where the U.S. resident holder was an individual who was a Canadian resident for 120 months during any period of 20 consecutive years preceding the time of the sale and was resident in Canada at any time during the ten years immediately preceding the sale and owned the shares at the time he/she ceased to be resident in Canada. If the exemption from such Canadian tax in respect of such gain is not available under the Canada-U.S. Treaty, a foreign tax credit may be available under applicable US tax law for U.S. federal income tax purposes. Non-residents are advised to consult their tax advisers with regard to the availability of a treaty exemption. U.S. FEDERAL INCOME TAX CONSIDERATIONS The following summary describes material United States federal income tax consequences arising from the purchase, ownership and sale of common shares. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended, final, temporary and proposed United States Treasury Regulations promulgated thereunder, and the administrative and judicial interpretations thereof, all as in effect as of the date of this Annual Report and all of which are subject to change, possibly on a retroactive basis. The consequences to any particular shareholder may differ from those described below by reason of that shareholder's particular circumstances. This summary does not address the considerations that may be applicable to any particular shareholder based on such shareholder's particular circumstances (including potential application of the alternative minimum tax), to particular classes of shareholders (including financial institutions, broker-dealers, insurance companies, shareholders who have elected mark-to-market accounting, tax-exempt organizations, shareholders who hold ordinary shares as part of a straddle, "hedge" or "conversion transaction" with other investments, shareholders who own (directly, indirectly or through attribution) 10% or more of our company's outstanding voting stock, shareholders whose functional currency is not the U.S. dollar, persons who are not citizens or residents of the United States, or persons which are foreign corporations, foreign partnerships or foreign estates or trusts as to the United States, or any aspect of state, local or non-United States tax laws. Additionally, the discussion does not consider the tax treatment of persons who hold common shares through a partnership or other pass-through entity or the possible application of United States federal gift or estate tax. This summary is addressed only to a holder of common shares who is (i) a citizen or resident of the United States who owns less than 10% of our company's outstanding voting stock, (ii) a corporation organized in the United States or under the laws of the United States or any state thereof, (iii) an estate, the income of which is includable in gross income for United States federal income tax purposes regardless of source, or (iv) a trust, if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust (a "U.S. Holder"). This summary is for general information purposes only and does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase common shares. This summary generally considers only U.S. Holders that will own their common shares as capital assets. - 52 - Each shareholder should consult with such shareholder's own tax advisor as to the particular tax consequences to such shareholder of the purchase, ownership and sale of their common shares including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws. TREATMENT OF DIVIDEND DISTRIBUTIONS Subject to the discussion below under "Tax Status Of The Company - Passive Foreign Investment Companies," a distribution by our company to a U.S. Holder in respect of the common shares (including the amount of any Canadian taxes withheld thereon) will generally be treated for United States federal income tax purposes as a dividend to the extent of our company's current and accumulated earnings and profits, as determined under United States federal income tax principles. To the extent, if any, that the amount of any such distribution exceeds our company's current and accumulated earnings and profits, as so computed, it will first reduce the U.S. Holder's tax basis in the common shares owned by him, and to the extent it exceeds such tax basis, it will be treated as capital gain from the sale of common shares. While it is not anticipated that our company will pay dividends in the foreseeable future, the gross amount of any distribution from our company received by a U.S. Holder which is treated as a dividend for United States federal income tax purposes (before reduction for any Canadian tax withheld at source) will be included in such U.S. Holder's gross income, will be subject to tax at the rates applicable to ordinary income and generally will not qualify for the dividends received deduction applicable in certain cases to United States corporations. For United States federal income tax purposes, the amount of any dividend paid in Canadian dollars by our company to a U.S. Holder will equal the U.S. dollar value of the amount of the dividend paid in Canadian dollars, at the exchange rate in effect on the date of the distribution, regardless of whether the Canadian dollars are actually converted into United States dollars at that time. Canadian dollars received by a U.S. Holder will have a tax basis equal to the U.S. dollar value thereof determined at the exchange rate on the date of the distribution. Currency exchange gain or loss, if any, recognized by a U.S. Holder on the conversion of Canadian dollars into U.S. dollars will generally be treated as U.S. source ordinary income or loss to such holder. U.S. Holders should consult their own tax advisors concerning the treatment of foreign currency gain or loss, if any, on any Canadian dollars received which are converted into dollars subsequent to distribution. A U.S. Holder generally will be entitled to deduct any Canadian taxes withheld from dividends in computing United States taxable income, or to credit such withheld taxes against the United States federal income tax imposed on such U.S. Holder's dividend income. No deduction for Canadian taxes may be claimed, however, by an individual (noncorporate) U.S. Holder that does not itemize deductions. The amount of foreign taxes for which a U.S. Holder may claim a credit in any year is subject to complex limitations and restrictions, which must be determined on an individual basis by each shareholder. Distributions with respect to common shares that are taxable as dividends will generally constitute foreign source income for purposes of the foreign tax credit limitation. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by our company with respect to the common shares will generally constitute "passive income." Foreign income taxes exceeding a shareholder's credit limitation for the year of payment or accrual of such tax can be carried back for two taxable years and forward for five taxable years, subject to the credit limitation applicable in each of such years. Additionally, the foreign tax credit in any taxable year may not offset more than 90% of a shareholder's liability for United States individual or corporate alternative minimum tax. The total amount of allowable foreign tax credits in any year generally cannot exceed regular U.S. tax liability for the year attributable to foreign source taxable income. A U.S. Holder will be denied a foreign tax credit with respect to Canadian income tax withheld from dividends received on the common shares to the extent such U.S. Holder has not held the ordinary shares for at least 16 days of the 30-day period beginning on the date which is 15 days before the ex-dividend date or to the extent such U.S. Holder is under an obligation to make certain related payments with respect to substantially similar or related property. Any days during which a U.S. Holder has substantially diminished its risk of loss on the common shares are not counted toward meeting the 16 day holding period required by the statute. SALE OR EXCHANGE OF A COMMON SHARE - 53 - Subject to the discussion below under "Tax Status Of The Company - Passive Foreign Investment Companies," the sale or exchange by a U.S. Holder of a common share generally will result in the recognition of gain or loss by the U.S. Holder in an amount equal to the difference between the amount realized and the U.S. Holder's basis in the common share sold. Such gain or loss will be capital gain or loss provided that the common share is a capital asset in the hands of the holder. The gain or loss realized by an individual (noncorporate) U.S. Holder on the sale or exchange of a common share will be long-term capital gain or loss subject to a reduced rate of tax if the common share had been held for more than one year. If the common share had been held by such individual U.S. Holder for not more than one year, such gain will be short-term capital gain. Gains recognized by a U.S. Holder on a sale, exchange or other disposition of common shares generally will be treated as United States source income for United States foreign tax credit purposes. A loss recognized by a U.S. Holder on the sale, exchange or other disposition of common shares generally is allocated to U.S. source income. However, such loss must be allocated to foreign source income to the extent certain dividends were received by the U.S. Holder within the 24-month period preceding the date on which the U.S. Holder recognized the loss. The deductibility of a capital loss recognized on the sale, exchange or other disposition of common shares is subject to limitations. A U.S. Holder that receives foreign currency upon disposition of common shares and subsequently converts the foreign currency into U.S. dollars generally will have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar. U.S. Holders should consult their own tax advisors regarding treatment of any foreign currency gain or loss on any Canadian dollars received in respect of the sale, exchange or other disposition of common shares. TAX STATUS OF THE COMPANY Personal Holding Companies. A non-U.S. corporation may be classified as a personal holding company for United States federal income tax purposes if both of the following two tests are satisfied: (i) if at any time during the last half of the company's taxable year, five or fewer individuals (without regard to their citizenship or residency) own or are deemed to own (under certain attribution rules) more than 50% of the stock of the corporation by value and (ii) 60% or more of such non-U.S. corporation's gross income derived from U.S. sources or effectively connected with a U.S. trade or business, as specifically adjusted, is from certain passive sources such as dividends and royalty payments. Such a corporation generally is taxed on the amounts of such passive source income, after making adjustments such as deducting dividends paid and income taxes, that are not distributed to shareholders. We believe that our company was not a personal holding company in 2002 and is not currently a personal holding company. However, no assurance can be given that either test will not be satisfied in the future. Foreign Personal Holding Companies. A non-U.S. corporation will be classified as a foreign personal holding company for United States federal income tax purposes if both of the two following tests are satisfied: (i) five or fewer individuals who are United States citizens or residents own or are deemed to own (under certain attribution rules) more than 50% of all classes of the corporation's stock measured by voting power or value and (ii) the corporation receives at least 60% (50% if previously an foreign personal holding company) of its gross income (regardless of source), as specifically adjusted, from certain passive sources. If such a corporation is classified as a foreign personal holding company, a portion of its "undistributed foreign personal holding company income" (as defined for United States federal income tax purposes) would be imputed to all of its shareholders who are U.S. Holders on the last taxable day of the corporation's taxable year, or, if earlier, the last day on which it is classifiable as a foreign personal holding company. Such income would be taxable as a dividend, even if no cash dividend is actually paid. U.S. Holders who dispose of their shares prior to such date would not be subject to tax under these rules. We believe that our company was not a personal holding company in 2002 and is not currently a personal holding company. However, no assurance can be given that our company will not qualify as a foreign personal holding company in the future. Passive Foreign Investment Companies. A company will be a passive foreign investment company if 75% or more of its gross income (including the pro rata share of the gross income of any company (United States or foreign) in which the company is considered to own 25% or more of the shares (determined by market value)) in a taxable year is passive income. Alternatively, the company will be considered to be a passive foreign investment company if at least 50% of the value of the company's assets (averaged over the year) (including the pro rata share of the value of the assets of any company in which the company is considered to own 25% or more of the shares (determined by market value)) in a taxable year are held for the production of, or produce, passive income. For these - 54 - purposes, the value of our assets is calculated based on our market capitalization. Passive income generally includes, among others, interest, dividends, royalties, rents and annuities. If our company is a passive foreign investment company for any taxable year, a U.S. Holder, in the absence of an election by such U.S. Holder to treat our company as a "qualified electing fund" (a "QEF election"), as discussed below, would, upon certain distributions by our company and upon disposition of the common shares at a gain, be liable to pay tax at the highest tax rate on ordinary income in effect for each period to which the income is allocated, plus interest on the tax, as if the distribution or gain had been recognized ratably over the days in the U.S. Holder's holding period for the common shares during which our company was a passive foreign investment company. Additionally, if our company is a passive foreign investment company, U.S. Holders who acquire ordinary shares from decedents would be denied the normally available step-up of the income tax basis for such common shares to fair market value at the date of death and instead would have a tax basis equal to the decedent's basis, if lower. If our company is treated as a passive foreign investment company for any taxable year, U.S. Holders should consider whether to make a QEF election for United States federal income tax purposes. If a U.S. Holder has a QEF election in effect for all taxable years that such U.S. Holder has held the common shares and our company was a passive foreign investment company, distributions and gain will not be recognized ratably over the U.S. Holder's holding period or subject to an interest charge, gain on the sale of common shares will be characterized as capital gain and the denial of basis step-up at death described above would not apply. Instead, each such U.S. Holder is required for each taxable year that our company is a qualified electing fund to include in income a pro rata share of the ordinary earnings of our company as ordinary income and a pro rata share of the net capital gain of our company as long-term capital gain, subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge. Consequently, in order to comply with the requirements of a QEF election, a U.S. Holder must receive from our company certain information. We intend to supply U.S. Holders with the information needed to report income and gain pursuant to a QEF election in the event our company is classified as a passive foreign investment company. The QEF election is made on a shareholder-by-shareholder basis and can be revoked only with the consent of the Internal Revenue Service. A shareholder makes a QEF election by attaching a completed IRS Form 8621 (including the passive foreign investment company annual information statement) to a timely filed United States federal income tax return and by filing such form with the IRS Service Center in Philadelphia, Pennsylvania. Even if a QEF election is not made, a shareholder in a passive foreign investment company who is a U.S. Holder must file a completed IRS Form 8621 every year. As an alternative to making a QEF election, a U.S. Holder may elect to make a mark-to-market election with respect to the common shares owned by him. If the mark-to-market election were made, then the rules set forth above would not apply for periods covered by the election. Under such election, a U.S. Holder includes in income each year an amount equal to fair market value of the common shares owned by such U.S. Holder as of the close of the taxable year over the U.S. Holder's adjusted basis in such shares. The U.S. Holder would be entitled to a deduction for the excess, if any, of such U.S. Holder's adjusted basis in his common shares over the fair market value of such shares as of the close of the taxable year; provided however, that such deduction would be limited to the extent of any net mark-to-market gains with respect to the common shares included by the U.S. Holder under the election for prior taxable years. The U.S. Holder's basis in his common shares is adjusted to reflect the amounts included or deducted pursuant to this election. Amounts included in income pursuant to the mark-to-market election, as well as gain on the sale or exchange of the common shares, will be treated as ordinary income. Ordinary loss treatment applies to the deductible portion of any mark-to-market loss, as well as to any loss realized on the actual sale or exchange of the common shares to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included with respect to such common shares. The mark-to-market election applies to the tax year for which the election is made and all later tax years, unless the common shares cease to be marketable or the IRS consents to the revocation of the election. We do not believe our company was a passive foreign investment company during 2002. However, there can be no assurance that our company will not be classified as a passive foreign investment company in 2003 or thereafter because the tests for determining passive foreign investment company status are applied annually and it is difficult to make accurate predictions of future income and assets, which are relevant to this determination. U.S. Holders who hold common shares during a period when our company is a passive foreign investment company will - 55 - be subject to the foregoing rules, even if our company ceases to be a passive foreign investment company, subject to certain exceptions for U.S. Holders who made a QEF election. U.S. Holders are urged to consult with their own tax advisors about making a QEF election or mark-to-market election and other aspects of the passive foreign investment company rules. BACK-UP WITHHOLDING AND INFORMATION REPORTING U.S. Holders generally are subject to information reporting requirements and back-up withholding with respect to dividends paid in the United States on common shares, or proceeds paid from the disposition of common shares, unless the U.S. Holder provides an IRS Form W-9 or otherwise establishes an exemption. Non-U.S. holders generally are not subject to information reporting or back-up withholding with respect to dividends paid on, or the proceeds from the disposition of, common shares, provided that such non-U.S. holder provides a taxpayer identification number, certifies to its foreign status, or otherwise establishes an exemption. The amount of any back-up withholding will be allowed as a credit against a U.S. or non-U.S. holder's U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is furnished to the IRS. F. DIVIDENDS AND PAYING AGENTS Not applicable. G. STATEMENTS BY EXPERTS Not applicable. H. DOCUMENTS ON DISPLAY. We have filed this Annual Report on Form 20-F with the Securities and Exchange Commission under the Securities Exchange Act of 1934. Statements made in this Annual Report as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to this Annual Report, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. We are subject to the informational requirements of the Exchange Act and file reports and other information with the Securities and Exchange Commission. Reports and other information which we file with the Securities and Exchange Commission, including this Annual Report on Form 20-F, may be inspected and copied at the public reference facilities of the Securities and Exchange Commission at: 450 Fifth Street N.W. 500 West Madison Street Room 1024 Suite 1400 Washington D.C. 20549 Chicago, Illinois 60661 You can also obtain copies of this material by mail from the Public Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Additionally, copies of this material may also be obtained from the Securities and Exchange Commission's Internet site at http://www.sec.gov. The Commission's telephone number is 1-800-SEC-0330. I. SUBSIDIARY INFORMATION. - 56 - Not applicable. ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK (a) Quantitative Information about Market Risk See Item 5 - Operating and Financial Review and Prospects - Liquidity and Capital Resources - Foreign Currency Rate Fluctuations; Interest Rate and Investment Risk. (b) Qualitative Information about Market Risk See Item 5 - Operating and Financial Review and Prospects - Liquidity and Capital Resources - Foreign Currency Rate Fluctuations; Interest Rate and Investment Risk. ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN DEBT SECURITIES Not applicable. PART II ITEM 13 - DEFAULT, DIVIDEND ARREARAGES AND DELINQUENCIES None. ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS There were no material modifications to the rights of our security holders as a result of the implementation of the Arrangement (described in Part I - Item 4 "Information on the Company") or otherwise. ITEM 15 - CONTROLS AND PROCEDURES An evaluation was performed under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and its President and its Director Finance about the effectiveness of the Company's disclosure controls and procedures within 90 days before the filing date of this annual report. Based on that evaluation, the Company's management, including the Chief Executive Officer, the President and the Director Finance, concluded that the Company's disclosure controls and procedures were effective. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to their evaluation. PART III ITEM 17 - FINANCIAL STATEMENTS Not applicable. ITEM 18 - FINANCIAL STATEMENTS See the Index to Consolidated Financial Statements accompanying this report on page F-1. ITEM 19 - EXHIBITS EXHIBITS FILED AS PART OF THIS ANNUAL REPORT. - 57 - 1.1 Articles of Arrangement of the Company filed with the Ontario Ministry of Consumer and Business Services on October 31, 2002.(1) 1.2 By-laws of the Company.(2) 2.1 Form of Series D Note.* 2.2 Registration Rights Agreement, dated as of June 16, 2000, between Bid.Com International and Acqua Wellington Value Fund Ltd.(4) 4.1 Salary Protection Letter, dated February 12, 1997, between the Company and Jeffrey Lymburner.(3) 4.2 Option Agreement dated February 19, 2001 between Bid.Com International Inc. and Wendell Willick.(5) 4.3 Amendment to Option Agreement dated May 2, 2001 between Bid.Com International Inc. and Wendell Willick.(5) 4.4 Board Support Agreement, dated as of September 7, 2001 between Bid.Com International Inc. and ADB Systemer ASA.(5) 4.5 Board Representation Agreement, dated as of September 7, 2001 between Bid.Com International Inc. and LimeRock Partners LLC, Jan Pedersen, Sandnes Investering, Rogaland Investering, AIG Private Bank Ltd. and Karstein Gjersvik.(5) 4.6 Employment Agreement, dated as of September 18, 2001 between Bid.Com International Inc. and Jan Pedersen.(5) 4.7 Subscription Agreement, dated as of April 25, 2002, between ADB Systems International Inc. and Stonestreet Limited Partnership.(5) 4.8 Warrant issued April 25, 2002 to Stonestreet Limited Partnership by ADB Systems International Inc.(5) 4.9 Warrant issued April 25, 2002 to Stonestreet Corporation by ADB Systems International Inc.(5) 4.10 Arrangement Agreement, dated as of August 23, 2002, between ADB Systems International Inc. and ADB Systems International Ltd.(1) 4.11 General Conveyance and Assumption Agreement, dated August 23, 2002, between ADB Systems International Inc. and ADB Systems International Ltd.(2) 4.12 Loan Agreement, dated August 23, 2002, and Loan Agreement Amending Agreement entered into as of August 30, 2002 among The Brick Warehouse Corporation, ADB Systems International Inc., and ADB Systems International Ltd.* 4.13 Form of Supply Services and Licensing Agreement, dated August 23, 2002, among The Brick Warehouse Corporation, ADB Systems International Inc., and ADB Systems International Ltd.* 4.14 Form of General Security Agreement, dated as of April 30, 2002, between ADB Systems International Inc. and each of Stonestreet Limited Partnership and Greenwich Growth Fund Ltd.* 4.15 Form of Subscription Agreement, dated August 30, 2002, between ADB Systems International Inc. and Stonestreet Limited Partnership.* 4.16 Form of Subscription Agreement, dated August 30, 2002, between ADB Systems International Inc. and Greenwich Growth Fund Ltd.* 4.17 Form of Warrant issued or issuable upon the exercise of the Series A Notes, Series B Notes, Series C Notes and Series D Notes* 4.18 Co-operation Agreement made as of August 23, 2002 between ADB Systems International Inc., ADB Systems International Ltd. and The Brick Warehouse Corporation.* 8.1 List of Subsidiaries.* - 58 - 10.1 Certification pursuant to 18 U.S.C. Section 1350.* * Filed herewith (1) Incorporated by reference from Exhibit 1 to the Company's Current Report on Form 6-K, Filing No. 1 for the Month of November 2002, filed with the Securities and Exchange Commission on November 5, 2002. (2) Incorporated by reference from Exhibit 1.2 of Amendment No. 1 to the Company's Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on March 30, 1999. (3) Incorporated by reference from Exhibit 3.27 of Amendment No. 1 to the Company's Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on March 30, 1999. (4) Incorporated by reference from the Exhibits to the Company's Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on May 23, 2001. (5) Incorporated by reference from the Exhibits to the Company's Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on May 17, 2002. SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this Annual Report on its behalf. ADB SYSTEMS INTERNATIONAL INC. By: /s/ Jeffrey Lymburner ----------------------------------- Name: Jeffrey Lymburner Title: Chief Executive Officer Dated: May 12, 2003 By: /s/ Mark Wallace ----------------------------------- Name: Mark Wallace Title: President - 59 - CERTIFICATION I, Jeffrey Lymburner, certify that: 1. I have reviewed this annual report on Form 20-F of ADB Systems International Ltd.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: May 12, 2003 /s/ Jeffrey Lymburner ------------------------------- Jeffrey Lymburner Chief Executive Officer - 60 - CERTIFICATION I, Michael Robb , certify that: 1. I have reviewed this annual report on Form 20-F of ADB Systems International Ltd.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: May 12, 2003 /s/ Michael Robb -------------------------------- Michael Robb Director of Finance - 61 - INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Audited Consolidated Financial Statements for the years ended December 31, 2002, 2001 and 2000 Independent Auditors' Report............................................................................................ F-2 Consolidated Balance Sheets as at December 31, 2002 and 2001............................................................ F-3 Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000.............................. F-4 Consolidated Statements of Deficit for the years ended December 31, 2002, 2001 and 2000................................. F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000.............................. F-6 Notes to Consolidated Financial Statements.............................................................................. F-7
MANAGEMENT'S REPORT Preparation of the consolidated financial statements accompanying this annual report and the presentation of all other information in this report is the responsibility of management. The financial statements have been prepared in accordance with appropriate and generally accepted accounting principles and reflect management's best estimates and judgements. All other financial information in the report is consistent with that contained in the financial statements. The Company maintains appropriate systems of internal control, policies and procedures which provide management with reasonable assurance that assets are safeguarded and that financial records are reliable and form a proper basis for preparation of financial statements. The Board of Directors ensures that management fulfills its responsibilities for financial reporting and internal control through an Audit Committee which is composed of non-executive directors. The Audit Committee reviewed the consolidated financial statements with management and external auditors and recommended their approval by the Board of Directors. The consolidated financial statements have been audited by Deloitte & Touche LLP, Chartered Accountants. Their report stating the scope of their audit and their opinion on the consolidated financial statements is presented below. Jeff Lymburner Mark Wallace CEO President INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF ADB SYSTEMS INTERNATIONAL LTD. We have audited the consolidated balance sheets of ADB Systems International Ltd. as at December 31, 2002 and 2001, and the consolidated statements of operations, deficit and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian and United States generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2002 and 2001 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 in accordance with Canadian generally accepted accounting principles. Chartered Accountants Toronto, Ontario, Canada February 14, 2003 (except for Notes 2 and 22 which are as of May 14, 2003) COMMENTS BY AUDITORS ON CANADA - UNITED STATES REPORTING DIFFERENCES - 62 - In the United States of America, reporting standards for auditors require the addition of an explanatory paragraph following the opinion paragraph when the financial statements are affected by conditions and events that cast substantial doubt on the Company's ability to continue as a going concern, such as those described in Note 2 to the financial statements. Although we conducted our audits in accordance with both Canadian generally accepted auditing standards and auditing standards generally accepted in the United States of America, our report to the Shareholders dated February 14, 2003 is expressed in accordance with Canadian reporting standards which do not permit a reference to such conditions and events in the auditors' report when these are adequately disclosed in the financial statements. Chartered Accountants Toronto, Ontario, Canada FEBRUARY 14, 2003 (EXCEPT FOR NOTES 2 AND 22 WHICH ARE AS OF MAY 14, 2003) - 63 - CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2002 AND 2001 (IN THOUSANDS OF CANADIAN DOLLARS)
2002 2002 2001 ------- ------- ------- Convenience Translation into U.S. $ (Note 23) ASSETS CURRENT Cash $ 1,337 $ 846 $ 2,557 Marketable securities 20 12 1,658 Accounts receivable 1,828 1,157 1,288 Deposits and prepaid expenses 178 113 131 -------- --------- -------- 3,363 2,128 5,634 CAPITAL ASSETS (Note 4) 443 280 1,332 ACQUIRED SOFTWARE (Note 16) 1,974 1,249 3,102 DEFERRED CHARGES (NET) (Note 5) 513 325 - ACQUIRED AGREEMENTS (Note 16) 57 36 149 TRADEMARKS AND INTELLECTUAL PROPERTY (NET) 5 3 - CAPITALIZED SOFTWARE - - 202 STRATEGIC INVESTMENTS - - 173 -------- --------- -------- $ 6,355 $ 4,021 $ 10,592 ======== ========= ======== LIABILITIES CURRENT Accounts payable $ 1,059 $ 670 $ 841 Accrued liabilities 1,229 778 813 Current portion of capital lease obligation - - 42 Current portion of deferred revenue 832 526 823 Demand loan (Notes 6 and 19(a)) 2,000 1,265 - -------- --------- -------- 5,120 3,239 2,519 SECURED SUBORDINATED NOTES (Note 7) 34 22 - DEFERRED REVENUE - - 33 CAPITAL LEASE OBLIGATION - - 18 -------- --------- -------- 5,154 3,261 2,570 ======== ========= ======== NON-CONTROLLING INTEREST 3 2 8 COMMITMENTS AND CONTINGENCIES (NOTES 2 AND 11) SHAREHOLDERS' EQUITY Share capital (Note 9(c)) 95,633 60,527 93,568 Warrants (Note 9(f(ii))and (iii)) 1,599 1,012 1,349 Stock options (Note 9(d(ii)) and 16) 706 447 691 Conversion feature on secured subordinated notes (Note 7) 175 111 - Foreign currency translation 32 20 (11) Deficit (96,947) (61,359) (87,583) -------- --------- -------- 1,198 758 8,014 -------- --------- -------- $ 6,355 $ 4,021 $ 10,592 ======== ========= ========
ON BEHALF OF THE BOARD ............................ Director ........................... Director - 64 - CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)
2002 2002 2001 2000 -------- -------- -------- --------- Convenience translation into U.S. $ (Note 23) Revenue (Note 21) $ 5,780 $ 3,658 $ 4,455 $ 12,497 Less: Customer acquisition costs - - (60) (157) -------- -------- -------- --------- Net revenue 5,780 3,658 4,395 12,340 -------- -------- -------- --------- General and administrative 6,288 3,980 7,622 16,236 Sales and marketing 1,875 1,187 4,040 3,161 Software development and technology 4,101 2,595 3,691 1,802 Depreciation and amortization 2,602 1,647 1,572 1,130 Interest expense 200 126 - - Direct expenses - - - 11,460 Advertising and promotion (Note 13) - - - 5,040 Interest income (45) (28) (345) (467) -------- -------- -------- --------- 15,021 9,507 16,580 38,362 -------- -------- -------- --------- Loss before the undernoted (9,241) (5,849) (12,185) (26,022) -------- -------- -------- --------- Realized gains and losses on disposal of marketable securities, strategic investments and capital assets and recovery of assets (Note 14) (85) (54) 6,722 20,946 Unrealized gains and losses on revaluation of marketable securities and strategic investments, and provision for impairment of assets (Note 15) (24) (15) (2,435) (11,697) Goodwill impairment (Notes 16, 17 and 18) (14) (9) (9,476) (3,593) Restructuring charges - - (959) - Retail activities settlement (Note 13) - - (381) - -------- -------- -------- --------- (123) (78) (6,529) 5,656 -------- -------- -------- --------- NET LOSS FOR THE YEAR $ (9,364) $ (5,927) $(18,714) $ (20,366) ======== ======== ======== ========= LOSS PER SHARE (NOTE 9(G)) $ (0.22) $ (0.14) $ (0.64) $ (0.76) ======== ======== ======== =========
- 65 - CONSOLIDATED STATEMENTS OF DEFICIT YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (IN THOUSANDS OF CANADIAN DOLLARS)
2002 2002 2001 2000 --------- --------- --------- --------- Convenience translation into U.S. $ (Note 23) DEFICIT, BEGINNING OF YEAR $ (87,583) $ (55,432) $ (68,869) $ (48,503) NET LOSS FOR THE YEAR (9,364) (5,927) (18,714) (20,366) ========= ========= ========= ========= DEFICIT, END OF YEAR $ (96,947) $ (61,359) $ (87,583) $ (68,869) ========= ========= ========= =========
- 66 - CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (IN THOUSANDS OF CANADIAN DOLLARS)
2002 2002 2001 2000 ------- -------- -------- -------- Convenience translation into U.S. $ (Note 23) NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING ACTIVITIES OPERATING Net loss for the year $(9,364) $ (5,927) $(18,714) $(20,366) Items not affecting cash Depreciation and amortization 2,602 1,647 1,572 1,130 Non cash customer acquisition costs - - 60 1,005 Non cash interest expense 108 68 - - Stock compensation to third parties 25 16 115 - Realized gains and losses on disposal of marketable securities, strategic investments and capital assets, and recovery of assets (Note 14) 85 54 (6,722) (20,946) Unrealized gains and losses on revaluation of marketable securities and strategic investments, and provision for impairment of assets (Note 15) 24 15 2,435 11,697 Goodwill impairment (Notes 16, 17 and 18) 14 9 9,476 3,593 ------- -------- -------- -------- (6,506) (4,118) (11,778) (23,887) Changes in non cash operating working capital (Note 12) 61 39 (2,917) 822 ------- -------- -------- -------- (6,445) (4,079) (14,695) (23,065) ------- -------- -------- -------- INVESTING Capital assets (43) (27) (317) (1,426) Strategic investments - - (328) (2,612) Capitalized software, trademarks and intellectual property (7) (4) (5) (590) Marketable securities 1,556 985 10,142 25,676 Proceeds from disposal of capital assets 167 106 - - Acquisition of ADB Systemer ASA (Note 16) - - (2,244) - Proceeds from disposal of joint venture and strategic investments (Note 14(a) and (e)) 126 80 2,706 - Purchase of non-controlling interest (14) (9) - - ------- -------- -------- -------- 1,785 1,131 9,954 21,048 ------- -------- -------- -------- FINANCING Issuance of common shares for cash (Note 9(d)and (e(i))) 1,506 953 - 4,236 Capital lease obligation - - - 148 Repayment of capital lease (42) (26) (65) (23) Secured subordinated notes (Note 7) 1,000 633 - - Deferred charges (Note 5) (1,024) (648) - - Demand loan (Note 6) 2,000 1,264 - - ------- -------- -------- -------- 3,440 2,176 (65) 4,361 ------- -------- -------- -------- NET CASH (OUTFLOW) INFLOW DURING THE YEAR (1,220) (772) (4,806) 2,344 CASH, BEGINNING OF YEAR 2,557 1,618 7,363 5,019 ======= ======== ======== ======== CASH, END OF YEAR $ 1,337 $ 846 $ 2,557 $ 7,363 ======= ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH PAYMENTS Interest $ 24 $ 15 $ - $ - Income taxes $ - $ - $ - $ -
- 67 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. DESCRIPTION OF BUSINESS ADB Systems International Ltd. ("ADB" or the "Company") delivers asset lifecycle management solutions that enable companies to source, manage and sell assets for maximum value. ADB works with a growing number of customers and partners in a variety of sectors including the asset-intensive oil and gas industry to improve operational efficiencies. ADB also enables customers in government, manufacturing and financial services sectors to reduce purchasing costs and improve procurement processes. ADB Systems International Ltd. was created on August 30, 2002. Upon implementation of a special resolution of the shareholder of the Company and shareholders of ADB Systems International Inc. ("Old ADB", formerly Bid.Com International Inc. ("Bid.Com Inc.")), pursuant to Section 182 of the Business Corporations Act (Ontario), the shareholders of Old ADB exchanged their shares for shares of the Company on a one-for-one basis on October 22, 2002. All assets and liabilities of Old ADB, other than those related to retail activities (Note 13), were transferred to the Company on that date in the form of a return of capital. ADB Systems International Ltd. conducted no activities prior to October 22, 2002. Old ADB subsequently changed its name to Bid.Com International Ltd. ("Bid.Com Ltd."). These consolidated financial statements reflect the financial position of the Company as at December 31, 2002 and results of its operations and its cash flows subsequent to October 22, 2002, and the financial position of Old ADB as at December 31, 2001 and results of operations and of cash flows of Old ADB for the 2002 period prior to October 22, 2002 and the years ended December 31, 2001 and 2000 based upon continuity of interests accounting as no substantive change of ownership has occurred. Bid.Com Inc. has been an on-line auction service provider and e-tailer. During 2000, the Company refocused its business model from providing on-line retail auctions to providing on-line enabling services to other businesses seeking to use its on-line retailing technologies. The Company provides businesses with the use of its software and hardware technology over a specific term in addition to consulting, implementation, and training services. In October 2001, Bid.Com Inc. acquired ADB Systemer ASA, a Norway-based software vendor of enterprise asset management and electronic procurement applications. The Company changed its name to ADB Systems International Inc. to reflect its expanded product offering. 2. CONTINUATION OF THE BUSINESS While the accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities during the normal course of operations, certain adverse conditions and events cast substantial doubt upon the validity of this assumption. The Company has not yet realized profitable operations and has relied on non-operational sources of financing to fund operations. The Company's ability to continue as a going concern will be dependent on management's ability to successfully execute its business plan including an increase in revenue and seeking additional forms of debt or equity financing. Additional debt or equity financings such as issuance of loans or debentures, issuance of shares, conversion of warrants and exercise of options in the amount of $2.25 million are estimated to be required for 2003. The Company cannot provide assurance that efforts to raise such additional financings will be successful. During the period January 1 to May 14, 2003, 833,333 common shares were issued to an officer of the Company for proceeds of $200,000. These financial statements do not include adjustments or disclosures that may result from the Company's inability to continue as a going concern. If the going concern assumption were not appropriate for these financial statements, then adjustments would be necessary in the carrying value of assets and liabilities, and the reported net losses and balance sheet classifications used. Management believes that continued existence beyond 2003 is dependent on its ability to increase revenue from existing products, and to expand the scope of its product offering which entails a combination of internally developed software and partnerships with third parties. - 68 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 3. SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in Canada, which are substantially the same as generally accepted accounting principles in the United States (U.S. GAAP), except as disclosed in Note 20. The accompanying consolidated financial statements are prepared using accounting principles applicable to a going concern, which assumes that the Company will continue in operation for a reasonable period of time and will be able to realize its assets and discharge its liabilities in the normal course of operations (see Note 2). PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and subsidiaries over which it exercises control and its proportionate share of the assets, liabilities, revenue and expenses of a jointly controlled company during the period of ownership, September 1999 to May 2001. Business acquisitions are accounted for under the purchase method and operating results are included in the consolidated financial statements as of the date of the acquisition of control. All material intercompany transactions have been eliminated. INVESTMENT IN ASSOCIATED COMPANY The investment in associated company is accounted for under the equity method (see Note 19(a)). This method is considered appropriate based upon management's evaluation of its ability to determine the strategic operating policies of the associated company without the cooperation of others, its ability to obtain future economic benefits from the associated company, and its exposure to the related risks of ownership. U.S. GAAP requires consolidation of the investment in associated company. The impact of this difference in U.S. GAAP from Canadian GAAP is disclosed in these financial statements in Note 20 - Reconciliation of United States GAAP. MARKETABLE SECURITIES Marketable securities include registered equity instruments, all of which are carried at the lower of cost and quoted market value. Net unrealized losses on marketable securities related to an impairment determined to be other than temporary in nature are determined on the specific identification basis and are included in the Consolidated Statements of Operations. In 2000, marketable securities included unregistered equity instruments of publicly traded companies that were not freely trading until a future date. Unregistered equity instruments were valued at freely trading market values less a discount factor. The Company did not have any unregistered equity instruments at December 31, 2002 or 2001. Marketable securities also include interest-bearing certificates carried at cost plus accrued interest which approximate market value. ADVERTISING Until October 2000, the Company incurred advertising expenses related to its retail sales. The Company expensed the costs of producing advertisements at the time production occurred, and expensed the costs of communicating advertising in the period in which the advertising space or airtime was used. Internet advertising expenses were recognized based on specifics of the individual agreements, but generally using the greater of (i) the ratio of the number of impressions delivered over the total number of impressions and (ii) the straight-line basis over the term of the contract. This policy complies with the requirements of Statement of Position No. 93-7, "Reporting on Advertising Costs," issued by the American Institute of Certified Public Accountants. - 69 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- CAPITAL ASSETS AND AMORTIZATION Capital assets are carried at cost less accumulated amortization. Amortization is calculated on a straight-line basis in amounts sufficient to amortize the cost of capital assets over their estimated useful lives as follows: Computer hardware 30% per year Furniture and fixtures 20% per year Building 5% per year Leasehold improvements life of the lease STRATEGIC INVESTMENTS Strategic investments are carried at the lower of cost and estimated net realizable value. Management has assessed the carrying value of the investments and recorded an impairment provision based on management's best estimate of net realizable value. SOFTWARE DEVELOPMENT COSTS The cost of non-core software internally developed for client applications through e-commerce enabling agreements and software licensing is expensed as incurred. The cost of core software internally developed for client applications through e-commerce enabling agreements is capitalized and is amortized over two years. The cost of core software internally developed for software licensing contracts is expensed as incurred. The cost of acquired software and internally developed software for use in on-line retail operations was expensed as incurred. ACQUIRED SOFTWARE The cost of core software acquired as a result of the acquisition of ADB Systemer ASA has been capitalized and is amortized over three years, the estimated useful life of the software. TRADEMARKS AND INTELLECTUAL PROPERTY Trademarks and intellectual property are recorded at cost and amortized on a straight-line basis over two years. Trademarks and intellectual property acquired as a result of the acquisition of ADB Systemer ASA, and directly attributable to core software, have been capitalized and are amortized over three years, the estimated useful life of the software. GOODWILL In 2001, the Company adopted the provisions of the Canadian Institute of Chartered Accountants Handbook sections 1581 and 3062, whereby the purchase price of an acquired business is allocated to all assets and liabilities, including identifiable intangible assets based on their fair values. Any purchase price in excess of those fair values is recorded as goodwill. Goodwill must be tested annually for impairment on a fair value basis, and where the carrying value exceeds fair value, a goodwill impairment loss must be recorded. This new accounting policy is effective January 1, 2002 with a transition provision beginning July 1, 2001. Management assessed the carrying value of the goodwill arising from the acquisition of ADB Systemer, and determined that a permanent decline had occurred in the fair value of goodwill at December 31, 2001 based on estimated future cash flows from the business acquired. Prior to the adoption of the most recent accounting standards, the excess of the purchase price over the fair value of net assets arising on the acquisition of a jointly controlled company in 1999 was capitalized, and amortized over seven years. Management assessed the carrying value of the goodwill and recorded an impairment provision in 2000 based on estimated future cash flows. - 70 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- TRANSLATION OF FOREIGN CURRENCIES The accompanying consolidated financial statements are prepared in Canadian dollars. All foreign denominated transactions, other than those of self-sustaining subsidiaries, are translated using the temporal method whereby monetary assets and liabilities are translated at the rates in effect on the balance sheet date, non-monetary items at historical rates and revenue and expenses at the average monthly rate. Gains and losses from foreign exchange translations are included in the statements of operations. The Company's foreign subsidiaries in the United States, Ireland, the United Kingdom, and Australia are classified as fully integrated with the functional currency being the Canadian dollar. The Company uses the temporal method of foreign currency translation for these operations. Monetary assets and liabilities are translated at the exchange rates in effect on the balance sheet date. Non-monetary assets are translated at historic exchange rates. Revenue and expense amounts are translated using the average exchange rate for the year except amortization of capital assets which are translated at historic exchange rates. Gains and losses from foreign exchange translations are included in the statement of operations. The Company's subsidiary in Norway is classified as a self-sustaining operation whereby the functional currency of the operation is the Norwegian krone. The Company uses the current rate method of translation for these operations. Assets and liabilities are translated at the rate of exchange in effect at the balance sheet date. Revenue and expenses (including depreciation and amortization) are translated using the average exchange rate for the year. Gains and losses from foreign exchange translations are included as a separate component of shareholders' equity. LOSS PER SHARE On January 1, 2001, the Company adopted the provisions of The Canadian Institute of Chartered Accountants Handbook section 3500, "Earnings per Share," whereby the treasury stock method of calculating diluted earnings per share is used. For the years presented, all stock options and warrants are anti-dilutive, therefore diluted loss per share is equal to basic loss per share. The basic loss per share calculation is based on the weighted average number of shares outstanding during the year. REVENUE RECOGNITION a) License and related services agreements The Company has agreements to provide software licenses for client-server- based software applications. The Company adopted the provisions of Statement of Position 97-2 "Software Revenue Recognition," and Statement of Position 98-9 "Software Revenue Recognition With Respect to Certain Transactions," in its accounting for revenue recognition on delivery of software licenses. Revenue is recognized on physical delivery for software licenses when undelivered elements are not essential to the functionality of the license. When software licenses are delivered and require additional elements essential to the functionality of the license, such as consulting and implementation services, license revenue is recognized on a percentage of completion basis until all services requisite to the functionality of the license have been delivered and vendor specific objective evidence of the fair value of each component exists. Software licenses are granted for an indefinite term. The Company also has agreements to provide maintenance, support, and training services. Revenue from maintenance and support agreements is recognized over the term of the agreement. Revenue from training services is recognized when these services are provided. The Company also has agreements that principally include the provision of a software license, but also contain additional deliverable elements, such as the provision of upgrades and hosting services. For these contracts, where vendor-specific objective evidence criteria for independent recognition of revenue elements do not exist, revenue is recognized over the term of the agreement or three years when a revenue sharing arrangement exists. Revenue from net revenue sharing arrangements is recorded as received. - 71 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- b) E-commerce enabling agreements The Company has agreements where it has become an e-commerce enabler to various businesses. The Company adopted the provisions of Statement of Position 98-9, "Software Revenue Recognition," issued by the American Institute of Certified Public Accountants in its accounting for multiple element e-commerce enabling agreements. The Company's multiple element e-commerce enabling agreements are comprised of revenue for providing consulting, implementation, training, and hosting services. Revenue from individual elements of each contract is recognized when vendor-specific objective evidence exists to determine the fair value of individual contract elements. When vendor specific objective evidence exists, consulting, implementation, and training elements are recognized as services are provided and the hosting element is recognized ratably over the term of the contract. In the absence of vendor specific objective evidence, the Company defers and amortizes all revenue from individual contract elements ratably over the term of the contract. c) Sale of retail products and related activities Revenue from product sales, commission, shipping, and handling is recognized when goods are shipped to customers. The Company curtailed its on-line retail operations in October 2000. During 2002, the non-consolidated investee, Bid.Com Ltd. resumed on-line retail activities (Note 19(a)). DEFERRED REVENUE Deferred revenue is comprised of the unrecognized portion of consulting and implementation fees received in maintenance and support e-commerce enabling agreements, and the unrecognized portion of license, installation, and consulting revenue on the sale of software licenses and related services. CUSTOMER ACQUISITION COSTS Customer acquisition costs are comprised of the calculated fair value of common share purchase warrants issued to customers in return for certain agreements. These amounts are deducted from gross revenue to the extent that revenue is earned, and are otherwise included in general and administrative expenses. The fair value of these warrants is calculated based on the Cox-Rubinstein binomial valuation model. DEFERRED CHARGES Deferred charges are comprised of expenditures incurred in obtaining a demand loan and issuance of secured subordinate notes and are amortized over their terms on a straight-line basis. SECURED SUBORDINATED NOTES Financial instruments that contain both a liability and an equity element are required to have the instrument's component parts classified separately under Canadian GAAP. The Company uses the Cox-Rubinstein binomial valuation model to determine the fair value of the conversion feature at the issue dates of convertible secured subordinated notes and discloses the liability and equity components separately on its balance sheet. U.S. GAAP does not permit separate disclosure of different elements of a financial instrument in the financial statements. The impact of this difference in U.S. GAAP from Canadian GAAP is disclosed in the notes to these financial statements under Reconciliation of U.S. GAAP (Note 20). STOCK-BASED COMPENSATION Under Canadian generally accepted accounting principles, stock options granted to employees are not required to be recorded in the accounts of the Company. Stock options to employees under U.S. GAAP are accounted for in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees". Accordingly, under both Canadian and U.S. GAAP no accounting recognition is given to stock options granted to employees at fair market value until they are exercised. Upon exercise, proceeds are credited to shareholders' equity. The Canadian Institute of Chartered Accountants issued Handbook section 3870, "Stock-based Compensation and Other Stock-based Payments," effective January 1, 2002. The impact of this standard is disclosed in Note 9 to the financial statements. The impact of Statement of Financial Accounting Standards (SFAS) 123, "Accounting for Stock-Based Compensation," is disclosed in the notes to these financial statements under Reconciliation of U.S. GAAP (Note 20). - 72 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Stock-based compensation to third parties is recognized and recorded in the accounts of the Company at the fair market value of the equity instrument as determined by the Cox-Rubinstein binomial valuation model. INCOME TAXES The Company accounts for income taxes in accordance with the liability method. The determination of future tax assets and liabilities is based on differences between the financial statement and income tax bases of assets and liabilities, using substantively enacted tax rates in effect for the period in which the differences are expected to reverse. Future tax assets are recorded to recognize tax benefits only to the extent that, based on available evidence, it is more likely than not that they will be realized. USE OF SIGNIFICANT ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. 4. CAPITAL ASSETS
2002 2001 -------------------------------------- -------------------------------------- Accumulated Net Book Accumulated Net Book Cost Amortization Value Cost Amortization Value ---- ------------ -------- ---- ------------ -------- (in thousands) Computer hardware $ 2,659 $ 2,423 $ 236 $ 2,889 $ 1,949 $ 940 Furniture and fixtures 465 268 197 468 201 267 Leasehold improvements 151 141 10 151 129 22 Building - - - 105 2 103 ------- -------- ----- ------- -------- ------- $ 3,275 $ 2,832 $ 443 $ 3,613 $ 2,281 $ 1,332 ======= ======== ===== ======= ======== =======
5. DEFERRED CHARGES The Company incurred $874,000 of expenditures in obtaining a demand loan (Note 6). These expenditures are being amortized on a straight-line basis over the term of the loan, which matures on June 30, 2003. The Company also incurred financing costs of $150,000 in connection with private placements entered into during the year (Note 9(e)(i) and (ii)). At December 31, 2002, $511,000 of amortization expense has been incurred. 6. DEMAND LOAN During the year ended December 31, 2002, the Company entered into a series of agreements which resulted in the completion of a series of transactions (collectively the "Transaction") whereby the Company received a secured demand loan in the aggregate principal amount of $2,000,000. The loan carries an interest rate of 12% compounded monthly, and is secured by a general security agreement on the assets of the Company and a pledge of the shares of the Company's Norwegian subsidiary. The loan matures on the earlier of June 30, 2003 and demand for repayment by the lender. The Company may at its discretion repay the loan in cash or transfer to the lender 100% of the issued shares of Bid.Com Ltd. in full settlement of the outstanding principal amount and accrued interest then owing to the lender (Note 19(a)). The Company and each of its subsidiaries indemnify the lender against losses incurred arising from inaccuracies in representations provided to the lender, breaches of any covenants or agreements and obligations or liabilities of any kind to the Company not set forth in the loan agreement between the Company and the lender. - 73 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 7. SECURED SUBORDINATED NOTES During the year ended December 31, 2002, the Company issued a total of $1.12 million in principal of secured subordinated notes (collectively the "Notes") in four series. Series A, B, and C notes were issued to Stonestreet Limited Partnership ("Stonestreet") and Series D notes were issued to private investors including directors and/or senior officers. Series A, B, and D notes are due December 31, 2004, at an interest rate of 8%. Series C notes are due December 31, 2004, and bear interest at 8%, which is payable only from and after maturity or upon conversion or in an event of default. On October 22, 2002, after obtaining shareholder approval, Series A, B, and D notes became convertible into units at $0.12 per unit at the option of the holder. Each Series A, B, and D unit consists of one common share and one-half common share purchase warrant, with each whole warrant exercisable into one common share at $0.14. Series C notes also became convertible into common shares at a conversion price of $0.12 per share at the option of the holder or at the option of the Company (see also Note 9(e(ii)) and 9(f(iii))). The Company issued $120,000 in Series C notes in exchange for the waiver of certain US registration rights granted to Stonestreet pursuant to a subscription agreement dated April 25, 2002 (Note 9(e(i))). Accordingly, the Company has recorded the issuance of the Series C notes as secured subordinated notes in shareholders' equity. In the event of conversion of all Series A, B, and C notes, Stonestreet would, combined with its previous private placement investments, own 13.15 million common shares of the Company representing 24% of the outstanding shares of the Company. The Series D secured subordinated notes included $135,000 issued to four directors or senior officers of the Company. As part of this private placement, the Company has issued 150,000 common share purchase warrants to an associate of Stonestreet in partial consideration for securing such placement and for due diligence services. Each such warrant entitles the holder to purchase one common share of the Company for $0.14 at any time up to and including December 31, 2004. As required by Canadian GAAP, the Company has separated the liability and equity components of the Series A, B, and D secured subordinated notes. Using the Cox-Rubinstein binominal valuation model, the Company has determined the fair value of the conversion feature and attached warrants at the issue dates of the secured subordinated notes. The fair values of the conversion feature of the units, comprised of shares and attached warrants, and liability component of the secured subordinated notes issued were $636,000, $300,000 and $64,000, respectively. The $64,000 liability component is being accreted to $1 million over the term of the Series A, B, and D notes through the recording of non cash interest expense until such date at which the underlying notes are converted into common shares. Secured subordinated notes with a nominal value of $915,000 were converted to units during the year. None of the warrants attached to the units have been converted to common shares. - 74 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 8. INCOME TAXES Effective January 1, 2000, the Company adopted accounting for income taxes under the liability method. Under the liability method, a future tax asset is recorded based upon tax losses carried forward and differences in tax and accounting values in the Company's assets and liabilities. The tax asset is reduced by a valuation allowance to the extent that it is more likely than not that the asset would not be realized. The valuation allowance will be reviewed and adjusted as appropriate for each reporting period. At December 31, 2002 and 2001, the Company established the valuation allowance at 100% of the future tax asset.
2002 2001 ---- ---- (in thousands) Future tax asset Tax losses carried forward (a)) $ 4,215 $ 25,398 Difference in tax and accounting valuations for capital assets and investments (b) (305) 4,241 ------- -------- 3,910 29,639 Valuation allowance (3,910) (29,639) ------- -------- Future tax asset $ - $ - ======= ======== Provision for income taxes Income taxes at statutory rate $(2,781) $ (7,062) Tax losses carried forward 2,665 4,455 Difference in tax and accounting valuations for capital assets and investments 111 (1,178) Permanent differences for tax and accounting income 5 3,785 ------- -------- Provision for income taxes $ - $ - ======= ========
(a) The future tax asset for 2002 reflects a reduction in tax losses carried forward attributable to Bid.Com Ltd. of $23.848 million in respect to prior years as Bid.Com Ltd. is not consolidated. (b) The future tax asset for 2002 reflects a reduction in the difference in tax and accounting valuations for capital assets and investments carried forward attributable to Bid.Com Ltd. of $4.657 million in respect to prior years. Included in future tax asset difference in tax and accounting valuations for capital assets and investments for 2001 are $138,000 acquired on acquisition of ADB Systemer. The Company's tax loss carryforwards at December 31, 2002 expire as follows:
(IN THOUSANDS) -------------- 2008 $ 3,992 2009 1,576 2010 2,927 2011 1,044 2012 2,967 2013 1,140 ------- $13,646 =======
- 75 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 9. SHARE CAPITAL a) Authorized Unlimited number of common shares Unlimited number of preference shares - issuable in series b) Share consolidation On October 11, 2001, the Company's shareholders approved a two-for-one share consolidation. All share and option figures contained in these financial statements have been adjusted retroactively to reflect the share consolidation. c) Common shares
2002 2001 ---------------- ---------------- Common Common Shares Amount Shares Amount ------ ------- ------ ------- (IN THOUSANDS OF SHARES AND DOLLARS) Opening balance 38,185 $93,568 27,319 $83,724 Issued for cash: Exercise of options (Notes 9(d)) 30 11 - - Issuance of shares (Note 9(e)(i)) 4,300 1,495 - - Issuance of shares on conversion of debentures (Note 9(e)(ii)) 7,625 559 - - Issuance of shares on acquisition of ADB Systemer ASA (Note 16) - - 10,866 9,844 ------ ------- ------ ------- Closing balance 50,140 $95,633 38,185 $93,568 ====== ======= ====== =======
d) Stock Options (i) The Company has a stock option plan which provides for the issuance of stock options to employees, which may expire as much as 10 years from the date of grant, at prices not less than the fair market value of the common shares on the date of grant. The aggregate purchase price for employee options outstanding at December 31, 2002 was approximately $5.2 million (2001 - $15 million). The Management Resources and Compensation Committee of the Board of Directors reserves the right to attach vesting periods to stock options granted. Certain of the stock options outstanding at the end of 2002 are exercisable immediately, while the remainder have vesting periods attached which range from six months to 36 months. The options expire between 2003 and 2006. - 76 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- A summary of changes in the stock option plan for the two years ended December 31, 2002 is as follows:
NUMBER OF OPTIONS AVERAGE PRICE ----------------- -------------- 2002 2001 2002 2001 ------ ---- ---- ---- (IN THOUSANDS) Opening balance 2,884 1,924 $5.19 $11.08 Granted 1,299 1,138 0.43 1.42 Granted as replacement options on the acquisition of ADB Systemer ASA (Note 16) - 773 - 0.36 Exercised (30) - 0.36 - Cancelled (1,360) (951) 6.78 8.82 ------ ----- ----- ------ Closing balance 2,793 2,884 $1.84 $ 5.19 ------ ----- ----- ------ Exercisable, end of year 1,981 1,391 $2.51 $ 9.62 ------ ----- ----- ------ Options remaining for issuance under stock option plan 853 1,005 ====== =====
WEIGHTED NUMBER AVERAGE WEIGHTED NUMBER RANGE OF OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT WEIGHTED EXERCISE DECEMBER 31, 2002 CONTRACTUAL EXERCISE DECEMBER 31, 2002 AVERAGE PRICES (IN THOUSANDS) LIFE PRICE (IN THOUSANDS) EXERCISE PRICE ---------- ----------------- ----------- --------- ----------------- -------------- $.35-$.50 1,512 1.9 years $ 0.42 779 $ 0.40 $.60-$.90 639 1.1 years $ 0.65 598 $ 0.64 $2-$3 235 1.4 years $ 2.60 208 $ 2.60 $4-$6 229 0.9 years $ 5.59 219 $ 5.60 $12-$16 178 0.4 years $ 13.95 177 $ 13.87 ----- ----- 2,793 1,981 ===== =====
(ii) The Company also had stock options outstanding to third parties at December 31, 2002. The aggregate purchase price for third-party stock options outstanding at December 31, 2002 was $730,000 (2001 - $1,484,000). These options expire between 2003 and 2004. A summary of changes in the stock options to third parties for the two years ended December 31, 2002 is as follows:
NUMBER OF OPTIONS AVERAGE PRICE ----------------- ------------------ 2002 2001 2002 2001 ---- ---- ---- ---- (IN THOUSANDS) Opening balance 289 71 $5.13 $15.48 Granted 2 223 0.34 1.74 Exercised - - - - Cancelled (38) - 17.76 - --- --- ----- ------ Closing balance 253 289 $2.88 $ 5.13 --- --- ----- ------ Exercisable, end of year 253 282 $2.88 $ 5.14 === === ===== ======
- 77 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- e) Private Common Share Placement (i) On April 25, 2002, the Company entered into an agreement with Stonestreet for a $1.1 million private placement resulting in net proceeds of $945,000 after deducting costs of issue of approximately $155,000. As a result, the Company issued 3.3 million common shares and 1 million warrants exercisable into common shares at US$0.35 per share. On December 17, 2002, Stonestreet exercised all of these warrants for proceeds of $550,000 (Note 9(f(ii))) (ii) On August 30, 2002, the Company entered into a private placement agreement of secured subordinated notes (Series A, B, and D notes) with Stonestreet and a group of private investors for total gross proceeds of $1 million (see Note 7). Pursuant to the agreement with Stonestreet dated April 25, 2002, the Company also issued a $120,000 secured subordinated note (Series C) in exchange for the waiver of certain US registration rights granted to Stonestreet. On October 22, 2002, after obtaining shareholder approval, the above-noted debt instruments became convertible into units at the option of the holder. Each Series A, B, and D unit consists of one common share and one-half common share purchase warrant. Series C notes also became convertible into common shares at a conversion price of $0.12 per share at the option of the holder or at the option of the Company. Upon conversion, the Company will issue 9.333 million common shares for no additional consideration and 4.167 million warrants exercisable into an equal number of common shares at $0.14 per share. As at December 31, 2002, the Company had issued a total of 7.625 million common shares and 3.313 million warrants upon conversion of debt instruments. None of the 3.313 million warrants had been converted into common shares at December 31, 2002. The remaining number of common shares and warrants to be issued upon the above noted secured subordinated notes are 1.708 million shares and 854,000 warrants. (iii) On June 16, 2000, the Company issued 450,395 common shares at a price of $6.98 per share in a private placement. The Company received net proceeds of $3.12 million (after deducting costs of issue of approximately $21,000). Pursuant to the agreement to issue common shares, the Company issued 0.4 share purchase warrants for each common share, entitling the investee to 180,158 additional shares at a price of US$5.36 per share. These share purchase warrants expired on June 16, 2002. f) Share Purchase Warrants under Private Placement Equity Issues A summary of changes in the warrants issued to investors and proceeds which would be realized if exercised for the two years ended December 31, 2002 is as follows:
2002 2001 ------------------ ----------------- Warrants Amounts Warrants Amounts ----- ------ ------ -------- (in thousands) Opening balance 1,300 $9,743 1,620 $ 28,074 Granted (Note 9(f(ii),(iii),(iv))) 6,513 1,962 - - Granted as replacement warrants on acquisition of ADB Systemer ASA (Notes 9(f(i)) and 16) - - 608 219 Cancelled (Note 9(e(iii) and f(iv))) (692) (9,524) (928) (18,550) Exercised (Note 9(f(ii))) (1,000) (550) - - ----- ------ ----- -------- Closing balance 6,121 $1,631 1,300 $ 9,743 ===== ====== ===== ========
- 78 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- i) Acquisition of ADB Systemer ASA On October 11, 2001, the Company acquired 98.3% of the outstanding common shares of ADB Systemer ASA. As a result of the acquisition, the Company issued 607,600 share purchase warrants with a strike price of two Norwegian kroner, in exchange for 700,000 share purchase warrants in ADB Systemer ASA. These warrants retain all of the characteristics of the original warrants and have specific exercise dates of March 31, 2002 and March 31, 2003, expiring March 31, 2003 (see Note 16). ii) Private Placement On April 25, 2002, the Company issued 1 million warrants at US$0.35 per warrant as part of a private placement with Stonestreet (Note 9(e(i))). These warrants were converted into common shares on December 17, 2002 for proceeds of $550,000. Pursuant to the April 25, 2002 private placement, the Company issued 50,000 warrants to an associate of Stonestreet for partial consideration in securing the funding and due diligence services. These warrants expire on April 25, 2005 and are convertible into common shares at US$0.35 per common share. iii) Convertible Subordinated Debentures During the year, the Company issued a total of 3.313 million warrants convertible into one common share at $0.14 per share to a number of private investors (see Note 9(e)(ii)). These warrants remained unconverted at December 31, 2002. Pursuant to the August 30, 2002 private placement, the Company issued 150,000 common share purchase warrants to an associate of Stonestreet for partial consideration in securing the placement and due diligence services. These warrants expire December 31, 2004 and are convertible into common shares at $0.14 per common share. iv) Strategic Marketing Agreement On March 28, 2000, pursuant to a strategic marketing agreement with one of its key customers, the Company issued 512,500 common share purchase warrants at a price of $15.80 per warrant. Each common share purchase warrant entitles the holder to acquire one common share. These warrants had been fully vested and were cancelled on December 13, 2002. On December 13, 2002, the Company issued 2 million warrants convertible into common shares of the Company to this customer at an exercise price of $0.45 under a two-year term from date of issuance. The vesting of warrants was based on achieving a number of performance objectives. - 79 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (g) The following table sets forth the computation of basic and diluted loss per share.
2002 2001 2000 ---- ---- ---- (in thousands, except per share amounts) NUMERATOR: Net Loss (numerator for basic loss per share applicable to common shares) $ (9,364) $ (18,714) $ (20,366) -------- --------- --------- DENOMINATOR: Weighted average shares (denominator for basic loss per share) 41,968 29,130 26,844 -------- --------- --------- Basic loss per share $ (0.22) $ (0.64) $ (0.76) -------- --------- ---------
For each year ended, the Company excluded the effect of all stock options and warrants as their impact would have been anti-dilutive. (h) Stock-based compensation to employees The Company adopted the provisions of Canadian Institute of Chartered Accountants Handbook section 3870 effective January 1, 2002. This Section establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services and applies to transactions, including non-reciprocal transactions, in which an enterprise grants shares of common stock, stock options, or other equity instruments, or incurs liabilities based on the price of common stock or other equity instruments. The Company does not record compensation expense for stock options granted to employees. Upon exercise, proceeds are recorded to shareholders' equity. Under Canadian generally accepted accounting principles, the Company is required to disclose the pro-forma net income (loss) and pro-forma income (loss) per share had the Company adopted the fair value method of accounting for stock based compensation awarded on or after January 1, 2002. The following outlines the impact and assumptions used if the compensation cost for the Company's stock-based employee compensation plans was determined under the fair value based method of accounting for awards granted on or after January 1, 2002 using the Cox-Rubinstein binomial valuation model:
2002 ---- Dividend yield - Risk free interest rate 3.69% Volatility 131.51% Expected term, in years 2.00
- 80 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- If the estimated fair values of the Company's stock options to employees had been amortized to expense over the vesting period of the awards as specified under CICA 3870, the loss attributable to common shareholders and the basic and diluted loss per share on a pro forma basis (as compared to such items as reported) would have been:
2002 ------------- (in thousands except per share amounts) Loss attributable to common shareholders As reported $ (9,364) Pro forma $ (9,608) Basic and diluted loss per share As reported $ (0.22) Pro forma $ (0.23)
10. FINANCIAL INSTRUMENTS Foreign exchange risk The Company's revenue from software licensing and related services and e-commerce enabling agreements is transacted in various currencies including the Canadian dollar, U.S. dollar, UK pound, Euro, and Norwegian krone. Correspondingly, operating expenses related to these activities are transacted in the above denoted currencies. The Company does not use derivative instruments to manage exposure to foreign exchange fluctuations. The Company incurred $28,938 in foreign exchange losses in 2002 (2001 - $94,968; 2000 - $4,225). The Company transacts the majority of its retail product sales and purchases in U.S. dollars. Interest rate risk The Company has limited exposure to fluctuations in interest rates. The Company does not use derivative instruments to reduce its exposure to interest rate risk. Credit risk Credit risk arises from the potential that a customer will fail to meet its contractual obligations under a software licensing and related services agreement or an e-commerce enabling agreement. Fair value Fair value of monetary assets and liabilities approximate amounts at which they would be exchanged between knowledgeable and unrelated persons. The amounts recorded in the financial statements approximate fair value. Equity Instruments During 2001, the Company was exposed to fair value fluctuations of publicly-traded common shares received in connection with the disposal of one of its strategic investments. To mitigate this risk, the Company engaged in the purchase of call and the sale of put options. The Company did not engage in the purchase of call or put options exceeding the number of shares held. As at January 31, 2002, all common shares and related call and put options had been disposed of. - 81 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 11. COMMITMENTS AND CONTINGENCIES (a) Minimum payments under operating leases during the next three years are as follows:
(IN THOUSANDS) -------------- 2003 $ 811 2004 299 2005 51
(b) As a result of a review of statutory reporting obligations regarding employee benefits, the Company has identified a potential for non-compliance. The employees and regulators concerned have been notified. The probability and amount of any potential liability relating to this situation is presently not determinable. (c) The Company has entered into compensation arrangements with certain of its employees. In the event of involuntary termination, the Company may be liable for potential payments totalling $610,000 to these employees. (d) The Company entered into a licencing agreement with NCR Corporation on April 29th, 2002. The agreement provides the Company with access to specific technology patents over a seven year period for US$100,000 annually. 12. CHANGE IN NON CASH OPERATING WORKING CAPITAL
2002 2001 2000 ---- ---- ---- (IN THOUSANDS) Accounts receivable $ (522) $ (12) $ 210 Inventory - - 155 Deposits and prepaid expenses (45) 251 3,399 Accounts payable 224 (1,040) (2,391) Accrued liabilities 427 5 (1,093) Deferred revenue (23) (2,121) 542 ------- ------- ------- $ 61 $(2,917) $ 822 ======= ======= =======
13. RETAIL ACTIVITIES The Company ceased its on-line retail activities in October 2000, however, in 2001 it was required to settle certain amounts payable relating to product sales of previous years. These amounts were not previously anticipated and did not recur in 2002. In connection with these on-line retail activities, the Company held special promotional pricing to stimulate new bidder registrations and first-time sales. The Company incurred $558,000 in special promotional pricing costs in 2000, which were included in advertising and promotion. No promotional pricing expense was incurred in 2001 and 2002. The Company's non-consolidated investment, Bid.Com Ltd., recommenced on-line retail activities in 2002 (Note 19(a)). - 82 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 14. REALIZED GAINS AND LOSSES ON DISPOSAL OF MARKETABLE SECURITIES, STRATEGIC INVESTMENTS AND CAPITAL ASSETS, AND RECOVERY OF ASSETS
2002 2001 2000 ---- ---- ---- (IN THOUSANDS) Gain on disposal of strategic investment (Note 14(a) and (b)) $ 41 $ 6 $20,697 Gain on disposal of capital assets (Note 14(c)) 23 - - (Loss) gain on disposal of marketable securities (Note 14(d)) (149) 3,656 249 Gain on disposal on Point 2 (Note 14(e)) - 2,249 - Recovery of Point2 receivable (Note 14(e)) - 811 - ------- ------- ------- $ (85) $ 6,722 $20,946 ======= ======= =======
(a) During 2002, the Company disposed of its strategic investments, resulting in cash proceeds of $126,000 and a realized gain of $41,000. (b) In August 2000 the Company's investment in Quack.com Inc. was acquired by America Online Inc. (AOL). In exchange for its shares in Quack.com Inc., the Company received 278,027 unregistered shares of AOL valued at $21.9 million, resulting in a gain of $20.7 million. (c) During 2002 the Company disposed of capital assets that were no longer required due to restructuring efforts, resulting in a gain of $23,000. (d) The Company disposed of 120,000 of its AOL shares in November 2000, and recognized a gain of $249,000. In January 2001, the Company's unregistered AOL shares became freely trading and the Company sold 122,801 shares for gross proceeds of $10.0 million, realizing a gain of $3.7 million. In January 2002, the Company sold its remaining shares for gross proceeds of $1.3 million and a realized loss of $143,000. (e) In May 2001, the Company sold its equity interest in Point2 Internet Systems Inc. (Point2) for $2.7 million in cash. The Company realized a gain of $2.2 million, and recovered a receivable from Point2 that had been provided for in 2000. 15. UNREALIZED GAINS AND LOSSES ON REVALUATION OF MARKETABLE SECURITIES AND STRATEGIC INVESTMENTS, AND PROVISION FOR IMPAIRMENT OF ASSETS
2002 2001 2000 ---- ---- ---- (IN THOUSANDS) Revaluation of strategic investments (Note 15(a)) $ (24) $ (1,510) $ (5,600) Revaluation of marketable securities (Note 15(b)) - - (4,846) Provision for impaired assets (Note 15(c)) - (925) - Provision for receivable from Point2 (Note 15(d)) - - (802) Provision for impaired intangible assets (Note 15(e)) - - (401) Provision for non-trade receivable - - (48) -------- -------- -------- $ (24) $ (2,435) $(11,697) ======== ======== ========
- 83 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (b) The Company reviewed the carrying value of each of its strategic investments and determined that in light of recent financial performance of each investment and market conditions, the decline in value of these investments was other than temporary, and a revaluation was required. (c) The Company reviewed the market value of its shares in America Online Inc, at December 31, 2001 and 2000, and determined that a mark to market adjustment was required. (d) The Company reviewed the carrying value of a prepaid advertising asset during the first quarter of 2001 and determined the future value of this asset had been significantly reduced as a result of recent market conditions and changes to the Company's business-to-business marketing strategy. (e) As a result of reviewing the carrying value of its investment in Point2, the Company determined that a portion of the receivable from that investee was not recoverable as at December 31, 2000. (f) The Company determined that the intangible assets of Point2 had become permanently impaired as at December 31, 2000. 16. ACQUISITION OF ADB SYSTEMER ASA On October 11, 2001, the Company acquired 98.3 per cent of the outstanding shares of ADB Systemer of Sola, Norway. ADB Systemer was a publicly-traded software vendor focused on enterprise asset management and integrated electronic procurement. ADB Systemer has wholly-owned subsidiaries in the United States and in the United Kingdom. The purchase price for 12,518,493 of the outstanding ADB Systemer common shares was $13.762 million. The purchase price was comprised of $2.293 million in cash, $9.844 million of common stock issued from treasury, acquisition costs of $765,000, employee stock options with a fair market value of $576,000 granted to ADB Systemer employees as replacement options and warrants with a fair market value of $284,000 issued to ADB Systemer warrant holders as replacement warrants. Common stock issued from treasury totaled 10,866,052 shares (21,732,104 pre-consolidation) with a value of $9.844 million based on a five-day trading average before and after September 10, 2001, the date the acquisition was announced to the general public. The purchase price for ADB Systemer did not include any contingent payments, options, or commitments. The purchase price of $13.762 million was allocated as follows:
2001 -------------- (IN THOUSANDS) Net monetary assets (including cash of $814) $ 418 Capital assets 308 Contractual agreements 177 Acquired software and related intellectual property 3,383 Goodwill 9,476 -------- Total purchase price $ 13,762 ========
ADB Systemer's operations were consolidated after the effective date of the acquisition, October 11, 2001. The amortization periods for contractual agreements and software and related intellectual property are 12 and 36 months respectively. Goodwill is not amortized, but will be subject to an impairment test where the carrying value of goodwill would be compared to its fair value. In the event the carrying value of goodwill exceeds its fair value, a goodwill impairment will be recorded. At December 31, 2001, the carrying value of goodwill was tested for impairment, and it was determined that a goodwill impairment of $9.476 million was required. Goodwill is not deductible for tax purposes. - 84 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 17. INVESTMENT IN A JOINTLY CONTROLLED COMPANY In 1999 the Company acquired a 51 per cent interest in Point2 Internet Systems Inc. ("Point2") by issuing $2,500,000 of common shares and common share purchase warrants to acquire $2,000,000 of common shares for no additional consideration. The warrants were exercised in 2000. The Company acquired 51 percent of the shares of Point2 but only elected 50 percent of the board of directors. The investment was accounted for on a proportionate consolidation basis and the Company recorded its proportionate share of revenue and expenses, assets and liabilities from the date of acquisition. Of the total purchase price, $134,000 was allocated to current assets, $521,000 to non-current assets and $28,000 to current liabilities resulting in goodwill of $2,044,000. An additional $2,000,000 of goodwill arose on the exercise of two warrants during 2000. At December 31, 2000, the Company provided $3,593,000 for the unamortized portion of goodwill (Note 18). In May 2001, the Company sold its equity interest in Point2 for $2,600,000 in cash. The Company realized a gain of $2,200,000, and recovered a receivable from Point2 provided for in 2000. Condensed income statement and cash flow information for Point2 for the five month period ended May 31, 2001, and the year ended December 31, 2000, is as follows:
2001 2000 ---- ---- (IN THOUSANDS) Revenue $192 $ 348 Net loss 293 3,003 Change in cash resources - (14)
18. GOODWILL IMPAIRMENT The Company reviewed the carrying value of goodwill acquired in connection with the acquisition of ADB Systemer. The carrying value of goodwill was tested against its fair value and it was determined that a goodwill impairment of $9.476 million was required at December 31, 2001 (Note 16). For the year ended December 31, 2002 a goodwill impairment of $14,000 was recorded on goodwill acquired in connection with the purchase of shares of the non-controlling interest shareholders of ADB Systemer. The permanent decline in the fair value arose on a downturn in economic conditions resulting in lower than previously anticipated cash flows. The Company determined that the carrying value of goodwill acquired in connection with the acquisition of Point2 had become permanently impaired at December 31, 2000 (Note 17). - 85 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 19. RELATED PARTY TRANSACTIONS a. On August 30, 2002, the Company entered into a series of agreements with a lender, an unrelated party, whereby the lender granted to the Company a secured loan in the aggregate principal amount of $2 million (Note 6). The Company and the same unrelated party also entered into an arrangement whereby on-line retail operations will be conducted by Bid.Com Ltd. These operations will utilize the on-line retail technology, experience and expertise of the Company developed and operated under the name "Bid.Com International Inc." in the on-line selling of consumer products to be supplied by the lender. The loan matures on the earlier of June 30, 2003 or upon demand for repayment by the lender. The Company will have the right after June 1, 2003 or upon demand for payment to repay the loan in cash or to transfer to the lender 100 percent of the issued shares of Bid.Com Ltd. in full settlement of the outstanding principal and accrued interest owing to the lender. The Company owns 100 per cent of the issued and outstanding shares of Bid.Com Ltd., but has determined that, for accounting purposes, consolidation of Bid.Com Ltd. is not appropriate. This determination is based upon the Company's evaluation of its continuing ability to determine the strategic operating policies of Bid.Com Ltd. without the cooperation of others, its ability to obtain future economic benefits from the resources of Bid.Com Ltd., and its exposure to the related risks of ownership. Therefore, the Company accounts for its investment in Bid.Com Ltd. on the equity basis. The Company is not exposed to losses incurred by Bid.Com Ltd., and accordingly this investment is carried at a nominal amount. U.S. GAAP requires consolidation of the investment in Bid.Com Ltd. in the financial statements. The impact of this GAAP difference from Canadian GAAP is disclosed in Note 20. Condensed balance sheet information for Bid.Com Ltd. as at December 31, 2002 is as follows:
2002 -------------- (IN THOUSANDS) Current assets $ 435 Capital assets 71 Current liabilities 701 Shareholder's deficiency (195)
Condensed income statement and cash flow information for Bid.Com Ltd. for the two-month period ended December 31, 2002 is as follows:
2002 -------------- (IN THOUSANDS) Revenue $ 258 Net loss 195 Change in cash resources 358
Revenue of $243,000 related to Web-site development, support and maintenance services provided to Bid.Com Ltd. has been included in the consolidated results of the Company for the year ended December 31, 2002. In addition, during the year, the Company charged overhead related costs of $22,000 for rent, connectivity and management fees to Bid.Com Ltd.. These overhead charges have been recorded as a reduction of expenses in the consolidated financial statements for the year ended December 31, 2002. At December 31, 2002, accounts receivable includes $59,243 related to unpaid service and overhead fees charged during the year to Bid.Com Ltd. - 86 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- b. In February 2000, the Company entered into an agreement, valued at $1.5 million in shares in Art Vault Limited, plus a hosting fee and a share of net on-line auction revenues, under which it would provide its on-line auction technology and related services to Art Vault in which certain Directors of the Company, in aggregate, had a controlling interest. During 2001 the Company recorded $1 million (2000-$500,000) in revenue relating to this agreement by drawing down deferred revenue. In April 2001, Art Vault went into receivership, and the Company's investment in Art Vault was written down to zero (2000-$281,000). - 87 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 20. RECONCILIATION OF UNITED STATES GAAP The financial statements of the Company have been prepared in accordance with generally accepted accounting principles as applied in Canada, which conform in all material respects with generally accepted accounting principles in the United States, except as noted below. (a) Stock-based Compensation to Employees The Company adopted the provisions of The Canadian Institute of Chartered Accountants Handbook Section 3870 "Stock-Based Compensation" effective January 1, 2002. In accordance with Canadian GAAP, the Company is not required to recognize compensation expense for employee stock options, however, pro-forma disclosure giving recognition to the fair market value of options granted from January 1, 2002 has been provided in Note 9(h). Stock-based compensation under U.S. GAAP is accounted for in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, under both Canadian and U.S. GAAP no accounting recognition is given to stock options granted at fair market value until they are exercised. SFAS No. 123, "Accounting for Stock-Based Compensation," requires the disclosure of pro forma net income (loss) and earnings (loss) per share had the Company adopted the fair value method since the Company's inception. Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. The Company's calculations for employee grants were made using the Cox-Rubinstein binomial model with the following weighted average assumptions:
2002 2001 2000 ---- ---- ---- Dividend yield - - - Risk free interest rate 3.69% 4.02% 6.20% Volatility 131.51% 110.54% 105.00% Expected term, in years 2.00 2.77 3.11
If the estimated fair values of the Company's stock options to employees had been amortized to expense over the vesting period of the awards as specified under SFAS No. 123, the loss attributable to common shareholders and the basic and diluted loss per share on a pro forma basis (as compared to such items as reported) would have been:
2002 2001 2000 ---- ---- ---- (IN THOUSANDS) Loss attributable to common shareholders under U.S. GAAP As calculated (Note 20(g)) $ (9,947) $ (18,728) $ (20,352) Employee stock options expense (797) (1,601) (6,118) -------- ----------- ----------- Pro forma $(10,744) $ (20,329) $ (26,470) -------- ----------- ----------- Basic and diluted net loss per share: As reported $ (0.24) $ (0.64) $ (0.76) Pro forma $ (0.26) $ (0.70) $ (0.99)
(B) COMPREHENSIVE INCOME Financial Accounting Standards Board Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," requires disclosure of comprehensive income, which includes reported net earnings adjusted for other comprehensive income. Comprehensive income is defined as the change in net assets of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. - 88 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (c) Marketable Securities U.S. GAAP requires that the Company disclose marketable securities into one of three categories: held to maturity; available for sale; or trading. As at December 31, 2002 and 2001, the marketable securities held were classified as follows:
2002 2001 ---- ---- (in thousands) Trading $ 20 $ 1,462 Held to maturity - 196 Available for sale - 173
(d) Accumulated other comprehensive income Under Canadian GAAP, gains and losses from foreign exchange translations of subsidiaries classified as self-sustaining are included in the foreign currency translation component of shareholders' equity. Under U.S. GAAP, these gains and losses are included as a component of comprehensive income (loss). (e) Financial instruments with liability and equity elements Under Canadian GAAP, the secured subordinated notes (see Note 7) are recorded based upon the relative fair values of the liability and equity components of the instruments. The liability component is accreted to the face value of the subordinated notes over the term to maturity until the underlying notes are converted into common shares. Under U.S. GAAP, upon issuance, the secured subordinated notes would have been recorded as a liability and reclassified to equity only upon conversion. Further, under U.S. GAAP, the beneficial conversion feature represented by the excess of the fair value of the shares issuable on conversion of the subordinated notes, measured on the commitment date, over the amount of the proceeds to be allocated to the common shares upon conversion, would be allocated to contributed surplus. This results in a discount on the subordinated notes that is recognized as additional interest expense over the term of the subordinated notes and any unamortized balance is expensed immediately upon conversion of the subordinated notes. Accordingly, for U.S. GAAP purposes, the Company has recognized a beneficial conversion feature of $316,000 (presented net of $68,000 of accretion recorded under Canadian GAAP which is reversed under U.S. GAAP) from the amortization of the discount over the term to maturity of the subordinated notes as well as the unamortized discount for those subordinated notes converted during the year. Canadian GAAP does not require the recognition of any beneficial conversion feature. (f) Additional disclosures as required in accordance with U.S. GAAP U.S. GAAP requires the disclosure of accrued liabilities that exceed five percent of current liabilities. Included in accrued liabilities at December 31, 2002 are accrued compensation expenses (severance and unpaid vacation) of $482,000 (2001 - $454,000). U.S. GAAP requires the disclosure of non-cash interest components incurred during the year. In 2002, the Company incurred $108,000 in non-cash interest expense associated with the issuance of secured subordinated notes (Note 7). - 89 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (g) The effect of the differences from Canadian GAAP (Note 20(d) and (e) and (j)) on the Company's financial statements is set out below: Consolidated Balance Sheets
2002 2001 ---- ---- Cash (Note 20(j)) Accounts receivable (Note 20(j)) $ 1,695 $ 2,557 Capital assets (Note (20(j)) 1,846 1,288 514 1,332 Accounts payable (Note 20(j)) Accrued liabilities (Note (20(j)) 1,315 841 1,615 813 Secured subordinated notes Note 20(e)) 131 - Shareholders' equity 906 8,014
Consolidated Statements of Operations
2002 2001 2000 ---- ---- ---- (in thousands) Net loss for the year as reported under Canadian GAAP $ (9,364) $(18,714) $(20,366) Adjustments: Accretion of interest on secured subordinated notes (Note 20(e)) (248) - - Consolidation of investment in associated company (Note 20(j)) (195) - - Translation of foreign currency - (14) 14 -------- -------- -------- Net loss for the year as reported under U.S. GAAP (9,807) (18,728) (20,352) Preferential distribution to shareholder (Note 20(k)) (140) - - -------- -------- -------- Net loss attributable to common shareholders under U.S. GAAP $ (9,947) $(18,728) $(20,352) ======== ======== ======== Net loss for the year as reported under U.S. GAAP $ (9,807) $(18,728) $(20,352) Accumulated Other Comprehensive Income (Loss) (Note 20(d)) 32 14 (14) ======== ======== ======== Comprehensive Income (Loss) as reported under $ (9,775) $(18,714) $(20,366) U.S. GAAP ======== ======== ======== Basic and diluted net loss per share $ (0.24) $ (0.64) $ (0.76) ======== ======== ========
(h) Financial instruments impact of new accounting pronouncements Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections", requires that, for fiscal years beginning after May 15, 2002, gains and losses from the early extinguishments of debt no longer be classified as an - 90 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- extraordinary item, net of income taxes, but be included in the determination of pretax earnings. Management does not expect the adoption of the pronouncement to have any significant effect upon the Company's financial statements. Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities", requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. This statement is effective for exit and disposal activities that are initiated after December 31, 2002. Management does not expect the adoption of the pronouncement to have any significant effect upon the Company's financial statements. Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure", provides alternative methods of transitioning to the fair value based method of accounting for stock-based employee compensation. This statement also amends the previous disclosure requirements to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Management does not expect the adoption of the pronouncement to have any significant effect upon the Company's financial statements. Financial Accounting Standards Board issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", expanding the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees and requiring the guarantor to recognize a liability for the fair value of an obligation assumed under the guarantee. The disclosure requirements of this Interpretation are effective as of December 31, 2002. Recognition requirements are to be applied prospectively to guarantees issued or modified after December 31, 2002. Management has determined that the adoption of the pronouncement will not have any significant effect upon the Company's financial statements. The Canadian Institute of Chartered Accountants issued amendments to Handbook Section 1650 "Foreign Currency Translation" that require, effective January 1, 2002, that all unrealized translation gains and losses on assets and liabilities denominated in foreign currencies be included in earnings for the year, including gains and losses on long-term monetary assets and liabilities which were previously deferred and amortized on a straight-line basis over the remaining useful lives of the related items. Management has determined that the adoption of the new standard did not have a material impact on its financial statements. The Canadian Institute of Chartered Accountants issued Handbook Section 3870 "Stock-based Compensation and Other Stock-based Payments" that establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services effective January 1, 2002. The impact of the adoption of this new standard has been to provide the additional disclosure in Note 9(h). The Canadian Institute of Chartered Accountants implemented Accounting Guideline "Hedging Relationships" effective for fiscal years after July 1, 2003, which establishes certain conditions for when hedge accounting may be applied. As the Company does not establish hedging relationships, the adoption of this guideline is not expected to have any significant effect on the Company's financial statements. The Canadian Institute of Chartered Accountants issued a revised Handbook Section 3475 "Disposal of Long-Lived Assets and Discontinued Operations" that establishes criteria for the classification of long-lived assets as "held for sale" and requires that long-lived assets that are to be disposed of by sale be measured at the lower of carrying value or fair value less cost to sell. This new Section is effective for disposal activities initiated by the enterprise's commitment to a plan on or after May 1, 2003. Management does not expect the adoption of the new standard to have a material impact on its financial statements. The Canadian Institute of Chartered Accountants issued Handbook Section 3063 "Impairment of Long-Lived Assets" effective for fiscal years beginning on or after April 1, 2003. This Section requires that impairment for long-lived assets held for use be determined by a two-step process, with the first step determining when impairment is recognized and the second step measuring the amount of the impairment. An impairment loss is recognized when the carrying amount of a long-lived asset exceeds the sum of the - 91 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- undiscounted cash flows expected to result from its use and eventual disposition and is measured as the amount by which the long-lived asset's carrying amount exceeds its fair value. Management does not expect the adoption of the new standard to have a material impact on its financial statements. (i) Operating Loss U.S. GAAP requires that the Company disclose operating loss. Operating loss of the Company for the year was $9.232 million, comprised of net loss of $9.364 million plus realized and unrealized gains and losses on marketable securities and strategic investments of $132,000 (2001 - $20.866 million, comprised of net loss of $18.714 million less $2.152 million; 2000 - $30.866 million, comprised of net loss of $20.366 million less $10.500 million). (j) Investment in associated company U.S. GAAP requires consolidation of the Company's investment in the associated company described in Note 19(a). The effect of consolidation of this entity upon the Canadian GAAP balance sheet is reported in Note 20(g). Consolidation of this associated company causes 2002 consolidated revenue to increase to $5.795 million, and consolidated expenses to change to ending balances as follows: general and administrative expenses - $6.459 million; sales and marketing - $1.901 million; software development and technology - $4.105 million; and depreciation and amortization - $2.611 million, resulting in an increase in loss for the year of $195,000. There is no impact for the 2001 and 2000 fiscal years. The impact of consolidation of the Company upon cash flows was to decrease cash outflows from operations for 2002 by $438,000 to $6.007 million, and to decrease cash inflows from investing activities by $80,000 to $1.705 million. (k) Preferential distribution to shareholder In accordance with U.S. GAAP, the $120,000 Series C secured subordinated debentures (see Note 7) issued in exchange for the waiver of certain US registration rights granted to Stonestreet pursuant to a subscription agreement dated April 25, 2002 (Note 9(e(i))) is recorded as a preferential distribution to Stonestreet and deducted from the net loss to determine net loss attributable to common shareholders under U.S. GAAP. The Series C secured subordinated debentures include a beneficial conversion feature, accordingly, a preferential distribution of $140,000 has been recorded. - 92 - YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 21. SEGMENTED INFORMATION The Company operates in several reportable geographic segments: North America, Ireland and the United Kingdom, and Norway. The Company has also in the past earned revenue from both retail and non-retail customers. Net revenue by Geographic Region:
2002 2001 2000 ---- ---- ---- (in thousands) North America $ 2,182 $ 2,761 $12,254 Ireland and U.K 472 893 86 Norway 3,126 741 - ------- ------- ------- $ 5,780 $ 4,395 $12,340 ======= ======= =======
Assets by Geographic Region
2002 2001 -------------------------------------- -------------------------------------- (in thousands) -------------------------------------------------------------------------------- Capital Assets Intangible and other Capital Assets Intangible and other assets assets North America $ 174 $ 518 $ 588 $ 588 Ireland and U.K. 69 - 449 - Norway 200 2,031 295 3,251 ------- -------- -------- -------- $ 443 $ 2,549 $ 1,332 $ 3,626 ======= ======== ======== ========
Net revenue by Source:
2002 2001 2000 ---- ---- ---- (in thousands) Non-retail revenue $ 5,780 $ 4,455 $ 2,402 Retail revenue - - 10,095 Customer acquisition costs - (60) (157) -------- -------- -------- $ 5,780 $ 4,395 $ 12,340 ======== ======== ========
For the year ended December 31, 2002, individual customers accounted for 28 per cent and 13 per cent of net revenue respectively. For the year ended December 31, 2001 one customer accounted for 22 per cent of net revenue and in 2000 no customers accounted for more than 10 per cent of net revenue. 22. SUBSEQUENT EVENT During the period January 1 to May 14, 2003, 833,333 common shares were issued to an officer of the Company for proceeds of $200,000. 23. CONVENIENCE TRANSLATION The financial statements as at December 31, 2002 and for the year then ended have been translated into U.S. dollars using the exchange rate of the U.S. dollar at December 31, 2002 as published by the Federal Reserve Bank of New York (U.S. $1.000 = Cdn. $1.58). The translation was made solely for the convenience of readers in the United States. The translated U.S. dollar figures should not be construed as a representation that the Canadian currency amounts actually represent or could be converted into U.S. dollars. - 93 - - 94 - EX-2.1 3 t09678exv2w1.txt FORM OF SERIES D NOTE UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE SHALL NOT TRADE SUCH SECURITIES BEFORE [4 MONTHS AND A DAY FROM THE DISTRIBUTION DATE]. DATE OF ISSUE: AUGUST o , 2002 PRINCIPAL AMOUNT: CDN$ ooo INTEREST RATE: 8.0% PER ANNUM CERTIFICATE NUMBER: D- o SERIES D CONVERTIBLE SECURED NOTE ADB SYSTEMS INTERNATIONAL INC., a company incorporated under the laws of the Province of Ontario (hereinafter called the "COMPANY") WHEREAS the Company, under the laws relating thereto, is duly authorized to create and issue this Note as herein provided; NOW THEREFORE it is hereby covenanted, agreed and declared as follows: ARTICLE ONE INTERPRETATION SECTION 1.01 DEFINITIONS: In this Note, unless there is something in the subject matter or context inconsistent therewith, the expressions following have the following meanings, namely: (a) "ASSIGNMENT FORM" means the form of assignment set out in Schedule "B" hereto; (b) "THE BRICK" means The Brick Warehouse Corporation; (c) "BRICK LOAN AGREEMENT" means the loan agreement dated August 23, 2002 between the Corporation and The Brick; (d) "BRICK CO-OPERATION AGREEMENT" means the co-operation agreement dated August 23, 2002 between the Corporation and The Brick; (e) "COMMON SHARES" means the fully paid and non-assessable common shares in the capital of the Company as constituted on the date hereof, and after the date hereof any other shares, other securities, money or property which the Holder is entitled to receive upon conversion of this Note pursuant to Article Three; (f) "CONVERSION DATE" or "DATE OF CONVERSION" shall have the meaning specified in Section 3.02(b) hereof; (g) "CONVERSION FORM" means the form of conversion set out in Schedule "C" hereto; - 2 - (h) "COMPANY" means ADB Systems International Inc. and includes any successor corporation to or of the Company which shall have complied with the provisions of Article Six; (i) "CONVERSION PRICE" means the amount of CDN$0.12 for which each Unit may be issued from time to time upon the conversion of this Note, as adjusted in accordance with the provisions of Article Three; (j) "CURRENT MARKET PRICE" shall have the meaning specified in Section 3.03(d) hereof; (k) "DATE OF ISSUE" means the date upon which the Note is issued; (l) "EVENT OF DEFAULT" shall have the meaning specified in Section 4.03 hereof; (m) "HOLDER" means the registered holder of this Note on the books of the Company and as evidenced on the registration table set out in Schedule "A" hereof; (n) "MATURITY DATE" means December 31, 2004; (o) "NOTE" means this Series D Convertible Secured Note and any note issued in replacement, substitution or exchange, in whole or in part, of this Series D Convertible Secured Note; (p) "NOTICE OF CONVERSION" shall have the meaning specified in Section 3.02 hereof; (q) "OTHER NOTES" means the Series A Note, Series B Note and Series C Notes and all other Series D Notes other than the Note; (r) "ONTARIO SECURITIES ACT" shall have the meaning specified in Section 2.06(b); (s) "PAYMENT DATE" shall have the meaning specified in Section 2.02 hereof; (t) "PERSON" means any individual, corporation, company, partnership, joint venture, association, trust or other organization or entity; (u) "PRINCIPAL AMOUNT" means o in lawful money of Canada (CDN$o) less any amounts which as of the date of determination of the Principal Amount: (i) have been prepaid by the Company on account of this Note; and (ii) have been converted by the Holder into Common Shares in accordance with the provisions hereof; (v) "SERIES A NOTE" means the 8% convertible secured note, series A of the Company issuable pursuant to the terms of the Stonestreet Subscription Agreement; (w) "SERIES B NOTE" means the 8% convertible secured note, series B of the Company issuable pursuant to the terms of the Stonestreet Subscription Agreement; - 3 - (x) "SERIES C NOTE" means the 8% convertible secured note, series C of the Company issuable pursuant to the terms of the Stonestreet Subscription Agreement as consideration for the Waiver and Termination Agreement; (y) "SERIES D SUBSCRIPTION AGREEMENTS" means the subscription agreement dated August 30, 2002 with respect to Series D Notes between the Corporation and Greenwich Growth Fund Ltd. and substantially similar subscription agreements for Series D Notes with any other investor; (z) "SHAREHOLDER APPROVAL" means the approval of a majority of the votes cast by holders of Common Shares at a duly constituted shareholders' meeting of the Company for the issuance of any securities of the Corporation underlying the Note and the Other Notes and the approval of at least two-thirds of the votes cast at such meeting for the reorganization of the Company by way of plan of arrangement as contemplated by the Brick Co-operation Agreement; (aa) "STONESTREET SUBSCRIPTION AGREEMENT" means the subscription agreement dated August 30, 2002 among the Corporation, Stonestreet Limited Partnership and Stonestreet Corporation with respect to the Series A Note, Series B Note, Series C Note and Fee Warrants; (bb) "THIS NOTE", "THE NOTE", "HERETO", "HEREIN", "HEREBY", "HEREUNDER", "HEREOF" and similar expressions refer to this Note and not to any particular Article, Section, subsection, clause, subdivision or other portion hereof and include any and every instrument supplemental or ancillary hereto; (cc) "TIME OF EXPIRY" shall have the meaning specified in Section 3.01 hereof; (dd) "TSX" means the Toronto Stock Exchange; (ee) "UNIT" means one Common Share and one-half of a Warrant; (ff) "U.S. SECURITIES ACT" shall have the meaning specified in Section 2.06(a); and (gg) "WAIVER AND TERMINATION AGREEMENT" means the waiver and termination agreement dated August 30, 2002 among the Company, Stonestreet Limited Partnership and Stonestreet Corporation; (hh) "WARRANT" means a warrant to acquire one Common Share at an exercise price of CDN$0.14 and with a term expiring at 5:00 p.m. (Toronto time) on December 31, 2004. SECTION 1.02 NUMBER AND GENDER: Words importing the singular number only shall include the plural and vice versa and words importing the masculine gender shall include the feminine gender and words importing persons shall include firms and corporations and vice versa. - 4 - SECTION 1.03 HEADINGS: The division of this Note into Articles and Sections and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Note. SECTION 1.04 APPLICABLE LAW: This Note shall be governed by and interpreted in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein without reference to conflict of laws principles. The Company and the Holder irrevocably attorn to the exclusive jurisdiction of the courts of the Province of Ontario with respect to any matters arising out of this Note. SECTION 1.05 TIME OF ESSENCE: Time is of the essence in the performance of this Note. SECTION 1.06 CURRENCY: All references to currency herein are to lawful money of Canada (CDN$) unless otherwise specified herein. ARTICLE TWO THE NOTE SECTION 2.01 PROMISE TO PAY: The Company hereby acknowledges itself indebted and promises to pay the Principal Amount to the Holder on the Maturity Date. SECTION 2.02 INTEREST: Interest on the Note shall be charged at the rate of 8% per annum, payable at the Company's option, in cash or, subject to TSX approval, in Common Shares at a deemed issue price equal to the Current Market Price. Interest on the Note shall accrue from day to day both before and after default, demand, maturity and judgment, for the actual number of days elapsed on the basis of a year of 365 days and shall be compounded and payable to the Holder upon conversion or Payment Date, whichever occurs first. Where the calendar year of calculation contains 366 days, interest hereunder shall be expressed as a yearly rate for purposes of the Interest Act (Canada) as such rate multiplied by 366 and divided by 365. Accrued interest shall be paid by the Company quarterly on the last business day of the quarter (a "PAYMENT DATE") without any deductions for withholding or other taxes except as may be required pursuant to Part 13 of the Income Tax Act (Canada), with the first payment due on December 31, 2002. Any portion of the interest accrued on the Notes and not paid in securities of the Corporation shall be paid in cash. SECTION 2.03 PERSON ENTITLED TO PAYMENT: The Holder shall be entitled to the principal moneys and interest evidenced by this Note. Delivery to the Holder by the Company or the receipt by the Holder of the principal moneys and interest evidenced by this Note and the Common Shares issuable pursuant to this Note, respectively, shall be a good discharge to the Company of its obligations hereunder, and the Company shall not be bound to enquire into the title of the Holder, save as ordered by a court of competent jurisdiction or as required by statute. The Company shall not be bound to see to the execution of any trust affecting the ownership of this Note nor be affected by notice of any equity that may be subsisting in respect hereof or thereof. The Holder of this Note shall be entitled to payment of all amounts due hereunder free from all equities or rights of set-off or counterclaim between the Company and the original or any intermediate Holder hereof and all persons may act accordingly and a transferee of this Note - 5 - shall, after the Assignment Form is delivered to the Company and upon compliance with all other conditions required by this Note or by law, become the Holder of this Note free from all equities or rights of set-off or counterclaim between the Company and the transferor or any previous Holder hereof, save in respect of equities of which the Company is required to take notice by statute or by order of a court of competent jurisdiction. SECTION 2.04 MUTILATION, LOSS, THEFT OR DESTRUCTION: In case this Note shall become mutilated or be lost, stolen or destroyed, the Company shall execute and deliver a new Note having the same Date of Issue upon surrender and cancellation of the mutilated Note, or in case this Note is lost, stolen or destroyed, in lieu of and in substitution for the same. In case of loss, theft or destruction the person applying for a substituted Note shall furnish to the Company such evidence of such loss, theft or destruction as shall be satisfactory to the Company, shall furnish indemnity satisfactory to the Company and shall pay all reasonable expenses incidental to the issuance of any substituted Note. SECTION 2.05 TRANSFER: The Company shall maintain a register on which are recorded the names and addresses of each Holder hereof. Subject to compliance with the terms of this Note and with applicable laws and regulations, a transfer shall be recorded by the Company in the register of Holders hereof maintained by the Company, upon surrender of this Note with the Assignment Form duly completed by the Holder or by its duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment or other authority to transfer on behalf of the Holder. Upon each transfer the Company shall cancel this Note and execute and deliver such replacement Note as is required, in the form hereof. SECTION 2.06 RESTRICTIONS ON TRANSFERS: The Company shall not register any transfers of the Note or issue or transfer any Units issuable on conversion of the Note: (a) to a United States person, any person in the United States or any person for the account or benefit of a United States person or a person in the United States except pursuant to Rule 144 under the United States Securities Act of 1993, as amended (the "U.S. SECURITIES ACT"), if available; (b) in connection with any transfers or conversions which are otherwise not in compliance with (i) the U.S. Securities Act and the regulations thereunder if applicable, (ii) the Securities Act (Ontario) (the "ONTARIO SECURITIES ACT") and the rules and regulations thereunder, (iii) applicable securities laws and regulations of other relevant jurisdictions, or (iv) the policies of the TSX; and (c) within four months and a day from the Date of Issue, unless the Company and its legal counsel are satisfied, acting reasonably, that it is permitted under Ontario securities laws and under the policies of the TSX. SECTION 2.07 REPRESENTATIONS OF THE HOLDER: The Holder, by its acceptance of this Note, represents, acknowledges and agrees that: (a) this Note and the Units issuable on conversion of this Note have not been, and will not be, qualified for sale under the U.S. Securities Act, or the securities laws and regulations of any province or territory of Canada or any other jurisdiction; - 6 - (b) the Units issuable on conversion of this Note may not be distributed, sold or transferred: (i) to a United States person, any person in the United States or any person for the account or benefit of a United States person or a person in the United States except pursuant to Rule 144 under the U.S. Securities Act, if available; (ii) except in compliance with the U.S. Securities Act and the regulations thereunder if applicable, or the Ontario Securities Act and the rules and regulations thereunder and the applicable securities laws and regulations of other relevant jurisdictions and the policies of the TSX; (c) compliance with the applicable securities laws and regulations of any jurisdiction is the responsibility of the Holder or its transferee; and (d) the Holder will not trade the Note or the Units issuable on conversion of the Note within four months and a day from the Date of Issue, unless permitted under Ontario securities laws and under the policies of the TSX. SECTION 2.08 GENERAL SECURITY AGREEMENT: Payment and performance of the Principal Amount, together with interest thereon and any other indebtedness, liabilities, covenants and obligations of the Company to the Holder arising in respect of this Note shall be secured by a general security agreement substantially in the form attached hereto as Schedule "D". SECTION 2.09 PARI PASSU: This Note shall rank, in regards to principal and interest, pari passu with the Company's Other Notes. SECTION 2.10 NO PREPAYMENT: Subject to Section 3.07, the Company shall not have the right to prepay, whether in whole or in part, the Principal Amount prior to the Maturity Date. ARTICLE THREE CONVERSION AND REDEMPTION OF NOTE SECTION 3.01 CONVERSION PRIVILEGE AND CONVERSION PRICE: Subject to Shareholder Approval and TSX approval, the Holder of this Note shall have the right, at the Holder's option, at any time prior to the close of business on the Maturity Date (such time and date in this Article being referred to as the "TIME OF EXPIRY"), both before and after default, to convert the whole or any part of the Principal Amount into a maximum of o Units at the Conversion Price. The accrued and unpaid interest on the Principal Amount which is converted to Units pursuant to this Section 3.01 will be paid in cash within 10 business days of the Conversion Date. SECTION 3.02 MANNER OF EXERCISE OF RIGHT TO CONVERT: (a) The Holder electing to convert this Note in whole or in part into Units shall deliver written notice ("NOTICE OF CONVERSION") to the Company at its address for - 7 - purposes of notice under Section 7.01 together with a completed Conversion Form attached hereto as Schedule "C" exercising the right to convert this Note in accordance with the provisions hereof. Thereupon the Holder shall be entitled to be entered in the books of the Company as at the Date of Conversion (or such later date as is specified in Section 3.02(b)) as the holder of the number of Units into which this Note is convertible in accordance with the provisions of this Article and, as soon as practicable thereafter upon the receipt of the Note by the Company, the Company shall deliver to the Holder certificates for such Units. In the event of the conversion of this Note in part, the Company shall without charge forthwith execute and deliver to the Holder a new note certificate in a principal amount equal to the unconverted part of this Note so surrendered in the same form as this Note, except as to Principal Amount. (b) For the purposes of this Article, the Conversion Date or Date of Conversion shall be the date that the Notice of Conversion is delivered to the Company in accordance with Section 7.01 hereof, provided that if such Notice of Conversion is delivered on a day on which the registers of Units are properly closed, the Holder shall become the holder of record of such Units as at the date on which such registers are next re-opened. For greater certainty, if a Notice of Conversion is delivered by the Holder to the Company on or prior to the Time of Expiry and the registers of Units are properly closed from the Company's receipt of the Notice of Conversion until after the Time of Expiry, the Holder shall become the holder of record of such Units as at the date on which such registered are not re-opened notwithstanding the passing of the Time of Expiry and the Maturity Date. (c) Any part of this Note may be converted as provided in this Article and all references in this Note to conversion shall be deemed to include conversion of such parts. (d) The Common Shares issued upon such conversion shall rank only in respect of dividends declared in favour of shareholders of record on and after the Date of Conversion or such later date as the Holder shall become the holder of record of such Common Shares pursuant to subsections (a) and (b) of this Section 3.02, from which applicable date they will for all purposes be and be deemed to be outstanding as fully paid and non-assessable. SECTION 3.03 ADJUSTMENT OF CONVERSION PRICE: (a) If and whenever at any time after the date hereof and prior to the Time of Expiry the Company shall (i) subdivide, re-divide or change its then outstanding Common Shares into a greater number of Common Shares, (ii) reduce, combine or consolidate its then outstanding Common Shares into a lesser number of Common Shares, or (iii) issue Common Shares (or securities exchangeable for or convertible into Common Shares) to the holders of all or substantially all of its then outstanding Common Shares by way of a stock dividend or other distribution (any of such events herein called a "COMMON SHARE REORGANIZATION"), then the Conversion Price shall be adjusted effective immediately after the effective date - 8 - of any such event in (i) or (ii) above or the record date at which the holders of Common Shares are determined for the purpose of any such dividend or distribution in (iii) above, as the case may be, by multiplying the Conversion Price in effect on such effective date or record date, as the case may be, by a fraction, the numerator of which shall be the number of Common Shares outstanding on such effective date or record date, as the case may be, before giving effect to such Common Share Reorganization and the denominator of which shall be the number of Common Shares outstanding immediately after giving effect to such Common Share Reorganization including, in the case where securities exchangeable for or convertible into Common Shares are distributed, the number of Common Shares that would be outstanding if such securities were exchanged for or converted into Common Shares. (b) If and whenever at any time after the date hereof and prior to the Time of Expiry, the Company shall distribute any class of shares or rights, options or warrants or other securities (other than those referred to in 3.03(a) above), evidences of indebtedness or property (excluding cash dividends paid in the ordinary course) to holders of all or substantially all of its then outstanding Common Shares, the Holder shall receive, in addition to the number of the Common Shares in respect of which the right to purchase is then being exercised, the aggregate number of Common Shares or other securities or property that the Holder would have been entitled to receive as a result of such event, if, on the record date thereof, the Holder had been the registered holder of the number of Common Shares to which the Holder was theretofore entitled upon the exercise of the rights of the Holder hereunder. (c) If and whenever at any time after the date hereof and prior to the Time of Expiry there is a capital reorganization of the Company or a reclassification or other change in the Common Shares (other than a Common Share Reorganization) or a consolidation or merger or amalgamation of the Company with or into any other corporation or other entity (other than a consolidation, merger or amalgamation which does not result in any reclassification of the outstanding Common Shares or a change of the Common Shares into other securities), or a transfer of all or substantially all of the Company's undertaking and assets to another corporation or other entity in which the holders of Common Shares are entitled to receive shares, other securities or other property (any of such events being called a "CAPITAL REORGANIZATION"), the Holder of this Note shall be entitled to receive and shall accept, upon the exercise of the right of conversion at any time after the effective date thereof, in lieu of the number of Units to which the Holder was theretofore entitled on conversion, the kind and amount of shares or other securities or money or other property that the Holder would have been entitled to receive as a result of such Capital Reorganization if, on the effective date thereof, the Holder had been the registered holder of the number of Units to which the Holder was theretofore entitled upon conversion, subject to adjustment thereafter in accordance with provisions the same, as nearly as may be possible, as those contained in this Section 3.03. - 9 - (d) If and whenever at any time after the date hereof and prior to the Time of Expiry, the Company shall fix a record date for the issuance of rights, options or warrants to all or substantially all of the holders of the outstanding Common Shares entitling them, for a period expiring not more than forty-five (45) days after the record date, to subscribe for or purchase Common Shares or securities convertible, exercisable or exchangeable into Common Shares (each, a "CONVERTIBLE SECURITY") at a price per share (or having a conversation, exercise or exchange price per share) less than 95% of the Current Market Price (as defined below) on the earlier of the record date and the date on which the Company announces its intention to make such issuance (any such issuance being herein called a "RIGHTS OFFERING"), the Conversion Price shall be adjusted on the record date so that it shall equal the number which is the product of the Conversion Price in effect immediately prior to the record date and the fraction: (i) the numerator of which shall be the total number of Common Shares outstanding immediately prior to the record date plus a number of Common Shares equal to the number arrived at by multiplying the total number of additional Common Shares offered for subscription or purchase or into or for which the total number of rights, options or warrants so offered are convertible or exchangeable by the quotient obtained by dividing the purchase or subscription price for each Common Share or conversion price for each Convertible Security offered for subscription or purchase by such Current Market Price for the Common Shares, and (ii) the denominator of which shall be the total number of Common Shares outstanding immediately prior to such record date plus the total number of additional Common Shares offered for subscription or purchase or into or for which the total number of rights, options or warrants so offered are convertible or exchangeable. To the extent that any rights, options or warrants are not so issued or any of the rights, options or warrants so issued are not exercised prior to the expiration thereof, the Conversion Price will be readjusted to the Conversion Price in effect immediately prior to the record date, and the Conversion Price will be further adjusted based upon the number of additional Common Shares actually delivered upon the exercise of the rights, options or warrants, as the case may be. For the purposes of this Section 3.03(d) or Section 2.02, "CURRENT MARKET PRICE", at any date, means the weighted average price per Common Share at which the Common Shares have traded: (a) on the TSX; or (b) if the Common Shares are not quoted on the TSX, on any stock exchange or over-the-counter market upon which the Common Shares are then listed or quoted for trading, during the ten (10) consecutive trading days (on each of which at least five hundred (500) Common Shares are traded in board lots) ending the third (3rd) trading day before such date, and the weighted average price shall be determined by dividing the aggregate sale price of all Common Shares sold in board lots on the exchange or market, as the case may be, during the ten (10) consecutive - 10 - trading days by the number of Common Shares sold, provided that if the Common Shares are not listed or quoted for trading on any stock exchange or market, the price shall be determined by the board of directors of the Company in its sole discretion, acting reasonably. (e) If and whenever at any time after the date hereof and prior to the Time of Expiry, any of the events set out in Section 3.03(a) or (d) shall occur and the occurrence of such event results in an adjustment of the Conversion Price pursuant to the provisions of Section 3.03(a) or (d), then the number of Common Shares purchasable pursuant to this certificate shall be adjusted contemporaneously with the adjustment of the Conversion Price by multiplying the number of Common Shares then otherwise purchasable on the exercise thereof by a fraction, the numerator of which shall be the Conversion Price in effect immediately prior to the adjustment and the denominator of which shall be the Conversion Price resulting from such adjustment. (f) If the Company takes any action affecting its Common Shares to which the foregoing provisions of this Section 3.03, in the opinion of the board of directors of the Company, acting in good faith, are not strictly applicable, or if strictly applicable would not fairly adjust the rights of the Holder against dilution in accordance with the intent and purposes hereof, or would otherwise materially affect the rights of the Holder hereunder, then the Company shall execute and deliver to the Holder an amendment hereto providing for an adjustment in the application of such provisions so as to adjust such rights as aforesaid in such manner as the board of directors of the Company may determine to be equitable in the circumstances, acting in good faith. The failure of the taking of action by the board of directors of the Company to so provide for any adjustment on or prior to the effective date of any action or occurrence giving rise to such state of facts will be conclusive evidence that the board of directors has determined that it is equitable to make no adjustment in the circumstances. SECTION 3.04 ADJUSTMENT RULES: The following rules and procedures shall be applicable to the adjustments made pursuant to Section 3.03: (a) no adjustment in the Conversion Price shall be required unless a change of at least 1% of the prevailing Conversion Price would result, provided, however, that any adjustment which, except for the provisions of this Section 3.04(a), would otherwise have been required to be made, shall be carried forward and taken into account in any subsequent adjustment; (b) the adjustments provided for in Section 3.03 are cumulative and shall apply to successive subdivisions, consolidations, dividends, distributions and other events resulting in any adjustment under the provisions of such clause; (c) in the absence of a resolution of the board of directors of the Company fixing a record date for any dividend or distribution referred to in Section 3.03 above, the - 11 - Company shall be deemed to have fixed as the record date therefor the date on which such dividend or distribution is effected; (d) if the Company sets a record date to take any action and thereafter and before the taking of such action abandons its plan to take such action, then no adjustment to the Conversion Price will be required by reason of the setting of such record date; (e) forthwith after any adjustment to the Conversion Price or the number of Common Shares purchasable pursuant to this Note, the Company shall provide to the Holder a certificate of an officer of the Company certifying as to the amount of such adjustment and, in reasonable detail, describing the event requiring and the manner of computing or determining such adjustment; (f) any question that at any time or from time to time arises with respect to the amount of any adjustment to the Conversion Price or other adjustment pursuant to Section 3.03 shall be conclusively determined by a firm of independent chartered accountants (who may be the Company's auditors) as determined by the Company in its sole discretion and shall be binding upon the Company and the Holder; (g) On the happening of each and every such event set out in Section 3.03, the applicable provisions hereof, including the Conversion Price, shall, ipso facto, be deemed to be amended accordingly and the Company shall take all necessary action so as to comply with such provisions as so amended. SECTION 3.05 NO REQUIREMENT TO ISSUE FRACTIONAL SHARES: The Company shall not be required to issue fractional Common Shares upon the conversion of this Note pursuant to this Article and no payment shall be made by the Company in lieu of issuing any fractional interest in a Common Share. SECTION 3.06 COMPANY TO RESERVE COMMON SHARES: The Company covenants that it will allot to the Holder who may exercise the conversion rights hereunder, such number of Common Shares as shall then be issuable upon the conversion of this Note and upon exercise of the Warrants issued on such conversion. The Company covenants that all Common Shares which shall be so issuable shall be duly and validly issued as fully paid and non-assessable. SECTION 3.07 REDEMPTION: In the sole discretion of the Company, the Note may be redeemed by the Company at any time, upon thirty (30) days prior written notice from the Company to the Holder, by payment in cash of an amount equal to 120% of the Principal Amount then outstanding plus all accrued and unpaid interest thereon. Upon the Company giving notice of redemption in respect of the Note, the Holder's right of conversion of the Note in respect of which notice was given shall terminate provided payment is received within such 30 days. - 12 - ARTICLE FOUR COVENANTS OF THE COMPANY AND DEFAULT SECTION 4.01 COVENANTS: The Company hereby covenants and agrees that so long as any amounts remain unpaid pursuant to this Note it will strictly observe and perform the following covenants: (a) The Company shall reserve and allot out of its authorized capital a number of Common Shares at all times equal to the number of Common Shares necessary to satisfy the rights of conversion of the Principal Amount and interest of this Note and the rights of acquisition pursuant to the Warrants. (b) The Company shall take all necessary action to adjust the Conversion Price as provided under Section 3.03 hereof. (c) The Company shall strictly comply with all of its covenants and obligations required to be performed by it contained in the Other Notes, the Stonestreet Subscription Agreement, the Series D Subscription Agreements, the Waiver and Termination Agreement, the Brick Loan Agreement, the Brick Co-operation Agreement, and in all agreements which are schedules to any of the foregoing. SECTION 4.02 ACCELERATION ON EVENT OF DEFAULT: If an Event of Default shall occur and be continuing, the unpaid balance of the Principal Amount, and all accrued interest and all other amounts payable under, this Note may be declared by the Holder on written notice to the Company to be, and upon such notice shall become, immediately due and payable. SECTION 4.03 EVENTS OF DEFAULT: Any of the following conditions or events which shall occur shall constitute events of default ("EVENTS OF DEFAULT") under this Note: (a) if the Company shall default in the payment of any of the Principal Amount when the same becomes due and payable, whether at the Maturity Date or otherwise; (b) if the Company shall default in the payment of any interest on this Note when the same becomes due and payable, whether at the Maturity Date or otherwise; (c) if the Company shall default in the performance of or compliance with any term, condition or covenant contained in this Note (other than a default in the payment of the Principal Amount and interest) and such default shall not have been remedied within a period of 10 business days after such default shall first have become known to any officer of the Company or written notice thereof shall have been received by the Company from the Holder; (d) if the Company fails to secure Shareholder Approval on or before October 31, 2002; (e) if the Company or any active subsidiary shall (i) be generally not paying its debts as they become due or become insolvent, (ii) file, or consent by answer or - 13 - otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or otherwise take advantage of any bankruptcy or insolvency law of any jurisdiction, (iii) make an assignment, an arrangement or a compromise for the benefit of its creditors, (iv) consent to the appointment of a custodian, receiver, trustee or other officer with similar powers of itself or of any substantial part of its property, (v) cease to carry on business, or (vi) take corporate action for the purpose of any of the foregoing; (f) if a court or governmental authority of competent jurisdiction shall enter a final order appointing, with or without the consent of the Company, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or if a final order for relief shall be entered in any case or proceeding for liquidation or reorganization or otherwise to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company, or if any petition for any such relief shall be filed against the Company and such petition shall not be dismissed within 90 days; (g) if the Company shall fail to pay the principal of or premium or interest on any secured indebtedness or liability of the Company which ranks prior to the indebtedness of the Company hereunder when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the expiration of any applicable grace or remedial period; or (h) if the Company shall default in the performance of or compliance with any term, covenant, obligation or condition contained in any of the Other Notes, the Stonestreet Subscription Agreement, the Series D Subscription Agreement, the Waiver and Termination Agreement, the Brick Loan Agreement, the Brick Co-operation Agreement, and in all agreements which are schedules to any of the foregoing. ARTICLE FIVE SATISFACTION AND DISCHARGE SECTION 5.01 DISCHARGE: The Holder shall at the request of the Company release and discharge this Note and execute and deliver such instruments as are requisite for the purpose and to release the Company from its covenants herein contained, upon the Principal Amount of and interest (including interest on amounts in default, if any) on this Note and all other moneys payable hereunder having been paid or satisfied. - 14 - ARTICLE SIX SUCCESSOR CORPORATIONS SECTION 6.01 CERTAIN REQUIREMENTS: The Company shall not, directly or indirectly, sell, lease, transfer or otherwise dispose of all or substantially all of its property and assets as an entirety to any other entity, and shall not consolidate, amalgamate, or merge with or into any other corporation (any such other entity or corporation being herein referred to as a "successor corporation") without the prior written consent of the Holder (excluding the reorganization by way of plan of arrangement as contemplated by the Brick Co-operation Agreement), not to be unreasonably withheld or delayed, and unless the successor corporation shall execute, prior to or contemporaneously with the consummation of any such transaction, an instrument to evidence the assumption by the successor corporation of the due and punctual payment of all the Principal Amount of this Note and the interest thereon and all other moneys payable hereunder and the covenant of the successor corporation to pay the same and its agreement to observe and perform all the covenants and obligations of the Company under this Note. SECTION 6.02 VESTING OF POWERS IN SUCCESSOR: Whenever the conditions of Section 6.01 have been fully observed and performed the successor corporation shall possess and from time to time may exercise each and every right and power of the Company under this Note in the name of the Company or otherwise and any act or proceeding by any provision of this Note required to be done or performed by the Company or its officers may be done and performed with like force and effect by the successor corporation or its officers. ARTICLE SEVEN GENERAL SECTION 7.01 NOTICE TO COMPANY: Any notice to the Company under the provisions of this Note shall be valid and effective if delivered by prepaid courier or telecopied to the Company at its offices in 6275 Airport Road, Suite 201, Mississauga, Ontario L4V 1V2 Attention: Vice President, General Counsel and Secretary, telecopier no.: 905-672-5705, with a copy to Gowling Lafleur Henderson LLP, Suite 5800, Scotia Plaza, 40 King Street West, Toronto, Ontario, M5H 3Z7 Attention: Neil Steenberg, telecopier no.: (416) 369-7250, and shall be deemed to have been effectively given on the date of delivery or transmission. The Company may from time to time notify the Holder in writing of a change of address which thereafter, until changed by like notice, shall be the address of the Company for all purposes of this Note. SECTION 7.02 NOTICE TO HOLDER: Any notice to the Holder under the provisions of this Note shall be valid and effective if delivered by prepaid courier or telecopied to the Holder at the address set out in the registration table set out on Schedule "A" hereto, and shall be deemed to have been effectively given on the date of delivery or transmission. The Holder may from time to time notify the Company in writing of a change of address which thereafter, until changed by like notice, shall be the address of the Holder for all purposes of this Note. SECTION 7.03 SEVERABILITY: In the event that any provision or any part of any provision hereof is deemed to be invalid by reason of the operation of any law or by reason of the interpretation - 15 - placed thereon by a court, this Note shall be construed as not containing such provision or such part and such provision or such part shall not affect the validity of any other provision or the remainder of such provision hereof, and all other provisions hereof which are otherwise lawful and valid shall remain in full force and effect. SECTION 7.04 BINDING EFFECT: This Note and all of its provisions shall enure to the benefit of the Holder, its successors and assigns and shall be binding upon the Company, its successors and assigns, as the case may be. IN WITNESS WHEREOF the Company has executed these presents under the hand of its proper officer in that behalf as of the date first above written. ADB SYSTEMS INTERNATIONAL INC. Per: ----------------------------- SCHEDULE "A" REGISTERED HOLDER PARTICULARS
CERTIFIED BY: DATE: REGISTRATION PARTICULARS: (OFFICER OF THE COMPANY) - ----- ------------------------- ------------------------ August o , 2002 o
------------------------ Name: Title: SCHEDULE "B" ASSIGNMENT FORM TO: ADB SYSTEMS INTERNATIONAL INC. FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to the following person all rights of the undersigned pursuant to a Note issued by ADB Systems International Inc. represented by Certificate Number:___________. Name of Assignee: _________________________________ Address: _________________________________ _________________________________ _________________________________ and the undersigned hereby irrevocably constitutes and appoints such assignee to be the lawful attorney of the undersigned to transfer such rights to the Note on the books of ADB Systems International Inc., with full power of substitution. Date: _____________________ _______________________________ Name: Title (if applicable): Address: SCHEDULE "C" CONVERSION FORM TO: ADB SYSTEMS INTERNATIONAL INC. The undersigned hereby irrevocably elects to convert the Note represented by Certificate Number: _____________ (or CDN$_________________ principal amount thereof into Units of ADB Systems International Inc. in accordance with the terms of the said Note. DATED at __________________ this _____ day of _____________, ______. Per: ___________________________ SCHEDULE "D" GENERAL SECURITY AGREEMENT EX-4.12 4 t09678exv4w12.txt LOAN AGREEMENT & LOAN AGREEMENT AMENDING AGREEMENT LOAN AGREEMENT AMENDING AGREEMENT THIS AMENDING AGREEMENT is entered into as of August 30, 2002, by and between ADB SYSTEMS INTERNATIONAL INC., ADB SYSTEMS INTERNATIONAL LTD., each a corporation having its principal place of business at 6725 Airport Road, Suite 201, Mississauga, Ontario L4V 1V2, and THE BRICK WAREHOUSE CORPORATION, a corporation having its principal place of business at 16930 - 114 Avenue, Edmonton, Alberta, T5M 3S2. WHEREAS: 1. The Parties entered into a loan agreement dated as of August 23, 2002 (the "Loan Agreement"). 2. The Borrower has indicated in its Drawdown Notice delivered in connection with the First Advance that it is unable to satisfy a condition of the First Advance requiring that the Borrower shall have entered into irrevocable subscription agreements with arm's length third parties to issue equity securities of the Borrower or debt securities convertible into equity securities of the Borrower raising aggregate gross proceeds to the Borrower of not less than $1,000,000 and received aggregate gross proceeds of not less than $1,000,000 from the sale of such equity securities or debt securities convertible into equity of the Borrower on terms and conditions satisfactory to the Lender. 3. The Lender is willing to waive compliance with the above condition and nevertheless to make the First Advance to the Borrower in accordance with and subject to the terms and conditions of the Loan Agreement provided the Borrower and the Guarantor enter into this Amending Agreement to the Loan Agreement. NOW THEREFORE in consideration of the premises, the mutual covenants contained in this Agreement, and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Parties agree as follows: ARTICLE 1 - INTERPRETATION 1.1 DEFINITIONS. In this Agreement, unless the context otherwise requires, each capitalized term not otherwise defined herein shall have the meaning ascribed thereto in the Loan Agreement. ARTICLE 2 - AMENDMENTS 2.1 AMENDMENTS. (1) Section 3.2 of the Loan Agreement is hereby amended by adding thereto to the conditions to the Second Advance the following: 2 "(f) the Borrower shall have delivered evidence satisfactory to the Lender that each of the subscribers, having executed on or before August 30, 2002, subscription agreements for the issue of Series D Subordinated Notes (i) shall have paid the Loan Amount (as therein defined) to Old ADB; and (ii) shall have executed (A) an acknowledgement of the subordination of the Subordinated Notes to the Security, and (B) a release of Old ADB from the obligations of the Subordinated Notes upon the Restructuring, each in form satisfactory to the Lender." (2) Section 8.1 of the Loan Agreement is hereby amended by adding thereto to the Events of Default the following: "(r) if the condition in Section 3.2(f) is not satisfied on or before October 31, 2002." ARTICLE 3 - GENERAL 3.1 LOAN AGREEMENT. The Parties acknowledge that the Loan Agreement has been amended by this amending Agreement and as amended, the Loan Agreement remains in full force and effect as of the date hereof. 3.2 BINDING ON SUCCESSORS. This Amending Agreement shall enure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns. 3.3 GOVERNING LAW. This Amending Agreement shall be governed and construed according to the laws of the Province of Ontario and the laws of Canada applicable therein, and shall be treated, in all respects, as an Ontario contract, without prejudice to or limitation of any other rights or remedies available under the laws of any jurisdiction where property or assets of the Borrower may be found. Each of the Parties hereby attorns to the jurisdiction of the Province of Ontario. 3.4 COUNTERPARTS. This Amending Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Counterparts may be executed either in original or faxed form and the Parties may adopt any signatures received by a receiving fax machine as original signatures of the Parties. 3 IN WITNESS WHEREOF this Amending Agreement is executed by the Parties as of the date first written, above. ADB SYSTEMS INTERNATIONAL INC. By: [ILLEGIBLE] ----------------------------- Name: Title: ADB SYSTEMS INTERNATIONAL LTD. By: [ILLEGIBLE] ----------------------------- Name: Title: THE BRICK WAREHOUSE CORPORATION By: _____________________________ Name: Title: LOAN AGREEMENT BETWEEN THE BRICK WAREHOUSE CORPORATION AND ADB SYSTEMS INTERNATIONAL INC. AND ADB SYSTEMS INTERNATIONAL LTD. MADE AS OF AUGUST 23, 2002 MCCARTHY TETRAULT LLP GOWLING LAFLEUR HENDERSON LLP TABLE OF CONTENTS ARTICLE 1 - INTERPRETATION....................................................................................... 1 1.1 Definitions.......................................................................................... 1 1.2 Headings............................................................................................. 9 1.3 Extended Meanings.................................................................................... 9 1.4 Entire Agreement..................................................................................... 9 1.5 Invalidity........................................................................................... 9 1.6 Accounting Principles................................................................................ 10 1.7 Per Annum Calculations............................................................................... 10 1.8 Schedules............................................................................................ 10 ARTICLE 2 - LOAN TERMS........................................................................................... 11 2.1 Principal Amount..................................................................................... 11 2.2 Interest............................................................................................. 12 2.3 Repayment............................................................................................ 12 ARTICLE 3 - CONDITIONS PRECEDENT TO ADVANCES..................................................................... 12 3.1 Conditions for First Advance......................................................................... 12 3.2 Subsequent Advances.................................................................................. 13 3.3 Waiver............................................................................................... 14 3.4 Disbursement of Expenses Advance..................................................................... 14 3.5 Account of Record.................................................................................... 15 ARTICLE 4 - SECURITY............................................................................................. 15 4.1 Security............................................................................................. 15 4.2 Registration......................................................................................... 15 4.3 After Acquired Property and Further Assurances....................................................... 16 ARTICLE 5 - REPRESENTATIONS AND WARRANTIES....................................................................... 16 5.1 Organization, Standing and Power..................................................................... 16 5.2 Authority and Enforceability......................................................................... 16 5.3 Subsidiaries......................................................................................... 17 5.4 Capital Structure.................................................................................... 17 5.5 Title to Assets; Condition; Sufficiency of Assets.................................................... 18 5.6 No Violations Resulting From Transactions............................................................ 19 5.7 Compliance with Laws................................................................................. 19 5.8 Litigation........................................................................................... 19 5.9 Taxes................................................................................................ 19 5.10 Employees............................................................................................ 20 5.11 Financial Advisors................................................................................... 22 5.12 Financial Statements; Losses......................................................................... 22 5.13 No Undisclosed Liabilities........................................................................... 23 5.14 Absence of Certain Developments...................................................................... 23 5.15 Intellectual Property................................................................................ 23 5.16 Real Property........................................................................................ 27 5.17 Insurance............................................................................................ 27 5.18 Contracts............................................................................................ 28 5.19 Related Party Transactions........................................................................... 29 5.20 Restrictions on Business Activities.................................................................. 29
ii 5.21 Books and Records.................................................................................... 30 5.22 Benefit Plans........................................................................................ 30 5.23 Environmental Matters................................................................................ 31 5.24 Public Grants........................................................................................ 31 5.25 OSC Reports.......................................................................................... 31 5.26 General.............................................................................................. 31 ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF LENDER............................................................. 31 6.1 Organization, Standing and Power..................................................................... 32 6.2 Authority and Enforceability......................................................................... 32 6.3 No Violations Resulting from Transactions............................................................ 32 ARTICLE 7 - COVENANTS............................................................................................ 33 7.1 Affirmative Covenants of the Borrower................................................................ 33 7.2 Negative Covenants of the Borrower................................................................... 38 7.3 Termination of Negative and Positive Covenants....................................................... 40 7.4 Performance of Obligations........................................................................... 40 ARTICLE 8 - EVENTS OF DEFAULT AND ACCELERATION................................................................... 41 8.1 Events of Default.................................................................................... 41 8.2 Acceleration......................................................................................... 43 8.3 Default Interest..................................................................................... 44 8.4 Remedies Cumulative and Waivers...................................................................... 44 8.5 Termination of Lender's Obligations.................................................................. 44 ARTICLE 9 - COSTS, EXPENSES, SURVIVAL AND INDEMNIFICATION........................................................ 44 9.1 Costs and Expenses................................................................................... 44 9.2 General Survival..................................................................................... 45 9.3 Indemnification by ADB Entities...................................................................... 45 9.4 Specific Environmental Indemnification............................................................... 46 ARTICLE 10 - PUT Option.......................................................................................... 46 10.1 Put Option........................................................................................... 46 ARTICLE 11 - GUARANTEE........................................................................................... 48 11.1 Guarantee............................................................................................ 48 11.2 Indemnity............................................................................................ 48 11.3 Primary Obligation................................................................................... 48 11.4 Obligations Absolute................................................................................. 48 11.5 No Release........................................................................................... 49 11.6 No Exhaustion of Remedies............................................................................ 49 11.7 Prima Facie Evidence................................................................................. 49 11.8 No Set-off........................................................................................... 49 11.9 Continuing Guarantee................................................................................. 50 11.10 Demand............................................................................................ 50 11.11 Interest.......................................................................................... 50 11.12 Assignment and Postponement....................................................................... 50 11.13 Subrogation....................................................................................... 50 ARTICLE 12 - GENERAL............................................................................................. 51 12.1 Notice............................................................................................... 51 12.2 Assignment........................................................................................... 52 12.3 Binding on Successors................................................................................ 52
iii 12.4 Further Assurances................................................................................... 52 12.5 Waiver............................................................................................... 53 12.6 Interpretation....................................................................................... 53 12.7 Amendment............................................................................................ 53 12.8 Governing Law........................................................................................ 53 12.9 Time of the Essence.................................................................................. 53 12.10 Counterparts...................................................................................... 1
LOAN AGREEMENT THIS LOAN AGREEMENT is entered into as of August 23, 2002, by and between ADB SYSTEMS INTERNATIONAL INC. ("OLD ADB"), ADB SYSTEMS INTERNATIONAL LTD. ("NEW ADB"), each a corporation having its principal place of business at 6725 Airport Road, Suite 201, Mississauga, Ontario L4V 1V2, and THE BRICK WAREHOUSE CORPORATION ("LENDER"), a corporation having its principal place of business at 16930 - 114 Avenue, Edmonton, Alberta, T5M 3S2. WHEREAS: 1. The Lender, New ADB and Old ADB are entering into a Co-Operation Agreement pursuant to which Old ADB will agree to focus its undertaking to selling and marketing consumer goods on-line using technology and related services to be provided by New ADB and supplies and retailing services to be provided by the Lender. 2. As a term of the Co-Operation Agreement, Old ADB and New ADB propose to complete the Restructuring, pursuant to which, among other things, Old ADB will become a wholly-owned Subsidiary of New ADB and New ADB will assume all of the rights and obligations of Old ADB under this Agreement. 3. In order to enable Old ADB to proceed with the Restructuring contemplated by the Co-Operation Agreement entered into this day by the Parties and to fund future operations, Old ADB desires to obtain from the Lender, and the Lender desires to advance to the Borrower, the Loan upon the terms and conditions hereof. NOW THEREFORE in consideration of the premises, the mutual covenants contained in this Agreement, and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Parties agree as follows: ARTICLE 1 - INTERPRETATION 1.1 DEFINITIONS. In this Agreement, unless the context otherwise requires, each capitalized term shall have the meanings indicated below. "ADB ENTITIES" means collectively, Old ADB and New ADB and "ADB ENTITY" means either one of them. "ADB ENTITY CONTRACT" means any Contract to which any ADB Entity is a party or by which any ADB Entity or the Assets may be bound. "ADVANCE" means an advance of funds by the Lender to the Borrower hereunder. "AFFILIATE" of the Borrower means any other corporation directly or indirectly controlling or controlled by or under direct or indirect common control with the Borrower; for the purposes of 2 this definition, "control" means the ownership of more than 50% of the Voting Shares of a corporation. "AGREEMENT" means this Loan Agreement and all schedules annexed to this Agreement as the same may be amended from time to time in accordance with the provisions hereof or thereof, "hereof" "hereto" and "hereunder" and similar expressions mean and refer to this Agreement and not to any particular article or section; except where the context specifically requires, "Article" or "Section" means and refers to the specified article or section of this Agreement. "ARRANGEMENT AGREEMENT" has the meaning ascribed thereto in the Co-Operation Agreement. "ASSETS" mean all personal property of Old ADB including, without limiting the foregoing, all equipment, goodwill, cash, cash equivalents, cash deposits, marketable securities, investments, books and records, accounts, notes and other receivables, Intellectual Property, Intellectual Property Rights, contractual and other rights, claims and interests and all other assets and rights of Old ADB, including all assets and rights of Old ADB which are specifically referred to or reflected in the Financial Statements. "ASSIGNMENT AND ASSUMPTION AGREEMENT" means the general conveyance and assumption agreement as of the date hereof between Old ADB and New ADB. "BENEFIT PLANS" has the meaning ascribed thereto in Section 5.22. "BIDCOM ASSETS" means all Assets used by Old ADB in the operation of the Bidcom Business. "BIDCOM BUSINESS" means the business of conducting on-line retail sales through the URL www.bid-com. "BORROWER" means Old ADB and its permitted assignees. "BUSINESS DAY" means any day from Monday to Friday inclusive, except statutory or civic holidays observed in Toronto, Ontario or Edmonton, Alberta. "BUSINESS INFORMATION" means all information, know-how and records (whether or not confidential and no matter in what form held) including business plans and forecasts, sales and accounting records, customer and supplier lists, correspondence, orders and inquiries. "CCRA" has the meaning ascribed in Section 5.12(3). "COMMERCIAL AND MARKETING KNOW-HOW" means all commercial and marketing information, know-how and records (whether or not confidential and no matter in what form held) including all designs, specifications, drawings, lists and particulars of customers, marketing methods and procedures, advertising copy and sales and promotional information. "COMPUTER SOFTWARE" includes all computer programs in source and object code form as well as all Documentation related thereto, however recorded. 3 "CONFIDENTIALITY AGREEMENT" means the confidentiality agreement dated August 9, 2002 between Old ADB and Lender. "CONTRACT" means any agreement, license, contract, commitment or understanding, whether written or verbal. "CO-OPERATION AGREEMENT" means the co-operation agreement entered into as of the date hereof by the Parties. "DEFAULT" means, with respect to any Contract, (i) any breach of or default under such Contract; (ii) any event which could (either with or without notice or lapse of time or both) give rise to any right of termination, cancellation or acceleration of any obligation to repay with respect to such Contract; or (iii) any event which could result in either an increase in the obligations or liabilities of, or a loss of any benefit to which, the party in question or any of its Affiliates may be entitled or subject to under such Contract. "DEMAND" has the meaning ascribed thereto in Section 2.3. "DISPOSITION" means, in respect of any share of Old ADB, any offer to sell, contract to sell or otherwise sell, dispose of, loan, pledge or grant any rights with respect to such share and "DISPOSE" has a corresponding meaning. "DISTRIBUTE" means the act of marketing, distributing, promoting, selling, reselling, licensing, sublicensing, or providing support or customer assistance for any of Old ADB's Software. "DISTRIBUTOR" and "DISTRIBUTORS" includes any Person granted the right or authorization by Old ADB to market, distribute, promote, sell, resell, license, sublicense, or provide support or customer assistance for any of Old ADB's Software and includes VARs, OEMs, and resellers. "DOCUMENTATION" means all user documentation, technical documentation, and system documentation, however recorded, including user manuals, training materials, product specifications, technical documentation, description of computational algorithms, flow charts, programmer's notes and other design documentation and manuals. "DOCUMENTS" means this Agreement, the Security and all certificates and other documents delivered or to be delivered to the Lender pursuant hereto or thereto and, when used in relation to any person the term "DOCUMENTS" shall mean and refer to the Documents executed and delivered by such person. "DOMAIN NAME" means the domain name www.Bid.com. "DRAWDOWN DATE" means the date on which an Advance is made by the Lender to the Borrower pursuant to the provisions hereof and which shall be a Business Day. "DRAWDOWN NOTICE" means a notice substantially in the form annexed hereto as Schedule B to be given to the Lender by the Borrower pursuant to Section 3.1 or Section 3.2. "EFFECTIVE TIME" has the meaning ascribed thereto in the Co-Operation Agreement. 4 "ENCUMBRANCE" mean any mortgage, pledge, claim, charge, lien, encumbrance, interest, option, restriction, condition, violation, security interest, assessment or other rights of others of any nature affecting in any way the assets or property involved. "EVENT OF DEFAULT" means any of the events described in Section 8.1. "EXPENSES ADVANCE" has the meaning ascribed thereto in Section 2.1(c); "FINANCIAL STATEMENTS" means the audited financial statements of Old ADB for the year ended December 31, 2001, together with the report of Deloitte & Touche LLP thereon and the notes thereto. "FIRST ADVANCE" has the meaning ascribed thereto in Section 2.1(a); "GAAP" means generally accepted accounting principles as in effect, from time to time, in Canada. "GENERAL SECURITY AGREEMENT" means the security agreement in favour of the Lender by Old ADB, substantially in the form annexed hereto as Schedule 1.1-A. "GOVERNMENTAL ENTITY" means any domestic or foreign governmental authority, court, administrative agency or commission or other governmental or regulatory body or entity or Person having or purporting to have jurisdiction in the relevant circumstances. "INCLUDING" means including, without limitation. "INDEBTEDNESS" means, with respect to any person, indebtedness of such person which would in accordance with GAAP be classified upon a balance sheet (and the notes thereto) of such person as liabilities (absolute or contingent), of such person and in addition shall include: (a) all indebtedness of any other person guaranteed, directly or indirectly, in any manner by such person or endorsed (otherwise than for collection or deposit in the ordinary course of business) or discounted with recourse; (b) all indebtedness in effect guaranteed or indemnified, directly or indirectly, by such person through an agreement, contingent or otherwise, (i) to purchase such indebtedness or to advance or supply funds for the payment or purchase of such indebtedness, including the purchase of debt securities, obligations or shares, (ii) to purchase, sell or lease (as lessee or lessor) property, assets, goods, services, products, materials or supplies, or to purchase or sell transportation or services, primarily for the purpose of enabling the debtor to make payment of such indebtedness or to assure the owner of such indebtedness against loss, regardless of the delivery or non-delivery for any reason of the property, products, materials or supplies or the 5 furnishing or non-furnishing for any reason of the transportation or services, or (iii) to make any payment, loan, advance, capital contribution or other investment in the debtor, or become or be bound by any agreement to do so, for the purpose of assuring a minimum equity, an asset base, a working capital or other balance sheet test or condition for any date or to provide funds for the payment of any debt liability, dividend or share liquidation payment, or otherwise to supply funds to or in any manner invest in the debtor; (c) indebtedness of any joint venture, partnership or other person for which such person is liable; (d) all indebtedness, including lease obligations, of such person created or arising under any conditional sales agreement or other title retention agreement or under any capital lease, even though the rights and remedies of the seller or Lender or lessor under such agreement or lease in the event of the default are limited to repossession or sale of property; and (e) all indebtedness secured by any lien upon or in property owned by such person, even though such person has not assumed or become liable for the payment of such indebtedness. "INTELLECTUAL PROPERTY" means all intellectual and industrial property (whether or not confidential and no matter in what form held) including all works in which copyright may subsist such as plans, drawings, manuals, maps, Documentation, specifications, schematics, Computer Software, databases and compilations of information (whether or not protected by copyright) and algorithms, designs, formula, process, trade secrets and confidential information, know-how, discoveries and inventions, mask works, integrated circuit topographies, and trade-marks, trade-names, logos, Internet domain names, uniform resource locator, and service marks, and the term "INTELLECTUAL PROPERTY" includes Business Information, Commercial and Marketing Know-How, and Technical Information and, in respect of the Business, includes Old ADB's Software and Old ADB's Algorithms and Old ADB's Domain Names. "INTELLECTUAL PROPERTY RIGHTS" includes all intellectual and industrial property rights and rights of a similar nature such as copyrights, patents, industrial designs, design rights, trade-marks, data base rights, trade secrets, rights to use domain names and rights in confidential information, and all applications and registrations pertaining to the foregoing and all causes of action, rights of recovery and claims for damage or other relief relating, referring or pertaining to the foregoing (including all rights to oppose applications for the registration of similar or confusing trademarks), along with all income royalties, damages or payments due or payable including claims for past or future infringement or misappropriation of Intellectual Property or Intellectual Property Rights. "JOINT ACCOUNT" has the meaning ascribed thereto in Section 3.4. 6 "LATEST BALANCE SHEET" means the balance sheet of Old ADB as of December 31, 2001 included in the Financial Statements. "LATEST BALANCE SHEET DATE" means December 31, 2001. "LAW" shall mean any domestic or foreign statute, law, ordinance, rule, regulation or administrative ruling or any governmental permit, franchise or license or any injunction, judgment, order or consent or similar decree or agreement. "LOAN" means the advances of funds by the Lender to the Borrower in an aggregate principal amount of $2,000,000 pursuant to the First Advance, the Second Advance and the Expenses Advance as such terms are defined in Section 2.1. "LOSSES" has the meaning ascribed thereto in Section 9.3. "MANAGEMENT INFORMATION CIRCULAR" has the meaning ascribed in the Co-Operation Agreement. "MATERIAL ADVERSE EFFECT" means (i) any material adverse change in, or material adverse effect on, the business, assets, prospects, results of operations or financial or other condition of Old ADB or (ii) any event or circumstance which does or would reasonably be expected to prevent, hinder or materially delay the consummation of any of the Transactions. "NEW ADB GSA" means the security agreement in favour of the Lender by New ADB, substantially in the form annexed hereto as Schedule 1.1-B. "NORCO PLEDGE" means a pledge of all of the issued and outstanding shares of the Norway Subsidiary to the Lender substantially in the form annexed hereto as Schedule 1.1-C. "NORWAY SUBSIDIARY" means ADB Systemer AS. "OLD ADB CONTRACTS" means any Contract to which Old ADB is a party or by which the Assets may be bound; "OLD ADB'S DOMAIN NAMES" means the Internet domain names set forth in Schedule 1.1-D. "OLD ADB'S SOFTWARE" means the Computer Software described in Schedule 1.1-E. "OLD ADB'S TRADE-MARKS" means any word, symbol, icon, logo or other indicia of origin adopted or used in connection with Old ADB's Bidcom Business anywhere in the world on or prior to the date hereof or the Put Closing Date, as applicable, including the trade-marks, trade-names and service-marks listed on Schedule 1.1-F. "PARTIES" means the Borrower, New ADB and the Lender and "Party" means any one of them. "PERMITTED ENCUMBRANCE" means any (i) Encumbrance securing Taxes, assessments and Governmental Entity charges not yet due and payable or the amount or validity of which is being contested in good faith by appropriate proceedings by Old ADB and for which appropriate 7 reserves have been established in accordance with GAAP, (ii) mechanics, carrier workers, repairer and similar statutory liens arising or incurred in the ordinary course of Old ADB's business for amounts which are not delinquent and which are not in the aggregate material to Old ADB, (iii) liens securing rental payments under capital lease arrangements arising or incurred in the ordinary course of Old ADB's business, (iv) zoning law or ordinance or any similar legal requirement; (v) in the case of leased property, (a) the rights of any lessor and (b) any Encumbrance granted by any lessor of leased property; (vi) Encumbrance relating to the security interest in patent rights of the Borrower granted to the NCR Corporation by the Borrower pursuant to the security agreement made on April 17, 2002 (vii) Encumbrance relating to the security interest granted to Stonestreet Limited Partnership by the Borrower pursuant to the general security agreement dated August 30, 2002 and such security interest being subordinated to the Security; (viii) Encumbrance relating to the security interest granted to Greenwich Growth Fund Ltd. by the Borrower pursuant to a general security agreement dated August 30, 2002 and such security interest being subordinated to the Security and (ix) Encumbrance relating to the security interest granted to subscribers (other than Greenwich Growth Fund Ltd. and Stonestreet Limited Partnership) of convertible secured notes of the Borrower for an amount not greater than $300,000 and such security interest being subordinated to the Security; provided that "Permitted Encumbrance" does not include any Encumbrance which could prevent or impair in any material way the conduct of Old ADB's business as it is currently being conducted. "PERSON" means any individual, corporation, partnership, limited liability company, trust, unincorporated association or other entity or organization, including Governmental Entity. "PLAN OF ARRANGEMENT" has the meaning ascribed in the Arrangement Agreement. "PRINCIPAL" has the meaning ascribed thereto in Section 2.1. "PROPRIETARY RIGHTS REGISTRATIONS" means any and all applications and registrations anywhere in the world in respect of any Intellectual Property or Intellectual Property Rights owned or used by Old ADB and includes the applications and registrations listed in Schedule 5.15. "PUT CLOSING", "PUT CLOSING DATE", "PUT NOTICE", "PUT OPTION" and "PUT PERIOD" have the meanings set forth in Section 10.1. "REQUIREMENTS OF ENVIRONMENTAL LAW" means all requirements of the common law or of statutes, regulations, by-laws, ordinances, treaties, judgments and decrees, and (to the extent that they have the force of law) rules, policies, guidelines, orders, approvals, notices, permits, directives, and the like, of any federal, territorial, provincial, regional, municipal or local judicial, regulatory or administrative agency, board or governmental authority in Canada, the United States and any other jurisdiction in which the Borrower or any of its Subsidiaries have assets relating to environmental or occupation health and safety matters and the assets and undertaking of the Borrower and its Subsidiaries and the intended uses thereof, including but not limited to, all such requirements relating to: (i) the protection, preservation or remediation of the natural environment (the air, land, surface water or groundwater); (ii) solid, gaseous or liquid waste generation, handling, treatment, storage, disposal or transportation; and (iii) hazardous substances or conditions (matters that are prohibited, controlled or otherwise regulated, such as contaminants, pollutants, toxic substances, dangerous goods, wastes, hazardous wastes, liquid 8 industrial wastes, hazardous materials, urea formaldehyde foam type of insulation, asbestos or asbestos-containing materials, polychlorinated byphenyls (PCBs) or PCB contaminated fluids or equipment, explosives, radioactive substances, petroleum and associated products, underground storage tanks or surface impoundments). "RESTRUCTURING" shall have the meaning ascribed to such term in the Co-Operation Agreement. "SECOND ADVANCE" has the meaning ascribed thereto in Section 2.1(b). "SECURITY" means the security described in Section 4.1. "SHARES" means all of the issued and outstanding shares in the capital of Old ADB. "SUBORDINATE NOTES" means (i) the convertible secured notes (including but not limited to Series A, Series B and Series C) issued to Stonestreet Limited Partnership by the Borrower pursuant to a subscription agreement dated as of August 30, 2002; (ii) the convertible secured notes (including but not limited to Series D) issued to Greenwich Growth Fund Ltd. by the Borrower pursuant to a subscription agreement dated as of August 30, 2002; and (iii) the convertible secured notes (including but not limited to Series D) issued to a subscriber other than Greenwich Growth Fund Ltd. by the Borrower for an amount not greater than $300,000. "SUBSIDIARY" of the Borrower means any corporation more than 50% of the Voting Shares of which at the time of determination are owned, directly or indirectly, by the Borrower or by one or more Subsidiaries. "SUPPLY, SERVICES AND LICENSE AGREEMENT" means the supply, services and license agreement dated as of the date hereof between Old ADB, New ADB and the Lender. "TAX" or "TAXES" means all taxes, charges, fees, levies, imposts and other assessments, including all income, sales, use, goods and services, harmonized sales value added, capital, capital gains, alternative, net worth, transfer, profits, withholding, payroll, employer health, excise, franchise, real property and personal property taxes, and any other taxes, customs duties, fees, assessments, royalties, duties, fees, deductions, compulsory loans or similar charges in the nature of a tax including Canada Pension Plan and provincial pension plan contributions, unemployment insurance payments and workers compensation premiums, together with any instalments with respect thereto, and any interest, fines and penalties, imposed by any Governmental Authority (including, without limitation, those imposed under the Tax Act and where applicable, under The Internal Revenue Code of 1986 of the United States). "TAX ACT" means the Income Tax Act (Canada). "TAX RETURN" means any report, return, statement, or other information required to be supplied to a foreign or domestic taxing authority in connection with Taxes. "TECHNICAL INFORMATION" means information or data, regardless of the form or method of the recording, of a scientific or technical nature such as (i) technical data that describes the steps, sequences, and conditions of manufacturing, processing or assembly used to produce an item or component or to perform a process, (ii) technical data that describes the physical configuration 9 and performance characteristics of an item or component, (iii) application engineering data, (iv) manuals and instructional materials and performance data including Documentation, (v) methods, inspection techniques and procedures, and (vi) information pertaining to quality control or standards, assembly procedures, and includes specifications, technical drawings, algorithms, formula and schematics. "TRANSACTION COSTS" shall mean all reasonable fees and expenses of financial, legal, accounting and other advisors retained by the Borrower or New ADB and all other out-of-pocket costs of the Borrower or New ADB incurred prior to the completion of the Restructuring in connection with the transactions contemplated by the Restructuring, excluding any success or contingent fees relating to the Transactions. "TRANSACTION DOCUMENTS" means, collectively, this Agreement, the General Security Agreement, New ADB GSA, the Norco Pledge, the Supply, Services and License Agreement, the Co-Operation Agreement, Arrangement Agreement, Confidentiality Agreement and the Assignment and Assumption Agreement. "TRANSACTIONS" means the transactions contemplated by the Transaction Documents. "VOTING SHARES" means shares of any class of any corporation carrying voting rights generally under all circumstances. 1.2 HEADINGS. The use of headings in this Agreement is for convenience of reference only and shall not affect its interpretation. 1.3 EXTENDED MEANINGS. Words expressed in the singular include the plural and vice-versa and words in one gender include all genders and words importing persons shall include individuals, partnerships, associations, trusts, unincorporated organizations and corporations and vice versa. 1.4 ENTIRE AGREEMENT. The Transaction Documents, and any agreements and other documents to be delivered pursuant to any Transaction Document constitutes the entire agreement between the Parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, oral or written between the Parties. The execution of this Agreement has not been induced by, nor do either of the Parties rely upon or regard as material, any representations, warranties, conditions, other agreements or acknowledgments not expressly made in this Agreement, the Transaction Documents or in the agreements or other documents to be delivered pursuant hereto. 1.5 INVALIDITY. If in any jurisdiction a provision contained in this Agreement is found by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, the validity, legality or 10 enforceability of the remaining provisions contained herein, or of such provision in any other jurisdiction shall not be affected or impaired thereby. 1.6 ACCOUNTING PRINCIPLES. Wherever in this Agreement reference is made to generally accepted accounting principles, such reference shall be deemed to be to the generally accepted accounting principles from time to time approved by the Canadian Institute of Chartered Accountants, or any successor institute, applicable as at the date on which such calculation is made or required to be made in accordance with generally accepted accounting principles. Where the character or amount of any asset or liability or item of revenue or expense is required to be determined, or any consolidation or other accounting computation is required to be made for the purpose of this Agreement or any Document, such determination or calculation shall, to the extent applicable and except as otherwise specified herein or as otherwise agreed in writing by the parties, be made in accordance with generally accepted accounting principles applied on a consistent basis. 1.7 PER ANNUM CALCULATIONS. Unless otherwise stated, wherever in this Agreement reference is made to a rate of interest "per annum" or a similar expression is used, such interest shall be calculated using the nominal rate method, and not the effective rate method, of calculation and on the basis of a calendar year of 365 days or 366 days, as the case may be. 1.8 SCHEDULES. The following are the Schedules to this Agreement: Schedule B - Form of Drawdown Notice Schedule 1.1-A - General Security Agreement Schedule 1.1-B - Form of New ADB GSA Schedule 1.1-C - Form of Norco Pledge Schedule 1.1-D - Old ADB's Domain Names Schedule 1.1-E - Old ADB's Software Schedule 1.1-F - Old ADB's Trade Marks Schedule 3.1(i) - Legal opinion (Gowlings) Schedule 3.2(e) - Form of Consent Schedule 5.3(1) - Subsidiaries of ADB Entities Schedule 5.3(2) - Shares, etc. owned by ADB Entities Schedule 5.3(4) - Liability of ADB Entities Schedule 5.4(1) - Share conditions, etc. of Old ADB and subsidiaries 11 Schedule 5.4(2) - Options, warrants, shareholder agreements, etc. Schedule 5.6 - Required consents or approvals Schedule 5.10 - Employment and consulting contracts Schedule 5.11 - List of brokers or advisors acting for Old ADB or Affiliates re: Transactions Schedule 5.12 - Financial Statements Schedule 5.13 - Liabilities since Last Balance Sheet Date Schedule 5.15 - Intellectual Property Schedule 5.16 - Property with leasehold interest Schedule 5.18 - Contracts Schedule 5.19 - Outstanding indebtedness of Old ADB Schedule 5.20 - Contracts impairing business Schedule 5.23 - Benefit and other incentive plans Schedule 9.3 - Indebtedness, obligations or liabilities of Old ADB Schedule 10.1(a) - Form of Put Notice Schedule 10.1(e)(iv) - Form of opinion of counsel to New ADB Schedule 10.1(e)(vi) - Release by New ADB in favour of Old ADB ARTICLE 2 - LOAN TERMS 2.1 PRINCIPAL AMOUNT. Subject to the terms and conditions hereof, Lender shall make the Loan to Borrower during the period commencing on the date hereof and ending on October 31, 2002. Subject to the terms and conditions hereof, the Loan will be advanced as follows: (a) an initial advance in the principal amount of One Million Dollars ($1,000,000.00) (the "FIRST ADVANCE"); (b) a second advance in the principal amount of Five Hundred Thousand Dollars ($500,000.00) (the "SECOND ADVANCE"); and (c) Lender shall deposit into a bank account of the Borrower to be held and disbursed in accordance with Section 3.4, the principal sum of Five Hundred Thousand Dollars ($500,000.00) (the "EXPENSES ADVANCE"). 12 The First Advance, Second Advance and Expenses Advance shall together constitute the aggregate principal sum of the Loan hereunder (the "PRINCIPAL"). 2.2 INTEREST. The Borrower shall pay interest on each Advance at a rate per annum equal to 12% per annum, compounded monthly. Such interest shall be payable on repayment of the Principal from and including the Drawdown Date for such Advance to and including the day immediately preceding repayment of Principal hereunder and shall be calculated on the principal amount of the Loan outstanding during such period and on the basis of the actual number of days elapsed in a year of 365 days or 366 days, as the case may be. All interest payments to be made hereunder shall be paid without allowance or deduction for deemed re-investment or otherwise, both before and after maturity and before and after default and/or judgment, if any, until payment thereof, and interest shall accrue on overdue interest, if any. 2.3 REPAYMENT. The Borrower hereby agrees to repay the Principal and accrued and unpaid interest thereon as follows: (a) on or before October 31, 2002, upon the occurrence of an Event of Default by the Borrower; and (b) after October 31, 2002, upon the earliest to occur of (i) June 30, 2003, (ii) the occurrence of an Event of Default by the Borrower, or (iii) on demand by the Lender ("DEMAND"). ARTICLE 3 - CONDITIONS PRECEDENT TO ADVANCES 3.1 CONDITIONS FOR FIRST ADVANCE. On or before the advance by the Lender of the First Advance or the Expenses Advance hereunder, the following conditions shall be satisfied by the Borrower: (a) the Lender shall have received a duly completed Drawdown Notice from the Borrower; (b) the Borrower shall have delivered to the Lender certified copies of its constating documents and by-laws, the directors' resolutions authorizing the borrowings hereunder and the incumbency of the officers of the Borrower signing this Agreement and any documents to be provided pursuant to the provisions hereof; (c) the representations and warranties set forth in Article 5 shall be true and accurate; (d) each of the Transaction Documents shall have been executed and delivered by the parties thereto; 13 (e) the Security shall have been executed and delivered and all filings or recordings necessary or desirable in connection therewith shall have been made; (f) no event shall have occurred which would constitute an Event of Default or which would constitute an Event of Default with the giving of notice or lapse of time or both nor shall the Advance result in the occurrence of any such event; (g) all existing registrations of lien, mortgage or security in respect of the Assets shall have been discharged or otherwise dealt with in a manner acceptable to the Lender; (h) the Borrower shall have entered into irrevocable subscription agreements with arm's length third parties to issue equity securities of the Borrower or debt securities convertible into equity securities of the Borrower raising aggregate gross proceeds to the Borrower of not less than $1,000,000 and received aggregate gross proceeds of not less than $1,000,000 from the sale of such equity securities or debt securities convertible into equity of the Borrower on terms and conditions satisfactory to the Lender; and (i) a legal opinion in the form attached as Schedule 3.1(i) shall have been delivered to the Lender. 3.2 SUBSEQUENT ADVANCES. On or before the advance by the Lender of the Second Advance, the following conditions shall be satisfied by the Borrower: (a) the Lender shall have received a proper and timely Drawdown Notice from the Borrower; (b) the representations and warranties set forth in Article 5 shall be true and accurate; (c) no event shall have occurred which would constitute an Event of Default or which would constitute an Event of Default with the giving of notice or lapse of time or both nor shall the Advance result in the occurrence of any such event; and (d) the Borrower and New ADB shall have delivered a copy of the minutes of the meeting of shareholders approving the Restructuring, the court order approving the Restructuring and the certificate and articles of arrangement of New ADB issued by the Ministry of Consumer and Business Affairs in connection therewith, all certified by such officers of the Borrower and New ADB as the Lender may reasonably require. (e) the Borrower shall have delivered to Lender (i) executed consents in the form set forth in Schedule 3.2(e) for all Contracts set forth in Schedule 5.18 other than employment contracts entered into by the Borrower not relating to the Bid.com Assets and Bid.com Liabilities as defined in the Co-operation Agreement, and (ii) releases from employees of Old ADB to be employed by New ADB, unless 14 requested otherwise by the Lender, with the form of the release to be approved by the Lender. 3.3 WAIVER. The conditions set forth in Sections 3.1 and 3.2 are inserted for the sole benefit of the Lender and may be waived by the Lender, in whole or in part (with or without terms or conditions) without prejudicing the right of the Lender at any time to assert such conditions in respect of any subsequent Drawdown. 3.4 DISBURSEMENT OF EXPENSES ADVANCE. (1) Concurrently with the advance by the Lender of the First Advance, the Lender shall advance the Expenses Advances by depositing the principal amount of the Expenses Advance in a bank account (the "JOINT ACCOUNT") established and maintained by ADB exclusively for the purpose of Expense Advances. The Joint Account shall require two signatures on any cheque or other withdrawal of funds, one of whom shall be the nominee of the Lender. Notwithstanding any rights of the Lender hereunder or otherwise with respect to the Joint Account, all monies maintained in the Joint Account shall constitute an obligation of the Borrower to the Lender hereunder. No amount of the Expenses Advance shall be withdrawn, transferred or otherwise removed from the Joint Account by Old ADB unless such withdrawal, transfer or removal has been approved in writing by the Chief Financial Officer or Senior Vice President, Treasurer of the Lender. (2) Prior to any such withdrawal, the Borrower shall deliver to the Lender copies of all invoices in respect of the Transaction Costs that will be paid with the proceeds of such withdrawal certified by such officers of the Borrower as the Lender may reasonably require. (3) Upon the Borrower satisfying the condition in Section 3.2(d), any amounts in the Joint Account shall be released to the Borrower for its use if the Borrower has (i) paid all the Transaction Costs relating to the Transaction and (ii) provided evidence satisfactory to the Lender that this Section 3.4(3)(i) has been satisfied. (4) If the Transaction Costs are in excess of $500,000, such costs may be paid by the Lender from funds advanced in any Subsequent Advance made in accordance with Section 3.2. (5) Upon the occurrence of an Event of Default or upon a Demand, any amount then existing in the Joint Account shall be withdrawn by the Lender and applied as a payment of the Principal then outstanding and, for such purpose, Old ADB, on behalf of itself and its successors, hereby appoints the Chief Financial Officer or Senior Vice President, Treasurer of the Lender or its successors or assigns as the attorney for Old ADB to do, sign and execute all acts, deeds, assurances and other instruments which in the discretion of the said attorneys or attorney may be necessary or desirable for the purpose of vesting in the Lender, its successors and assigns, all such amounts in such event. Such power of attorney, being coupled 15 with an interest, will not be revoked by the dissolution, surrender of charter, winding-up, bankruptcy or insolvency of Old ADB and may be exercised in the name and on behalf of the successors and assigns of the Lender. 3.5 ACCOUNT OF RECORD. The Lender shall open and maintain books of account evidencing all Loans and all other amounts owing by the Borrower to the Lender hereunder. The Lender shall enter in the foregoing accounts details of all amounts from time to time owing, paid or repaid by the Borrower hereunder. The information entered in the foregoing accounts shall constitute prima facie evidence of the obligations of the Borrower to the Lender hereunder with respect to all Loans and all other amounts owing by the Borrower to the Lender hereunder. After a request by the Borrower the Lender shall promptly advise the Borrower of such entries made in the Lender's books of account. ARTICLE 4 - SECURITY 4.1 SECURITY. The Borrower or New ADB, as applicable, shall execute and deliver to the Lender the following: (a) the Norco Pledge; (b) the General Security Agreement; and (c) New ADB GSA as continuing collateral security for the performance by the Borrower or new ADB, as applicable, of all of its obligations hereunder. 4.2 REGISTRATION. The Borrower shall, at its expense, register, file or record the Security in all offices where such registration, filing or recording is necessary or of advantage to the creation, perfection and preserving of the security applicable to it including, without limitation, any land registry offices. The Borrower shall renew such registrations, filings and recordings from time to time as and when required to keep them in full force and effect. The forms of the New ADB GSA and General Security Agreement have been prepared based upon the laws of Canada and Ontario applicable thereto and the form of Norco Pledge has been prepared in accordance with the laws of Norway applicable thereto, in each case in effect at the date hereof and that such laws may change. The Lender shall have the right to require that any such forms be amended to reflect any changes in such laws, whether arising as a result of statutory amendments, court decisions or otherwise, in order to confer upon the Lender the security interests intended to be created thereby, except that in no event shall the Lender require that any such amendment be effected if the result thereof would be to grant the Lender greater rights than is otherwise contemplated herein. 16 4.3 AFTER ACQUIRED PROPERTY AND FURTHER ASSURANCES. The Borrower shall from time to time execute and deliver all such further deeds or other instruments of conveyance, assignment, transfer, mortgage, pledge or charge in connection with all assets acquired by the Borrower after the date hereof and intended to be subject to the security interests created hereby including any insurance thereon; provided, however, that the foregoing obligation of the Borrower to execute and deliver deeds or other instruments shall only apply: (a) whenever the Borrower is requested to do so by the Lender; or (b) in any event, not later than 90 days after the end of each fiscal year of the Borrower, with respect to all real and immoveable property and rights acquired by the Borrower during such fiscal year. ARTICLE 5 - REPRESENTATIONS AND WARRANTIES Each of the ADB Entities hereby severally and not jointly represents and warrants to the Lender as follows: 5.1 ORGANIZATION, STANDING AND POWER. Each ADB Entity is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted and has made all necessary filings under all Applicable Laws. 5.2 AUTHORITY AND ENFORCEABILITY. (1) Each ADB Entity has all requisite corporate power and authority to execute and deliver each of the Transaction Documents and all other documents required hereunder and to do all acts and to perform fully its obligations hereunder and thereunder. The execution and delivery of each of the Transaction Documents and the consummation of the transactions contemplated hereby or thereby have been duly authorized and approved by all necessary corporate action on the part of each ADB Entity. (2) This Agreement constitutes valid and legally binding obligations of each ADB Entity enforceable against it in accordance with their respective terms subject to applicable bankruptcy, insolvency and other laws of general application limiting the enforceability of creditors' rights and to the fact that specific performance is an equitable remedy available only in the discretion of the court. Neither the execution and delivery of any Transaction Document, nor compliance with the terms and conditions of any of them, (i) has resulted or will result in a violation of the articles or the by-laws of any ADB Entity or any resolutions passed by the Board of Directors or shareholders of any ADB Entity or any applicable Law, (ii) has resulted or will result in a breach of, or constitute a default under, any loan agreement, indenture, trust deed or any other agreement or instrument to which 17 any ADB Entity is a party or by which it is bound or (iii) requires any approval or consent of any Person except such as has already been obtained. 5.3 SUBSIDIARIES. (1) Except as set forth in Schedule 5.3(1), none of the ADB Entities has any Subsidiaries. (2) Except as set forth in Schedule 5.3(2) none of the ADB Entities owns any shares of capital stock, units or any other interest of any other Person or any rights, options, warrants or other securities of any other Person, (ii) does not have any agreement for the purchase, subscription or issuance of any of the unissued shares of capital rights, options, warrants, securities or any other interest of any other Person, and (iii) does not have any interest, directly or indirectly, in any other Person. (3) Each Subsidiary of each ADB Entity is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation with the corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted and has made all necessary filings under all Applicable Laws. (4) No bankruptcy, insolvency or receivership proceedings have been instituted or are pending against any ADB Entity or any of its Subsidiaries and except as set forth on Schedule 5.3(4), each ADB Entity and its Subsidiaries are able to satisfy their liabilities as they become due. 5.4 CAPITAL STRUCTURE. (1) The authorized capital of Old ADB consists of an unlimited number of common shares and an unlimited number of preference shares issuable in series, of which 41,583,628 common shares have been validly issued and are outstanding as fully paid and non-assessable. In the event the Put Option is exercised, the authorized capital of Old ADB will consist of an unlimited number of common shares, of which 41,583,628 common shares will have been validly issued and will be outstanding as fully paid and non-assessable. The rights, privileges, restrictions and conditions attached to the common shares of Old ADB are as set out in Schedule 5.4(1) attached hereto. The authorized and issued and outstanding capital of each Subsidiary of Old ADB is set out on Schedule 5.4(1) hereto and all such issued shares have been validly issued and are outstanding as fully paid and non-assessable. All shares of each ADB Entity and each Subsidiary thereto are non-assessable and free of pre-emptive or similar rights. (2) Except as contemplated by this Agreement or as set forth in Schedule 5.4(2) , there are no (a) options, warrants, calls, puts, rights (including pre-emptive rights), commitments or any other agreements of any character to which Old ADB or any Subsidiary thereof is a party or by which Old ADB or any Subsidiary thereof may be bound, or which at any time in the future may become binding on 18 Old ADB or any Subsidiary thereof requiring it to issue, transfer, dispose of, sell, purchase, redeem or otherwise acquire (or to refrain from doing any of the foregoing) any shares of Old ADB or any Subsidiary thereof or any other shares of capital stock or other securities of Old ADB or any Subsidiary thereof or its successors or rights convertible into, exchangeable for, or evidencing the right to subscribe for, any shares or other securities of Old ADB or any Subsidiary thereof or its successors, or other ownership interests in Old ADB or any Subsidiary thereof or its successors; or (b) shareholders agreements, voting trusts or other agreements or understandings to which Old ADB or any Subsidiary thereof is a party or by which Old ADB or any Subsidiary thereof may be bound relating to the voting of, or placing any restrictions on, any shares of Old ADB or any Subsidiary thereof or its successors. 5.5 TITLE TO ASSETS; CONDITION; SUFFICIENCY OF ASSETS. (1) Except for Permitted Encumbrances, Old ADB owns beneficially and of record, and has good and marketable title to, the Assets, free and clear of any Encumbrance. All tangible Assets have been properly maintained and are in good working condition and repair, except for reasonable wear and tear for machinery and equipment of comparable age. (2) In the event the Put Option is exercised, New ADB shall own all of the outstanding securities of Old ADB, and shall have good and marketable title thereto, free and clear of any Encumbrance. (3) The accounts receivable reflected on the Latest Balance Sheet arose and the accounts receivable of Old ADB that have arisen during the period from the Latest Balance Sheet Date through the date hereof have arisen from bona fide transactions in the ordinary course of business and, to the best of the knowledge of each ADB Entity, such receivables will be collected in full or be fully callable at their face amounts (less any applicable reserves reflected in the Financial Statements or thereafter established on a basis consistent with reserves reflected in the Financial Statements which reserves do not exceed $100,000 in the aggregate) within 90 days. (4) The Assets include all the assets (including Intellectual Property and Intellectual Property Rights), properties, equipment, licenses and rights used or employed by Old ADB in its business as presently conducted, including the Bidcom Business. Old ADB and each of its Subsidiaries have (a) all right, title, and interest in and to, or a valid right to use, all of the Assets, including, Intellectual Property, Intellectual Property Rights, properties, equipment, licenses and rights owned, used, employed or retained by Old ADB and its Subsidiaries in the conduct of its business prior to the date hereof; and (b) all assets, including, Intellectual Property, Intellectual Property Rights, properties, equipment, licenses, quotas, permits and rights that are necessary to carry on the business and operations of Old ADB and its Subsidiaries as presently conducted by Borrower. Neither of the ADB Entities has received notice that any employee or subcontractor, consultant, 19 independent contractor, or software developer of any ADB Entity or their Subsidiaries will discontinue his, her or its employment or other relationship with any ADB Entity or their Subsidiaries after giving effect to the transaction contemplated hereby. 5.6 NO VIOLATIONS RESULTING FROM TRANSACTIONS. The execution and delivery by each ADB Entity of the Transaction Documents to which it is a party and the consummation of the Transactions by each ADB Entity will not: (a) conflict with or violate any provision of the articles or by-laws of any ADB Entity, as amended through the date hereof; (b) except as set forth on Schedule 5.6, require any consent, waiver, approval, authorization or permit of, or filing with or notification to, any Governmental Entity; (c) except as set forth in Schedule 5.6, result in or constitute a Default, or require any consent or approval of or notice to any Person, or result in the creation of any Encumbrance, under or pursuant to (i) any ADB Entity Contract; or (d) violate any Law applicable to any ADB Entity or by which it or any of the Assets may be bound. 5.7 COMPLIANCE WITH LAWS. Each ADB Entity and each Subsidiary of each ADB Entity is, and at all times has been, in compliance in all material respects with all Laws applicable to such ADB Entity or Subsidiary, as applicable, or to the conduct of its business or operations or the use of the Assets, and none of the ADB Entities nor any Subsidiary of an ADB Entity has received, and does not know of the issuance or threatened issuance by any Governmental Entity, of any notices of violation or alleged violation of any Law applicable to such ADB Entity or Subsidiary, as applicable. The manner in which each ADB Entity and each Subsidiary of ADB Entities has offered, delivered, advertised, labelled and sold its products and services complies with all applicable Laws pertaining thereto. 5.8 LITIGATION. There is no action, suit, claim, investigation or proceeding, whether at law or in equity and whether or not purportedly on behalf of any ADB Entity or any Subsidiary or an ADB Entity (each, a "LEGAL PROCEEDING"), or, to the knowledge of each ADB Entity, pending or threatened against or affecting any ADB Entity or any Subsidiary thereof. No event has occurred and no circumstance, matter or set of facts exist which would constitute a valid basis for the assertion by any third party of any claim or Legal Proceeding. There is no outstanding or threatened judgment, injunction, order or consent or similar decree or agreement of any Governmental Entity against, naming any ADB Entity, any Subsidiary of an ADB Entity or affecting any of the Assets. 5.9 TAXES. (1) All Taxes with respect to any periods ending on or before the date hereof which are due and payable (whether or not shown on any Tax Return) by Old ADB or any Subsidiary thereof have been paid in full and no such Taxes remain outstanding. Old ADB and each of its Subsidiaries do not have any liability, obligation or commitment for the payment of any Taxes except such Taxes as are 20 disclosed in the Financial Statements or Taxes payable by Old ADB or any Subsidiary thereof which are not yet due and payable with respect to its results of operations for all periods ending on or before the date hereof or the date on which the Loan is repaid or otherwise satisfied in full, as applicable. Old ADB and each of its Subsidiaries have established current accruals that are adequate for the payment of all Taxes payable by them which are not yet due and payable with respect to its results of operations for all periods ending on or before the date hereof or the date on which the Loan is repaid or otherwise satisfied in full. Old ADB and each of its Subsidiaries have filed all Tax Returns required to have been filed by them prior to the date hereof and no extension of time for filing a Tax Return is presently in effect. Old ADB and each of its Subsidiaries have not filed any waiver for a taxation year. The Tax Returns that have been filed by Old ADB and each of its Subsidiaries have been accurately prepared, duly and timely filed and are correct and complete in all respects. Old ADB and each of its Subsidiaries have withheld and paid all Taxes required to have been withheld and paid by them under social security laws or any other Law imposing tax or social security contributions on Old ADB or any of its Subsidiaries, including in connection with amounts paid to or owing to any employee, independent contractor, creditor or any other third party. Without limitation to the generality of the foregoing, Old ADB and each of its Subsidiaries have in particular withheld and paid all Taxes and social security contributions required to have been withheld and paid by it for all its Employees, including part time employees. (2) There has been no examination by any Tax authority of any return of Old ADB or any of its Subsidiaries or of any Person for which Old ADB or any of its Subsidiaries is liable, during the past five (5) years, and to the best of each ADB Entity's knowledge there are no audits, actions, suits, proceedings, investigations or claims now pending or threatened against Old ADB or any of its Subsidiaries in respect of any Taxes. 5.10 EMPLOYEES. (1) Neither Old ADB nor any of its Subsidiaries is a party to or bound by any Contract to pay any management fee. (2) Except as set forth in Schedule 5.10, neither Old ADB nor any of its Subsidiaries has any written employment contract or consulting contract with any Person. (3) Schedule 5.10 sets forth a true, correct and complete list of: (i) the names of all employees or consultants of Old ADB and each of its Subsidiaries and all Contracts with such Persons, (ii) their annual salary or remuneration payable by Old ADB or any of its Subsidiaries, (iii) their job title with Old ADB or any of its Subsidiaries, 21 (iv) their total length of employment including any prior employment as disclosed in Old ADB's or any of its Subsidiaries' records that would affect calculation of years of service for purposes of benefit entitlement (including statutory notice or statutory severance pay) or pension entitlement, (v) the term of any consulting contract with Old ADB or any of its Subsidiaries, (vi) whether any such employees are on any approved or statutory leave of absence from Old ADB or any of its Subsidiaries and, if so, the reason for such absence, and (vii) other terms and conditions of their employment (other than Benefit Plans and Compensation Policies); (4) Neither Old ADB nor any of its Subsidiaries is bound by or a party to any collective bargaining agreement. (5) No trade union, council of trade unions, employee bargaining agency or affiliated bargaining agent: (i) holds bargaining rights with respect to any employees of Old ADB or any of its Subsidiaries by way of certification, interim certification, voluntary recognition, designation or successor rights, (ii) has applied to be certified as the bargaining agent of any employees of Old ADB or any of its Subsidiaries, or (iii) has applied to have Old ADB or any of its Subsidiaries declared a related employer or successor employer pursuant to applicable labour legislation. (6) There are no actual, threatened or pending organizing activities of any trade union, council of trade unions, employee bargaining agency or affiliated bargaining agent or any actual, threatened or pending unfair labour practice complaints, strikes, work stoppages, picketing, lock-outs, hand-billings, boycotts, slowdowns, arbitrations, grievances, complaints, charges or similar labour related disputes or proceedings pertaining to Old ADB or any of its Subsidiaries, and there have not been any such activities or disputes or proceedings within the last year. (7) All vacation pay and sick leave pay for employees of Old ADB and its Subsidiaries is properly reflected and accrued in the books and accounts of Old ADB or its Subsidiaries, as applicable. (8) Neither the execution and delivery of any Transaction Document nor the consummation of the Transactions will: (a) result in any payment, including severance, unemployment compensation, golden parachute, bonus or otherwise 22 becoming due to any director or employee of Old ADB or any of its Subsidiaries; (b) increase any benefits otherwise payable under any Benefit Plan; or (c) result in the acceleration of the time of payment or vesting of any such benefits. Old ADB and each of its Subsidiaries are in compliance in all respects with all applicable Laws, Contracts relating to employment, employment practices, wages, hours, and terms and conditions of employment, including employee compensation matters. 5.11 FINANCIAL ADVISORS. (1) Except as set forth in Schedule 5.11, no Person has acted directly or indirectly as a broker, finder or financial advisor for or to Old ADB or any of its Affiliates in connection with the negotiations relating to the Transactions. (2) No Person is entitled to any fee or commission or like payment, or expense reimbursement from Old ADB or any of its Affiliates, in respect of any Transaction Document or any of the Transactions, based in any way on agreements, arrangements or understandings made by or on behalf of Borrower. 5.12 FINANCIAL STATEMENTS; LOSSES. (1) Schedule 5.12 sets forth true, correct and complete copies of the Financial Statements. (2) The Financial Statements: (i) are in accordance with the books and account of Old ADB as at the Latest Balance Sheet Date, (ii) are true and correct in all material respects and present fairly in all material respects the financial position of Old ADB as at the Latest Balance Sheet Date, (iii) have been prepared in accordance with GAAP, consistently applied, and (iv) present fairly all of the assets and liabilities of Old ADB as at December 31, 2001, including all contingent liabilities of Old ADB as at December 31, 2001. (3) The information provided in the Tax Returns of Old ADB for the years ending December 31, 1994 to December 31, 2001 (i) reflect the results of the operations of Old ADB for the respective years; (ii) calculate the taxable income or non-capital losses in accordance with the Income Tax Act and Regulations in effect at the relevant time; 23 (iii) have been filed with Canada Customs and Revenue Agency ("CCRA"); and (iv) have not been subject to challenge by CCRA. 5.13 NO UNDISCLOSED LIABILITIES. Except for liabilities and obligations disclosed in Schedule 5.13, neither Old ADB nor any of its Subsidiaries have, since the Latest Balance Sheet Date, incurred any Indebtedness, obligation or liability of any kind (whether accrued, absolute, contingent or otherwise, and whether due or to become due or asserted or unasserted) except in the ordinary course of business and there is no basis for the assertion of any Claim against Old ADB or any of its Subsidiaries which was not fully reflected in, reserved against or otherwise described in the latest Balance Sheet that would be required to be disclosed on a balance sheet prepared in accordance with GAAP. 5.14 ABSENCE OF CERTAIN DEVELOPMENTS. Except as contemplated by the Restructuring or hereby, during the period from December 31, 2001 to the date hereof or the date on which the Loan is repaid or otherwise satisfied in full, as applicable, (a) the business and operations of Old ADB and each of its Subsidiaries have been carried on in their usual and ordinary course and neither Old ADB nor any of its Subsidiaries has entered into any transaction out of the usual and ordinary course of business; (b) there has been no event, condition or statement of facts of any character that has had or would reasonably be expected to result in a Material Adverse Effect (c) there has been no action taken that would have been prohibited by Section 7.2 had that Section been effective since such date; and (d) there has not been any damage, destruction or loss, whether or not covered by insurance, with respect to the property and assets of Old ADB or any of its Subsidiaries having a replacement cost of more than $10,000 for any single loss or $20,000 for all such losses. 5.15 INTELLECTUAL PROPERTY. (1) Schedule 5.15 sets forth a true, correct and complete list of all Intellectual Property and Intellectual Property Rights owned by Old ADB or any of its Subsidiaries or used by Old ADB or any of its Subsidiaries and which are necessary or material to them in the conduct of their business and indicates, with respect to each item of Intellectual Property or Intellectual Property Rights listed thereon, the owner thereof and, if applicable, the name of the licensor or licensee thereof and the date or dates of any Old ADB Contracts with respect thereto. (2) Except as set forth in Schedule 5.15: (a) Neither Old ADB nor any of its Subsidiaries has received nor is aware of any notice or claim (whether written, oral or otherwise) challenging Old ADB's or any of its Subsidiaries' ownership or rights in the Intellectual Property and Intellectual Property Rights used in its business or suggesting that any other Person has any claim of legal or beneficial ownership with respect thereto; 24 (b) Old ADB has all necessary rights to all Intellectual Property and Intellectual Property Rights used in Old ADB's or any of its Subsidiaries' business without any material qualification, limitation or restriction on its use, and neither Old ADB nor any of its Subsidiaries have, directly or indirectly received any notice or claim (whether written, oral or otherwise) challenging the validity or enforceability of any such Intellectual Property or Intellectual Property Rights or any claim of infringement of any such Intellectual Property, Intellectual Property Right or moral right, in each case which remains unresolved; (c) With respect to any Intellectual Property or Intellectual Property Rights used in Old ADB's or any of its Subsidiaries' business for which registration with any private or governmental Person is permitted, but which has not yet been registered, all applications with respect thereto, the filing of which would be undertaken by a reasonably prudent operator of a comparable business, have been filed and are pending; (d) Neither the business nor any of the operations, products or services of Old ADB or any of its Subsidiaries' nor Old ADB's Software or the use, or Distribution thereof conflict with, infringe upon, violate or interfere with or constitute an appropriation of any right, title or interest held by any other person or entity, and there have been no claims made with respect thereto; (e) To the knowledge of Old ADB, no person is infringing in any respect on any part of the Intellectual Property or Intellectual Property Rights listed in Schedule 5.15; (f) Old ADB and its Subsidiaries together are the owners of free and clear of Encumbrances except Permitted Encumbrances, or have all necessary rights to use all Intellectual Property and all Intellectual Property Rights used in Old ADB's and each of its Subsidiaries' business; (g) Old ADB is the owner of Old ADB's Trade-Marks; (h) Old ADB and its Subsidiaries together are the owners of, free and clear of Encumbrances except Permitted Encumbrances, the Proprietary Rights Registrations; (i) Old ADB is the owner of, free and clear of Encumbrances except Permitted Encumbrances, Old ADB's Software and all Intellectual Property Rights therein; (j) To the knowledge of each ADB Entity, the use of Old ADB's Trade-Marks in its business does not conflict or interfere with, infringe upon or constitute an infringement, violation or misappropriation of Intellectual Property Right or moral right of any Person; (k) Borrower is the registrant of each Borrower's Domain Name as shown by the records of the relevant accredited registrar; 25 (l) To the knowledge of each ADB Entity, the Intellectual Property used in Old ADB's and each of its Subsidiaries' business and the conduct of Old ADB's and each of its Subsidiaries' business does not conflict or interfere with, infringe upon or constitute an infringement, violation, or misappropriation of an Intellectual Property Right or moral right of any Person; (m) To the knowledge of each ADB Entity, the manufacture, production, reproduction, sale, distribution, marketing, and use of Old ADB's Software does not conflict or interfere with, infringe upon, or violate any Intellectual Property Right or moral right of any person; (n) All Proprietary Rights Registrations are in good standing and without challenge of any kind; and (o) No Person has any Intellectual Property Right or right to use Old ADB's Software except pursuant to licenses granted in the ordinary course of business; (3) Old ADB has in its possession complete copies of all of the computer programs in source and object code forms and related flow charts, specifications, and technical and user documentation for each component of Old ADB's Software; (4) No part of Old ADB's Software has fallen into the public domain; (5) Old ADB's Software is an original work of authorship and copyright subsists in Old ADB's Software in Canada and the United States. Old ADB is the owner of such copyrights in Canada and the United States. (6) The only persons who have been authorized by Old ADB, or who have the right, to Distribute, manufacture or produce copies of Old ADB's Software are the persons listed in Schedule 5.15 and Old ADB's Subsidiaries; (7) Except as set forth in Schedule 5.15, no person who is an end user of Old ADB's Software has any right to use same, other than its Subsidiaries or pursuant to a written license agreement between Old ADB and the end-user, copies of which have been made available to the Lender; (8) All machinery, equipment, computers, hardware, and Computer Software owned or used by Old ADB or any of its Subsidiaries in their respective businesses have been properly maintained and are in good working order for the purposes of on-going operation, subject to ordinary wear and tear for machinery, equipment, computers, hardware and Computer Software of comparable age; (9) No Person other than Old ADB and its Subsidiaries has been given or has in its possession or has any right to use the source codes or algorithms, has had made available to them, or has any copies of, the source codes or algorithms, to or used in Old ADB's Software, except as provided in Schedule 5.15; 26 (10) The Intellectual Property and Intellectual Property Rights described in Schedule 5.15 constitute all of the Intellectual Property and Intellectual Property Rights necessary to conduct Old ADB's business in the ordinary course of its business; (11) To the best of the knowledge of Old ADB, there are no material problems or defects in Old ADB's Software (including bugs, logic errors and the failure of Old ADB's Software to operate as described in Product Documentation commercially distributed with such product) and Old ADB's Software performs materially in conformance with its related end-user and technical Documentation; (12) Schedule 5.15 sets out details as to all warranties provided by Old ADB connection with the license or sale of Old ADB's Software, and services related thereto. Such Schedule also sets out all known warranty claims in respect of Old ADB's Software; (13) Schedule 5.15 contains a list of all contracts and agreements of the Old ADB to provide maintenance, support and customer support service to customers with respect of Old ADB's Software; (14) Old ADB's Software does not contain any protection feature designed by Old ADB to prevent copying, or intentionally to prevent the use of such Computer Software and without limiting the generality of the foregoing, no portion of Old ADB's Software contains any virus, "back door", "time bomb", "Trojan Horse" or other Computer Software routines or hardware components which are designed by Old ADB, are intended to prevent, are likely to, or have the effect of preventing unauthorized access, disabling, erasing, corrupting or affecting the normal use of software or data, or performing like actions; (15) Neither Old ADB nor any of its Subsidiaries has conducted its respective business, or used or enforced (or failed to use or enforce) any Intellectual Property or Intellectual Property Rights, in a manner that would result in the abandonment, cancellation or unenforceability of any item of the Intellectual Property or Intellectual Property Rights listed in Schedule 5.15, and neither Old ADB nor any of its Subsidiaries have taken or failed to take any action that would result in the forfeiture or relinquishment of any Intellectual Property or Intellectual Property Rights used in the conduct of its business; (16) Each of Old ADB and its Subsidiaries, (a) has taken all commercially reasonable steps to (i) protect its rights to the Intellectual Property and Intellectual Property Rights listed in Schedule 5.15; and (ii) prevent the unauthorized use thereof by, or the unauthorized disclosure thereof to, any other Person; and (b) shall use all reasonable efforts to maintain, or cause to be maintained, the Intellectual Property and Intellectual Property Rights listed in Schedule 5.15 in full force and effect through the date on which the Loan is repaid or otherwise satisfied in full and, without limiting the generality of the foregoing, has renewed or has made, and will make within an applicable renewal period ending on or prior to the date hereof or the Put Closing Date, as applicable, application to renew all of such 27 Intellectual Property Rights subject to expiration on or prior to the date on which the Loan is repaid or otherwise satisfied in full. With respect to any part of the Intellectual Property and Intellectual Property Rights listed in Schedule 5.15 which was created by Old ADB or any of its Subsidiaries or any of their agents or representatives, except in the ordinary course of business (a) no third party has any rights (whether non-exclusive or otherwise) in such Intellectual Property and Intellectual Property Rights and, no third party has received any confidential information relating to such Intellectual Property and Intellectual Property Rights; and (b) neither Old ADB nor any of its Subsidiaries, is under any contractual or other obligation to disclose to any third party any such Intellectual Property and Intellectual Property Rights; (17) To the knowledge of each ADB Entity, Old ADB and each of its Subsidiaries are in compliance in all material respects with all applicable Laws related to privacy and data protection in relation to their businesses as presently carried on by them and, subject to the forgoing: (a) Old ADB and its Subsidiaries have all necessary and required consents from all persons with respect to the collection, use and disclosures of personal information collected, used, and disclosed by Old ADB or its Subsidiaries; (b) Old ADB and each of its Subsidiaries has a comprehensive privacy policy that is compliant with all applicable Laws and Old ADB and each of its Subsidiaries is in compliance with such requirements in all material respects; (c) None of Old ADB or any of its Subsidiaries has received any notice or complaint related to its collection, use, or disclosure of personal information and, to the knowledge of each ADB Entity, there are no investigations current or pending with respect to personal information collected, used or disclosed by Old ADB or any of its Subsidiaries. 5.16 REAL PROPERTY. Neither Old ADB nor any of its Subsidiaries own or have any contractual right to acquire and have never owned or had any contractual right to acquire any real property. Schedule 5.16 sets forth all property in which Old ADB or its Subsidiaries have a leasehold interest. Old ADB and each of its Subsidiaries have a good and valid leasehold interest in each parcel of real property leased by it. 5.17 INSURANCE. Old ADB and each of its Subsidiaries currently maintain, and as of the date on which the Loan is repaid or otherwise satisfied in full will maintain, valid insurance policies, which policies provide coverage for Old ADB and its Subsidiaries and the operations conducted by them that is customary in scope and amount for Persons conducting business or owning assets similar to Old ADB and its Subsidiaries. There are no pending claims against such insurance by Old ADB or any of its Affiliates as to which the applicable insurers have denied coverage and there exist no claims under such insurance that have not been properly filed by Old ADB or any of its 28 Affiliates. Neither Old ADB nor any of its Subsidiaries has been refused any insurance coverage by any insurer from which Old ADB or any of its Subsidiaries has sought coverage. 5.18 CONTRACTS. (1) Except as stated in Schedule 5.18 or Schedule 5.10, Old ADB is not a party to, nor are any of the Assets bound by, any: (a) Contract not made in the usual and ordinary course of business or the performance of which will extend over a period greater than thirty (30) days and which is not cancellable by Old ADB without penalty; (b) employment, consulting, independent contractor, non-competition, severance, golden parachute or indemnification Contract; (c) advertising, public relations, franchise, distributorship or sales agency Contract; (d) Contract involving the commitment or payment in excess of $5,000 for the future purchase of services, properties, materials or equipment; (e) Contract among shareholders to which Old ADB or any of its Subsidiaries is a party or granting a right of first refusal or for a partnership or for a joint venture or for the acquisition, sale or lease of any properties or assets of Old ADB or any of its Subsidiaries; (f) mortgage, pledge, conditional sales contract, security agreement, factoring agreement or other similar Contract with respect to any property of Old ADB or any of its Subsidiaries; (g) loan agreement, credit agreement, promissory note, guarantee, subordination agreement, letter of credit or any other similar type of Contract; (h) retainer Contract with investment bankers, attorneys, accountants, actuaries, appraisers or other professional advisers; (i) Contract with any Governmental Entity; (j) Contract which could limit or restrain Old ADB or any of its Subsidiaries engaging in any line of business, competing with any Person or conducting business in any particular geographic area; (k) software development agreement or any other similar Contract to which Old ADB or any of its Subsidiaries or any entity acting on behalf of Old ADB or any of its Subsidiaries is a party; (l) Contract, the performance or non-performance of which by Old ADB or any of its Subsidiaries could cause a Material Adverse Effect; or (m) Contract to enter into any of the foregoing. Old ADB has delivered or otherwise made available to Lender true, correct and complete copies of the Contracts listed in Schedule 5.18, together with all amendments, modifications and supplements thereto and side letters to which Old ADB or any of its Subsidiaries is a party affecting the obligations of any party thereunder. No Person holds a power of attorney to act on behalf of Old ADB or any of its Subsidiaries. (2) Except as set forth in Schedule 5.18: (a) Each Old ADB Contract is valid and enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors rights and remedies generally and subject, as to enforceability, to general principles of equity, regardless of whether enforcement is sought in a proceeding at law or in equity; 29 (b) No Default, except such Default that has not and would not result in a Material Adverse Effect, exists under any Old ADB Contract by Old ADB or any of its Subsidiaries or, to Old ADB's knowledge, by any other party thereto; (c) Old ADB is not aware of the assertion by any third party of any claim of Default that would result in a Material Adverse Effect under any Old ADB Contract; (d) With respect to Old ADB Contracts that were assigned or subleased to Old ADB or any of its Subsidiaries by any third party, all necessary consents to such assignments or subleases have been obtained; and (e) Neither Old ADB nor any of its Subsidiaries have been notified by any customer, licensor, licencee, supplier or key employee of Old ADB or any of its Subsidiaries that it has or that it intends to either (i) terminate or significantly change its existing business relationship with Old ADB or any of its Subsidiaries, either now or in the foreseeable future; or (ii) not renew or extend its existing business relationship with Old ADB or any of its Subsidiaries at the end of the term of any existing contractual or other arrangement such person or entity may have with Old ADB or any of its Subsidiaries. 5.19 RELATED PARTY TRANSACTIONS. Except as set forth in Schedule 5.19, no vendor, director, officer, partner, employee, member, "affiliate" or "associate" (as such terms are defined in Rule 12b-2 under the United States Securities Exchange Act of 1934, as amended) of Old ADB (a) since the Latest Balance Sheet Date has lent or borrowed any monies to or from or has outstanding any Indebtedness or other similar obligations to Old ADB or any of its Subsidiaries; (b) to Old ADB's knowledge, owns any direct or indirect interest of any kind (except with respect to the ownership of not more than one percent (1%) of any class of equity security in a publicly-held entity) in, or is a director, officer, employee, partner, affiliate or associate of, or consultant or lender to, or borrower from, or has the right to participate in the management, operations or profits of, any Person that is a competitor, supplier, customer, distributor, lessor, tenant, creditor or debtor of Borrower or any of its Subsidiaries; (c) is otherwise a party to, or since the Latest Balance Sheet Date, has been a party to, any Contract, arrangement or understanding with Old ADB or any of its Subsidiaries; or (d) owns or has any rights in any assets, including Intellectual Property, properties, licenses or rights which are or were used or leased by Old ADB or any of its Subsidiaries in the conduct of their business. 5.20 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth in Schedule 5.20, there is no Contract, judgment, injunction, order or decree binding upon Borrower or any of its Subsidiaries that has or could have the effect of prohibiting or impairing any business practice of Old ADB or any of its Subsidiaries, any acquisition of property by Old ADB or any of its Subsidiaries or the conduct of its business. 30 5.21 BOOKS AND RECORDS. The books, records and accounts of Old ADB and each of its Subsidiaries: (a) have in all respects been maintained in accordance with good business practices on a basis consistent with prior years; and (b) are stated in reasonable detail and in all respects accurately and fairly reflect the transactions and dispositions of the assets of Old ADB and each of its Subsidiaries. Old ADB and each of its Subsidiaries have devised and maintain a system of internal accounting controls sufficient to provide reasonable assurances that, (a) transactions are executed in accordance with management's general or specific authorization; and (b) transactions are recorded as necessary, (i) to permit preparation of financial statements in accordance with GAAP; and (ii) to maintain accountability for assets. 5.22 BENEFIT PLANS. (1) Schedule 5.23 sets forth a true, correct and complete list of every benefit plan, bonus, stock option, stock purchase, deferred compensation, incentive compensation, stock appreciation, phantom stock, savings, profit sharing, severance or termination pay, health or other medical, life, disability or other insurance (whether insured or self-insured, supplementary unemployment benefit, pension, retirement and supplementary retirement plans, programs, agreements or arrangements maintained, contributed to, or provided by Old ADB or any of its Subsidiaries for the benefit of any current or former employees or dependent or independent contractors of Borrower or with respect to which Old ADB or any of its Subsidiaries has any liability (all the foregoing being herein called "BENEFIT PLANS"). Old ADB has delivered to Lender true, complete and correct copies of: (a) each Benefit Plan (or, in the case of any unwritten Benefit Plans, descriptions thereof); (b) the most recent summary plan description for each Benefit Plan for which such a summary plan description has been prepared; and (c) each trust agreement, group annuity contract or other funding and financing arrangement relating to any Benefit Plan. (2) Each Benefit Plan has been administered in all respects in accordance with its terms. Old ADB, each of its Subsidiaries and all Benefit Plans are in compliance in all respects with all other applicable Laws and all applicable collective bargaining agreements. Except as set forth in Schedule 5.23, there are no proceedings pending, threatened against or involving any Benefit Plan and, there are no investigations by any Governmental Entity or other claims (except routine claims for benefits payable in the normal operation of the Benefit Plans) pending, threatened against or involving any Benefit Plan or asserting any rights to benefits under any Benefit Plan. None of the proceedings, investigations and claims listed in such Schedule as to which there is at least a reasonable possibility of adverse determination, would have, if so determined, individually or in the aggregate, a Material Adverse Effect. To Old ADB's knowledge, there are no unasserted claims of the type that would be required to be disclosed in such Schedule, if pending or threatened, that are considered probable of assertion and that if asserted would have at least a reasonable possibility of an adverse determination. 31 (3) All required contributions to, and distributions from, each of the Benefit Plans have been made. No event has occurred with respect to any Benefit Plan that could result in the imposition of an Encumbrance on any material Assets under any applicable Law. 5.23 ENVIRONMENTAL MATTERS. The business carried on by Old ADB and its Subsidiaries is in compliance in all material respects with all Environmental Laws and there are no facts that could give rise to a notice of non-compliance with any Environmental Law. There are no environmental permits used in or required to carry on such business. 5.24 PUBLIC GRANTS. Old ADB and each of its Subsidiaries have applied for, received and used all public grants only in accordance with applicable law and in compliance with all regulatory orders, conditions and impositions. No such grants will have to be repaid as a result of the consummation of the transactions reflected in this Agreement nor due to the other circumstances already known. The granting institutions do not have or have waived any rights for early termination on grounds of this Agreement and/or its consummation. 5.25 OSC REPORTS. Since December 31, 2000, Old ADB has filed all forms, reports and documents with the Ontario Securities Commission ("OSC") required to be filed by it pursuant to the Securities Act (Ontario) and the regulations promulgated thereunder and the applicable rules and policies of the OSC (such forms, reports and documents collectively referred to as the "OSC REPORTS"), all of which complied when filed in all material respects with the applicable requirements of such statute, regulations, policies and rules. None of the OSC Reports at the time filed or as subsequently amended, contained any untrue statement of a material fact (as defined in the Securities Act (Ontario)) or omitted to state a material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. 5.26 GENERAL. Old ADB has provided to Lender all information relating to the business carried on by Old ADB and its Subsidiaries that would be material to a purchaser of the assets or shares of Old ADB, its Subsidiaries and such business. All such information is true and correct and no material facts have been omitted therefrom that would make such information misleading. Old ADB does not have knowledge of any material facts relating to its assets or shares of Old ADB, its Subsidiaries or such business that could reasonably be expected, individually or in the aggregate, to materially adversely affect such business. ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF LENDER Lender hereby represents and warrants to the ADB Entities as follows: 32 6.1 ORGANIZATION, STANDING AND POWER. Lender is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted and has made all necessary filings under all Laws applicable to the Lender. 6.2 AUTHORITY AND ENFORCEABILITY. (1) Lender has all requisite corporate power and authority to execute and deliver this Agreement and all other documents required hereunder and to do all acts and to perform fully its obligations hereunder and thereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized and approved by all necessary corporate action on the part of Lender. (2) This Agreement constitutes valid and legally binding obligations of Lender enforceable against it in accordance with their respective terms subject to applicable bankruptcy, insolvency and other laws of general application limiting the enforceability of creditors' rights and to the fact that specific performance is an equitable remedy available only in the discretion of the court. Neither the execution and delivery of this Agreement or any Document, nor compliance with the terms and conditions of any of them, (i) has resulted or will result in a violation of the articles or the by-laws of Lender or any resolutions passed by the Board of Directors or shareholders of Lender or any applicable law, rule, regulation, order, judgment, injunction, award or decree, (ii) has resulted or will result in a breach of, or constitute a default under, any loan agreement, indenture, trust deed or any other agreement or instrument to which Lender is a party or by which it is bound or (iii) requires any approval or consent of any governmental authority or agency having jurisdiction except such as has already been obtained. 6.3 NO VIOLATIONS RESULTING FROM TRANSACTIONS. The execution and delivery by Lender and the performance by Lender of its obligations under this Agreement and each other Transaction Documents executed or to be executed by Lender will not, (a) conflict with or violate any provision of the respective Articles or By-laws of Lender; (b) require any consent, waiver, approval, authorization or permit of, or filing with or notification to any Governmental Entity, (c) result in or constitute a Default, or require any consent or approval of or notice to any Person, or result in the creation of an encumbrance, under or pursuant to any material agreement to which Lender is a party or by which any of its assets are bound; or (d) violate any Law applicable to Lender or by which any of its assets are bound. 33 ARTICLE 7 - COVENANTS 7.1 AFFIRMATIVE COVENANTS OF THE BORROWER. The Borrower covenants and agrees with the Lender that, unless the Lender otherwise consents in writing: (a) Punctual Payment The Borrower shall duly and punctually pay the principal of all Advances, all interest thereon and all fees and other amounts required to be paid by the Borrower hereunder in the manner specified hereunder. (b) Corporate Existence and Conduct of Business Except as contemplated by the Restructuring, the Borrower shall, and shall cause its Subsidiaries to, maintain their respective corporate existences in good standing and do or cause to be done all things necessary to keep in full force and effect all properties, rights, franchises, licences and qualifications to carry on business in any jurisdiction in which it or they carry on business and it shall, and shall cause its Subsidiaries to, maintain all of its or their respective properties and assets consistent with industry standards. (c) Compliance with Legislation The Borrower shall do or cause to be done, and shall cause its Subsidiaries to do or cause to be done, all acts necessary or desirable to comply with all applicable Laws and to preserve and keep in full force and effect all franchises, licences, rights, privileges and permits necessary to enable the Borrower and each of its Subsidiaries to operate and conduct their respective businesses in accordance with standard industry practice and to advise the Lender of any anticipated changes, loss or sale of such franchises, licences, rights, privileges and permits. (d) Material Litigation The Borrower shall promptly give written notice to the Lender of any litigation, proceeding or dispute affecting the Borrower or any of its Subsidiaries if the result might, in the Borrower's bona fide opinion, have a Material Adverse Effect on the Borrower or any of its Subsidiaries and from time to time furnish to the Lender all reasonable information requested by the Lender concerning the status of any such litigation, proceeding or dispute. (e) Financial Statements and Other Information 34 The Borrower shall deliver to the Lender: (i) Annual Financials - as soon as available and, in any event, within 140 days after the end of each of its fiscal years, copies of its audited annual financial statements on a consolidated and unconsolidated basis consisting of balance sheets, statement of profit and loss and surplus and statement of changes in financial condition for each such year, together with the notes thereto, all prepared in accordance with generally accepted accounting principles consistently applied together, in the case of the consolidated financial statements, with a report of the Borrower's auditors thereon which shall not contain any qualification which materially adversely affects the credit risk of the Lender hereunder; (ii) Quarterly Financials - as soon as available and, in any event within 60 days after the end of each of its first, second and third fiscal quarters, copies of its unaudited quarterly financial statements on a consolidated basis, in each case consisting of balance sheets, statement of profit and loss and surplus and statement of changes in financial condition for each such period all in reasonable detail and stating in comparative form the figures for the corresponding date and period in the previous fiscal year prepared and certified by the Borrower's chief financial officer; (iii) Monthly Financials - within ten Business Days of each month end (A) copies of the unaudited unconsolidated monthly financial statements of the Norwegian Subsidiary and unaudited consolidated monthly financial statements of the Borrower, in each case consisting of balance sheets, statement of profit and loss and surplus, statement of changes in financial condition for each such period and (B) the monthly business report to management (as prepared in the ordinary course of business), all in reasonable detail prepared and certified by the Borrower's chief financial officer, and (C) an updated monthly consolidated cash forecast for each month until December 31, 2002, a quarterly cash forecast for the period between December 31, 2002 and December 31, 2003, and (D) a monthly consolidated cash forecast for each month as of and following January 1, 2003. All of the above reports and forecasts must be reasonably detailed. (iv) Weekly Cash Reports - by the end of the next Business Day following the Friday of each week, a weekly cash report in reasonable detail showing bank balances and marketable securities prepared and certified by the Borrower's chief financial officer; (v) No Event of Default - concurrently with furnishing the financial statements pursuant to Sections 7.1(e)(i), (ii) and (iii), an Officer's Certificate signed by the Borrower's chief financial officer stating (A) that no Event of Default has occurred and is continuing, and (B) the covenants contained in Sections 7.1 and 7.2 have been or are being complied with; and 35 (vi) Other - such other reports, certificates, projections of income and cash flow or other matters affecting its business affairs or financial condition or the business, affairs or financial condition of any of its Subsidiaries as the Lender may reasonably request. (f) Rights of Inspection At any reasonable time and from time to time upon reasonable prior notice, the Borrower shall permit the Lender or any representative thereof, at the expense and risk of the Lender, to examine and make copies of and abstracts from the records and books of account of the Borrower or any of its Subsidiaries and information and statements relating to the Assets and to visit and inspect the premises and properties of the Borrower or any of its Subsidiaries and to discuss the affairs, finances and accounts of the Borrower or any of its Subsidiaries with any of the officers, senior employees or managers of the Borrower or any of its Subsidiaries. (g) Insurance (i) The Borrower shall maintain all risks property insurance in connection with its assets and business and other types of insurance, including business interruption insurance and liability insurance with respect to claims for personal injury, death or property damage, with respect to the operation of its business, all with responsible and reputable insurance companies in such amounts and with such deductibles as are customary in the case of businesses of established reputation engaged in the same or similar businesses and in any event as are reasonably acceptable to the Lender. The proceeds of all insurance other than public liability, third party and business interruption insurance shall be payable to the Lender to be applied by it in reduction of the amounts outstanding hereunder. The proceeds of business interruption insurance shall be payable to the Lender to be applied by the Borrower on account of ongoing obligations of the Borrower hereunder as the same fall due from time to time and, to the extent of any surplus, to arrears of such payments. The balance, if any, remaining after application of such proceeds as aforesaid shall be paid to the Borrower. (ii) The proceeds of all insurance held by the Lender shall, unless and until the same are applied or released to the Borrower as aforesaid, constitute continuing collateral security for the Borrower's obligations and liabilities in respect of amounts outstanding hereunder. The Lender shall place such funds in an interest-bearing account with the interest thereon to accrue to the benefit of the Borrower. 36 (h) Accounts Receivable Reports The Borrower shall, within 30 days after the end of each calendar month, prepare and deliver to the Lender a consolidated statement of accounts receivable in form satisfactory to the Lender and denominated in Canadian Dollars. (i) Proxies, Annual Reports, Etc. The Borrower shall provide the Lender copies of all proxy statements, reports and information circulars that the Borrower or any of its Subsidiaries make available to its shareholders and copies of all regular and periodic reports which the Borrower or any of its Subsidiaries may file with any securities commission or any other regulatory body or governmental body in Canada or the United States. (j) Notice of Event of Default The Borrower shall deliver to the Lender, forthwith upon becoming aware of any default in the performance of any covenant, agreement or condition contained in a Transaction Document or the occurrence of an Event of Default under Article Fourteen, an Officer's Certificate specifying such default or defaults or such event. (k) Payment of Taxes, etc. The Borrower shall, and shall cause its Subsidiaries to, from time to time pay or cause to be paid all rents, taxes, rates, levies or assessments, ordinary or extraordinary, governmental fees or dues, lawfully levied, assessed or imposed upon the Borrower or its Subsidiaries or any of the assets of the Borrower or its Subsidiaries, as and when the same become due and payable, except when and so long as the validity of any such rents, taxes, rates, levies, assessments, fees or dues is in good faith being contested by the Borrower or its Subsidiaries. (l) Security The Borrower shall provide the Security contemplated hereunder perfected to the satisfaction of the Lender. (m) Environmental Law The Borrower shall: (i) notify the Lender promptly of any event or occurrence that will, or is likely to, give rise to a material report, inquiry or investigation, or any legal proceeding, relating to, or a violation of, Requirements of Environmental Law; (ii) provide the Lender upon request such information, certificates, or statutory declarations and shall conduct such environmental audits or site 37 assessments as may be reasonably necessary to ensure the compliance with all Requirements of Environmental Law; and (iii) execute all consents, authorizations and directions to appropriate governmental authorities that are required to permit any inspection of the assets and undertakings of the Borrower and its Subsidiaries and the release to the Lender, or its representatives, of information relating to the assets or undertakings of the Borrower and its Subsidiaries. The Borrower hereby irrevocably constitutes and appoints the Lender the true and lawful attorney of the Borrower, with full power of substitution, to execute any of the foregoing consents, authorizations and directions. (n) Payment of Preferred Claims The Borrower shall, and shall cause its Subsidiaries to, from time to time pay or cause to be paid all amounts related to taxes, wages, workers' compensation obligations, government royalties or pension fund obligations and any other amount which may result in a lien, charge or similar encumbrance against the assets of the Borrower or such Subsidiary arising under statute or regulation. (o) Conduct Business in Ordinary Course The Borrower shall conduct its business only in the ordinary course consistent with past practice. (p) Preserve Business The Borrower shall use commercially reasonable efforts to (i) preserve the present business operations, organization, including management and the sales force and goodwill of Old ADB, and (ii) preserve the present relationship of Old ADB with Persons having business dealings with Old ADB. (q) Comply with Laws The Borrower shall comply with all Laws and comply with all contractual and other obligations applicable to the Borrower. (r) Advise of Changes; Filings The Borrower shall confer on a regular and frequent basis with Lender, report on operational matters and promptly advise Lender orally and in writing of any change or event having, or which could have, an Material Adverse Effect. Borrower shall promptly provide Lender, or its counsel, with copies of all filings made by Borrower with any Governmental Entity in connection with this Agreement or the transactions contemplated hereby. (s) Intellectual Property 38 The Borrower shall take all commercially reasonable steps to (i) protect its rights to the Intellectual Property and Intellectual Property Rights listed in Schedule 5.15; and (ii) prevent the unauthorized use thereof by, or the unauthorized disclosure thereof to, any other Person; and (b) shall use all reasonable efforts to maintain, or cause to be maintained, the Intellectual Property and Intellectual Property Rights listed in Schedule 5.15 in full force and effect and, without limiting the generality of the foregoing, will make within the applicable renewal period an application to renew all of such Intellectual Property Rights subject to expiration. 7.2 NEGATIVE COVENANTS OF THE BORROWER. The Borrower covenants and agrees with the Lender that, unless the Lender otherwise consents in writing: (a) No Sale of Assets Except as contemplated by the Restructuring, the Borrower shall not, nor shall it permit any of its Subsidiaries to, sell, transfer, assign, convey or otherwise dispose of in any fiscal year of the Borrower in any one transaction or series of transactions any assets (except current assets, characterized as such in accordance with generally accepted accounting principles in the ordinary course of business) having an aggregate market value in excess of Cdn. $25,000. (b) No Capital Expenditures Between the date hereof and August 31, 2003, the Borrower shall not, nor shall it permit any of its Subsidiaries to, purchase or otherwise acquire in any fiscal year of the Borrower in any one transaction or series of transactions any assets or otherwise make any capital expenditures having an aggregate market value in excess of Cdn. $25,000, except with the consent of the Lender, not to be unreasonably withheld, capital expenditures in respect of new customer contracts. (c) No Incurring of Indebtedness Except for the Subordinated Notes, the Borrower shall not, nor shall it permit any of its Subsidiaries to, create, issue, incur, assume or permit to exist any Indebtedness other than trade payables incurred in the ordinary course of business. 39 (d) No Encumbrances The Borrower shall not create, incur, assume or permit to exist any Encumbrance upon any of its Assets except Permitted Encumbrances. (e) No Investments or Guarantees Except in the ordinary course of business, the Borrower shall not, directly or indirectly, make investments in or otherwise acquire any property or capital of any other person or guarantee the obligations of any other person. (f) No Dividends The Borrower shall not pay or distribute any dividend or other distribution nor declare or set aside for payment dividends on any of its issued shares. (g) No Reduction of Capital Except as contemplated by the Restructuring, the Borrower shall not purchase, redeem or retire in any way any shares of its capital or otherwise reduce its issued or paid-up capital in respect of any such shares. (h) No Merger, Amalgamation, etc. Except as contemplated by the Restructuring, the Borrower shall not amalgamate, merge, consolidate or otherwise enter into any other form of business combination with any other Person. (i) No Dissolution The Borrower shall not liquidate, dissolve or wind-up or take any steps or proceedings in connection therewith. (j) Non-Arm's Length Transactions Except as contemplated by the Restructuring, the Borrower shall not, nor shall it permit any Subsidiary to enter into, any contract whatsoever one with the other or another or an Affiliate for the sale, purchase, lease or other dealing in any property other than at a consideration which equals the fair value of such property or other than at a fair market rental as regards leased property. 40 (k) Negative Covenant The Borrower shall not, nor shall it permit any of its Subsidiaries to, create, issue, incur, assume or permit to exist any mortgage, charge, lien or other encumbrance on any of its undertakings or assets other than Permitted Encumbrances. (l) No Amendment to Articles or By-laws The Borrower shall not, nor shall it permit any of its Subsidiaries to amend its constating documents or by-laws. (m) No Alteration of Capital Structure Except for the Subordinate Notes and issuance of options under the Borrower's stock option plan, the Borrower will not alter the capital structure of the Borrower or any of its Subsidiaries in any way or issue additional options, warrants or other convertible or exchangeable securities or enter into any agreement of any character to take any such action. (n) Reserve Rights The Borrower shall not dispose of or permit to lapse any rights to the use of any Intellectual Property, or dispose of or disclose to any Person, other then the Lender and its Affiliates and representatives, any Intellectual Property of Old ADB not theretofore a matter of public knowledge and not waive or release any material right of Old ADB except in the ordinary course of business consistent with past practice. (o) Salaries and Bonuses The Borrower shall not pay any bonuses, salaries, management fees or other forms of compensation to its employees or to its Affiliates other than the amounts set forth in Schedule 5.10 and any salary increases or bonus thereafter made in the normal and ordinary course of business. 7.3 TERMINATION OF NEGATIVE AND POSITIVE COVENANTS In the event the Loan is repaid or otherwise satisfied in full, the obligations of the Borrower pursuant to Sections 7.1 and 7.2 shall terminate. 7.4 PERFORMANCE OF OBLIGATIONS All obligations of the Borrower as at the Effective Time, except such obligations relating to Bid.com Assets and Bid.com Liabilities as defined in the Assignment and Assumption Agreement, that cannot or may not have been assigned to New ADB pursuant to such agreement shall in all circumstances be performed and assumed by New ADB and New ADB hereof indemnifies and saves harmless Old ADB from all liability in respect thereof. 41 ARTICLE 8 - EVENTS OF DEFAULT AND ACCELERATION 8.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following events (each such event being herein referred to as an "Event of Default") shall constitute a default under this Agreement: (a) if the Borrower defaults in payment of the principal of the Loan when due and payable; (b) if the Borrower defaults in payment of (i) any interest (including, if applicable, default interest) due on the Loan; or (ii) any other amount not specifically referred to herein payable by the Borrower to the Lender when due and payable; and such default continues for five Business Days after notice of such default has been given by the Lender to the Borrower; (c) if the shareholders of the Borrower do not approve the Management Information Circular pursuant to the Restructuring or if the conditions in Article 5 of the Arrangement Agreement are not satisfied; (d) if any ADB Entity neglects to observe or perform any covenant or obligation of such ADB Entity, the Entity contained in this Agreement or any Transaction Documents, and such default continues for five Business Days after notice of such default has been given by the Lender to the Borrower; (e) if the aggregate of cash and the fair market value of marketable securities owned by the Borrower is less than $300,000; (f) if the employment of either of the individuals currently holding the positions of head of technology group or director of finance of the Borrower is terminated for any reason and such positions are not filled by a senior person or consultant qualified to perform the duties required of such position within a reasonable period of time; (g) if a change of control occurs. For purposes of this Agreement, "change of control" means the occurrence of (i) a Person, including the Person's Affiliates and Associates, becoming the beneficial owner of directly or indirectly, or, exercising control or direction over, Common Shares carrying in excess of 50.1% of the total voting rights attached to the Common Shares; or (ii) except as contemplated by the Restructuring, the Borrower consolidating or amalgamating with, or merging with or into, another Person or selling, assigning, conveying, transferring, leasing or otherwise disposing of all or substantially all of its assets to any Person, or any Person consolidating or amalgamating with, or merging with or into, the Borrower, in any such event pursuant to a transaction in which 42 any of the outstanding Common Shares are converted into or exchanged for cash, securities or other property, other than any such transaction in which the outstanding Common Shares are converted into or exchanged for, or the assets of the Borrower are exchanged for, voting securities or securities exchangeable at the option of the holder into voting securities of the surviving or transferee Person constituting a majority of such voting securities (giving effect to such issuance and the exercise of any rights to exchange such securities into voting securities); (h) notwithstanding Section 8.1(i), if an event of default occurs as defined in the Subordinated Notes or any security granted in connection therewith; (i) if an event of default as defined in any indenture or instrument evidencing, or under which, any Indebtedness for borrowed money of the Borrower or any Subsidiary is outstanding shall happen and be continuing, and such Indebtedness shall have been accelerated so that the same shall be or have become due and payable prior to the date on which the same would otherwise become due and payable and such acceleration shall not be stayed, rescinded or annulled within 10 days after written notice thereof shall have been given to the Lender by the Borrower or to the Borrower by the Lender or if the Borrower shall fail, within 10 days after the maturity or extended maturity of any such Indebtedness or acceleration, to pay or refund the same; provided, however, that if such event of default under such indenture or instrument shall be remedied or cured by the Borrower or be waived by the holders of such Indebtedness before any judgment or decree for the payment of the money due shall have been obtained or entered, then the Event of Default hereunder by reason thereof shall be deemed likewise to have been thereupon remedied, cured or waived without further action upon the part of the Lender; (j) if a decree or order of a court of competent jurisdiction is entered adjudging the Borrower or any Subsidiary a bankrupt or insolvent or approving as properly filed a petition seeking the winding-up of the Borrower under the Companies' Creditors Arrangement Act (Canada), the Bankruptcy and Insolvency Act (Canada) or the Winding Up and Restructuring Act (Canada) or any other bankruptcy, insolvency or analogous laws or issuing sequestration or process of execution against, or against any substantial part of the assets of the Borrower or any Subsidiary or ordering the winding up or liquidation of its affairs, and any such decree or order continues unstayed and in effect for a period of 10 days; (k) if the Borrower or any Subsidiary becomes insolvent, makes any assignment in bankruptcy or makes any other assignment for the benefit of creditors, makes any proposal under the Bankruptcy and Insolvency Act (Canada) or any comparable law, seeks relief under the Companies' Creditors Arrangement Act (Canada), the Winding Up and Restructuring Act (Canada) or any other bankruptcy, insolvency or analogous law, is adjudged bankrupt, files a petition or proposal to take advantage of any act of insolvency, consents to or acquiesces in the appointment of a trustee, receiver, receiver and manager, interim receiver, custodian, sequestrator or other person with similar powers of itself or of all or any 43 substantial portion of its assets, or files a petition or otherwise commences any proceeding seeking any reorganization, arrangement, composition or readjustment under any applicable bankruptcy, insolvency, moratorium, reorganization or other similar law affecting creditors' rights or consents to, or acquiesces in, the filing of such a petition; (l) if a final judgment or decree for the payment of money due shall have been obtained or entered against the Borrower or any Subsidiary in an amount which, in the reasonable opinion of the Lender, would materially and adversely affect the ability of the Borrower to fulfil its obligations to the Lender under this Agreement and such judgment or decree shall not have been and remain vacated, discharged or stayed pending appeal within the applicable appeal period; (m) if any representation or warranty made by the Borrower in any Transaction Document or in any certificate or other document at any time delivered hereunder or thereunder to the Lender shall prove to have been incorrect or misleading in any material respect on and as of the date thereof; (n) if any of the Security shall cease to be a valid and perfected first priority security interest as against third parties; (o) if proceedings are commenced for the dissolution, liquidation or winding-up of the Borrower or any of its Subsidiaries, or for the suspension of the operations of the Borrower or any of its Subsidiaries unless such proceedings are being actively and diligently contested in good faith; (p) if the conditions in Section 3.2(e) is not satisfied by the Effective Time; or (q) if Lender in good faith reasonably believes that the prospect of payment or performance of any of the obligations under this Agreement is or is about to be impaired or that the Security or any part thereof is or is about to be impaired. 8.2 ACCELERATION. (1) If any Event of Default shall occur: (a) the entire principal amount of Loans then outstanding and all accrued and unpaid interest thereon, and (b) all other payments due hereunder, shall, at the option of the Lender become immediately due and payable with interest thereon, at the rate or rates determined as herein provided, to the date of actual payment thereof, all without notice, presentment, protest, demand, notice of dishonour or any other demand or notice whatsoever, all of which are hereby expressly waived by the Borrower. In such event or in the event of a Demand, the Lender may, in its discretion, exercise any right or recourse and/or proceed by any action, suit, remedy or proceeding against the Borrower authorized or permitted by law for the recovery of all the Indebtedness and liabilities of the Borrower to the Lender and 44 proceed to exercise any and all rights hereunder and no such remedy for the enforcement of the rights of the Lender shall be exclusive of or dependent on any other remedy but any one or more of such remedies may from time to time be exercised independently or in combination. 8.3 DEFAULT INTEREST Notwithstanding Section 2.2 from and after an acceleration of the Loan as provided in Section 8.2, or following a Demand interest on the outstanding Principal and all accrued and unpaid interest thereon will accrue at a rate per annum equal to 24% per annum, compounded monthly with interest on all overdue interest at the same rate. 8.4 REMEDIES CUMULATIVE AND WAIVERS. For greater certainty, it is expressly understood and agreed that the rights and remedies of the Lender hereunder or under any other Document or instrument executed pursuant to this Agreement are cumulative and are in addition to and not in substitution for any rights or remedies provided by law or by equity; and any single or partial exercise by the Lender of any right or remedy for a default or breach of any term, covenant, condition or agreement contained in this Agreement or other document or instrument executed pursuant to this Agreement shall not be deemed to be a waiver of or to alter, affect or prejudice any other right or remedy or other rights or remedies to which the Lender may be lawfully entitled for such default or breach. Any waiver by the Lender of the strict observance, performance or compliance with any term, covenant, condition or other matter contained herein and any indulgence granted, either expressly or by course of conduct, by the Lender shall be effective only in the specific instance and for the purpose for which it was given and shall be deemed not to be a waiver of any rights and remedies of the Lender under this Agreement or any other Document or instrument executed pursuant to this Agreement as a result of any other default or breach hereunder or thereunder. 8.5 TERMINATION OF LENDER'S OBLIGATIONS. Upon the occurrence of an Event of Default or the making of the Demand, the Lender shall be relieved of all obligations to provide any further Loans hereunder. ARTICLE 9 - COSTS, EXPENSES, SURVIVAL AND INDEMNIFICATION 9.1 COSTS AND EXPENSES. The Borrower shall pay promptly upon notice from the Lender all reasonable costs and expenses in connection with the preparation or review of waivers, consents and amendments and questions of interpretation of this Agreement and in connection with the establishment of the validity and enforceability of this Agreement and the preservation or enforcement of rights of the Lender under this Agreement and other documents to be delivered hereunder, including, without limitation, all reasonable costs and expenses sustained by the Lender as a result of any failure by the Borrower to perform or observe any of its obligations hereunder, together with interest at 12% per annum from and after such 10th Business Day if such payment is not made by such time. 45 9.2 GENERAL SURVIVAL The parties agree that, regardless of any investigation made by the parties, (a) the representations and warranties of the parties contained in this Agreement shall survive the execution and delivery of this Agreement for a period beginning on the date hereof and ending on the second anniversary of the later of (i) the date of this Agreement, and (ii) the date the Loan is repaid or otherwise satisfied in full; provided, however, that the representations and warranties of the ADB Entities set forth in Sections 5.4, 5.8, 5.9, 5.12, 5.13, 5.22 and 5.23 shall survive until the expiration of all applicable statutes of limitation; and (b) nothing contained this Agreement or otherwise shall in any way limit any claim, suit, cause or action or remedy that may be available to Lender or any other Indemnitee based on fraud or intentional misrepresentation. 9.3 INDEMNIFICATION BY ADB ENTITIES. Subject to the provisions of Section 9.2, each of the ADB Entities shall severally and not jointly indemnify and hold harmless Lender and its respective Affiliates, officers, directors, shareholders, representatives and agents (collectively the "INDEMNITEES") from and against and in respect of any and all Losses incurred by, resulting from, arising out of, relating to, imposed upon or incurred by any other Indemnitee by reason of: (1) any inaccuracy in or breach of any of the representations or warranties of any ADB Entity contained in any Transaction Document; (2) breach of any covenants or agreements of any ADB Entity contained in any Transaction Document; (3) any misrepresentation contained in any statement or certificate furnished to any Indemnitee by or on behalf of any ADB Entity in connection with the Transactions; (4) any Indebtedness, obligation or liability of any kind of Old ADB, save and except the Indebtedness, obligations and liabilities set forth on Schedule 9.3; and (5) any obligation or liability of any kind of Old ADB in connection with the exercise by any holder of securities of Old ADB of rights of dissent in respect of the Restructuring. For purposes of this Agreement, the term, "LOSSES" means any and all deficiencies, judgments, settlements, demands, claims, suits, actions or causes of action, liabilities, losses, damages, interest, fines, penalties, costs and expenses (including reasonable legal, accounting and other costs and expenses incurred in connection with investigating, defending, settling or satisfying any and all demands, claims, actions, causes of action, suits, proceedings, assessments, judgments or appeals, and in seeking indemnification therefor). Notwithstanding the foregoing, the Borrower shall not be liable to the Lender for any Losses with respect to Section 9.3(A), unless and until the aggregate of all such Losses exceeds $25,000, other than any Losses attributable to the lack of ownership of, or title to, the Assets of Old ADB. 46 9.4 SPECIFIC ENVIRONMENTAL INDEMNIFICATION. The Borrower and New ADB shall indemnify the Lender and hold the Lender harmless at all times from and against any and all losses, damages and reasonable costs (including counsel fees and expenses) resulting from any legal action commenced or claim made by a third party against the Lender related to or as a result of actions on the part of the Borrower or any Subsidiary related to or as a consequence of environmental matters or Requirements of Environmental Law. The Borrower or the Subsidiary, as the case may be, shall have the sole right, at its expense, to control any such legal action or claim and to settle on terms and conditions approved by the Borrower or the Subsidiary, as the case may be, and approved by the party named in such legal action or claim, acting reasonably provided that if, in the sole opinion of the Lender, the interests of the Lender are different from those of the Borrower or the Subsidiary in connection with such legal action or claim, the Lender shall have the sole right, at the Borrower's expense, to defend its own interests provided that any settlement of such legal action or claim shall be on terms and conditions approved by the Borrower, acting reasonably. If the Borrower or the Subsidiary does not defend the legal action or claim, the Lender shall have the right to do so on its own behalf and on behalf of the Borrower or the Subsidiary, as the case may be, at the expense of the Borrower. ARTICLE 10 - PUT OPTION 10.1 PUT OPTION. Provided that the Restructuring shall have been completed upon the terms and conditions set forth in the Plan of Arrangement attached to the Arrangement Agreement, New ADB will have the right (the "PUT OPTION") (i) if at any time the Lender makes a Demand, (ii) Lender has accelerated the Loan pursuant to Section 8.2 or (iii) at any time on and after June 1, 2003 until midnight (Toronto time) on June 30, 2003 (the "PUT PERIOD") to require the Lender, on the terms and conditions of this Section , to purchase from New ADB all, but not less than all, of the issued and outstanding shares in the capital of Old ADB (the "SHARES"). The purchase and sale of the Shares on the exercise of the Put Option will be subject to the following: (a) the Put Option will be exercised by New ADB by delivering to the Lender a notice in the form attached hereto as Schedule 10.1(a) (the "PUT NOTICE") during the Put Period; (b) the Lender will purchase the Shares on the date that is 10 Business Days after the date upon which the Lender received the Put Notice (the "PUT CLOSING DATE"); (c) the purchase price for the Shares will be an amount equal to the aggregate amount of the Principal and accrued and unpaid interest thereon to the day immediately preceding the Put Closing Date and will be satisfied by the set-off by the Lender of the amount owing in respect of the purchase price of the Shares in full satisfaction of such aggregate amount of Principal and accrued and unpaid interest. 47 (d) the closing (the "PUT CLOSING") of the transaction of purchase and sale pursuant to the exercise of the Put Option will take place at the offices of New ADB in Mississauga, Ontario; (e) at the Put Closing: (i) New ADB will deliver to the Lender the certificates representing the Shares to be purchased, duly endorsed for transfer or accompanied by stock powers; (ii) New ADB will provide the Lender with certification in a form reasonably acceptable to the Lender's counsel that the Shares conveyed are free and clear of all encumbrances; (iii) New ADB will deliver to the Lender a certificate of an officer certifying to the Lender that (A) the articles and by-laws of Old ADB (as attached to such certificate) are in full force and effect, unamended, and that no proceedings have been taken to amend same, (B) the representations and warranties as they relate to Old ADB contained in this Agreement are true and correct as of the time of the Put Closing as if given at such time, (C) New ADB is not a non-resident of Canada for purposes of the Income Tax Act (Canada), (D) there is no actions, suits or proceedings before any court or before or by any governmental commission, board, bureau, agency or other authority pending or threatened against, or affecting, Old ADB which could have a Material Adverse Effect, with the exception of such actions, suits or proceedings, if any, arising from the operation of Old ADB in the ordinary course of business from and after the Effective Time, and (F) such other matters as the Lender may reasonably request; (iv) New ADB will deliver an opinion of its legal counsel substantially in the form attached hereto as Schedule 10.1(e)(iv) regarding the due and proper transfer of the Shares by New ADB to the Lender; (v) New ADB will deliver resignations of all directors and officers of Old ADB, except those directors who are nominees of the Lender pursuant to the Co-Operation Agreement; (vi) New ADB will deliver a release in favour of Old ADB substantially in the form attached hereto as Schedule 10.1(e)(vi). (f) Without prejudice to the Lender's rights to take such action as it deems necessary to preserve or protect its interest in the recovery of the indebtedness and liabilities of the Borrower to the Lender hereunder, the Lender will forebear from exercising any of its rights and recourses under Section 8.2 as a result of the acceleration the Loan or the making of a Demand, if any, until the Put Closing Date. 48 ARTICLE 11 - GUARANTEE 11.1 GUARANTEE. New ADB hereby unconditionally and irrevocably guarantees (the "GUARANTEE") payment of all the debts and liabilities, present or future, direct or indirect, absolute or contingent, matured or not, at any time owing Old ADB to the Lender or remaining unpaid by Old ADB to the Lender pursuant to this Agreement (hereinafter collectively referred to as the "OBLIGATIONS"). 11.2 INDEMNITY. If any or all of the Obligations are not duly performed by Old ADB and are not performed under Section 11.1 for any reason whatsoever, New ADB will, as a separate and distinct obligation, indemnify and save harmless the Lender from and against all losses resulting from the failure of Old ADB to perform such Obligations. 11.3 PRIMARY OBLIGATION. If any or all of the Obligations are not duly performed by Old ADB and are not performed under Section 11.1 or the Lender is not indemnified under Section 11.2, in each case, for any reason whatsoever, such Obligations will, as a separate and distinct obligation, be performed by New ADB as primary obligor. 11.4 OBLIGATIONS ABSOLUTE. The liability of New ADB hereunder will be absolute and unconditional and will not be affected by: (a) any lack of validity or enforceability of any agreement between Old ADB and the Lender; (b) any impossibility, impracticability, frustration of purpose, illegality, force majeure or act of government; (c) the bankruptcy, winding-up, liquidation, dissolution or insolvency of Old ADB or any other person or the amalgamation of or any change in the status, function, control or ownership of Old ADB, New ADB, the Lender or any other Person; (d) any lack or limitation of power, incapacity or disability on the part of Old ADB or of the directors, partners or agents thereof or any other irregularity, defect or informality on the part of Old ADB in its obligations to the Lender; or (e) any other law, regulation or other circumstance that might otherwise constitute a defence available to, or a discharge of, Old ADB in respect of any or all of the Obligations. 49 11.5 NO RELEASE. The liability of New ADB hereunder will not be released, discharged, limited or in any way affected by anything done, suffered or permitted by the Lender in connection with any duties or liabilities of Old ADB to the Lender or any security therefor including any loss of or in respect of any security received by the Lender from Old ADB or others. Without limiting the generality of the foregoing and without releasing, discharging, limiting or otherwise affecting in whole or in part New ADB's liability hereunder, without obtaining the consent of or giving notice to New ADB, the Lender may: (a) discontinue, reduce, increase or otherwise vary the credit of Old ADB in any manner whatsoever; (b) make any change in the time, manner or place of payment under, or in any other term of, any agreement between Old ADB and the Lender or the failure on the part of Old ADB to carry out any of its obligations under any such agreement; (c) grant time, renewals, extensions, indulgences, releases and discharges to the Obligor; (d) take or abstain from taking or enforcing securities or collateral from Old ADB or from perfecting securities or collateral of Old ADB; (e) accept compromises from Old ADB; (f) apply all money at any time received from Old ADB or from securities upon such part of the Obligations as the Lender may see fit or change any such application in whole or in part from time to time as the Lender may see fit; and (g) otherwise deal with Old ADB and all other persons and securities as the Lender may see fit. 11.6 NO EXHAUSTION OF REMEDIES. The Lender will not be bound or obligated to exhaust its recourse against Old ADB or other persons or any securities or collateral it may hold or take any other action before being entitled to demand payment from New ADB hereunder. 11.7 PRIMA FACIE EVIDENCE. Any account settled or stated in writing by or between the Lender and Old ADB will be prima facie evidence that the balance or amount thereof appearing due to the Lender is so due. 11.8 NO SET-OFF. In any claim by the Lender against New ADB, New ADB may not assert any set-off or counterclaim that either New ADB or Old ADB may have against the Lender. 50 11.9 CONTINUING GUARANTEE. The obligations of New ADB hereunder will constitute and be continuing obligations and will apply to and secure any ultimate balance due or remaining due to the Lender and will not be considered as wholly or partially satisfied by the payment or liquidation at any time of any sum of money for the time being due or remaining unpaid to the Lender. This Guarantee will continue to be effective even if at any time any payment of any of the Obligations is rendered unenforceable or is rescinded or must otherwise be returned by the Lender upon the occurrence of any action or event including the insolvency, bankruptcy or reorganization of Old ADB or otherwise, all as though such payment had not been made. 11.10 DEMAND. If any Obligation is not paid for any reason whatsoever, the Lender may treat all Obligations as due and payable and may demand forthwith from New ADB the total amount guaranteed hereunder whether or not such Obligations are yet due and payable at the time of demand for payment hereunder. New ADB will make payment to or performance in favour of the Lender of the total amount guaranteed hereunder forthwith after demand therefor is made to New ADB. New ADB will make payment to the Lender forthwith upon demand of all costs and expenses incurred by the Lender in enforcing this Guarantee. 11.11 INTEREST. New ADB will pay interest to the Lender at the rate of 12% per annum on the unpaid portion of all amounts payable by New ADB under this Guarantee, such interest to accrue from and including the date of demand by the Lender on New ADB. 11.12 ASSIGNMENT AND POSTPONEMENT. All debts and liabilities, present and future, of Old ADB to New ADB are hereby assigned to the Lender and postponed to the Obligations, and all money received by New ADB in respect thereof will be held in trust for the Lender and forthwith upon receipt will be paid over to the Lender, the whole without in any way lessening or limiting the liability of New ADB hereunder and this assignment and postponement is independent of the Guarantee and will remain in full force and effect until, in the case of the assignment, the liability of New ADB under this Guarantee has been discharged or terminated and, in the case of the postponement, until all Obligations are performed and paid in full; provided however that until an Event of Default occurs all such liabilities may be paid by Old ADB to New ADB without reference to this Section 11.12 but otherwise without prejudice to the rights of the Lender hereunder. 11.13 SUBROGATION. New ADB will not be entitled to subrogation until (i) New ADB performs or makes payment to the Lender of all amounts owing by New ADB to the Lender under this Guarantee and (ii) the Obligations are performed and paid in full. Thereafter, the Lender will, at New ADB's request and expense, execute and deliver to New ADB appropriate documents, without recourse and without representation and warranty, necessary to evidence the transfer by subrogation to New 51 ADB of an interest in the Obligations and any security held therefor resulting from such performance or payment by New ADB. ARTICLE 12 - GENERAL 12.1 NOTICE. Any notice or other communication (a "Notice") required or permitted to be given or made hereunder shall be in writing and shall be well and sufficiently given or made if: (a) delivered by overnight courier service; or (b) sent by facsimile transmission or other means of electronic communication, in the case of a Notice to the Lender addressed to the Lender at: The Brick Warehouse Corporation 16930 - 114 Avenue Edmonton, Alberta T5M 3S2 Attention: Ron Tweddle, Chief Financial Officer Fax No.: (780) 454-0969 with a copy to: McCarthy Tetrault LLP Box 48, Suite 4700 Toronto Dominion Bank Tower Toronto, ON M5K 1E6 Attention: Jonathan Grant Fax No.: (416) 868-0673 and in the case of a Notice to Borrower or New ADB addressed to it at: c/o ADB Systems International Inc. 201 - 6725 Airport Road Mississauga, Ontario L4V 1V2 Attention: John Mackie, General Counsel Fax No.: (905) 672-7514 with a copy to: 52 Gowling Lafleur Henderson LLP Suite 5800 Scotia Plaza Toronto, Ontario M5H 3Z7 Attention: David Pamenter Fax No.: (416) 863-3611 Any Notice given or made in accordance with this Section 12.1 shall be deemed to have been given or made and to have been received on the next Business Day after it was delivered, if delivered as aforesaid. Either Party may from time to time change its address for notice by giving Notice to other Party in accordance with the provisions of this Section 12.1. 12.2 ASSIGNMENT. Neither the Borrower nor New ADB may on written notice to the Lender, assign its rights and obligations under this Agreement, in whole or in part, without the prior consent in writing of the Lender provided however the Borrower and New ADB may assign its rights and obligations under this Agreement to a bona fide third party purchaser of substantially all of the assts of such Party. Any purported assignment by the Borrower or New ADB made without required consent is void and of no effect. No assignment of this Agreement by the Borrower or New ADB shall relieve such Party from any obligation under this Agreement. Notwithstanding the foregoing, the Lender may, without the prior written consent of the Borrower or New ADB at any time, on written notice to the Borrower and New ADB, assign its rights and obligations under this Agreement to an Affiliate of the Lender, or to a bona fide third party purchaser of substantially all of the assets of the Lender. 12.3 BINDING ON SUCCESSORS. This Agreement shall enure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns. 12.4 FURTHER ASSURANCES. Each of the Borrower, New ADB and the Lender shall promptly cure any default by it in the execution and delivery of this Agreement, the Documents or of any the agreements provided for hereunder to which it is a party. The Borrower, at its expense, shall promptly execute and deliver to the Lender, upon request by the Lender, all such other and further documents, agreements, opinions, certificates and instruments in compliance with, or accomplishment of the covenants and agreements of the Borrower hereunder or more fully to state the obligations of the Borrower as set out herein or to make any recording, file any notice or obtain any consent, all as may be reasonably necessary or appropriate in connection therewith. 53 12.5 WAIVER. A waiver by a Party hereto of any of its rights hereunder or of the performance by the other Party of any of its obligations hereunder shall be without prejudice to all of the other rights hereunder of the Party so waiving and shall not constitute a waiver of any such other rights or, in any other instance, of the rights so waived, or a waiver of the performance by the other Party of any of its other obligations hereunder or of the performance, in any other instance, of the obligations so waived. No waiver shall be effective or binding upon a Party unless the same shall be expressed in writing and executed by the Party to be bound. 12.6 INTERPRETATION. This Agreement has been negotiated by the parties hereto and their respective counsel and shall be fairly interpreted in accordance with its terms and without any rules of construction relating to which Party drafted the Agreement being applied in favour or against either Party. 12.7 AMENDMENT. Any provision of this Agreement may be amended only if the Borrower, New ADB and the Lender so agree in writing and may be waived only if the Lender so agrees in writing. Any such waiver and any consent by the Lender under any provision of this Agreement must be in writing and may be given subject to any conditions thought fit by the person giving that waiver or consent. 12.8 GOVERNING LAW. This Agreement shall be governed and construed according to the laws of the Province of Ontario and the laws of Canada applicable therein, and shall be treated, in all respects, as an Ontario contract, without prejudice to or limitation of any other rights or remedies available under the laws of any jurisdiction where property or assets of the Borrower may be found. Each of the parties hereby attorns to the jurisdiction of the Province of Ontario. 12.9 TIME OF THE ESSENCE. Time shall be of the essence of this Agreement. 12.10 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Counterparts may be executed either in original or faxed form and the Parties may adopt any signatures received by a receiving fax machine as original signatures of the Parties. IN WITNESS WHEREOF this Agreement is executed by the Parties as of the date first written, above. ADB SYSTEMS INTERNATIONAL INC. By: /s/ [ILLEGIBLE] --------------------------- Name: Title: ADB SYSTEMS INTERNATIONAL LTD. By: /s/ [ILLEGIBLE] --------------------------- Name: Title: THE BRICK WAREHOUSE CORPORATION By: ___________________________ Name: Title: 12.10 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Counterparts may be executed either in original or faxed form and the Parties may adopt any signatures received by a receiving fax machine as original signatures of the Parties. IN WITNESS WHEREOF this Agreement is executed by the Parties as of the date first written, above. ADB SYSTEMS INTERNATIONAL INC. By: /s/ [ILLEGIBLE] -------------------------------- Name: Title: ADB SYSTEMS INTERNATIONAL LTD. By: /s/ [ILLEGIBLE] -------------------------------- Name: Title: THE BRICK WAREHOUSE CORPORATION By: /s/ [ILLEGIBLE] -------------------------------- Name: Title: SCHEDULES TO LOAN AGREEMENT SCHEDULE B DRAWDOWN NOTICE TO: The Brick Warehouse Corporation (the "Lender") FROM: ADB Systems International Inc. ("Old ADB") DATE: August____________, 2002 1. This Drawdown Notice is delivered to you pursuant to the loan agreement (the "Loan Agreement") made as of August 23,2002 between the Lender, Old ADB and ADB Systems International Ltd. 2. Terms used herein that are defined in the Loan Agreement and are not otherwise defined herein will have the same meaning herein as in the Loan Agreement. 3. We hereby request an Advance of the Loan as follows:
Advance: Drawdown Date: Amount of Advance: (a) First Advance $ (b) Second Advance $ (c) Expense Advance $
4. We hereby authorize and direct you to make payment of the Advance as follows: - [INSERT PAYMENT INSTRUCTIONS OR REFERENCE A SCHEDULE TO THIS NOTICE] 5. All of the representations and warranties of the Borrower contained in Article 5 of the Loan Agreement are true and correct. 6. All of the covenants of the Borrower contained in Article 7 of the Loan Agreement together with all of the conditions precedent to advances, as applicable, and all other terms and conditions contained in the Loan Agreement to be complied with by the Borrower have been fully complied with. 7. No Event of Default has occurred and remains outstanding and no event has occurred and remains outstanding which, with the giving of notice or lapse of time or both, would constitute an Event of Default nor will any Event of Default occur as a result of the aforementioned Advance. Yours very truly, ADB SYSTEMS INTERNATIONAL INC. Per: ________________________________ Title:_______________________________ SCHEDULE 1.1-A GENERAL SECURITY AGREEMENT THIS AGREEMENT is made as of August 23, 2002 BETWEEN: ADB SYSTEMS INTERNATIONAL INC., an Ontario corporation having its principal place of business at 6725 Airport Road, Suite 201, Mississauga, Ontario L4V 1V2 (hereinafter referred to as the "DEBTOR") - and - THE BRICK WAREHOUSE CORPORATION, a federal corporation having its principal place of business at 16930 - 114 Avenue, Edmonton, Alberta T5M 3S2 (hereinafter referred to as the "SECURED PARTY"). WHEREAS the Debtor has agreed to grant a security interest and assignment, mortgage and charge in the Collateral in order to secure the performance of its Obligations to the Secured Party; NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and the covenants and agreements herein contained the parties hereto agree as follows: ARTICLE 1 - INTERPRETATION 1.01 INTERPRETATION In this Agreement, unless something in the subject matter or context is inconsistent therewith, "AGREEMENT" means this agreement and all amendments made hereto by written agreement between the Secured Party and the Debtor; "COLLATERAL" has the meaning set out in Section 2.01; "COMPUTER SOFTWARE" includes all computer programs in source and object code form as well as all Documentation related thereto, however recorded; - 2 - "DOCUMENTATION" means all user documentation, technical documentation, and system documentation, however recorded, including user manuals, training materials, product specifications, technical documentation, description of computational algorithms, flow charts, programmer's notes and other design documentation and manuals; "ENCUMBRANCE" has the meaning ascribed in the Loan Agreement; "EVENT OF DEFAULT" means any of the events described as "events of default" in the Loan Agreement; "INTELLECTUAL PROPERTY" means all intellectual and industrial property (whether or not confidential and no matter in what form held) including all works in which copyright may subsist such as plans, drawings, manuals, maps, Documentation, specifications, schematics, Computer Software, databases and compilations of information (whether or not protected by copyright) and algorithms, designs, formula, process, trade secrets and confidential information, know-how, discoveries and inventions, mask works, integrated circuit topographies, and trade-marks, trade-names, logos, Internet domain names, uniform resource locator, and service marks; "INTELLECTUAL PROPERTY RIGHTS" includes all intellectual and industrial property rights and rights of a similar nature such as copyrights, patents, industrial designs, design rights, trade-marks, data base rights, trade secrets, rights to use domain names and rights in confidential information, and all applications and registrations pertaining to the foregoing and all causes of action, rights of recovery and claims for damage or other relief relating, referring or pertaining to the foregoing (including all rights to oppose applications for the registration of similar or confusing trademarks), along with all income royalties, damages or payments due or payable including claims for past or future infringement or misappropriation of Intellectual Property or Intellectual Property Rights; "LOAN AGREEMENT" means the loan agreement made as of the date hereof between ADB Systems International Inc., the Debtor and the Secured Party as the same may be amended from time to time; "OBLIGATIONS" means all obligations and liabilities of any kind whatsoever of the Debtor to the Secured Party in connection with or relating to the Loan Agreement; "PERMITTED ENCUMBRANCE" has the meaning ascribed in the Loan Agreement; "RESTRUCTURING" has the meaning ascribed thereto in the Loan Agreement; and The terms "accessions", "accounts", "chattel paper", "documents of title", "goods", "instruments", "intangibles", "inventory", "money", "proceeds" and "securities" whenever used herein have the meanings given to those terms in the Personal Property Security Act (Ontario), as now enacted or as the same may from time to time be amended, re-enacted or replaced. - 3 - 1.02 SECTIONS AND HEADINGS The division of this Agreement into Articles and Sections and the insertion of headings are for convenience of reference only and will not affect the construction or interpretation of this Agreement. The terms "this Agreement", "hereof, "hereunder" and similar expressions refer to this Agreement and not to any particular Article, Section or other portion hereof and include any agreement supplemental hereto. Unless something in the subject matter or context is inconsistent therewith, reference herein to Articles and Sections are to Articles and Sections of this Agreement. 1.03 EXTENDED MEANINGS In this Agreement words importing the singular number only include the plural and vice versa, words importing any gender include all genders and words importing persons include individuals, partnerships, associations, trusts, unincorporated organizations and corporations. ARTICLE 2 - GRANT OF SECURITY INTEREST 2.01 SECURITY INTEREST As general and continuing security for the payment and performance of all Obligations, the Debtor hereby grants to the Secured Party a security interest in the present and future undertaking and property, both real and personal, of the Debtor (collectively, the "Collateral"), and as further general and continuing security for the payment and performance of the Obligations, the Debtor hereby assigns the Collateral to the Secured Party and mortgages and charges the Collateral as and by way of a fixed and specific mortgage and charge to the Secured Party. Without limiting the generality of the foregoing, the Collateral will include all right, title and interest that the Debtor now has or may hereafter have, be possessed of, be entitled to, or acquire, by way of amalgamation or otherwise, now or hereafter or may hereafter have in all property of the following kinds: (a) Receivables: all debts, accounts, claims and choses in action for monetary amounts which are now or which may hereafter become due, owing or accruing due to the Debtor (collectively, the "Receivables"); (b) Inventory: all inventory of whatever kind and wherever situated including, without limiting the generality of the foregoing, all goods held for sale or lease or furnished or to be furnished under contracts for service or used or consumed in the business of the Debtor (collectively, the "Inventory"); (c) Equipment: all machinery, equipment, fixtures, furniture, plant, vehicles and other tangible personal property which are not Inventory (collectively, the "Equipment"); (d) Chattel Paper: all chattel paper; - 4 - (e) Documents of Title: all warehouse receipts, bills of lading and other documents of title, whether negotiable or not; (f) Securities and Instruments: all shares, stock, warrants, bonds, debentures, debenture stock and other securities and all instruments including, without limiting the generality of the foregoing any and all shares of ADB Systemer ASA (collectively, the "Securities"); (g) Intangibles: all intangibles not otherwise described in this Section 2.01 including, without limiting the generality of the foregoing, all goodwill, Intellectual Property and Intellectual Property Rights; (h) Money: all coins or bills or other medium of exchange adopted for use as part of the currency of Canada or of any foreign government; (i) Books, Records, Etc.: all books, papers, accounts, invoices, documents and other records in any form evidencing or relating to any of the property described in this Section 2.01 and all contracts, securities, instruments and other rights and benefits in respect thereof; (j) Substitutions, Etc.: all replacements of, substitutions for and increases, additions and accessions to any of the property described in this Section 2.01; and (k) Proceeds: all proceeds of any Collateral in any form derived directly or indirectly from any dealing with the Collateral or that indemnifies or compensates for the loss of or damage to the Collateral; provided that the said assignment and mortgage and charge will not (i) extend or apply to the last day of the term of any lease or any agreement therefor now held or hereafter acquired by the Debtor, but should the Secured Party enforce the said assignment or mortgage and charge, the Debtor will thereafter stand possessed of such last day and must hold it in trust to assign the same to any person acquiring such term in the course of the enforcement of the said assignment and mortgage and charge, or (ii) render the Secured Party liable to observe or perform any term, covenant or condition of any agreement, document or instrument to which the Debtor is a party or by which it is bound. 2.02 ATTACHMENT OF SECURITY INTEREST The Debtor acknowledges that value has been given and agrees that the security interest granted hereby will attach when the Debtor signs this Agreement and the Debtor has any rights in the Collateral. - 5 - ARTICLE 3 - GENERAL REPRESENTATIONS AND WARRANTIES AND COVENANTS OF THE DEBTOR 3.01 REPRESENTATIONS AND WARRANTIES The Debtor hereby represents and warrants to the Secured Party that: (a) except for Permitted Encumbrances, the Debtor owns beneficially and of record, and has good and marketable title to, the Collateral, free and clear of any Encumbrance; and (b) the address of the Debtor's chief executive office and the office where it keeps its records respecting the Receivables, is that given at the end of this Agreement. 3.02 COVENANTS The Debtor covenants with the Secured Party that the Debtor will: (a) ensure that the representations and warranties set forth herein will be true and correct at all times; (b) maintain, use and operate the Collateral and carry on and conduct its business in a lawful and business-like manner; (c) not permit the Collateral to be affixed to real or personal property so as to become a fixture or accession without the prior written consent of the Secured Party; (d) defend Collateral against all claims and demands respecting the Collateral made by all persons other than the Secured Party at all times; (e) not change its chief executive office and the location of the office where it keeps its records respecting the Receivables, or move any of the Inventory, Securities or Equipment from the locations specified in any schedule hereto, without the prior written consent of the Secured Party; (f) keep proper books of account in accordance with sound accounting practice, will furnish to the Secured Party such financial information and statements and such information and statements relating to the Collateral as the Secured Party may from time to time require; (g) from time to time forthwith at the request of the Secured Party execute and deliver all such financing statements, schedules, assignments and documents, and do all such further acts and things as may be reasonably required by the Secured Party to effectively carry out the full intent and meaning of this Agreement or to better evidence and perfect the security interest, assignment and mortgage and charge granted hereby, and the Debtor hereby irrevocably constitutes and appoints the Secured Party, or any Receiver appointed by the court or the Secured Party, the - 6 - true and lawful attorney of the Debtor, with full power of substitution, to do any of the foregoing in the name of the Debtor whenever and wherever the Secured Party or any such Receiver may consider it to be necessary or expedient; (h) except as permitted by the Loan Agreement, not change its name or amalgamate with any other corporation without first giving notice to the Secured Party of its new name and the names of all amalgamating corporations and the date when such new name or amalgamation is to become effective; and (i) pay to the Secured Party forthwith upon demand all reasonable costs and expenses (including, without limiting the generality of the foregoing, all legal, Receiver's and accounting fees and expenses) incurred by or on behalf of the Secured Party in connection with the carrying out of any of the provisions of this Agreement including, without limiting the generality of the foregoing, protecting and preserving the security interest, assignment and mortgage and charge granted hereby and enforcing by legal process or otherwise the remedies provided herein; and all such costs and expenses will be added to and form part of the Obligations secured hereunder. ARTICLE 4 - INSURANCE 4.01 INSURANCE The Debtor must obtain and maintain, at its own expense, insurance as required by section 7.1(g) of the Loan Agreement. ARTICLE 5 - DEALING WITH COLLATERAL 5.01 DEALING WITH COLLATERAL BY THE DEBTOR The Debtor must not sell, lease or otherwise dispose of any of the Collateral without the prior written consent of the Secured Party, except that, subject to the provisions of the Loan Agreement, the Debtor may, until an Event of Default occurs, deal with the Collateral in the ordinary course of its business, free and clear of the security interest, assignment and mortgage and charge granted hereby, but all proceeds of any such sale will continue to be subject to the security interest, assignment and mortgage and charge granted hereby. 5.02 RIGHTS AND DUTIES OF THE SECURED PARTY (1) The Secured Party may perform any of its rights and duties hereunder by or through agents and is entitled to retain counsel and to act in reliance upon the advice of such counsel concerning all matters pertaining to its rights and duties hereunder. (2) In the holding of the Collateral, the Secured Party and any nominee on its behalf is only bound to exercise the same degree of care as it would exercise with respect to similar - 7 - property of its own of similar value held in the same place. The Secured Party and any nominee on its behalf will be deemed to have exercised reasonable care with respect to the custody and preservation of the Collateral if it takes such action for that purpose as the Debtor reasonably requests in writing, but failure of the Secured Party or its nominee to comply with any such request will not of itself be deemed a failure to exercise reasonable care. 5.03 REGISTRATION OF SECURITIES The Secured Party may have any Securities registered in its name or in the name of its nominee and will be entitled but not bound or required to exercise any of the rights that any holder of such Securities may at any time have, provided that until an Event of Default has occurred and is continuing, the Debtor will be entitled to exercise, in a manner not prejudicial to the interests of the Secured Party or which would violate or be inconsistent with this Agreement, all voting power from time to time exercisable in respect of the Securities. The Secured Party will not be responsible for any loss occasioned by its exercise of any of such rights or by failure to exercise the same within the time limited for the exercise thereof. The Debtor must from time to time forthwith upon the request of the Secured Party deliver to the Secured Party those Securities requested by the Secured Party duly endorsed for transfer to the Secured Party or its nominee to be held by the Secured Party subject to the terms of this Agreement. 5.04 NOTIFICATION OF ACCOUNT DEBTORS Before an Event of Default occurs, the Secured Party may give notice of this Agreement and the security interest and assignment granted hereby to any account debtors of the Debtor or to any other person liable to the Debtor and, after the occurrence of an Event of Default, may give notice to any such account debtors or other person to make all further payments to the Secured Party, and any payment or other proceeds of Collateral received by the Debtor from account debtors or from any other person liable to the Debtor whether before or after any notice is given by the Secured Party must be held by the Debtor in trust for the Secured Party and paid over to the Secured Party on request. 5.05 APPLICATION OF FUNDS Except where the Debtor, when not in default hereunder, so directs in writing at the time of payment, all money collected or received by the Secured Party in respect of the Collateral may be applied on account of such parts of the Obligations as the Secured Party in its sole discretion determines, or may be held unappropriated in a collateral account, or in the discretion of the Secured Party may be released to the Debtor, all without prejudice to the Secured Party's rights against the Debtor. ARTICLE 6 - REMEDIES 6.01 REMEDIES (1) On or after the occurrence of any Event of Default, (i) any or all of the Obligations will at the option of the Secured Party become immediately due and payable or be - 8 - subject to immediate performance, as the case may be, without presentment, protest or notice of dishonour, all of which are expressly waived; (ii) the obligation, if any, of the Secured Party to extend further credit to the Debtor will cease; (iii) any or all security granted hereby will, at the option of the Secured Party, become immediately enforceable; and (iv) in addition to any right or remedy provided by law, the Secured Party will have the rights and remedies set out below, all of which rights and remedies will be enforceable successively, concurrently or both: (a) the Secured Party may by appointment in writing appoint a receiver or receiver and manager (each herein referred to as the "Receiver") of the Collateral (which term when used in this Section 6.01 will include the whole or any part of the Collateral) and may remove or replace such Receiver from time to time or may institute proceedings in any court of competent jurisdiction for the appointment of a Receiver of the Collateral; and the term "Secured Party" when used in this Section 6.01 will include any Receiver so appointed and the agents, officers and employees of such Receiver; and the Secured Party will not be in any way responsible for any misconduct or negligence of any such Receiver; (b) the Secured Party may take possession of the Collateral and require the Debtor to assemble the Collateral and deliver or make the Collateral available to the Secured Party at such place or places as may be specified by the Secured Party; (c) the Secured Party may take such steps as it considers desirable to maintain, preserve or protect the Collateral; (d) the Secured Party may carry on or concur in the carrying on of all or any part of the business of the Debtor; (e) the Secured Party may enforce any rights of the Debtor in respect of the Collateral by any manner permitted by law; (f) the Secured Party may sell, lease or otherwise dispose of the Collateral at public auction, by private tender, by private sale or otherwise either for cash or upon credit upon such terms and conditions as the Secured Party may determine and without notice to the Debtor unless required by law; (g) the Secured Party may accept the Collateral in satisfaction of the Obligations upon notice to the Debtor of its intention to do so in the manner required by law; (h) the Secured Party may, for any purpose specified herein, borrow money on the security of the Collateral in priority to the security interest, assignment and mortgage and charge granted by this Agreement; (i) the Secured Party may enter upon, occupy and use all or any of the premises, buildings and plant occupied by the Debtor and use all or any of the Equipment and other personal property of the Debtor for such time as the Secured Party requires to facilitate the realization of the Collateral, free of charge, and the Secured Party will not be liable to the Debtor for any neglect in so doing or in - 9 - respect of any rent, charges, depreciation or damages in connection with such actions; (j) the Secured Party may charge on its own behalf and pay to others all reasonable amounts for expenses incurred and for services rendered in connection with the exercise of the rights and remedies of the Secured Party hereunder, including, without limiting the generality of the foregoing, reasonable legal, Receiver and accounting fees and expenses, and in every such case the amounts so paid together with all costs, charges and expenses incurred in connection therewith, including interest thereon at such rate as the Secured Party deems reasonable, will be added to and form part of the Obligations hereby secured; and (k) the Secured Party may discharge any claim, lien, mortgage, charge, security interest, encumbrance or any rights of others that may exist or be threatened against the Collateral, and in every such case the amounts so paid together with costs, charges and expenses incurred in connection therewith will be added to the Obligations hereby secured. (2) The Secured Party may (i) grant extensions of time, (ii) take and perfect or abstain from taking and perfecting security, (iii) give up securities, (iv) accept compositions or compromises, (v) grant releases and discharges, and (vi) release any part of the Collateral or otherwise deal with the Debtor, debtors of the Debtor, sureties and others and with the Collateral and other security as the Secured Party sees fit without prejudice to the liability of the Debtor to the Secured Party or the Secured Party's rights hereunder. (3) The Secured Party will not be liable or responsible for any failure to seize, collect, realize, or obtain payment with respect to the Collateral and is not bound to institute proceedings or to take other steps for the purpose of seizing, collecting, realizing or obtaining possession or payment with respect to the Collateral or for the purpose of preserving any rights of the Secured Party, the Debtor or any other person, in respect of the Collateral. (4) The Secured Party may apply any proceeds of realization of the Collateral to payment of expenses in connection with the preservation and realization of the Collateral as above described and the Secured Party may apply any balance of such proceeds to payment of the Obligations in such order as the Secured Party sees fit. If there is any surplus remaining, the Secured Party may pay it to any person having a claim thereto in priority to the Debtor of whom the Secured Party has knowledge and any balance remaining must be paid to the Debtor. If the disposition of the Collateral fails to satisfy the Obligations secured by this Agreement and the aforesaid expenses, the Debtor will be liable to pay any deficiency to the Secured Party forthwith on demand. - 10 - ARTICLE 7 - GENERAL 7.01 BENEFIT OF THE AGREEMENT This Agreement will enure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto. 7.02 ENTIRE AGREEMENT This Agreement has been entered into pursuant to the provisions of the Loan Agreement and is subject to all the terms and conditions thereof and, if there is any conflict or inconsistency between the provisions of this Agreement and the provisions of the Loan Agreement, the rights and obligations of the parties will be governed by the provisions of the Loan Agreement. This Agreement cancels and supersedes any prior understandings and agreements between the parties hereto with respect thereto. There are no representations, warranties, terms, conditions, undertakings or collateral agreements, express, implied or statutory, between the Secured Party and the Debtor with respect to the subject matter hereof except as expressly set forth herein or in any Transaction Documents (as such term is defined in the Loan Agreement). 7.03 AMENDMENTS AND WAIVERS No amendment to this Agreement will be valid or binding unless set forth in writing and duly executed by all of the parties hereto. No waiver of any breach of any provision of this Agreement will be effective or binding unless made in writing and signed by the party purporting to give the same and, unless otherwise provided in the written waiver, will be limited to the specific breach waived. 7.04 ASSIGNMENT The rights of the Secured Party under this Agreement may be assigned by the Secured Party without the prior consent of the Debtor in accordance with the requirements of section 12.2 of the Loan Agreement and only if the rights of the Secured Party in the Loan Agreement are assigned to the assignee as part of the same transaction. The Debtor may not assign its obligations under this Agreement, in whole or in part without the prior consent in writing of the Secured Party, except as contemplated in the Restructuring. 7.05 SEVERABILITY If any provision of this Agreement is determined to be invalid or unenforceable in whole or in part, such invalidity or unenforceability will attach only to such provision or part thereof and the remaining part of such provision and all other provisions hereof will continue in full force and effect. - 11 - 7.06 NOTICES Any demand, notice or other communication to be given in connection with this Agreement must be given in writing and may be given by personal delivery or by electronic means of communication, addressed to the recipient as follows: To the Secured Party: The Brick Warehouse Corporation 16930-114 Avenue Edmonton, Alberta T5M 3S2 Attention: Chief Financial Officer Fax No.: (780)454-0969 with a copy to: McCarthy Tetrault LLP Box 48, Suite 4700 Toronto Dominion Bank Tower Toronto, ON M5K1E6 Attention: Jonathan Grant Fax No.: (416)868-0673 To the Debtor: c/o ADB Systems International Inc. 201 - 6725 Airport Road Mississauga, Ontario L4V 1V2 Attention: John Mackie, General Counsel Fax No.: (905)672-7514 with a copy to: Gowling Lafleur Henderson LLP Suite 5800 Scotia Plaza Toronto, Ontario M5H 3Z7 Attention: David Pamenter Fax No.: (416)863-3611 - 12 - or such other address, individual or electronic communication number as may be designated by notice given by any party to the other. Any demand, notice or other communication given by personal delivery will be conclusively deemed to have been given on the day of actual delivery thereof and, if given by registered mail, on the next business day following the deposit thereof in the mail and, if given by electronic communication, on the day of transmittal thereof if given during the normal business hours of the recipient and on the next business day during which such normal business hours next occur if not given during such hours on any day. If the party giving any demand, notice or other communication knows or ought reasonably to know of any difficulties with the postal system that might affect the delivery of mail, any such demand, notice or other communication must not be mailed but must be given by personal delivery or by electronic communication. 7.07 ADDITIONAL CONTINUING SECURITY This Agreement and the security interest, assignment and mortgage and charge granted hereby are in addition to and not in substitution for any other security now or hereafter held by the Secured Party and this Agreement is a continuing agreement and security that will remain in full force and effect until discharged by the Secured Party. 7.08 FURTHER ASSURANCES The Debtor must at its expense from time to time do, execute and deliver, or cause to be done, executed and delivered, all such financing statements, further assignments, documents, acts, matters and things as may be reasonably requested by the Secured Party for the purpose of giving effect to this Agreement or for the purpose of establishing compliance with the representations, warranties and covenants herein contained. 7.09 POWER OF ATTORNEY Upon the occurrence of an Event of Default that is continuing, the Debtor hereby irrevocably constitutes and appoints any officer for the time being of the Secured Party the true and lawful attorney of the Debtor, with full power of substitution, to do, make and execute all such statements, assignments, documents, acts, matters or things with the right to use the name of the Debtor whenever and wherever the officer may deem necessary or expedient and from time to time to exercise all rights and powers and to perform all acts of ownership in respect to the Collateral in accordance with this Agreement. 7.10 RELEASE AND DISCHARGE The Debtor will only be discharged from the Obligations and from this Agreement upon payment in full to the Secured Party of the Obligations in accordance with the terms of the Loan Agreement. 7.11 GOVERNING LAW This Agreement will be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein. 7.12 EXECUTED COPY The Debtor acknowledges receipt of a fully executed copy of this Agreement. IN WITNESS WHEREOF this Agreement is executed by the Parties as of the date first written, above. ADB SYSTEMS INTERNATIONAL INC. By: _________________________________ Name: Title: THE BRICK WAREHOUSE CORPORATION By: _________________________________ Name: Title: ADDRESS OF DEBTOR Location of Chief Executive Office and location of Business Records: ADB Systems International Inc. 6725 Airport Road, Suite 201 Mississauga, Ontario L4V 1V2 Norwegian Office: Vigveien 2, 4050, Sola, Norway United Kingdom Office: 3000 Cathedral Hill, Guildford, Surrey England SCHEDULE 1.1-B GENERAL SECURITY AGREEMENT THIS AGREEMENT is made as of August 23, 2002 BETWEEN: ADB SYSTEMS INTERNATIONAL LTD., a corporation having its principal place of business at 6725 Airport Road, Suite 201 Mississauga, Ontario L4V 1V2 (hereinafter referred to as the "DEBTOR") - and - THE BRICK WAREHOUSE CORPORATION, a federal corporation having its principal place of business at 16920 - 114 Avenue, Edmonton, Alberta T5M 3S2 (hereinafter referred to as the "SECURED PARTY"). WHEREAS the Debtor has agreed to grant a security interest and assignment, mortgage and charge in the Collateral in order to secure the performance of its Obligations to the Secured Party; NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and the covenants and agreements herein contained the parties hereto agree as follows: ARTICLE 1 - INTERPRETATION 1.01 INTERPRETATION In this Agreement, unless something in the subject matter or context is inconsistent therewith, "AGREEMENT" means this agreement and all amendments made hereto by written agreement between the Secured Party and the Debtor; "COLLATERAL" has the meaning set out in Section 2.01; "COMPUTER SOFTWARE" includes all computer programs in source and object code form as well as all Documentation related thereto, however recorded; - 2 - "DOCUMENTATION" means all user documentation, technical documentation, and system documentation, however recorded, including user manuals, training materials, product specifications, technical documentation, description of computational algorithms, flow charts, programmer's notes and other design documentation and manuals; "ENCUMBRANCE" has the meaning ascribed in the Loan Agreement; "EVENT OF DEFAULT" means any of the events described as "events of default" in the Loan Agreement; "GAAP" has the meaning ascribed in the Loan Agreement; "GOVERNMENT ENTITY" has the meaning ascribed in the Loan Agreement; "INTELLECTUAL PROPERTY" means all intellectual and industrial property (whether or not confidential and no matter in what form held) including all works in which copyright may subsist such as plans, drawings, manuals, maps, Documentation, specifications, schematics, Computer Software, databases and compilations of information (whether or not protected by copyright) and algorithms, designs, formula, process, trade secrets and confidential information, know-how, discoveries and inventions, mask works, integrated circuit topographies, and trade-marks, trade-names, logos, Internet domain names, uniform resource locator, and service marks; "INTELLECTUAL PROPERTY RIGHTS" includes all intellectual and industrial property rights and rights of a similar nature such as copyrights, patents, industrial designs, design rights, trade-marks, data base rights, trade secrets, rights to use domain names and rights in confidential information, and all applications and registrations pertaining to the foregoing and all causes of action, rights of recovery and claims for damage or other relief relating, referring or pertaining to the foregoing (including all rights to oppose applications for the registration of similar or confusing trademarks), along with all income royalties, damages or payments due or payable including claims for past or future infringement or misappropriation of Intellectual Property or Intellectual Property Rights; "LOAN AGREEMENT" means the loan agreement made as of August 23, 2002 between ADB Systems International Ltd., the Debtor and the Secured Party as the same may be amended from time to time; "OBLIGATIONS" means all obligations and liabilities of any kind whatsoever of the Debtor to the Secured Party in connection with or relating to the Loan Agreement; "PERMITTED ENCUMBRANCE" means any (i) Encumbrance securing Taxes, assessments and Governmental Entity charges not yet due and payable or the amount or validity of which is being contested in good faith by appropriate proceedings by the Debtor and for which appropriate reserves have been established in accordance with GAAP, (ii) mechanics, carrier workers, repairer and similar statutory liens arising or incurred in the ordinary course of the Debtor's business for amounts which are not delinquent and which are not in the aggregate material to the Debtor, (iii) liens securing rental payments under capital lease arrangements arising or incurred in the ordinary course of the Debtor's business, (iv) zoning law or ordinance or any similar legal - 3 - requirement; (v) in the case of leased property, (a) the rights of any lessor and (b) any Encumbrance granted by any lessor of leased property; (vi) Encumbrance relating to the security interest in patent rights granted to the NCR Corporation by the ADB Systems International Inc. pursuant to the security agreement made on April 17, 2002 assigned and assumed by the Debtor; (vii) Encumbrance relating to the security interest granted to Stonestreet Limited Partnership by the ADB Systems International Inc. pursuant to the general security agreement dated August 30, 2002 (with such security interest being subordinated to the Security) assigned and assumed by the Debtor; (viii) Encumbrance relating to the security interest granted to Greenwich Growth Fund by the Borrower pursuant to a general security agreement dated August 30, 2002 (with such security interest being subordinated to the Security) assigned and assumed by the Debtor and (ix) Encumbrance relating to the security interest granted to subscribers (other than Greenwich Growth Fund Ltd. and Stonestreet Limited Partnership) of convertible secured notes of ADB Systems International Inc. for an amount not greater than $300,000 (with such security interest being subordinated to the Security and such notes assigned and assumed by the Debtor); provided that "Permitted Encumbrance" does not include any or any Encumbrance which could prevent or impair in any material way the conduct of the Debtor's business as it is being conducted. "SECURITY" has the meaning ascribed in the Loan Agreement; "TAXES" has the meaning ascribed in the Loan Agreement; and the terms "accessions", "accounts", "chattel paper", "documents of title", "goods", "instruments", "intangibles", "inventory", "money", "proceeds" and "securities" whenever used herein have the meanings given to those terms in the Personal Property Security Act (Ontario), as now enacted or as the same may from time to time be amended, re-enacted or replaced. 1.02 SECTIONS AND HEADINGS The division of this Agreement into Articles and Sections and the insertion of headings are for convenience of reference only and will not affect the construction or interpretation of this Agreement. The terms "this Agreement", "hereof, "hereunder" and similar expressions refer to this Agreement and not to any particular Article, Section or other portion hereof and include any agreement supplemental hereto. Unless something in the subject matter or context is inconsistent therewith, reference herein to Articles and Sections are to Articles and Sections of this Agreement. 1.03 EXTENDED MEANINGS In this Agreement words importing the singular number only include the plural and vice versa, words importing any gender include all genders and words importing persons include individuals, partnerships, associations, trusts, unincorporated organizations and corporations. - 4 - ARTICLE 2 - GRANT OF SECURITY INTEREST 2.01 SECURITY INTEREST As general and continuing security for the payment and performance of all Obligations, the Debtor hereby grants to the Secured Party a security interest in the present and future undertaking and property, both real and personal, of the Debtor (collectively, the "Collateral"), and as further general and continuing security for the payment and performance of the Obligations, the Debtor hereby assigns the Collateral to the Secured Party and mortgages and charges the Collateral as and by way of a fixed and specific mortgage and charge to the Secured Party. Without limiting the generality of the foregoing, the Collateral will include all right, title and interest that the Debtor now has or may hereafter have, be possessed of, be entitled to, or acquire, by way of amalgamation or otherwise, now or hereafter or may hereafter have in all property of the following kinds: (a) Receivables: all debts, accounts, claims and choses in action for monetary amounts which are now or which may hereafter become due, owing or accruing due to the Debtor (collectively, the "Receivables"); (b) Inventory: all inventory of whatever kind and wherever situated including, without limiting the generality of the foregoing, all goods held for sale or lease or furnished or to be furnished under contracts for service or used or consumed in the business of the Debtor (collectively, the "Inventory"); (c) Equipment: all machinery, equipment, fixtures, furniture, plant, vehicles and other tangible personal property which are not Inventory (collectively, the "Equipment"); (d) Chattel Paper: all chattel paper; (e) Documents of Title: all warehouse receipts, bills of lading and other documents of title, whether negotiable or not; (f) Securities and Instruments: all shares, stock, warrants, bonds, debentures, debenture stock and other securities and all instruments including, without limiting the generality of the foregoing any and all shares of Old ADB and ADB Systemer AS that New ADB may hereafter acquire (collectively, the "Securities"); (g) Intangibles: all intangibles not otherwise described in this Section 2.01 including, without limiting the generality of the foregoing, all goodwill, Intellectual Property and Intellectual Property Rights; (h) Money: all coins or bills or other medium of exchange adopted for use as part of the currency of Canada or of any foreign government; - 5 - (i) Books, Records, Etc.: all books, papers, accounts, invoices, documents and other records in any form evidencing or relating to any of the property described in this Section 2.01 and all contracts, securities, instruments and other rights and benefits in respect thereof; (j) Substitutions. Etc.: all replacements of, substitutions for and increases, additions and accessions to any of the property described in this Section 2.01; and (k) Proceeds: all proceeds of any Collateral in any form derived directly or indirectly from any dealing with the Collateral or that indemnifies or compensates for the loss of or damage to the Collateral; provided that the said assignment and mortgage and charge will not (i) extend or apply to the last day of the term of any lease or any agreement therefor now held or hereafter acquired by the Debtor, but should the Secured Party enforce the said assignment or mortgage and charge, the Debtor will thereafter stand possessed of such last day and must hold it in trust to assign the same to any person acquiring such term in the course of the enforcement of the said assignment and mortgage and charge, or (ii) render the Secured Party liable to observe or perform any term, covenant or condition of any agreement, document or instrument to which the Debtor is a party or by which it is bound. 2.02 ATTACHMENT OF SECURITY INTEREST The Debtor acknowledges that value has been given and agrees that the security interest granted hereby will attach when the Debtor signs this Agreement and the Debtor has any rights in the Collateral. ARTICLE 3 - GENERAL REPRESENTATIONS AND WARRANTIES AND COVENANTS OF THE DEBTOR 3.01 REPRESENTATIONS AND WARRANTIES The Debtor hereby represents and warrants to the Secured Party that: (a) except for Permitted Encumbrances, the Debtor owns beneficially and of record, and has good and marketable title to, the Collateral, free and clear of any Encumbrance; and (b) the address of the Debtor's chief executive office and the office where it keeps its records respecting the Receivables, is that given at the end of this Agreement. 3.02 COVENANTS The Debtor covenants with the Secured Party that the Debtor will: - 6 - (a) ensure that the representations and warranties set forth herein will be true and correct at all times; (b) maintain, use and operate the Collateral and carry on and conduct its business in a lawful and business-like manner; (c) not permit the Collateral to be affixed to real or personal property so as to become a fixture or accession without the prior written consent of the Secured Party; (d) defend the Collateral against all claims and demands respecting the Collateral made by all persons at any time and, except as otherwise provided herein, will keep the Collateral free and clear of all security interests, mortgages, charges, liens and other encumbrances or interests except for those disclosed in a schedule hereto or hereafter approved in writing by the Secured Party prior to their creation or assumption; (e) not change its chief executive office and the location of the office where it keeps its records respecting the Receivables, or move any of the Inventory, Securities or Equipment from the locations specified in any schedule hereto, without the prior written consent of the Secured Party; (f) pay all rents, taxes, levies, assessments and government fees or dues lawfully levied, assessed or imposed in respect of the Collateral or any part thereof as and when the same become due and payable, and will exhibit to the Secured Party, when required, the receipts and vouchers establishing such payment; (g) keep proper books of account in accordance with sound accounting practice, will furnish to the Secured Party such financial information and statements and such information and statements relating to the Collateral as the Secured Party may from time to time require, and the Debtor will permit the Secured Party or its authorized agents at any time at the expense of the Debtor to examine the books of account and other financial records and reports relating to the Collateral and to make copies thereof and take extracts therefrom; (h) from time to time forthwith at the request of the Secured Party furnish to the Secured Party in writing all information requested relating to the Collateral, and the Secured Party will be entitled from time to time at any reasonable time to inspect the Collateral and make copies of all information relating to the Collateral and for such purposes the Secured Party will have access to all premises occupied by the Debtor or where the Collateral may be found; (i) from time to time forthwith at the request of the Secured Party execute and deliver all such financing statements, schedules, assignments and documents, and do all such further acts and things as may be reasonably required by the Secured Party to effectively carry out the full intent and meaning of this Agreement or to better evidence and perfect the security interest, assignment and mortgage and charge - 7 - granted hereby, and the Debtor hereby irrevocably constitutes and appoints the Secured Party, or any Receiver appointed by the court or the Secured Party, the true and lawful attorney of the Debtor, with full power of substitution, to do any of the foregoing in the name of the Debtor whenever and wherever the Secured Party or any such Receiver may consider it to be necessary or expedient; (j) not change its name or, if the Debtor is a corporation, will not amalgamate with any other corporation without first giving notice to the Secured Party of its new name and the names of all amalgamating corporations and the date when such new name or amalgamation is to become effective; and (k) pay to the Secured Party forthwith upon demand all reasonable costs and expenses (including, without limiting the generality of the foregoing, all legal, Receiver's and accounting fees and expenses) incurred by or on behalf of the Secured Party in connection with the carrying out of any of the provisions of this Agreement including, without limiting the generality of the foregoing, protecting and preserving the security interest, assignment and mortgage and charge granted hereby and enforcing by legal process or otherwise the remedies provided herein; and all such costs and expenses will be added to and form part of the Obligations secured hereunder. ARTICLE 4 - INSURANCE 4.01 INSURANCE The Debtor must obtain and maintain, at its own expense, insurance as required by section 7.1(g) of the Loan Agreement. ARTICLE 5 - DEALING WITH COLLATERAL 5.01 DEALING WITH COLLATERAL BY THE DEBTOR The Debtor must not sell, lease or otherwise dispose of any of the Collateral without the prior written consent of the Secured Party, except that the Debtor may, until an Event of Default occurs, deal with the Collateral in the ordinary course of its business free and clear of the security interest, assignment and mortgage and charge granted hereby, but all proceeds of any such sale will continue to be subject to the security interest, assignment and mortgage and charge granted hereby. 5.02 RIGHTS AND DUTIES OF THE SECURED PARTY (1) The Secured Party may perform any of its rights and duties hereunder by or through agents and is entitled to retain counsel and to act in reliance upon the advice of such counsel concerning all matters pertaining to its rights and duties hereunder. - 8 - (2) In the holding of the Collateral, the Secured Party and any nominee on its behalf is only bound to exercise the same degree of care as it would exercise with respect to similar property of its own of similar value held in the same place. The Secured Party and any nominee on its behalf will be deemed to have exercised reasonable care with respect to the custody and preservation of the Collateral if it takes such action for that purpose as the Debtor reasonably requests in writing, but failure of the Secured Party or its nominee to comply with any such request will not of itself be deemed a failure to exercise reasonable care. 5.03 REGISTRATION OF SECURITIES The Secured Party may have any Securities registered in its name or in the name of its nominee and will be entitled but not bound or required to exercise any of the rights that any holder of such Securities may at any time have, provided that until an Event of Default has occurred and is continuing, the Debtor will be entitled to exercise, in a manner not prejudicial to the interests of the Secured Party or which would violate or be inconsistent with this Agreement, all voting power from time to time exercisable in respect of the Securities. The Secured Party will not be responsible for any loss occasioned by its exercise of any of such rights or by failure to exercise the same within the time limited for the exercise thereof. The Debtor must from time to time forthwith upon the request of the Secured Party deliver to the Secured Party those Securities requested by the Secured Party duly endorsed for transfer to the Secured Party or its nominee to be held by the Secured Party subject to the terms of this Agreement. 5.04 NOTIFICATION OF ACCOUNT DEBTORS Before an Event of Default occurs, the Secured Party may give notice of this Agreement and the security interest and assignment granted hereby to any account debtors of the Debtor or to any other person liable to the Debtor and, after the occurrence of an Event of Default, may give notice to any such account debtors or other person to make all further payments to the Secured Party, and any payment or other proceeds of Collateral received by the Debtor from account debtors or from any other person liable to the Debtor whether before or after any notice is given by the Secured Party must be held by the Debtor in trust for the Secured Party and paid over to the Secured Party on request. 5.05 APPLICATION OF FUNDS Except where the Debtor, when not in default hereunder, so directs in writing at the time of payment, all money collected or received by the Secured Party in respect of the Collateral may be applied on account of such parts of the Obligations as the Secured Party in its sole discretion determines, or may be held unappropriated in a collateral account, or in the discretion of the Secured Party may be released to the Debtor, all without prejudice to the Secured Party's rights against the Debtor. - 9 - ARTICLE 6 - REMEDIES 6.01 REMEDIES (1) On or after the occurrence of any Event of Default, (i) any or all of the Obligations will at the option of the Secured Party become immediately due and payable or be subject to immediate performance, as the case may be, without presentment, protest or notice of dishonour, all of which are expressly waived; (ii) the obligation, if any, of the Secured Party to extend further credit to the Debtor will cease; (iii) any or all security granted hereby will, at the option of the Secured Party, become immediately enforceable; and (iv) in addition to any right or remedy provided by law, the Secured Party will have the rights and remedies set out below, all of which rights and remedies will be enforceable successively, concurrently or both: (a) the Secured Party may by appointment in writing appoint a receiver or receiver and manager (each herein referred to as the "Receiver") of the Collateral (which term when used in this Section 6.01 will include the whole or any part of the Collateral) and may remove or replace such Receiver from time to time or may institute proceedings in any court of competent jurisdiction for the appointment of a Receiver of the Collateral; and the term "Secured Party" when used in this Section 6.01 will include any Receiver so appointed and the agents, officers and employees of such Receiver; and the Secured Party will not be in any way responsible for any misconduct or negligence of any such Receiver; (b) the Secured Party may take possession of the Collateral and require the Debtor to assemble the Collateral and deliver or make the Collateral available to the Secured Party at such place or places as may be specified by the Secured Party; (c) the Secured Party may take such steps as it considers desirable to maintain, preserve or protect the Collateral; (d) the Secured Party may carry on or concur in the carrying on of all or any part of the business of the Debtor; (e) the Secured Party may enforce any rights of the Debtor in respect of the Collateral by any manner permitted by law; (f) the Secured Party may sell, lease or otherwise dispose of the Collateral at public auction, by private tender, by private sale or otherwise either for cash or upon credit upon such terms and conditions as the Secured Party may determine and without notice to the Debtor unless required by law; (g) the Secured Party may accept the Collateral in satisfaction of the Obligations upon notice to the Debtor of its intention to do so in the manner required by law; (h) the Secured Party may, for any purpose specified herein, borrow money on the security of the Collateral in priority to the security interest, assignment and mortgage and charge granted by this Agreement; - 10 - (i) the Secured Party may enter upon, occupy and use all or any of the premises, buildings and plant occupied by the Debtor and use all or any of the Equipment and other personal property of the Debtor for such time as the Secured Party requires to facilitate the realization of the Collateral, free of charge, and the Secured Party will not be liable to the Debtor for any neglect in so doing or in respect of any rent, charges, depreciation or damages in connection with such actions; (j) the Secured Party may charge on its own behalf and pay to others all reasonable amounts for expenses incurred and for services rendered in connection with the exercise of the rights and remedies of the Secured Party hereunder, including, without limiting the generality of the foregoing, reasonable legal, Receiver and accounting fees and expenses, and in every such case the amounts so paid together with all costs, charges and expenses incurred in connection therewith, including interest thereon at such rate as the Secured Party deems reasonable, will be added to and form part of the Obligations hereby secured; and (k) the Secured Party may discharge any claim, lien, mortgage, charge, security interest, encumbrance or any rights of others that may exist or be threatened against the Collateral, and in every such case the amounts so paid together with costs, charges and expenses incurred in connection therewith will be added to the Obligations hereby secured. (2) The Secured Party may (i) grant extensions of time, (ii) take and perfect or abstain from taking and perfecting security, (iii) give up securities, (iv) accept compositions or compromises, (v) grant releases and discharges, and (vi) release any part of the Collateral or otherwise deal with the Debtor, debtors of the Debtor, sureties and others and with the Collateral and other security as the Secured Party sees fit without prejudice to the liability of the Debtor to the Secured Party or the Secured Party's rights hereunder. (3) The Secured Party will not be liable or responsible for any failure to seize, collect, realize, or obtain payment with respect to the Collateral and is not bound to institute proceedings or to take other steps for the purpose of seizing, collecting, realizing or obtaining possession or payment with respect to the Collateral or for the purpose of preserving any rights of the Secured Party, the Debtor or any other person, in respect of the Collateral. (4) The Secured Party may apply any proceeds of realization of the Collateral to payment of expenses in connection with the preservation and realization of the Collateral as above described and the Secured Party may apply any balance of such proceeds to payment of the Obligations in such order as the Secured Party sees fit. If there is any surplus remaining, the Secured Party may pay it to any person having a claim thereto in priority to the Debtor of whom the Secured Party has knowledge and any balance remaining must be paid to the Debtor. If the disposition of the Collateral fails to satisfy the Obligations secured by this Agreement and the aforesaid expenses, the Debtor will be liable to pay any deficiency to the Secured Party forthwith on demand. - 11 - ARTICLE 7 - GENERAL 7.01 BENEFIT OF THE AGREEMENT This Agreement will enure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto. 7.02 ENTIRE AGREEMENT This Agreement has been entered into pursuant to the provisions of the Loan Agreement and is subject to all the terms and conditions thereof and, if there is any conflict or inconsistency between the provisions of this Agreement and the provisions of the Loan Agreement, the rights and obligations of the parties will be governed by the provisions of the Loan Agreement. This Agreement cancels and supersedes any prior understandings and agreements between the parties hereto with respect thereto. There are no representations, warranties, terms, conditions, undertakings or collateral agreements, express, implied or statutory, between the Secured Party and the Debtor with respect to the subject matter hereof except as expressly set forth herein or in any Transaction Document (as such term is defined in the Loan Agreement). 7.03 AMENDMENTS AND WAIVERS No amendment to this Agreement will be valid or binding unless set forth in writing and duly executed by all of the parties hereto. No waiver of any breach of any provision of this Agreement will be effective or binding unless made in writing and signed by the party purporting to give the same and, unless otherwise provided in the written waiver, will be limited to the specific breach waived. 7.04 ASSIGNMENT The rights of the Secured Party under this Agreement may be assigned by the Secured Party without the prior consent of the Debtor in accordance with the requirements of section 12.2 of the Loan Agreement and only if the rights of the Secured Party in the Loan Agreement are assigned to the assignee as part of the same transaction. 7.05 SEVERABILITY If any provision of this Agreement is determined to be invalid or unenforceable in whole or in part, such invalidity or unenforceability will attach only to such provision or part thereof and the remaining part of such provision and all other provisions hereof will continue in full force and effect. 7.06 NOTICES Any demand, notice or other communication to be given in connection with this Agreement must be given in writing and may be given by personal delivery or by electronic means of communication, addressed to the recipient as follows: - 12 - To the Secured Party: The Brick Warehouse Corporation 16930-114 Avenue Edmonton, Alberta T5M 3S2 Attention: Chief Financial Officer Fax No.: (780)454-0969 with a copy to: McCarthy Tetrault LLP Box 48, Suite 4700 Toronto Dominion Bank Tower Toronto, ON M5K 1E6 Attention: Jonathan Grant Fax No.: (416)868-0673 To the Debtor: c/o ADB Systems International Inc. 201 - 6725 Airport Road Mississauga, Ontario L4V 1V2 Attention: John Mackie, General Counsel Fax No.: (905)672-7514 with a copy to: Gowling Lafleur Henderson LLP Suite 5800 Scotia Plaza Toronto, Ontario M5H 3Z7 Attention: David Pamenter Fax No.: (416)863-3611 or such other address, individual or electronic communication number as may be designated by notice given by any party to the other. Any demand, notice or other communication given by personal delivery will be conclusively deemed to have been given on the day of actual delivery thereof and, if given by registered mail, on the next business day following the deposit thereof in the mail and, if given by electronic communication, on the day of transmittal thereof if given during the normal business hours of the recipient and on the next business day during which such - 13 - normal business hours next occur if not given during such hours on any day. If the party giving any demand, notice or other communication knows or ought reasonably to know of any difficulties with the postal system that might affect the delivery of mail, any such demand, notice or other communication must not be mailed but must be given by personal delivery or by electronic communication. 7.07 ADDITIONAL CONTINUING SECURITY This Agreement and the security interest, assignment and mortgage and charge granted hereby are in addition to and not in substitution for any other security now or hereafter held by the Secured Party and this Agreement is a continuing agreement and security that will remain in full force and effect until discharged by the Secured Party. 7.08 FURTHER ASSURANCES The Debtor must at its expense from time to time do, execute and deliver, or cause to be done, executed and delivered, all such financing statements, further assignments, documents, acts, matters and things as may be reasonably requested by the Secured Party for the purpose of giving effect to this Agreement or for the purpose of establishing compliance with the representations, warranties and covenants herein contained. 7.09 POWER OF ATTORNEY Upon the occurrence of an Event of Default that is continuing, the Debtor hereby irrevocably constitutes and appoints any officer for the time being of the Secured Party the true and lawful attorney of the Debtor, with full power of substitution, to do, make and execute all such statements, assignments, documents, acts, matters or things with the right to use the name of the Debtor whenever and wherever the officer may deem necessary or expedient and from time to time to exercise all rights and powers and to perform all acts of ownership in respect to the Collateral in accordance with this Agreement. 7.10 DISCHARGE The Debtor will only be discharged from the Obligations or from this Agreement upon payment in full to the Secured Party of the Obligations in accordance with the Loan Agreement. 7.11 GOVERNING LAW This Agreement will be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein. 7.12 EXECUTED COPY The Debtor acknowledges receipt of a fully executed copy of this Agreement. IN WITNESS WHEREOF this Agreement is executed by the Parties as of the date first written, above. ADB SYSTEMS INTERNATIONAL LTD. By: _________________________________ Name: Title: THE BRICK WAREHOUSE CORPORATION By: _________________________________ Name: Title: ADDRESS OF DEBTOR Location of Chief Executive Office and location of Business Records: ADB Systems International Inc. 6725 Airport Road, Suite 201 Mississauga, Ontario L4V 1V2 Norwegian Office: Vigveien 2, 4050, Sola, Norway United Kingdom Office: 3000 Cathedral Hill, Guildford, Surrey England SCHEDULE 1.1-C NORWEGIAN PLEDGE AGREEMENT THIS AGREEMENT is made as of August 23, 2002 BETWEEN ADB SYSTEMS INTERNATIONAL INC., an Ontario corporation having its principal place of business at 6725 Airport Road, Suite Mississauga, Ontario L4V 1V2, Canada (hereinafter referred to as the "BORROWER") and THE BRICK WAREHOUSE CORPORATION, a federal corporation having its principal place of business at 16930 - 114 Avenue, Edmonton, Alberta T5M 3S2, Canada (hereinafter referred to as the "LENDER"). WHEREAS the Borrower and the Lender have entered into as of August 23, 2002 a loan agreement for funding the future operations of the Borrower; WHEREAS the Borrower and the Lender have entered into as of August 23, 2002 a general security agreement whereby the Borrower agrees to grant the security interest and assignment mortgage and charge in order to secure the performance of its obligations to the Lender and whereby this pledge agreement constitute the Norwegian implementation of the loan and security arrangement; and WHEREAS the Borrower owns 99,3 % of issued and outstanding shares in the Norwegian company ADB Systemer AS, having its principal place of business at Vingveien 2, 4050 Sola, Norway, and has the right to acquire the remaining 0,7 % shares. NOW, THEREFORE, the parties agree as follows: 1. THE LOAN 1.1 PRINCIPAL AMOUNT. Subject to the terms and conditions hereof and in accordance with the loan agreement as referred to above, Lender shall make the loan to Borrower during the period commencing on the date hereof and ending on November 30, 2003. Subject to the terms hereof, the loan will be advanced as follows: (a) an initial advance in the principal amount of One Million Dollars ($1,000,000.00) (the "FIRST ADVANCE"); - 2 - (b) a second advance in the principal amount of Five Hundred Thousand Dollars ($500,000.00) (the "SECOND ADVANCE"); and (c) Lender shall deposit into a joint bank account of the Borrower and the Lender to be held and disbursed to Borrower the principal sum of Five Hundred Thousand Dollars ($500,000.00) (the "EXPENSES ADVANCE"). The First Advance, Second Advance and Expenses Advance shall together constitute the aggregate principal sum of the loan hereunder (the "PRINCIPAL"). 1.2 INTEREST. The Borrower shall pay interest on each Advance at a rate per annum equal to 12% per annum, compounded monthly. Such interest shall be payable on repayment of the Principal from and including the drawdown date for such advance to and including the day immediately preceding repayment of Principal hereunder and shall be calculated on the principal amount of the loan outstanding during such period and on the basis of the actual number of days elapsed in a year of 365 days or 366 days, as the case may be. Upon the occurance of an event of default, the Borrower shall pay interest on the outstanding Principal at a rate per annum equal to 24% per annum, coumpounded monthly with interest on all overdue interest at the same rate, such interest to be payable on demand. 1.3 REPAYMENT. The Borrower hereby agrees to repay the Principal and accrued and unpaid interest thereon as follows: a) on or before November 30, 2002 upon the occurrence of an event of default by the Borrower; and b) after November 30, the earlier of (i) June 30, 2003, or (ii) upon the occurrence of and event of default by the Borrower, or (iii) on demand by the Lender. 2. LEGAL STATUS OF LOAN ARRANGEMENT. This Norwegian Pledge Agreement is to be considered as a written acknowledgement of debt whereby the Borrower accepts that the loan, interest and collection expenses may be collected in Norway by the Lender without taking out legal actions before the courts, pursuant the Norwegian Enforcement Act section 7-2, litra a, of June 26, 1992 No. 86 by taking advantage of the pledge arrangement. 3. PLEDGED ARRANGEMENT. Borrower accepts that all its presents and future owned shares in the Norwegian company ADB Systemer AS are pledged as security for the loan as referred to under article 1 hereabove in favour of Lender. - 3 - This Norwegian Pledge Agreement is to be registered in the Shareholder Registry Book of ADB Industrier AS pursuant to the Norwegian Joint Stock Companies' Act of 13 June 1997, No. 44, article 4-8. ADB Systems International Inc. shall cause and ADB Systemer AS shall, pursuant to section 4-8, third paragraph, third sentence issue a statement saying that this Norwegian Pledge Agreement has been registered in the company's Shareholder Registry Book. 4. GOVERNING LAW. This agreement is to be construed and interpreted according to Norwegian law. This agreement has been executed into two originals, one to each party. _____________________________ ______________________ ADB SYSTEMS INTERNATIONAL INC. THE BRICK WAREHOUSE CORPORATION The following two witnesses confirm the signatures of ADB Systems International Inc: Signature: Signature: Name: Name: Age: Age: Position: Position: Address: Address: The following two witnesses confirm the signatures of The Brick Warehouse Corporation: Signature: Signature: Name: Name: Age: Age: Position: Position: Address: Address: SCHEDULE 1.1-D OLD ADB'S DOMAIN NAMES
DOMAIN NAME RECORD CREATED RECORD EXPIRES LAST UPDATED Bid.com Mar. 04, 1998 Mar. 04, 2010 April 8, 2000
SCHEDULE 1.1-E OLD ADB'S SOFTWARE WorkMate - a comprehensive enterprise asset management solution that allows organizations to automate and integrate maintenance management, materials management and procurement activities. ProcureMate - a web-based solution that allows organization to streamline the purchasing of maintenance, repairs and operating (MRO) supplies while reducing procurement costs. Dyn@mic Buyer - an on-line solution that helps organizations automate their tendering activities (e.g. reverse auctions, request for quotations/proposals) and reduce procurement costs. Dyn@mic Seller - a web-based sales solution that enables organizations to manage inventory and reduce surplus through the use of on-line auctions, including the completion of on-line retail transactions. In each case there are various versions in existence. SCHEDULE 1.1-F OLD ADB'S TRADE-MARKS
- --------------------------------------------------------------------------------------------------- COUNTRY TRADEMARK APP. NO. REG. NO. STATUS - --------------------------------------------------------------------------------------------------- Canada BID.COM 1,056,622 - In Examination - --------------------------------------------------------------------------------------------------- Canada BID.COM Design 1,056,624 - In Examination - ---------------------------------------------------------------------------------------------------
SCHEDULE 3.1(i) [LETTERHEAD OF GOWLING LAFLEUR HENDERSON LLP] August 28, 2002 The Brick Warehouse Corporation 16930 - 114 Avenue Edmonton, Alberta T5M 3S2 - - and - McCarthy Tetrault LLP Suite 4700 Toronto Dominion Bank Tower Toronto, Ontario M5K 1E6 Dear Sirs/Mesdames: RE: ADB SYSTEMS INTERNATIONAL INC. We have acted as counsel to ADB Systems International Inc. ("Old ADB") and ADB Systems International Ltd. ("New ADB") in connection with a loan agreement (the "Loan Agreement") made as of August 23, 2002 among The Brick Warehouse Corporation (the "Lender"), Old ADB and New ADB. Terms used in this opinion that are defined in the Loan Agreement and are not otherwise defined herein have the same meaning herein as in the Loan Agreement. MATERIALS REVIEWED We have examined executed copies of each of the following documents, and all such documents except the Norco Pledge are referred to as the "Documents": (a) the Loan Agreement; (b) the general security agreement (the "Old ADB GSA") made as of August 23, 2002 between the Lender and Old ADB; (c) the general security agreement (the "New ADB GSA") made as of August 23, 2002 between the Lender and New ADB; (d) the co-operation agreement (the "Co-operation Agreement") made as of August 23, 2002 between the Lender, Old ADB and New ADB; 2 (e) the arrangement agreement (the "Arrangement Agreement") made as of August 23, 2002 between Old ADB and New ADB; (f) the general conveyance and assumption agreement (the "General Conveyance and Assumption Agreement") made as of August 23, 2002 between Old ADB and New ADB; (g) the supply, services and license agreement (the "Supply Services and License Agreement") made as of August 23, 2002 between the Lender, Old ADB and New ADB; and (h) the Dynamic Seller(TM)joint ownership agreement (the "Joint Ownership Agreement") made as of August 23, 2002 between the Lender and New ADB. Old ADB and New ADB are hereinafter collectively referred to as the "Corporations". ASSUMPTIONS AND FACT RELIANCE For the purposes of the opinions expressed herein, we have examined: (a) a certified copy of the articles and by-laws of the Corporations; (b) a certificate of status (the "Certificate of Status") dated August 26, 2002 issued pursuant to the Business Corporations Act (Ontario) (the "OBCA") in respect of Old ADB, a copy of which has been delivered to you; (c) a Certificate of Status dated August 26, 2002 issued pursuant to the Business Corporations Act (Ontario) (the "OBCA") in respect of New ADB, a copy of which has been delivered to you; (d) a certified copy of the resolutions of the directors of the Corporations dated August 26, 2002, authorizing the execution and delivery of the Documents; (e) the Documents; (f) certificates of officer of the Corporation (the "Officer's Certificates"), a copy of each of which is attached hereto as Schedule "A" and Schedule "B"; and (g) certificates issued under the Personal Property Security Act (Ontario) (the "PPSA Certificates") in respect of each of Old ADB and New ADB dated as of August 22, 2002 showing registration of financing statements numbers 886586994 and 886672368, respectively, in favour of the Lender. 3 We have also examined originals or copies, certified or otherwise identified to our satisfaction, of such public and corporate records, certificates, instruments and other documents and have considered such questions of law as we have deemed relevant and necessary as a basis for the opinions hereinafter expressed. In connection with all documents which we have examined, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity to original documents of all documents submitted to us as copies, whether facsimile, photostatic, certified or otherwise. We have also assumed that all facts set forth in the official public records, certificates and documents supplied by public officials or otherwise conveyed to us by public officials, including without limitation the PPSA Certificate, are complete, true and accurate. We have also assumed that each of the Documents has been duly authorized, executed and delivered by, and constitutes a legal, valid and binding obligation of, each of the parties thereto other than the Corporations, enforceable against each of the parties thereto other than the Corporations in accordance with its terms. In particular, and with your permission, in expressing our opinions herein, we have relied exclusively and without independent investigation or verification, upon the following instruments, all of which have been provided to you: (a) as to our opinion expressed in paragraph 1 herein, the Certificates of Status; and (b) as to certain matters of fact set out therein, the Officer's Certificates. The opinions expressed below are restricted to the laws of the Province of Ontario and the federal laws of Canada applicable therein. Our opinions do not anticipate or take into account any changes in law whether by legislative, governmental, regulatory or judicial action after the date hereof. We understand that the reliances, limitations and assumptions expressed herein are satisfactory to you. We did not effect the registration of financing statements under the PPSA against Old ADB or New ADB or any other entity and we have relied exclusively on the PPSA Certificates as evidence that valid and effective registrations have been made in accordance with the information shown in such PPSA Certificates. OPINIONS Based and relying upon the foregoing, and subject to the qualifications hereinafter expressed, we are of the opinion that: 1. Old ADB and New ADB are corporations incorporated and existing under the Business Corporations Act (Ontario) (the "Act"). 4 2. Each Corporation has the corporate power and capacity to execute, deliver and perform its obligations under each Document to which it is a party. 3. Each Corporation has taken all necessary corporate action to authorize the execution, delivery and performance by it of each Document to which it is a party, and each Corporation has duly executed and delivered each Document to which it is a party. 4. Each Document constitutes a legal, valid and binding obligation of the Corporation which is a party thereto, enforceable against such Corporation in accordance with its terms. 5. The execution and delivery of each Document by the Corporation which is a party thereto and the performance by such Corporation of its obligations thereunder do not breach or result in a default under: (a) the articles or by-laws of such Corporation, or (b) any law, statute or regulation of the Province of Ontario or of Canada which is applicable in the Province of Ontario to which such Corporation is subject. 6. To the best of our knowledge, there are no actions, proceedings or investigations pending against either of the Corporations. 7. No authorization, consent, permit or approval of, or other action by, or filing with or notice to, any governmental agency or authority, regulatory body, court, tribunal or other similar entity having jurisdiction is required in connection with the execution and delivery of each Document by the Corporation which is a party thereto and the performance by such Corporation of its obligations thereunder, other than the registration of a financing statement pursuant to the PPSA against each of the Corporations. 8. The Old ADB GSA Agreement: (a) creates a valid security interest in favour of the Lender in the personal property collateral described therein in which Old ADB now has rights, and (b) is sufficient to create a valid security interest in favour of the Lender in the personal property collateral described therein in which Old ADB hereafter acquires rights when those rights are acquired by Old ADB, in each case to secure the payment and performance of the obligations described therein as being secured thereby. 5 9. The New ADB GSA: (a) creates a valid security interest in favour of the Lender in the personal property collateral described therein in which New ADB now has rights, and (b) is sufficient to create a valid security interest in favour of the Lender in the personal property collateral described therein in which New ADB hereafter acquires rights when those rights are acquired by New ADB, in each case to secure the payment and performance of the obligations described therein as being secured thereby. 10. Old ADB has (i) the corporate power and capacity to execute, deliver and perform its obligations under the Norco Pledge, (ii) taken all necessary corporate action to authorize the execution, delivery and performance by it under the Norco Pledge, and (iii) duly executed and delivered the Norco Pledge. QUALIFICATIONS The foregoing opinions are subject to the following qualifications: (a) The enforceability of the Documents is subject to bankruptcy, insolvency, reorganization, arrangement, winding-up, moratorium, and other laws of general application limiting the enforcement of creditors' rights generally. (b) The enforceability of the Documents is subject to general equitable principles, including the fact that the availability of equitable remedies, such as injunctive relief and specific performance, is in the discretion of a court. (c) The Lender may be required to give a reasonable time to repay following a demand for payment prior to taking any action to enforce any right of repayment or before exercising any of the rights and remedies expressed to be exercisable under the Documents. (d) The validity and enforceability of any provision inserted in any Document that purports to sever from such Document any provision that is prohibited or unenforceable under applicable law without affecting the enforceability or validity of the remainder of such Document would be determined only in the discretion of a court. (e) The costs of and incidental to any proceedings taken in a court are in the discretion of the court, and the court has the power to determine by whom and to what extent such costs shall be paid. 6 (f) A receiver, manager or receiver-manager appointed pursuant to any Document may be treated as the agent of the Lender and not solely of the applicable Corporation, notwithstanding any provision in such Document to the contrary. (g) The qualification of any opinion or statement with respect to the existence or absence of facts "to the best of our knowledge" means actual knowledge of the lawyers of the firm involved in the preparation of the Documents without any independent investigation or inquiry. (h) The enforceability of the Documents may be limited by general principles of law and equity relating to the conduct of the parties thereto prior to execution of or in the administration or performance of the Documents, including, without limitation: (i) Undue influence, unconscionability, duress, misrepresentation and deceit; (ii) Estoppel and waiver; (iii) Laches; and (iv) Reasonableness and good faith in the exercise of discretionary powers. (i) We express no opinion as to the enforceability of any provision of which purports to limit jurisdiction of proceedings to the courts of Ontario; (j) The PPSA imposes certain obligations on secured creditors which cannot be varied by contract. The PPSA may also affect the enforcement of certain rights and remedies contained in the Security Documents to the extent that those rights and remedies are inconsistent with or contrary to the PPSA including, without limitation, sections 16, 17 and 39 and Part V of the PPSA; (k) We have taken no steps to provide the notices or to obtain the acknowledgements prescribed in Part VII of the Financial Administration Act (Canada) relating to the assignment of federal Crown debts. An assignment of federal Crown debts which does not comply with that Act is ineffective as between the assignor and the assignee and as against the Crown. Consequently, the Lender would not have a valid security interest in federal Crown debts unless that act is complied with; (l) We express no opinion as to whether a security interest may be created in: 7 (i) property consisting of a receivable, license, approval, privilege, franchise, permit, lease or agreement (collectively, "Special Property") to the extent that the terms of the Special Property or any applicable law prohibit its assignment or require, as a condition of its assignability, a consent, approval or other authorization or registration which has not been made or given; or (ii) permits, quotas or licenses which are held by or issued to either of the Corporations. (m) We express no opinion as to any security interest created by the Old ADB GSA or the New ADB GSA with respect to any property of the Corporation that is transformed in such a way that it is not identifiable or traceable or any proceeds of property of the Corporations that are not identifiable or traceable; (n) We express no opinion as to whether either of the Corporations has title to or any rights in the Collateral, nor as to the priority of any security interest created by the Old ADB GSA or the New ADB GSA; (o) We have not registered the Old ADB GSA or the New ADB GSA in any land registry office or under any land registry statutes even though the PPSA Security Documents may create a security interest in real property, leases of real property, property which is now or may hereafter become a fixture or a right to payment under a lease, mortgage or charge of real property; (p) We express no opinion as to the enforceability of Section 8.3 of the Loan Agreement; and (q) Old ADB cannot effect the Arrangement contemplated in the Documents without the prior approval of its shareholders, the approval of the Court and the filing of articles of arrangement and issuance of a certificate of arrangement pursuant to Section 182 and 183 of the Act and the approval of the Court pursuant to the Bulk Sales Act (Ontario). This opinion is furnished solely for the benefit of the addressees hereof in connection with the transactions contemplated by the Loan Agreement and may not be circulated to, or relied upon by, quoted from, or referred to by any other person or used for any other purpose, without our prior written consent. Yours very truly, SCHEDULE"A" TO THE OPINION OF GOWLING LAFLEUR HENDERSON LLP DATED AUGUST 28, 2002 OFFICER'S CERTIFICATE ADB SYSTEMS INTERNATIONAL INC. TO: GOWLING LAFLEUR HENDERSON LLP RE: Certificate in connection with opinion delivered on closing of a Loan Transaction and Plan of Arrangement THE UNDERSIGNED, Vice-President, General Counsel and Secretary of ADB Systems International Inc. (the "Corporation") hereby certifies on behalf of the Corporation and not in a personal capacity as follows: 1. I have read and am familiar with a Loan Agreement and the Schedules thereto (the "Loan Agreement") among the Corporation and The Brick Warehouse Corporation and ADB Systems International Ltd. made as of August 23, 2002. All terms used herein and not otherwise defined herein and which are defined in the Loan Agreement shall have the meanings ascribed to them therein, unless the context otherwise requires. 2. I have made or caused to be made such examinations and investigations as are, in my opinion, necessary to make the statements contained herein and I have furnished this certificate with the intention that it may be relied upon by Gowling Lafleur Henderson LLP ("Gowlings") in connection with the opinion to be given by Gowlings to the parties named in such opinion. I acknowledge that the matters set forth herein are being relied upon by Gowlings, without independent investigation, in connection with its opinion. 3. The minute books and corporate records of the Corporation made available to you are the original minute books and records of the Corporation and contain the minutes, or certified copies thereof, of all proceedings of the shareholders, directors and committees of the board of directors of the Corporation as of the date hereof and, subject as aforesaid and herein otherwise provided, there have been no other meetings, resolutions or proceedings of the shareholders, of the board of directors or of committees of the board of directors of the Corporation to the date hereof not reflected in such minute books and corporate records. Such minute books and records are true, correct and complete in all material respects and since being made available as aforesaid there have been no changes, additions or alterations thereto. The articles and by-laws of the Corporation attached hereto as Appendix "A" are certified to be true and complete copies of - 2 - such documents and are in full force and effect, unamended as of the date hereof. 4. The Corporation is a corporation amalgamated under the laws of Ontario and has not been dissolved. 5. The Corporation is not insolvent. No acts or proceedings have been taken by the Corporation, its directors or shareholders for, and no notice has been received in respect of, the liquidation, dissolution, winding-up, insolvency, bankruptcy, amalgamation, arrangement, reorganization or continuation of the Corporation and no such proceedings are pending, in the process or contemplated by have been commenced or are being contemplated by such corporations, its directors or shareholders or, to my knowledge, have been commenced or are being contemplated by any other party. 6. At the date hereof, the Corporation is up-to-date in the filing of all returns required by governmental authorities, including under corporate, securities and tax legislation. Neither the Corporation nor the Subsidiaries have received any notice of any proceedings to cancel their certificates of incorporation or otherwise to terminate their existence. 7. The Corporation has all licenses, permits, authorizations and other approvals and the proprietary rights provided in law to all patents, trademarks, copyrights, industrial designs, software, firmware, trade secrets, know-how, show-how, concepts, information and other intellectual and industrial property necessary to permit it to conduct its business. 8. The Transaction Documents and the agreements, certificates and instruments contemplated thereby to be delivered by the Corporation (collectively, the "Agreements") were executed on behalf of the Corporation by John Mackie, who holds the office of Vice-President, General Counsel and Secretary of the Corporation, on the date of execution and delivery of the Agreements. DATED the 28th day of August, 2002. _____________________________________ JOHN MACKIE VICE-PRESIDENT, GENERAL COUNSEL AND SECRETARY For Ministry Use Only Ontario Corporation Number A i'usage exclusif du ministere Numero de la societe en Ontario [OFFICIAL SEAL] 1217515 -------------------------------- Form 3 Business Corporations Act Formule 3 Loi sur les societes par actions ARTICLES OF AMENDMENT STATUTS DE MODIFICATION 1. The name of the corporation is: Denomination sociale de la societe: - -------------------------------------------------------------------------------- B I D. C O M I N T E R N A T I O N A L I N C. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2. The name of the corporation is Nouvelle denomination sociale de la changed to (if applicable): societe(s'il y a lieu): - -------------------------------------------------------------------------------- A D B S Y S T E M S I N T E R N A T I O N A L I N C. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 3. Date of incorporation/amalgamation: Date de la constitution ou de la fusion: 1997 01 09 - -------------------------------------------------------------------------------- (Year, Month, Day) (annee, mois, jour) 4. The articles of the corporation are Les statuts de la societe sont amended as follows: modifies de la facon suivante: To consolidate all of the common shares of the Corporation presently issued and outstanding on the basis of 1 consolidated common share for each 2 common shares presently outstanding with any fractional shares arising as a result of such consolidation being adjusted to the nearest whole share. To change the name of the Corporation to ADB Systems International Inc. 5. The amendment has been duly La modification a ete dument authorized as required by Sections autorisee contormement aux articles 168 & 17.0 (as applicable) of the 168 et 170 (selon le cas) de la Loi Business Corporations Act. sur les societes par actions. 6. The resolution authorizing the Les actionnaires ou les amendment was approved by the administrateurs (selon le cas) de shareholders/directors (as la societe ont approuve la applicable) of the corporation on resolution autorisant la modification le 2001 10 10 - -------------------------------------------------------------------------------- (Year, Month, Day) (annee, mois, jour) These articles are signed in Les presents status sont signes en duplicate. double exemplaire. Bid.Com International Inc. ------------------------------------ (Name of Corporation) (Denomination sociale de la societe) By:/Par: /s/ [ILLEGIBLE] Secretary -------------------------------------- (Signature) (Description of Office) (Signature) (Fonction) For Ministry Use Only Ontario Corporation Number A i'usage exclusif du ministere Numero de la societe en Ontario [OFFICIAL SEAL] 1217515 -------------------------------- Form 3 Business Corporations Act Formule 3 Loi sur les societes par actions ARTICLES OF AMENDMENT STATUTS DE MODIFICATION 1. The present name of the corporation Denomination sociale actuelle de la is: societe: - -------------------------------------------------------------------------------- B I D. C O M I N T E R N A T I O N A L I N C. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2. The name of the corporation is Nouvelle denomination sociale de la changed to (if applicable): societe(s'il y a lieu): - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 3. Date of incorporation/amalgamation: Date de la constitution ou de la fusion: 1997 Jan 9 - -------------------------------------------------------------------------------- (Year, Month, Day) (annee, mois, jour) 4. The articles of the corporation are Les statuts de la societe sont amended as follows: modifies de la facon suivante: By deleting from paragraph 8 of the articles of amalgamation of the Corporation, certified effective January 9, 1997, the First Series of Preference Shares designated as Series "A" 7% Cumulative Preference Shares. 5. The amendment has been duly La modification a ete dument authorized as required by Sections autorisee conformement aux articles 168 & 170 (as applicable) of the 168 et 170 (selon le cas) de la Loi Business Corporations Act. sur les societes par actions. 6. The resolution authorizing the Les actionnaires [?](selon le cas) amendment was approved by the de la societe ont approuve la shareholders/[?](as applicable) of the resolution autorisant la corporation on modification le 1999 Jun 7 ----------------------------------------------------------------------------- (Year, Month, Day) (annee, mois, jour) These articles are signed in Les presents statuts sont signes en duplicate. double exemplaire. BID.COM INTERNATIONAL INC. ------------------------------------ (Name of Corporation) (Denomination sociale de la societe) Assistant By/Par: /s/ [ILLEGIBLE] Secretary --------------------------------------- (Signature) (Description of Office) (Signature) (Fonction) For Ministry Use Only Ontario Corporation Number A i'usage exclusif du ministere Numero de la societe en Ontario [OFFICIAL SEAL] 1217515 -------------------------------- Form 3 Business Corporations Act Formule 3 Loi sur les societes par actions ARTICLES OF AMENDMENT STATUTS DE MODIFICATION 1. The present name of the corporation Denomination sociale actuelle de is: la societe: - -------------------------------------------------------------------------------- I N T E R N E T L I Q U I D A T O R S I N T E R N A T I O N A L I N C . - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2. The name of the corporation is Nouvelle denomination sociale de la changed to (if applicable): societe(s'il y a lieu): - -------------------------------------------------------------------------------- B I D. C O M I N T E R N A T I O N A L I N C. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 3. Date of incorporation/amalgamation: Date de la constitution ou de la fusion: 1997 Jan 9 - -------------------------------------------------------------------------------- (Year, Month, Day) (annee, mois, jour) 4. The articles of the corporation are Les statuts de la societe sont amended as follows: modifies de la facon suivante: To change the name of the Corporation to Bid.Com International Inc. To increase the allowable maximum number of directors from ten (10) to fifteen (15). 5. The amendment has been duly La modification a ete dument authorized as required by Sections autorisee conformement aux articles 168 and 170 (as applicable) of the 168 et 170 (selon le cas) de la Business Corporations Act. Loi sur les societes par actions. 6. The resolution authorizing the Les actionnaires[?](selon le cas) amendment was approved by the de la societe ont approuve la shareholders/[?](as applicable) of the resolution autorisant la corporation on modification le 1998 Jun 23 - -------------------------------------------------------------------------------- (Year, Month, Day) (annee, mois, jour) These articles are signed in Les presents statuts sont signes en duplicate. double exemplaire. INTERNET LIQUIDATORS INTERNATIONAL INC. ----------------------------------- (Name of Corporation) (Denomination sociale de la societe) By/Par: /s/ [ILLEGIBLE] Secretary --------------------------------------- (Signature) (Description of Office) (Signature) (Fonction) For Ministry Use Only Ontario Corporation Number A i'usage exclusif du ministere Numero de la societe en Ontario [OFFICIAL SEAL] 1217515 -------------------------------- Form 4 Business Corporations Act Formule 4 Loi sur les societes par actions ARTICLES OF AMALGAMATION STATUTS DE FUSION 1. The name of the amalgamated Denomination sociale de la societe corporation is: issue De la fusion: - -------------------------------------------------------------------------------- I N T E R N E T L I Q U I D A T O R S I N T E R N A T I O N A L I N C. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2. The address of the registered Address du siege social: office is: 5915 Airport Road, Suite 330 - -------------------------------------------------------------------------------- (Street & Number, or R.R. Number & if Multi-Office Building give Room No.) (Rue et numero, ou numero de la R.R. et, s'il s'agit d'un edifice a bureaux, numero ou bureau) Mississauga, Ontario L 4 V 1 T 1 - -------------------------------------------------------------------------------- (Name of Municipality or Post Office) (Postal Code) (Nom de la municipalite ou du bureau de poste) (Code Postal) 3. Number (or minimum and maximum Nombre (ou nombres minimal et number) of directors is: maximal) d'administrateurs: Minimum of 3; Maximum of 10 4. The director(s) is/are: Administrateur(s):
Resident Canadian Residence address, giving Street & No. or R.R. No., State municipality and postal code Yes or No Adresse personnelle. y compns la rue et le numero, le Resident First name. initials and surname numero de la R.R., le nom de la municipalite et le code Canadian Prenom, initiales et nom de famille postal Oui/Non - ------------------------------------------------------------------------------------------------------------------- Paul Godin 175 Lloyd's Lane, Box 133, R.R. #2, Kettleby, Ontario LOG 1J0 Yes Christopher Bulger 63 Bowmore Road, Toronto, Ontario M4L 3J1 Yes Duncan Copeland B62 Waterloo Street, London, Ontario N6A 3W6 Yes Jeffrey Lymburner 99 Lake Promenade, Etobicoke, Ontario M8W 1A2 Yes Frank Clegg 2365 Prince John Boulevard, Mississauga, Ontario L5K 2J2 Yes
5. (A) The amalgamation agreement has (A) Les administrateurs de chaque been duly adopted by [?] societe qui fusione ont [?] adopte shareholders of each of the la convention de fusion amalgamating corporations as conformement au paragraphe 176 (4) required by subsection 176 (4) de la Loi sur les societes par of the Business Corporations [ ] actions a la date Act on the date set out below. mentionnee ci-dessous. ----------------------------------------------------------------- Check Cocner A or B A ou B ----------------------------------------------------------------- (B) The amalgamation has been (B) Les administrateurs de chaque approved by the directors of [X] societe qui fusionne ont approuve each amalgamating corporation la fusion par vote de resolution by a resolution as required by conformement a l'article 177 de la section 177 of the Business sur les societes par actions a la Corporations Act on the date date mentionnee ci-dessous. set out below. The articles of amalgamation in Les status de fusion reprennent substance contain the provisions essentieliement les dispositions of the articles of incorporation des status constitutes de of INTERNET LIQUIDATORS INTERNATIONAL INC. - -------------------------------------------------------------------------------- and are more particularly set out in et sont enonces textuellement these articles. aux presents status.
Names of amalgamating corporations Ontario Corporation Number Denomination sociale des Numero de la societe en Date of Adoption/Approval societes qui fusionnent Ontario Date d'adoption ou d'approbation - ------------------------------------------------------------------------------------------------------------------- Internet Liquidators International Inc. 571083 November 25, 1996 Internet Liquidators Inc. 1145907 November 25, 1996
6. Restrictions if any, [?] business [?] the corporation may carry on or on [?] the corporation may exercise. None. 7. The classes and any maximum number Categories et nombre maximal, of shares that the corporation is s'ily a lieu, d'actions que la authorized to issue: socite est autonsee a emmettre: An unlimited number of common shares and an unlimited number of Preference Shares, issuable in series. 8. Rights, privileges [?] and [?] conditions (if any) attaching to [?] of shares and directors authority with [?] to any class of shares which is to be issued in series: See pages 4A to 4E. 4A (i) the preference shares may from time to time be issued in one or more series and subject to the following provisions, and subject to the sending of articles of amendment in prescribed form, and the endorsement on them of a certificate of amendment in respect of them, the directors may fix from time to time before such issue the number of shares that is to comprise each series and the designation, rights, privileges, restrictions and conditions attaching to each series of preference shares including, without limiting the generality of the foregoing, the rate or amount of dividends or the method of calculating dividends, the dates of payment, the redemption, purchase and/or conversion prices and terms and conditions of redemption, purchase and/or conversion, and any sinking fund or other provisions; (ii) the preference shares of each series shall, with respect to the payment of dividends and the distribution of assets or return of capital in the event of liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, or any other return of capital or distribution of the assets of the Corporation among its shareholders for the purpose of winding up its affairs, rank on a parity with the preference shares of every other series and be entitled to preference over the common shares and over any other shares of the Corporation ranking junior to the preference shares. The preference shares of any series may also be given such other preferences, not inconsistent with these articles, over the common shares and any other shares of the Corporation ranking junior to such preference shares as may be fixed in accordance with clause (b)(i); (iii) if any cumulative dividends or amounts payable on the return of capital in respect of a series of preference shares are not paid in full, all series of preference shares shall participate ratably in respect of such dividends and return of capital: (iv) the preference shares of any series may be voting shares, entitled to vote pari passu with the common shares at meetings of the common shareholders of the Corporation; and. (v) the preference shares of any series may be made convertible into common shares. First Series - Series "A" 7% Cumulative Preference Shares 1. creating an unlimited number of 7% cumulative preference shares with the following terms, rights, conditions and attributes: 4B (i) Liquidation, Dissolution or Winding-Up In the event of the liquidation, dissolution or winding-up of the Corporation or other distribution of assets of the Corporation among shareholders for the purpose of winding-up its affairs: (a) the holders of the 7% cumulative preference shares shall be entitled to receive from the assets of the Corporation a sum equivalent to the aggregate Redemption Amount (as hereinafter defined) of all of the shares held by them respectively before any amount shall be paid or any property or assets of the Corporation distributed to the holders of any common share or shares of any other class ranking junior to the shares. After payment to the holders of the shares of the amount so payable to them as above provided they shall not be entitled to share in any further distribution of the assets or property of the Corporation. The Redemption Amount is hereby defined as $ 10.00 per share and the aggregate Redemption Amount shall be $10.00 times the total amount of issued and outstanding 7% cumulative preference shares at such time as any one of the above defined events occurs. (ii) Voting Rights (a) the holders of the 7% cumulative preference shares shall not be entitled to receive notice of or to attend any meeting of the shareholders of the Corporation unless the meeting is called for the purpose of authorizing the dissolution of the Corporation or the sale of its undertaking or a substantial part thereof, in which case the holders of the 7% cumulative preference shares shall be entitled to receive notice of such meeting. The holders of the 7% cumulative preference shares shall not be entitled either to vote at any meeting of the shareholders of the Corporation or to sign a resolution in writing, except a meeting called to consider, or a resolution in writing in respect of, any amendment to these Articles in respect of which the holders of the 7% cumulative preference shares would be entitled to vote separately as a class pursuant to the Act. (iii) Dividends The holders of the 7% cumulative preference shares shall be entitled to receive out of the moneys of the Corporation, fixed, preferential, cumulative, cash dividends at the rate of $0.70 per share per annum payable quarterly on dates to be fixed from time to time by the directors; such dividends shall accrue and be cumulative from the respective dates of issue of the 7% cumulative preference shares if the Corporation shall not have paid the said dividends in full on all of the 7% cumulative preference shares then issued and outstanding, such dividends on the unpaid amount thereof shall be paid on a subsequent date or dates in priority to dividends on any convertible preference shares and any 4C shares of any other class ranking junior to the 7% cumulative preference shares; no dividend shall be declared or paid or set apart for the 7% cumulative preference shares and any shares of any other class ranking junior to the 7% cumulative preference shares then issued and outstanding until such dividends or the unpaid par thereof on all 7% cumulative preference shares then issued and outstanding shall have been declared or paid or provided for at the date of such declaration on payment or setting apart. (iv) Redemption at the Option of the Holder (a) A holder of 7% cumulative preference shares shall be entitled to require the Corporation to redeem at any time and from time to time upon giving notice as hereinafter provided, all or any number of the 7% cumulative preference shares registered in the name of such holder on the books of the Corporation at a redemption price per share of $10.00 and all unpaid cumulative dividends, whether or not declared, which shall have accrued thereon and which, for such purpose, shall be treated as accruing up to the date of such redemption (less the amount of any tax which the Corporation is required to and does withhold therefrom). (b) A holder of 7% cumulative preference shares exercising his option to have the Corporation redeem, shall give notice to the Corporation which notice shall set out the date on which the Corporation is to redeem which date shall not be less than 10 days nor more than 30 days from the ate of the notice and if the holder desires to have less than all the 7% cumulative preference shares registered in his name redeemed by the Corporation, the number of the holder's shares to be redeemed. The date on which the redemption at the option of the holder is to occur shall be the option redemption date. The holder of any 7% cumulative preference shares may, with the consent of the Corporation, revoke such notice prior to the option redemption date. (c) Upon delivery to the Corporation of a share certificate or certificates representing the 7% cumulative preference shares which the holder desires to have the Corporation redeem, the Corporation shall on the option redemption date, to the extent permitted by applicable law, redeem such 7% cumulative preference shares by paying to the holder the redemption price therefor. (d) Upon payment of the redemption price of the 7% cumulative preference shares so redeemed by the Corporation, the holder thereof shall cease to be entitled to dividends or to exercise any rights of holders in respect thereof. (e) If the redemption by the Corporation on any option redemption date of all 7% cumulative preference shares to be redeemed on such date would be contrary to applicable law, the Corporation shall be obligated to redeem only the maximum number of 7% cumulative preference shares (rounded to the next 4D lower multiple of 100 shares) which the Corporation determines it is then permitted to redeem, such redemptions to be made pro rata (disregarding fractions of shares) according to the number of 7% cumulative preference shares required by each such holder to be redeemed by the Corporation and the Corporation shall issue new certificates representing the 7% cumulative preference shares not redeemed by the Corporation and the Corporation shall redeem in the manner contemplated by paragraph (iv) on each dividend date thereafter the maximum number of such 7% cumulative preference shares as would then be not contrary to applicable law. (v) Redemption at the Option of the Corporation (a) The Corporation may at its option at any time from the date of issue redeem all or from time to time any pan of the outstanding 7% cumulative preference shares on payment to the holders thereof, for each share to be redeemed, an amount equal to $10.00 and all unpaid cumulative dividends, whether or not declared, which shall have accrued thereon and which, for such purpose, shall be treated as accruing up to the date of such redemption (less the amount of any tax which the Corporation is required to and does withhold tax therefrom). (b) Before redeeming any 7% cumulative preference shares the Corporation shall mail to each person who, at the date of such mailing, is a registered holder of shares to be redeemed, notice of the intention of the Corporation to redeem such shares held by such registered holder; such notice shall be mailed by ordinary prepaid post addressed to the last address of such holder as it appears on the records of the Corporation or, in the event of the address of any such holder not appearing on the record of the Corporation, then to the last known address of such holder, at least 30 days before the date specified for redemption; such notice shall set out the redemption price, the date on which redemption is to take place and, if par only of the shares held by the person to whom it is addressed is to be redeemed, the number thereof so to be redeemed; on or after the date so specified for redemption the Corporation shall pay or cause to be paid the redemption price to the registered holders of the shares to be redeemed, on presentation and surrender of the certificates for the shares so called for redemption at such place or places as may be specified in such notice, and the certificates for such shares shall thereupon be cancelled, and the shares represented thereby shall thereupon be redeemed. In case a part only of the outstanding 7% cumulative preference shares is at any time to be redeemed, the shares to be redeemed shall be selected, at the option of the directors, either by lot in such manner as the directors in their sole discretion shall determine or as nearly as may be pro rata (disregarding fractions) according to the number of 7% cumulative preference shares held by each holder. In case a part only of the 7% cumulative preference shares represented by any certificate shall be redeemed, a new certificate for the balance shall be 4E issued at the expense of the Corporation. From and after the date specified for redemption in such notice, the holders of the shares called for redemption shall cease to be entitled to dividends and shall not be entitled to any rights in respect thereof, except to receive the redemption price, unless payment of the redemption price shall not be made by the Corporation in accordance with the foregoing provisions, in which case the rights of the holders of such shares shall remain unimpaired. On or before the date specified for redemption the Corporation shall have the right to deposit the redemption price of the shares called for redemption in a preference account with any chartered bank or trust company in Canada named in the notice of redemption to be paid without interest, to or to the order of the respective holders of such shares called for redemption upon presentation and surrender of the certificates representing the same and, upon such deposit being made, the shares in respect whereof such deposit shall have been made shall be redeemed and the rights of the several holders thereof, after such deposit, shall be limited to receiving, out of the moneys so deposited, without interest, the redemption price applicable to their respective shares against presentation and surrender of the certificates representing such shares. 9. The issue, transfe, ownership of L'emisson, ie unstert ou is propnete shares is/is not restricted and c acdons esur es: pas restro [?] the instructions (if any) are as follows: No shareholder shall be entitled to sell, assign, transfer or otherwise dispose of any Preference Share or Shares without both: (a) the previous express sanction of the directors of the Corporation expressed by a resolution passed at a meeting of the Board of Directors of the Corporation or consented to by an instrument or instruments in writing signed by a majority of the directors; and (b) the prior written consent of the Ontario Securities Commission. 10. Other provisions, if any, are: Autres dispositions, s'il y a lieu: None. 11. The statements required by Les declarations exigees aux subsection 178(2) of the Business termes du paragraphs 178(2) de la Corporations Act are attached as Loi sur les societes par actions Schedule "A". constituent I'annexe "A". 12. A copy of the amalgamation Une copie de la convention de agreement or directors resolutions fusion our les resolutions des (as the case may be) is/are administrateurs (selon le cas) attached as Schedule "B". constitue(nt) I'annexe "B". [?] [?] Names of the amalgamating Denomination sociate des societes corporations and signatures and qui fusionnent signature at descriptions at office of their function de leurs dingeants proper officers requirement designes. INTERNET LIQUIDATORS INTERNATIONAL INC. INTERNET LIQUIDATORS INC. Per: /s/ Paul Godin Per: /s/ Paul Godin ---------------------- ---------------------- Paul Godin - President Paul Godin - President SCHEDULE "A" STATEMENT IN THE MATTER OF THE AMALGAMATION OF INTERNET LIQUIDATORS INTERNATIONAL INC. AND INTERNET LIQUIDATORS INC. The undersigned, PAUL GODIN, the President of INTERNET LIQUIDATORS INTERNATIONAL INC. states that: 1. there are reasonable grounds for believing that: (a) each of Internet Liquidators International In. and Internet Liquidators Inc. is and the amalgamated corporation will be able to pay its liabilities as they become due, and (b) the realizable value of the amalgamated corporation's assets will not be less than the aggregate of its liabilities and stated capital of all classes of its shares; 2. there are reasonable grounds for believing that no creditor will be prejudiced by the amalgamation; and 3. with respect to paragraphs 178 (2) (c) and (d) of the Business Corporations Act, 1990, no creditors have notified Internet Liquidators International Inc. that they object to the present amalgamation. DATED the 7th day of January, 1997. /s/ Paul Godin ------------------- Paul Godin SCHEDULE "A" STATEMENT IN THE MATTER OF THE AMALGAMATION OF INTERNET LIQUIDATORS INC. AND INTERNET LIQUIDATORS INTERNATIONAL INC. The undersigned, PAUL GODIN, the President of INTERNET LIQUIDATORS INC. states that: 1. there are reasonable grounds for believing that: (a) each of Internet Liquidators Inc. and Internet Liquidators International Inc., is and the amalgamated corporation will be able to pay its liabilities as they become due, and (b) the realizable value of the amalgamated corporation's assets will not be less than the aggregate of its liabilities and stated capital of all classes of its shares; 2. there are reasonable grounds for believing that no creditor will be prejudiced by the amalgamation; and 3. with respect to paragraphs 178 (2) (c) and (d) of the Business Corporations Act, 1990, no creditors have notified Internet Liquidators Inc. that they object to the present amalgamation. DATED the 7th day of January, 1997. /s/ Paul Godin ------------------- Paul Godin SCHEDULE "B" CERTIFIED COPY OF AN EXTRACT FROM THE MINUTES OF A MEETING OF THE BOARD OF DIRECTORS OF INTERNET LIQUIDATORS INTERNATIONAL INC. (the "Corporation") "Amalgamation with Internet Liquidators Inc. WHEREAS the Corporation wholly owns and has decided to amalgamate with Internet Liquidators Inc. pursuant to subsection (1) of Section 177 of the Business Corporations Act (Ontario); IT IS RESOLVED THAT: 1. The amalgamation of the Corporation and Internet Liquidators Inc. under the Business Corporations Act (Ontario), pursuant to subsection (1) of Section 177 thereof is approved; 2. The amalgamation shall become effective as of the opening of business on the date on which the Director, Companies Branch, endorses his certificate on the Articles of Amalgamation. 3. Upon the issuance of a Certificate of Amalgamation pursuant to Section 178 of the Business Corporations Act (Ontario), all shares in the capital of Internet Liquidators Inc., including all shares which have been issued and are outstanding at the date hereof, shall be cancelled on the amalgamation without any repayment of capital in respect thereof; 4. Upon the issuance of a Certificate of Amalgamation pursuant to Section 178 of the Business Corporations Act (Ontario), all shares in the capital of the Corporation, including all shares which have been issued and are outstanding at the date hereof, be and the same are hereby converted on a one-for-one basis into shares of the amalgamated corporation; 5. The Articles of Amalgamation of the amalgamated corporation shall be the same as the Articles of Incorporation, as amended, of the Corporation; 6. The by-laws of the amalgamated corporation shall be the same as the by-laws of the Corporation; 7. No securities shall be issued and no assets shall be distributed by the Amalgamated Corporation in connection with the amalgamation; and - 2 - 8. Any officer or director of the Corporation is authorized to do all things and execute all instruments and documents necessary or desirable to carry out and give effect to the foregoing." CERTIFIED a true copy of a resolution passed at a Meeting of the Board of Directors of INTERNET LIQUIDATORS INTERNATIONAL INC. held on the 25th day of November, 1996 and that such resolution is still in full force and effect, unamended. /s/ Paul Godin -------------------------- Paul Godin - President SCHEDULE "B" CERTIFIED COPY OF AN EXTRACT FROM THE MINUTES OF A MEETING OF THE BOARD OF DIRECTORS OF INTERNET LIQUIDATORS INC. (the "Corporation") "Amalgamation With Internet Liquidators International Inc. WHEREAS the Corporation is a wholly-owned subsidiary of and has decided to amalgamate with Internet Liquidators International Inc. pursuant to subsection (1) of Section 177 of the Business Corporations Act (Ontario); IT IS RESOLVED THAT: 1. The amalgamation of the Corporation and Internet Liquidators International Inc. under the Business Corporations Act (Ontario), pursuant to subsection (1) of Section 177 thereof is approved; 2. The amalgamation shall become effective as of the opening of business on the date on which the Director, Companies Branch, endorses his certificate on the Articles of Amalgamation. 3. Upon the issuance of a Certificate of Amalgamation pursuant to Section 178 of the Business Corporations Act (Ontario), all shares in the capital of the Corporation, including all shares which have been issued and are outstanding at the date hereof, shall be cancelled on the amalgamation without any repayment of capital in respect thereof; 4. The Articles of Amalgamation of the amalgamated corporation shall be the same as the Articles of Incorporation of Internet Liquidators International Inc., as amended; 5. The by-laws of the amalgamated corporation shall be the same as the by-laws of Internet Liquidators International Inc.; 6. No securities shall be issued and no assets shall be distributed by the amalgamated corporation in connection with the amalgamation; and 7. Any officer or director of the Corporation is authorized to do all things and execute all instruments and documents necessary or desirable to carry out and give effect to the foregoing." - 2 - CERTIFIED a true copy of a resolution passed at a Meeting of the Board of Directors of INTERNET LIQUIDATORS INC. held on the 25th day of November, 1996 and that such resolution is still in full force and effect, unamended, /s/ Paul Godin ---------------------------- Paul Godin - President BY-LAW NO. 5 A by-law relating generally to the transaction of the business and affairs of INTERNET LIQUIDATORS INTERNATIONAL INC. ARTICLE 1. DEFINITIONS (a) DEFINITIONS - In this by-law and in all other by-laws of the Corporation unless the context otherwise requires: (i) "Act" means the Business Corporations Act (Ontario) R.S.O. 1990 c.B. 17. as from time to time amended, and a reference to a particular provision or part of the Act shall be deemed to be a reference to such provision or part as the same may thereafter from time to time be amended or supplemented; (ii) "Board" means the board of directors of the Corporation; and (iii) "Corporation" means Internet Liquidators International Inc. (b) EXPRESSIONS DEFINED IN ACT - Save as aforesaid, words and expressions defined in the Act have the same meanings when used herein. (c) INTERPRETATION - Words importing the singular number include the plural and vice versa; words importing gender include the masculine, feminine and neuter genders; and words importing persons include individuals, bodies corporate, partnerships, trust and unincorporated organizations. ARTICLE 2. BOARD NUMBER Where the Articles of the Corporation provide for a minimum and maximum number of directors, the number of directors and the number to be elected at the annual meeting shall be the number fixed by special resolution of the shareholders or by resolution of the directors from time to time. ARTICLE 3. BUSINESS OF THE CORPORATION (a) REGISTERED OFFICE - Until changed in accordance with the Act, the registered office of the Corporation shall be at the City of Mississauga in the Province of Ontario and at such location therein as the Board may from time to time determine. (b) FINANCIAL YEAR - Until changed by the Board, the financial year of the Corporation shall end on the 30th day of November in each year. ARTICLE 4. MEETINGS OF SHAREHOLDERS (a) ANNUAL MEETINGS - The annual meeting of shareholders shall be held at such time in each year and, subject to section 4(c), at such place as the Board, the Chairman of the Board or the President may from time to time determine, for the purpose of considering the financial statements and reports required by the Act to be placed before the annual - 2 - meeting, electing directors, appointing auditors and for the transaction of such other business as may properly be brought before the meeting. (b) SPECIAL MEETINGS - The Board, the Chairman of the Board or the President shall have power to call a special meeting of shareholders at any time. (c) PLACE OF MEETINGS - Meetings of shareholders shall be held at the registered office of the Corporation or at such other place in or outside Ontario as the directors determine. (d) NOTICE OF MEETINGS - Notice of the time and place of each meeting of shareholders shall be given in the manner provided in section 6(a) not less than 21 nor more than 50 days before the date of the meeting to each director, to the auditor and to each shareholder who at the close of business on the record date for notice is entered in the securities register as the holder of one or more shares carrying the right to vote at the meeting. Notice of a meeting of shareholders called for any purpose other than consideration of the financial statements and auditor's report, election of directors and reappointment of the incumbent auditor shall state the nature of such business in sufficient detail to permit the shareholders to form a reasoned judgment thereon and shall state the text of any special resolution to be submitted to the meeting. A shareholder and any other person entitled to attend a meeting of shareholders may in any manner waive notice of or otherwise consent to a meeting of shareholders. (e) LIST OF SHAREHOLDERS ENTITLED TO NOTICE - For every meeting of shareholders, the Corporation shall prepare a list of shareholders entitled to receive notice of the meeting, arranged in alphabetical order and showing the number of shares entitled to vote at the meeting held by each shareholder. If a record date for the meeting is fixed pursuant to section 4(f), the shareholders listed shall be those registered at the close of business on such record date. If no record date is fixed, the shareholders listed shall be those registered at the close of business on the day immediately preceding the day on which notice of the meeting is given, or where no such notice is given, on the day on which the meeting is held. The list shall be available for examination by any shareholder during usual business hours at the registered office of the Corporation or at the place where the securities register is maintained and at the meeting for which the list was prepared. Where a separate list of shareholders has not been prepared, the names of persons appearing in the securities register at the requisite time as the holder of one or more shares carrying the right to vote at such meeting shall be deemed to be a list of shareholders. (f) RECORD DATE FOR NOTICE - The Board may fix in advance a date, preceding the date of any meeting of shareholders by not more than 50 days and not less than 35 days, as a record date for the determination of the shareholders entitled to notice of the meeting. If a record date is fixed, unless notice thereof is waived in writing by every holder of a share of the class or series affected whose name is set out in the share register at the close of business on the day the directors fix the record date, notice thereof shall, not less than seven days before the date so fixed, be given in the manner provided in the Act. If no record date is so fixed, the record date for the determination of the shareholders entitled to notice of the meeting shall be the close of business on the day immediately preceding the day on which the notice is given or if no notice is given, the day on which the meeting is held. (g) MEETINGS WITHOUT NOTICE - A meeting of shareholders may be held without notice at any time and place permitted by the Act: (i) if all the shareholders entitled to vote thereat are present in person or represented by proxy or if those not present or represented by proxy waive notice of or otherwise consent to such meeting being held; and (ii) if the auditors and the directors are present or waive notice of or otherwise consent to such meeting being held. At such a meeting any business may be transacted which the Corporation at a meeting of shareholders may transact. If the meeting is held at a place outside Canada, shareholders not present or represented by proxy, but who have waived - 3 - notice of or otherwise consented to such meeting, shall also be deemed to have consented to the meeting being held at such place. (h) CHAIRMAN, SECRETARY AND SCRUTINEERS - The chairman of any meeting of shareholders shall be the first mentioned of such of the following officers as have been appointed and who is present at the meeting: Chairman of the Board, President or a Vice-President who is a director. If no such officer is present within 15 minutes from the time fixed for holding the meeting, the persons present and entitled to vote shall choose one of their members to be chairman. If the Secretary of the Corporation is absent, the chairman shall appoint some person, who need not be a shareholder, to act as secretary of the meeting. If desired, one or more scrutineers, who need not be shareholders, may be appointed by a resolution or by the chairman with the consent of the meeting. (i) PERSONS ENTITLED TO BE PRESENT - The only persons entitled to be present at a meeting of shareholders shall be those entitled to vote thereat, the directors and auditors of the Corporation and others who, although not entitled to vote, are entitled or required under any provision of the Act or the articles or by-laws to be present at the meeting. Any other person may be admitted only on the invitation of the chairman of the meeting or with the consent of the meeting. (j) QUORUM - A quorum for the transaction of business at any meeting of shareholders shall be the lesser of the number of shareholders or two persons present in person, each being a shareholder or representative duly authorized in accordance with the Act entitled to vote thereat or a duly appointed proxy for a shareholder so entitled (and together holding or representing by proxy not less than 20% of the outstanding shares of the Corporation entitled to vote at the meeting). If a quorum is present at the opening of the meeting, the shareholders present in person or by proxy may proceed with the business of the meeting even if a quorum is not present throughout the meeting. (k) RIGHT TO VOTE - Subject to the provisions of the Act as to authorized representatives of any other body corporate, at any meeting of shareholders in respect of which the Corporation has prepared the list referred to in section 4(e), every person who is named in such list shall be entitled to vote the shares shown thereon opposite his name, except: (i) where the Corporation has fixed a record date in respect of such meeting pursuant to section 4(f), to the extent that any such person has transferred any of his shares after such record date and the transferee either produces properly endorsed share certificates or otherwise established that he owns such shares and demands, on or before the commencement of the meeting, that his name be included in the list before the meeting; or (ii) where the Corporation has not fixed a record date in respect of such meeting pursuant to section 4(f), to the extent that any such person has transferred any of his shares after the date on which the list referred to in section 4(e) is prepared and the transferee, either produces properly endorsed share certificates or otherwise establishes that he owns such shares and demands, on or before the commencement of the meeting, that his name be included in the list before the meeting, in either of which cases the transferee is entitled to vote his shares at the meeting. In the absence of a list prepared as aforesaid in respect of a meeting of shareholders, every person shall be entitled to vote at the meeting whose name appears in the securities register as the holder of one or more shares carrying the right to vote at such meeting. (l) PROXIES - Every shareholder entitled to vote at a meeting of shareholders may appoint a proxyholder, or one or more alternate proxyholders, who need not be shareholders, to attend and act at the meeting in the manner and to the extent authorized and with the authority conferred by the proxy. A proxy shall be in writing executed by the shareholder or his attorney and shall conform with the requirements of the Act. (m) TIME FOR DEPOSIT OF PROXIES - The Board may specify in a notice calling a meeting of shareholders a time, preceding the time of such meeting by not more than 48 hours exclusive of non-business days, before which time - 4 - proxies to be used at such meeting must be deposited. A proxy shall be acted upon only if, prior to the time so specified, it shall have been deposited with the Corporation or an agent thereof specified in such notice or, if no such time is specified in such notice, unless it has been received by the Secretary of the Corporation or by the chairman of the meeting or any adjournment thereof prior to the time of voting. (n) JOINT SHAREHOLDERS - If two or more persons hold shares jointly, any one of them present in person or represented by proxy at a meeting of shareholders may, in the absence of the other or others, vote the shares; but if two or more of those persons are present in person or represented by proxy and vote, they shall vote as one on the shares jointly held by them. (o) VOTES TO GOVERN - At any meeting of shareholders every question shall, unless otherwise required by the articles or by-laws or by law, be determined by the majority of the votes cast on the question. In case of an equality of votes either upon a show of hands or upon a poll, the chairman of the meeting shall be entitled to a second or casting vote. (p) SHOW OF HANDS - Subject to the provisions of the Act, any question at a meeting of shareholders shall be decided by a show of hands unless a ballot thereon is required or demanded as hereinafter provided. Upon a show of hands every person who is present and entitled to vote shall have one vote. Whenever a vote by show of hands shall have been taken upon a question, unless a ballot thereon is so required or demanded, a declaration by the chairman of the meeting that the vote upon the question has been carried or carried by a particular majority or not carried and an entry to that effect in the minutes of the meeting shall be prima fncie evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against any resolution or other proceeding in respect of the said question, and the result of the vote so taken shall be the decision of the shareholders upon the said question. (q) BALLOTS - On any question proposed for consideration at a meeting of shareholders, and whether or not a show of hands has been taken thereon, any shareholder or proxyholder entitled to vote at the meeting may require or demand a ballot. A ballot so required or demanded shall be taken in such manner as the chairman shall direct. A requirement or demand for a ballot may be withdrawn at any time prior to the taking of the ballot. If a ballot is taken each person present shall be entitled, in respect of the shares which he is entitled to vote at the meeting upon the question, to that number of votes provided by the Act or the articles, and the result of the ballot so taken shall be the decision of the shareholders upon the said question. (r) ADJOURNMENT - If a quorum is not present at or within 15 minutes from the opening of a meeting of shareholders, the shareholders present may adjourn the meeting to a fixed time and place but may not transact any other business. If a meeting of shareholders is adjourned for less than 30 days. It shall not be necessary to give notice of the adjourned meeting, other than by announcement at the earliest meeting that is adjourned. If a meeting of shareholders is adjourned by one or more adjournments for an aggregate of 30 days or more, notice of the adjourned meeting shall be given as for an original meeting. (s) RESOLUTION IN WRITING - Subject to the Act, a resolution in writing signed by all the shareholders entitled to vote on that resolution at a meeting of shareholders is as valid as if it has been passed at a meeting of the shareholders. (t ) ONLY ONE SHAREHOLDER - Where the Corporation has only one shareholder or only one holder of any class or series of shares, the shareholder present in person or by proxy constitutes a meeting. - 5 - ARTICLE 5. MEETINGS OF DIRECTORS (a) FIRST MEETING - Immediately after the annual meeting of shareholders in each year, a meeting of such of the newly elected directors as are then present may be held (provided that they shall constitute a quorum) without notice, for the appointment of officers of the Corporation and the transaction of such other business as may come before the meeting. (b) NOTICE - Subject to the foregoing and to the provisions of any resolution of the Board, meetings of the Board may be called at any time by the Chairman of the Board, the President or any two directors and notice of the time and place for holding any meeting of the Board shall be given at least forty-eight hours prior to the time fixed for the meeting. Any meeting so called may be held at the registered office of the Corporation or such other place as the Board may determine in or outside Ontario. (c) ABBREVIATED NOTICE - In any case when it is considered by the Chairman of the Board or the President in his discretion to be a matter of urgency that a directors' meeting be convened, he may give notice of a meeting of directors by telegraph or telephone not less than one hour before such meeting is to be held and such notice shall be adequate for the meeting so convened. (d) QUORUM - The quorum for the transaction of business of any meeting of the Board shall be a majority of the number of directors or minimum number of directors, as the case may be. (e) CHAIRMAN - The chairman of any meeting of the Board shall be the first mentioned of such of the following officers as have been appointed and who is a director and is present at the meeting: Chairman of the Board, President or Vice-President. If all such officers be absent or unable or refuse or fail to act, the directors present may choose a chairman from among their number. The chairman at any meeting may vote as a director. (f) VOTES TO GOVERN - At all meetings of the Board every question shall be decided by a majority of the votes cast on the question. In the case of an equality of votes the chairman of the meeting shall be entitled to a second or casting vote. ARTICLE 6. NOTICES (a) METHOD OF GIVING NOTICE - Any notice (which term includes any communication or document) to be given (which term includes sent, delivered or served) pursuant to the Act, the regulations thereunder, the articles, the by-laws or otherwise to a shareholder, director, officer, auditor or member of a committee of the Board shall be sufficiently given if delivered personally to the person to whom it is to be given or if delivered to his recorded address or if mailed to him at his recorded address by prepaid ordinary or air mail or if sent to him at his recorded address by any means of prepaid transmitted or recorded communication. A notice so delivered shall be deemed to have been given when it is delivered personally or to the recorded address as aforesaid; a notice so mailed shall be deemed to have been given when deposited in a post office or public letter box; and a notice so sent by any means of transmitted or recorded communication shall be deemed to have been given when dispatched or delivered to the appropriate communication company or agency or its representative for dispatch. The Secretary may change or cause to be changed the recorded address of any shareholders, director, officer, auditor or member of a committee of the Board in accordance with any information believed by him to be reliable. (b) NOTICE TO JOINT SHAREHOLDER - If two or more persons are registered as joint holders of any share, any notice shall be addressed to all of such joint holders but notice to one of such persons shall be sufficient notice to all of them. (c) COMPUTATION OF TIME - In computing the date when notice must be given under any provision requiring a specified number of days' notice of any meeting or other event, the date of sending the notice shall be included and the date of the meeting or other event shall both be excluded. - 6 - (d) UNDELIVERED NOTICES - If any notice given to a shareholder pursuant to section 4(a) is returned on three consecutive occasions because he cannot be found, the Corporation shall not be required to give any further notices to such shareholder until he informs the Corporation in writing of his new address. (e) OMISSIONS AND ERRORS - The accidental omission to give any notice to any shareholder, director, officer, auditor or member of a committee of the Board or the non-receipt of any notice by any such person or any error in any notice not affecting the substance thereof shall not invalidate any action taken at any meeting held pursuant to such notice or otherwise founded thereon. (f) PERSONS ENTITLED BY DEATH OR OPERATION OF LAW - Every person who, by operation of law, transfer, death of a shareholder or any other means whatsoever, shall become entitled to any share, shall be bound by every notice in respect of such share which shall have been duly given to the shareholder from whom he derives his title to such share prior to his name and address being entered on the securities register (whether such notice was given before or after the happening of the event upon which he became so entitled) and prior to his furnishing to the Corporation the proof of authority or evidence of his entitlement prescribed by the Act. (g) WAIVER OF NOTICE - Any shareholder (or his duly appointed proxyholder), director, officer, auditor or member of a committee of the Board may at any time waive the sending of any notice or waive or abridge the time for any notice, required to be given to him under any provision of the Act, the regulations thereunder, the articles, the by-laws or otherwise and such waiver or abridgement shall cure any default in the giving or in the time of such notice, as the case may be. Any such waiver or abridgement shall be in writing except a waiver of notice of a meeting of shareholders or of the Board which may be given in any manner. ARTICLE 7. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Corporation shall indemnify a director or officer of the Corporation, a former director or officer of the Corporation, or a person who acts or acted at the Corporation's request as a director or officer of a body corporate of which the Corporation is or was a shareholder or creditor, and his heirs and legal representatives, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he or she is made a party by reason of being or having been a director or officer of the Corporation or body corporate, if: (a) he or she acted honestly and in good faith with a view to the best interests of the Corporation, and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he or she had reasonable grounds for believing that his or her conduct was lawful. ARTICLE 8. EFFECTIVE DATE This by-law shall come into force and effect when enacted by the Board, subject to the Act, whereupon this by-law shall repeal and replace By-law Number 1 of the Corporation, without prejudice to any action previously taken pursuant to such by-law. Enacted by the Board the 16th day of September, 1996. /s/ [ILLEGIBLE] --------------------------- Secretary [?] SCHEDULE"B" TO THE OPINION OF GOWLING LAFLEUR HENDERSON LLP DATED AUGUST 28, 2002 OFFICER'S CERTIFICATE ADB SYSTEMS INTERNATIONAL LTD. TO: GOWLING LAFLEUR HENDERSON LLP RE: Certificate in connection with opinion delivered on closing of a Loan Transaction and Plan of Arrangement THE UNDERSIGNED, Secretary of ADB Systems International Ltd. (the "Corporation") hereby certifies on behalf of the Corporation and not in a personal capacity as follows: 1. I have read and am familiar with a Loan Agreement among The Brick Warehouse Corporation, ADB Systems International Inc. and the Corporation made as of August 23, 2002 and the Schedules thereto (the "Loan Agreement"). All terms used herein and not otherwise defined herein and which are defined in the Loan Agreement shall have the meanings ascribed to them therein, unless the context otherwise requires. 2. I have made or caused to be made such examinations and investigations as are, in my opinion, necessary to make the statements contained herein and I have furnished this certificate with the intention that it may be relied upon by Gowling Lafleur Henderson LLP ("Cowlings") in connection with the opinion to be given by Gowlings to the parties named in such opinion. I acknowledge that the matters set forth herein are being relied upon by Gowlings, without independent investigation, in connection with its opinion. 3. The minute books and corporate records of the Corporation made available to you are the original minute books and records of the Corporation and contain the minutes, or certified copies thereof, of all proceedings of the shareholders, directors and committees of the board of directors of the Corporation as of the date hereof and, subject as aforesaid and herein otherwise provided, there have been no other meetings, resolutions or proceedings of the shareholders, of the board of directors or of committees of the board of directors of the Corporation to the date hereof not reflected in such minute books and corporate records. Such minute books and records are true, correct and complete in all material respects and since being made available as aforesaid there have been no changes, additions or alterations thereto. The articles and by-laws of the Corporation attached hereto as Appendix "A" are certified to be true and complete copies of such documents and are in full force and effect, unamended as of the date hereof. - 2 - 4. The Corporation is a corporation amalgamated under the laws of Ontario and has not been dissolved. 5. The Corporation is not insolvent. No acts or proceedings have been taken by the Corporation, its directors or shareholders for, and no notice has been received in respect of, the liquidation, dissolution, winding-up, insolvency, bankruptcy, amalgamation, reorganization or continuation of the Corporation and no such proceedings are pending, in the process or contemplated by have been commenced or are being contemplated by such corporations, its directors or shareholders or, to my knowledge, have been commenced or are being contemplated by any other party. 6. At the date hereof, the Corporation is up-to-date in the filing of all returns required by governmental authorities, including under corporate, securities and tax legislation. Neither the Corporation nor the Subsidiaries have received any notice of any proceedings to cancel their certificates of incorporation or otherwise to terminate their existence. 7. The Corporation has all licenses, permits, authorizations and other approvals and the proprietary rights provided in law to all patents, trademarks, copyrights, industrial designs, software, firmware, trade secrets, know-how, show-how, concepts, information and other intellectual and industrial property necessary to permit it to conduct its business. 8. The Transaction Documents and the agreements, certificates and instruments contemplated thereby to be delivered by the Corporation (collectively, the "Agreements") were executed on behalf of the Corporation by John Mackie, who holds the office of Secretary of the Corporation, on the date of execution and delivery of the Agreements. DATED the 28th day of August, 2002. ________________________ JOHN MACKIE SECRETARY For Ministry Use Only Ontario Corporation Number A i'usage exclusif du ministere Numero de la compagnie en Ontario [OFFICIAL SEAL] 1539169 --------------------------------- Form 1 Business Corporation Act Formule 1 numero 1 Loi sur les compagnies ARTICLES OF INCORPORATION STATUS CONSTITUTIFS 1. The name of the corporation is: Denomination sociale de la compagnie: - -------------------------------------------------------------------------------- A D B S Y S T E M S I N T E R N A T I O N A L L T D. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2. The address of the registered Adresse du siege social: office is: 6725 Airport Road, Suite 201 - -------------------------------------------------------------------------------- (Street & Number, or R.R. Number & if Multi-Office Building give Room No.) (Rue et numero, ou numero de la R.R. et s'il s'agit edifice a bureaux, numero du bureau) MISSISSAUGA. ONTARIO L 4 V 1 V 2 - -------------------------------------------------------------------------------- (Name of Municipality or Post Office) (Postal Code/ Code postal) (Nom de la municipalite ou du bureau de poste) 3. Number (or minimum and maximum Nombre (ou nombres minimal et maximal) number) of directors is: d'administrateurs: A minimum of 3 and a maximum of 15. 4. The first director(s) is/are: Premier(s) administrateur(s):
Address for service, giving Street & Resident No. or R.R. No., Municipality and Canadian Postal Code State First name, initials Domicile elu. y compris Yes or No and surname Prenom, la rue et le numero, le numero de la Resident initiales et nom de R.R. ou le nom de la municipalite et le Canadien famille code postal Oui/Non - -------------------------------------------------------------------------------------------------- John Mackie 6725 Airport Road. Suite 201. Mississauga. Ontario. Canada. L4V 1V2 Yes Jeffrey Lymburner 1335 Fallsmere Street. Oldsmar. Florida. United States. 34677 No Mark Wallace 17 Elmsthorpe Avenue. Toronto. Ontario. Canada. M5P 2L5 Yes
2 5. Restrictions, if any, on business Limites. s'il y a lieu, imposees the corporation may carry on or on aux activites commerciales ou aux powers the corporation may pouvoirs de la compagnie. exercise. None. 6. The classes and any maximum number Categories et nombre maximal, of shares that the corporation is s'il y a lieu, d'actions que la authorized to issue: compagnie est autorisee a emettre: The Corporation is authorized to issue an unlimited number of common shares and an unlimited number of preference shares, issuable in series. 3 7. Rights, privileges, restrictions Droits, privileges, restrictions et and conditions (if any) attaching conditions s'il y a lieu, rattaches to each class of shares and a chaque categorie d'actions et directors authority with respect pouvoirs des administrateurs to any class of shares which may relatifs a chaque categorie be issued in series: d'actions qui peut etre emise en serie: See attached page 3A. 3A PREFERENCE SHARES 1. PRIVILEGES OF PREFERENCE SHARES. The preference shares, shall have attached to them, as a class, the rights, privileges, restrictions and conditions as hereinafter set forth. (a) the preference shares may from time to time be issued in one or more series and subject to the following provisions, and subject to the sending of articles of amendment in prescribed form, and the endorsement on them of a certificate of amendment in respect of them, the directors may fix from time to time before such issue the number of shares that is to comprise each series and the designation, rights, privileges, restrictions and conditions attaching to each series of preference shares including, without limiting the generality of the foregoing, the rate or amount of dividends or the method of calculating dividends, the dates of payment, the redemption, purchase and/or conversion prices and terms and conditions of redemption, purchase and/or conversion, and any sinking fund or other provisions: (b) the preference shares of each series shall, with respect to the payment of dividends and the distribution of assets or return of capital in the event of liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, or any other return of capital or distribution of the assets of the Corporation among its shareholders for the purpose of winding up its affairs, rank on a parity with the preference shares of every other series and be entitled to preference over the common shares and over any other shares of the Corporation ranking junior to the preference shares. The preference shares of any series may also be given such other preferences, not inconsistent with these articles, over the common shares and any other shares of the Corporation ranking junior to such preference shares as may be fixed in accordance with clause (1)(a): (c) if any cumulative dividends or amounts payable on the return of capital in respect of a series of preference shares are not paid in full, all series of preference shares shall participate ratably in respect of such dividends and return of capital: (d) the preference shares of any series may be voting shares, entitled to vote pari passu with the common shares at meetings of the common shareholders of the Corporation: and, (e) the preference shares of any series may be made convertible into common shares. 4 8. The issue, transfer or ownership L'emission, le transfert ou la of shares is/is not restricted and propriete d'actions est/n'est pas the restrictions (if any) are as restreinte. Les restrictions, follows: s'il y a lieu sont les suivantes: None. 5 9. Other provisions, if any, are: Autres dispositions, s'il y a lieu: None. 6 10. The names and addresses of the Full address for service or address incorporators are Nom et adresse of registered office or of des fondateurs principal place of business giving First name,initials and last name or street & No. or R.R. No., corporate name Prenom, initiale et municipality and postal code nom de famille ou denomination Domicile elu, adresse du siege sociale social ou adresse de l'etablissement principal, y compris la rue et le numero, le numero de la R.R., le nom de la municipalite et le code postal John Mackie 6725 Airport Road, Suite 201, Mississauga, Ontario, L4V 1V2 These articles are signed in Les presents statuts sont signes en duplicate. double exemplaire. ________________________________________________________________________________ Signatures of incorporators / signatures des fondateurs /s/ John Mackie - ---------------------- John Mackie BY-LAW NO. 1 A BY-LAW RELATING GENERALLY TO THE TRANSACTION OF THE BUSINESS AND AFFAIRS OF ADB SYSTEMS INTERNATIONAL LTD. ARTICLE 1 DEFINITIONS SECTION 1.1 DEFINITIONS In this by-law and in all other by-laws of the Corporation unless the context otherwise requires: (a) "Act" means the Business Corporations Act (Ontario) R.S.O. 1990 c.B.17, as from time to time amended, and a reference to a particular provision or part of the Act shall be deemed to be a reference to such provision or part as the same may thereafter from time to time be amended or supplemented; (b) "Board" means the board of directors of the Corporation; and (c) "Corporation" means ADB Systems International Ltd. SECTION 1.2 EXPRESSIONS DEFINED IN ACT Save as aforesaid, words and expressions defined in the Act have the same meanings when used herein. SECTION 1.3 INTERPRETATION Words importing the singular number include the plural and vice versa; words importing gender include the masculine, feminine and neuter genders; and words importing persons include individuals, bodies corporate, partnerships, trust and unincorporated organizations. ARTICLE 2 BOARD NUMBER Where the Articles of the Corporation provide for a minimum and maximum number of directors, the number of directors and the number to be elected at the annual meeting shall be the number fixed by special resolution of the shareholders or by resolution of the directors from time to time. - 2 - ARTICLE 3 BUSINESS OF THE CORPORATION SECTION 3.1 REGISTERED OFFICE Until changed in accordance with the Act, the registered office of the Corporation shall be at the City of Mississauga in the Province of Ontario and at such location therein as the Board may from time to time determine. SECTION 3.2 FINANCIAL YEAR Until changed by the Board, the financial year of the Corporation shall end on the 30th day of November in each year. ARTICLE 4 MEETINGS OF SHAREHOLDERS SECTION 4.1 ANNUAL MEETINGS The annual meeting of shareholders shall be held at such time in each year and, subject to Section 4.3, at such place as the Board, the Chairman of the Board or the President may from time to time determine, for the purpose of considering the financial statements and reports required by the Act to be placed before the annual meeting, electing directors, appointing auditors and for the transaction of such other business as may properly be brought before the meeting. SECTION 4.2 SPECIAL MEETINGS The Board, the Chairman of the Board or the President shall have power to call a special meeting of shareholders at any time. SECTION 4.3 PLACE OF MEETINGS Meetings of shareholders shall be held at the registered office of the Corporation or at such other place in or outside Ontario as the directors determine. SECTION 4.4 NOTICE OF MEETINGS Notice of the time and place of each meeting of shareholders shall be given in the manner provided in Section 6.1 not less than 21 nor more than 50 days before the date of the meeting to each director, to the auditor and to each shareholder who at the close of business on the record date for notice is entered in the securities register as the holder of one or more shares carrying the right to vote at the meeting. Notice of a meeting of shareholders called for any purpose other than consideration of the financial statements and auditor's report, election of directors and reappointment of the incumbent auditor shall state the nature of such business in sufficient detail to permit the shareholders to form a reasoned judgment thereon and shall state - 3 - the text of any special resolution to be submitted to the meeting. A shareholder and any other person entitled to attend a meeting of shareholders may in any manner waive notice of or otherwise consent to a meeting of shareholders. SECTION 4.5 LIST OF SHAREHOLDERS ENTITLED TO NOTICE For every meeting of shareholders, the Corporation shall prepare a list of shareholders entitled to receive notice of the meeting, arranged in alphabetical order and showing the number of shares entitled to vote at the meeting held by each shareholder. If a record date for the meeting is fixed pursuant to Section 4.6, the shareholders listed shall be those registered at the close of business on such record date. If no record date is fixed, the shareholders listed shall be those registered at the close of business on the day immediately preceding the day on which notice of the meeting is given, or where no such notice is given, on the day on which the meeting is held. The list shall be available for examination by any shareholder during usual business hours at the registered office of the Corporation or at the place where the securities register is maintained and at the meeting for which the list was prepared. Where a separate list of shareholders has not been prepared, the names of persons appearing in the securities register at the requisite time as the holder of one or more shares carrying the right to vote at such meeting shall be deemed to be a list of shareholders. SECTION 4.6 RECORD DATE FOR NOTICE The Board may fix in advance a date, preceding the date of any meeting of shareholders by not more than 50 days and not less that 35 days, as a record date for the determination of the shareholders entitled to notice of the meeting. If a record date is fixed, unless notice thereof is waived in writing by every holder of a share of the class or series affected whose name is set out in the share register at the close of business on the day the directors fix the record date, notice thereof shall, not less than seven days before the date so fixed, be given in the manner provided in the Act. If no record date is so fixed, the record date for the determination of the shareholders entitled to notice of the meeting shall be the close of business on the day immediately preceding the day on which the notice is given or if no notice is given, the day on which the meeting is held. SECTION 4.7 MEETINGS WITHOUT NOTICE A meeting of shareholders may be held without notice at any time and place permitted by the Act: (a) if all the shareholders entitled to vote thereat are present in person or represented by proxy or if those not present or represented by proxy waive notice of or otherwise consent to such meeting being held; and (b) if the auditors and the directors are present or waive notice of or otherwise consent to such meeting being held. - 4 - At such a meeting any business may be transacted which the Corporation at a meeting of shareholders may transact. If the meeting is held at a place outside Canada, shareholders not present or represented by proxy, but who have waived notice of or otherwise consented to such meeting, shall also be deemed to have consented to the meeting being held at such place. SECTION 4.8 CHAIRMAN, SECRETARY AND SCRUTINEERS The chairman of any meeting of shareholders shall be the first mentioned of such of the following officers as have been appointed and who is present at the meeting: Chairman of the Board, President or a Vice-President who is a director. If no such officer is present within 15 minutes from the time fixed for holding the meeting, the persons present and entitled to vote shall choose one of their members to be chairman. If the Secretary of the Corporation is absent, the chairman shall appoint some person, who need not be a shareholder, to act as secretary of the meeting. If desired, one or more scrutineers, who need not be shareholders, may be appointed by a resolution or by the chairman with the consent of the meeting. SECTION 4.9 PERSONS ENTITLED TO BE PRESENT The only persons entitled to be present at a meeting of shareholders shall be those entitled to vote thereat, the directors and auditors of the Corporation and others who, although not entitled to vote, are entitled or required under any provision of the Act or the articles or by-laws to be present at the meeting. Any other person may be admitted only on the invitation of the chairman of the meeting or with the consent of the meeting. SECTION 4.10 QUORUM A quorum for the transaction of business at any meeting of shareholders shall be the lesser of the number of shareholders or two persons present in person, each being a shareholder or representative duly authorized in accordance with the Act entitled to vote thereat or a duly appointed proxy for a shareholder so entitled (and together holding or representing by proxy not less than 20% of the outstanding shares of the Corporation entitled to vote at the meeting). If a quorum is present at the opening of the meeting, the shareholders present in person or by proxy may proceed with the business of the meeting even if a quorum is not present throughout the meeting. SECTION 4.11 RIGHT TO VOTE Subject to the provisions of the Act as to authorized representatives of any other body corporate, at any meeting of shareholders in respect of which the Corporation has prepared the list referred to in Section 4.5, every person who is named in such list shall be entitled to vote the shares shown thereon opposite his name, except: (a) where the Corporation has fixed a record date in respect of such meeting pursuant to Section 4.6, to the extent that any such person has transferred any of his shares after such record date and the transferee either produces properly endorsed share - 5 - certificates or otherwise established that he owns such shares and demands, on or before the commencement of the meeting, that his name be included in the list before the meeting; or (b) where the Corporation has not fixed a record date in respect of such meeting pursuant to Section 4.6, to the extent that any such person has transferred any of his shares after the date on which the list referred to in Section 4.5 is prepared and the transferee either produces properly endorsed share certificates or otherwise establishes that he owns such shares and demands, on or before the commencement of the meeting, that his name be included in the list before the meeting, in either of which cases the transferee is entitled to vote his shares at the meeting. In the absence of a list prepared as aforesaid in respect of a meeting of shareholders, every person shall be entitled to vote at the meeting whose name appears in the securities register as the holder of one or more shares carrying the right to vote at such meeting. SECTION 4.12 PROXIES Every shareholder entitled to vote at a meeting of shareholders may appoint a proxyholder, or one or more alternate proxyholders, who need not be shareholders, to attend and act at the meeting in the manner and to the extent authorized and with the authority conferred by the proxy. A proxy shall be in writing executed by the shareholder or his attorney and shall conform with the requirements of the Act. SECTION 4.13 TIME FOR DEPOSIT OF PROXIES The Board may specify in a notice calling a meeting of shareholders a time, preceding the time of such meeting by not more than 48 hours exclusive of non-business days, before which time proxies to be used at such meeting must be deposited. A proxy shall be acted upon only if, prior to the time so specified, it shall have been deposited with the Corporation or an agent thereof specified in such notice or, if no such time is specified in such notice, unless it has been received by the Secretary of the Corporation or by the chairman of the meeting or any adjournment thereof prior to the time of voting. SECTION 4.14 JOINT SHAREHOLDERS If two or more persons hold shares jointly, any one of them present in person or represented by proxy at a meeting of shareholders may, in the absence of the other or others, vote the shares: but if two or more of those persons are present in person or represented by proxy and vote, they shall vote as one on the shares jointly held by them. SECTION 4.15 VOTES TO GOVERN At any meeting of shareholders every question shall, unless otherwise required by the articles or by-laws or by law, be determined by the majority of the votes cast on the question. - 6 - In case of an equality of votes either upon a show of hands or upon a poll, the chairman of the meeting shall be entitled to a second or casting vote. SECTION 4.16 SHOW OF HANDS Subject to the provisions of the Act, any question at a meeting of shareholders shall be decided by a show of hands unless a ballot thereon is required or demanded as hereinafter provided. Upon a show of hands every person who is present and entitled to vote shall have one vote. Whenever a vote by show of hands shall have been taken upon a question, unless a ballot thereon is so required or demanded, a declaration by the chairman of the meeting that the vote upon the question has been carried or carried by a particular majority or not carried and an entry to that effect in the minutes of the meeting shall be prima facie evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against any resolution or other proceeding in respect of the said question, and the result of the vote so taken shall be the decision of the shareholders upon the said question. SECTION 4.17 BALLOTS On any question proposed for consideration at a meeting of shareholders, and whether or not a show of hands has been taken thereon, any shareholder or proxyholder entitled to vote at the meeting may require or demand a ballot. A ballot so required or demanded shall be taken in such manner as the chairman shall direct. A requirement or demand for a ballot may be withdrawn at any time prior to the taking of the ballot. If a ballot is taken each person present shall be entitled, in respect of the shares which he is entitled to vote at the meeting upon the question, to that number of votes provided by the Act or the articles, and the result of the ballot so taken shall be the decision of the shareholders upon the said question. SECTION 4.18 ADJOURNMENT If a quorum is not present at or within 15 minutes from the opening of a meeting of shareholders, the shareholders present may adjourn the meeting to a fixed time and place but may not transact any other business. If a meeting of shareholders is adjourned for less than 30 days, it shall not be necessary to give notice of the adjourned meeting, other than by announcement at the earliest meeting that is adjourned. If a meeting of shareholders is adjourned by one or more adjournments for an aggregate of 30 days or more, notice of the adjourned meeting shall be given as for an original meeting. SECTION 4.19 RESOLUTION IN WRITING Subject to the Act, a resolution in writing signed by all the shareholders entitled to vote on that resolution at a meeting of shareholders is as valid as if it has been passed at a meeting of the shareholders. - 7 - SECTION 4.20 ONLY ONE SHAREHOLDER Where the Corporation has only one shareholder or only one holder of any class or series of shares, the shareholder present in person or by proxy constitutes a meeting. ARTICLE 5 MEETINGS OF DIRECTORS SECTION 5.1 FIRST MEETING Immediately after the annual meeting of shareholders in each year, a meeting of such of the newly elected directors as are then present may be held (provided that they shall constitute a quorum) without notice, for the appointment of officers of the Corporation and the transaction of such other business as may come before the meeting. SECTION 5.2 NOTICE Subject to the foregoing and to the provisions of any resolution of the Board, meetings of the Board may be called at any time by the Chairman of the Board, the President or any two directors and notice of the time and place for holding any meeting of the Board shall be given at least forty-eight hours prior to the time fixed for the meeting. Any meeting so called may be held at the registered office of the Corporation or such other place as the Board may determine in or outside Ontario. SECTION 5.3 ABBREVIATED NOTICE In any case when it is considered by the Chairman of the Board or the President in his discretion to be a matter of urgency that a directors' meeting be convened, he may give notice of a meeting of directors by telegraph or telephone not less than one hour before such meeting is to be held and such notice shall be adequate for the meeting so convened. SECTION 5.4 QUORUM The quorum for the transaction of business of any meeting of the Board shall be a majority of the number of directors or minimum number of directors, as the case may be. SECTION 5.5 CHAIRMAN The chairman of any meeting of the Board shall be the first mentioned of such of the following officers as have been appointed and who is a director and is present at the meeting: Chairman of the Board, President or Vice-President. If all such officers be absent or unable or refuse or fail to act, the directors present may choose a chairman from among their number. The chairman at any meeting may vote as a director. - 8 - SECTION 5.6 VOTES TO GOVERN At all meetings of the Board every question shall be decided by a majority of the votes cast on the question. In the case of an equality of votes the chairman of the meeting shall be entitled to a second or casting vote. ARTICLE 6 NOTICES SECTION 6.1 METHOD OF GIVING NOTICE Any notice (which term includes any communication or document) to be given (which term includes sent, delivered or served) pursuant to the Act, the regulations thereunder, the articles, the by-laws or otherwise to a shareholder, director, officer, auditor or member of a committee of the Board shall be sufficiently given if delivered personally to the person to whom it is to be given or if delivered to his recorded address or if mailed to him at his recorded address by prepaid ordinary or air mail or if sent to him at his recorded address by any means of prepaid transmitted or recorded communication. A notice so delivered shall be deemed to have been given when it is delivered personally or to the recorded address as aforesaid; a notice so mailed shall be deemed to have been given when deposited in a post office or public letter box; and a notice so sent by any means of transmitted or recorded communication shall be deemed to have been given when dispatched or delivered to the appropriate communication company or agency or its representative for dispatch. The Secretary may change or cause to be changed the recorded address of any shareholder, director, officer, auditor or member of a committee of the Board in accordance with any information believed by him to be reliable. SECTION 6.2 NOTICE TO JOINT SHAREHOLDER If two or more persons are registered as joint holders of any share, any notice shall be addressed to all of such joint holders but notice to one of such persons shall be sufficient notice to all of them. SECTION 6.3 COMPUTATION OF TIME In computing the date when notice must be given under any provision requiring a specified number of days' notice of any meeting or other event, the date of sending the notice shall be included and the date of the meeting or other event shall both be excluded. SECTION 6.4 UNDELIVERED NOTICES If any notice given to a shareholder pursuant to Section 4.1 is returned on three consecutive occasions because he cannot be found, the Corporation shall not be required to give any further notices to such shareholder until he informs the Corporation in writing of his new address. - 9 - SECTION 6.5 OMISSIONS AND ERRORS The accidental omission to give any notice to any shareholder, director, officer, auditor or member of a committee of the Board or the non-receipt of any notice by any such person or any error in any notice not affecting the substance thereof shall not invalidate any action taken at any meeting held pursuant to such notice or otherwise founded thereon. SECTION 6.6 PERSONS ENTITLED BY DEATH OR OPERATION OF LAW Every person who, by operation of law, transfer, death of a shareholder or any other means whatsoever, shall become entitled to any share, shall be bound by every notice in respect of such share which shall have been duly given to the shareholder from whom he derives his title to such share prior to his name and address being entered on the securities register (whether such notice was given before or after the happening of the event upon which be became so entitled) and prior to his furnishing to the Corporation the proof of authority or evidence of his entitlement prescribed by the Act. SECTION 6.7 WAIVER OF NOTICE Any shareholder (or his duly appointed proxyholder), director, officer, auditor or member of a committee of the Board may at any time waive the sending of any notice or waive or abridge the time for any notice, required to be given to him under any provision of the Act, the regulations thereunder, the articles, the by-laws or otherwise and such waiver or abridgement shall cure any default in the giving or in the time of such notice, as the case may be. Any such waiver or abridgement shall be in writing except a waiver of notice of a meeting of shareholders or of the Board which may be given in any manner. ARTICLE 7 INDEMNIFICATION OF DIRECTORS AND OFFICERS The Corporation shall indemnify a director or officer of the Corporation, a former director or officer of the Corporation, or a person who acts or acted at the Corporation's request as a director or officer of a body corporate of which the Corporation is or was a shareholder or creditor, and his heirs and legal representatives, against all costs, charges and expenses, including any amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he or she is made a party by reason of being or having been a director or officer of the Corporation or body corporate, if, (a) he or she acted honestly and in good faith with a view to the best interests of the Corporation; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he or she had reasonable grounds for believing that his or her conduct was lawful. - 10 - ARTICLE 8 EFFECTIVE DATE This by-law shall come into force and effect when enacted by the Board, subject to the Act. Enacted by the Board the 20th day of August, 2002. /s/ JOHN MACKIE ----------------------- JOHN MACKIE SECRETARY SCHEDULE 3.2(e) [LETTERHEAD OF ADB SYSTEMS INTERNATIONAL INC.] - -, 2002 - - [ADDRESS] Dear -: RE: -[REFERENCE AGREEMENT OR RELATIONSHIP] We refer to the - [NAME OF AGREEMENT] (the "Agreement") dated - between - ("-") and ADB Systems International Inc. ("Old ADB") in connection with - [DESCRIBE NATURE OF AGREEMENT]. [AS PART OF A PROPOSED TRANSACTION AND A RELATED RESTRUCTURING OF OUR COMPANY], we are transferring all of our business and operations relating to the agreement to a new entity, ADB Systems International Ltd. ("New ADB"). Following the restructuring, New ADB will be the parent of Old ADB with no change of control of either company [DESCRIBE NATURE AND MERITS OF NEW ADB (i.e., NEW ABD) WILL CONTINUE TO PROVIDE THE SERVICE THAT YOU COME TO EXPECT FROM OLD ADB]. In connection with this transfer, all of our rights under the Agreement will be assigned to [OR HAVE BEEN ASSIGNED] New ADB effective November 30, 2002, and New ADB will assume all of our obligations and liabilities under the Agreement and will perform them in substitution for ADB as if New ADB were the original party to the Agreement. Would you kindly indicate your concurrence to the assignment and assumption of the Agreement by signing and returning a copy of this letter. [NEW ADB LOOKS FORWARD TO CONTINUED SUCCESS IN PROVIDING SERVICE AND SUPPORT TO -]. Yours truly, ADB SYSTEMS INTERNATIONAL INC. By: _______________________________ - [NAME] - [TITLE] Acknowledged and confirmed, ADB SYSTEMS INTERNATIONAL LTD. By: _______________________________ - [NAME] - [TITLE] Acknowledged and agreed as of ________________________________, 2002. [-] By: ______________________________________ Name: Title: SCHEDULE 5.3(1) SUBSIDIARIES
- ----------------------------------------------------------------------------------------------------------------- SUBSIDIARY AUTHORIZED AND ISSUED CAPITAL PARENT - ----------------------------------------------------------------------------------------------------------------- ADB Systemer AS Authorized and Issued - 12,732,000 ADB Systems International Inc. shares (1) - ----------------------------------------------------------------------------------------------------------------- ADB Systems International Authorized and Issued - 50,000 ADB Systems International Inc. Limited ordinary shares at(pound)1.00 each - ----------------------------------------------------------------------------------------------------------------- ADB Systems Limited Wholly-owned ADB Systemer AS - ----------------------------------------------------------------------------------------------------------------- Bid.Com (U.K.) Limited Authorized and Issued - 1,000 ordinary ADB Systems International Limited shares at(pound)0.10 each - ----------------------------------------------------------------------------------------------------------------- ADB Systems, Inc. Wholly-owned ADB Systemer AS - ----------------------------------------------------------------------------------------------------------------- Bid.Com USA, Inc. Authorized - 10,000 shares having a ADB Systems International Inc. par value of $ 1 .00 each Issued- 100 shares - ----------------------------------------------------------------------------------------------------------------- Bid.Com International Pty. Ltd. Authorized - 100 ordinary shares ADB Systems International Inc. Issued - 100 ordinary shares - ----------------------------------------------------------------------------------------------------------------- Internet Liquidators USA, Inc Authorized - 500 shares having a par ADB Systems International Inc. value of $0.10 each Issued - 100 shares - ----------------------------------------------------------------------------------------------------------------- 1345746 Ontario Limited Authorized - unlimited common shares ADB Systems International Inc. Issued - 100 common shares - -----------------------------------------------------------------------------------------------------------------
(1) ADB holds 12,648,429 shares. The remaining 83,571 shares, or 0.7% of the shares issued are held by third parties) SCHEDULE 5.3(2) SHARES, ETC, OWNED BY ADB ENTITIES
- ------------------------------------------------------------------------------------------ INVESTEE COMPANY NATURE OF INVESTMENT - ------------------------------------------------------------------------------------------ Megawheels Technologies Inc. 1,038,200 shares - ------------------------------------------------------------------------------------------ SCS Solars Computing Services Inc. 10,000 shares - ------------------------------------------------------------------------------------------ EssentiaLink LLC 200,000 shares of common stock - ------------------------------------------------------------------------------------------ Buzzgolf, Art Vault, GSO Solutions All now defunct - ------------------------------------------------------------------------------------------
This listing does not reference Subsidiaries. SCHEDULE 5.3(4) LIABILITY OF ADB ENTITIES The ability of ADB and its Subsidiaries to satisfy their liabilities as they become due is subject to receipt of the funds to be advanced hereunder and pursuant to the Subordinated Notes (the "New Funds"). It is unlikely that ADB will be able to raise funds from borrowing or the sale of securities in the foreseeable future, given the current state of its business and of the financial markets. Consequently ADB must finance its ongoing operations from cash on hand, the New Funds and revenue from operations. All Subsidiaries are dependent on ADB for their operating funds. SCHEDULE 5.4 (2) OPTIONS, WARRANTS, SHAREHOLDER AGREEMENTS, ETC. 1. All options of Old ADB presently outstanding pursuant to the 1999 Stock Option Plan of Old ADB, as amended. 2. 512,500 warrants issued by Old ADB and held by GE Capital, having an exercise price of $15.80. 3. 1,050,000 warrants issued by Old ADB and held by StoneStreet LP and StoneStreet Corporation, having an exercise price of US $0.35. 4. 607,600 warrants issued by Old ADB in exchange for warrants of ADB Systemer ASA, having an exercise price of NOK 2 (approximately $0.36). 5. The Board Representation Agreement dated as of September 7, 2001 between Old ADB, LimeRock Partners LLC, Jan Pedersen, Sandnes Investering, Rogaland Investering, AIG Private Bank Ltd. and Karstein Gjersvik. 6. Convertible Notes and related documentation. SCHEDULE 5.6 REQUIRED CONSENTS OR APPROVALS In accordance with the Loan Agreement, consents are to be provided in respect of the transfer of all Contracts. SCHEDULE 5.10 EMPLOYMENT AND CONSULTING CONTRACTS
FIRST LAST TITLE SALARY REDUCED HIRE DATE NORTH AMERICA Jeff Lymburner CEO 300,000 150,000 01-Jan-96 Mark Wallace President 250,000 200,000 5/17/1999 Jim Moskos President, NA BU 250,000 200,000 9/1/1997 John Mackie VP Gen. Counsel 170,000 11/15/1999 Joseph Fanutti Director of Finance 105,000 5/1/2000 Paul Agius Graphic Artist 54,000 6/15/1999 Faisal Karoji Programmer 45,000 5/20/2002 Vera Boatwalla Tech. Support 42,000 4/20/1998 Paul Christilaw Director, Sales Cons. 132,250 3/27/2000 Steve Cimicata Director, Bus. Dev. 84,500 12/0199 Don Clearwater Project Manager 105,000 9/18/2000 Shibin Gao Senior Developer 92,000 3/19/2001 Amy Goldsmith Tech. Writer 49,000 9/18/2000 Jeffrey Grigat Programmer 59,000 1/16/1999 Trish Imlay Reception, Tampa 20,088 01-Jan-98 Shilei Jiang Systems Eng. 55,000 11/27/2000 Joseph Maben Junior Accountant 42,500 7/6/1998 Craig Martin Production Coord 37,800 6/14/1999 Ken Martin Programmer 45,500 9/5/2000 Shane Nadeau Programmer 80,000 7/5/1999 Aman Nathani Systems Mgr. 71,000 7/1/1998 Joseph Racanelli Director of Marketing 105,500 4/3/2000 David Rouse Programmer 49,000 9/5/2000 Nile Said Content Manager 50,000 2/9/1996 Christine Clarke Director, Sales 120,000 4/18/2001 Daniel Sommer Programmer 51,744 6/28/1999 Kent Trainor Corp. Acctg and Reporting Manager 70,000 12/7/2000 Brian Wilton Director, Sales 130,000 07-Jan-02 IRE/UK (Note 7) Aidan Rowsome VP Global Sales 191,000 162,500 01-Jan-99 John Higgins Sales Director 154,000 131,000 01-Jan-00 Carol Hughes Office Manager 51,000 43,660 17-May-00 Brendan Kelly Directors, Sales Cons 115,000 99,500 01-Jan-00 John Lynch Sr. Project Manager 97,000 84,000 20-Feb-01 Hazen McDonald Sales Consultant 105,000 88,700 01-Jan-01 David Rimer Sales Consultant 105,000 88,700 01-Sep-01 Brendan Slein Sales Director 133,000 113,000 06-Jan-00 NORWAY (Note 7) Jan Edvin Pedersen President, Norway 253,328 195,000 01-Jan-89 Kjell Sigve Tveit Manager Prod Gp 158,740 01-Oct-96
Nils Fetter Ottesen System Architect 160,544 01-Jan-98 Inger-Helen Aanestad Account Mgr 61,331 01-Mar-98 Angela Albertsen Programmer 63,135 17-Feb-98 Kjell Are Berg-Hagen Marketing 96,507 01-Aug-98 Oystein Birkeland WM Coordinator 89,471 01-Feb-91 Ole Johnny Bjoroy Integration 65,841 10-Jun-96 Sven Brenna Database 97,408 2-Jul-96 Gro Karin Bo Support 55,018 01-Jan-99 Trond Dahl Programmer 61,331 29-Jun-98 Kirsten Dalaker Support 52,312 1-Apr-00 Torleif Donnestad Programmer 68,547 15-Nov-94 Kjell Are Eriksen Systems Cons 92,899 01-Oct-97 Unn Fuglseth Integration 73,056 01-May-97 Svein Gunnar Heng Implementation 81,174 01-Jun-93 Kato Indrevoll Database 65,841 26-Oct-98 Magne Johannessen Data Conversion 88,389 1-Sep-00 Morten Johnsen Product Innovator 93,801 17-Jun-96 Inut Klette Systems Cons 71,252 01-Jul-99 Marianne Loining Admin Asst 45,097 01-Apr-97 Ivar Olsen Systems Cons 91,997 01-Jan-99 Gro Solstad Office Mgr 70,351 16-Jan-96 Stig Sundsli Account Mgr 61,331 01-Apr-99 Jon Georg Sundsvoll Manager Imp & Supp 95,605 12-Jul-93 Jorund Saeverud Tech/Data Supp 51,410 01-Jul-98 Per Ove Sondena Programmer 93,801 01-May-92 Leiv Vatle Sales - O&G/Pub 76,664 25-Nov-00 Erik Wang Sales - Pub Sector 76,664 25-May-99
Notes: 1. All employees are subject to an employment contract with the local corporate entity. 2. There are no employees on leave of absence. 3. All salary reductions noted are for the 2002 year only, and are reductions of salary (not deferrals). Severance obligations are not affected by reductions. 4. Fixed severance entitlements are set out in the employment contracts for Jeff Lymburner, Mark Wallace, Jan Pedersen, Paul Christilaw and the Ireland/UK employees (in the latter case, one month each except Aidan Rowsome, which is not fixed). 5. Specific reference to car allowances and benefit details have not been included but are referenced in the individual contracts. 6. Bonus plan details are agreed upon annually with sales reps (typically 4-9% of cash collections on contracts). The management team bonus plan is determined by the Board. 7. Numbers vary depending on exchange rate in effect. SCHEDULE 5.11 LIST OF BROKERS OR ADVISORS ACTING FOR OLD ADB OR AFFILIATES RE: TRANSACTIONS KPMG have been retained pursuant to an engagement letter executed November 27, 2001 pursuant to which they shall earn a fee in connection with this transaction. Advisory fees payable in respect of the Convertible Note funding are detailed in the documentation relating to same. Old ADB retains Tim Richardson in an Investor Relations advisory role. Mr. Richardson's mandate has included identifying funding partners, including StoneStreet. Mr. Richardson is paid a monthly retainer. SCHEDULE 5.4 (1) SHARE CONDITIONS, ETC. OF OLD ADB 4A (i) the preference shares may from time to time be issued in one or more series and subject to the following provisions, and subject to the sending of articles of amendment in prescribed form, and the endorsement on them of a certificate of amendment in respect of them, the directors may fix from time to time before such issue the number of shares that is to comprise each series and the designation, rights, privileges, restrictions and conditions attaching to each series of preference shares including, without limiting the generality of the foregoing, the rate or amount of dividends or the method of calculating dividends, the dates of payment, the redemption, purchase and/or conversion prices and terms and conditions of redemption, purchase and/or conversion, and any sinking fund or other provisions; (ii) the preference shares of each series shall, with respect to the payment of dividends and the distribution of assets or return of capital in the event of liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, or any other return of capital or distribution of the assets of the Corporation among its shareholders for the purpose of winding up its affairs, rank on a parity with the preference shares of every other series and be entitled to preference over the common shares and over any other shares of the Corporation ranking junior to the preference shares. The preference shares of any series may also be given such other preferences, not inconsistent with these articles, over the common shares and any other shares of the Corporation ranking junior to such preference shares as may be fixed in accordance with clause (b)(i); (iii) if any cumulative dividends or amounts payable on the return of capital in respect of a series of preference shares are not paid in full, all series of preference shares shall participate ratably in respect of such dividends and return of capital; (iv) the preference shares of any series may be voting shares, entitled to vote pari passu with the common shares at meetings of the common shareholders of the Corporation; and, (v) the preference shares of any series may be made convertible into common shares. SCHEDULE 5.12 FINANCIAL STATEMENTS SCHEDULE 5.13 LIABILITIES SINCE LAST BALANCE SHEET DATE 1. Liabilities arising by virtue of the Transaction Documents or the Convertible Notes. 2. Trade Payables as reflected in trade payable lists provided to the Lender. SCHEDULE 5.15 INTELLECTUAL PROPERTY ADB Systems International has established Intellectual Property and Intellectual Property Rights through its software development activities and creation of on-line transaction processes. OVERVIEW OF SOFTWARE PRODUCTS ADB Systems has developed an integrated series of software applications designed for asset lifecycle management. These software applications include: - Dyn@mic Buyer, an on-line solution that helps organizations automate their tendering activities (e.g. reverse auctions, request for quotations/proposals) and reduce procurement costs. - ProcureMate, a web-based solution that allows organization to streamline the purchasing of maintenance, repairs and operating (MRO) supplies while reducing procurement costs. - WorkMate, a comprehensive enterprise asset management solution that allows organizations to automate and integrate maintenance management, materials management and procurement activities. - Dyn@mic Seller, a web-based sales solution that enables organizations to manage inventory and reduce surplus through the use of on-line auctions. OVERVIEW OF PATENTS AND ON-LINE TRANSACTION PROCESS ADB has also registered a number of patents, (issued and pending), with U.S. Patent Office relating to its on-line transaction processes. These patents include: - Real-time Dutch Auction, an on-line process that enables organizations to sell individual products on-line in real-time using declining price auction formats DYN@MIC BUYER - OVERVIEW Dyn@mic Buyer is a web-based solution that supports multiple sourcing formats and enables buyers to automate their sourcing activities. Dyn@mic Buyer significantly reduces the time needed to create, manage, complete, and analyze sourcing events. Using a simple-to-use interface, procurement managers can easily create tenders - - or re-use existing templates - that assign values to purchasing criteria such as price, product availability, post-sales support, or compliance with certification standards. Once buyers initiate a request for quotation or reverse auction event, Dyn@mic Buyer automatically notifies qualified suppliers and provides them with the opportunity to respond. After supplier responses are submitted, Dyn@mic Buyer automatically assigns values to bids based on criteria pre-determined by procurement managers, and ranks suppliers based on responses. Purchasing managers can then select the supplier that provides the greatest value - lowest price, fastest delivery schedule, best after-sales support or a combination of all parameters. DYN@MIC BUYER CAPABILITIES AND BENEFITS Dyn@mic Buyer delivers a series of business and technical benefits that result in: - Streamlined procurement processes - By automating interactions with suppliers and ensuring that RFXs can be re-used for future use, Dyn@mic Buyer accelerates purchasing cycles by as much as 50 percent. - Improved purchasing decisions - Dyn@mic Buyer provides advanced reporting capabilities that help purchasing managers analyze all aspects of their sourcing activities and facilitate supplier selection. - Reduced purchasing costs - Using Dyn@mic Buyer's reverse auction capabilities, procurement managers can realize up to 20 percent savings on their purchasing expenses. - Reduced IT investments - ADB Systems delivers Dyn@mic Buyer through an ASP or hosted model, resulting in no additional investments in IT infrastructure. - Increased value from suppliers - By allowing suppliers to compete on a variety of factors, purchasing managers can select suppliers based on the over-all value they provide. - Improved relations with suppliers - Since Dyn@mic Buyer allows suppliers to compete on factors beyond lowest price, suppliers are not threatened by the erosion of margins. - Easy integration with existing information systems - By leveraging XML standards, Dyn@mic Buyer enables complete integration with existing Enterprise Resource Planning (ERP) and supply chain management applications. TECHNOLOGY USED TO DEVELOP DYN@MIC BUYER Dynamic Buyer was constructed on the Microsoft. Net platform and used the MS-SQL database engine. The related core IP includes XML parsers and translation components, user abstraction layers and specialized component factories. DYN@MIC SELLER OVERVIEW Dyn@mic Seller is an on-lines sales solution that integrates multiple dynamic pricing formats with shopping cart, catalogue and financial settlement functionalities within a single environment. ADB's Dyn@mic Seller supports the industry most comprehensive array of dynamic pricing transaction methods including: - Ascending Price or Top Bid - where the price of a product increases until the highest bid is reached or the end of an auction. - Descending or Dutch Auction - where the price of a product automatically decreases at set levels and time periods until a buyer makes a bid. - Fixed Price - where the price of a product remains constant throughout the sales event. - Progressive markdown - where the price of a good is decreased at set intervals and set times by the vendor until all available inventory is sold - Hybrid - where a combination of different pricing models is applied to an on-line sales event. This wide selection of transaction methods enables organizations to apply the most effective pricing strategy that will yield the greatest return and highest margin. DYN@MIC SELLER CAPABILITIES AND BENEFITS Dyn@mic Seller delivers a series of business and technical benefits that result in: - Enhanced brand equity and improved relationships with customers - By powering transactions directly from our customers' web-sites, Dyn@mic Seller helps organizations build long-term relationships with their end-customers and strengthen the value of their brand. - Improved sales processes - Dyn@mic Seller's advanced reporting capabilities allows organizations to improve their sales and marketing processes as a result of comprehensive data analysis and reporting. Dyn@mic Seller enables organizations to track user activity, monitor transaction history, determine sales margins and more. - Increased speed to market - Through a rapid and proven implementation methodology, Bid.Com allows organizations to take advantage of on-line sales activities in weeks and not months common with other industry applications. - Reduced cost of sales - By enabling customer self-service and automating the sales process, Dyn@mic Seller reduces the average cost of sale. - Reduced IT investments - ABD delivers Dyn@mic Seller through a web-based business services model, resulting in no additional investments in IT infrastructure. - Easy integration with existing information systems - By leveraging XML standards, Dyn@mic Seller enables complete integration with existing Enterprise Resource Planning (ERP), supply chain management and customer relationship management applications. DYN@MIC SELLER TECHNOLOGY COMPONENTS Dynamic Seller was developed using the Microsoft COM+ and D-Com architectures and technologies. It utilizes MS-SQL as its database. The related core IP includes XML parsers and translation components, user abstraction layers and specialized component factories. WORKMATE OVERVIEW WorkMate(R) is an Enterprise Asset Management (EAM) solution designed specifically for asset intensive industries. WorkMate comprises procurement, materials management and maintenance modules that can be licensed individually or bundled together as a fully integrated solution. WorkMate Procurement handles the most sophisticated domestic and international purchasing operations. It ensures accurate information on requisitions and purchase orders, providing easy access to purchasing specifications and detailed technical information. WorkMate also monitors supplier performance based on a variety of factors including accuracy, punctuality and cost -enabling organizations to identify preferred vendors. WorkMate's Materials Management module delivers all of the functionality needed to manage inventory and logistics operations. WorkMate enables organizations to determine if materials are in stock at local or remote locations. WorkMate logs all movements and generates the necessary financial transactions. WorkMate handles all types of maintenance activities including corrective, preventive or condition-based maintenance. WorkMate allows organizations to automate manual routines, track maintenance costs and equipment history. WORKMATE CAPABILITIES AND BENEFITS ADB's WorkMate delivers the following business and technology benefits including: - Reduced maintenance costs - Improved maintenance planning activities - Reduced operational downtime due maintenance interruptions or lack of spare parts inventory - Compliance with regulatory requirements - Tighter integration of materials management, maintenance and procurement activities WORKMATE TECHNOLOGY COMPONENTS The Workmate application is constructed using the Powerbuilder suite of development tools and using Oracle as the multi-platform database engine. The related IP includes integration engines, component class libraries and specialized OLAP reporting engines. PROCUREMATE OVERVIEW ADB's ProcureMate supports the complex purchasing requirements of public and private sector organizations, delivering cost savings and efficient purchasing processes. ProcureMate simplifies procurement activities, ensuring greater use of standing agreements with preferred vendors and reduced rogue purchasing. ProcureMate, is designed to simplify procurement activities by making it easier to process purchase orders, schedule delivery terms, apply current cost codes, and ensure integration with financial systems. ProcureMate also keeps track of purchasing activities enabling the analysis of supplier effectiveness, use of contracts with preferred vendors, and other purchasing transactions. BENEFITS AND COST SAVINGS DELIVERED BY PROCUREMATE: ADB's ProcureMate delivers proven cost savings increased purchasing efficiencies that result in: - Streamlined purchases of low-value items - Reduced maverick buying through greater use of approved suppliers - Electronic approvals of requisitions and invoices - By decentralizing non-core purchasing activities, buyers can focus on more strategic procurement activities such as contract management and supplier negotiation - Simplified invoice registration and processing - Unnecessary paperwork is reduced and less time spent on non-strategic purchasing activities. TECHNOLOGY COMPONENTS: Procuremate was created using the Microsoft Visual Studio suite of development tools. It utilizes Oracle as the multi-platform database engine. The related core IP includes XML parsers and translation components, user abstraction layers, Web Integration Engines and components, as well as specialized component factories. SCHEDULE 5.16 PROPERTY WITH LEASEHOLD INTEREST
- ------------------------------------------------------------------------------------------------- Square Feet Term of Lease Location Use (Approximate) - ------------------------------------------------------------------------------------------------- 6725 Airport Road, Executive, Administrative, 10,165 Expires Oct. 2004 Suite 201 Engineering and Marketing Mississauga, Ontario - ------------------------------------------------------------------------------------------------- Vingveien 2, Executive, Administrative, 13,493 Expires July 2003 4050, Sola Norway Engineering and Marketing - ------------------------------------------------------------------------------------------------- 700 South Circular Road Administrative, Engineering 2,000 Expires Jan. 2003 Kilmainham, and Marketing Dublin, Ireland - ------------------------------------------------------------------------------------------------- 3000 Cathedral Hill, Marketing 500 Monthly Guildford, Surrey, England - ------------------------------------------------------------------------------------------------- 3001 North Rocky Point Executive 143 Expires Dec. 2002 Drive East, Tampa, Florida - -------------------------------------------------------------------------------------------------
SCHEDULE 5.18 CONTRACTS 1. Employment contracts per Schedule 5.10. 2. Option, warrants and other agreements per Schedule 5.4 (2). 3. Convertible Notes and related documentation. 4. The Transaction Documents. 5. E-Commerce Enabling Agreement between Bid.com International Inc. and Commercial Equipment Financing Unit of General Electric Capital Corporation dated February 15, 2001. 6. Termination Agreement between ADB Systemer ASA and Explorer Software Solutions Inc., dated May 28, 2002. 7. First Amended and Restated Technology Services and License Agreement between Value Vision International, Inc. and Bid.com International Inc. dated June 6, 2001 8. Megawheels License and Services Agreement between Bid.com International Inc. and Megawheels.com Inc. dated September 30, 1999 and Megawheels License Fee Agreement dated September 30, 1999. 9. Bid.com/Solars License and Services Agreement between Bid.com International Inc., 3537846 Canada Inc. and SCS Solars Computing Systems Inc. 10. Software License Agreement between ADB Systems International Inc. and Halliburton Productos dated March 15, 2002. 11. Consulting/Technical Services Agreement between ADB Systems International Inc. and Halliburton Productos dated March 15, 2002. 12. Software License Agreement between ADB Systems International Inc. and Forest Oil Corporation dated October 31, 2001. 13. Consulting/Technical Services Agreement between ADB Systems International Inc. and Forest Oil Corporation dated October 31, 2001. 14. WorkMate License Agreement between Encal Energy Ltd. and Explorer Software Solutions Ltd. dated October 26, 2000, as subsequently assigned to ADB Systems International Inc. 15. WorkMate License Agreement between Paramount Resources Ltd. and Explorer Software Solutions Ltd. dated October 26, 2000, as subsequently assigned to ADB Systems International Inc. 16. Patent License Agreement between ADB Systems International Inc. and NCR Corporation dated April 17, 2002. 17. Security Agreement between ADB Systems International Inc. and NCR Corporation dated April 17, 2002. 18. Strategic Marketing Agreement between Bid. Com. International Inc. and General Electric Capital Corporation dated April 10, 2000. 19. Strategic Marketing Agreement between Bid. Com. International Inc. and ecwebworks Inc. dated October 4, 2000. 20. Strategic Marketing Agreement between Bid. Com. International Inc. and Eloqua Corporation dated April 2, 2001. 21. Strategic Alliance Agreement between Bid.Com. USA Inc. and BServe Internet Payments Inc. dated March 30, 2001. 22. IDA Grant Agreement between Industrial Development Agency (Ireland), Bid.Com International Limited, and Bid.Com International Inc. dated August 10, 2000. 23. Referral and Resource Sharing Agreement (Letter Agreement) between ADB Systems International and Production Access, Inc. dated March 5, 2002. 24. American Home Assurance Company (Insurer) Executive and Organization Liability Insurance Policy No. 231 67 15, ADB Systems International Inc. (Insured) renewal of 231 56 19 dated May 1, 2002 - May 1, 2003. 25. Lease regarding 6725 Airport Road, Suite 201, Mississauga, Ontario between Chiefton Investments Limited and Investors Group Trust Co. Ltd. (as Trustee for Investors Real Property Fund) and Bid. Com. International Inc. Attached to and forming part of above noted lease is a Storage Agreement between the parties dated August 27, 1999. 26. Master Broadband and IP Services Agreement between ADB Systems International Inc. and Bell Canada executed May 1, 2002. 27. Business Services Bundling Agreement between Tempest Global Telecom Inc. and ADB Systems International Inc. for Tl and phone line service. 28. Research in Motion agreement for pager services 29. Hewlett Packard equipment leases and related maintenance and service agreements 30. Xerox Canada equipment leases and related maintenance and services agreements 31. Global Crossing Teleconferencing services agreement 32. Intercon Security office security agreement 33. Iron Mountain agreement for off-site tape storage 34. Banking agreements with various financial institutions. 35. Informal arrangements with service providers (various) - legal and accounting advisors, media buyers, printers, mailing agencies, etc. SCHEDULE 5.19 RELATED PARTY TRANSACTIONS In June 1999, Old ADB entered into an agreement under which it would provide technology and related services to SCS Solars Computing. One of the directors of Old ADB was a director and shareholder of SCS Solars at the time. That individual is no longer a director of Old ADB. In September 1999, Old ADB entered into an agreement under which it would provide technology and related services to MegaWheels, of which one of the directors of Old ADB was a director and shareholder. Old ADB received shares, a hosting fee and a share of net on-line auction revenue. In late 2001, this individual assumed the position of CEO of MegaWheels. In February 2000, Old ADB entered into an agreement under which it would provide technology and related services to Art Vault, in which certain directors of the company, in aggregate, had a controlling interest. Old ADB received shares, a hosting fee and a share of net on-line auction revenue. In April 2001, Art Vault went into receivership, the technology and services agreement was terminated, and Old ADB's equity holdings in Art Vault were written down to zero. In October 2001, Old ADB acquired ADB Systemer ASA. Following the acquisition, several directors of ADB Systemer became directors, officers and/or shareholders of Old ADB. Prior to the acquisition, none of these individuals were directors, officers or shareholders of Old ADB. SCHEDULE 5.20 CONTRACTS IMPAIRING BUSINESS 1. First Amended and Restated Technology Services and License Agreement between ValueVision International, Inc. and Bid.com International Inc. dated June 6, 2001 2. Megawheels License and Services Agreement between Bid.com International Inc. and Megawheels.com Inc. dated September 30, 1999 and Megawheels License Fee Agreement dated September 30, 1999. 3. Bid.com/Solars License and Services Agreement between Bid.com International Inc., 3537846 Canada Inc. and SCS Solars Computing Systems Inc. 4. Security Agreement between ADB Systems International Inc. and NCR Corporation dated April 17, 2002 and Patent License Agreement between the parties of the same date. 5. The Transaction Documents. SCHEDULE 5.23 BENEFIT AND OTHER INCENTIVE PLANS Medical/Dental/Disability/Life Canadian Employees: ADB Systems International Inc. has contracted Great West Life to provide industry standard medical, dental, disability, and life insurance coverage for its employees and immediate families. The employer pays for medical and dental coverage, while employees pay for disability and life coverage. US Employees: ADB USA has contracted Blue Cross Florida to provide industry standard medical and dental coverage for its employees and immediate families. The employer pays for medical and dental coverage premiums. Ireland/UK Employees: Details to follow. Norway Employees: Details to follow. Retirement Benefits Ireland/UK Employees: ADB Systems International Limited has contracted with AXA Sunlife to provide a matching contribution retirement plan where by employees and employers contribute up to 7% of an employees' salary. SCHEDULE 9.3 INDEBTEDNESS, OBLIGATIONS OR LIABILITIES OF OLD ADB 1. Employment obligations under agreements with Ken Martin, Craig Martin and Stoney Jiang. 2. Obligations to be assumed/retained by Bid.Com under cell phone, pager and office phone arrangements for the employees specified in 1. above. 3. Obligations to be assumed/retained by Bid.Com in respect of hardware, software and connectivity arrangements, including the Hewlett Packard Lease. SCHEDULE 10.1 (a) PUT NOTICE TO: The Brick Warehouse Corporation (the "Lender") FROM: ADB Systems International Ltd. ("New ADB") RE: The loan agreement (the "Loan Agreement") made as of August 23, 2002 between the Lender, ADB Systems International Inc. ("Old ADB") and New ADB 1. New ADB hereby gives notice to the Lender that it is exercising the Put Option pursuant to the terms and conditions of Section 10.1 of the Loan Agreement. 2. Terms used herein that are defined in the Loan Agreement and are not otherwise defined herein will have the same meaning herein as in the Loan Agreement. DATED the___________day of June, 2003. ADB SYSTEMS INTERNATIONAL LTD. By: ___________________________ Name: Title: By: ___________________________ Name: Title: DRAFT: AUGUST 25, 2002 FOR DISCUSSION PURPOSES ONLY SCHEDULE 10.1(e)(iv) [LETTERHEAD OF GOWLINGS LLP] - -, 2002 [NTD: RE PUT TRANSACTION] The Brick Warehouse Corporation 16930-114 Avenue Edmonton, Alberta T5M 3S2 McCarthy Tetrault LLP Suite 4700 Toronto Dominion Bank Tower Toronto, Ontario M5K 1E6 Dear Sirs: RE: ADB SYSTEMS INTERNATIONAL INC. We have acted as counsel for ADB Systems International Ltd. (the "ADB") in connection with the sale of all the issued and outstanding shares ("Shares") of ADB Systems International Inc. (the "Corporation") pursuant to a loan agreement made as of August 23, 2002 (the "Loan Agreement") between The Brick Warehouse Corporation ("The Brick"), ADB and the Corporation. Terms used in this opinion that are defined in the Loan Agreement and are not otherwise defined herein will have the same meaning herein as in the Loan Agreement. MATERIALS REVIEWED We have examined originals or copies, certified or otherwise identified to our satisfaction. ASSUMPTIONS AND FACT RELIANCE We have examined originals or copies, certified or otherwise identified to our satisfaction, of such public and corporate records, certificates, instruments and other documents and have considered such questions of law as we have deemed relevant and necessary as a basis for the opinions hereinafter expressed. In such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity to original documents of all documents submitted to us as copies, whether facsimile, photostatic, certified or otherwise. - 2 - -, 2002 We have also assumed that the Loan Agreement has been duly authorized, executed and delivered by, and constitutes a valid and legally binding obligation of each of The Brick and the Corporation, enforceable against each of The Brick and the Corporation in accordance with its terms. OPINIONS Based and relying upon the foregoing, and subject to the qualifications hereinafter expressed, we are of the opinion that: 1. The Corporation is a corporation incorporated and subsisting under the laws of the Province of Ontario. 2. The articles of the Corporation contain no restrictions on the business that the Corporation may carry on, on the powers that the Corporation may exercise or on the transfer of shares, except -. 3. The authorized capital of the Corporation consists of - shares, of which - have been validly issued and are outstanding. 4. The ADB is a corporation incorporated and subsisting under the laws of the Province of Ontario. 5. All necessary corporate action and proceedings have been taken to permit the due and valid transfer of the Shares from ADB to The Brick. 6. No consent, approval, order or authorization of, or registration, declaration or filing with, any governmental authority in the Province of Ontario is required for due and valid transfer of the Shares from ADB to The Brick. 7. The Purchaser today became the registered holder of the Shares and as such is exclusively entitled to vote, to receive notices, to receive dividends or other payments in respect of the Shares, and otherwise to exercise all the rights and powers of a holder of the Shares. This opinion is furnished solely for the benefit of the addressees in connection with the purchase of the Shares and may not be circulated to, or relied upon by, any other person or used for any other purpose. Yours very truly, SCHEDULE 10.1(e)(vi) RELEASE WHEREAS ADB Systems International Inc. ("Old ADB") has agreed with The Brick Warehouse Corporation ("The Brick") to sell to The Brick all of the issued and outstanding common shares of ADB Systems International Ltd. ("New ADB") pursuant to the terms of a loan agreement (the "Loan Agreement") made as of August 23, 2002 between The Brick, Old ADB and New ADB and, as a condition of the Put Closing as contemplated by the Loan Agreement, New ADB has agreed to release Old ADB from all claims against Old ADB; capitalized terms herein have the same meaning as in the Loan Agreement unless stated otherwise; NOW THEREFORE THIS RELEASE WITNESSES that in consideration of the Put Closing and the payment to New ADB of the sum of $1 of lawful money of Canada by Old ADB (the receipt and sufficiency of which are hereby acknowledged), New ADB: 1. releases and forever discharges Old ADB from all actions, causes of action, liabilities, claims and demands whatsoever which New ADB as a creditor of Old ADB prior to the Restructuring and as a shareholder or creditor after the Restructuring or otherwise ever had, now has or may hereafter have for or by reason of or in any way arising out of any cause, matter or thing whatsoever existing up to the present time and, in particular, without in any way limiting the generality of the foregoing, for or by reason of or in any way arising out of any claims for money advanced, salary, wages, retirement or pension allowances, director's fees bonus, expenses, participation in profits, earnings or other remuneration whether authorized or provided for by by-law, resolution, contract or otherwise save and except matters arising under the Transaction Documents; and 2. agrees that New ADB shall not make any claim or take any proceedings with respect to any matter released and discharged in (1) above which may result in any claim arising against Old ADB for contribution or indemnity or other relief. THIS RELEASE shall be governed by and construed in accordance with the laws of the Province of Ontario. THIS RELEASE shall enure to the benefit of your successors and assigns and shall be binding upon the successors and assigns of New ADB. IN WITNESS WHEREOF New ADB has executed this Release this__________day of June, 2003. ADB SYSTEMS INTERNATIONAL LTD. Per: _________________________________ Name; Title: LOAN AGREEMENT AMENDING AGREEMENT THIS AMENDING AGREEMENT is entered into as of August 30, 2002, by and between ADB SYSTEMS INTERNATIONAL INC., ADB SYSTEMS INTERNATIONAL LTD., each a corporation having its principal place of business at 6725 Airport Road, Suite 201, Mississauga, Ontario L4V 1V2, and THE BRICK WAREHOUSE CORPORATION, a corporation having its principal place of business at 16930 - 114 Avenue, Edmonton, Alberta, T5M 3S2. WHEREAS: 1. The Parties entered into a loan agreement dated as of August 23, 2002 (the "Loan Agreement"). 2. The Borrower has indicated in its Drawdown Notice delivered in connection with the First Advance that it is unable to satisfy a condition of the First Advance requiring that the Borrower shall have entered into irrevocable subscription agreements with arm's length third parties to issue equity securities of the Borrower or debt securities convertible into equity securities of the Borrower raising aggregate gross proceeds to the Borrower of not less than $1,000,000 and received aggregate gross proceeds of not less than $1,000,000 from the sale of such equity securities or debt securities convertible into equity of the Borrower on terms and conditions satisfactory to the Lender. 3. The Lender is willing to waive compliance with the above condition and nevertheless to make the First Advance to the Borrower in accordance with and subject to the terms and conditions of the Loan Agreement provided the Borrower and the Guarantor enter into this Amending Agreement to the Loan Agreement. NOW THEREFORE in consideration of the premises, the mutual covenants contained in this Agreement, and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Parties agree as follows: ARTICLE 1 - INTERPRETATION 1.1 DEFINITIONS. In this Agreement, unless the context otherwise requires, each capitalized term not otherwise defined herein shall have the meaning ascribed thereto in the Loan Agreement. ARTICLE 2 - AMENDMENTS 2.1 AMENDMENTS. (1) Section 3.2 of the Loan Agreement is hereby amended by adding thereto to the conditions to the Second Advance the following: 2 "(f) the Borrower shall have delivered evidence satisfactory to the Lender that each of the subscribers, having executed on or before August 30, 2002, subscription agreements for the issue of Series D Subordinated Notes (i) shall have paid the Loan Amount (as therein defined) to Old ADB; and (ii) shall have executed (A) an acknowledgement of the subordination of the Subordinated Notes to the Security, and (B) a release of Old ADB from the obligations of the Subordinated Notes upon the Restructuring, each in form satisfactory to the Lender." (2) Section 8.1 of the Loan Agreement is hereby amended by adding thereto to the Events of Default the following: "(r) if the condition in Section 3.2(f) is not satisfied on or before October 31, 2002." ARTICLE 3 - GENERAL 3.1 LOAN AGREEMENT. The Parties acknowledge that the Loan Agreement has been amended by this amending Agreement and as amended, the Loan Agreement remains in full force and effect as of the date hereof. 3.2 BINDING ON SUCCESSORS. This Amending Agreement shall enure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns. 3.3 GOVERNING LAW. This Amending Agreement shall be governed and construed according to the laws of the Province of Ontario and the laws of Canada applicable therein, and shall be treated, in all respects, as an Ontario contract, without prejudice to or limitation of any other rights or remedies available under the laws of any jurisdiction where property or assets of the Borrower may be found. Each of the Parties hereby attorns to the jurisdiction of the Province of Ontario. 3.4 COUNTERPARTS. This Amending Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Counterparts may be executed either in original or faxed form and the Parties may adopt any signatures received by a receiving fax machine as original signatures of the Parties. 3 IN WITNESS WHEREOF this Amending Agreement is executed by the Parties as of the date first written, above. ADB SYSTEMS INTERNATIONAL INC. By: /s/ [ILLEGIBLE] -------------------------------- Name: Title: ADB SYSTEMS INTERNATIONAL LTD. By: /s/ [ILLEGIBLE] -------------------------------- Name: Title: THE BRICK WAREHOUSE CORPORATION By: ________________________________ Name: Title: EX-4.13 5 t09678exv4w13.txt FORM OF SUPPLY SERVICES AND LICENSING AGREEMENT SUPPLY, SERVICES AND LICENSE AGREEMENT THIS AGREEMENT is made as of the 23rd day of August, 2002 (the "EFFECTIVE DATE") between ADB SYSTEMS INTERNATIONAL INC. ("BID.COM"), a corporation having its principal place of business at 6725 Airport Road, Suite 201, Mississauga, Ontario L4V 1V2, THE BRICK WAREHOUSE CORPORATION ("THE BRICK"), a corporation having its principal place of business at 16930 - 114 Avenue, Edmonton, Alberta, T5M 3S2, and ADB SYSTEMS INTERNATIONAL LTD. ("NEW ADB"), a corporation having its principal place of business at 6725 AIRPORT ROAD, SUITE 201, Mississauga, Ontario L4V 1V2. WHEREAS: 1. BID.COM is the registered owner of the url at www.bid.com which is used for the purposes of conducting on-line retail sales, and has skill and expertise in operating on-line retail websites; 2. THE BRICK is Canada's largest volume retailer of home furnishings, mattresses, bedding, appliances, televisions, video recorders, stereo equipment and computers, and presently operates an on-line retail website through www.thebrick.com; 3. BID.COM and THE BRICK wish to combine their respective web resources, to establish a profitable venture which would be mutually beneficial to them; 4. BID.COM wishes to access THE BRICK's supply channel to operate the combined website that will be accessible through each of the respective URLs; 5. NEW ADB (after restructuring) is the owner of the DYN@MIC SELLER(TM) proprietary software, which enables the completion of on-line retail transactions; 6. BID.COM wishes to license the DYN@MIC SELLER(TM) proprietary software for BID.COM's sale of products supplied by THE BRICK, and NEW ADB wishes to license the software to BID.COM for such purpose; 7. BID.COM wishes to have the DYN@MIC SELLER(TM) proprietary software power the combined website; 8. THE BRICK wishes to purchase an interest in the DYN@MIC SELLER(TM) proprietary software to ensure continued availability of the software and BID.COM (prior to Restructuring) wishes to sell an interest in the software to THE BRICK for such purpose. NOW THEREFORE in consideration of the premises, the mutual covenants contained in this Agreement, and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Parties agree as follows: ARTICLE I INTERPRETATION 1.1 DEFINITIONS. In this Agreement, unless the context otherwise requires, each capitalized term shall have the meanings indicated below. "AGREEMENT" means this Supply, Services and License Agreement and all schedules annexed to this Agreement as the same may be amended from time to time in accordance with the provisions hereof or thereof, "hereof" "hereto" and "hereunder" and similar expressions mean and refer to this Agreement and not to any particular article or section; except where the context specifically requires, "Article" or "Section" means and refers to the specified article or section of this Agreement. "AFFILIATE" means any entity controlled by, controlling or under common control of a Party. "BUSINESS DAY" means any day from Monday to Friday inclusive, except statutory or civic holidays observed in Toronto, Ontario or Edmonton, Alberta. "CONFIDENTIAL INFORMATION" means all information relating to any Party or to such Party's business, products, sales, users, trade secrets, technology or financial position to which access is obtained or granted hereunder, which is treated by the disclosing Party as confidential provided, however, that Confidential Information of the disclosing Party shall not include any data or information which the receiving Party can demonstrate: (a) is or becomes publicly available through no fault of the receiving Party; (b) is already in the rightful possession of the receiving Party prior to its receipt from another Party; (c) is independently developed by the receiving Party, as proven by written documentation; (d) is rightfully obtained by the receiving Party from a third party not subject to an obligation of confidentiality; 2 (e) is disclosed by the Receiving Party with the written consent of the disclosing Party whose information it is; or (f) is disclosed by the Receiving Party pursuant to court order or other legal compulsion, provided the receiving Party gives the disclosing Party prompt notice of any such requirement to afford, if possible, the disclosing Party an opportunity to obtain a protective order. "DISCLOSING PARTY" has the meaning attributed thereto in Section 5.2(a) of this Agreement. "EFFECTIVE DATE" has the meaning attributed thereto on the face page of this Agreement. "FULFILLMENT SYSTEM" means THE BRICK's system of software commonly called the "Brick Retail System", warehouses, logistics procedures and know-how, and other assets that establish and maintain its capability to acquire, warehouse and deliver the Products, as currently carried out in its retail business in Canada. "IMPROVEMENTS" means, in relation to any software, any changes, corrections, modifications, improvements, adaptations, enhancements, and derivative works based upon or derived from, and additions to, such software. "INTELLECTUAL PROPERTY RIGHTS" means (A) any and all proprietary rights provided under (i) patent law, (ii) copyright law, (iii) trademark law, (iv) design patent or industrial design law, (v) semi-conductor chip or mask work law, or (vi) any other statutory provision or common law principle including without limiting the generality of the foregoing, laws protecting confidential information, applicable to this Agreement including trade secret law, which may provide a right in either (a) ideas, formulae, algorithms, concepts, inventions or know-how generally, or (b) the expression or use of such ideas, formulae, algorithms, concepts, inventions or know-how; and (B) any and all applications, registrations, renewals, extensions, continuations, continuations-in-part, divisions, re-issues, licenses, sub-licenses, franchises, agreements or any other evidence of a right in any of the foregoing. "NOTICE" has the meaning attributed thereto in Section 9.1 hereof. "PARTIES" means BID.COM, THE BRICK and NEW ADB and "PARTY" means any one of them. "PAYMENT SYSTEM" means THE BRICK's custom point of sale system and its methods, procedures and technology used to fund consumer sales as currently used in its retail business in Canada. "PERSON" includes an individual, company, corporation, partnership, government or government agency, authority or entity howsoever designated or constituted. "PRODUCTS" means consumer goods and related accessories as determined by THE BRICK from time to time. 3 "PROJECT MANAGER" means an individual officer or employee of a Party holding one of the positions described in Section 5.1. "RECEIVING PARTY" has the meaning attributed thereto in Section 5.2(a) hereof. "RESTRUCTURING" has the meaning attributed thereto in the Co-Operation Agreement made among the Parties dated as of the date hereof. "RETAILER" means BID.COM. "SCHEDULES" means the following schedules annexed to this Agreement, and such other schedules as the Parties may append by mutual agreement, evidenced by their initialing of same: Schedule A - Software Restrictions, NEW ADB Service Descriptions and minimum requirements. Schedule B - NEW ADB Services, Service Level Commitment Schedule C - BID.COM Services, Performance Criteria Schedule D - DYN@MIC SELLER(TM) Joint Ownership Agreement "SENIOR FINANCIAL EXECUTIVE" means, in the case of THE BRICK, the Senior Vice President and Treasurer of THE BRICK and in the case of BID.COM, the Director of Finance for BID.COM, or their respective appointees. "SERVICES" means the services to be provided by NEW ADB pursuant to this Agreement. "SERVICE PROVIDER" means NEW ADB. "SITES" means the web-sites operated at www.bid.com and www.thebrick.com and "SITE" means either of them. "SOFTWARE" has the meaning attributed thereto in Section 4.1 of this Agreement. "SOURCE MATERIALS" means, in relation to any software, all materials that would enable a reasonably skilled programmer to compile, debug, and make Improvements to such software in a reasonable manner including: (a) all source code related thereto, reasonably annotated; (b) all technical and system documentation including specifications, flowcharts, diagrams, business rules, data and database models and structures, and compilation instructions related to such software; (c) listings by name, version and developer of all third-party compilers, utilities and other software relating to the software, including sufficient information to procure a license from such developers; (d) a listing of all relevant equipment necessary to operate the software; and (e) copies, in source and object code form, of all compilers, utilities and other software that are proprietary to the developer that is the owner of software and which are used in relation to the software. "SUPPLIER" means THE BRICK. 4 "TERM" means the term during which this Agreement is in force, as set out in Section 7.1. "TRANSACTION DOCUMENTS" has the meaning attributed thereto in the Loan Agreement made among the Parties and dated as of the date hereof. Transaction Documents include, inter alia, this Agreement and the aforesaid Loan Agreement. 1.2 HEADINGS. The use of headings in this Agreement is for convenience of reference only and shall not affect its interpretation. 1.3 EXTENDED MEANINGS. Words expressed in the singular include the plural and vice-versa and words in one gender include all genders. 1.4 ENTIRE AGREEMENT. The Transaction Documents, and any agreements and other documents to be delivered pursuant to any Transaction Document, constitute the entire agreement between the Parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, oral or written between the Parties. The execution of this Agreement has not been induced by, nor do either of the Parties rely upon or regard as material, any representations, warranties, conditions, other agreements or acknowledgments not expressly made in this Agreement, the Transaction Documents or in the agreements or other documents to be delivered pursuant hereto. 1.5 INVALIDITY. If in any jurisdiction a provision contained in this Agreement is found by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein, or of such provision in any other jurisdiction shall not be affected or impaired thereby. 1.6 CONSENT. Wherever any Party is required to obtain consent or approval from another Party, such consent or approval shall not be unreasonably withheld or delayed and shall be obtained in writing or electronically. 1.7 INTERPRETATION. This Agreement has been negotiated by the parties hereto and their respective counsel and shall be fairly interpreted in accordance with its terms and without any rules of construction relating to which Party drafted the Agreement being applied in favour or against any Party. 5 1.8 CURRENCY. Unless otherwise specifically provided herein, all amounts expressed or described hereunder are in lawful currency of Canada. ARTICLE II BID.COM RESPONSIBILITIES 2.1 OPERATION OF SITES (a) BID.COM will continue to operate its website at www.bid.com. (b) Immediately upon completion of the Restructuring, THE BRICK will license to BID.COM the www.thebrick.com website for sale of Products supplied by THE BRICK pursuant to a license agreement, the terms of which will be agreed upon by THE BRICK and BID.COM. (c) At a time to be agreed upon by the Project Managers, BID.COM will combine the www.bid.com website and the www.thebrick.com website. At the time the Sites are combined, the combined website will be accessible through each of the respective URL's. (d) BID.COM will ensure it has the appropriate employees and equipment to operate the Sites in accordance with the terms of this Agreement. (e) BID.COM will ensure the performance criteria for the Sites as set out in Schedule C will be met to ensure continued and uninterrupted sale of Product through the Sites. BID.COM shall not be responsible for its failure to comply with these criteria in a timely way or at all, as the case may be, where such performance criteria depend, directly or indirectly, on the functioning of the Fulfillment System and/or the Payment System and where there is delay due to limits on the functionality, or the lack of functioning, of such systems. 2.2 POSTING OF PRODUCTS AND OTHER CONTENT. BID.COM will list Products for auction and fixed price sales, and post all other content for the Sites received by it from THE BRICK pursuant to Section 3.2 hereof. BID.COM shall create the graphical user interfaces for the Sites through the population of the display templates for the web pages created by NEW ADB. 2.3 TITLE TO PRODUCTS. BID.COM shall be the retailer of Products sold on the Sites. THE BRICK, as supplier, will deliver Products to BID.COM's customers. BID.COM will acquire title to the Products from THE BRICK immediately before such purchaser accepts delivery thereof. Risk of loss or 6 damage shall follow title, and the Parties shall each be responsible for maintaining insurance on Products as they deem appropriate. 2.4 FINANCIAL SETTLEMENT. When a purchase is made of a Product, BID.COM will process the retail customer's credit card information and receive the order information. Credit card information will be processed by BID.COM using THE BRICK's existing Payment Systems, and order information will link directly into THE BRICK's Fulfillment System. 2.5 SHIPPING AND HANDLING. BID.COM shall be responsible for paying all third party shipping and handling charges for shipping and handling of Products in fulfillment of customer orders accepted by BID.COM. 2.6 PRODUCT RETURNS. BID.COM shall be responsible for processing returns of Products to retail customers and shall remit credits and refunds as may be required. Credits and refunds to retail customers' credit cards will be processed by BID.COM using THE BRICK's Payment System. 2.7 TAX REMITTANCES. BID.COM shall be responsible for collecting and remitting to the proper tax authorities, any tax arising from the sale of Products. 2.8 FINANCIAL RESPONSIBILITIES. BID.COM shall be responsible for maintaining such books and records with respect to the Sites, for producing such financial statements and for all other bookkeeping with respect to the Sites as would a prudent owner and operator of such commercial web sites in Canada. 2.9 REGISTERED USER DATABASE. BID.COM shall e-mail those individuals presently in its registered user database and through an "opt-in" procedure shall allow such individuals to become registered users of the Sites. THE BRICK shall e-mail those individuals presently in its registered user database and through an "opt-in" procedure shall allow such individuals to become registered users of the Sites. The registered user database for the Sites, as modified after the "opt in" procedure has been completed, shall be a joint asset of BID.COM and THE BRICK, and the terms and conditions of the Sites shall specify as such. In furtherance of the foregoing, each of BID.COM and THE BRICK hereby grants to the other a perpetual, royalty-free, personal right to use such database for the purposes disclosed to, and consented to by, the individuals that become registered users of the Sites. Each of THE BRICK and BID.COM shall obtain the other's prior approval of the procedures used by it to obtain the consent of the individuals presently in its registered user databases to registration in the database for the Sites. Such prior approval shall also be obtained 7 with respect to the content of the terms communicated to such users for the aforesaid purpose. Each of BID.COM and THE BRICK shall not unreasonably withhold the granting of the aforesaid consents to the other. 2.10 NEW ADB FEES FOR SERVICES BID.COM will pay all fees for NEW ADB services as provided in Schedule A. 2.11 TRADE-MARKS The Parties acknowledge and agree that BID.COM will use THE BRICK's name, trademarks, trade names, branding and "look and feel" in developing the graphical user interfaces for the Software. BID.COM shall not make any of the foregoing uses or any other use of THE BRICK's name, trademarks, trade names, branding and "look and feel" in such a way as to significantly harm the goodwill or reputation of THE BRICK and will not alter THE BRICK's trademarks, trade names or branding. ARTICLE III THE BRICK RESPONSIBILITIES 3.1 PRODUCT SELECTION. THE BRICK shall make available for sale through the Site the Products and THE BRICK shall advise BID.COM of any minimum price applicable to each such Product in advance of the listing of such Product on the Site. THE BRICK shall assign a Project Manager who shall be responsible for the daily selection and management of Products to be sold through the Site. 3.2 PRODUCT INFORMATION. THE BRICK shall, at its expense, provide and maintain all content of the Sites that is not otherwise specified herein as to be provided by another Party. The content to be provided by THE BRICK shall include, without limitation, the data required to list Products on the Site including the number of such Products available for sale on the Site, the dates of their availability for sale, a stock keeping unit number for each such Product and any other similar information that is necessary, all in such form and by such means as BID.COM shall advise from time to time. THE BRICK hereby grants to each of BID.COM and to NEW ADB a personal, royalty-free right to use, copy, prepare derivative works from, modify, adapt and combine throughout the Term of this Agreement all content provided by it pursuant to this Section as necessary for the provision of the Services pursuant to, and in accordance with, the terms and provisions of this Agreement. 8 3.3 CUSTOMER SERVICE. THE BRICK shall be responsible for all customer relations with retail customers purchasing Products from the Site, except that THE BRICK will refer disputes related to the Sites and related technical issues to BID.COM for resolution. 3.4 ADVERTISING THE BRICK will identify the Sites in its regularly scheduled media advertising and will encourage customers, in such advertising and by other appropriate marketing vehicles, to visit the Sites and to purchase Products. 3.5 TRADE-MARKS The Parties acknowledge and agree that THE BRICK will use BID.COM's name, trademarks, trade names, branding and "look and feel" in its advertising and other appropriate communications. THE BRICK shall not make any of the foregoing uses or any other use of BID.COM's name, trademarks, trade names, branding and "look and feel" in such a way as to significantly harm the goodwill or reputation of BID.COM and will not alter BID.COM's trademarks, trade names or branding. 3.6 FINANCIAL SETTLEMENT. THE BRICK shall remit all monies received on financial settlement through the Payment System with a retail customer to a bank account for BID.COM (the "BID.COM ACCOUNT") at such times as agreed to by the Senior Financial Executives. 3.7 SHIPPING AND HANDLING. Upon a customer order being entered into THE BRICK's Fulfilment System by BID.COM, THE BRICK shall generate a shipping order, and pick, pack and deliver such Product for shipping. THE BRICK shall confirm all shipments to BID.COM in electronic form within 24 hours of shipment. 3.8 RIGHTS OF USE (a) Subject to the provisions of this Agreement, THE BRICK hereby grants to BID.COM a personal, royalty-free right to use the Payment System and the Fulfillment System for the purposes set out in this Agreement throughout the Term of this Agreement. (b) Subject to the provisions of this Agreement, THE BRICK hereby grants, and covenants and agrees to grant from time to time throughout the Term of this Agreement as necessary, to each of BID.COM and to NEW ADB a personal, royalty-free right to use, copy, prepare derivative works from, modify, adapt and combine all software, including graphic user interfaces and code created 9 specifically to display the contents of the Site, conveyed and transferred to THE BRICK pursuant to Section 2(b) of Schedule D, for the sole purpose of the performance of obligations as required by them pursuant to this Agreement. 3.9 THE BRICK CHARGES In consideration of THE BRICK's provision of the services and the supply of Products as set out in Section 3.1 to 3.8(a) hereof, THE BRICK will charge BID.COM, and BID.COM will pay, charges as set by the Brick from time to time. THE BRICK agrees that the charges will be on commercial terms. ARTICLE IV NEW ADB RESPONSIBILITIES 4.1 GRANT OF RIGHTS (a) On the Effective Date, BID.COM will grant certain rights to the use of the most recent version, as of the date hereof, of the Dyn@mic Seller(TM) software, including all modifications and add-ons created by it pursuant to this Agreement (the "SOFTWARE"), to THE BRICK pursuant to the agreement attached hereto as Schedule D. (b) Immediately upon completion of the Restructuring, NEW ADB will grant the licence of the most recent version of the Software to BID.COM as described in Section 1.1 of Schedule A. 4.2 SERVICES NEW ADB will perform those services specified as being its responsibility in Schedule A to this Agreement, as well as the pertinent Service Provider responsibilities specified in Schedule B and C. Payment for such Services will be as provided in Schedule A. NEW ADB, as the Service Provider, will provide the Services specified in Schedule B as to be provided by it, at the Service levels specified in that Schedule. The Service Provider shall not be responsible for its failure to provide Services, in a timely way or at all, as the case may be, where such Services depend, directly or indirectly, on the functioning of the Fulfillment System and/or the Payment System and where the provision of such Services is delayed due to limits on the functionality, or the lack of functioning, of such systems. 4.3 TRANSITION Should the computer hardware on which the Software shall operate be physically moved at any time during the Term of this Agreement NEW ADB will cooperate in good faith with, and provide reasonable assistance to, the other Parties hereto in order to help minimize the resulting disruption to the other activities contemplated by this Agreement. 10 ARTICLE V GENERAL MATTERS 5.1 MANAGEMENT AND IMPLEMENTATION. (a) NEW ADB shall appoint a Project Manager who shall be responsible for the implementation, management and enforcement of the technical aspects of this Agreement on behalf of NEW ADB, including working with the other Parties to mutually develop a Project Charter and a Design Document, to prepare Progress/Open Issues reports and to achieve first-line resolution of disputes between the Parties regarding the performance or non-performance of their technical obligations under this Agreement. The Project Manager shall be responsible for attending all Project Review Committee meetings and Development Team meetings and shall cooperate with the other Parties' Project Managers in resolving all outstanding issues in a timely manner. Upon such designation, NEW ADB shall concurrently provide the other Parties with details with respect to its Project Manager, including name, work and home address, work and home telephone number, and e-mail address. (b) The Retailer and the Supplier shall each appoint a Project Manager from their respective companies. Upon such designations, each of BID.COM and THE BRICK shall concurrently provide the other Parties with details with respect to its Project Manager, including name, work and home address, work and home telephone number, and e-mail address. The Project Managers for the Retailer and the Supplier shall each: (i) work with the other Project Managers to develop a Project Charter, participate in Project Review Committee meetings in order to ensure that all Parties shall have the right to rely upon the instructions and decisions made in the Project Review Committee meetings, and shall be available for the first-line resolution of disputes between the Parties regarding the performance or non-performance of their obligations with respect to the technical aspects of their relationship under this Agreement; and (ii) work with the other Project Managers to develop a Design Document, participate in the Development Team meetings, assist NEW ADB's Project Manager in preparing Progress/Open Issues Reports and shall cooperate in resolving all outstanding issues in a timely manner. (c) Each of the Project Managers may, on written notice to the others, delegate his or her responsibilities under this Agreement to one or more individuals and may exercise his or her responsibilities as a member of a committee that includes representatives of the other Parties. 11 (d) Each Party shall be entitled to replace its Project Manager on notice to the other Parties. In the event that any Party replaces its Project Manager it shall be the responsibility of such Party to ensure an orderly transition and to ensure that the replacement does not adversely affect the timely provision of the Services. 5.2 CONFIDENTIALITY. (a) Each Party, on behalf of its advisors, agents, employees and subcontractors (hereinafter in this section, the "RECEIVING PARTY") covenants with the Party that has disclosed Confidential Information to it (hereinafter in this section, the "DISCLOSING PARTY") that it shall keep confidential the Confidential Information of the Disclosing Party to which the Receiving Party obtains access as a consequence of entering into this Agreement and that it will take all reasonable precautions to protect such Confidential Information from any use, disclosure or copying except as expressly authorized by this Agreement. This Section 5.2 shall survive the termination of this Agreement. (b) Confidential Information that is provided by the Disclosing Party and all rights in and to such Confidential Information shall remain the property of the Disclosing Party and shall be held by the Receiving Party for the benefit of the Disclosing Party. The Receiving Party shall not, except as permitted by Section 5.2(c), directly or indirectly, use or exploit such Confidential Information or disclose such Confidential Information to any third party, for any purpose unless explicitly permitted by this Agreement or otherwise authorized in writing by the Disclosing Party. (c) The Receiving Party may disclose Confidential Information to: i) such of its directors, officers and employees who need to know such information for the purposes of this Agreement; ii) its professional advisors engaged to advise in connection with the purposes of this Agreement or its potential sources of financing; iii) anyone whom the Disclosing Party has agreed in writing may receive the information; iv) any competent judicial, governmental or regulatory body (including any stock exchange) which requires or can require the Confidential Information to be disclosed; or v) the public where required by any specific, applicable requirement of law or pursuant to the requirements of any securities regulatory body having jurisdiction. 12 (d) The Receiving Party may only disclose Confidential Information under Clauses 5.2(c)(iv) and 5.2(c)(v) if, insofar as permitted by law, it has: i) informed the Disclosing Party; ii) obtained legal advice in writing that disclosure is required; iii) advised the recipient of the confidentiality of the information being disclosed; and iv) in the case of disclosure to the public, used its reasonable commercial efforts to agree on the wording of such disclosure with the Disclosing Party. (e) The Receiving party may only disclose Confidential Information under Section 5.2(c) to the extent strictly necessary for the purposes of this Agreement. (f) The Receiving Party shall inform anyone to whom it is allowed to disclose Confidential Information that the contents are confidential and procure that the recipient complies with this Section 5.2 as if the recipient was also bound by it. If required by the Disclosing Party, the Receiving Party shall make the recipient bound by a Confidentiality Agreement on terms equivalent to this Section 5.2. (g) Upon expiry or earlier termination of this Agreement, at the written request of the Disclosing Party, the Receiving Party shall, so far as reasonably practical: i) return all written Confidential Information which has been supplied; ii) destroy or erase all Confidential Information in electronic form or incorporated into other material and procure that anyone to whom the Receiving Party has disclosed Confidential Information also does so; and iii) confirm in writing that the provisions of this Clause have been complied with. (h) A violation of any obligation hereunder will result in immediate and irreparable harm and damage. In the event of such violation by a Party hereto, the Party harmed will, in addition to any other right to relief, be entitled to equitable relief by way of temporary or permanent injunction and to such other relief as any court of competent jurisdiction may deem just and proper. 5.3 AUDIT RIGHTS. Each Party shall provide each other Party hereto, its internal auditors and external auditors and regulators, with access to the Party's service locations and such records and documents as may be reasonably required to audit the fees and expenses hereunder. Each Party shall also provide 13 such persons with any assistance that they may reasonably require in connection with such audits. 5.4 PAYMENT TERMS In respect of all payments to be made by a Party to another Party pursuant to this Agreement: (a) all such payments shall be invoiced by the payee Party to the payor Party at a minimum on a monthly basis, setting out the Services and/or expenses in respect of which the invoice relates, and detailing the calculation thereof. The payor Party shall pay the payee Party the amount of each invoice within the terms agreed to between the Parties from time to time; (b) any overdue payment hereunder shall accrue interest at the rate of the prime rate of interest quoted by the Royal Bank of Canada for its best commercial customers, from time to time, plus 3% per annum calculated monthly from the date it is due until date of payment; (c) the payor Party shall pay all taxes, duties, customs and similar charges respecting the Service fees and other payments to be made by it to another Party, provided that if under local law it may not make such payments, it shall reimburse the payee Party on demand for all such payments made by the payee Party; and (d) the amounts due under this Agreement by the Retailer and/or the Supplier shall be paid without any deduction, abatement or setoff except for income taxes required by law to be deducted at source. 5.5 BUDGET BID.COM shall formalize, with THE BRICK's input, the draft budget with respect to the revenues, expenses, changes in working capital, investments (including capital expenditures), sources of financing and timing thereof for the initial period commencing September, 2002 and ending December, 2003. Thereafter, the budget will be prepared on at least an annual basis by BID.COM, with THE BRICK'S input. The budgets shall include the fees payable by BID.COM to NEW ADB for the implementation and customization Services provided by NEW ADB as contemplated by Section 2.2 (a) of Schedule A and the charges payable by BID.COM to THE BRICK pursuant to Section 3.9 of this Agreement. The budgets shall also reflect BID.COM's costs of obtaining, hosting and maintaining necessary computer hardware. 5.6 TRADE PRACTICES Each Party shall conduct its business in relation to this Agreement and any Services provided by them hereunder in a professional manner that will reflect favourably on the good name and reputation of the Sites and the Parties. In particular, each Party shall comply with all applicable national, international and local laws, ordinances, and regulations in its dealings with the other Parties and in performing its obligations under this Agreement and each Party will refrain from 14 engaging in any unfair, or deceptive trade practice, or unethical business practice whatsoever, or any other practice that could unfavourably reflect upon the Sites or the other Parties hereto. 5.7 OTHER RETAIL BUSINESS (a) Neither NEW ADB nor BID.COM shall be permitted to enter into any other online retail business where either NEW ADB or BID.COM are the vendor of any products without the prior written consent of THE BRICK. THE BRICK shall not operate another combined website with another retailer without the prior written consent of BID.COM. (b) THE BRICK shall be the only supplier of furniture, mattresses, bedding, appliances and consumer electronics for resale by BID.COM. ARTICLE VI REPRESENTATIONS, WARRANTIES AND INDEMNITIES 6.1 REPRESENTATIONS AND WARRANTIES. (a) Each Party hereby represents and warrants to the others that it is legally constituted and validly existing, in good standing, under the laws of the jurisdiction of its constitution, with adequate power to enter into this Agreement. (b) Each Party hereby represents and warrants to the others that all necessary action on the part of such Party has been taken to approve and authorize the execution and delivery of this Agreement, and that this Agreement constitutes a legal and valid agreement binding upon such Party, enforceable in accordance with its terms. (c) Each Party represents, warrants and covenants to each other Party that: (1) it is and will be free to enter into, and to fully perform its obligations under this Agreement and that no agreement or understanding with any other person exists or will exist which would interfere with its obligations hereunder; (2) all Intellectual Property used by it in the course of fulfilling its obligations hereunder will not infringe any Intellectual Property Rights or moral rights of any third party; (3) there is no outstanding litigation, arbitration or other dispute to which the Party is a party which if decided unfavourably to the Party could have a material adverse effect on the Party's ability to carry out its obligations hereunder; and 15 (4) it shall render all services to be provided by it under this Agreement honestly and in good faith and cause its obligations hereunder to be performed in a professional manner consistent with industry standards and practices by fully trained, qualified and competent personnel who have the appropriate skills and experience to perform the duties assigned to them with the highest possible degree of care, skill, diligence and responsiveness and in any case no less than a reasonable degree of care, skill, diligence and responsiveness. (5) NEW ADB represents and warrants that the Software will meet the functionalities specified in Appendix B to Schedule A. 6.2 INDEMNIFICATION Each Party will severally, and not jointly, indemnify, defend and save each other Party harmless from and against any and all claims, damages, liabilities, costs and expenses including legal fees in respect of, arising from, or relating to: (a) any breach by such Party of any representation, warranty, provision, covenant or agreement made by such Party herein; (b) any claim or action brought against that other Party to the extent that such claim or action is based on a claim that the use of such indemnifying Party's Intellectual Property or other material, documents or information provided by such Party infringes the Intellectual Property Rights or moral rights of a third party; or (c) any death, personal injury or loss of or damage to property caused by such Party. 6.3 GENERAL LIMITATION ON LIABILITY. (a) UNDER NO CIRCUMSTANCES WILL ANY PARTY BE LIABLE TO ANOTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES) ARISING FROM BREACH OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS. (b) NO PARTY WILL BE LIABLE TO THE ANOTHER PARTY FOR MORE THAN $200,000 IN DAMAGES PURSUANT TO THIS AGREEMENT. (c) NOTWITHSTANDING SECTION 6.3(a) AND (b) OF THIS AGREEMENT, THERE WILL BE NO LIMITATION OF LIABILITY FOR ANY PARTY WITH RESPECT TO ANY DAMAGES ARISING AT ANY TIME IF THE DAMAGES ARISE FROM THE INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS BELONGING TO A THIRD PARTY. 16 6.4 LIMITATION ON REPRESENTATIONS AND WARRANTIES. Except for those representations and warranties otherwise provided in any Transaction Document, no Party makes any representations or warranties, and there are no conditions, express or implied, in fact or in law, including without limitation, the implied warranties or conditions of merchantable quality and fitness for a particular purpose and those arising by statute or otherwise in law or from a course of dealing or usage of trade. ARTICLE VII DEFAULT AND TERMINATION 7.1 TERM. This Agreement shall commence on the Effective Date and shall continue, subject to early termination in accordance with the terms hereof, until the 10th anniversary of the date of execution of this document (the "INITIAL TERM"). Thereafter, the Agreement shall be extended or renewed (any such extension or renewal being a "SUBSEQUENT TERM") only upon mutual agreement of the Parties. 7.2 TERMINATION. (a) Each of the following shall constitute an "EVENT OF DEFAULT" for the purposes of this Agreement: (i) if a Party fails to perform any material obligation set forth in this Agreement and such default continues for a period of thirty (30) days after written notice of such failure has been given by a non-defaulting Party to all other Parties; or (ii) if a Party declares bankruptcy or becomes insolvent or if it is put into receivership or a trustee is appointed for the benefit of its creditors or it ceases the operation of its business without a successor acceptable to the remaining Parties. (b) Whenever an Event of Default has occurred, the non-defaulting Party may, at its election, terminate this Agreement in writing, in which event the non-defaulting Party shall be entitled to pursue all legal remedies available to it, subject to the terms and conditions hereof. (c) In an Event of Default by the Retailer or the Supplier, the non-defaulting Retailer or Supplier shall have the right by written notice to assume all rights and obligations of the defaulting Retailer or Supplier and cure such default, or, if such default is bankruptcy or insolvency, declare a willingness to continue to meet the obligations of the bankrupt or insolvent Retailer or Supplier, in which case the 17 Agreement shall become one between NEW ADB and the solvent Retailer or Supplier. 7.3 SURVIVAL. The terms of Sections 5.2, 5.3, 5.6, 7.3 and Articles 6 and 8 shall survive any termination or expiry of this Agreement and shall continue in force thereafter for the period contemplated by the Agreement. Other provisions of this Agreement which, by the nature of the rights or obligations set out therein, might reasonably be expected to be intended to so survive, shall survive termination or expiry of this Agreement until they are satisfied or by their nature expire. ARTICLE VIII DISPUTE RESOLUTION 8.1 DISPUTE RESOLUTION PROCESS. If any dispute, disagreement, controversy or claim (a "DISPUTE") arises out of or relating to this Agreement including, without limitation, its application, interpretation, performance, breach, termination, enforcement or damages, or remedies arising out of the breach of or non-compliance therewith, the Dispute shall be referred immediately to the senior finance executive for each Party. For the purposes of this Article 9, "senior finance executive" means, in the case of THE BRICK, the Chief Financial Officer of THE BRICK, and in the case of NEW ADB, the President of New ADB and in the case of BID.COM, a Senior Officer of BID.COM. If the Dispute remains unresolved after 10 days of having been referred to such senior executives, then the Parties shall proceed as set out below. All Disputes and claims arising out of this Agreement shall be finally determined by arbitration to be commenced and conducted in the English language in Toronto, Ontario, Canada in accordance with the rules of the Arbitration Act, 1991 (Ontario) as amended hereby. The Parties agree that: (a) the parties shall agree on a single arbitrator (who shall be trained as a professional arbitrator with expertise in commercial and corporate law) within ten (10) days of notice of reference to arbitration, failing which either party may apply to a court of competent jurisdiction in the Province of Ontario to appoint an arbitrator with the foregoing qualifications; (b) the arbitration shall be held in private and no person except the Parties and their respective representatives and witnesses shall be present unless authorized by the arbitrator; (c) subject to the provisions of this Section 9.1, the Parties will agree, in consultation with the arbitrator, on the rules of the arbitration. Absent such agreement, the arbitrator will be entitled to establish the procedures to be followed, provided that in doing so, the arbitrator shall be guided by the Parties' mutual intention that 18 such procedures should be designed to expedite the proceedings and minimize to the extent practicable the expenses for the Parties; (d) the arbitration award shall be final and binding on the Parties and shall not be subject to any appeal (those provisions of the Arbitration Act, 1991 (Ontario) necessary to achieve such result are hereby expressly excluded); (e) the costs of the arbitration shall be in the discretion of the arbitrator; (f) judgment upon any award may be entered in any court having jurisdiction or application may be made to the court for a judicial recognition of the award or an order of enforcement, as the case may be; (g) the arbitrator shall be instructed that time is of the essence in the arbitration proceeding and, in any event, the arbitration award must be made within 15 days of the submission of the Dispute to arbitration; (h) all Disputes referred to arbitration (including the scope of the agreement to arbitrate, any statute of limitations, set-off claims, conflict of laws rules, tort claims and interest claims) shall be governed by the substantive law of Ontario; and (i) the Parties agree that the arbitration shall be kept confidential and that the existence of the proceeding and any element of it (including any pleadings, briefs or other documents submitted or exchanged, any testimony or other oral submissions and any awards) shall not be disclosed beyond the arbitrator, the Parties, their counsel and any person necessary to the conduct of the proceeding, except as may lawfully be required in judicial proceedings relating to the arbitration or otherwise. ARTICLE IX GENERAL 9.1 NOTICE. Any notice or other communication (a "NOTICE") required or permitted to be given or made hereunder shall be in writing and shall be well and sufficiently given or made if: (a) delivered by overnight courier service; or (b) sent by facsimile transmission and confirmed by prepaid first class mail or overnight courier service. 19 in the case of a Notice to THE BRICK addressed to THE BRICK at: The Brick Warehouse Corporation 16930 - 114 Avenue Edmonton, Alberta T5M 3S2 Attention: Mr. Ron Tweddle, Chief Financial Officer Fax No.: 780-454-0969 with a copy to: McCarthy Tetrault LLP Box 48, Suite 4700 Toronto Dominion Bank Tower Toronto, ON M5K 1E6 Attention: Jonathan Grant Fax No.: 416-868-0673 and in the case of a Notice to BID.COM addressed to it at: ADB Systems International Inc. 201 - 6725 Airport Road Mississauga, Ontario L4V 1V2 Attention: Mr. John Mackie General Counsel Fax No.: (905) 672-7514 with a copy to: Gowling Lafleur Henderson LLP Suite 5800 Scotia Plaza Toronto, Ontario M5H 3Z7 Attention: Mr. David Pamenter Fax No.: (416) 863-3611 and in the case of a Notice to NEW ADB, addressed to it at: ABD Systems International Ltd. 20 201 - 6725 Airport Road Mississauga, Ontario L4V 1V2 Attention: Mr. John Mackie General Counsel Fax No.: (905) 672-7514 with a copy to: Gowling Lafleur Henderson LLP Suite 5800 Scotia Plaza Toronto, Ontario M5H 3Z7 Attention: Mr. David Pamenter Fax No.: (416) 863-3611 Any Notice given or made in accordance with this Section 8.1 shall be deemed to have been given or made and to have been received on the Business Day after it was delivered, if delivered as aforesaid. Either Party may from time to time change its address for notice by giving Notice to other Party in accordance with the provisions of this Section 9.1. 9.2 MERGER, AMALGAMATION AND DISSOLUTION Except as contemplated by the Restructuring, BID.COM shall not amalgamate, merge, consolidate or otherwise enter into any form of business combination with any other Person. BID.COM shall not liquidate, dissolve, or windup or take any steps or proceedings in connection therewith. 9.3 ASSIGNMENT. No Party may assign its rights and obligations under this Agreement, in whole or in part, without the prior consent in writing of the other Parties. Any purported assignment by a Party made without required consent is void and of no effect. No assignment of this Agreement by THE BRICK or NEW ADB shall relieve such Party from any obligation under this Agreement. Notwithstanding the foregoing, THE BRICK may, without the prior consent of BID.COM or NEW ADB at any time, assign its rights and obligations under this Agreement to an Affiliate of THE BRICK or to a bona fide purchaser of all or substantially all of THE BRICK's business. NEW ADB may, without the prior consent of any other Party at any time, assign its rights and obligations under this Agreement to a bona fide purchaser of all or substantially all of NEW ADB's business. 21 9.4 BINDING ON SUCCESSORS. This Agreement shall enure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns. 9.5 FURTHER ASSURANCES. Each Party agrees that upon the written request of any Party, it will do all such acts and execute all such further documents, assignments, and the like, and will cause the doing of all such acts and will cause the execution of all such further documents as are within its power to cause the doing or execution of, as any other Party hereto may from time to time reasonably request be done and/or executed as may be reasonably necessary or desirable to give effect to this Agreement or as may be requisite to enable them to have the full benefit of all rights and remedies intended to be reserved or created hereby or as may be required under local laws. 9.6 INDEPENDENT CONTRACTORS. It is understood and agreed that in giving effect to this Agreement, no Party shall be or be deemed a partner, agent or employee of any other Party for any purpose and that their relationship to each other shall be that of independent contractors. Nothing in this Agreement shall constitute a partnership or a joint venture between the Parties. No Party shall have the right to enter into contracts or pledge the credit of or incur expenses of liabilities on behalf of any other Party. 9.7 WAIVER. A waiver by a Party hereto of any of its rights hereunder or of the performance by any other Party of any of its obligations hereunder shall be without prejudice to all of the other rights hereunder of the Party so waiving and shall not constitute a waiver of any such other rights or, in any other instance, of the rights so waived, or a waiver of the performance by such other Party of any of its other obligations hereunder or of the performance, in any other instance, of the obligations so waived. No waiver shall be effective or binding upon a Party unless the same shall be expressed in writing and executed by the Party to be bound. Notwithstanding any forbearance or indulgence by any Party, until complete performance of a term or condition, the waiving Party shall be entitled to invoke any remedy available to it under this Agreement or at law. 9.8 COMPLIANCE WITH LAW. Each Party shall, in the performance of this Agreement, fully comply with, and abide by, all laws, regulations, regulatory rulings or directives, court orders, and decisions of administrative tribunals of competent jurisdiction, that may, in any manner or extent, concern, govern, or affect any Party's respective performance of, and obligations under, this Agreement. 22 9.9 EFFECTIVE DATE. This Agreement shall not become a valid and binding contract unless and until each Party has duly executed and delivered this Agreement. 9.10 AMENDMENT. No amendment of any provision of this Agreement shall be effective unless such amendment is embodied in a written agreement which is: (i) expressly stated to be intended to amend this Agreement; and (ii) executed by an authorized signing officer of each of the Parties. For greater certainty, the parties acknowledge and agree that no representations, warranties, conditions, covenants or other statements or commitments, in each case except for those made pursuant to a Transaction Document, whether made orally, in writing, by course of conduct or otherwise, and whether made prior to the Effective Date of this Agreement or thereafter, shall be binding on either of the parties. 9.11 GOVERNING LAW. This Agreement shall be governed and construed according to the laws of the Province of Ontario and the laws of Canada applicable therein, and shall be treated, in all respects, as an Ontario contract. Each of the Parties hereby attorns to the jurisdiction of the Courts of the Province of Ontario. 9.12 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Counterparts may be executed either in original or faxed form and the Parties may adopt any signatures received by a receiving fax machine as original signatures of the Parties. 9.13 SEVERABILITY. If any Article, Section or any portion of any Section of this Agreement is determined to be unenforceable or invalid for any reason whatsoever, that unenforceability or invalidity shall not affect the enforceability or validity of the remaining portions of this Agreement and such unenforceable or invalid Article, Section or portion thereof shall be severed from the remainder of this Agreement. 23 IN WITNESS WHEREOF this Agreement is executed by the Parties as of the date first written above. ADB SYSTEMS INTERNATIONAL INC. By: --------------------------------------------------- (Duly Authorized Officer) THE BRICK WAREHOUSE CORPORATION By: --------------------------------------------------- (Duly Authorized Officer) ADB SYSTEMS INTERNATIONAL LTD. By: --------------------------------------------------- (Duly Authorized Officer) 24 SCHEDULE A SOFTWARE RESTRICTIONS, NEW ADB SERVICE DESCRIPTIONS AND MINIMUM REQUIREMENTS 1.0 SOFTWARE RESTRICTIONS 1.1 LICENSE GRANTED TO BID.COM Subject to the provisions of the Agreement, NEW ADB hereby grants to BID.COM a non-exclusive, perpetual, personal, non-transferable right to use the Software and U.S. Patent Nos. 5,890,138 and 6,266,652 for the on-line sale of Products under, and for the Term of, the Agreement only, which right includes the right to use such Software in the performance of BID.COM's obligations to the THE BRICK pursuant to the Agreement. The right granted in this Section 1.1 specifically excludes, however, any and all rights NEW ADB has or will have under the Patent License Agreement made between Old ADB and NCR Corporation dated April 17th, 2002, including, for certainty, U.S. Patent No. 5,721,906, provided that the Parties acknowledge and agree that it is their intention that Old ADB's benefits under Section 11.2 of the Patent License Agreement shall be afforded to BID.COM. 1.2 USE LIMITATIONS ON SOFTWARE. (a) The Retailer and the Supplier understand and acknowledge that this Agreement only permits the Software to be used: (i) in respect of transactions where the buyer's address for delivery is in Canada or the United States of America, as determined pursuant to the registration process for such transactions; and (ii) in connection with transactions involving consumer goods. (b) Nothing herein shall be construed as permitting the Retailer any right of resale of the Software. Without limitation to the foregoing, throughout the Term of the Agreement of which this Schedule forms a part, BID.COM and NEW ADB shall not license or sub-license, or permit the licensing or sublicensing of, the right to use the Software for retail sales purposes to a Competitor of THE BRICK. For the purposes of this Section 1.2, "Competitor" means any Person whose principal business to be conducted through Dynamic Seller is comprised of sales at retail of furniture, mattresses, appliances or consumer electronics to customers for delivery in Canada and includes, without limitation the competitors listed in Appendix A to Schedule A. For greater certainty, current customers of NEW ADB exercising their rights under existing agreements or any renewal or replacement agreements are not Competitors. Notwithstanding the foregoing, NEW ADB may license or sub-license, or permit the licensing or sublicensing of, the right to use the 25 Software for retail sales purposes to a Competitor of THE BRICK where such Competitor is not given the right to use the Software for sales at retail of furniture, appliances or consumer electronics to customers for delivery in Canada. 1.3 OWNERSHIP OF SOFTWARE. (a) The Supplier and the Retailer acknowledge that, subject to the grant of an interest contemplated by Section 4.1(a) of the Agreement and the license granted pursuant to Section 4.1(b) of the Agreement, NEW ADB retains ownership of the Software, that the Software comprises commercially valuable trade secrets, Confidential Information and proprietary data of NEW ADB, and that no provision of this Agreement shall be construed to convey title in the Software to the Supplier or to the Retailer save and except for the transfer of the interest in the Software to THE BRICK to be granted pursuant to Section 4.1(a) of the Agreement to which this Schedule forms a part. (b) Without limitation to any of the restrictions on the rights of the Supplier or the Retailer with respect to the Software, the Supplier and the Retailer each covenant and agree to disclose to NEW ADB any desirable modifications or improvements to the Software or any add-on computer programs or files, application programming interfaces, bug fixes or patches as may come to their attention. All right, title and interest in any of the foregoing that NEW ADB first learns of from the Supplier or the Retailer or creates for either or both of them pursuant to this Agreement, including the Source Materials with respect thereto, shall immediately vest as the property of NEW ADB save and except that they shall be deemed to form part of the Software hereunder which shall be subject to all the terms and provisions of this Agreement with respect to the Software including, for added certainty, Section 1.2 of this Schedule A. Where applicable, the Supplier and/or the Retailer shall cause their employees, agents or consultants to waive any moral rights they may have in such modifications or improvements and shall deliver written evidence thereof to NEW ADB promptly. (c) Notwithstanding paragraphs (a) and (b) of this Section 1.3, but subject to Section 3.2 of the Agreement, the Parties acknowledge that THE BRICK shall retain all of its Intellectual Property Rights in the "look and feel" of www.thebrick.com and in all the content provided by it pursuant to Section 3.2 of the Agreement, of which this Schedule forms a part. 26 2.0 SERVICE DESCRIPTIONS 2.1 IMPLEMENTATION AND CUSTOMIZATION SERVICES. (a) NEW ADB will provide all implementation services described in Appendix B to this Schedule A (the "IMPLEMENTATION"). (b) "ACTIVATION" means the completion by NEW ADB of a production site incorporating the functionality set out in Appendix B to this Schedule A. BID.COM agrees to provide to NEW ADB a written acknowledgment of Activation, upon such functionality being achieved. NEW ADB shall use commercially reasonable efforts to achieve Activation before November 30, 2002. In the event BID.COM notifies NEW ADB in writing that it does not accept that Activation has been achieved, it must set out in writing the reasons for its non-acceptance and deliver such reasons to NEW ADB within 2 Business Days after NEW ADB gave it notice of Activation, failing which it shall be deemed to have accepted the Activation. Any dispute over Activation shall be settled amicably by the Project Managers as defined herein, failing which the matter shall be referred to the Presidents of each Party for resolution, failing which the matter shall be referred to arbitration as outlined herein. The scope of and the schedule for the completion of NEW ADB's implementation of a production site and the resulting functionality thereof shall be completed by mutual agreement of the Project Managers, acting reasonably and diligently after the date of this Agreement, in accordance with Appendix B to this Schedule A. NEW ADB shall use its commercially reasonable efforts to achieve the delivery dates to be agreed by the Project Managers pursuant to such Appendix B. (c) The Implementation will be conducted by NEW ADB personnel, on dates and times and at such locations as mutually determined by the Parties. The Project Managers will act reasonably and diligently to prepare and mutually agree on a detailed set of procedures and a time line for the completion of acceptance testing of the Implementation in accordance with Appendix B to this Schedule A. (d) NEW ADB shall develop and implement all interface requirements reasonably necessary to permit remote electronic transfer by BID.COM of product and transactional information to and from NEW ADB's platform site in accordance with the mutual agreement of the Project Managers pursuant to Appendix B to this Schedule A. 2.2 FEES FOR IMPLEMENTATION AND CUSTOMIZATION SERVICES (a) BID.COM shall pay NEW ADB $800 per man day for the Services of NEW ADB pursuant to Section 2.1 of this Schedule A. NEW ADB estimates it will take 27 approximately 57 man days of work to achieve Activation. If Activation is achieved on or before November 15, 2002, BID.Com shall pay NEW ADB an additional $200 per man day that was required to achieve Activation. 2.3 ADDITIONAL SERVICES (a) In the event BID.COM wishes to retain NEW ADB for additional consulting, customization or implementation services beyond those described in this Schedule at any time during the Term of the Agreement to which this Schedule forms a part, BID.COM shall provide no less than 15 days prior written notice of each such change order, and the specific details of such additional work must be defined and agreed in writing through a change request in ADB's standard form, signed by all Parties before the commencement of work. NEW ADB shall provide change order services, subject to availability of the relevant NEW ADB personnel, at ADB's Daily Rates, plus expenses (travel, per diem and lodging) if travel is required. ADB's Daily Rate is CDN $1,000 per day for intermediate developers, for senior developers and for Project Managers. (b) Nothing herein shall obligate NEW ADB to provide any services in connection with the Software, including without limitation video streaming, specific functionality or customization changes to the Software, or any additional or specific branding requirements, beyond those specified herein. Retailer must contract separately with NEW ADB for any such services, failing which NEW ADB assumes no responsibility for such services. 2.4 TRAINING (a) Where appropriate, NEW ADB agrees to provide training, at a site designated by NEW ADB, to up to two (2) employees each of BID.COM and THE BRICK for one full Business Day with respect to remote transfer of product and transactional information to and from NEW ADB's platform site, show production and transaction fulfilment. NEW ADB shall reasonably determine the resources to be made available for such consultation and training, provided that NEW ADB shall use its commercially reasonable efforts to ensure that Retailer and Supplier have sufficient training prior to Activation to conduct transactions through the platform on an ongoing basis. In the event that either Retailer or Supplier determines that more training is necessary, NEW ADB shall provide such training at $800 per day, plus travel, lodging and expenses. (b) The training will be conducted by NEW ADB personnel, on dates and times and at such locations as mutually determined by the parties. 2.5 TECHNICAL SUPPORT AND ESCALATION PROCEDURES 28 New ADB agrees to provide ongoing technical support for the Sites. It is the general intention of the Parties that this will include: (a) Monitoring dedicated circuit to ensure that it is operational at all times. (b) Maintain configuration on internet access routers and make changes where necessary. (c) Load balancing. (d) Security monitoring. (e) Ensuring HTTPS access to the Supplier for access to program reports; however the Parties agree that the Project Managers will work together diligently and reasonably after the Effective Date to determine specifically what ongoing technical support will be provided for the Sites and whether items (a) to (e) above, and/or other items, will be provided. 2.6 SECURITY (a) NEW ADB agrees to cooperate with BID.COM in the implementation of security protocols and procedures as they are developed during the term of this Agreement. NEW ADB shall establish reasonable and appropriate security functionality permitting the regulation of access to the Software and the transaction platform. BID.COM shall be responsible for issuing and terminating passwords and/or usernames and verifying the status of authorized users. (a) NEW ADB and BID.COM agree to cooperate in the collection and sharing of information about the use of the platform consistent with applicable privacy laws and confidentiality requirements of each Party. NEW ADB will not be required to obtain consents from users of the Sites to the collection, retention, disclosure and use of such user's personal information, which shall be the responsibility and at the sole cost of BID.COM. 3.0 INFRINGING SOFTWARE NEW ADB agrees that, in the event that during the Term of the Agreement the Software or any portion thereof is held to infringe another person's rights, and use thereof is enjoined during such Term, NEW ADB shall, at its election and expense: (i) procure the right to use the infringing element thereof; (ii) procure the right to an element which performs the same function without any material loss of functionality; or (iii) replace or modify the element thereof so that the infringing portion is no longer infringing and still performs the same function without any material loss of functionality, performance or efficiency, provided that NEW ADB shall not be required to take any of the foregoing steps and shall bear no liability with respect to such an infringement that is caused, in whole or in part, by the actions or direction of BID.COM or THE 29 BRICK, including any content displayed or data processed by the Software that was provided by either of them. 4.0 COVENANTS OF RETAILER AND SUPPLIER (a) Without limitation to Section 5.2 of the Agreement to which this Schedule is attached, the Retailer and the Supplier shall not disclose, or permit any of their officers, employees, representatives, or legal advisors to disclose, any information, data, plans or specifications of a confidential nature concerning the Software or the Services, during the Term or at any time thereafter, including, without limiting the generality of the foregoing, any designs, drawings, technical specifications or other such information, service manuals, commercial data or quotations, this Agreement or the terms hereof, to anyone or assist or permit anyone in obtaining knowledge of any part of the Software or the Services other than such as may be necessary for competent operators trained or approved by NEW ADB to utilize the Software as contemplated hereby, or as may be required by law. (b) Commencing from Activation, the Retailer and the Supplier, jointly and severally, shall indemnify and hold harmless NEW ADB from and against any and all liabilities, claims and judgments for damage arising out of, or for injury to or death of persons, or damage to property occasioned by the operation or use of the Software by them and shall obtain appropriate comprehensive general liability insurance in this regard naming NEW ADB as an additional insured in form and with limits reasonably acceptable to NEW ADB. The Retailer and the Supplier hereby acknowledge that they are solely responsible for all show production, product placement, collection, customer service, fulfilment and other non-technical aspects of each auction or transaction conducted through the Software. (c) The Retailer and the Supplier hereby acknowledge and agree that, during the Term of the Agreement to which this Schedule forms a part, they shall not directly or indirectly solicit, offer employment to, or otherwise attempt to engage the services of any employee of NEW ADB or any Affiliate of NEW ADB, and NEW ADB hereby acknowledges and agrees that, during the Term of the Agreement to which this Schedule forms a part, it shall not directly or indirectly solicit, offer employment to, or otherwise attempt to engage the services of any employee of the Retailer or the Supplier. Nothing in this paragraph shall prevent a Party from soliciting the employment of, or from offering employment to, the other Parties' employees in accordance with the Transaction Documents or through generalized searches for employees through the publication of advertisements or other public announcements that are not specifically targeted at the other Party's employees. 30 5.0 FORCE MAJEURE Provided that prompt notice of the delay or failure is given to the other Parties, NEW ADB shall not be liable for delays or failure in their performance or observation of their covenants or obligations under the Agreement to which this Schedule is attached including for certainty this Schedule and any other Schedule thereto, where such delays or failure are beyond its control, respectively, including, but not limited to, delays caused by the Payment System or the Fulfillment System's lack of functionality for any reason, fire, carriers, acts of God, war, insurrection, riot, e-sabotage, spamming or any governmental authority. 31 APPENDIX A TO SCHEDULE A COMPETITOR LIST FOR THE BRICK Sears Sears (Canada) Leon's Furniture Hudson's Bay Company Zeller's Wal-Mart Wal-Mart Canada Best Buy Future Shop Home Depot Home Depot Canada Sleep Country Canada Visions A&B Sound Dufresne Furniture & Appliances North West Company Bad Boy Furniture & Appliances Ikea Ikea Canada La-Z-Boy Furniture Galleries Mattress Mattress Palliser Rooms Trail Appliances AP Wagner Brault & Martineau Centre Hi-Fi Matelas Bon Heur Radio Shack 2001audiovideo CompuSmart Dumoulin Tangeay International Stereo Home & Rural Appliances furniture.com (virtual space) E-bay.ca Amazon.ca QVC.com 2 APPENDIX B TO SCHEDULE A SOFTWARE FUNCTIONALITIES, SCOPE OF NEW ADB IMPLEMENTATION SERVICES AND SOFTWARE AND HARDWARE CONNECTIVITY REQUIREMENTS As soon as reasonably possible after the Effective Date, the Project Managers shall work together diligently and using reasonable commercial efforts to supplement this Appendix by mutual agreement. This Appendix, when fully supplemented, shall set out: 1. the scope of the Implementation services to be provided by NEW ADB and the schedule for completion thereof; 2. Acceptance testing procedures with respect to the Implementation and the Activation; 3. the software and hardware connectivity requirements of each Party for all purposes of the Services including detailed plans as to how such requirements will be fulfilled; and 4. the functionality to be provided by NEW ADB for the Site, all subject to and in accordance with the terms and provisions of the Agreement and the Schedules thereto. The Scope of the Implementation services to be provided by NEW ADB shall include the following, subject to amendment or supplementation by mutual agreement of the Project Managers: Site Construction o Conduct review sessions with Retailer to identify where and how the existing Dyn@mic Seller software meets Retailers' requirements and where enhancements will be required to meet Retailers' unique methods of operation o Design, develop, test and deploy the enhanced Dyn@mic Seller as defined above o Design, source, test and deploy a computing hardware, operating system, database, and Dyn@mic Seller application software infrastructure capable of supporting Retailer's business processes and volume Site Operation o Provide computer hardware, operating system and database software, Dyn@mic Seller web site application software and communications infrastructure to support the operation of the Sites on an on-going basis 3 o Conduct facilities monitoring activities to ensure that the sites are available to Retailer's customers in an uninterrupted manner 24X7, and report on site activity and availability on a periodic basis o Provide the necessary repair and remediation services should the sites become unavailable to Retailer's customers The Project Managers will develop the scope for the functionality of the Site, and supplement this Appendix to reflect the same, based on the following objectives: Corporate Communication o Communicate promotional activities of Supplier's bricks-and-mortar stores o Communicate the Supplier's general warranties, policies and procedures, and the special capabilities of the Supplier's specific business units including, but not limited to, Commercial Sales, Consumer Credit, Franchise operations, T.V. and Appliance Service, and Customer Service. o Communicate employment opportunities with the Supplier o Communicate other static corporate information regarding the Supplier as required o Enable internet users to locate the Supplier's facilities across Canada o Enable connections with other third-party sites including the Supplier's vendors and other partners as required On-line Shopping o Display the Supplier's Products' pictures, features and benefits, prices, terms and conditions of sale, availability and purchase instructions o Organize the Supplier's Products into a number of flexible hierarchical product groups to enable the Retailer's customers a number of paths to quickly identify Products of interest o Enable a site-wide search capability to assist Retailer's internet visitors to directly access product information and/or other material of interest to them o Support a number of pricing models for product sale including time-sensitive and geography-specific fixed and auction (a la bid.com) pricing o Enable Retailer's customers to build and modify product orders including any number of specific products with the appropriate price 4 o Solicit product-specific sale of optional add-on products and services o Collect bill-to and ship-to information from Retailer's customers to enable subsequent order fulfillment o Display order summary information for Retailer's customer's to enable review of products, pricing, tax and delivery information o Collect credit card information to enable order funding o Communicate completed order information to Supplier's Fulfillment System o Process delivery or cancellation confirmations from Supplier's fulfillment system 5 SCHEDULE B NEW ADB SERVICES, SERVICE LEVEL COMMITMENT 1.0 STATEMENT OF INTENT The purpose of this Schedule is to establish service level objectives, negotiated in good faith, and to provide best in class service to meet the expectations of the end user(s). This Schedule represents a Schedule between THE BRICK (the "Supplier") and BID.COM (the "Retailer") and NEW ADB (the "Service Provider"), describes the responsibilities of the participants named in this Schedule, and outlines the objectives by which attainment is measured. 2.0 CHANGES TO THIS SCHEDULE This Schedule can be re-negotiated at any time due to changes in business requirements, operating environment, needs of the Supplier and/or the ability of the Retailer and the Service Provider to consistently and satisfactorily meet the objectives. Any Party can initiate renegotiations. 3.0 SYSTEM DESIGN 3.1 The Service Provider agrees that the equipment hosted by the Retailer for the purposes of this Agreement is for the sole use of the Sites and will not be shared with any existing or future clientele. 3.2 The Service Provider agrees to provide the Retailer and the Supplier with 24 hours of notice prior to any change of an externally visible TCPIP address at the hosting facility. 4.0 TECHNICAL SUPPORT PLAN AND ESCALATION PROCEDURES 4.1 The Service Provider agree to provide ongoing Software support for the Sites throughout the Term of the Agreement. The Parties agree that the Project Managers will work together diligently and reasonably after the Effective Date to determine specifically what ongoing Software support will be provided for the Sites. 4.2 The Service Provider will provide ongoing access to consulting talent, with the general intention that such consulting talent relate to: (a) Software Troubleshooting 6 (b) Internal Software audits (d) Software changes and enhancements however the Parties agree that the Project Managers will work together diligently and reasonably after the Effective Date to determine more specifically what shall constitute "access" and whether items (a) to (d) above, and/or access to other consulting talent, is to be provided. 4.3 NEW ADB shall respond to any report that the Software is failing to operate within normal operating parameters within the time frames set out below. The severity of any particular failure shall be determined by Retailer, acting reasonably, and communicated to the other Parties, based on the following definitions: SEVERITY 1: total inability to use any material part of the Software, resulting in a critical impact on user objectives. SEVERITY 2: ability to use the Software, but user operation is severely restricted. SEVERITY 3: ability to use the Software; failures relate to functions that are not critical to overall user operations. SEVERITY 4: failure has been bypassed or temporarily corrected and is not affecting customer operations. The Service Provider shall respond to each of the other Parties within the following time frames: SEVERITY 1: within 2 hours of notification by Retailer SEVERITY 2: within 4 hours of notification by Retailer SEVERITY 3: within 2 Business Days of notification by Retailer SEVERITY 4: within 5 Business Days of notification by Retailer The Service Provider shall use best efforts to resolve the failure promptly upon response to the other Parties. 7 SCHEDULE C BID.COM PERFORMANCE COMMITMENT 1.0 STATEMENT OF INTENT The purpose of this Schedule is to establish performance criteria objectives, negotiated in good faith, and to provide best functionality to meet the expectations of the end user(s). This Schedule represents a Schedule between THE BRICK (the "Supplier") and BID.COM (the "Retailer") and NEW ADB (the "Service Provider"), describes the responsibilities of the participants named this Schedule, and outlines the objectives by which attainment is measured. 2.0 CHANGES TO THIS SCHEDULE THIS SCHEDULE CAN BE RE-NEGOTIATED AT ANY TIME DUE TO CHANGES IN BUSINESS REQUIREMENTS, OPERATING ENVIRONMENT, NEEDS OF THE SUPPLIER AND/OR THE ABILITY OF THE RETAILER AND THE SERVICE PROVIDER TO CONSISTENTLY AND SATISFACTORILY MEET THE OBJECTIVES. ANY PARTY CAN INITIATE RENEGOTIATIONS. 3.0 SOFTWARE HOSTING 3.1 The Retailer shall host and maintain the Software and the related hardware throughout the Term of this Agreement. The Supplier specifically acknowledges that the Retailer's hosting and maintenance obligations hereunder extend to the Retailer and the Supplier's complete web presence at the Sites and to the hosting and maintenance of the server(s) hosting the same, and that the service level commitments contained herein shall extend to all elements of the Sites. 3.2 The Retailer agrees that the servers, hardware and third party software used to host or service the Software shall be maintained by the Retailer at its sole cost and expense, in accordance with the budgets prepared pursuant to the Agreement. 3.3 The Retailer shall provide monthly reports regarding site activity in such detail and by such means as Supplier may reasonably require. 3.4 The Supplier shall not have any access to the hosting servers, the Software or the facilities in which same are maintained except: (a) Supplier shall have the ability to post and access electronically "real-time" transaction-specific; and (b) Supplier shall have the right, upon reasonable notice and during normal business hours, to have representatives escorted by the Retailer's employees tour the premises where the hosting servers and Software are located to the extent reasonably necessary to ensure the Retailer's compliance with this Agreement. 8 3.5 The Retailer shall be responsible for input of transaction-specific data into the Software as is necessary for the purposes of this Agreement through such means as specified by the Service Provider from time to time. The Retailer and the Supplier, as the case may be, hereby grant the Service Provider a royalty-free right and license to use and to modify such data as may be necessary in the provision of the Services to be provided by the Service Provider under the Agreement to which this Schedule is attached. 4.0 SERVICE COMMITMENTS 4.1 The Retailer will ensure that the Sites will be available for use 24 hours a day, 7 days per week, excluding periods for Scheduled Maintenance or Emergency Maintenance. 4.2 SCHEDULED MAINTENANCE: The Retailer will ensue that one scheduled maintenance window per week will be available from 3:00 am to 5:00 am ET each Sunday. 4.3 EMERGENCY MAINTENANCE: When emergency maintenance is required, the Retailer will provide the greatest amount of lead-time and arrange, a solution that minimises the impact on the Supplier and the Service Provider. 4.4 AVAILABILITY COMMITMENT: The Sites will be monitored and managed to ensure that the Sites will be available 99.5% of the time, excluding the scheduled maintenance periods. 4.5 RESPONSE TIME COMMITMENT: The Sites and the Software will be monitored and managed to ensure that on a monthly basis, the response time to users will not exceed a level to be agreed on by the Project Managers pursuant to the agreement to be made by them pursuant to paragraph 2.1(b) of Schedule A with respect to the scope and functionality of the production site. 4.6 FILE BACKUP: The Retailer will maintain operative processes that ensure data safekeeping and recovery and will run daily backup of user files and system files necessary for system recovery and send them to secure off site vault storage on a weekly basis 5.0 SYSTEM DESIGN 5.1 The Retailer will agree to provide certain hardware for operation of the Sites as soon as reasonably possible after the Effective Date. The Project Managers shall work together diligently and reasonably to determine the hardware that will be necessary and how it will be provided, and the costs thereof shall be reflected in the budgets to be prepared pursuant to Section 5.5 of the Agreement to which this Schedule forms a part. 5.2 The Retailer agrees to provide and maintain adequate Internet firewalls at the selected hosting facility to ensure security of website against unauthorized attacks and intrusions. 5.3 The Retailer agrees to maintain/upgrade/replace components as necessary to meet all service level expectations outlined in this Schedule and the Agreement. 9 5.4 The Retailer agrees to the system architecture detailed in Appendix B to Schedule A. The Retailer agrees not to deviate from this design at any time without written consent from the Supplier and the Service Provider. 5.5 The Retailer agrees that the equipment listed above is for the sole use of the Sites and will not be shared with any existing or future clientele. 5.6 The Retailer agrees to provide suitable hosting facilities at its expense for the duration of the Term of the Agreement. 5.7 The Retailer agrees to provide the Supplier access to the system components upon request, provided that the Retailer is given a minimum of 24 hours notice where each of such 24 hours is on a Business Day. 5.8 The Retailer agrees to provide the Supplier with 24 hours of notice prior to any change of an externally visible TCPIP address at the hosting facility. 6.0 DATA INTEGRITY 6.1 The Retailer shall back-up transaction data daily onto tapes at the hosting facility. Tapes to be stored offsite and overwritten every 5th day. 7.0 TECHNICAL SUPPORT PLAN AND ESCALATION PROCEDURES 7.1 The Retailer will provide ongoing access to consulting talent, with the general intention that such consulting talent relate to: (a) Troubleshooting (b) System inquiries (c) Internal audits (d) Hardware, infrastructure and/or connectivity changes and enhancements however the Parties agree that the Project Managers will work together diligently and reasonably after the Effective Date to determine more specifically what shall constitute "access" and whether items (a) to (d) above, and/or access to other consulting talent, is to be provided. 7.2 Retailer shall respond to any report that the Software or the Sites are failing to operate within normal operating parameters within the time frames set out below. The severity of any particular failure shall be determined by Supplier, acting reasonably, and communicated to the other Parties, based on the following definitions: 10 SEVERITY 1: total inability to use any material part of the Software or the Site, resulting in a critical impact on user objectives. SEVERITY 2: ability to use the Software or the Site, but user operation is severely restricted. SEVERITY 3: ability to use the Software or the Site; failures relate to functions that are not critical to overall user operations. SEVERITY 4: failure has been bypassed or temporarily corrected and is not affecting customer operations. The Retailer shall respond to each of the Parties within the following time frames: SEVERITY 1: within 2 hours of notification by Supplier SEVERITY 2: within 4 hours of notification by Supplier SEVERITY 3: within 2 Business Days of notification by Supplier SEVERITY 4: within 5 Business Days of notification by Supplier In each case the Retailer shall use best efforts to resolve the failure promptly upon response to the other Parties. 11 SCHEDULE D DYN@MIC SELLER(TM) JOINT OWNERSHIP AGREEMENT THIS AGREEMENT is made as of the 23rd day of August, 2002 between ADB SYSTEMS INTERNATIONAL INC. ("OLD ADB"), corporation having its principal place of business at 6725 Airport Road, Suite 201, Mississauga, Ontario L4V 1V2, and THE BRICK WAREHOUSE CORPORATION ("THE BRICK"), a corporation having its principal place of business at 16930 - 114 Avenue, Edmonton, Alberta, T5M 3S2. RECITALS WHEREAS, OLD ADB is the owner of the DYN@MIC SELLER(TM) proprietary software (the "Software") which enables the completion of on-line retail transactions; WHEREAS, OLD ADB, ADB Systems International Inc. ("BID.COM") and THE BRICK have entered into a Supply, Services and License Agreement dated as of August 23rd, 2002 (the "SUPPLY AND SERVICES AGREEMENT"); and WHEREAS, OLD ADB wishes to convey to THE BRICK certain rights and grant certain licenses in and to the Software pursuant to the Supply and Services Agreement and subject to the terms and conditions of this Agreement; NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereby agree as follows: 1. Defined Terms All capitalized terms not otherwise defined herein shall have the meaning attributed thereto in the Supply and Services Agreement. 2. Assignment and License (a) OLD ADB hereby assigns, conveys and transfers irrevocably, perpetually and exclusively to THE BRICK an equal one-half interest as a tenant in common in and to all of OLD ADB's Intellectual Property Rights including, for greater certainty, copyright and all patent rights, if any, whether such patent rights are now in existence or hereafter acquired, in and to the Software solely for use by THE BRICK and its Affiliates for their internal business purposes limited to the on-line sale of Products to buyers with addresses for delivery in the United States of America or Canada only but such assignment, conveyance and transfer specifically excludes any and all rights OLD ADB has under the Patent License Agreement made between it and NCR 12 Corporation dated April 17th, 2001 (the "PATENT LICENSE AGREEMENT") including, for certainty, U.S. Patent No. 5,721,906 and also excludes any and all Intellectual Property Rights of OLD ADB under U.S. Patent Nos. 5,890,138 and 6,266,652 and, in addition, OLD ADB grants to THE BRICK a royalty-free, irrevocable, perpetual, worldwide license to use the Software and all of OLD ADB's Intellectual Property Rights therein, including for greater certainty all copyrights, patent rights (whether such patent rights are now existing or hereafter acquired) and trade secrets, including the right to copy, prepare derivative works, modify, adapt and combine the Software, for use by THE BRICK and its affiliates for the aforesaid use only, subject to the terms and conditions of this Agreement, including any and all Intellectual Property Rights of OLD ADB under U.S. Patent Nos. 5,890,138 and 6,266,652 but excluding any and all rights OLD ADB has under the Patent License Agreement including, for certainty, U.S. Patent No. 5,721,906, but provided that the Parties acknowledge and agree that it is their intention that OLD ADB's benefits under Section 11.2 of the Patent License Agreement shall be afforded to THE BRICK; and further provided that OLD ADB hereby reserves for itself an equal interest as tenant in common with THE BRICK in the rights granted to THE BRICK hereunder, whether such rights are now existing or hereafter acquired, in and to the Software and all other Intellectual Property Rights and other property rights in and to the Software, including the right of OLD ADB to use the Software for any purpose it sees fit and the right to license, sub-license, convey and grant security interests in the Software in whole or in part (but subject to the rights of THE BRICK hereunder) to third parties and to keep all royalties and other moneys earned through licensing and sublicensing of the Software; and provided that nothing in the assignments and grants contained herein shall restrict the rights of OLD ADB or its affiliates to use the Software. (b) OLD ADB and NEW ADB covenant and agree to assign, convey and transfer irrevocably, perpetually and exclusively to THE BRICK and its Affiliates from time to time, upon reasonable request of THE BRICK, all Intellectual Property Rights in all software, including graphic user interfaces and code created specifically to display the contents of the Site, created by OLD ADB and NEW ADB pursuant to the Supply and Services Agreement with respect to the Site, provided this paragraph 2(b) shall exclude the Software and any Intellectual Property Rights in the Software and, for added certainty, shall exclude any Intellectual Property Rights of OLD ADB that existed prior to the commencement of its Services under the Supply and Service Agreement. (c) In addition to the license granted by OLD ADB to THE BRICK pursuant to paragraph 2(a) above, OLD ADB agrees to provide the rights in connection with the Software that it does for its current customers to THE BRICK, in perpetuity, for THE BRICK's purposes limited to the on-line sale of Products to buyers with addresses for delivery in the United States of America or Canada. For greater certainty, this paragraph 2(c) does not constitute a license, sublicense, transfer or assignment of any of the licenses or rights granted to OLD ADB under the Patent License Agreement including, for certainty, U.S. Patent No. 5,721,906, provided that the Parties acknowledge and agree that it is their intention that OLD ADB's benefits under Section 11.2 of the Patent License Agreement shall be afforded to THE BRICK. 13 3. Transfer of Source and Executable Code (a) Within a reasonable period of time after execution of this Agreement, OLD ADB will deposit an executable version of the Software and related Source Materials to THE BRICK at the address noted above, and from time to time within a reasonable time after request by THE BRICK will deposit compiled versions of the software described in 2(b) hereof and related Source Materials, to THE BRICK at such address, in which THE BRICK shall have the rights provided in Section 2(a) and 2(b) of this Agreement, respectively. (b) In this Agreement, "SOURCE MATERIALS" means, in relation to the Software, all materials that would enable a reasonably skilled programmer to compile, debug, and make Improvements to such software in a reasonable manner including: (i) all source code related thereto, reasonably annotated; (ii) all technical and system documentation including specifications, flowcharts, diagrams, business rules, data and database models and structures, and compilation instructions related to such software; (iii) listings by name, version and developer of all third-party compilers, utilities and other software relating to the software, including sufficient information to procure a license, from such developers; (iv) a listing of all relevant equipment necessary to operate the Software (but not any of such equipment itself); and (v) copies, in source and object code form, of all compilers, utilities and other software that are proprietary to the developer that is the owner of software and which are used in relation to the Software. 4. Representations and Warranties OLD ADB represents and warrants that: (a) Except as has been disclosed to THE BRICK, OLD ADB has no actual knowledge of any alleged or actual infringement by any version of the Software, of any copyright, patent right, trademark, trade secret or other intellectual property rights of any third party; and (b) OLD ADB has the right and authority to assign, convey and transfer an equal undivided interest in and to the Software in accordance with Section 1, and otherwise enter into this Agreement and perform its obligations hereunder. 5. Enforcement (a) THE BRICK shall promptly bring to the attention of OLD ADB any improper or wrongful use or infringement or suspected or threatened infringement or violation of any Intellectual Property Right in the Software (an "Infringement") which comes to its attention and shall assist OLD ADB, at OLD ADB's expense, in taking all necessary steps to enforce, defend and protect such rights. In the event of an Infringement of any Intellectual Property Right in the Software by a third party, OLD ADB shall decide in its absolute discretion whether and what steps should be taken to prevent or terminate such Infringement including the institution of legal 14 proceedings where necessary and OLD ADB shall notify THE BRICK of any such Infringement and its intended response. OLD ADB shall have sole control over and shall conduct any such actions as it shall deem necessary and THE BRICK shall, at OLD ADB's expense provide or procure such assistance including the furnishing of documents and information and the execution of all necessary documents to or conducting any legal proceedings as OLD ADB may request to protect and defend such rights. (b) Notwithstanding Section 5(a), THE BRICK, with the consent of OLD ADB in writing, which consent will not be unreasonably withheld or delayed, shall have the right, at its expense, to bring a claim, action or other proceeding against third parties alleging infringement of copyright in the Software. OLD ADB will, if desired, be entitled to participate in such claim at its own expense. 6. Warranty Disclaimer EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER PARTY MAKES AND THE OTHER PARTY RECEIVES NO WARRANTY, WHETHER EXPRESS, IMPLIED OR STATUTORY, HEREUNDER AND ALL REPRESENTATIONS, WARRANTIES AND CONDITIONS OF ANY KIND OR NATURE, EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO, IMPLIED WARRANTIES AND CONDITIONS OF MERCHANTABILITY, MERCHANTABLE OR SATISFACTORY QUALITY, FITNESS FOR A PARTICULAR PURPOSE, DURABILITY, TITLE, AND THOSE ARISING BY STATUTE OR OTHERWISE IN LAW OR FROM A COURSE OF DEALING OR USE OF TRADE ARE HEREBY DISCLAIMED AND EXCLUDED. 7. Consequential Damages WHETHER OR NOT ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR ANY OTHER PERSON FOR INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL OR SIMILAR DAMAGES, INCLUDING WITHOUT LIMITATION LOST PROFITS OR REVENUES, LOSS OF GOODWILL, WORK STOPPAGE, LOST DATA OR COMPUTER HARDWARE OR SOFTWARE DAMAGE, FAILURE OR MALFUNCTION, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT. 8. Assignment (a) Nothing in this Agreement shall prevent OLD ADB from assigning its interest, in whole or in part, in this Agreement and the subject matter hereof at any time and from time to time. THE BRICK and its Affiliates may not assign this Agreement nor any rights or licenses granted hereby without OLD ADB's written consent, which consent may be withheld by NEW ADB at its sole and unfettered discretion, and any such assignment shall be null and void; provided that, nothing in this subsection 8(a) shall be construed as prohibiting any assignment of this Agreement by THE BRICK without the consent of OLD ADB if such assignment is part of a 15 sale of substantially all of the assets of, or a majority interest in the voting shares of, THE BRICK, or the merger or amalgamation of THE BRICK with any entity. (b) Subject to paragraph 8(a) above, this Agreement shall enure to the benefit of and be binding upon any successor or assign of each party. 9. Independent Contractors It is understood and agreed that in giving effect to this Agreement, no party shall be or be deemed a partner, agent or employee of the other party for any purpose and that their relationship to each other shall be that of independent contractors. Nothing in this Agreement shall constitute a partnership or a joint venture between the parties. No party shall have the right to enter contracts or pledge the credit of or incur expenses of liabilities on behalf of the other party. 10. Further Assurances Upon the request from time to time of THE BRICK, OLD ADB shall execute all such conveyances, bills of sale, transfers, assignments, notices and other documents and use all reasonable efforts to secure all necessary consents and approvals as, in the reasonable opinion of THE BRICK, may be necessary to effectively vest title to the interest in the Software granted hereunder in THE BRICK or otherwise to protect or perfect any rights of THE BRICK in the Software. THE BRICK shall be responsible for the costs of preparing, executing and registering with all necessary offices of public record any such conveyance, bill of sale, transfer, assignment, notice or other document in respect of the Software, including OLD ADB's legal and consultant's costs with respect thereto. 11. Waiver A waiver by a party hereto of any its rights hereunder or of the performance by the other party of any of its obligations hereunder shall be without prejudice to all of the other rights hereunder of the party so waiving and shall not constitute a waiver of any such other rights or, in any other instance, of the rights so waived, or a waiver of the performance by the other party of any of its other obligations hereunder or of the performance by the other party of any of its other obligations hereunder or of the performance, in any other instance, of the obligations waived. No waiver shall be effective or binding upon a party unless the same shall be expressed in writing and executed by the party to be bound. 12. Interpretation This Agreement has been negotiated by the parties hereto and their respective counsel and shall be fairly interpreted in accordance with its terms and without any rules of construction relating to which party drafted the agreement being applied in favour or against either party. 16 13. Amendment No amendment of any provision of this Agreement shall be effective unless such amendment is embodied in a written agreement which is: (i) expressly stated to be intended to amend this Agreement; and (ii) executed by an authorized signing officer of OLD ADB and an authorized signing officer of THE BRICK. 14. Governing Law This Agreement shall be governed and construed according to the laws of the Province of Ontario and the laws of Canada applicable therein, and shall be treated, in all respects, as an Ontario contract, without prejudice to or limitation of any rights or remedies available under the laws of any jurisdiction where property or assets of either party may be found. Each of the parties hereby attorns to the jurisdiction of the Courts of the Province of Ontario. 15. Counterparts This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Counterparts may be executed either in original or faxed form and the parties adopt any signatures received by a receiving fax machine as original signatures of the Parties. 16. Entire Agreement This Agreement, and any Schedules and Exhibits attached hereto, constitute the entire agreement between the parties hereto with respect to the subject matter hereof and cancels and supersedes any prior understandings and agreements between the parties hereto with respect thereto. There are no representations, warranties, terms, conditions, undertakings, licenses granted, or collateral agreements, expressed, implied or statutory, between the parties related to the subject matter hereof other than as expressly set forth in this Agreement. 17 IN WITNESS WHEREOF, the parties have executed this Joint Ownership Agreement, with all required authority, this 23rd day of August, 2002. ADB SYSTEMS INTERNATIONAL LTD. By: -------------------------------------------- Name: Title: By: -------------------------------------------- Name: Title: ADB SYSTEMS INTERNATIONAL INC. By: -------------------------------------------- Name: Title: By: -------------------------------------------- Name: Title: 18 THE BRICK WAREHOUSE CORPORATION By: -------------------------------------------- Name: Title: By: -------------------------------------------- Name: Title: 19 EX-4.14 6 t09678exv4w14.txt FORM OF GENERAL SECURITY AGREEMENT GENERAL SECURITY AGREEMENT THIS GENERAL SECURITY AGREEMENT is made as of August 30, 2002, by ADB SYSTEMS INTERNATIONAL INC., an Ontario corporation, in favour of GREENWICH GROWTH FUND LTD. FOR GOOD AND VALUABLE CONSIDERATION, the receipt and adequacy of which are acknowledged by the Company, the Company agrees with the Investor as follows: 1. DEFINITIONS. In this Agreement, unless defined elsewhere in this Agreement, capitalized terms shall bear the meanings set out in Schedule "A". 2. GRANT OF SECURITY. As general and continuing collateral security for the due payment and performance of the Indebtedness, the Company grants to the Investor a security interest in the Collateral, mortgages and charges the Collateral in favour of the Investor, and assigns the Collateral, in favour of the Investor. 3. ATTACHMENT. The Security Interests created in this Agreement are intended to attach: (i) to existing Collateral when the Company signs this Agreement; and (ii) to Collateral subsequently acquired by the Company immediately upon the Company acquiring any rights in such Collateral. 4. LIMITATIONS ON GRANT OF SECURITY. The Security Interests created by this Security Agreement do not extend to any Excluded Collateral. All Excluded Collateral shall be held by the Company in trust for the Investor and, on the exercise by the Investor of any of its rights under this Agreement following a Default, will be assigned and otherwise dealt with by the Company as directed by the Investor. 5. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the Investor that: (a) Legal Name of Company. The name of the Company set out on the first page of this agreement is the full legal name of the Company set out in the Company's constating documents, as amended and in effect on the date hereof. (b) Place of Business and Location of Records. The Company's chief executive office, the location of the office where it keeps its records respecting its accounts receivable, and all other places of Business of the Company are listed on Schedule "B" hereto. (c) Title; No Other Security Interests. The Company owns (or, with respect to any leased or licensed property forming part of the Collateral, holds a valid leasehold or licensed interest in) the Collateral free and clear of any Security Interests, other than Permitted Security Interests. (d) No Contravention of Other Obligations. The Company is duly incorporated and has the power and authority to grant to the Investor the Security Interests created by this Agreement and to execute and deliver and perform its obligations under this Agreement and such execution, delivery and performance does not contravene any of - 2 - the Company's constating documents or by-laws or to the best of its knowledge, any material agreements or instruments to which the Company is a party. (e) Enforceability. This agreement is a legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, subject only by bankruptcy, insolvency and any other laws of general application affecting creditors' rights and by rules of equity; (f) Ownership of Collateral. The Company is, or is to become, the owner of the Collateral and has, or will have when the Collateral is acquired, the right to create a security interest in the Collateral in favour of the Investor; 6. COVENANTS. The Company covenants and agrees with the Investor that: (a) Delivery of Information Regarding Collateral. The Company shall forthwith on request, furnish to the Investor in writing all information requested by the Investor, acting reasonably, relating to the Collateral (including reports, statements and schedules further identifying and describing the Collateral), forthwith on request, furnish to the Investor descriptions of any material Collateral acquired after this Agreement is executed, and the Investor shall be entitled from time to time, upon reasonable notice, to inspect the Collateral and to take temporary custody of and make copies of all documents relating to the Collateral and for such purposes the Investor shall, upon reasonable notice, have access to all premises occupied by the Company or where the Collateral or any of it may be found; (b) Further Documentation. The Company shall from time to time forthwith on the Investor's request do, make and execute all such financing statements, further assignments or agreements, documents, schedules to this Agreement, acts, matters and things as may be required by the Investor, acting reasonably, of or with respect to the Collateral or any part thereof or as may be required to give effect to these presents; (c) No Change in Location of Collateral etc. The Company will not change its chief executive office or the location of the Collateral, (other than Inventory enroute from suppliers or enroute to the Company or on lease or on consignment) or the location of the office where it keeps its records respecting the Accounts, without providing to the Investor such additional security and priority agreements, if any, as the Investor may reasonably require and without obtaining the prior written approval of the Investor, which approval shall not be unreasonably withheld; (d) Notices. the Company agrees to immediately notify the Investor, if any person, firm or corporation has the right to go into, collect or seize possession of any part of the Collateral by means of execution, garnishment or other legal process; (e) Payments Relating to Collateral. The Company agrees to make all payments and keep current all accounts which the Company is obliged to pay and which, if not paid, may result in an encumbrance against the Collateral and will provide to the - 3 - Investor such information requested by it from time to time to evidence that such payments have been made. (f) Limitations on Other Security Interests. The Company will not create, incur or permit to exist, and will defend the Collateral against, and will take such other action as is necessary to remove, any and all Security Interests on and claims in respect of the Collateral other than the Permitted Security Interests and the Company will defend the right, title and interest of the Investor in and to the Collateral against the claims and demands of all Persons. (g) Limitations on Dispositions of Collateral. The Company will not, without the Investor's prior written consent, which consent shall not be unreasonably withheld or delayed, sell, lease or otherwise dispose of any of the Collateral, except in the ordinary course of business. Following Default, all Proceeds of the Collateral (including all amounts received in respect of Accounts), whether or not arising in the ordinary course of the Company's business, will be held (if received prior to the Default) or received and held (if received after the Default) by the Company as trustee for the Investor and will be immediately paid to the Investor upon request by the Investor. (h) Maintenance of Collateral. The Company will maintain all tangible Collateral in good operating condition, ordinary wear and tear excepted, and the Company will provide all maintenance, service and repairs necessary for such purpose. Further, the Company shall take all action as necessary, desirable or reasonably requested by the Investor to preserve the Excluded Collateral and all benefits deriving therefrom for the benefit of the Investor. (i) Payment of Taxes. The Company will from time to time pay or cause to be paid all taxes, assessments, levies and similar impositions of every nature and kind whatsoever ("Taxes") which may be levied, assessed or imposed on the Collateral or any part thereof. The Company will from time to time pay or cause to be paid all Taxes, general and special, ordinary or extraordinary, of every nature and kind whatsoever, including local improvement taxes, which shall be levied, assessed or imposed upon the Collateral or any part thereof, or upon the Company or any other person on account thereof, save and except when and so long as the validity of any such Taxes, is in good faith contested by the Company, and, if applicable, the same remain Permitted Security Interests. The Investor may, at any time and from time to time, at the Company's expense, obtain from the municipality pertaining to the lands, a tax certificate confirming the status of property taxes in respect of such lands. (j) Insurance. The Company will keep the Collateral insured with financially sound and reputable companies against loss or damage by fire, explosion, theft and such other risks in such amounts and upon such terms as would a reasonably prudent owner of similar property. The Company will, from time to time at the Investor's reasonable request, deliver the applicable insurance policies (or satisfactory evidence of such policies) to the Investor. If the Company does not obtain or maintain such insurance, the Investor may, but need not, do so, in which event the Company will immediately - 4 - on demand reimburse the Investor for all payments made by the Investor in connection with obtaining and maintaining such insurance, and until reimbursed any such payment will form part of the Indebtedness and will be secured by the Security Interests created by this Agreement. 7. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All agreements, representations, warranties and covenants made by the Company in the Security Documents (except as may be otherwise specified therein) will survive the execution and delivery of this Agreement or any investigation made at any time by or on behalf of the Investor and any disposition or payment of the Indebtedness until repayment and performance in full of the Indebtedness. 8. DEFAULT. The following events shall constitute a "Default" pursuant to this Agreement: (a) Failure to Pay. if the Company fails to make payment of any principal or interest on account of the Indebtedness when the same shall become due and such Default shall continue for a period of two (2) Business Days after a notice in writing of such default has been given by the Investor to the Company; or (b) Default under Agreements. if the Company defaults under the Series D Note, the Subscription Agreement, the Brick Co-operation Agreement, the Brick Loan Agreement and all agreements which are schedules to the foregoing. (c) Failure to Comply with Covenants. if the Company defaults in observing or performing any other covenant or condition of the Security Documents in its part to be observed or performed and if such default shall continue for a period of 10 Business Days after a notice in writing has been given by the Investor to the Company specifying such default, provided that in the case of a Default which cannot be remedied simply by payment of money such Default shall be deemed not to have occurred if, and so long as, the Company shall have within such 10 Business Day period commenced to remedy such Default and diligently pursued the remedying thereof; or (d) False Representations. if any representation or warranty of the Company made hereto in any certificate or other instrument or document furnished by the Company to the Investor shall have been false or misleading in any material respect when made; or (e) Failure to Pay Taxes, etc. if the Company fails to pay taxes, rates, levies, duties, public utility charges and assessments, which shall be levied, assessed or imposed upon the Collateral or any part thereof, or upon the Company on account thereof (save and except when and so long as the validity thereof is in good faith contested by the Company and the same remain Permitted Security Interests and any such Default as aforesaid shall continue either for a period of 30 days after written notice to the Company from the Investor; or - 5 - (f) Appointment of Receiver. if a receiver or receiver and manager or a liquidator or a trustee in bankruptcy of the Company or for all or substantially all of the assets of the Company shall be appointed and the Company fails to seek to set aside such appointment within 30 days after such appointment or if the Company acquiesces to such appointment; or (g) Inability of Pay Debts Generally. if the Company shall admit its inability to pay its debts generally as they become due or otherwise acknowledge its insolvency or an effective resolution passed for the winding-up of the Company or if the Company shall make an assignment for the benefit of its creditors or if the Company shall make a proposal to its respective creditors under a bankruptcy act. (h) Declaration of Bankruptcy or Insolvency Under the Law. If the Company declares bankruptcy or insolvency under any law relating to bankruptcy, insolvency, winding-up or adjustment of debts and does not commence a challenge, appeal or seek to set aside such decision within 15 days after receipt of notice of such decision and proceed vigorously thereafter with such challenge. 9. RIGHTS ON DEFAULT. On Default and so long as such Default is continuing, the security constituted by this Agreement will be enforceable, and the Investor may, personally or by agent do any one or more of the following: (a) Rights under PPSA, etc. Exercise all of the rights and remedies granted to secured parties under the PPSA and any other applicable statute, or otherwise available to the Investor at law or in equity. (b) Take Possession. Take possession of any or all of the Collateral in which event the Company will, at the expense of the Investor, cause the Collateral designated by the Investor to be assembled and made available and/or delivered to the Investor at any place designated in writing by the Investor. (c) Take Possession. Enter on any premises where any Collateral is located and take possession of, disable or remove such Collateral by any method permitted by law. (d) Use of Collateral. Hold, store and keep idle, or operate, lease or otherwise use or permit the use of any or all of the Collateral for such time and on such terms as the Investor acting reasonably, may determine, and demand, collect and retain all earnings and other sums due or to become due from any Person in respect of any of the Collateral. (e) Carry on Business. Carry on, or concur in the carrying on of, any or all of the business or undertaking of the Company and enter on, occupy and use (without charge by the Company) any of the premises, buildings, plant and undertaking of, or occupied or used by, the Company. (f) Deal with Collateral. Seize, collect, receive, enforce, repair, process, modify, complete or otherwise deal with any Collateral in such reasonable manner, on such terms and conditions and at such times as the Investor deems advisable. - 6 - (g) Dispose of Collateral. Realize on any or all of the Collateral and sell, lease, assign, give options to purchase, or otherwise dispose of and deliver any or all of the Collateral (or contract to do any of the above), in one or more parcels at any public or private sale, at any exchange, broker's board or office of the Investor or elsewhere, on such terms and conditions as the Investor may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery. (h) Court-Approved Disposition of Collateral. Apply to a court of competent jurisdiction for the sale or foreclosure of any or all of the Collateral. (i) File Claims. File such proofs of claim or other documents as may be necessary or desirable to have the Investor's claim lodged in any bankruptcy, winding-up, liquidation, dissolution or other proceedings (voluntary or otherwise relating to the Company). (j) Purchase by Investor. At any public sale, and to the extent permitted by law on any private sale, bid for and purchase any or all of the Collateral offered for sale and, upon compliance with the terms of such sale, hold, retain and dispose of such Collateral without any further accountability to the Company or any other Person with respect to such holding, retention or disposition, except as required by law. (k) Payment of Indebtedness. Pay any liability secured by any Security Interest against any Collateral. The Company will upon request reimburse the Investor for all such payments, such payments will form part of the Indebtedness and will be secured by the Security Interests created by this Agreement. (l) Appointment of Receiver Pursuant to Agreement. Appoint by instrument in writing one or more Receivers over the Company or any or all of the Collateral with such rights, powers and authority (including any or all of the rights, powers and authority of the Investor under this Agreement) as may be provided for in the instrument of appointment or any supplemental instrument, and remove and replace any such Receiver from time to time. To the extent permitted by applicable law, any Receiver appointed by the Investor will (for purposes relating to responsibility for the Receiver's acts or omissions) be considered to be the agent of the Company and not of the Investor. The Investor may from time to time fix the Receiver's remuneration and the Company will be obliged to pay to the Investor, acting reasonably, the amount of such remuneration. (m) Court-Appointed Receiver. Apply to a court of competent jurisdiction for the appointment of a Receiver of the Company or of any or all of the Collateral. 10. APPLICATION OF PROCEEDS. All Proceeds of Collateral received by the Investor or by a Receiver may be applied to discharge or satisfy expenses (including the Receiver's remuneration and other reasonable expenses of enforcing the Investor's rights under the Security Documents) including but not limited to borrowings, taxes and other outgoings affecting the Collateral or which are considered advisable by the Investor or the Receiver to protect, preserve, repair, process, maintain or enhance the Collateral or prepare it for sale, lease or other disposition, or to keep in good standing any - 7 - Security Interests on the Collateral ranking in priority to any of the Security Interests created by this Agreement, or to sell, lease or otherwise dispose of the Collateral. The balance of such Proceeds may be held as collateral security for the Indebtedness or be applied to such of the Indebtedness (whether or not the same are due and payable) in such manner and at such times as the Investor considers appropriate and thereafter will be accounted for as required by law. 11. CONTINUING LIABILITY OF COMPANY. The Company will remain liable for any Indebtedness that are outstanding following realization of all or any part of the Collateral and the application of the Proceeds thereof. 12. INVESTOR'S APPOINTMENT AS ATTORNEY-IN-FACT. The Company constitutes and appoints the Investor, and any officer or agent of the Investor, with full power of substitution, as the Company's true and lawful attorney-in-fact with full power and authority in the place of the Company and in the name of the Company or in its own name, from time to time in the Investor's discretion after a Default and only for so long as such Default is continuing, to take any and all appropriate action and to execute any and all documents and instruments as, in the opinion of such attorney acting reasonably, may be necessary or desirable to accomplish the purposes of this Agreement. These powers are coupled with an interest and are irrevocable until this Agreement is terminated and the Security Interests created by this Agreement are released. Nothing in this section affects the right of the Investor or any other Person, to sign and file or deliver (as applicable) all such financing statements, financing change statements, notices, verification agreements and other documents relating to the Collateral and this Agreement as the Investor or such other Person considers appropriate, acting reasonably. 13. PERFORMANCE BY INVESTOR OF COMPANY'S OBLIGATIONS. If the Company fails to perform or comply with any of its obligations under this Agreement, the Investor may, but need not, perform or otherwise cause the performance or compliance of such obligation, provided that such performance or compliance will not constitute a waiver, remedy or satisfaction of such failure. The reasonable expenses of the Investor incurred in connection with any such performance or compliance will be payable by the Company to the Investor, any such reasonable expenses will form part of the Indebtedness and will be secured by the Security Interests created by this Agreement. 14. RIGHT OF SET-OFF. The Investor may at any time and from time to time after the occurrence of a Default, upon notice to the Company or any other Person, set-off, appropriate and apply any and all indebtedness and liabilities of the Investor to the Company, liquidated, unliquidated, contingent, matured or unmatured, against and on account of any Indebtedness of any kind whatsoever, including for greater certainty liquidated, unliquidated, contingent, matured or unmatured, in such order of application as the Investor shall from time to time determine. 15. RIGHTS OF INVESTOR AND LIMITATIONS ON INVESTOR'S OBLIGATIONS. (a) Limitations on Investor's Liability. The Investor will not be liable to the Company or any other Person for any failure or delay in exercising any of its rights under this Agreement (including any failure to take possession of, collect, sell, lease or otherwise dispose of any Collateral, or to preserve rights against prior parties). Neither the Investor nor a Receiver (including, in Alberta, any sheriff) is required to take, or will have any liability for any failure to take or delay in taking, any steps - 8 - necessary or advisable to preserve rights against other Persons under any Collateral in its possession. Neither the Investor nor any Receiver will be liable for any, and the Company will bear the full risk of all, loss or damage to any and all of the Collateral (including any Collateral in the possession of the Investor or any Receiver) caused for any reason other than the gross negligence or wilful misconduct of the Investor or such Receiver. (b) Company Remains Liable under Accounts and Contracts. Notwithstanding any provision of this Agreement, the Company will remain liable under each of the Accounts and Contracts to observe and perform all the conditions and obligations to be observed and performed by the Company thereunder, all in accordance with the terms of any agreement giving rise to each such Account or in accordance with and pursuant to the terms and provisions of each such Contract. Neither the Investor nor any Receiver have any obligation or liability under any Account (or any agreement giving rise thereto) or Contact by reason of or arising out of this Agreement or the receipt by the Investor of any payment relating to such Account or Contract pursuant hereto, and in particular (but without limitation), the Investor will not be obligated in any manner to perform any of the obligations of the Company under or pursuant to any Account (or any agreement giving rise thereto) or under or pursuant to any Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any Account (or any agreement giving rise thereto) or under any Contract, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time. (c) Collections on Accounts and Contracts. The Investor hereby authorizes the Company to collect the Accounts and payments under the Contracts in the normal course of its business and for the purpose of carrying on the same. All such amounts while held by the Investor and all income in respect thereof will continue to be collateral security for the Indebtedness and will not constitute payment thereof until applied as hereinafter provided. At such intervals as may be agreed upon by the Company and the Investor, or, if a Default will have occurred and be continuing at any time or from time to time, the Investor will apply all or any part of the accounts and payments collected under the contracts on account of the Indebtedness in such order as the Investor may elect. At the Investor's request, the Company will deliver to the Investor any documents evidencing and relating to the agreements and transactions which gave rise to the Accounts and Contracts, including all original orders, invoices and shipping receipts. 16. DEALINGS BY INVESTOR. The Investor will not be obliged to exhaust its recourse against any other Person or against any other Security Interests it may hold in respect of the Indebtedness before realizing upon or otherwise dealing with the Collateral in such manner as the Investor may consider desirable. The Investor may grant extensions of time and other indulgences, take and give up security, accept compositions, grant releases and discharges and otherwise deal with any other Person, and with any or all of the Collateral, and with other security and sureties, as the Investor may see fit, all without prejudice to the Indebtedness or to the rights and remedies of the Investor under - 9 - this Agreement. The powers conferred on the Investor under this Agreement are solely to protect the respective interests of the Investor in the Collateral and will not impose any duty upon the Investor to exercise any such powers. 17. ADDITIONAL SECURITY. The Security Interests created by this Agreement are in addition and without prejudice to any other Security Interests now or later held by the Investor. No Security Interests held by the Investor will be exclusive of or dependent upon or merge in any other Security Interests, and the Investor may exercise its rights under such Security Interests independently or in combination. 18. RELEASE OF INFORMATION. The Company authorizes the Investor to provide a copy of this Agreement and such other information as may be requested of the Investor by Persons entitled thereto pursuant to any applicable legislation. 19. WAIVERS. The Investor may, in whole or in part, waive any breach of any of the provisions of this agreement by the Company, any default by the Company in the payment or performance of any of the Indebtedness or any of its rights and remedies whether provided for hereunder or otherwise provided that no such waiver shall be considered to have been given unless given expressly by the Investor to the Company in writing. No waiver given in accordance with this section shall be a waiver of any other or subsequent breach by the Company of any of the provisions of this Agreement, of any other or subsequent default by the Company in the payment or performance of any of the Indebtedness or any of the other rights and remedies of the Investor whether provided for herein or otherwise. 20. GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable in such Province and will be treated, in all respects, as a contract of such Province. 21. CONFLICT. To the extent that any term, condition, representation, covenant or other provision contained in this Agreement conflicts with, any term, condition, representation, covenant or other provision contained in the Series D Note, then the relevant term, condition, representation, covenant or other provision of this Agreement shall govern. 22. INTERPRETATION. The division of this Agreement into sections and paragraphs, and the insertion of headings, is for convenience of reference only and will not affect the construction or interpretation of this Agreement. Unless the context otherwise requires, words importing the singular include the plural and vice versa, and words importing gender include all genders and neuter. When used in this Agreement, the word "INCLUDING" (or "INCLUDES") means "INCLUDING (or "INCLUDES") WITHOUT LIMITATION". Any reference in this Agreement to a "SECTION" or a "SCHEDULE" means the relevant section or schedule of this Agreement unless the context specifically provides otherwise. 23. SUCCESSORS AND ASSIGNS. This Agreement will enure to the benefit of, and be binding on, the Company and its successors and assigns, and will enure to the benefit of, and be binding on, the Investor and its successors and assigns. The Company may not assign this Agreement, or any of its rights or obligations under this Agreement, without the prior written consent of the Investor, which consent shall not be unreasonably withheld. However, the Investor in its sole discretion, may - 10 - withhold its consent to a proposed assignment by the Company which is reasonably considered an arbitrary assignment by the Company. 24. ACKNOWLEDGEMENT OF RECEIPT/WAIVER. The Company acknowledges receipt of an executed copy of this Agreement and, to the extent permitted by applicable law, waives the right to receive a copy of any financing statement, financing change statement or verification statement in respect of any registered financing statement or financing change statement prepared, registered or issued in connection with this Agreement. 25. SEVERABILITY. Any provision of this Agreement that is invalid or unenforceable in any jurisdiction will, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability and will be severed from the balance of this Agreement, all without affecting the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. 26. LISTINGS OF COLLATERAL. Any schedules, documents or listings provided to the Investor which summarize or describe any after acquired Collateral shall form part of this Agreement. DATED as of the ___ day of August, 2002. ADB SYSTEMS INTERNATIONAL INC. By: __________________________________ Name: Title: SCHEDULE "A" DEFINITIONS "ACCESSIONS", "ACCOUNT", "CHATTEL PAPER", "CONSUMER GOODS", "DOCUMENT OF TITLE", "EQUIPMENT", "GOODS", "Instrument", "INTANGIBLE", "INVENTORY", "MONEY", "MOTOR VEHICLES", "PROCEEDS", "VALUE" and "SECURITIES" have the meanings given to them in the PPSA. "AGREEMENT" means this General Security Agreement, as amended, modified, supplemented, restated and replaced in writing from time to time. "BOOKS AND RECORDS" means all books, records, files, papers, disks, documents and other repositories of data recording in any form or medium, evidencing or relating to the Collateral which are at any time owned by the Company or to which the Company (or any Person on the Company's behalf) has access. "BRICK CO-OPERATION AGREEMENT" means the co-operation agreement dated August 23, 2002 between the Company, the Brick Warehouse Corporation and ADB Systems International Ltd. "BRICK LOAN AGREEMENT" means the loan agreement dated August 23, 2002 between the Company, the Brick Warehouse Corporation and ADB Systems International Ltd. "BUSINESS DAY" means any day other than a Saturday, Sunday, statutory holiday in Ontario or day on which the main branch of the Company's banking institution in Toronto is closed for business. "COLLATERAL" means all of the present and future undertaking, Personal Property (including any Personal Property that may be described in any Schedule to this Agreement or any schedules, documents or listings that the Company may from time to time provide to the Investor in connection with this Agreement) of the Company (including all such Personal Property at any time owned, leased, licensed, possessed or acquired by the Company, or in which the Company at any time has any interest or to which the Company is or may at any time become entitled), Contracts, Intellectual Property Rights, and all Proceeds thereof, in any such case wherever located. "COMPANY" means ADB Systems International Inc. "CONTRACTS" means all existing and future contracts, licenses and agreements to which the Company is at any time a party or pursuant to which the Company has at any time acquired rights, as such contracts, licenses and agreements may from time to time be amended or restated and includes (i) all rights of the Company to receive money due and to become due to it in connection with a contract licence or agreement; (ii) all rights of the Company to damages arising out of, or for breach or default in respect of, a contract, licence or agreement; and (iii) all rights of the Company to perform and exercise all remedies in connection with a contract, licence or agreement. "DEFAULT" has the meaning ascribed in Section 8 of this Agreement. 2. "EXCLUDED COLLATERAL" means the last day of the term of any real property lease and any Intellectual Property Right or Permit where the grant of a Security Interest therein without consent would result in the breach or termination thereof, unless such consent is obtained. "INDEBTEDNESS" means all present and future indebtedness, liabilities and obligations whether direct or indirect, joint or several, absolute or contingent, matured or unmatured of the Company to the Investor wherever and however incurred, including principal, interests, charges, fees, costs and expenses however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether arising under the Series D Note and/or the Security Documents or otherwise. "INTELLECTUAL PROPERTY RIGHTS" means all industrial and intellectual property rights, including all trade-marks, trade names, corporate names, company names, business names, logos, websites (including, without limitation, all URLs (uniform resource locators) and any and all copyrights, software, coding and codes associated therewith) and other sources of business identifiers, customer lists, subscriber lists and the goodwill associated therewith, including registrations, recordings and applications with the Canadian Intellectual Property Office and any similar government office or agency in other countries, all copyrights and industrial designs in all works, including all drawings and computer programs, all patents, proprietary technology, rights to inventions whether patentable or otherwise, trade secrets, confidential information and other processes and all registrations, recordings applications for the foregoing, all licenses currently in force or may in the future be in force which authorizes the licensee to make, use, offer for sale, sell or advertise wares or services in connection with issued or pending applications for one or more patents, trade-marks, industrial designs, or in association with licensed know-how, trade secrets, confidential information and computer programs, the right to sue parties for past, present and future infringements or dilution of Intellectual Property Rights and associated goodwill, all Contracts related to any such industrial and intellectual property rights including those trade-marks set out in Schedule "D" and all reissues, continuations or extensions of any of the foregoing. "INVESTOR" means Greenwich Growth Fund Ltd. "PERMITTED SECURITY INTERESTS" means (i) the Security Interests created by the General Security Agreement granted by the Company in favour of The Brick Warehouse Corporation, to a maximum amount of CDN$2,000,000, for a non-revolving loan to the Company by the Brick Warehouse Corporation pursuant to the Loan Agreement, plus interest and fees, reimbursement obligations and legal expenses, whether due after acceleration or otherwise; (ii) the Security Interest created by the General Security Agreement granted by the Company in favour of Stonestreet Limited Partnership; (iii) the Security Interests granted by the Company to subscribers of the Series D Notes, and for clarification, such subscribers do not include Greenwich Growth Fund Ltd.; (iv) the Security Interests set out in Schedule "C" and (v) the security interests granted by the Company to the parties listed in Schedule "E". "PERMITS" means all permits, licenses, authorizations, approvals, franchises, rights-of-way, easements and entitlements that the Company has, requires or is required to have, to own, possess or operate any of its property or to operate and carry on any part of its business. 3. "PERSON" will be broadly interpreted and includes an individual, a corporation, a limited liability company, a partnership, a trust, a joint venture, an association, an unincorporated organization, the government of a country or any political subdivision thereof, any agency or department of any such government, a regulatory agency or any other entity and the heirs, executors, administrators or other legal representatives of an individual. "PERSONAL PROPERTY" means personal property and includes Accounts, Inventory, Equipment, Books and Records, Chattel Paper, Goods, Documents of Title, Instruments, Intangibles (including Intellectual Property Rights and Permits), Money and Securities, and includes all present and future Accessions to any of the foregoing, but excludes Consumer Goods. "PPSA" means the Personal Property Security Act of the Province of Ontario, as amended, renamed or replaced from time to time (and includes all regulations from time to time made under such legislation). "RECEIVER" means a receiver, a manager, a receiver and manager or an agent of the Investor or any Receiver. "SECURITIES" has the meaning given to it in the PPSA, or if there is no such meaning given in the PPSA, but the PPSA defines "SECURITY" instead, it means the plural of that term. "SECURITY DOCUMENTS" means collectively, this Agreement and all other security agreements, guarantees, share pledge agreements, and other agreements, instruments and documents from time to time granted in favour of the Investor as security for or in support of the obligations of the Company under the Series D Note and the Subscription Agreement, as amended, modified, supplemented, restated and replaced in writing from time to time. "SECURITY INTEREST" means any mortgage, charge, pledge, hypothecation, lien (statutory or otherwise), assignment, finance lease, title retention agreement or arrangement, security interest or other encumbrance or adverse claim of any nature, or any other security agreement or arrangement creating in favour of any creditor a right in respect of a particular property or asset. "SERIES D NOTE" means the note in the principal amount of CDN$100,000 issued by the Company to the Investor; "SERIES D NOTES" mean all of the Series D notes issued to subscribers in respect of subsection (iii) of the definition of Permitted Security Interests above; "SUBSCRIPTION AGREEMENT" means the subscription agreement pursuant to which, the Investor subscribes for and the Company accepts the subscription for the Series D Note; SCHEDULE "B" CHIEF EXECUTIVE OFFICE 201-6725 Airport Road Mississauga, Ontario L4V 1V2 PRINCIPAL PLACES OF BUSINESS 201-6725 Airport Road Mississauga, Ontario L4V 1V2 SCHEDULE "C" ADDITIONAL PERMITTED SECURITY INTERESTS "PERMITTED SECURITY INTERESTS" means with respect to any property or asset of any Person: (a) Security Interests for provincial or municipal taxes, charges, rates and assessments not yet due or, if due, the validity of which is being contested in good faith and Security Interests for the excess of the amount of any past due taxes for which a final assessment has not been received over the amount of such taxes as estimated and paid by such Person; (b) the Security Interests of any judgment rendered or claim filed against the Company or its property which it shall be contesting in good faith and in respect of which there shall have been deposited with an arms-length Person acceptable to the Investor, acting reasonably, cash, security or a surety bond satisfactory to such arms-length Person in an amount sufficient to pay such judgment or claim; (c) defects or irregularities of title which do not in the aggregate materially impair the value of the property to which they related or interfere with the use of the property to which they relate for the purposes for which it is held by such Person; (d) pledges or deposits to secure payment of workers' compensation, good faith deposits in connection with tenders, contracts (other than contracts for the repayment of moneys borrowed) or leases, deposits to secure public or statutory obligations, deposits to secure or in lieu of surety or appeal bonds, and pledges or deposits for similar purposes in the ordinary course of business; (e) purchase money security interests; and (f) any other Security Interests accepted from time to time by the Investor in writing. SCHEDULE "D" INTELLECTUAL PROPERTY RIGHTS OWNED INTELLECTUAL PROPERTY (Trade-marks only)
COUNTRY TRADE MARK APP. NO. REG. NO. ------- ---------- -------- -------- Canada BID BUDDY 1,004,968 - Canada BID.COM 1,056,622 - Canada BID.COM Design 1,056,624 - Canada CLUB RADD 806,852 - Canada INTERNET LIQUIDATORS & Design 775,724 TMA454,782 Canada SEARCH BUDDY 1,004,967 TMA540,780 U.S. BID BUDDY 75/648,781 2,302,291 U.S. CLUB R.A.D.D. 76/130,453 - U.S. SEARCH BUDDY 75/648,783 2,302,292
LEASED INTELLECTUAL PROPERTY (Trade-marks only) DESCRIPTION OF MARK REGISTRATION/SERIAL NUMBER [None - to be confirmed by J. Mackie] SCHEDULE "E" PPSA Registrations File Number: 881960004 Registration Number: 20020510181117159588 Debtor Name: ADB Systems International Inc. Secured Party: Xerox Canada Ltd. Collateral Classification: Equipment, Other File Number: 866486169 Registration Number: 20001010181415317449 Debtor Name: Bid.Com Interational Inc. Secured Party: Hewlett-Packard (Canada) Ltd. Collateral Classification: Equipment, Other EX-4.15 7 t09678exv4w15.txt FORM OF SUBSCRIPTION AGREEMENT SUBSCRIPTION AGREEMENT TO: ADB SYSTEMS INTERNATIONAL INC., An Ontario Corporation (the "COMPANY) Dear Sirs: Stonestreet Limited Partnership (the "SUBSCRIBER") understands that the Company is proposing to issue: (a) a series A 8% secured convertible note in the principal amount of $408,000 ("SERIES A NOTE"); and (b) a series B 8% secured convertible note in the principal amount of $216,000 ("SERIES B NOTE"). The forms of Series A Note and Series B Note are set forth respectively in EXHIBIT A and EXHIBIT B attached hereto. The aggregate principal amount of $624,000 for the Series A Note and Series B Note is referred to in this subscription agreement as the "LOAN AMOUNT". The Subscriber understands that the Company is also proposing to issue one or more Series D 8% secured convertible notes up to a maximum principal amount of $376,000 to other investors ("SERIES D NOTES"). In addition, the Company is proposing to issue a series C 8% secured convertible note in the principal amount of $120,000 ("SERIES C NOTE") as payment for the fee owing to the Subscriber in the amount of $120,000 (the "TERMINATION FEE") plus applicable goods and service tax ("GST") as consideration for the Subscriber entering into a termination and waiver agreement in the form of EXHIBIT C attached hereto (the "TERMINATION AND WAIVER AGREEMENT"), terminating the obligations of the Company pursuant to an earlier agreement with the Subscriber dated April 25, 2002 excepting only the Company's obligation to indemnify the Subscriber pursuant to s.7(a)(i) therein and the Subscriber's obligation to indemnify the Company pursuant to s.7(b)(i) therein from liability, loss or damage resulting from any misrepresentation or breach of warranty contained in such agreement. The Form of the Series C Note is set forth in Exhibit A to the Termination and Waiver Agreement. Series A Note, Series B Note and Series C Note are collectively referred to hereinafter as the "NOTES" and individually as a "NOTE". The maturity date (the "MATURITY DATE") for each Note is December 31, 2004. Each of the Series A Note and Series B Note can be converted at the Subscriber's option, subject to the Maximum Investment Limitation set forth below, into one unit (a "UNIT") at a conversion price of $0.12 per Unit, at any time following Shareholder Approval (as defined below) in the case of Series A Note, and at any time after December 20, 2002 in the case of Series B Note, both prior to receipt of payment in full both before and after default. Each Unit consists of one common share in the capital of the Company (a "UNIT SHARE") and one half of one common share purchase warrant (the "WARRANT"), each whole Warrant entitling the holder to purchase one common share of the Company at $0.14 per share exercisable until December 31, 2004. The form of the Warrant (the "WARRANT CERTIFICATE") is annexed hereto as EXHIBIT D. 2 Series C Note can be converted at the Subscriber's option, subject to the Maximum Investment Limitation set forth below, into one common share in the capital of the Company (a "NOTE C SHARE") at a conversion price of $0.12 per share, at any time after December 20, 2002 and prior to receipt of payment in full both before and after default. The interest on Series C Note will accrue and be payable only from the earlier of the Maturity Date or the occurrence of an event of default as defined therein. Subject to the Maximum Investment Limitation set forth below, the interest accrued on the Series A Note, Series B Note and Series C Note may be payable by the Company, at its option, by issuing to the Subscriber common shares (the "INTEREST SHARES") at a deemed issue price equal to the weighted average trading price of the Company's common shares on the Toronto Stock Exchange (the "TSX") for the 10 trading days immediately preceding the date for payment of interest. The Unit Shares and the Note C Shares are collectively referred to in this Agreement as the "COMPANY SHARES". The Company Shares, the Interest Shares and the common shares issuable upon the exercise of the Warrants (the "WARRANT SHARES") are collectively referred to in this Agreement as the "SHARES". The Shares and the Warrants are collectively referred to in this Agreement as the "UNDERLYING SECURITIES". The Notes and the Underlying Securities are collectively referred to in this Agreement as the "SECURITIES". The following terms and conditions shall apply to this subscription. 1. Term Sheet. The Term Sheet dated August 16, 2002 attached as SCHEDULE 1 setting forth the salient terms of this transaction is hereby incorporated by reference. 2. Subscription for Notes (a) The Subscriber hereby subscribes for the Series A Note, Series B Note and the Series C Note. The closing of the issue of the Notes (the "CLOSING") shall take place at 8:00 am (Toronto time) (the "TIME OF CLOSING") at the offices of Gowling Lafleur Henderson LLP, Toronto, Ontario, on August 30, 2002, or at such other time and place as may be agreed upon by the parties, provided that on such date the conditions set forth in section 3 below shall have been satisfied or waived (such closing day or such other time being hereinafter referred to as the "CLOSING DATE"). (b) The Notes shall be issued on the Closing Date as fully registered and shall be fully transferable subject to compliance with applicable Securities Laws (as hereinafter defined). (c) At the Time of Closing on the Closing Date, the Company shall deliver to or to the order of the Subscriber the definitive Notes, the documentation contemplated herein and such further documentation as counsel for the Subscriber may reasonably require against payment of the Loan Amount for the Series A Note and the Series B Note by certified cheque or wire transfer payable to or to the order of the Company, and against delivery of the Termination and Waiver Agreement (as hereinafter defined) executed by the Subscriber. 3 3. Conditions of Closing (a) The Company's obligation to issue the Notes to the Subscriber is subject to the conditions that: (i) such issuance be conditionally accepted by the Toronto Stock Exchange (the "TSX"); (ii) the issuance of the Notes and the Underlying Securities are exempt from the registration requirements and prospectus filing requirements under applicable securities statutes, regulations, rules, policy statements and interpretation notes and by the applicable rules and policies of the TSX (collectively, "SECURITIES LAWS"); and (iii) the execution and delivery by the Subscriber of the Termination and Waiver agreement. (b) The Subscriber's obligation to subscribe for the Notes is subject to the following conditions: (i) the satisfactory completion of due diligence by the Subscriber prior to the Closing Date; (ii) the issue of the Notes having been approved by the board of directors of the Company; (iii) the issue of the Notes having been conditionally approved by the TSX; (iv) the issue of the Series C Note as payment of the Termination Fee and payment by the Company to the Subscriber on Closing of any GST applicable on the Termination Fee; (v) the Company shall have completed, contemporaneously with the Closing hereunder, the loan transaction (the "BRICK LOAN") whereby The Brick Warehouse Corporation ("THE BRICK") will have advanced to the Company on the Closing Date a first advance of not less than $1.0 million and an expense advance of not less than $0.5 million for payment of expenses related to the transaction with The Brick; (vi) payment and satisfaction by the Company of the Due Diligence Fees as provided herein; (vii) payment of the fees and disbursements of the Subscriber's counsel with respect to the transactions contemplated herein (the "SUBSCRIBER COUNSEL FEE") in the amount of $25,000 to Subscriber's counsel in trust; and (viii) delivery of definitive agreements and all other documents and instruments required by the Subscriber including a legal opinion as to, among other things, 4 resale restrictions applicable to the Notes and the Underlying Securities, in form satisfactory to the Subscriber and its counsel. (c) If any of the conditions sets forth in (a) and (b) above is not satisfied or waived prior to Closing, this subscription agreement shall terminate and the parties shall have no further obligations hereunder except for the Company's obligation to pay the Due Diligence Fees and the Subscriber Counsel Fee from the Company's own funds. 4. Representations, Warranties and Covenants of Subscriber and Resale Restrictions (a) The Subscriber hereby represents and warrants to the Company (which representations and warranties shall survive the Closing) that: (i) the Subscriber is acquiring the Notes as principal for its own account, and not for the benefit of any other person; (ii) the Subscriber is resident in the Province of Ontario and is an "accredited investor" as such term is defined in Ontario Securities Commission Rule 45-501 "Exempt Distributions" ("RULE 45-501"); (iii) the Notes are being acquired for investment purposes only and not with a view to resale or distribution; (iv) the Subscriber acknowledges that it has not subscribed for the Notes as a result of any advertisement in printed media of general and regular paid circulation, radio or television, including electronic display; (v) this agreement has been duly authorized, executed and delivered by the Subscriber and constitutes the valid and binding agreement of the Subscriber, enforceable in accordance with its terms, except that: (A) enforcement thereof may be limited by bankruptcy, insolvency and other laws affecting the enforcement of creditors' rights generally; (B) specific performance, injunction and other equitable remedies may only be granted in the discretion of a court of competent jurisdiction; and (C) rights to contribution and indemnity thereunder may be limited under public policy or otherwise under applicable law; and (vi) the Subscriber is knowledgeable, sophisticated and experienced in business and financial matters and is capable of evaluating the merits and risks of the investment in the Notes, fully understands the investment in the Notes and the restrictions on transfer described in this subscription agreement and is able to bear the economic risk of the investment in the Notes. (b) The Subscriber acknowledges that the Securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the "1933 ACT"), and may not be offered, sold, resold or delivered within the United States of America, its territories 5 or possessions, other than pursuant to an effective registration statement or an applicable exemption under the 1933 Act. (c) The Subscriber covenants and agrees with the Company that: (i) it will execute and deliver all documentation and provide all information required by the Securities Laws, if required, to permit the purchase of the Notes on the terms set forth herein, including, an accredited investor certificate in the form attached hereto as SCHEDULE 2, a TSX Private Placement Questionnaire and Undertaking in the form attached hereto as SCHEDULE 3; (ii) it will comply with the Securities Laws concerning any resale of the Securities, and in particular, the Subscriber understands and acknowledges that the Securities will be subject to a four month resale restriction under applicable Securities Laws; (iii) it will vote all common shares beneficially owned by the Subscriber entitled to vote at the special meeting of the shareholders of the Corporation to be held on or about October 22, 2002 in favour of the plan of arrangement contemplated in the Brick Loan transaction, provided that the details of such plan of arrangement do not materially vary from those disclosed to the Subscriber in written form prior to Closing; and (iv) it will remit to applicable governmental authority all GST amount paid to the Subscriber by the Company on the Termination Fee. (d) Canadian Notes, Shares and Warrants Legend. The Subscriber acknowledges that (i) the Notes, and (ii) certificates representing (A) the Unit Shares and the Warrants issued upon the conversion of the Series A Note and the Series B Note prior to December 31, 2002, (B) the Warrant Shares purchased upon exercise of the Warrants prior to December 31, 2002, (C) the Interest Shares issued prior to December 31, 2002,and (D) the Note C Shares issued upon the exercise of the Series C Notes prior to December 31, 2002, will contain the following legend required pursuant to Multilateral Instrument 45-102 (Resale of Securities) of the Canadian Securities Administrators adopted as a Rule by the OSC ("MI 45-102"), and the Subscriber agrees to comply with the terms of such legend: 6 "UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THE SECURITIES SHALL NOT TRADE THE SECURITIES BEFORE DECEMBER 31, 2002." (e) The Subscriber acknowledges that the Company will be required to provide applicable securities regulatory authorities with certain information required by the Securities Laws and agrees to provide the Company with any such required information. 5. Representations and Warranties of the Company The Company hereby represents and warrants to the Subscriber (which representations and warranties shall survive closing) that: (i) the Company is now and has been a reporting issuer under the Securities Act of Ontario for the four months immediately preceding the date hereof and is not in default thereunder and it is a "qualifying issuer" as defined in MI 45-102 as of the Closing Date; (ii) the Company has been duly organized under the laws of the Province of Ontario and has all required corporate power and authority to enter into and carry out the provisions of this subscription agreement and the transactions contemplated hereby; (iii) this subscription agreement, the Notes, and other agreements delivered together with this subscription agreement or in connection herewith have been duly authorized, executed and delivered by the Company and are valid and binding agreements enforceable in accordance with their respective terms, except that: (A) enforcement thereof may be limited by bankruptcy, insolvency and other laws affecting the enforcement of creditors' rights generally; (B) specific performance, injunction and other equitable remedies may only be granted in the discretion of a court of competent jurisdiction; and (C) rights to contribution and indemnity thereunder may be limited under public policy or otherwise under applicable law; (iv) all necessary corporate action has been taken or will have been taken prior to the Closing Date by the Company to validly create, issue and sell the Notes subscribed for by the Subscriber pursuant to this subscription agreement; (v) the Company Shares will be validly authorized, issued and outstanding as fully paid and non-assessable shares in the capital of the Company upon the due conversion of the Notes; 7 (vi) the Warrant Shares will be validly authorized, issued and outstanding as fully paid and non-assessable shares in the capital of the Company upon the due exercise of the Warrants; (vii) the Interest Shares will be validly authorized, issued and outstanding as fully paid and non-assessable shares in the capital of the Company upon the issuance by the Company; (viii) the Fee Warrant Shares will be validly authorized, issued and outstanding as fully paid and non-assessable shares in the capital of the Company upon the due exercise of the Fee Warrants; (ix) no approval, authorization, consent or other order of, and no filing, registration or recording with, any governmental authority is required by the Company in connection with the execution and delivery or with the performance by the Company of this subscription agreement except: (A) the conditional and final approval of the TSX of which the conditional approval has been obtained; and (B) the approval of shareholders of the Company ("SHAREHOLDER APPROVAL") with respect to the issuance of the Underlying Securities, which is expected to be obtained at a special meeting of shareholders of the Company to be held on or about October 22, 2002; (x) as at August 28, 2002, there were 41,583,628 common shares in the capital of the Company issued and outstanding; and (xi) the Company's common shares are listed for trading on the TSX. Except as publicly disclosed, the Company has not received any oral or written notice that its common stock will be delisted from the TSX or that the Company's common shares do not meet all requirements for the continuation of such listing. 6. Reliance upon Representations, Warranties The parties agree that, by the Company delivering the Notes to the Subscriber and by the Subscriber accepting the Notes, each party will be representing and warranting that the party's representations and warranties contained in this subscription agreement are true as at the Closing Date, with the same force and effect as if they had been made by the such party at the Closing Date, and that they will survive the purchase by the Subscriber of the Notes and continue in full force and effect for a period of two (2) years following the Closing Date notwithstanding any subsequent disposition by the Subscriber of the Notes or the Underlying Securities. 7. Covenants of the Company. The Company hereby covenants and agrees with the Subscriber as follows: (a) to obtain Shareholder Approval no later than October 31, 2002; 8 (b) to cause the Notes to be duly and validly created and issued; (c) to cause the Shares issuable upon the conversion of the Notes, upon the exercise of the Warrants and upon of the payment of interest on the Series A Note and Series B Note to be duly and validly authorized, created and issued as fully-paid and non-assessable common shares in the capital of the Company; (d) to use its commercial best efforts to ensure that the Shares are listed and posted for trading on the TSX upon their issue; (e) to promptly comply with all applicable filing and other requirements under all applicable Securities Laws, including without limitation, the filing of Form 45-102F2 under MI 45-102 and Form 45-501F1 under Rule 45-501 within 10 days of the Closing Date together with applicable fees; and (f) to use its commercial best efforts to maintain its status as a reporting issuer in the province of Ontario, to maintain its status as a "qualifying issuer" as defined in MI 45-102, and to continue to be in compliance with its obligations under the Securities Laws of Ontario. 8. Costs (a) All expenses incurred by the Company (including the fees and disbursements of counsel for the Company) relating to the issuance of the Notes, issue of the Underlying Securities, listing of the Shares, printing, photocopying, professional fees, the costs for holding the shareholders' meeting and preparation of meeting materials with respect to Shareholder Approval, and all other costs and expenses incurred by the Company relating to the transactions contemplated herein shall be borne by the Company. (b) The Company agrees to pay all reasonable fees and expenses of the Subscriber (including the Subscriber Counsel Fee not exceeding $25,000), and other reasonable costs, expenses and liabilities incurred by the Subscriber and any out-of-pocket costs related to printing, courier, travel, telephone, fax, information meetings and all other reasonable out-of-pocket expenses relating to this transaction. The Company shall provide a direction of payment on Closing to the Subscriber directing the Subscriber to withhold the amount of $25,000 from the Loan Amount as payment of the Subscriber Counsel Fee. The $25,000 amount withheld shall be paid to the Subscriber's counsel in trust, and any funds remaining after presentation of its invoice by the Subscriber's counsel shall be remitted to the Company. 9. Due Diligence Fees. (a) In consideration for agreeing to conduct due diligence on the Company and to review disclosure documents filed by the Company under Securities Laws, the Company will pay due diligence fees (the "DUE DILIGENCE FEES") as follows: (i) to YMP Consultants Inc. (the "CONSULTANT") a due diligence payment of $25,000 (the "FEE PAYMENT"), which shall be paid on Closing in accordance with the Company's direction to the Subscriber which direction shall state that the Fee 9 Amount is to be withheld from the Loan Amount and to be paid to the Consultant, and (ii) to Stonestreet Corporation (the "GENERAL PARTNER") 150,000 warrants, each warrant entitling the holder to purchase one common share of the Company at $0.14 per share from December 22, 2002 until December 31, 2004 (the "FEE WARRANTS"). (b) The Fee Warrants shall be evidenced by a certificate (the "FEE WARRANT CERTIFICATE") in the form of Exhibit D, and shall be issued and delivered to the General Partner on the Closing Date. The General Partner agrees that the legending requirements set out in section 4(d) herein also apply to the Fee Warrant Certificate and to certificate representing common shares issuable upon exercise of the Fee Warrants (the "FEE WARRANT SHARES"). (c) The General Partner hereby represents that it is an "accredited investor" pursuant to Rule 45-501 as evidenced by the Accredited Investor Certificate attached hereto as SCHEDULE 2 completed and signed by the General Partner, and is acquiring the Fee Warrants as principal for its own account for investment purposes and not with a view to resale or distribution. (d) All the representations, covenants, warranties, undertakings, remedies, indemnification, and other rights made or granted to or for the benefit of the Subscriber are hereby also made and granted to the General Partner and its successors and assigns in respect to the Fee Warrants and the Fee Warrants Shares. (e) The Company on the one hand, and the Subscriber on the other hand, agree to indemnify the other against and hold the other harmless from any and all liabilities to any persons claiming brokerage commissions or due diligence fees other than the Consultant and the General Partner on account of services purported to have been rendered on behalf of the indemnifying party in connection with this Agreement or the transactions contemplated hereby and arising out of such party's actions. The Company and the Subscriber each represents that, to its knowledge, there are no parties entitled to receive commissions or similar payments in connection with the Offering. 10. Maximum Investment Limitation (a) The Company shall not issue any Shares to the Subscriber, nor issue the Fee Warrant Shares to the General Partner, if: (i) the number of common shares beneficially owned by the Subscriber and its affiliates on the date of issue, and (ii) the number of common shares to be issued to the Subscriber and its affiliates, would result in beneficial ownership by the Subscriber and its affiliates of more than 19.99% of the outstanding common shares of the Company on such date of issue (the "MAXIMUM INVESTMENT LIMITATION"). For the purposes of this provision, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities 10 Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the Subscriber shall not be limited to aggregate issuance of only 19.99% and aggregate issuance of common shares to the Subscriber may exceed 19.99%. The Subscriber may void the Maximum Investment Limitation described in this provision upon 75 days prior written notice to the Company. The Subscriber may determine which of the equity of the Company deemed beneficially owned by the Subscriber is to be allocated to the 19.99% amount described above and which to be allocated to the excess above 19.99%. (b) Any interest accrued on the Notes that are not paid in Interest Shares when due as a result of the Maximum Investment Limitation must be paid by the Company to the Subscriber in cash. (c) For the purposes of determining the percentage holdings of the Subscriber and its affiliates, the Subscriber agrees to notify the Company in writing identifying the Subscriber's affiliates. Prior to any issuance of any Shares to the Subscriber or its affiliates, the Company shall calculate and advise the Subscriber as to how many common shares of the Company the Subscriber and its affiliates hold according to the Company's records. The Company is entitled to rely conclusively on the Holder's notice with respect to the identities of the Holder's affiliates and will not be held liable and the Holder will have no cause of action whatsoever for the failure by the Company to comply with the Maximum Investment Limitation as a result of any inaccuracy in such notification from the Holder. (d) The Company agrees to reject any portion of a conversion notice delivered by the Subscriber to the Company with respect to the conversion of any Note, any portion of a subscription form delivered by the Subscriber to the Company with respect to the exercise of any Warrant, and any portion of a subscription form delivered by the General Partner to the Company with respect to the exercise of any Fee Warrant, which, if converted or exercised, would result in a contravention of the Maximum Investment Limitation, and any such portion of the subscription notice or subscription form, as the case may be, shall be deemed to be null and void with respect the conversion or exercise for which the subscription form or the exercise form is delivered. Any portion of a conversion notice or subscription form, as the case may be, rejected in accordance with this clause (c) may be converted or exercised, as the case may be, at a subsequent time, subject to the Maximum Investment Limitation. 11. Subsequent Financing Except for: (i) the Brick Loan and a proposed subordinated, convertible loan transactions of up to $376,000 with one or more other investors upon terms no more favourable to the investor(s) than as contemplated hereby, (ii) stock or stock options granted to employees or directors of the Company pursuant to a plan which has been approved by the shareholders of the Company prior to August 16, 2002 and issuances of stock pursuant to such stock options, 11 (iii) stock issued upon the exercise of options or warrants which are outstanding as of August 16, 2002, the Company will not, without the consent of the Subscriber (which consent shall not be unreasonably withheld or delayed), issue any equity, convertible debt or other securities convertible into common shares of the Company until March 27, 2003. 12. Security for the Notes The Company agrees to grant to the Subscriber a general security interest over all assets of the Company to secure the Company's performance of its obligations under the Series A Note and the Series B Note, all in accordance with the general security agreement attached hereto as EXHIBIT E hereto (the "GENERAL SECURITY AGREEMENT"). 13. Jurisdiction This subscription agreement is governed by the laws of the Province of Ontario and the federal laws of Canada applicable therein. By the Subscriber executing this subscription agreement below, the Subscriber irrevocably attorns to the jurisdiction of the courts of Ontario. 14. Facsimile Subscriptions The Company shall be entitled to rely on delivery by facsimile of an executed copy of this subscription agreement and acceptance by the Company of that delivery shall be legally effective to create a valid and binding agreement between the Subscriber and the Company in accordance with the terms of this subscription agreement. 15. Confidentiality. Each of the Subscriber and the Company shall maintain in confidence the matters referred to in this subscription agreement and shall not make any public disclosure, except to the extent required by law, of the terms of this agreement without the consent of the other, such consent not to be unreasonably withheld. The wording of any public disclosure which is made must be approved by each of the parties. 16. Assignment This subscription agreement is not transferable or assignable. 17. Time of the Essence Time shall be of the essence hereof. 18. Currency All references herein to monetary amounts are references to lawful money of Canada. 12 19. Headings The headings contained herein are for convenience of reference only and shall not affect the meaning or interpretation hereof. 20. Entire Agreement This subscription agreement (including the annexed schedules hereto) constitutes the only agreement between the parties with respect to the subject matter hereof and shall supersede any and all prior negotiations and understandings and there are no representations, covenants or other agreements relating to the subject matter hereof except as stated or referred to herein or therein. This subscription agreement may only be amended or modified in any respect by written instrument executed by each of the parties hereto. SIGNATURE PAGE TO FOLLOW 13 If the foregoing is in accordance with your understanding, please sign and return this subscription agreement as soon as possible to evidence your agreement to issue the Notes. DATED at ________________________________ this _________ day of _________, 2002. Please acknowledge your acceptance of the foregoing subscription agreement by signing and returning a copy to the undersigned whereupon it shall become a binding agreement between us. STONESTREET LIMITED PARTNERSHIP Subscriber by its general partner, Stonestreet Corporation By:______________________________________ Elizabeth Leonard Chief Operating Officer STONESTREET CORPORATION General Partner to the Subscriber executing this Agreement only with respect to Sections 9(a)(ii), 9(c), 9(d) and 9(e) herein. By:______________________________________ Elizabeth Leonard Chief Operating Officer ACCEPTED: Dated as of August ____, 2002. ADB SYSTEMS INTERNATIONAL INC. By:_________________________________ Name: Title: SCHEDULE 1 TERM SHEET SCHEDULE 2 ACCREDITED INVESTOR CERTIFICATE TO: ADB SYSTEMS INTERNATIONAL INC. (THE "COMPANY") RE: SUBSCRIPTION FOR CONVERTIBLE SECURED NOTES OF THE COMPANY The undersigned Subscriber/officer of the Subscriber (or in the case of a trust, the trustee or an officer of the trustee of the trust) hereby certifies that: 1. he/she has read the subscription agreement and understands that the offering of convertible secured notes to the Subscriber, is being made on a registration and prospectus exempt basis; 2. the Subscriber is an "accredited investor" as that term is defined in Ontario Securities Commission Rule 45-501 "Exempt Distributions" by virtue of the Subscriber being: [PLEASE CHECK ONE] (i) _________ an individual who beneficially owns, or who together with a spouse beneficially owns, financial assets(1) having an aggregate realizable value that, before taxes but net of any related liabilities(2), exceeds $1,000,000 (ii) ________ an individual whose net income before taxes exceeded $200,000 in each of the two most recent years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of those years and who, in either case, has a reasonable expectation of exceeding the same net income level in the current year (iii) _______ a person or company registered under the Securities Act (Ontario) or securities legislation in another jurisdiction as an adviser or dealer, other than a limited market dealer (iv) ________ an individual who has been granted registration under the Securities Act (Ontario) or securities legislation in another jurisdiction as a representative of a company which is registered as a dealer or adviser, whether or not that individual's registration is still in effect (v) _________ a company, limited partnership, limited liability partnership, trust or estate, other than a mutual fund or non-redeemable investment fund, that had net assets of at least $5,000,000 as reflected in its most recently prepared financial statements (vi) ________ a person in respect of which all of the owners of interests, direct or indirect, legal or - -------- 1 For the purposes of this certificate, the term "financial assets" means cash, securities or any contract of insurance or deposit or evidence thereof that is not a security for the purposes of the Securities Act (Ontario). 2 For the purposes of this certificate, the term "related liabilities" means: liabilities incurred or assumed for the purposes of financing the acquisition or ownership of financial assets and liabilities that are secured by financial assets. beneficial, are persons that are accredited investors. (vii) _______ other _____________________________________[PLEASE INSERT EXEMPTION BEING RELIED UPON, AS REFERRED TO IN APPENDIX 1 TO THIS CERTIFICATE] 3. he/she: (a) if the Subscriber, is making the above statement based on personal knowledge of his/her financial situation and has reviewed personal financial documentation with an accountant, financial advisor or other financial professional to determine the above statement is true; or (b) if other than the Subscriber, is making the above statement based on a review of the financial statements of the Subscriber for the most recently completed financial year and any interim financial statements prepared since the end of such financial year and has undertaken such other review and due diligence necessary to determine and certify that the Subscriber is an "accredited investor" as that term is defined in Ontario Securities Commission Rule 45-501 "Exempt Distributions"; and 4. he/she understands that the Company is relying on this certificate as evidence of the Subscriber's status as an accredited investor in accordance with Ontario Securities Commission Rule 45-501 and its companion policy. DATED at __________________________________ this ____________ day of ____________________________________, 2002. STONESTREET LIMITED PARTNERSHIP Subscriber by its general partner, Stonestreet Corporation By:____________________________________________ Elizabeth Leonard Chief Operating Officer APPENDIX 1 FOR THE PURPOSES OF SUBSCRIBING FOR CONVERTIBLE SECURED NOTES OF ADB SYSTEMS INTERNATIONAL INC., ALL INVESTORS RESIDENT IN OR OTHERWISE SUBJECT TO THE LAWS OF THE PROVINCE OF ONTARIO RELYING ON THE "OTHER" CATEGORY OF "ACCREDITED INVESTOR" ON THE CERTIFICATE TO WHICH THIS APPENDIX IS ATTACHED MUST QUALIFY AS ONE OF THE FOLLOWING (PLEASE CIRCLE THE APPLICABLE PROVISION BELOW AND INSERT SAME IN THE SPACE PROVIDED ON THE CERTIFICATE TO WHICH THIS APPENDIX IS ATTACHED): (i) a bank listed in Schedule I or II, or an authorized foreign bank branch listed in Schedule III, of the Bank Act (Canada); (ii) the Business Development Bank incorporated under the Business Development Bank Act (Canada); (iii) a loan corporation or trust corporation registered under the Loan and Trust Corporations Act or under the Trust and Loan Companies Act (Canada), or under comparable legislation in any other province or territory of Canada; (iv) a co-operative credit society, credit union central, federation of caisses populaires, credit union or league, or regional caisse populaire, or an association under the Cooperative Credit Associations Act (Canada), in each case located in Canada; (v) a company licensed to do business as an insurance company in any province or territory of Canada; (vi) a subsidiary of any company referred to in paragraph (i), (ii), (iii), (iv) or (v), where the company owns all of the voting shares of the subsidiary; (vii) the Government of Canada or of any province or territory of Canada, or any crown corporation, instrumentality or agency of a Canadian federal, provincial or territorial government; (viii) any Canadian municipality or any Canadian provincial or territorial capital city; (ix) any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any instrumentality or agency thereof; (x) a pension fund that is regulated by either the Office of the Superintendent of Financial Institutions (Canada) or a provincial pension commission or similar regulatory authority; (xi) a registered charity under the Income Tax Act (Canada); (xii) a promoter of the Company or an affiliated entity of a promoter of the Company; (xiii) a spouse, parent, grandparent or child of an officer, director or promoter of the Company; (xiv) a person that, in relation to the Company, is an affiliated entity or a person referred to in clause (c) of the definition of distribution in subsection 1(1) of the Securities Act (Ontario); (xv) a person that is recognized by the Ontario Securities Commission as an accredited investor; (xvi) a mutual fund or non-redeemable investment fund that, in Ontario, distributes its securities only to persons that are accredited investors; (xvii) a mutual fund or non-redeemable investment fund that, in Ontario, distributes its securities under a prospectus for which a receipt has been granted by the Ontario Securities Commission; (xviii) a managed account (being an investment portfolio account of a client established in writing with a portfolio adviser who makes investment decisions for the account and has full discretion to trade in securities of the account without requiring the client's express consent to a transaction); (xix) an account that is fully managed by a trust corporation registered under the Loan and Trust Corporations Act (Ontario); or (xx) an entity organized outside of Canada that is analogous to any of the entities referred to in paragraphs (i) through (vi), item (iii) on the certificate to which this appendix is attached and paragraph (x) in form and function. ACCREDITED INVESTOR CERTIFICATE TO: ADB SYSTEMS INTERNATIONAL INC. (THE "COMPANY") RE: SUBSCRIPTION FOR COMMON SHARE PURCHASE WARRANTS OF THE COMPANY The undersigned Subscriber/officer of the Subscriber (or in the case of a trust, the trustee or an officer of the trustee of the trust) hereby certifies that: 5. he/she has read the subscription agreement and understands that the offering of common share purchase warrants to the Subscriber, is being made on a registration and prospectus exempt basis; 6. the Subscriber is an "accredited investor" as that term is defined in Ontario Securities Commission Rule 45-501 "Exempt Distributions" by virtue of the Subscriber being: [PLEASE CHECK ONE] (i) ________ an individual who beneficially owns, or who together with a spouse beneficially owns, financial assets(3) having an aggregate realizable value that, before taxes but net of any related liabilities(4), exceeds $1,000,000 (ii) _______ an individual whose net income before taxes exceeded $200,000 in each of the two most recent years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of those years and who, in either case, has a reasonable expectation of exceeding the same net income level in the current year (iii) ______ a person or company registered under the Securities Act (Ontario) or securities legislation in another jurisdiction as an adviser or dealer, other than a limited market dealer (iv) _______ an individual who has been granted registration under the Securities Act (Ontario) or securities legislation in another jurisdiction as a representative of a company which is registered as a dealer or adviser, whether or not that individual's registration is still in effect (v) ________ a company, limited partnership, limited liability partnership, trust or estate, other than a mutual fund or non-redeemable investment fund, that had net assets of at least $5,000,000 as reflected in its most recently prepared financial statements (vi) _______ a person in respect of which all of the owners of interests, direct or indirect, legal or beneficial, are persons that are accredited investors. - -------- 3 For the purposes of this certificate, the term "financial assets" means cash, securities or any contract of insurance or deposit or evidence thereof that is not a security for the purposes of the Securities Act (Ontario). 4 For the purposes of this certificate, the term "related liabilities" means: liabilities incurred or assumed for the purposes of financing the acquisition or ownership of financial assets and liabilities that are secured by financial assets. (vii) _______ other _____________________________ [PLEASE INSERT EXEMPTION BEING RELIED UPON, AS REFERRED TO IN APPENDIX 1 TO THIS CERTIFICATE] 7. he/she: (a) if the Subscriber, is making the above statement based on personal knowledge of his/her financial situation and has reviewed personal financial documentation with an accountant, financial advisor or other financial professional to determine the above statement is true; or (b) if other than the Subscriber, is making the above statement based on a review of the financial statements of the Subscriber for the most recently completed financial year and any interim financial statements prepared since the end of such financial year and has undertaken such other review and due diligence necessary to determine and certify that the Subscriber is an "accredited investor" as that term is defined in Ontario Securities Commission Rule 45-501 "Exempt Distributions"; and 8. he/she understands that the Company is relying on this certificate as evidence of the Subscriber's status as an accredited investor in accordance with Ontario Securities Commission Rule 45-501 and its companion policy. DATED at __________________ this _________ day of _______________________, 2002. STONESTREET CORPORTAION Subscriber By:______________________________________ Elizabeth Leonard Chief Operating Officer APPENDIX 1 FOR THE PURPOSES OF SUBSCRIBING FOR COMMON SHARE PURCHASE WARRANTS OF ADB SYSTEMS INTERNATIONAL INC., ALL INVESTORS RESIDENT IN OR OTHERWISE SUBJECT TO THE LAWS OF THE PROVINCE OF ONTARIO RELYING ON THE "OTHER" CATEGORY OF "ACCREDITED INVESTOR" ON THE CERTIFICATE TO WHICH THIS APPENDIX IS ATTACHED MUST QUALIFY AS ONE OF THE FOLLOWING (PLEASE CIRCLE THE APPLICABLE PROVISION BELOW AND INSERT SAME IN THE SPACE PROVIDED ON THE CERTIFICATE TO WHICH THIS APPENDIX IS ATTACHED): (i) a bank listed in Schedule I or II, or an authorized foreign bank branch listed in Schedule III, of the Bank Act (Canada); (ii) the Business Development Bank incorporated under the Business Development Bank Act (Canada); (iii) a loan corporation or trust corporation registered under the Loan and Trust Corporations Act or under the Trust and Loan Companies Act (Canada), or under comparable legislation in any other province or territory of Canada; (iv) a co-operative credit society, credit union central, federation of caisses populaires, credit union or league, or regional caisse populaire, or an association under the Cooperative Credit Associations Act (Canada), in each case located in Canada; (v) a company licensed to do business as an insurance company in any province or territory of Canada; (vi) a subsidiary of any company referred to in paragraph (i), (ii), (iii), (iv) or (v), where the company owns all of the voting shares of the subsidiary; (vii) the Government of Canada or of any province or territory of Canada, or any crown corporation, instrumentality or agency of a Canadian federal, provincial or territorial government; (viii) any Canadian municipality or any Canadian provincial or territorial capital city; (ix) any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any instrumentality or agency thereof; (x) a pension fund that is regulated by either the Office of the Superintendent of Financial Institutions (Canada) or a provincial pension commission or similar regulatory authority; (xi) a registered charity under the Income Tax Act (Canada); (xii) a promoter of the Company or an affiliated entity of a promoter of the Company; (xiii) a spouse, parent, grandparent or child of an officer, director or promoter of the Company; (xiv) a person that, in relation to the Company, is an affiliated entity or a person referred to in clause (c) of the definition of distribution in subsection 1(1) of the Securities Act (Ontario); (xv) a person that is recognized by the Ontario Securities Commission as an accredited investor; (xvi) a mutual fund or non-redeemable investment fund that, in Ontario, distributes its securities only to persons that are accredited investors; (xvii) a mutual fund or non-redeemable investment fund that, in Ontario, distributes its securities under a prospectus for which a receipt has been granted by the Ontario Securities Commission; (xviii) a managed account (being an investment portfolio account of a client established in writing with a portfolio adviser who makes investment decisions for the account and has full discretion to trade in securities of the account without requiring the client's express consent to a transaction); (xix) an account that is fully managed by a trust corporation registered under the Loan and Trust Corporations Act (Ontario); or (xx) an entity organized outside of Canada that is analogous to any of the entities referred to in paragraphs (i) through (vi), item (iii) on the certificate to which this appendix is attached and paragraph (x) in form and function. SCHEDULE 3 THE TORONTO STOCK EXCHANGE PRIVATE PLACEMENT QUESTIONNAIRE AND UNDERTAKING To be completed by each proposed private placement purchaser of listed securities or securities which are convertible into listed securities. QUESTIONNAIRE 1. DESCRIPTION OF TRANSACTION (a) Name of Issuer of the Securities - ADB Systems International Inc. (b) Number and Class of Securities to be Purchased - Series A 8% convertible secured note in the principal amount of $408,000 ("Series A Note"), convertible at the holder's option at any time after approval of shareholders of the issuer until the maturity date of December 31, 2004 for units at $0.12 per unit. Each unit consists of one common share of the issuer and one half of one common share purchase warrant. Each whole warrant entitles the holder thereof to purchase one common share of the issuer at $0.14 per share at any time prior to 5:00 p.m. on December 31, 2004. Series B 8% convertible secured note in the principal amount of $216,000 ("Series B Note") convertible at the holder's option at any time after December 20, 2002 until the maturity date of December 31, 2004 for units at $0.12 per unit. Each unit consists of one common share of the issuer and one half of one common share purchase warrant. Each whole warrant entitles the holder thereof to purchase one common share of the issuer at $0.14 per share at any time prior to 5:00 p.m. on December 31, 2004. Series C convertible secured note in the principal amount of $120,000 ("Series C Note") convertible at the holder's option at any time after December 20, 2002 for common share of the issuer at $0.12 per share until the maturity date December 31, 2004. (c) Purchase Price - Advance of the principal amounts for the Series A Note and Series B Note in the aggregate of $624,000. Series C Note is issued as payment for a termination fee owed by the Company to the purchaser for terminating certain previous obligations by the issuer in favour of the purchaser. 2. DETAILS OF PURCHASER (a) Name of Purchaser - Stonestreet Limited Partnership (b) Address - 320 Bay Street, Suite 1300, Toronto, Ontario, M5H 4A6 (c) Names and addresses of persons having a greater than 10% beneficial interest in the purchaser- Stonestreet Corporation, General Partner of Stonestreet Limited Partnership 320 Bay Street, Suite 1300, Toronto, Ontario, M5H 4A6 3. RELATIONSHIP TO ISSUER (a) Is the purchaser (or any person named in response to 2(c) above) an insider of the issuer for the purposes of the Securities Act (Ontario) (before giving effect to this private placement)? If so, state the capacity in which the purchaser (or person named in response to 2(c)) qualifies as an insider - No. (b) If the answer to (a) is "no", are the purchaser and the issuer controlled by the same person or company? If so, give details - No. 4. DEALINGS OF PURCHASER IN SECURITIES OF THE ISSUER Give details of all trading by the purchaser, as principal, in the securities of the issuer (other than debt securities which are not convertible into equity securities), directly or indirectly, within the sixty (60) days preceding the date hereof - None UNDERTAKING TO: TORONTO STOCK EXCHANGE THE UNDERSIGNED has subscribed for and agreed to purchase, as principal, the securities described in Item 1 of the Private Placement Questionnaire and Undertaking. THE UNDERSIGNED undertakes not to sell or otherwise dispose of any of the said securities so purchased or any securities derived therefrom for a period of four (4) months from the date of closing of the transaction herein or for such period as is prescribed by applicable securities legislation, whichever is longer, without the prior consent of the Toronto Stock Exchange and any other regulatory body having jurisdiction. DATED at ____________________ this _________ day of _____________________, 2002. STONESTREET LIMITED PARTNERSHIP, by its general partner, Stonestreet Corporation Name of Purchaser (please print) ___________________________________________ Authorized Signature President ___________________________________________ Official Capacity (please print) Michael Finkelstein ___________________________________________ Please print here name of individual whose signature appears above, if different from name of purchaser printed above PRIVATE PLACEMENT QUESTIONNAIRE AND UNDERTAKING To be completed by each proposed private placement purchaser of listed securities or securities which are convertible into listed securities. QUESTIONNAIRE 1. DESCRIPTION OF TRANSACTION (b) Name of Issuer of the Securities - ADB Systems International Inc. (b) Number and Class of Securities to be Purchased - 150,000 common share purchase warrants, each warrant entitling the holder thereof to purchase one common share of the issuer at $0.14 per share at any time from December 22, 2002 up to 5:00 p.m. on December 31, 2004. (c) Purchase Price - N/A. 2. DETAILS OF PURCHASER (a) Name of Purchaser - Stonestreet Corporation (b) Address - 320 Bay Street, Suite 1300, Toronto, Ontario, M5H 4A6 (c) Names and addresses of persons having a greater than 10% beneficial interest in the purchaser - 1. Elizabeth Leonard, 15 Blanchard Road, Toronto, Ontario M4N 3M1 2. Michael Finkelstein, 31 Kenton Drive, North York, Ontario 3. Mitchell Sanders, _____________________________________________________ 4. _______________________________________________________________________ 3. RELATIONSHIP TO ISSUER (a) Is the purchaser (or any person named in response to 2(c) above) an insider of the issuer for the purposes of the Securities Act (Ontario) (before giving effect to this private placement)? If so, state the capacity in which the purchaser (or person named in response to 2(c)) qualifies as an insider - No. (b) If the answer to (a) is "no", are the purchaser and the issuer controlled by the same person or company? If so, give details - No. 4. DEALINGS OF PURCHASER IN SECURITIES OF THE ISSUER Give details of all trading by the purchaser, as principal, in the securities of the issuer (other than debt securities which are not convertible into equity securities), directly or indirectly, within the sixty (60) days preceding the date hereof - None UNDERTAKING TO: TORONTO STOCK EXCHANGE THE UNDERSIGNED has subscribed for and agreed to purchase, as principal, the securities described in Item 1 of the Private Placement Questionnaire and Undertaking. THE UNDERSIGNED undertakes not to sell or otherwise dispose of any of the said securities so purchased or any securities derived therefrom for a period of four (4) months from the date of closing of the transaction herein or for such period as is prescribed by applicable securities legislation, whichever is longer, without the prior consent of the Toronto Stock Exchange and any other regulatory body having jurisdiction. DATED at ________________________ this _________ day of _________________, 2002. STONESTREET CORPORATION Name of Purchaser (please print) --------------------------------------------------- Authorized Signature President --------------------------------------------------- Official Capacity (please print) Michael Finkelstein --------------------------------------------------- Please print here name of individual whose signature appears above, if different from name of purchaser printed above EXHIBIT A FORM OF SERIES A NOTE EXHIBIT B FORM OF SERIES B NOTE EXHIBIT C FORM OF TERMINATION AND WAIVER AGREEMENT EXHIBIT D FORM OF WARRANT EXHIBIT E FORM OF GENERAL SECURITY AGREEMENT EX-4.16 8 t09678exv4w16.txt FORM OF SUBSCRIPTION AGREEMENT SUBSCRIPTION AGREEMENT TO: ADB SYSTEMS INTERNATIONAL INC., An Ontario Corporation (the "COMPANY) Dear Sirs: Greenwich Growth Fund Ltd. (the "SUBSCRIBER") understands that the Company is proposing to issue one or more series D 8% secured convertible notes in the principal amount of $376,000 ("SERIES D NOTES"). The form of Series D Note is set forth in EXHIBIT A attached hereto. The Subscriber also understands that the Company is proposing to issue a series A 8% secured convertible note in the principal amount of $408,000 ("SERIES A NOTE") and a series B 8% secured convertible note in the principal amount of $216,000 ("SERIES B NOTE"). In addition, the Subscriber understands that the Company is issuing a series C 8% secured convertible note in the principal amount of $120,000 ("SERIES C NOTE") as payment of a termination fee to Stonestreet Limited Partnership in accordance with a termination and waiver agreement dated August 30, 2002 between the Company and Stonestreet Limited Partnership. The Subscriber wishes to subscribe for a Series D Note No. 1 (the "NOTE") in the principal amount of $100,000 (the "LOAN AMOUNT") having a maturity date of December 31, 2004 (the "MATURITY DATE") in accordance with and subject to the terms of this subscription agreement. The Note can be converted at the Subscriber's option into one unit (a "UNIT") at a conversion price of $0.12 per Unit, at any time following Shareholder Approval (as defined below), both prior to receipt of payment in full both before and after default. Each Unit consists of one common share in the capital of the Company (a "COMPANY SHARE") and one half of one common share purchase warrant (the "WARRANT"), each whole Warrant entitling the holder to purchase one common share of the Company at $0.14 per share exercisable until December 31, 2004. The form of the Warrant (the "WARRANT CERTIFICATE") is annexed hereto as EXHIBIT B. The interest accrued on the Note may be payable by the Company, at its option, by issuing to the Subscriber common shares (the "INTEREST SHARES") at a deemed issue price equal to the weighted average trading price of the Company's common shares on the Toronto Stock Exchange (the "TSX") for the 10 trading days immediately preceding the date for payment of interest. The Company Shares, the Interest Shares and the common shares issuable upon the exercise of the Warrants (the "WARRANT SHARES") are collectively referred to in this Agreement as the "SHARES". The Shares and the Warrants are collectively referred to in this Agreement as the "UNDERLYING SECURITIES". The Note and the Underlying Securities are collectively referred to in this Agreement as the "SECURITIES". The following terms and conditions shall apply to this subscription. 1. Subscription for Note (a) The closing of the issue of the Note (the "CLOSING") shall take place at 8:00 a.m. (Toronto time) (the "TIME OF CLOSING") at the offices of Gowling Lafleur Henderson LLP, 2 Toronto, Ontario, on August 30, 2002, or at such other time and place as may be agreed upon by the parties, provided that on such date the conditions set forth in section 2 below shall have been satisfied or waived (such closing day or such other time being hereinafter referred to as the "CLOSING DATE"). (b) The Note shall be issued on the Closing Date as fully registered and shall be fully transferable subject to compliance with applicable Securities Laws (as hereinafter defined). (c) At the Time of Closing on the Closing Date, the Company shall deliver to or to the order of the Subscriber the definitive Note, the documentation contemplated herein and such further documentation as counsel for the Subscriber may reasonably require against payment of the Loan Amount by certified cheque or wire transfer payable to or to the order of the Company. 2. Conditions of Closing (a) The Company's obligation to issue the Note to the Subscriber is subject to the conditions that: (i) such issuance be conditionally accepted by the Toronto Stock Exchange (the "TSX"); and (ii) the issuance of the Note and Underlying Securities are exempt from the registration requirements and the prospectus filing requirements under applicable securities statutes, regulations, rules, policy statements and interpretation notes and by the applicable rules and policies of the TSX (collectively, "SECURITIES LAWS"). (b) The Subscriber's obligation to subscribe for the Note is subject to the following conditions: (i) the issue of the Note having been approved by the board of directors of the Company; (ii) the issue of the Note having been conditionally approved by the TSX; (iii) the Company shall have completed, contemporaneously with the Closing hereunder, the loan transaction (the "BRICK LOAN") whereby The Brick Warehouse Corporation ("THE BRICK") will have advanced to the Company on the Closing Date a first advance of not less than $1.0 million and an expense advance of not less than $0.5 million for payment of expenses related to the transaction with The Brick; and (iv) delivery of definitive agreements and all other documents and instruments required by the Subscriber including a legal opinion as to, among other things, resale restrictions applicable to the Note and Underlying Securities, in form satisfactory to the Subscriber and its counsel. 3 (c) If any of the conditions sets forth in (a) and (b) above is not satisfied or waived prior to Closing, this subscription agreement shall terminate and the parties shall have no further obligations hereunder. 3. Representations, Warranties and Covenants of Subscriber and Resale Restrictions (a) The Subscriber hereby represents and warrants to the Company (which representations and warranties shall survive the Closing) that: (i) the Subscriber is acquiring the Note as principal for its own account, and not for the benefit of any other person; (ii) the Subscriber is a mutual fund registered in the British Virgin Islands, with its registered office at Beaufort House, PO Box 438, Road Town, Tortola, British Virgin Islands; the administrator to the Subscriber is Consolidated Fund Management Limited, a company registered in Bermuda; (iii) the Note is being acquired for investment purposes only and not with a view to resale or distribution; (iv) the Subscriber acknowledges that it has not subscribed for the Note as a result of any advertisement in printed media of general and regular paid circulation, radio or television, including electronic display; (v) this agreement has been duly authorized, executed and delivered by the Subscriber and constitutes the valid and binding agreement of the Subscriber, enforceable in accordance with its terms, except that: (A) enforcement thereof may be limited by bankruptcy, insolvency and other laws affecting the enforcement of creditors' rights generally; (B) specific performance, injunction and other equitable remedies may only be granted in the discretion of a court of competent jurisdiction; (C) rights to contribution and indemnity thereunder may be limited under public policy or otherwise under applicable law; (vi) the Subscriber is knowledgeable, sophisticated and experienced in business and financial matters and is capable of evaluating the merits and risks of the investment in the Note, fully understands the investment in the Note and the restrictions on transfer described in this subscription agreement and is able to bear the economic risk of the investment in the Note; (vii) the Subscriber is not a citizen, resident or national of Canada, or a corporation, partnership, syndicate or unincorporated organization, trust or other entity created in, organized under or existing under the laws of Canada or any province or territory thereof (collectively, a "Canadian Person"); 4 (viii) the Subscriber is not a United States person (as defined in Rule 902(o) of Regulation S promulgated under the United States Securities Act of 1933); (ix) the Subscriber is subscribing for the Note as principal for its own account and not for the benefit of any Canadian Person, a United States person or any other person nor for resale in Canada or the United States and the Subscriber confirms that the Note has not been offered to the Subscriber in Canada or the United States and that this agreement was not executed by the Subscriber in Canada or the United States; (x) the administrator to the Subscriber has an office or place of business in the jurisdiction set forth in the TSX Private Placement Questionnaire and Undertaking attached hereto as SCHEDULE 1 and this subscription has been arranged through that office or place of business; and (xi) the subscription of the Note and Underlying Securities by the Subscriber does not and will not contravene any Securities Laws of the jurisdiction in which the Subscriber is resident and does not create any obligation to prepare and file a prospectus or similar document, or any other report with respect to the subscription of the Note and Underlying Securities or any registration or other obligation on the part of the Company. (b) Subscriber's Acknowledgements (i) The Subscriber acknowledges that the Securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the "1933 ACT"), and may not be offered, sold, resold or delivered within the United States of America, its territories or possessions, other than pursuant to an effective registration statement or an applicable exemption under the 1933 Act. (ii) The Subscriber acknowledges that (A) the Note, and (B) certificates representing (1) the Company Shares and the Warrants issued upon the conversion of the Note prior to December 31, 2002, (2) the Warrant Shares purchased upon exercise of the Warrants prior to December 31, 2002, and (3) the Interest Shares issued prior to December 31, 2002, will contain the following legend required pursuant to Securities Laws of Ontario and the Subscriber agrees to comply with the terms of such legend: "UNLESS PERMITTED UNDER THE APPLICABLE CANADIAN PROVINCIAL SECURITIES LEGISLATION AND THE POLICIES OF THE 5 TORONTO STOCK EXCHANGE, THE HOLDER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE SHALL NOT TRADE SUCH SECURITIES OR THE UNDERLYING SECURITIES OVER THE FACILITIES OF THE TORONTO STOCK EXCHANGE OR TO ANY PERSON RESIDENT IN CANADA, BEFORE DECEMBER 31, 2002." (iii) The Subscriber acknowledges that the Company will be required to provide applicable securities regulatory authorities with certain information required by the Securities Laws and agrees to provide the Company with any such required information. (iv) The Subscriber acknowledges that Part 13 of the Income Tax Act (Canada) may apply to payments made by the Company to the Subscriber under the Note. (v) The Subscriber acknowledges that the Subscriber's ability to transfer the Securities subscribed for herein is limited by, among other things, applicable Securities Laws and the TSX Private Placement Questionnaire and Undertaking attached hereto as Schedule 1; (vi) The Subscriber acknowledges and accepts the plan of arrangement contemplated in the Brick Loan transaction which is to be submitted for approval at the special meeting of the shareholders of the Corporation to be held on or about October 22, 2002, provided that the details of such plan of arrangement do not materially vary from those disclosed to the Subscriber prior to Closing. (c) The Subscriber covenants and agrees with the Company that: (i) the Note subscribed for herein by the Subscriber pursuant to this subscription agreement and the Underlying Securities that may be issued on conversion thereof will not be traded over the facilities of the TSX or to any person resident in Canada for the applicable four month hold period; (ii) it will execute and deliver all documentation and provide all information required by the Securities Laws, if required, to permit the subscription of the Note on the terms set forth herein, including a TSX Private Placement Questionnaire and Undertaking in the form attached hereto as Schedule 1; and (iii) it will comply with the Securities Laws concerning any resale of the Securities, and in particular, the Subscriber understands and acknowledges that the Securities will be subject to a four month resale restriction under applicable Securities Laws. 4. Representations and Warranties of the Company The Company hereby represents and warrants to the Subscriber (which representations and warranties shall survive closing) that: (i) the Company is now and has been a reporting issuer under the Securities Act of Ontario for the four months immediately preceding the date hereof and is not in 6 default thereunder and it is a "qualifying issuer" as defined in MI 45-102 as of the Closing Date; (ii) the Company has been duly organized under the laws of the Province of Ontario and has all required corporate power and authority to enter into and carry out the provisions of this subscription agreement and the transactions contemplated hereby; (iii) this subscription agreement, the Note, and other agreements delivered together with this subscription agreement or in connection herewith have been duly authorized, executed and delivered by the Company and are valid and binding agreements enforceable in accordance with their respective terms, except that: (A) enforcement thereof may be limited by bankruptcy, insolvency and other laws affecting the enforcement of creditors' rights generally; (B) specific performance, injunction and other equitable remedies may only be granted in the discretion of a court of competent jurisdiction; and (C) rights to contribution and indemnity thereunder may be limited under public policy or otherwise under applicable law; (iv) all necessary corporate action has been taken or will have been taken prior to the Closing Date by the Company to validly create, issue and sell the Note subscribed for by the Subscriber pursuant to this subscription agreement; (v) the Company Shares will be validly authorized, issued and outstanding as fully paid and non-assessable shares in the capital of the Company upon the due conversion of the Note; (vi) the Warrant Shares will be validly authorized, issued and outstanding as fully paid and non-assessable shares in the capital of the Company upon the due exercise of the Warrants; (vii) the Interest Shares will be validly authorized, issued and outstanding as fully paid and non-assessable shares in the capital of the Company upon the issuance by the Company; (viii) no approval, authorization, consent or other order of, and no filing, registration or recording with, any governmental authority is required by the Company in connection with the execution and delivery or with the performance by the Company of this subscription agreement except: (A) the conditional and final approval of the TSX of which the conditional approval has been obtained; and (B) the approval of shareholders of the Company ("SHAREHOLDER APPROVAL") with respect to the issuance of the Underlying Securities, which is 7 expected to be obtained at a special meeting of shareholders of the Company to be held on or about October 22, 2002; (ix) as at August 28, 2002, there were 41,583,628 common shares in the capital of the Company issued and outstanding; and (x) the Company's common shares are listed for trading on the TSX. Except as publicly disclosed, the Company has not received any oral or written notice that its common stock will be delisted from the TSX or that the Company's common shares do not meet all requirements for the continuation of such listing. 5. Reliance upon Representations, Warranties The parties agree that, by the Company delivering the Note to the Subscriber and by the Subscriber accepting the Note, each party will be representing and warranting that the party's representations and warranties contained in this subscription agreement are true as at the Closing Date, with the same force and effect as if they had been made by the such party at the Closing Date, and that they will survive the purchase by the Subscriber of the Note and continue in full force and effect for a period of two (2) years following the Closing Date notwithstanding any subsequent disposition by the Subscriber of the Note or the Underlying Securities. 6. Covenants of the Company. The Company hereby covenants and agrees with the Subscriber as follows: (a) to obtain Shareholder Approval no later than October 31, 2002; (b) to cause the Note to be duly and validly created and issued; (c) to cause the Shares issuable upon the conversion of the Note, upon the exercise of the Warrants and upon of the payment of interest on the Note to be duly and validly authorized, created and issued as fully-paid and non-assessable common shares in the capital of the Company; (d) to use its commercial best efforts to ensure that the Shares are listed and posted for trading on the TSX upon their issue; (e) to promptly comply with all applicable filing and other requirements under all applicable Securities Laws, including without limitation, the filing of Form 45-102F2 under MI 45-102 and Form 45-501F1 under Rule 45-501 within 10 days of the Closing Date together with applicable fees; (f) to use its commercial best efforts to maintain its status as a reporting issuer in the province of Ontario, to maintain its status as a "qualifying issuer" as defined in MI 45-102, and to continue to be in compliance with its obligations under the Securities Laws of Ontario; and 8 (g) if applicable, make withholdings required under Part 13 of the Income Tax Act (Canada) with respect to any payments to be made to the Subscriber under the Note and remit such withholdings to applicable governmental authority. 7. Costs All expenses incurred by the Company (including the fees and disbursements of counsel for the Company) relating to the issuance of the Note, issue of the Underlying Securities, listing of the Shares, printing, photocopying, professional fees, the costs for holding the shareholders' meeting and preparation of meeting materials with respect to Shareholder Approval, and all other costs and expenses incurred by the Company relating to the transactions contemplated herein shall be borne by the Company. 8. Security for the Note The Company agrees to grant to the Subscriber a general security interest over all assets of the Company to secure the Company's performance of its obligations under the Note, all in accordance with the general security agreement attached hereto as EXHIBIT C hereto (the "GENERAL SECURITY AGREEMENT"). 9. Jurisdiction This subscription agreement is governed by the laws of the Province of Ontario and the federal laws of Canada applicable therein. By the Subscriber executing this subscription agreement below, the Subscriber irrevocably attorns to the jurisdiction of the courts of Ontario. 10. Facsimile Subscriptions The Company shall be entitled to rely on delivery by facsimile of an executed copy of this subscription agreement and acceptance by the Company of that delivery shall be legally effective to create a valid and binding agreement between the Subscriber and the Company in accordance with the terms of this subscription agreement. 11. Confidentiality. Each of the Subscriber and the Company shall maintain in confidence the matters referred to in this subscription agreement and shall not make any public disclosure, except to the extent required by law, of the terms of this agreement without the consent of the other, such consent not to be unreasonably withheld. The wording of any public disclosure which is made must be approved by each of the parties. 12. Assignment This subscription agreement is not transferable or assignable. 13. Time of the Essence Time shall be of the essence hereof. 14. Currency All references herein to monetary amounts are references to lawful money of Canada. 9 15. Headings The headings contained herein are for convenience of reference only and shall not affect the meaning or interpretation hereof. 16. Entire Agreement This subscription agreement (including the annexed schedules hereto) constitutes the only agreement between the parties with respect to the subject matter hereof and shall supersede any and all prior negotiations and understandings and there are no representations, covenants or other agreements relating to the subject matter hereof except as stated or referred to herein or therein. This subscription agreement may only be amended or modified in any respect by written instrument executed by each of the parties hereto. SIGNATURE PAGE TO FOLLOW 10 If the foregoing is in accordance with your understanding, please sign and return this subscription agreement as soon as possible to evidence your agreement to issue the Note. DATED at ___________________________ this _____________ day of __________, 2002. Please acknowledge your acceptance of the foregoing subscription agreement by signing and returning a copy to the undersigned whereupon it shall become a binding agreement between us. GREENWICH GROWTH FUND LTD. By:_________________________________ Name: Title: ACCEPTED: Dated as of August ____, 2002 ADB SYSTEMS INTERNATIONAL INC. By:_________________________________ Name: Title: SCHEDULE 1 THE TORONTO STOCK EXCHANGE PRIVATE PLACEMENT QUESTIONNAIRE AND UNDERTAKING To be completed by each proposed private placement purchaser of listed securities or securities which are convertible into listed securities. QUESTIONNAIRE 1. DESCRIPTION OF TRANSACTION (a) Name of Issuer of the Securities - ADB Systems International Inc. (b) Number and Class of Securities to be Purchased - Series D 8% convertible secured note No. 1 in the principal amount of $100,000 (the "Note"), convertible at the holder's option at any time after approval of shareholders of the issuer until the maturity date of December 31, 2004 for units at $0.12 per unit. Each unit consists of one common share of the issuer and one half of one common share purchase warrant. Each whole warrant entitles the holder thereof to purchase one common share of the issuer at $0.14 per share at any time prior to 5:00 p.m. on December 31, 2004. (c) Purchase Price - Advance of the principal amount for the Note. 2. DETAILS OF PURCHASER (a) Name of Purchaser - Greenwich Growth Fund Ltd. (b) Address - P.O. Box Hm 2257, 3rd Floor, Par La Ville Place, 14 Par-La-Ville Road, Hamilton HM JX, Bermuda (c) Names and addresses of persons having a greater than 10% beneficial interest in the purchaser- ----------------------------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------------------------------- 3. RELATIONSHIP TO ISSUER (a) Is the purchaser (or any person named in response to 2(c) above) an insider of the issuer for the purposes of the Securities Act (Ontario) (before giving effect to this private placement)? If so, state the capacity in which the purchaser (or person named in response to 2(c)) qualifies as an insider - No. (b) If the answer to (a) is "no", are the purchaser and the issuer controlled by the same person or company? If so, give details - No. 4. DEALINGS OF PURCHASER IN SECURITIES OF THE ISSUER Give details of all trading by the purchaser, as principal, in the securities of the issuer (other than debt securities which are not convertible into equity securities), directly or indirectly, within the sixty (60) days preceding the date hereof - ----------------------------------------------------------------------- ----------------------------------------------------------------------- UNDERTAKING TO: TORONTO STOCK EXCHANGE THE UNDERSIGNED has subscribed for and agreed to purchase, as principal, the securities described in Item 1 of the Private Placement Questionnaire and Undertaking. THE UNDERSIGNED undertakes not to sell or otherwise dispose of any of the said securities so purchased or any securities derived therefrom for a period of four (4) months from the date of closing of the transaction herein or for such period as is prescribed by applicable securities legislation, whichever is longer, without the prior consent of the Toronto Stock Exchange and any other regulatory body having jurisdiction. DATED at ________________________ this __________ day of ________________, 2002. GREENWICH GROWTH FUND LTD. ---------------------------------------------------- Name of Purchaser (please print) ---------------------------------------------------- Authorized Signature ---------------------------------------------------- Official Capacity (please print) ---------------------------------------------------- Please print here name of individual whose signature appears above, if different from name of purchaser printed above EXHIBIT A FORM OF SERIES D NOTES EXHIBIT B FORM OF WARRANT EXHIBIT C FORM OF GENERAL SECURITY AGREEMENT EX-4.17 9 t09678exv4w17.txt FORM OF WARRANT UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THE SECURITIES SHALL NOT TRADE THE SECURITIES BEFORE DECEMBER o, 2002. Void after 5:00 p.m. (Toronto time) on the 31st day of December, 2004. Number of Warrants: o Warrant Certificate No. W-D- o ADB SYSTEMS INTERNATIONAL INC. (organized under the laws of the Province of Ontario) This is to certify that, for value received, o (the "HOLDER"), shall have the right to purchase from ADB Systems International Inc. (the "CORPORATION"), at any time and from time to time up to 5:00 p.m. (Toronto time) on December 31, 2004 (the "EXPIRY TIME"), one fully paid and non-assessable Common Share for each Warrant (individually, a "WARRANT") represented hereby at a price of Cdn$0.14 per share (the "EXERCISE PRICE"), upon and subject to the following terms and conditions: 1. For the purpose of this Warrant, the term "COMMON SHARES" means common shares in the capital of the Corporation as constituted on the date hereof; provided that in the event of a change, subdivision, re-division, reduction, combination or consolidation thereof or any other adjustment under clause 7 hereof, or such successive changes, subdivisions, re-divisions, reductions, combinations, consolidations or other adjustments, then subject to the adjustments, if any, having been made in accordance with the provisions of this Warrant Certificate, "COMMON SHARES" shall thereafter mean the shares, other securities or other property resulting from such change, subdivision, re-division, reduction, combination or consolidation or other adjustment. 2. All rights under any of the Warrants in respect of which the right of subscription and purchase therein provided for shall not theretofore have been exercised shall wholly cease and determine and such Warrants shall be wholly void and of no valid or binding effect after the Expiry Time. 3. The right to purchase Common Shares pursuant to the Warrants may only be exercised by the Holder before the Expiry Time by: (i) duly completing and executing a subscription substantially in the form attached hereto, in the manner therein indicated; and (ii) surrendering this Warrant Certificate and the duly completed and executed subscription form to the Corporation at the principal office of the Corporation at 201-6725 Airport Road, Mississauga, Ontario L4V 1V2, together with payment of the purchase price for the Common Shares subscribed for in the form of cash or a certified cheque payable to the Corporation in an amount equal to the then applicable Exercise Price multiplied by the number of Common Shares subscribed for. 4. Issue of Common Shares upon Exercise. (a) Upon such delivery and payment as set forth in section 4, the Corporation shall cause to be issued to the Holder the number of Common Shares to be issued and the Holder shall become a shareholder of the Corporation in respect of such Common Shares with effect from the date of such delivery and payment and shall be entitled to delivery of a certificate or certificates evidencing such shares. The Corporation shall cause such certificate or certificates to be 2 delivered via bonded overnight courier to the Holder at the address or addresses specified in such subscription form within five (5) business days of such delivery and payment as herein provided. (b) The Corporation shall not be required to issue fractional Common Shares upon the exercise of the Warrants and no payment shall be made by the Corporation in lieu of issuing any fractional interest in a common share. 5. The holding of a Warrant shall not constitute the Holder a shareholder of the Corporation nor entitle him to any right or interest in respect thereof except as herein expressly provided. 6. The Corporation covenants and agrees that until the Expiry Time, while any of the Warrants shall be outstanding, it shall reserve and there shall remain unissued out of its authorized capital a sufficient number of Common Shares to satisfy the right of purchase herein provided, as such right of purchase may be adjusted pursuant to clauses 7 and 8 hereof. All Common Shares which shall be issued upon the exercise of the right to purchase herein provided for, upon payment therefor of the amount at which such Common Shares may at the time be purchased pursuant to the provisions hereof, shall be issued as fully paid and non-assessable shares and the holders thereof shall not be liable to the Corporation or its creditors in respect thereof. 7. Adjustment (a) If and whenever at any time after the date hereof and prior to the Expiry Time the Corporation shall (i) subdivide, re-divide or change its then outstanding Common Shares into a greater number of Common Shares, (ii) reduce, combine or consolidate its then outstanding Common Shares into a lesser number of Common Shares, or (iii) issue Common Shares (or securities exchangeable for or convertible into Common Shares) to the holders of all or substantially all of its then outstanding Common Shares by way of a stock dividend or other distribution (any of such events herein called a "COMMON SHARE REORGANIZATION"), then the Exercise Price shall be adjusted effective immediately after the effective date of any such event in (i) or (ii) above or the record date at which the holders of Common Shares are determined for the purpose of any such dividend or distribution in (iii) above, as the case may be, by multiplying the Exercise Price in effect on such effective date or record date, as the case may be, by a fraction, the numerator of which shall be the number of Common Shares outstanding on such effective date or record date, as the case may be, before giving effect to such Common Share Reorganization and the denominator of which shall be the number of Common Shares outstanding immediately after giving effect to such Common Share Reorganization including, in the case where securities exchangeable for or convertible into Common Shares are distributed, the number of Common Shares that would be outstanding if such securities were exchanged for or converted into Common Shares. (b) If and whenever at any time after the date hereof and prior to the Expiry Time, the Corporation shall distribute any class of shares or rights, options or warrants or other securities (other than those referred to in 7(a) above), evidences of indebtedness or property (excluding cash dividends paid in the ordinary course) to holders of all or substantially all of its then outstanding Common Shares, the Holder shall receive, in addition to the number of the Common Shares in respect of which the right to purchase is then being exercised, the aggregate number of Common Shares or other securities or property that the Holder would have been entitled to receive as a result of such event, if, on the record date thereof, the Holder had been the registered holder of the number of Common Shares to which the Holder was theretofore entitled upon the exercise of the rights of the Holder hereunder. 3 (c) If and whenever at any time after the date hereof and prior to the Expiry Time there is a capital reorganization of the Corporation or a reclassification or other change in the Common Shares (other than a Common Share Reorganization) or a consolidation or merger or amalgamation of the Corporation with or into any other corporation or other entity (other than a consolidation, merger or amalgamation which does not result in any reclassification of the outstanding Common Shares or a change of the Common Shares into other securities), or a transfer of all or substantially all of the Corporation's undertaking and assets to another corporation or other entity in which the holders of Common Shares are entitled to receive shares, other securities or other property (any of such events being called a "CAPITAL REORGANIZATION"), the Holder, where he has not exercised the right of subscription and purchase under this Warrant Certificate prior to the effective date of such Capital Reorganization, shall be entitled to receive and shall accept, upon the exercise of such right, on such date or any time thereafter, for the same aggregate consideration in lieu of the number of Common Shares to which he was theretofore entitled to subscribe for and purchase, the aggregate number of shares or other securities or property which the Holder would have been entitled to receive as a result of such Capital Reorganization if, on the effective date thereof, he had been the registered holder of the number of Common Shares to which he was theretofore entitled to subscribe for and purchase. (d) If and whenever at any time after the date hereof and prior to the Expiry Time, the Corporation shall fix a record date for the issuance of rights, options or warrants to all or substantially all of the holders of the outstanding Common Shares entitling them, for a period expiring not more than forty-five (45) days after the record date, to subscribe for or purchase Common Shares or securities convertible, exercisable or exchangeable into Common Shares (each, a "CONVERTIBLE SECURITY") at a price per share (or having a conversation, exercise or exchange price per share) less than 95% of the Current Market Price (as defined below) on the earlier of the record date and the date on which the Corporation announces its intention to make such issuance (any such issuance being herein called a "RIGHTS OFFERING"), the Exercise Price shall be adjusted on the record date so that it shall equal the number which is the product of the Exercise Price in effect immediately prior to the record date and the fraction: (i) the numerator of which shall be the total number of Common Shares outstanding immediately prior to the record date plus a number of Common Shares equal to the number arrived at by multiplying the total number of additional Common Shares offered for subscription or purchase or into or for which the total number of rights, options or warrants so offered are convertible or exchangeable by the quotient obtained by dividing the purchase or subscription price for each Common Share or conversion price for each Convertible Security offered for subscription or purchase by such Current Market Price for the Common Shares, and (ii) the denominator of which shall be the total number of Common Shares outstanding immediately prior to such record date plus the total number of additional Common Shares offered for subscription or purchase or into or for which the total number of rights, options or warrants so offered are convertible or exchangeable. To the extent that any rights, options or warrants are not so issued or any of the rights, options or warrants so issued are not exercised prior to the expiration thereof, the Exercise Price will be readjusted to the Exercise Price in effect immediately prior to the record date, and the 4 Exercise Price will be further adjusted based upon the number of additional Common Shares actually delivered upon the exercise of the rights, options or warrants, as the case may be. For the purposes of this clause 7(d), "CURRENT MARKET PRICE", at any date, means the weighted average price per Common Share at which the Common Shares have traded: (a) on the Toronto Stock Exchange; or (b) if the Common Shares are not quoted on the Toronto Stock Exchange, on any stock exchange or over-the-counter market upon which the Common Shares are then listed or quoted for trading, during the twenty (20) consecutive trading days (on each of which at least five hundred (500) Common Shares are traded in board lots) ending the third (3rd) trading day before such date, and the weighted average price shall be determined by dividing the aggregate sale price of all Common Shares sold in board lots on the exchange or market, as the case may be, during the twenty (20) consecutive trading days by the number of Common Shares sold, provided that if the Common Shares are not listed or quoted for trading on any stock exchange or market, the price shall be determined by the board of directors of the Corporation in its sole discretion, acting reasonably. (e) If and whenever at any time after the date hereof and prior to the Expiry Time, any of the events set out in clause 7(a) or (d) shall occur and the occurrence of such event results in an adjustment of the Exercise Price pursuant to the provisions of clause 7(a) or (d), then the number of Common Shares purchasable pursuant to this Warrant shall be adjusted contemporaneously with the adjustment of the Exercise Price by multiplying the number of Common Shares then otherwise purchasable on the exercise thereof by a fraction, the numerator of which shall be the Exercise Price in effect immediately prior to the adjustment and the denominator of which shall be the Exercise Price resulting from such adjustment. (f) If the Corporation takes any action affecting its Common Shares to which the foregoing provisions of this clause 7, in the opinion of the board of directors of the Corporation, acting in good faith, are not strictly applicable, or if strictly applicable would not fairly adjust the rights of the Holder against dilution in accordance with the intent and purposes hereof, or would otherwise materially affect the rights of the Holder of the Warrants hereunder, then the Corporation shall execute and deliver to the Holder an amendment hereto providing for an adjustment in the application of such provisions so as to adjust such rights as aforesaid in such manner as the board of directors of the Corporation may determine to be equitable in the circumstances, acting in good faith. The failure of the taking of action by the board of directors of the Corporation to so provide for any adjustment on or prior to the effective date of any action or occurrence giving rise to such state of facts will be conclusive evidence that the board of directors has determined that it is equitable to make no adjustment in the circumstances. 8. The following rules and procedures shall be applicable to the adjustments made pursuant to clause 7: (a) no adjustment in the Exercise Price shall be required unless a change of at least 1% of the prevailing Exercise Price would result, provided, however, that any adjustment which, except for the provisions of this clause 8(a), would otherwise have been required to be made, shall be carried forward and taken into account in any subsequent adjustment; (b) the adjustments provided for in clause 7 are cumulative and shall apply to successive subdivisions, consolidations, dividends, distributions and other events resulting in any adjustment under the provisions of such clause; 5 (c) in the absence of a resolution of the board of directors of the Corporation fixing a record date for any dividend or distribution referred to in clause 7(a)(iii) above, the Corporation shall be deemed to have fixed as the record date therefor the date on which such dividend or distribution is effected; (d) if the Corporation sets a record date to take any action and thereafter and before the taking of such action abandons its plan to take such action, then no adjustment to the Exercise Price will be required by reason of the setting of such record date; (e) forthwith after any adjustment to the Exercise Price or the number of Common Shares purchasable pursuant to the Warrants, the Corporation shall provide to the Holder a certificate of an officer of the Corporation certifying as to the amount of such adjustment and, in reasonable detail, describing the event requiring and the manner of computing or determining such adjustment; and (f) any question that at any time or from time to time arises with respect to the amount of any adjustment to the Exercise Price or other adjustment pursuant to clause 7 shall be conclusively determined by a firm of independent chartered accountants (who may be the Corporation's auditors) and shall be binding upon the Corporation and the Holder. 9. On the happening of each and every such event set out in clause 7, the applicable provisions of this Warrant, including the Exercise Price, shall, ipso facto, be deemed to be amended accordingly and the Corporation shall take all necessary action so as to comply with such provisions as so amended. 10. The Corporation shall not be required to deliver certificates for Common Shares while the share transfer books of the Corporation are properly closed, having regard to the provisions of clauses 7 and 8 hereof, prior to any meeting of shareholders or for the payment of dividends or for any other purpose and in the event of the surrender of any Warrant in accordance with the provisions hereof and the making of any subscription and payment for the Common Shares called for thereby during any such period delivery of certificates for Common Shares may be postponed for not more than five (5) days after the date of the re-opening of said share transfer books. Provided, however, that any such postponement of delivery of certificates shall be without prejudice to the right of the Holder so surrendering the same and making payment during such period to receive after the share transfer books shall have been re-opened such certificates for the Common Shares called for, as the same may be adjusted pursuant to clause 8 hereof as a result of the completion of the event in respect of which the transfer books were closed. 11. Subject as hereinafter provided, all or any of the rights conferred upon the Holder by the terms hereof may be enforced by the Holder by appropriate legal proceedings. No recourse under or upon any obligation, covenant or agreement contained herein shall be had against any shareholder, director or officer of the Corporation either directly or through the Corporation, it being expressly agreed and declared that the obligations under the Warrants are solely corporate obligations and that no personal liability whatever shall attach to or be incurred by the shareholders, directors or officers of the Corporation or any of them in respect thereof, any and all rights and claims against every such shareholder, officer or director being hereby expressly waived as a condition of and as a consideration for the issue of the Warrants. 12. The Holder may subscribe for and purchase any lesser number of Common Shares than the number of shares expressed in this Warrant Certificate. In the case of any subscription for a lesser number of Common Shares than expressed in this Warrant Certificate, the Holder hereof shall be entitled to receive at no cost to the Holder a new Warrant Certificate in respect of the balance of Warrant not then exercised. Such new Warrant Certificate shall be delivered by bonded overnight courier to the Holder by the Corporation, 6 contemporaneously with the delivery of the certificate or certificates representing the Common Shares issued pursuant to clause 4. 13. If this Warrant Certificate is stolen, lost, mutilated or destroyed, the Corporation shall, on such terms as it may in its discretion acting reasonably impose, issue and sign and direct the Corporation's transfer agent to countersign a new Warrant Certificate of like denomination, tenor and date as the Warrant Certificate so stolen, lost, mutilated or destroyed for delivery to the Holder. 14. The Corporation shall keep at its principal office (or its transfer agent in the City of Toronto): (a) a register of holders in which shall be entered the names and addresses of the holders of the Warrants and of the number of Warrants held by them; and (b) a register of transfers in which shall be entered the date and other particulars of each transfer of Warrants. The registers hereinbefore referred to shall be open at all reasonable times for inspection by any Holder. 15. The transferee of a Warrant Certificate shall, after the transfer form attached to the Warrant Certificate or any other form of transfer acceptable to the Corporation, acting reasonably, is duly completed and the Warrant Certificate is lodged with the Corporation and upon compliance with all other conditions in that regard required by this Warrant, by the Toronto Stock Exchange or by law, be entitled to have his name entered on the register of holders as the owner of the Warrants represented thereby free from all equities or rights of set-off or counterclaim between the Corporation and the transferor or any previous holder of such Warrant, save in respect of equities of which the Corporation or the transferee is required to take notice by statute or by order of a court of competent jurisdiction. 16. Warrant Certificates may, upon compliance with the reasonable requirements of the Corporation, be exchanged for Warrant Certificates in any other denomination representing in the aggregate the same number of Warrants. The Corporation shall issue and sign and direct the Corporation's transfer agent to countersign, all Warrant Certificates necessary to carry out the exchanges contemplated herein, provided: (i) Warrant Certificates may be exchanged only at the principal office of the Corporation in the City of Mississauga; (ii) any Warrant Certificates tendered for exchange shall be surrendered to the Corporation and cancelled; and (iii) except as otherwise herein provided, the Corporation shall not charge Holders requesting an exchange any sum for any new Warrant Certificate issued. 17. The Corporation may deem and treat the registered holder of any Warrant Certificate as the absolute owner of the Warrants represented thereby for all purposes, and the Corporation shall not be affected by any notice or knowledge to the contrary except where the Corporation is required to take notice by statute or by order of a court of competent jurisdiction. A Holder shall be entitled to the rights evidenced by such Warrant free from all equities or rights of set-off or counterclaim between the Corporation and the original or any intermediate holder thereof and all persons may act accordingly and the receipt by any such Holder of the Common Shares purchasable pursuant to such Warrant shall be a good discharge to the Corporation for the same and the Corporation shall not be bound to inquire into the title of any such Holder except where the Corporation is required to take notice by statute or by order of a court of competent jurisdiction. 18. The Holder acknowledges that appropriate legend, as follows, will be placed upon certificates representing any securities issued on the exchange, assignment or exercise of the Warrants represented by this certificate until the hold period expires for the Warrants so represented hereby. 7 LEGEND "UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THE SECURITIES SHALL NOT TRADE THE SECURITIES BEFORE DECEMBER o, 2002." 19. This Warrant shall be governed by the laws of the Province of Ontario and the federal laws of Canada applicable herein. 20. The Warrants represented by this certificate and the Common Shares issuable upon exercise hereof have not been registered under the United States Securities Act of 1933, as amended (the "1933 ACT"). The Warrants represented by this certificate may not be exercised by a U.S. person or person within the United States (or on behalf of any such person) unless registered under the 1933 Act or unless an exemption from such registration is available. Terms used in this clause 20 have the meanings assigned to them in Regulation S under the 1933 Act. 21. All references herein to monetary amounts are references to lawful money of Canada. IN WITNESS WHEREOF, the Corporation has caused this Warrant Certificate to be signed by its duly authorized officer. DATED this ____ day of _____________, 200__. ADB SYSTEMS INTERNATIONAL INC. By: ______________________________________ Authorized Signing Officer SUBSCRIPTION FORM TO BE COMPLETED IF WARRANTS ARE TO BE EXERCISED: TO: ADB SYSTEMS INTERNATIONAL INC. 6725 Airport Road, Suite 201 Mississauga, Ontario L4V 1V2 THE UNDERSIGNED hereby subscribes for ____________ common shares of ADB Systems International Inc. according to the terms and conditions set forth in the annexed warrant certificate (or such number of other securities or property to which such warrant entitles the undersigned to acquire under the terms and conditions set forth in the annexed warrant certificate). Address for Delivery of Shares: ________________________________________________ ________________________________________________ ________________________________________________ Attention: _____________________________________ Exercise Price Tendered (Cdn$0.14 per share or as adjusted) Cdn$__________________ DATED at _____________________, this __________ day of __________________, ____. Witness: ) ) ________________________________ ) Holder's Name ) ____________________________________________) ________________________________ ) Authorized Signature ) ) ________________________________ ) Title (if applicable) ASSIGNMENT FORM TO BE COMPLETED IF WARRANTS ARE TO BE ASSIGNED: TO: ADB SYSTEMS INTERNATIONAL INC. 6725 Airport Road, Suite 201 Mississauga, Ontario L4V 1V2 FOR VALUE RECEIVED, ______________________ Warrants represented by this Warrant Certificate are hereby transferred to __________________________________________ residing at ___________________________________________________________________. You are hereby instructed to take the necessary steps to effect this transfer. DATED at ______________, this ________ day of _______________________, ________. Witness: ) ) _________________________________ ) Holder's Name ) ____________________________________________) _________________________________ ) Authorized Signature ) ) _________________________________ ) Title (if applicable) Signature guaranteed: The signature must be guaranteed by a Canadian chartered bank or a member of a recognized stock exchange or other entity acceptable to the Corporation. EX-4.18 10 t09678exv4w18.txt CO-OPERATION AGREEMENT Execution Copy CO-OPERATION AGREEMENT THIS AGREEMENT is made as of the 23rd day of August, 2002 (the "Effective Date") between ADB SYSTEMS INTERNATIONAL INC. ("ADB"), ADB SYSTEMS INTERNATIONAL LTD. ("NEW ADB"), a corporation having its principal place of business at 6725 Airport Road, Suite 201, Mississauga, Ontario L4V 1V2, and THE BRICK WAREHOUSE CORPORATION ("THE BRICK"), a corporation having its principal place of business at 16930 - 114 Avenue, Edmonton, Alberta, T5M 3S2. BACKGROUND: 1. ADB is the registered owner of the url @ www.bid.com and the DYN@MIC SELLER (TM) proprietary software which is used for the purposes of conducting on-line retail sales. The DYN@MIC SELLER(TM) proprietary software is state of the art and provides for sales through fixed price, top bid (ascending) and dutch (descending) auctions. 2. The Brick is Canada's largest volume retailer of home furnishings, mattresses, bedding, appliances, televisions, video recorders, stereo equipment and computers, and presently operates an on-line website through www.thebrick.com. 3. The parties wish to jointly develop a profitable venture utilizing the retail business of ADB and taking advantage of the synergies between ADB's experience in the retail sector and technological expertise, together with The Brick's retail experience and off-line presence, thus creating incremental revenue streams for the parties and establishing a venture which would be mutually beneficial to the parties. NOW THEREFORE in consideration of the premises, the mutual covenants contained in this Agreement, and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Parties agree as follows: ARTICLE I INTERPRETATION 1.1 DEFINITIONS. In this Agreement, unless the context otherwise requires, each capitalized term shall have the meanings indicated below. "ADB ASSETS" means those assets of ADB which are not Bid.Com Assets. "ADB COMMON SHARES" means common shares in the capital of ADB. "ADB ESOP" means ADB's 1999 Stock Option Plan, as amended. - 2 - Execution Copy "ADB LIABILITIES" means those Liabilities of ADB which are not Bid.Com Liabilities and includes, without limitation, those liabilities identified in subsections 3.2(c)(i) to (v) inclusive. "AGREEMENT" means this Co-Operation Agreement and all schedules annexed to this Agreement as the same may be amended from time to time in accordance with the provisions hereof; "hereof ", "hereto" and "hereunder" and similar expressions mean and refer to this Agreement and not to any particular article or section; except where the context specifically requires, "Article" or "Section" means and refers to the specified article or section of this Agreement. "ARRANGEMENT AGREEMENT" means the form of arrangement agreement between ADB and New ADB attached hereto as Schedule A. "BID.COM" means ADB Systems International Inc., following completion of the Restructuring. "BID.COM ASSETS" means those assets identified in Schedule B hereto. "BID.COM LIABILITIES" means those liabilities identified in Schedule C hereto. "BUSINESS DAY" means any day from Monday to Friday inclusive, except statutory or civic holidays observed in Toronto, Ontario or Edmonton, Alberta. "CONFIDENTIAL INFORMATION" means all information relating to any Party or to such Party's business, products, sales, users, trade secrets, technology or financial position to which access is obtained or granted hereunder, which is treated by the disclosing Party as confidential provided, however, that Confidential Information of the disclosing Party shall not include any data or information which the receiving Party can demonstrate: (a) is or becomes publicly available through no fault of the receiving Party; (b) is already in the rightful possession of the receiving Party prior to its receipt from another Party; (c) is independently developed by the receiving Party, as proven by written documentation; (d) is rightfully obtained by the receiving Party from a third party not subject to an obligation of confidentiality; (e) is disclosed by the Receiving Party with the written consent of the disclosing Party whose information it is; or (f) is disclosed by the Receiving Party pursuant to court order or other legal compulsion, provided the receiving Party gives the disclosing Party prior notice of any such requirement to afford, if possible, the disclosing Party an opportunity to obtain a protective order. "EFFECTIVE DATE" has the meaning attributed thereto on the face page of this Agreement. - 3 - Execution Copy "EFFECTIVE TIME" has the meaning set out in Section 3.2. "GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT" means the agreement between ADB and New ADB pursuant to which ADB transfers the ADB Assets to New ADB and New ADB assumes the ADB Liabilities, the form of which is attached as Schedule D hereto. "LIABILITIES" means any indebtedness, obligation or liability of any kind (whether accrued, contingent or otherwise and whether due or to become due or asserted or unasserted). "LOAN" has the meaning ascribed thereto in the Loan Agreement. "LOAN AGREEMENT" means the loan agreement dated the date hereof between The Brick, as lender, and ADB and New ADB, as borrower. "MANAGEMENT INFORMATION CIRCULAR" means the management circular of ADB to be prepared in accordance with applicable corporate and securities legislation and mailed to the shareholders of ADB in connection with the Special Meeting. "NEW ADB COMMON SHARES" means common shares in the capital of New ADB. "PARTIES" means ADB and The Brick and "Party" means any one of them. "PERSON" includes an individual, company, corporation, partnership, government or government agency, authority or entity howsoever designated or constituted. "PLAN OF ARRANGEMENT" means the plan of arrangement attached as Appendix 1 to the Arrangement Agreement. "RESTRUCTURING" means the completion of the transactions contemplated by the Arrangement Agreement. "SCHEDULES" means the following schedules annexed to this Agreement, and such other schedules as the Parties may append by mutual agreement, evidenced by their initialing of same: Schedule A - Arrangement Agreement Schedule B - Bid.Com Assets Schedule C - Bid.Com Liabilities Schedule D - General Assignment and Assumption Agreement Schedule E - Supply, Services and License Agreement "SPECIAL MEETING" means the special meeting of the shareholders of ADB, to be called to approve the Restructuring. "SUPPLY, SERVICES AND LICENSE AGREEMENT" means the supply, services and license agreement attached as Schedule E hereto. "TERM" has the meaning set out in Section 6.1. - 4 - Execution Copy "TRANSACTION DOCUMENTS" has the meaning defined in the Loan Agreement among the parties hereto of even date herewith. 1.2 HEADINGS. The use of headings in this Agreement is for convenience of reference only and shall not affect its interpretation. 1.3 EXTENDED MEANINGS. Words expressed in the singular include the plural and vice-versa and words in one gender include all genders. 1.4 ENTIRE AGREEMENT. The Transaction Documents, and any agreements or other documents to be delivered pursuant to any Transaction Document, constitute the entire agreement between the Parties pertaining to the subject matter hereof and supersede all prior agreements, understandings, negotiations and discussions, oral or written between the Parties. The execution of this Agreement has not been induced by, nor do either of the Parties rely upon or regard as material, any representations, warranties, conditions, other agreements or acknowledgments not expressly made in this Agreement, the Transaction Documents, or in the agreements or other documents to be delivered pursuant hereto. 1.5 INVALIDITY. If in any jurisdiction a provision contained in this Agreement is found by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein, or of such provision in any other jurisdiction shall not be affected or impaired thereby. ARTICLE II PROCESS OF CO-OPERATION 2.1 PREPARATORY TRANSACTION STEPS ADB shall forthwith commence the Restructuring, in accordance with the terms of Article III hereof, conditional upon the completion of the First Advance and the Expenses Advance pursuant to the Loan Agreement. 2.2 UNDERTAKING OF BID.COM As a result of the Restructuring, ADB will divest itself of the ADB Assets and will focus its undertaking exclusively to selling and marketing retail consumer goods on-line through the www.bid.com and www.thebrick.com websites (the "Sites"), in accordance with the terms of this Co-Operation Agreement and appended Schedules. Subject to the terms and conditions of the Supply, Services and License Agreement, (i) in conducting its activities, Bid.com will use - 5 - Execution Copy exclusively the technology, supplies and services provided by New ADB and The Brick in accordance with the terms thereof; (ii) Bid.com will assume responsibility for the operation of the Sites and will list products for auction and fixed price sales and post all other content for the Sites; and (iii) Bid.com will be the seller of record of products sold through the Sites. 2.3 ADB LICENSE AND SERVICES In accordance with and subject to the terms of the Supply, Services and License Agreement, New ADB will license to Bid.com use of its proprietary consumer sales software and auction platform, and will provide Bid.com with the necessary customization and implementation services and on-going technical support services in order to provide Bid.com with the web-based platform necessary to operate its on-line fixed price and auction retail venture. 2.4 THE BRICK'S SUPPLIES AND SERVICES In accordance with and subject to the terms of the Supply, Services and License Agreement, The Brick will provide to Bid.com access to a supply channel of consumer products and related accessories to be marketed through the Sites, together with support services and use of related property including product data and information, use of The Brick's product fulfillment and payment systems, retail support, aftersale services and customer service. 2.5 LOAN BY THE BRICK In order to enable ADB to proceed with the Restructuring and to provide funds for future operations, The Brick shall enter into the Loan Agreement whereby it shall agree to lend ADB $2,000,000 on the terms and conditions set out therein. Amounts owing under the Loan Agreement shall be secured by the security contemplated by the Loan Agreement. ARTICLE III IMPLEMENTATION OF THE RESTRUCTURING 3.1 MANAGEMENT INFORMATION CIRCULAR (1) ADB covenants and agrees to forthwith commence preparation of the Management Information Circular seeking the approval of its shareholders to the Restructuring at the Special Meeting and describing the terms and conditions upon which the Restructuring will be implemented. ADB agrees that the Management Information Circular will describe tax implications of the Restructuring to shareholders of ADB resident in Canada, the United States and Norway. (2) The Brick will not be required to provide any representations and warranties to ADB or to any other person in connection with any disclosure made by ADB in connection with the Restructuring or the Management Information Circular and ADB and New ADB shall indemnify and hold harmless The Brick for any claim made against The Brick, its affiliates and their respective directors, officers and employees with respect to any third party claim made against The Brick in connection with such disclosure. - 6 - Execution Copy (3) New ADB covenants and agrees to take all necessary actions at its sole expense, including, without limitation, making applications to applicable securities regulatory authorities, to ensure that Old ADB ceases to be a reporting issuer or the equivalent thereof in each jurisdiction where it maintains such status as of the Effective Time. 3.2 TRANSACTION STEPS The Restructuring will be carried out in accordance with the Arrangement Agreement. As part of the Restructuring, the following shall occur and be deemed to occur without further act or formality in the following order as at 12:01 a.m. on the date of the issuance of a certificate and articles of arrangement by the Ontario Ministry of Consumer and Business Affairs (the "Effective Time"): (a) each ADB Common Share (other than such shares held by dissenting shareholders) shall be and be deemed to be exchanged with New ADB for the sole consideration of one New ADB Common Share; (b) pursuant to the General Assignment and Assumption Agreement, ADB will transfer all of the ADB Assets to New ADB, some of which will constitute a return of capital and some of which will be in consideration of the assumption of ADB liabilities and New ADB will assume, fulfill and perform all of the ADB Liabilities. The transaction will be approved by the court pursuant to the Bulk Sales Act. Upon such transfer: (i) New ADB shall be liable for the obligations of ADB (including any obligations that may arise under any permit or agreement) under the ADB Liabilities existing immediately before the Effective Time or that arises after the Effective Time in respect of facts or circumstances in existence immediately prior to the Effective Time; (ii) New ADB shall be liable for the obligations of ADB to dissenting shareholders of ADB, if any; (iii) any existing cause of action, claim or liability to prosecution of or affecting ADB shall be assumed by New ADB existing immediately before the Effective Time or that arises after the Effective Time in respect of facts or circumstances in existence immediately prior to the Effective Time; (iv) a civil, criminal or administrative action or proceeding pending by or against ADB existing immediately before the Effective Time or that arises after the Effective Time in respect of facts or circumstances in existence immediately prior to the Effective Time shall be continued to be prosecuted by or against New ADB; (v) a conviction against ADB immediately before the Effective Time may be enforced against New ADB or a ruling, order or judgement in favour of or against ADB existing immediately before the Effective Time or that arises - 7 - Execution Copy after the Effective Time in respect of facts or circumstances in existence immediately prior to the Effective Time shall be enforced by or against New ADB; (vi) the registered office of New ADB shall be located in Mississauga, Ontario; (vii) the articles of New ADB shall be the substantively same as the articles of ADB; (viii) the number of directors of New ADB shall be a minimum of 3 and a maximum of 15, the actual number of directors within the minimum and maximum number to be determined from time to time by resolution of the directors of New ADB; (ix) the initial directors of New ADB shall be John Mackie, Mark Wallace and Jeff Lymburner, until their respective successors have been duly elected or appointed; (x) the initial by-laws of New ADB shall be the by-laws of ADB in effect immediately before the Arrangement becomes effective, to be supplemented, amended or repealed in accordance with the provisions of the Act relating to the making, amending and repealing of by-laws; (c) New ADB shall adopt the ADB ESOP; (d) each ADB option, whether vested or not vested, exercisable for shares of ADB Common Shares outstanding at the Effective Time shall, at the Effective Time, be exchanged for a New ADB option having the same terms and conditions and subject to the ADB ESOP, and the obligations of ADB under the ADB ESOP shall thereafter terminate; (e) each ADB warrant, whether vested or not vested, outstanding prior to the Effective Time shall, be exchanged for a New ADB warrant having the same terms and conditions following which the exchanged ADB warrants shall be null and void; and (f) the ADB convertible debt outstanding prior to the Effective Time shall be exchanged for New ADB convertible debt on the same terms and conditions following which the exchanged ADB debt shall be null and void. 3.3 TIMING OF THE RESTRUCTURING ADB agrees to prepare and mail, in accordance with applicable corporate and securities laws, the Management Information Circular to the shareholders of ADB by no later than September 15,2002, for a Special Meeting no later than October 22,2002. The Parties shall use their reasonable commercial efforts to ensure that the Restructuring shall be coordinated to take effect by no later than October 31, 2002. - 8 - Execution Copy 3.4 INPUT BY THE BRICK The Brick shall be entitled to receive and comment on drafts of the Management Information Circular and approve the final form thereof and all related public disclosure documentation prior to completion. The Brick shall not withhold or delay its comments or approval unreasonably. 3.5 DIRECTORS OF ADB From and after the Effective Time, (i) the board of directors of ADB shall consist of five (5) members, and (ii) The Brick will be entitled to nominate two (2) directors. The Brick shall exercise its right to nominate director(s) by written notice to New ADB (a "Director Notice"). New ADB shall cause such nominee or nominees, as applicable, to be appointed or elected within 10 days of receipt by New ADB of a Director Notice. No meeting of the directors of ADB shall be held unless The Brick's nominees are present, unless at least 48 hours prior written notice thereof has been sent to such nominees. ARTICLE IV GENERAL MATTERS 4.1 CONFIDENTIALITY. Each Party, on behalf of its advisors, agents, employees and subcontractors (hereinafter in this section, the "Receiving Party") covenants with the other Party (hereinafter in this section, the "Disclosing Party") that it shall keep confidential the Confidential Information of the Disclosing Party to which the Receiving Party obtains access as a consequence of entering into this Agreement and that it will take all reasonable precautions to protect such Confidential Information from any use, disclosure or copying except as expressly authorized by this Agreement. This section shall survive the termination of the Agreement. Upon termination of this Agreement, the Receiving Party shall, at the choice of the Disclosing Party, either return to the Disclosing Party or destroy all copies or partial copies of Confidential Information of the Disclosing Party in any form which is in the possession of the Receiving Party or under its control, and certify that all such Confidential Information has been returned or otherwise destroyed, as rendered irrecoverable. 4.2 PUBLIC ANNOUNCEMENTS. The Parties agree to jointly plan and coordinate a public announcement of the transactions contemplated by this Agreement and to release it on the next business day following execution of this Agreement. All other public announcements or advertisements using the Parties' names or concerning the transaction contemplated in this Agreement will be jointly planned coordinated and approved by the Parties and no Party will act unilaterally in issuing either the initial or subsequent announcements without the prior written approval of the other Party except where required to do so by law or by the applicable regulations or policies of any governmental or other regulatory agency of competent jurisdiction or any stock exchange in circumstances where prior consultation with others is not possible. - 9 - Execution Copy ARTICLE V REPRESENTATIONS, WARRANTIES AND INDEMNITIES 5.1 REPRESENTATIONS AND WARRANTIES Each of the Parties represents and warrants to each other that: (a) it is a corporation duly incorporated, organized and subsisting under the laws of its jurisdiction of incorporation and has all requisite corporate power and authority to enter into and perform its obligations under this Agreement; (b) the execution and delivery of this Agreement and the performance of its obligations hereunder will not conflict with or result in a breach of any of the terms, conditions or provisions of its articles or by-laws, any law or regulation or any contractual restriction binding on or affecting it or its properties; and (c) this Agreement has been duly executed and delivered and is an enforceable obligation of it in accordance with its terms, subject, however, to limitations with respect to enforcement imposed by law in connection with bankruptcy or similar proceedings and to the extent that equitable remedies such as specific performance and injunction are in the discretion of the court from which they are sought. ARTICLE VI DEFAULT AND TERMINATION 6.1 TERM. This Agreement shall commence on the Effective Date and shall continue, subject to early termination in accordance with the terms hereof, until the earlier of (a) the acquisition by The Brick of all of the issued and outstanding shares in the capital of ADB pursuant to the Loan Agreement or the Loan is repaid or otherwise satisfied in full; and (b) the first anniversary of the date of execution of this document. Thereafter, the Agreement shall be extended or renewed only upon mutual agreement of the Parties (the "Term"). 6.2 TERMINATION. (1) This Agreement and the rights and obligations of each Party contained herein may be terminated by one Party giving notice to the other Parties forthwith upon the happening of any of the following events of default: (a) by The Brick to the other Parties upon the happening of an event of default under the Loan Agreement in circumstances where The Brick determines to exercise its remedies in respect of the occurrence of such default; (b) by any non-defaulting Party to the other Parties if a Party fails to perform or observe any of its obligations or covenants under this Agreement and such failure - 10 - Execution Copy continues unremedied for a period of thirty (30) days following notice thereof (giving particulars of the failure in reasonable detail); (c) by The Brick to the other Parties if ADB and New ADB fail to complete the Restructuring on or before October 31, 2002; and (d) by The Brick to the other Parties if The Brick demands payment of the Loan in accordance with the provisions of the Loan Agreement. (2) If an event of default under Section 6.2 (1) occurs (after taking into account any applicable cure period), the non-defaulting Party may on 10 days notice to the defaulting Party, terminate this Agreement. The provisions of this section as to termination do not limit or restrict the rights of either Party, to seek other remedies or take measures that may be otherwise available to it at law or equity in connection with the enforcement and performance of obligations under this Agreement. 6.3 SURVIVAL. The terms of Articles 4.1,4.2 and Article VII shall survive any termination or expiry of this Agreement and shall continue in force thereafter for the period contemplated by the Agreement. Other provisions of this Agreement which, by the nature of the rights or obligations set out therein, might reasonably be expected to be intended to so survive shall survive termination or expiry of this Agreement until they are satisfied or by their nature expire. ARTICLE VII DISPUTE RESOLUTION 7.1 DISPUTE RESOLUTION PROCESS. If any dispute, disagreement, controversy or claim (a "Dispute") arises out of or relating to this Agreement including, without limitation, its application, interpretation, performance, breach, termination, enforcement or damages, or remedies arising out of the breach of or non-compliance therewith, the Dispute shall be referred immediately to the senior finance executive for each Party. For the purposes of this Section 7.1, "senior finance executive" means, in the case of THE BRICK, the Chief Financial Officer of THE BRICK, and in the case of NEW ADB and ADB, the President of NEW ADB. If the Dispute remains unresolved after 10 days of having been referred to such senior executives, then the Parties shall proceed as set out below. All Disputes and claims arising out of this Agreement shall be finally determined by arbitration to be commenced and conducted in the English language in Toronto, Ontario, Canada in accordance with the rules of the Arbitration Act, 1991 (Ontario) as amended hereby. The parties agree that: (a) the parties shall agree on a single arbitrator (who shall be trained as a professional arbitrator with expertise in commercial and corporate law) within ten (10) days of notice of reference to arbitration, failing which either party may apply to a court of competent jurisdiction in the Province of Ontario to appoint an arbitrator with the foregoing qualifications; - 11 - Execution Copy (b) the arbitration shall be held in private and no person except the parties and their respective representatives and witnesses shall be present unless authorized by the arbitrator; (c) subject to the provisions of this Section 7.1, the parties will agree, in consultation with the arbitrator, on the rules of the arbitration. Absent such agreement, the arbitrator will be entitled to establish the procedures to be followed, provided that in doing so, the arbitrator shall be guided by the parties' mutual intention that such procedures should be designed to expedite the proceedings and minimize to the extent practicable the expenses for the parties; (d) the arbitration award shall be final and binding on the parties and shall not be subject to any appeal (those provisions of the Arbitration Act, 1991 (Ontario) necessary to achieve such result are hereby expressly excluded); (e) the costs of the arbitration shall be in the discretion of the arbitrator; (f) judgment upon any award may be entered in any court having jurisdiction or application may be made to the court for a judicial recognition of the award or an order of enforcement, as the case may be; (g) the arbitrator shall be instructed that time is of the essence in the arbitration proceeding and, in any event, the arbitration award must be made within 15 days of the submission of the Dispute to arbitration; (h) all Disputes referred to arbitration (including the scope of the agreement to arbitrate, any statute of limitations, set-off claims, conflict of laws rules, tort claims and interest claims) shall be governed by the substantive law of Ontario; and (i) the parties agree that the arbitration shall be kept confidential and that the existence of the proceeding and any element of it (including any pleadings, briefs or other documents submitted or exchanged, any testimony or other oral submissions and any awards) shall not be disclosed beyond the arbitrator, the parties, their counsel and any person necessary to the conduct of the proceeding, except as may lawfully be required in judicial proceedings relating to the arbitration or otherwise. ARTICLE VIII GENERAL 8.1 NOTICE. Any notice or other communication (a "Notice") required or permitted to be given or made hereunder shall be in writing and shall be well and sufficiently given or made if: (a) delivered by overnight courier service; or - 12 - Execution Copy (b) sent by facsimile transmission or other electronic communication; in the case of a Notice to The Brick addressed to The Brick at: The Brick Warehouse Corporation 16930 - 114 Avenue Edmonton, Alberta T5M 3S2 Attention: Mr. Ron Tweddle, Chief Financial Officer Fax No.: (780) 454-0969 with a copy to: McCarthy Tetrault LLP Box 48, Suite 4700 Toronto Dominion Bank Tower Toronto, ON M5K 1E6 Attention: Jonathan Grant Fax No.: (416) 868-0673 and in the case of a Notice to ADB or New ADB addressed to it at: c/o ADB Systems International Inc. 201 - 6725 Airport Road Mississauga, Ontario L4V 1V2 Attention: Mr. John Mackie General Counsel Fax No.: (905) 672-7514 - 13 - Execution Copy with a copy to: Gowling Lafleur Henderson LLP Suite 5800 Scotia Plaza Toronto, Ontario M5H 3Z7 Attention: Mr. David Pamenter Fax No.: (416) 863-3611 Any Notice given or made in accordance with this Section 8.1 shall be deemed to have been given or made and to have been received on the next Business Day after it was delivered, if delivered as aforesaid. Either Party may from time to time change its address for notice by giving Notice to other Party in accordance with the provisions of this Section 8.1. 8.2 ASSIGNMENT. Neither ADB nor New ADB may assign its rights and obligations under this Agreement, in whole or in part, without the prior consent in writing of The Brick. Any purported assignment made by ADB or New ADB without required consent is void and of no effect. The Brick may assign its rights and obligations under this Agreement, in whole or in part, without the consent of ADB or New ADB provided The Brick gives written notices to ADB and New ADB prior thereto. No assignment of this Agreement shall relieve either Party from any obligation under this Agreement. 8.3 BINDING ON SUCCESSORS. This Agreement shall ensure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns. 8.4 FURTHER ASSURANCES. Each Party agrees that upon the written request of the other Party, it will do all such acts and execute all such further documents, assignments, and the like, and will cause the doing of all such acts and will cause the execution of all such further documents as are within its power to cause the doing or execution of, as any other Party hereto may from time to time reasonably request be done and/or executed as may be reasonably necessary or desirable to give effect to this Agreement. 8.5 INDEPENDENT CONTRACTORS. It is understood and agreed that in giving effect to this Agreement, no Party shall be or be deemed a partner, agent or employee of the other Party for any purpose and that their relationship to each other shall be that of independent contractors. Nothing in this Agreement - 14 - Execution Copy shall constitute a partnership or a joint venture between the Parties. No Party shall have the right to enter into contracts or pledge the credit of or incur expenses of liabilities on behalf of the other Party. 8.6 WAIVER. A waiver by a Party hereto of any of its rights hereunder or of the performance by the other Party of any of its obligations hereunder shall be without prejudice to all of the other rights hereunder of the Party so waiving and shall not constitute a waiver of any such other rights or, in any other instance, of the rights so waived, or a waiver of the performance by the other Party of any of its other obligations hereunder or of the performance, in any other instance, of the obligations so waived. No waiver shall be effective or binding upon a Party unless the same shall be expressed in writing and executed by the Party to be bound. 8.7 INTERPRETATION. This Agreement has been negotiated by the parties hereto and their respective counsel and shall be fairly interpreted in accordance with its terms and without any rules of construction relating to which Party drafted the Agreement being applied in favour or against either Party. 8.8 AMENDMENT. No amendment of any provision of this Agreement shall be effective unless such amendment is embodied in a written agreement which is: (i) expressly stated to be intended to amend this Agreement; and (ii) executed by an authorized signing officer of ADB and an authorized signing officer of The Brick. 8.9 GOVERNING LAW. This Agreement shall be governed and construed according to the laws of the Province of Ontario and the laws of Canada applicable therein, and shall be treated, in all respects, as an Ontario contract. For the purposes of all legal proceedings this Agreement will be deemed to have been performed in the Province of Ontario and each of the parties hereby attorns to the jurisdiction of the courts of the Province of Ontario. 8.10 TIME OF THE ESSENCE. Time is of the essence of this Agreement. - 15 - 8.11 COUNTERPARTS This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Counterparts may be executed either in original or faxed form and the Parties adopt any signatures received by a receiving fax machine as original signatures of the Parties. IN WITNESS WHEREOF this Agreement is executed by the Parties as of the date first written, above. ADB SYSTEMS INTERNATIONAL INC. BY: /s/ [ILLEGIBLE] --------------------------------- Name: Title: ADB SYSTEMS INTERNATIONAL LTD. BY: /s/ [ILLEGIBLE] --------------------------------- Name: Title: THE BRICK WAREHOUSE CORPORATION BY: /s/ [ILLEGBLE] --------------------------------- Name: Title: SCHEDULE A ARRANGEMENT AGREEMENT THIS ARRANGEMENT AGREEMENT dated as of the 23rd day of August, 2002 B E T W E E N: ADB SYSTEMS INTERNATIONAL INC., a corporation Amalgamated pursuant to the provisions of the Business Corporations Act (Ontario) (hereinafter referred to as ("ADB") OF THE FIRST PART - and - ADB SYSTEMS INTERNATIONAL LTD., a corporation incorporated pursuant to the provisions of the Business Corporations Act (Ontario) (hereinafter referred to as ("New ADB") OF THE SECOND PART BACKGROUND: 1. The sole shareholder of New ADB has approved the Arrangement in accordance with the provisions of the OBCA; 2. ADB proposes to convene a meeting of its shareholders to, among other things, authorize and approve the Arrangement in accordance with the provisions of the OBCA; AND 3. Upon the Arrangement becoming effective, the shareholders of ADB will become the direct owners of all of the outstanding New ADB Shares and will cease to hold any shares in ADB in accordance with the provisions of this Agreement; NOW THEREFORE, in consideration of the premises and the respective covenants and agreement herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each of the parties hereto, the parties hereto hereby covenant and agree as follows: 2 ARTICLE 1 DEFINITIONS AND INTERPRETATION SECTION 1.1 DEFINITIONS: In this Agreement, unless there is something in the subject matter or context inconsistent therewith, the following capitalized words and terms shall have the following meanings: (a) "ADB CONVERTIBLE DEBT" means certain secured convertible debt of ADB due December 21, 2004 having AN aggregate principal amount of $1,000,000 and evidenced by promissory notes issued in series, namely Series A, Series B, Series C and Series D; (b) "ADB OPTIONS" means options in favour of directors, officers, employees and other service providers to purchase ADB Shares as more particularly described in the Information Circular and issued pursuant and subject to the ADB Stock Option Plan; (c) "ADB SHARES" means the issued and outstanding common shares of ADB and common shares of ADB that are allotted pursuant to the Subordinate Notes, as the same are constituted on the date hereof; (d) "ADB STOCK OPTION PLAN" means the incentive stock option plan adopted by, as amended from time to time, and approved by its shareholders which is in effect at the date hereof and more particularly described in the Information Circular; (e) "ADB WARRANTS" means warrants to purchase up to 2,170,100 ADB Shares which are issued and outstanding on the date hereof and are more particularly described in the Information Circular; (f) "AGREEMENT" means this arrangement agreement including the exhibits hereto as the same may be supplemented or amended from time to time; (g) "ARRANGEMENT" means the arrangement proposed to be effected under the provisions of Section 182 of the OBCA on the terms set out in the Plan of Arrangement; (h) "BUSINESS DAY" means any day from Monday to Friday, inclusive except statutory or civic holidays observed in Toronto, Ottawa or Edmonton, Alberta which is not a Saturday, Sunday or statutory holiday; (i) "CHARTER DOCUMENTS" of any corporation means the articles and by-laws of such corporation; (j) "CORPORATIONS" means ADB and New ADB collectively; (k) "COURT" means the Ontario Superior Court of Justice; 3 (l) "EFFECTIVE DATE" means the effective date of the Arrangement pursuant to the certificate of arrangement issued by the Director under the OBCA giving effect to the Arrangement; (m) "EFFECTIVE TIME" has the meaning set out in Section 2.1; (n) "FINAL ORDER" means the final order of the Court approving the Arrangement; (o) "INFORMATION CIRCULAR" means the management information circular of ADB to be sent to the shareholders of ADB in connection with the Meeting; (p) "INTERLOCUTORY ORDER" means the interim order of the Court; (q) "MEETING" means the special meeting of the shareholders of ADB to be held to consider and, if deemed advisable, to approve the Arrangement; (r) "MRRS RELIEVING ORDER" means an order of the Ontario Securities Commission as primary regulator under the Mutual Reliance and Review System of the Canadian Securities Administrators which order shall be applicable in such jurisdictions of Canada as counsel for ADB deems necessary or advisable which order shall: (i) deem New ADB to be a reporting issuer in Ontario pursuant to section 83.1 of the Securities Act (Ontario); and (ii) deem New ADB to be a qualifying issuer on and as of the Effective Date written in the meaning of Multilateral Instrument 45-102. (s) "NEW ADB CONVERTIBLE DEBT" means convertible secured debt of New ADB to be exchanged for and having the same denomination, terms and conditions as the ADB Convertible Debt; (t) "NEW ADB OPTIONS" means options to purchase new New ADB Shares to be exchanged for and having the same terms and conditions as the ADB Options. New ADB Options will be issued pursuant and subject to the New ADB Stock Option Plan; (u) "NEW ADB SHARES" means the common shares which New ADB is authorized to issue, as the same are constituted on the date hereof. (v) "NEW ADB STOCK OPTION PLAN" means the incentive stock option plan to be adopted by New ADB and having the same terms and conditions as the ADB Stock Option Plan; (w) "NEW ADB WARRANTS" means warrants to purchase new ADB Shares to be exchanged for and having the same terms and conditions as the ADB Warrants; 4 (x) "OBCA" means the Business Corporations Act, R.S.O. 1990, c. B.16, as amended; (y) "PERSON" includes an individual, sole proprietorship, partnership, unincorporated association, unincorporated syndicate, unincorporated organization, trust, body corporate, a trustee, executor, administrator or other legal representative and the Crown or any agency or instrumentality thereof; (z) "PLAN OF ARRANGEMENT" means the plan of arrangement attached to this Agreement as Exhibit A, as it may be amended from time to time; (aa) "SUBSIDIARY" means, with respect to a specified body corporate, a body corporate of which more than 50% of the outstanding shares ordinarily entitled to elect a majority of the directors thereof whether or not shares of any other class or classes shall or might be entitled to vote upon the happening of any event or contingency, are at the time owned, directly or indirectly, by such specified body corporate, and includes a body corporate in like relation to a Subsidiary; and (bb) "SUBORDINATE NOTES" means (i) the convertible secured notes (including but not limited to Series A, Series B and Series C) issued to Stonestreet Limited Partnership by ADB pursuant to a subscription agreement dated as of August 30, 2002; (ii) the convertible secured notes (including but not limited to Series D) issued to Greenwich Growth Fund Ltd. by ADB pursuant to a subscription agreement dated as of August 30, 2002; and (iii) the convertible secured notes issued to subscribers other than Greenwich Growth Fund Ltd. by ADB for an amount not greater than $300,000. 5 SECTION 1.2 INTERPRETATION NOT AFFECTED BY HEADING: The division of this Agreement into articles, sections, subsections, paragraphs and subparagraphs and the insertion of the headings are for convenience of reference only and shall not affect the construction or interpretation of the provisions of this Agreement. The terms "this Agreement", "hereof", "herein", "hereunder" and similar expressions refer to this Agreement and the exhibit hereto as a whole and not to any particular article, section, subsection, paragraph or subparagraph hereof and include any agreement or instrument supplementary or ancillary hereto. SECTION 1.3 NUMBER AND GENDER: Unless the context otherwise requires, words importing the singular number only shall include the plural and vice versa and words importing the use of either gender shall include both genders and neuter. SECTION 1.4 DATE FOR ANY ACTION: In the event that any date on which any action is required to be taken hereunder by any of the Corporations is not a Business Day in the place where the action is required to be taken, such action shall be required to be taken on the next succeeding day which is a Business Day in such place. SECTION 1.5 MEANING: Words and phrases used and not defined herein and defined in the OBCA shall have the same meaning herein as in the OBCA unless the context otherwise requires. SECTION 1.6 EXHIBITS: The following exhibits are attached to this Agreement and shall be deemed to be incorporated in and form part hereof:
Exhibit Title - ------- ----- EXHIBIT A PLAN OF ARRANGEMENT EXHIBIT B GENERAL CONVEYANCE AND ASSUMPTION AGREEMENT
ARTICLE 2 THE ARRANGEMENT SECTION 2.1 ARRANGEMENT AND RELATED TRANSACTIONS: The Corporations agree that as at 12:01 am on the Effective Date (the "Effective Time") the following will occur and shall be deemed to occur in the following order on the terms and subject to the conditions contained in this Agreement: (a) Each ADB Common Share (other than such shares held by dissenting shareholders) shall be and be deemed to be exchanged with New ADB for the sole consideration of one New ADB Common Share; (b) pursuant to a general assignment and assumption agreement made as of the date hereof between ADB and New ADB and attached as Exhibit B, ADB will transfer all of the ADB Assets (as defined in such agreement) to New ADB in part as a 6 return of capital and in part as in consideration of the assumption of ADB Liabilities and New ADB will assume, fulfill and perform all of the ADB Liabilities (as defined in such agreement). The transaction will be approved by the Court pursuant to the Bulk Sales Act. Upon such transfer: (i) New ADB shall be liable for the obligations of ADB (including any obligations that may arise under any permit or agreement) under the ADB Liabilities existing immediately before the Effective Time or that arises after the Effective Time in respect of facts or circumstances in existence immediately prior to the Effective Time; (ii) any existing cause of action, claim or liability to prosecution of or affecting ADB existing immediately before the Effective Time or that arises after the Effective Time in respect of facts or circumstances in existence immediately prior to the Effective Time shall be assumed by New ADB; (iii) New ADB shall be liable for the obligations of ADB to dissenting shareholders, if any; (iv) a civil, criminal or administrative action or proceeding pending by or against ADB existing immediately before the Effective Time or that arises after the Effective Time in respect of facts or circumstances in existence immediately prior to the Effective Time shall be continued to be prosecuted by or against New ADB; (v) a conviction against ADB immediately before the Effective Time may be enforced against New ADB or a ruling, order or judgment in favour of or against ADB existing immediately before the Effective Time or that arises after the Effective Time in respect of facts or circumstances in existence immediately prior to the Effective Time shall be enforced by or against New ADB; (vi) the registered office of New ADB shall be located in Mississauga, Ontario; (vii) the articles of New ADB shall be substantively the same as the articles of ADB; (viii) the number of directors of New ADB shall be a minimum of 3 and a maximum of 15, the actual number of directors within the minimum and maximum number to be determined from time to time by resolution of the directors of New ADB; (ix) the initial directors of New ADB shall be nominees of ADB until their respective successors have been duly elected or appointed; and 7 (x) the initial by-laws of New ADB shall be the by-laws of ADB in effect immediately before the Effective Time, to be supplemented, amended or repealed in accordance with the provisions of the Act relating to the making, amending and repealing of by-laws; (c) New ADB shall have adopted the New ADB Stock Option Plan; (d) each ADB Option, whether vested or not vested, outstanding on the Effective Date shall be exchanged at the Effective Time for a New ADB Option having the same terms and conditions and subject to the New ADB Stock Option Plan. The obligations of ADB under the ADB Stock Option Plan shall thereafter terminate; (e) each ADB Warrant, whether vested or not vested, outstanding immediately prior to the Effective Date shall be exchanged for an New ADB Warrant having the same terms and conditions following which the ADB Warrants shall be null and void; (f) the ADB Convertible Debt outstanding immediately prior to the Effective Time shall be exchanged for New ADB Convertible Debt having the same terms and conditions following which the ADB Convertible Debt shall be null and void; and (g) the articles of amalgamation of ADB shall be amended as follows: (i) to change the name of ADB to Bid.Com International Ltd. or such other name as may be permitted under the OBCA; (ii) to delete the authorized Preference Shares (as defined in such articles), the terms and conditions attaching to such Preference Shares and the restrictions on transfer of such Preference Shares; and (iii) to add transfer restrictions and limits on the number of shareholders. ARTICLE 3 REPRESENTATIONS AND WARRANTIES SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF THE ADB: ADB hereby represents and warrants to and in favour of New ADB that: (a) ADB has been duly incorporated and is a valid and subsisting corporation under the provisions of the OBCA, has all requisite corporate power and authority to carry on its business as now being carried on by it and to own or lease and operate its properties and assets and is duly licensed or otherwise qualified to carryon business in each jurisdiction in which a material amount of its business is conducted or wherein the character of the properties and assets now owned by it makes such qualification necessary; 8 (b) As of the date hereof, the issued and outstanding share capital of ADB consists of 41,583,628 ADB Shares, all of which are outstanding as fully paid and non-assessable shares; (c) The execution, delivery and performance of this Agreement and the agreements, documents and transactions contemplated herein are within the corporate power and authority of ADB and have been duly authorized by all necessary corporate action and this Agreement constitutes a valid and binding obligation of ADB, enforceable in accordance with its terms; (d) ADB does not have any outstanding agreements, subscriptions, warrants, options or commitments, nor has it granted any rights or privileges capable of becoming an agreement, subscription, warrant, option or commitment, obligating ADB to issue any additional shares, or other securities, except the ADB Warrants, the ADB Options and the ADB Convertible Debt, particulars of which are disclosed in the Information Circular; (e) Except as described in the Information Circular, there are no material actions, suits, proceedings, investigations or outstanding claims or demands, whether or not purportedly on behalf of ADB, instituted, pending or, to the knowledge of ADB, threatened against or affecting ADB at law or in equity or before or by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or before any securities commission, stock exchange or arbitrator, nor is there any judgment, order decree or award of any court or other governmental or regulatory authority having jurisdiction, obtained, pending or, to the knowledge of ADB, threatened, against ADB, which would prevent or materially hinder the consummation of the Arrangement or the other transactions contemplated by this Agreement or which would involve the reasonable possibility of any material judgment or liability, whether or not covered by insurance, or which in the aggregate would have a material adverse effect on the business, operations, properties, assets or condition, financial or otherwise, of ADB; (f) The business of ADB is being conducted in all material respects in compliance with all applicable laws, regulations and ordinances of all authorities having jurisdiction; (g) None of the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby or by the fulfilment of or compliance with the terms and provisions hereof do or will, nor will they with the giving of notice or the lapse of time or both violate any provision of any law or administrative regulation or any judicial or administrative order, award, judgment or decree applicable to ADB and do not conflict with any of the terms, conditions or provisions of the Charter Documents of ADB. 9 SECTION 3.2 REPRESENTATIONS AND WARRANTS OF NEW ADB: New ADB hereby represents and warrants to and in favour of ADB that: (a) New ADB has been duly incorporated and is a valid and subsisting corporation under the provisions of the OBCA, has all requisite corporate power and authority to carry on its business as now being carried on by it and to own or lease and operate its properties and assets and is duly licensed or otherwise qualified to carry on business in each jurisdiction in which a material amount of its business is conducted or wherein the character of the properties and assets now owned by it makes such qualification necessary; (b) As of the date hereof the issued and outstanding share capital of New ADB consists of one (1) New ADB Shares, all of which are outstanding as fully paid and non-assessable; (c) New ADB has, or will have before the Effective Date taken all necessary corporate action to authorize the New ADB Stock Option Plan and the grant of Options to purchase New ADB Shares thereunder in exchange for the ADB Options in accordance herewith and as described in the information Circular; (d) New ADB has, or will have before the Effective Date taken all necessary corporate action to create and authorize the issue of the New ADB Warrants in exchange for the ADB Warrants in accordance herewith and as described in the information Circular; (e) New ADB has, or will have prior to the Effective Date taken all necessary corporate action to authorize the creation and issue of the New ADB Convertible Debt in exchange for the ADB Convertible Debt hereunder and as described in the information Circular. (f) The execution, delivery and performance of this Agreement and the agreements, documents and transactions contemplated herein are within the corporate power and authority of New ADB and have been duly authorized by all necessary corporate action and this Agreement constitutes a valid and binding obligation of New ADB enforceable in accordance with its terms; (g) New ADB does not have any outstanding agreements, subscriptions, warrants, options or commitments, nor has it granted any rights or privileges capable of becoming an agreement, subscription, warrant, option or commitment, obligating New ADB to issue any additional shares or other securities, except as contemplated herein and disclosed in the Information Circular; (h) There are no actions, suits, proceedings, investigations or outstanding claims or demands, whether or not purportedly on behalf of New ADB instituted, pending, or, to the knowledge of New ADB, threatened against or affecting New ADB at law or in equity or before or by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or before any securities commission, stock exchange or arbitrator, nor is there any judgment, 10 order, decree or award of any court of other governmental or regulatory authority having jurisdiction, obtained, pending or, to the knowledge of New ADB, threatened against New ADB, which would prevent or materially hinder the consummation of the Arrangement or the other transactions contemplated by this Agreement or which would involve the reasonable possibility of nay material judgment or liability, whether or not covered by insurance, or which in the aggregate would have a material adverse effect on the business, operations, properties, assets or condition, financial or otherwise, of New ADB; (i) The business of New ADB is being conducted in all material respects in compliance with all applicable laws, regulations and ordinances of all authorities having jurisdiction; (j) None of the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby or the fulfilment of or compliance with the terms and provisions hereof do or will, nor will they with the giving of notice or the lapse of time or both, violate any provision of any law or administrative regulation of any judicial or administrative order, award, judgment or decree applicable to New ADB and do not conflict with any of the terms, conditions or provisions of the Charter Documents of New ADB; ARTICLE 4 COVENANTS SECTION 4.1 COVENANTS OF ADB: ADB hereby covenants and agrees with New ADB as follows: (a) ADB will not merge into or with, or amalgamate or consolidate with, or enter into any other corporate reorganization with, any other Person or perform any act or enter into any transaction or negotiation which interferes or is inconsistent with the consummation of the transactions contemplated in this Agreement or in the Information Circular; (b) ADB will not alter or amend its Charter Documents as the same exist at the date of this Agreement, except as contemplated in the Information Circular; (c) Except as contemplated in the Information Circular, ADB will not enter into any transaction or incur any obligation if the same would have a material adverse effect on ADB or the Arrangement, other than in the ordinary course of business, except for transactions with or between and obligations to wholly-owned Subsidiaries of ADB; (d) ADB will convene the appropriate special shareholders' meeting on October 22, 2002, or on such other date as is in accordance with the Interlocutory Order and 11 will solicit proxies to be voted at such meeting in favour of the approval of this Agreement, the Arrangement and the other matters incidental to the Arrangement and disclosed in the Information Circular; (e) ADB will, in a timely and expeditious manner, file the Information Circular in all jurisdictions where it is required to be filed and mail the same to its shareholders in accordance with applicable law and in accordance with the Interlocutory Order; (f) ADB will do all such other acts and things as may be necessary or required in order to give effect to the Arrangement and, without limiting the generality of the foregoing, ADB will use its best efforts to apply for and obtain: (i) The approvals of the shareholders of ADB required for the implementation of the Arrangement; (ii) The MRRS Relieving Order; and (iii) The Final Order as provided in Section 4.4 hereof. (g) ADB will use all reasonable commercial efforts to cause each of the conditions precedent set forth in Article Five hereof to be complied with on or before the Effective Date. SECTION 4.2 COVENANTS OF NEW ADB: New ADB hereby covenants and agrees with ADB as follows: (a) New ADB will not merge into or with, or amalgamate or consolidate with, or enter into any other corporate reorganization with, any other Person or perform any act or enter into any transaction or negotiation which interferes or is inconsistent with the completion of the transactions contemplated this Agreement or in the Information Circular; (b) New ADB will not alter or amend its Charter Documents as the same exist at the date of this Agreement, except as contemplated in the Information Circular; (c) Except as contemplated in the Information Circular, New ADB will not enter into any transaction or incur any obligation if the same would have a material adverse effect on New ADB or the Arrangement other than in the ordinary course of business; (d) New ADB will do all such other acts and things as may be necessary or required in order to give effect to the Arrangement and, without limiting he generality of the foregoing, New ADB will use is best efforts to apply for and obtain, (i) The approval of the sole shareholder of New ADB required for the implementation of the Arrangement; (ii) The Final Order as provided in Section 4.4 hereof, and 12 (iii) Such other consents, orders and approvals as counsel may advise are necessary or desirable for the implementation of the Arrangement, including those referred to in Section 5.1 hereof; (e) New ADB will use all reasonable efforts to cause each of the conditions precedent set forth in Article Five hereof to be complied with on or before the Effective Date; and (f) New ADB covenants and agrees to take all necessary actions at its sole expense, including, without limitation, making applications to applicable securities and regulatory authorities, to ensure that Old ADB ceases to be a reporting issuer or the equivalent thereof in each jurisdiction where it maintains such status as of the Effective Time. SECTION 4.3 INTERLOCUTORY ORDER AND FINAL ORDER: The Corporations acknowledge that ADB has applied to the Court pursuant to Section 182 of the OBCA the Interlocutory Order providing for, among other things, the calling and holding of the Meeting for the purpose of considering and, if deemed advisable, approving the Arrangement. The Corporations covenant and agree that, if the approval of the Arrangement as set forth in the Interlocutory Order is obtained, they will thereafter jointly take the necessary steps to submit the Arrangement to the Court and apply for the Final Order in such fashion as the Court may direct and, as soon as practicable thereafter, and subject to compliance with any of the other conditions provided for in Article Five hereof and to the rights of termination in Article Six hereof, file, pursuant to Subsection 183 (1) of the OBCA, articles of arrangement to give effect to the Arrangement. ARTICLE 5 CONDITIONS SECTION 5.1 MUTUAL CONDITIONS PRECEDENT: The respective obligations of the Corporations to complete the transactions contemplated by this Agreement, including the Arrangement and to file articles of arrangement pursuant to Subsection 183(1) of the OBCA to give effect to the Arrangement shall be subject to the satisfaction of the following conditions, Subsection 5.l(e) of which may be waived by any of the Corporations in whole or in part without prejudice to the right of such Corporation to rely on any other of them: (a) This Agreement and the Arrangement, with or without amendment, shall have been approved at the Meeting in accordance with the Interlocutory Order and the Arrangement shall have otherwise been approved by the requisite majorities of the shares entitled or required to vote thereon as determined by the Court; (b) The Final Order and the MRRS Relieving Order shall have been obtained in form and substance satisfactory to the Corporations; 13 (c) All other consents, orders, regulations and approvals, including regulatory and judicial approvals and orders and the consents of other securities regulatory authorities under comparable securities legislation of the other provinces of Canada, required or necessary or desirable for the completion of the transactions provided for in this Agreement and the Arrangement shall have been obtained or received from the persons, authorities or bodies having jurisdiction in the circumstances; (d) There shall not be in force any order or decree restraining or enjoining the consummation of the transactions contemplated by this Agreement and the Arrangement; (e) None of the consents, orders, approvals or assurances contemplated herein or required for the implementation of the Arrangement shall contain terms or conditions or require undertakings or security deemed unsatisfactory or unacceptable by any of the parties hereto; (f) The number of shares held by dissenting shareholders shall not have exceeded 5% of the then issued and outstanding ADB Shares; and (g) This Agreement shall not have been terminated under Article Six. SECTION 5.2 CONDITIONS TO OBLIGATIONS OF EACH PARTY: The obligation of each of the Corporations to complete the transactions contemplated by this Agreement is further subject to the condition, which may be waived by each such Corporation without prejudice to its right to rely on any other condition in favour of such Corporation, that the covenants of the other Corporations hereto to be performed on or before the Effective Date pursuant to the provisions of this Agreement shall have been duly performed by each of them and that, except as affected by the transactions contemplated by this Agreement, the representations and warranties of the Corporations shall be true and correct in all material respects as at the Effective Date, with the same effect as if such representations and warranties had been made at, and as of, such time and each Corporation shall have received a certificate, dated the Effective Date, of a senior officer of each other Corporation confirming the same. SECTION 5.3 MERGER OF CONDITIONS: All conditions set out in Sections 5.1 and 5.2 shall be conclusively deemed to have been satisfied, waived or released on receipt of the filing by the Corporations of articles of arrangement under subsection 183(1) of the OBCA. ARTICLE 6 AMENDMENT AND TERMINATION SECTION 6.1 AMENDMENT: This Agreement may, at any time and from time to time before and after the holding of the Meeting, but not later than the Effective Date, be amended by written agreement of the Corporations without, subject to applicable law, further notice to or 14 authorization on the part of the shareholders of ADB. Without limiting the generality of the foregoing, any such amendment may: (a) Change the time for the performance of any of the obligations or acts of the Corporations; (b) Waive any inaccuracies or modify any representation or warranty contained herein or in any document to be delivered pursuant hereto; or (c) Waive compliance with or modify any of the covenants contained herein or waive or modify the performance of any of the obligations of the Corporations, Provided, notwithstanding the foregoing, Subsection 5.l(a) of this Agreement shall not be amended without the approval of the shareholders of ADB given in the same manner as required for the approval of the Arrangement or as may be ordered by the Court. This Agreement and the Plan of Arrangement may be amended in accordance with the Final Order, but in the event that the terms of the Final Order require any such amendment, the rights of the Corporations under Sections 5.1,5.2 and 6.2 hereof shall remain unaffected. SECTION 6.2 RIGHTS OF TERMINATION: If any of the conditions contained in Section 5.1 or 5.2 shall not be fulfilled or performed on or before the Effective Date, either of the Corporations may terminate this Agreement by notice to the other Corporation and in such event such Corporation shall be released from all obligations under this Agreement, all rights of specific performance by any of the Corporations shall terminate and, unless such Corporation can show that the condition or conditions the non-performance of which has caused such Corporation can show that the other Corporation could reasonably have performed such condition or conditions then that Corporation shall not be released from its obligations hereunder and further provided that any of such conditions may be waived in full or in part by either of the Corporations without prejudice to its rights of termination in the event of the non-fulfilment or non-performance of any other condition. SECTION 6.3 NOTICE OF UNFULFILLED CONDITIONS: If either of the Corporations shall determine at any time prior to the Effective Date that it intends to refuse to consummate the Arrangement or any of the transactions contemplated under this Agreement or the Information Circular because of any unfulfilled or unperformed condition precedent contained in this Agreement on the part of the other Corporation to be fulfilled or performed, such Corporation shall so notify the other Corporation forthwith upon making such determination in order that the other Corporation shall have the right and opportunity to take such steps, at its own expense, as may be necessary for the purpose of fulfilling or performing such condition precedent within a reasonable period of time, but in no event later than October 3 1,2002. SECTION 6.4 MUTUAL TERMINATION: This Agreement may, at any time before or after the holding of the Meeting, but no later than the Effective Date, be terminated by unanimous agreement of the boards of directors of the Corporations without further action on the part of their respective shareholders and if the Effective Date does not occur on or before October 31, 2002 each of the Corporations may unilaterally terminate this Agreement without further action on the part of its shareholders, which termination will be effective upon a resolution to that effect 15 being passed by the applicable board of directors and notice thereof being given to the other Corporations. ARTICLE 7 GENERAL SECTION 7.1 NOTICES: All notices which may or are required to be given pursuant to any provision of this Agreement shall be given or made in writing and shall be served personally or by telecopy, in each case addressed to as follows: (a) In the case of ADB: 6725 Airport Road Suite 201 Mississauga, Ontario Canada L4V 1V2 Attention: Jeff Lymburner, Chief Executive Officer Telecopier: (905) 672-7514 (b) In the case of 6725 Airport Road Suite 201 Mississauga, Ontario Canada L4V 1V2 Attention: John Mackie Telecopier: (905) 672-7514 SECTION 7.2 ASSIGNMENT: No Corporation may assign its rights or obligations under this Agreement or the Arrangement without the prior written consent of the other Corporation. SECTION 7.3 BINDING EFFECT: This Agreement and the Arrangement shall be binding upon and shall ensure to the benefit of the Corporations and their respective successors and permitted assigns. SECTION 7.4 WAIVER: Any waiver or release of any of the provisions of this Agreement, to be effective, must be in writing and executed by the Corporations granting such waiver or release. Waivers may only be granted upon compliance with the terms governing amendments set forth in Section 6.1 hereof. SECTION 7.5 GOVERNING LAW: This Agreement shall be governed and construed according to the laws of the Province of Ontario and the laws of Canada applicable therein, and shall be treated, in all respects, as an Ontario contract. For the purposes of all legal proceedings this 16 Agreement will be deemed to have been performed in the Province of Ontario and each of the parties hereby attorns to the jurisdiction of the courts of the Province of Ontario. SECTION 7.6 COUNTERPARTS: This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. SECTION 7.7 ENTIRE AGREEMENT: This Agreement, together with the agreements and other documents herein or therein referred to, constitutes the entire agreement among the Corporations pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, between the Corporations with respect to the subject matter hereof. SECTION 7.8 TIME OF ESSENCE: Time is of the essence of this Agreement. WITNESS WHEREOF the parties hereto have executed this Agreement as of the date hereinbefore written. ADB SYSTEMS INTERNATIONAL, INC. Per: __________________________ Title: Name: ADB SYSTEMS INTERNATIONAL LTD. Per: _________________________ Title: Name: 17 EXHIBIT "A" TO THE ARRANGEMENT AGREEMENT DATED AS OF THE 23RD DAY OF AUGUST, 2002 BETWEEN ADB SYSTEMS INTERNATIONAL INC. AND ADB NEWCO INC. PLAN OF ARRANGEMENT UNDER SECTION 182 OF THE BUSINESS CORPORATIONS ACT (ONTARIO) ARTICLE 1 DEFINITIONS AND INTERPRETATION SECTION 1.1 Definitions: In this Agreement, unless there is something in the subject matter or context inconsistent therewith, the following capitalized words and terms shall have the following meanings: (a) "ADB CONVERTIBLE DEBT" means certain secured convertible debt of ADB having an aggregate principal amount of $1,000,000 and evidenced by promissory notes issued in series, namely Series A, Series B, Series C and Series D; (b) "ADB OPTIONS" means options in favour of directors, officers, employees and other service providers to purchase ADB Shares as more particularly described in the Information Circular and issued pursuant and subject to the ADB Stock Option Plan; (c) "ADB SHARES" means the issued and outstanding common shares of ADB, and common shares of ADB that are allotted pursuant to the Subordinate Notes as the same are constituted on the date hereof; (d) "ADB STOCK OPTION PLAN" means the incentive stock option plan adopted by ADB, as amended form time to time, and approved by its shareholders which is in effect at the date hereof and more particularly described in the Information Circular; (e) "ADB WARRANTS" means warrants to purchase up to 2,170,100 ADB Shares which are issued and outstanding on the date hereof and are more particularly described in the Information Circular; (f) "AGREEMENT" means this arrangement agreement including the exhibits hereto as the same may be supplemented or amended from time to time; (g) "ARRANGEMENT" means the arrangement proposed to be effected under the provisions of Section 182 of the OBCA on the terms set out in the Plan of Arrangement; 18 (h) "BUSINESS DAY" means a day which is not a Saturday, Sunday or statutory holiday; (i) "CHARTER DOCUMENTS" of any corporation means the articles and by-laws of such corporation; (j) "CORPORATION" means ADB and New ADB; (k) "COURT" means the Ontario Superior Court of Justice; (l) "EFFECTIVE DATE" means the effective date of the Arrangement pursuant to the certificate of arrangement issued by the Director under the OBCA giving effect to the Arrangement; (m) "FINAL ORDER" means the final order of the Court approving the Arrangement; (n) "INFORMATION CIRCULAR" means the management information circular of ADB to be sent to the shareholders of the ADB in connection with the Meeting; (o) "INTERLOCUTORY ORDER" means the interim order of the Court; (p) "MEETING" means the special meeting of the shareholders of the ADB to be held to consider and, if deemed advisable, to approve the Arrangement; (q) "NEW ADB CONVERTIBLE DEBT" means convertible secured debt of New ADB to be exchanged for and having the same denomination, terms and conditions as the ADB Convertible Debt; (r) "NEW ADB OPTIONS" means options to purchase new New ADB Shares to be exchanged for and having the same terms and conditions as the ADB Options. New ADB Options will be issued pursuant and subject to the ADB New Stock Option Plan; (s) "NEW ADB SHARES" means the common shares which New ADB is authorized to issue, as the same are constituted on the date hereof. (t) "NEW ADB STOCK OPTION PLAN" means the incentive stock option plan to be adopted by New ADB and having the same terms and conditions as the ADB Stock Option Plan; (u) "NEW ADB WARRANTS" means warrants to purchase new ADB newco Shares to be exchanged for and having the same terms and conditions as the ld ADB warrants; (v) "OBCA" means the Business Corporations Act, R.S.O. 1990, c. B.16, as amended; 19 (w) "PERSON" includes an individual, sole proprietorship, partnership, unincorporated association, unincorporated syndicate, unincorporated organization, trust, body corporate, a trustee, executor, administrator or other legal representative and the Crown or any agency or instrumentality thereof; (x) "PLAN OF ARRANGEMENT" means the plan of arrangement attached to this Agreement as Exhibit A, as it may be amended from time to time; (y) "SUBORDINATE NOTES" means (i) the convertible secured notes (including but not limited to Series A, Series B and Series C) issued to Stonestreet Limited Partnership by ADB pursuant to a subscription agreement dated as of August 30, 2002; (ii) the convertible secured notes (including but not limited to Series D) issued to Greenwich Growth Fund Ltd. by ADB pursuant to a subscription agreement dated as of August 30, 2002; and (iii) the convertible secured notes issued to subscribers other than Greenwich Growth Fund Ltd. by ADB for an amount not greater than $300,000. (z) "SUBSIDIARY" means, with respect to a specified body corporate, a body corporate which more than 50% of the outstanding shares ordinarily entitled to elect a majority of the directors thereof whether or not shares of any other class or classes shall or might be entitled to vote upon the happening of any event or contingency, are at the time owned, directly or indirectly, by such specified body corporate, and includes a body corporate in like relation to a Subsidiary. ARTICLE 2 THE ARRANGEMENT SECTION 2.1 Arrangement Agreement: This Plan of Arrangement is made pursuant and subject to the provisions of the Arrangement Agreement. ARTICLE 3 THE ARRANGEMENT SECTION 3.1 ARRANGEMENT AND RELATED TRANSACTIONS: The Corporations agree that as at 12:01 am on the Effective Date (the "Effective Time") the following will occur and shall be deemed to occur in the following order on the terms and subject to the conditions contained in this Agreement: (a) Each ADB Common Share (other than such shares held by dissenting shareholders) shall be and be deemed to be exchanged with New ADB for the sole consideration of one New ADB Common Share; (b) pursuant to a general assignment and assumption agreement, ADB will transfer all of the ADB Assets (as defined in such agreement) to New ADB in part as a return of capital and in part as in consideration of the assumption of ADB Liabilities and 20 New ADB will assume, fulfill and perform all of the ADB Liabilities (as defined in such agreement). The transaction will be approved by the court pursuant to the Bulk Sales Act. Upon such transfer: (i) New ADB shall be liable for the obligations of ADB (including any obligations that may arise under any permit or agreement) under the ADB Liabilities existing immediately before the Effective Time or that arises after the Effective Time in respect of facts or circumstances in existence immediately prior to the Effective Time; (ii) any existing cause of action, claim or liability to prosecution of or affecting ADB existing immediately before the Effective Time or that arises after the Effective Time in respect of facts or circumstances in existence immediately prior to the Effective Time shall be assumed by New ADB; (iii) New ADB shall be liable for the obligations of ADB to dissenting shareholders, if any; (iv) a civil, criminal or administrative action or proceeding pending by or against ADB existing immediately before the Effective Time or that arises after the Effective Time in respect of facts or circumstances in existence immediately prior to the Effective Time shall be continued to be prosecuted by or against New ADB; (v) a conviction against ADB immediately before the Effective Time may be enforced against New ADB or a ruling, order or judgment in favour of or against ADB existing immediately before the Effective Time or that arises after the Effective Time in respect of facts or circumstances in existence immediately prior to the Effective Time shall be enforced by or against New ADB; (vi) the registered office of New ADB shall be located in Mississauga, Ontario; (vii) the articles of New ADB shall be substantively the same as the articles of ADB; (viii) the number of directors of New ADB shall be a minimum of 3 and a maximum of 15, the actual number of directors within the minimum and maximum number to be determined from time to time by resolution of the directors of New ADB; (ix) the initial directors of New ADB shall be nominees of ADB until their respective successors have been duly elected or appointed; and (x) the initial by-laws of New ADB shall be the by-laws of ADB in effect immediately before the Effective Time, to be supplemented, amended or 21 repealed in accordance with the provisions of the Act relating to the making, amending and repealing of by-laws; (c) New ADB shall have adopted the New ADB Stock Option Plan; (d) each ADB Option, whether vested or not vested, outstanding on the Effective Date shall be exchanged at the Effective Time for a New ADB Option having the same terms and conditions and subject to the New ADB Stock Option Plan. The obligations of ADB under the ADB Stock Option Plan shall thereafter terminate; (e) each ADB Warrant, whether vested or not vested, outstanding immediately prior to the Effective Date shall be exchanged for an New ADB Warrant having the same terms and conditions following which the ADB Warrants shall be null and void; (f) the ADB Convertible Debt outstanding immediately prior to the Effective Time shall be exchanged for New ADB Convertible Debt having the same terms and conditions following which the ADB Convertible Debt shall be null and void; and (g) the articles of amalgamation of ADB shall be amended as follows: (i) to change the name of ADB to Bid.Com International Ltd. or such other name as may be permitted under the OBCA; (ii) to delete the authorized Preference Shares (as defined in such articles), the terms and conditions attaching to such Preference Shares and the restrictions on transfer of such Preference Shares; and (iii) to add transfer restrictions and limits on the number of shareholders. 22 ARTICLE 4 SHARE CERTIFICATES SECTION 4.1 SHARE CERTIFICATES: Following the Effective Date, certificates representing New ADB Shares to which each holder of ADB Shares is entitled will be forwarded to each holder of New ADB Shares as soon as practicable and will be registered in the same manner as such shareholder's ADB Shares are registered immediately prior to the Effective Date. Certificates representing ADB Shares held by each holder of ADB Shares issued and outstanding immediately prior to the Effective Date shall thereafter represent the New ADB Shares held by such holder immediately following the Effective Date. ARTICLE 5 RIGHTS OF DISSENT SECTION 5.1 RIGHTS OF DISSENT: Holders of ADB Shares may exercise rights of dissent pursuant to and in the manner set forth in Section 185 of the OBCA and this section 5.1 in connection with the Arrangement and holders who duly exercise such right of dissent and who: (a) are ultimately entitled to be paid fair value for their ADB Shares, shall be deemed to have transferred their ADB Shares to ADB for cancellation at the Effective Date of the Arrangement; or (b) for any reason, are ultimately not entitled to be paid fair value for their ADB Shares, shall (unless clause 29(b) of section 185 of the OBC applies) be deemed to have participated in the Arrangement on the same basis as any non-dissenting holder of ADB Shares as at and from the Effective Date and shall receive New ADB Shares on the basis set forth in section 3.01(a) of this Plan of Arrangement, subject to Article Four hereof, but in no case shall ADB be required to recognize such persons as holding ADB Shares on and after the Effective Date. EXHIBIT "B" GENERAL CONVEYANCE AND ASSUMPTION AGREEMENT THIS AGREEMENT is dated as of the 23(rd) day of August, 2002 B E T W E E N: ADB SYSTEMS INTERNATIONAL INC., a corporation incorporated under the laws of the Province of Ontario, having its principal place of business at 6725 Airport Rd., Mississauga, Ontario L4V 1V2 ("ADB") -and- ADB SYSTEMS INTERNATIONAL LTD., a corporation incorporated under the laws of the Province of Ontario, having its principal place of business at 6725 Mississauga, Ontario L4V 1V2 ("New ADB") BACKGROUND: 1. Pursuant to a co-operation agreement dated as of August 23, 2002, among ADB, New ADB and The Brick Warehouse Corporation (the "Co-Operation Agreement"), ADB agreed to assign and transfer to New ADB certain of its assets and New ADB agreed to assume certain of ADB's liabilities. 2. Pursuant to a resolution of the board of directors, it was resolved to transfer such assets to new ADB as a return of capital and this agreement is intended to implement such return of capital. 3. ADB's G.S.T. registration number is 88676-3960-RT0001 and New ADB will apply for a G.S.T. registration number forthwith. NOW THEREFORE, in consideration of the premises and the mutual agreements and covenants contained in this Agreement and for other good and valuable consideration (the receipt and adequacy of which are hereby mutually acknowledged), the parties agree as follows: 1. DEFINITIONS - Unless otherwise specifically defined in this Agreement, any capitalized terms used in this Agreement shall have the meanings ascribed to them in the Co-Operation Agreement. 2. TRANSFER OF ASSETS - ADB hereby transfers, conveys, assigns and delivers unto New ADB, its successors and assigns, effective as at the Effective Time, all of ADB's right, title and - 2 - interest in all of its assets on a going concern basis and including goodwill, except the Bid.Com Assets as described in Schedule "A" hereto. For their respective tax purposes, the parties agree that the fair market value of the assets is as indicated on Schedule "C" hereto. In the event that Canada Customs and Revenue Agency ("CCRA") should take the view, and it should be ultimately determined by CCRA, the Tax Court of Canada or a higher tribunal that the fair market value of the assets is an amount different than an amount set out on Schedule C, then the parties agree to adopt such different amount for purposes of determining their proceeds or cost amounts, as the case may be. 3. TAX - New ADB shall pay all retail sales tax and G.S.T. in respect of the transactions contemplated hereby. ADB and New ADB shall jointly make and New ADB shall file in prescribed form and manner an election pursuant to section 167 of the Excise Tax Act (Canada) in connection with the transfer of assets hereunder. New ADB will indemnify and save harmless ADB from and against all Liabilities incurred by ADB directly or indirectly as a result of ADB not collecting or remitting any tax in respect of the transfer of assets hereunder or as a result of any failure to file the election referred to in the last sentence in a timely fashion. 4. EMPLOYEES - New ADB will offer employment to all employees of ADB on substantially the same terms as they presently enjoy, except in respect of Ken Martin, Craig Martin and Stoney Jiang and will continue to be responsible for and will discharge all Liabilities to such employees for wages, severance pay, termination pay, notice of termination of employment or pay in lieu of such notice, damages for wrongful dismissal or other employee benefits or claims, including vacation pay, whether arising under a written contract of employment or otherwise. 5. ASSUMPTION AND INDEMNIFICATION - New ADB hereby assumes all the ADB liabilities except the Bid.Com Liabilities as described in Schedule B hereto, and undertakes to pay or discharge such liabilities in accordance with their terms. New ADB shall indemnify and hold harmless ADB and its respective Affiliates, officers, directors, shareholders, representatives and agents (collectively the "INDEMNITEES") from and against and in respect of any and all Losses incurred by, resulting from, arising out of, relating to, imposed upon or incurred by any other Indemnitee by reason of any indebtedness, obligation or liability of any kind in respect of the liabilities assumed pursuant to this agreement. For purposes of this Agreement, the term, "LOSSES" means any and all deficiencies, judgments, settlements, demands, claims, suits, actions or causes of action, liabilities, losses, damages, interest, fines, penalties, costs and expenses (including reasonable legal, accounting and other costs and expenses incurred in connection with investigating, defending, settling or satisfying any and all demands, claims, actions, causes of action, suits, proceedings, assessments, judgments or appeals, and in seeking indemnification therefore.) 6. RETURN OF CAPITAL - The amount by which the fair market value of the transferred assets exceeds the assumed liabilities shall be paid to New ADB as a return of capital on its shares of ADB. 7. FURTHER ASSURANCES - Upon the request from time to time of New ADB, ADB shall execute all such conveyances, bills of sale, transfers, assignments, notices and other documents and use all reasonable efforts to secure all necessary consents and approvals as, in the reasonable opinion of New ADB, may be necessary to effectively vest title to the assets in New ADB or - 3 - otherwise to protect or perfect any rights of New ADB in the assets. New ADB shall be responsible for the costs of preparing, executing and registering with all necessary offices of public record any such conveyance, bill of sale, transfer, assignment, notice or other document in respect of the assets. 8. REMEDIES - The rights and remedies conferred under this Agreement are not intended to be exclusive of any other rights or remedies available to either New ADB or ADB in connection with the breach or failure of any of the covenants, warranties, representations or other obligations of the other party given in this Agreement or the Co-Operation Agreement, and nothing contained in this Agreement shall be construed in any manner as restricting or derogating from any other such rights or remedies. 9. CONFLICT - This General Conveyance and Assumption Agreement is executed and delivered pursuant to the Co-operation Agreement, and ADB covenants and agrees with New ADB that this General Conveyance and Assumption Agreement is subject to every agreement, representation, warranty, indemnification, covenant and provision contained in the provisions of the Co-operation Agreement. In the event there is a conflict between the terms and the provisions of this Agreement and the Co-operation Agreement, the terms and provisions of the Co-operation Agreement shall govern. 10. TRUST - ADB hereby declares that, as to any of the ADB assets or interest in any of the ADB assets intended to be hereby transferred, assigned, conveyed and set over to New ADB, and the title to which may not have passed to New ADB by virtue of this Agreement or any transfers or conveyances which may from time to time be executed and delivered in connection with this Agreement, ADB holds such property or interest in trust for New ADB to convey, assign and transfer the same as ADB may from time to time direct. Any Liabilities associated with ADB assets transferred or intended to be transferred hereunder shall be assumed by New ADB even though title to such ADB assets may be held in trust by ADB and New ADB will indemnify and save harmless ADB from and against all such Liabilities. 11. NOTICE - Any notice or other communication (a "Notice") required or permitted to be given or made hereunder shall be in writing and shall be well and sufficiently given or made if: (a) delivered by overnight courier service; (b) sent by facsimile transmission or other means of electronic communication; in the case of a Notice to New ADB addressed to it at: c/o The Brick Warehouse Corporation 16930 - 114 Avenue Edmonton, Alberta T5M 3S2 Attention: Ron Tweddle, Chief Financial Officer Fax No.: (780) 454-0969 - 4 - with a copy to: McCarthy Tetrault LLP Box 48, Suite 4700 Toronto-Dominion Bank Tower Toronto, ON M5K 1E6 Attention: Jonathan Grant Fax No.: (416) 868-0673 and in the case of a Notice to ADB, addressed to it at: ADB Systems International Inc. 201-6725 Airport Road Mississauga, Ontario L4V lV2 Attention: John Mackie Fax No.: (905) 672-7514 with a copy to: Gowling Lafleur Henderson LLP Suite 5800 Scotia Plaza Toronto, Ontario M5H 3Z7 Attention: David Pamenter Fax No.: (416) 863-3611 Any Notice given or made in accordance with this Section 11 shall be deemed to have been given or made and to have been received on the next Business Day after it was delivered, if delivered as aforesaid. Either party may from time to time change its address for notice by giving Notice to the other party in accordance with the provisions of this Section 11. 12. ASSIGNMENT - Neither ADB or New ADB may assign its rights and obligations under this Agreement, in whole or in part, without the prior consent in writing of the other party. Any purported assignment made by ADB or New ADB without required consent is void and of no effect. No assignment of this Agreement shall relieve either party from any obligation under this Agreement. - 5 - 13. BINDING ON SUCCESSORS - This Agreement shall ensure to the benefit of and be binding upon the parties and their respective successors and permitted assigns. 14. FURTHER ASSURANCES - Each party agrees that upon the written request of the other party, it will do all such acts and execute all such further documents, assignments, and the like, and will cause the doing of all such acts and will cause the execution of all such further documents as are within its power to cause the doing or execution of, as any other party hereto may from time to time reasonably request be done and/or executed as may be reasonably necessary or desirable to give effect to this Agreement. 15. INDEPENDENT CONTRACTORS - It is understood and agreed that in giving effect to this Agreement, no party shall be or be deemed a partners, agent or employee of the other party for any purpose and that their relationship to each other shall be that of independent contractors. Nothing in this Agreement shall constitute a partnership or a joint venture between the parties. No party shall have the right to enter contracts or pledge the credit of or incur expenses of liabilities on behalf of the other party. 16. WAIVER - A waiver by a party hereto of any its rights hereunder or of the performance by the other party of any of its obligations hereunder shall be without prejudice to all of the other rights hereunder of the party so waiving and shall not constitute a waiver of any such other rights or, in any other instance, of the rights so waived, or a waiver of the performance by the other party of any of its other obligations hereunder or of the performance by the other party of any of its other obligations hereunder or of the performance, in any other instance, of the obligations waived. No waiver shall be effective or binding upon a party unless the same shall be expressed in writing and executed by the party to be bound. 17. INTERPRETATION - This Agreement has been negotiated by the parties hereto and their respective counsel and shall be fairly interpreted in accordance with its terms and without any rules of construction relating to which party drafted the agreement being applied in favour or against either party. 18. AMENDMENT - No amendment of any provision of this Agreement shall be effective unless such amendment is embodied in a written agreement which is: (i) expressly stated to be intended to amend this Agreement; and (ii) executed by an authorized signing officer of ADB and an authorized signing officer of New ADB. 19. GOVERNING LAW - This Agreement shall be governed and construed according to the laws of the Province of Ontario and the laws of Canada applicable therein, and shall be treated, in all respects, as an Ontario contract, without prejudice to or limitation of any rights or remedies available under the laws of any jurisdiction where property or assets of either party may be found. Each of the parties hereby attorns to the jurisdiction of the courts of the Province of Ontario. 20. TIME OF THE ESSENCE - Time is of the essence of this Agreement. 21. COUNTERPARTS - This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the - 6 - same instrument. Counterparts may be executed either in original or faxed form and the parties adopt any signatures received by a receiving fax machine as original signatures of the Parties. IN WITNESS WHEREOF this Agreement is executed by the Parties as of the date first written, above. ADB SYSTEMS INTERNATIONAL INC. By: _________________________________ Name: Title: ADB SYSTEMS INTERNATIONAL LTD. By: _________________________________ Name: Title: SCHEDULE "A" BID.COM ASSETS Old ADB Domain Names (as defined in the Loan Agreement) Old ADB Trade-Marks (as defined in the Loan Agreement) All goodwill associated with the Bid.Com Assets and the Bid.Com Liabilities registered user data base for www.bid.com Employment Agreements with Ken Martin, Craig Martin and Stoney Jiang Employee Workstations (3 units) - Personal computers: Hewlett Packard, 256 RAM - Monitors - Printer (1): Hewlett Packard 1100 - Cellular Phones: Rogers - Desk telephones - Pagers Office Furniture - One workstation cluster (4 employee stations) - Office chairs - Filing cabinet unit THE FOLLOWING ITEMS ARE SUBJECT TO A LEASE WITH HEWLETT- PACKARD: WEB SERVER - Quad CPU Intel Pentium Xeon 500 MHZ (2 MB L2 Cache) - 2 GB Ram - 2 - - Raid Card - 2 10/100 NIC's - 2x18 Raid 0 HDD - 3x18 Raid 5 HDD - Tape Drive - Floppy Drive - DATABASE (2 NODE CLUSTER) - Node Configuration: 2 Units - Dual CPU Intel Pentium Xeon 500 MHZ (2 MB L2 Cache) - 1 GB Ram - Raid Card - 2 10/100 NIC's - 3x18 Raid 5 HDD - Tape Drive - Floppy Drive - Shared Data Storage (1 Unit) - Raid Disk Array - 6x18 GB HDD Domain Controllers (2 Units) - Dual CPU 500 MHZ - 512 MB RAM - Raid Card - 3 - - 1 NIC - 3xl8 GB HDD - Tape Backup THE ITEMS LISTED BELOW ARE NOT INCLUDED IN THE BID.COM ASSETS BUT SHALL BE ADDRESSED AS PART OF THE BUDGET PROCESS CONTEMPLATED BY THE SUPPLY, SERVICES AND LICENSE AGREEMENT BETWEEN ADB, NEW ADB AND THE BRICK WAREHOUSE CORPORATION Other Software - MS Windows 2000 Server - MS SQL 2000 Server - Verisign secure certificate - SA-FileUP Other Hardware - Internet Connection: T1 1.5 MB - Router: Cisco 2500/2600 series - Firewall: Cisco Pix 515 or 525 Series - Switch: Cisco/HP/3Com - 8 Leased IP addresses - UPS'S - Server Racks - Monitor - Cables SCHEDULE B BID.COM LIABILITIES 1. Employment obligations under agreements with Ken Martin, Craig Martin and Stoney Jiang. 2. Obligations to be assumed/retained by Bid.Com under cell phone, pager and office phone arrangements for the employees specified in 1. above. 3. Obligations to be assumed/retained by Bid.Com in respect of hardware, software and connectivity arrangements pursuant to the budgetary process contemplated by the Supply, Services and License Agreement between ADB, New ADB and The Brick Warehouse Corporation. SCHEDULE "C" ADB SYSTEMS INTERNATIONAL INC. MARKET BASED VALUATION ESTIMATES 28/08/2002 ADB Systems International Inc Market Based Valuation Estimates 28/08/2002
Estimated Accounting Values Estimated Tax Values at August 22, 2002 at August 22, 2002 ASSETS CURRENT Cash $ 66,308 $ 66,308 Marketable securities $ 105,615 $ 105,615 Accounts receivable $ 35,312 $ 35,312 Intercompany receivable (payable) $ 5,796,667 $ 5,796,667 Deposits and prepaid expenses $ 207,670 $ 1,133,598 -------------------------------------- $ 6,211,572 $ 7,137,500 $ 0 CAPITAL ASSETS - AT COST $ 3,013,636 Less accumulated depreciation $ (2,680,893) -------------------------------------- $ 332,743 3,332,168 STRATEGIC INVESTMENTS $ 80,078 2,806,400 INVESTMENT IN SUBSIDIARIES $ (2,581,412) 3,167,190 TRADEMARKS AND INTELLECTUAL PROPERTI $ 27,617 162,910 -------------------------------------- TOTAL ASSETS $ 4,070,598 $ 16,606,168 ====================================== LIABILITIES CURRENT Accounts payable $ 468,663 $ 468,663 Accrued liabilities $ 23,294 $ 23,294 Current portion of long term capital lease $ 16,714 $ 16,714 Current portion of deferred revenue $ 107,820 $ 107,820 -------------------------------------- $ 616,491 $ 616,491 Minority Interest $ 0 $ 0 SHAREHOLDERS' EQUITY Share capital $ 94,516,037 $ 94,516,037 GE Warrants $ 1,348,994 0 Non Employee Options $ 115,967 0 Options Issued - Norway Employees $ 575,533 0 FTC Account $ 8,844 0 Deficit - Opening Balance $(87,592,746) Deficit - Current Year $ (5,518,522) Total Deficit $(93,111,268) (78,526,360) -------------------------------------- Net Equity $ 3,454,107 $ 15,989,677 -------------------------------------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 4,070,598 $ 16,606,168 ====================================== Outstanding Share Capital at June 30, 2002 $ 41,494,400 Closing Share Price-Aug 22, 2002 0.12 FMV of ADB Systems
Estimated FMV at August 22, 2002 ASSETS CURRENT Cash $ 66,308 FMV=Book Value Marketable securities $ 105,615 FMV=Book Value Accounts receivable $ 35,312 FMV=Book Value Intercompany receivable (payable) 0 FMV of 0, as no subsidiary has the capacity to repay Deposits and prepaid expenses $ 21,514 FMV reflects only amounts recoverable ---------- $ 228,749 CAPITAL ASSETS - AT COST Less accumulated depreciation ---------- 332,743 FMV=Book Value STRATEGIC INVESTMENTS $ 80,078 Fair Market Value based on Trading Prices INVESTMENT IN SUBSIDIARIES 3,042,415 FMV based book value of assets/liabilities plus depreciated value of software since October purchase TRADEMARKS AND INTELLECTUAL PROPERTI $1,295,343 FMV-Unallocated residual ---------- TOTAL ASSETS $4,979,328 ========== LIABILITIES CURRENT Accounts payable $ 468,663 FMV= Book Value Accrued liabilities $ 23,294 FMV= Book Value Current portion of long term capital lease $ 16,714 FMV= Book Value Current portion of deferred revenue $ 0 FMV=0 as no go forward obligation present ---------- $ 508,671 Minority Interest $ 0 SHAREHOLDERS' EQUITY Share capital GE Warrants Non Employee Options Options Issued - Norway Employees FTC Account Deficit - Opening Balance Deficit - Current Year Total Deficit ---------- Net Equity $4,470,657 ---------- TOTAL LIABILITIES 8 SHAREHOLDERS EQUITY $4,979,328 ========== Outstanding Share Capital at June 30, 2002 $ 0 Closing Share Price-Aug 22. 2002 FMV of ADB Systems $4,979,328
For Discussion Purposes Only. Do Not Distribute SCHEDULE B BID.COM ASSETS Old ADB Domain Names (as defined in the Loan Agreement) Old ADB Trade-Marks (as defined in the Loan Agreement) All goodwill associated with the Bid.Com Assets and the Bid.Com Liabilities registered user data base for www.bid.com Employment agreements with Ken Martin, Craig Martin and Stoney Jiang Employee Workstations (3 units) - Personal computers: Hewlett Packard, 256 RAM - Monitors - Printer (1): Hewlett Packard 1100 - Cellular Phones: Rogers - Desk telephones - Pagers Office Furniture - One workstation cluster (4 employee stations) - Office chairs - Filing cabinet unit THE FOLLOWING ITEMS ARE SUBJECT TO A LEASE WITH HEWLETT- PACKARD: WEB SERVER - Quad CPU Intel Pentium Xeon 500 MHZ (2 MB L2 Cache) - 2 GB Ram - Raid Card - 2 10/100 NIC's - 2x18 Raid 0 HDD - 3x18 Raid 5 HDD - Tape Drive - Floppy Drive - DATABASE (2 NODE CLUSTER) - Node Configuration: 2 Units - Dual CPU Intel Pentium Xeon 500 MHZ (2MB L2 Cache) - 1GB Ram - Raid Card - 2 10/100 NIC's - 3x18 Raid 5 HDD - Tape Drive - Floppy Drive - Shared Data Storage (1 Unit) - Raid Disk Array - 6xl8 GB HDD Domain Controllers (2 Units) - Dual CPU 500 MHZ - 512 MB RAM - Raid Card - 1 NIC - 3xl8 GB HDD - Tape Backup THE ITEMS LISTED BELOW ARE NOT INCLUDED IN THE BID.COM ASSETS BUT SHALL BE ADDRESSED AS PART OF THE BUDGET PROCESS CONTEMPLATED BY THE SUPPLY, SERVICES AND LICENSE AGREEMENT BETWEEN ADB, NEW ADB AND THE BRICK Other Software - MS Windows 2000 Server - MS SQL 2000 Server - Verisign secure certificate - SA-FileUP Other Hardware - Internet Connection: T1 1.5 MB - Router: Cisco 2500/2600 series - Firewall: Cisco Pix 515 or 525 Series - Switch: Cisco/HP/3Com SCHEDULE C BID.COM LIABILITIES BID.COM LIABILITIES 1. Employment obligations under agreements with Ken Martin. Craig Martin and Stoney Jiang. 2. Obligations to be assumed/retained by Bid.Com under cell phone, pager and office phone arrangements for the employees specified in 1. above. 3. Obligations to be assumed/retained by Bid.Com in respect of hardware, software and connectivity arrangements pursuant to the budgetary process contemplated by the Supply. Services and License Agreement between ADB, New ADB and The Brick Warehouse Corporation. APPENDIX A TO SCHEDULE A COMPETITOR LIST FOR THE BRICK Sears Sears (Canada) Leon's Furniture Hudson's Bay Company Zeller's Wal-Mart Wal-Mart Canada Best Buy Future Shop Home Depot Home Depot Canada Sleep Country Canada Visions A&B Sound Dufresne Furniture & Appliances North West Company Bad Boy Furniture & Appliances Ikea Ikea Canada La-Z-Boy Furniture Galleries Mattress Mattress Palliser Rooms Trail Appliances AP Wagner Brault & Martineau Centre Hi-Fi Matelas Bon Heur Radio Shack 2001 audiovideo McCarthy Tetrault LLP TDO-MCTET2 #3622767 V.3 CompuSmart Dumoulin Tangeay International Stereo Home & Rural Appliances furniture.com (virtual space) E-bay.ca Amazon.ca QVC.com 2 SCHEDULE A SOFTWARE RESTRICTIONS, NEW ADB SERVICE DESCRIPTIONS AND MINIMUM REQUIREMENTS 1.0 SOFTWARE RESTRICTIONS 1.1 LICENSE GRANTED TO BID.COM Subject to the provisions of the Agreement, NEW ADB hereby grants to BID.COM a non-exclusive, perpetual, personal, non-transferable right to use the Software and U.S. Patent Nos. 5,890,138 and 6,266,652 for the on-line sale of Products under, and for the Term of, the Agreement only, which right includes the right to use such Software in the performance of BID.COM's obligations to the THE BRICK pursuant to the Agreement. The right granted in this Section 1.1 specifically excludes, however, any and all rights NEW ADB has or will have under the Patent License Agreement made between Old ADB and NCR Corporation dated April 17th, 2002, including, for certainty, U.S. Patent No. 5,721,906, provided that the Parties acknowledge and agree that it is their intention that Old ADB's benefits under Section 11.2 of the Patent License Agreement shall be afforded to BID.COM. 1.2 USE LIMITATIONS ON SOFTWARE. (a) The Retailer and the Supplier understand and acknowledge that this Agreement only permits the Software to be used: (i) in respect of transactions where the buyer's address for delivery is in Canada or the United States of America, as determined pursuant to the registration process for such transactions; and (ii) in connection with transactions involving consumer goods. (b) Nothing herein shall be construed as permitting the Retailer any right of resale of the Software. Without limitation to the foregoing, throughout the Term of the Agreement of which this Schedule forms a part, BID.COM and NEW ADB shall not license or sub-license, or permit the licensing or sublicensing of, the right to use the Software for retail sales purposes to a Competitor of THE BRICK. For the purposes of this Section 1.2, "Competitor" means any Person whose principal business to be conducted through Dynamic Seller is comprised of sales at retail of furniture, mattresses, appliances or consumer electronics to customers for delivery in Canada and includes, without limitation the competitors listed in Appendix A to Schedule A. For greater certainty, current customers of NEW ADB exercising their rights under existing agreements or any renewal or replacement agreements are not Competitors. Notwithstanding the foregoing, NEW ADB may license or 25 sub-license, or permit the licensing or sublicensing of, the right to use the Software for retail sales purposes to a Competitor of THE BRICK where such Competitor is not given the right to use the Software for sales at retail of furniture, appliances or consumer electronics to customers for delivery in Canada. 1.3 OWNERSHIP OF SOFTWARE. (a) The Supplier and the Retailer acknowledge that, subject to the grant of an interest contemplated by Section 4.1(a) of the Agreement and the license granted pursuant to Section 4.l(b) of the Agreement, NEW ADB retains ownership of the Software, that the Software comprises commercially valuable trade secrets, Confidential Information and proprietary data of NEW ADB, and that no provision of this Agreement shall be construed to convey title in the Software to the Supplier or to the Retailer save and except for the transfer of the interest in the Software to THE BRICK to be granted pursuant to Section 4.l(a) of the Agreement to which this Schedule forms a part. (b) Without limitation to any of the restrictions on the rights of the Supplier or the Retailer with respect to the Software, the Supplier and the Retailer each covenant and agree to disclose to NEW ADB any desirable modifications or improvements to the Software or any add-on computer programs or files, application programming interfaces, bug fixes or patches as may come to their attention. All right, title and interest in any of the foregoing that NEW ADB first learns of from the Supplier or the Retailer or creates for either or both of them pursuant to this Agreement, including the Source Materials with respect thereto, shall immediately vest as the property of NEW ADB save and except that they shall be deemed to form part of the Software hereunder which shall be subject to all the terms and provisions of this Agreement with respect to the Software including, for added certainty, Section 1.2 of this Schedule A. Where applicable, the Supplier and/or the Retailer shall cause their employees, agents or consultants to waive any moral rights they may have in such modifications or improvements and shall deliver written evidence thereof to NEW ADB promptly. (c) Notwithstanding paragraphs (a) and (b) of this Section 1.3, but subject to Section 3.2 of the Agreement, the Parties acknowledge that THE BRICK shall retain all of its Intellectual Property Rights in the "look and feel" of www.thebrick.com and in all the content provided by it pursuant to Section 3.2 of the Agreement, of which this Schedule forms a part. 26 2.0 SERVICE DESCRIPTIONS 2.1 IMPLEMENTATION AND CUSTOMIZATION SERVICES. (a) NEW ADB will provide all implementation services described in Appendix B to this Schedule A (the "IMPLEMENTATION"). (b) "ACTIVATION" means the completion by NEW ADB of a production site incorporating the functionality set out in Appendix B to this Schedule A. BID.COM agrees to provide to NEW ADB a written acknowledgment of Activation, upon such functionality being achieved. NEW ADB shall use commercially reasonable efforts to achieve Activation before November 30,2002. In the event BID.COM notifies NEW ADB in writing that it does not accept that Activation has been achieved, it must set out in writing the reasons for its non-acceptance and deliver such reasons to NEW ADB within 2 Business Days after NEW ADB gave it notice of Activation, failing which it shall be deemed to have accepted the Activation. Any dispute over Activation shall be settled amicably by the Project Managers as defined herein, failing which the matter shall be referred to the Presidents of each Party for resolution, failing which the matter shall be referred to arbitration as outlined herein. The scope of and the schedule for the completion of NEW ADB's implementation of a production site and the resulting functionality thereof shall be completed by mutual agreement of the Project Managers, acting reasonably and diligently after the date of this Agreement, in accordance with Appendix B to this Schedule A. NEW ADB shall use its commercially reasonable efforts to achieve the delivery dates to be agreed by the Project Managers pursuant to such Appendix B. (c) The Implementation will be conducted by NEW ADB personnel, on dates and times and at such locations as mutually determined by the Parties. The Project Managers will act reasonably and diligently to prepare and mutually agree on a detailed set of procedures and a time line for the completion of acceptance testing of the Implementation in accordance with Appendix B to this Schedule A. (d) NEW ADB shall develop and implement all interface requirements reasonably necessary to permit remote electronic transfer by BID.COM of product and transactional information to and from NEW ADB's platform site in accordance with the mutual agreement of the Project Managers pursuant to Appendix B to this Schedule A. 2.2 FEES FOR IMPLEMENTATION AND CUSTOMIZATION SERVICES (a) BID.COM shall pay NEW ADB $800 per man day for the Services of NEW ADB pursuant to Section 2.1 of this Schedule A. NEW ADB estimates it will take 27 approximately 57 man days of work to achieve Activation. If Activation is achieved on or before November 15, 2002, BID.Com shall pay NEW ADB an additional $200 per man day that was required to achieve Activation. 2.3 ADDITIONAL SERVICES (a) In the event BID.COM wishes to retain NEW ADB for additional consulting, customization or implementation services beyond those described in this Schedule at any time during the Term of the Agreement to which this Schedule forms a part, BID.COM shall provide no less than 15 days prior written notice of each such change order, and the specific details of such additional work must be defined and agreed in writing through a change request in ADB's standard form, signed by all Parties before the commencement of work. NEW ADB shall provide change order services, subject to availability of the relevant NEW ADB personnel, at ADB's Daily Rates, plus expenses (travel, per diem and lodging) if travel is required. ADB's Daily Rate is CDN $1,000 per day for intermediate developers, for senior developers and for Project Managers. (b) Nothing herein shall obligate NEW ADB to provide any services in connection with the Software, including without limitation video streaming, specific functionality or customization changes to the Software, or any additional or specific branding requirements, beyond those specified herein. Retailer must contract separately with NEW ADB for any such services, failing which NEW ADB assumes no responsibility for such services. 2.4 TRAINING (a) Where appropriate, NEW ADB agrees to provide training, at a site designated by NEW ADB, to up to two (2) employees each of BID.COM and THE BRICK for one full Business Day with respect to remote transfer of product and transactional information to and from NEW ADB's platform site, show production and transaction fulfilment. NEW ADB shall reasonably determine the resources to be made available for such consultation and training, provided that NEW ADB shall use its commercially reasonable efforts to ensure that Retailer and Supplier have sufficient training prior to Activation to conduct transactions through the platform on an ongoing basis. In the event that either Retailer or Supplier determines that more training is necessary, NEW ADB shall provide such training at $800 per day, plus travel, lodging and expenses. (b) The training will be conducted by NEW ADB personnel, on dates and times and at such locations as mutually determined by the parties. 2.5 TECHNICAL SUPPORT AND ESCALATION PROCEDURES 28 New ADB agrees to provide ongoing technical support for the Sites. It is the general intention of the Parties that this will include: (a) Monitoring dedicated circuit to ensure that it is operational at all times. (b) Maintain configuration on internet access routers and make changes where necessary. (c) Load balancing. (d) Security monitoring. (e) Ensuring HTTPS access to the Supplier for access to program reports; however the Parties agree that the Project Managers will work together diligently and reasonably after the Effective Date to determine specifically what ongoing technical support will be provided for the Sites and whether items (a) to (e) above, and/or other items, will be provided. 2.6 SECURITY (a) NEW ADB agrees to cooperate with BID.COM in the implementation of security protocols and procedures as they are developed during the term of this Agreement. NEW ADB shall establish reasonable and appropriate security functionality permitting the regulation of access to the Software and the transaction platform. BID.COM shall be responsible for issuing and terminating passwords and/or usernames and verifying the status of authorized users. (a) NEW ADB and BID.COM agree to cooperate in the collection and sharing of information about the use of the platform consistent with applicable privacy laws and confidentiality requirements of each Party. NEW ADB will not be required to obtain consents from users of the Sites to the collection, retention, disclosure and use of such user's personal information, which shall be the responsibility and at the sole cost of BID.COM. 3.0 INFRINGING SOFTWARE NEW ADB agrees that, in the event that during the Term of the Agreement the Software or any portion thereof is held to infringe another person's rights, and use thereof is enjoined during such Term, NEW ADB shall, at its election and expense: (i) procure the right to use the infringing element thereof; (ii) procure the right to an element which performs the same function without any material loss of functionality; or (iii) replace or modify the element thereof so that the infringing portion is no longer infringing and still performs the same function without any material loss of functionality, performance or efficiency, provided that NEW ADB shall not be required to take any of the foregoing steps and shall bear no liability with respect to such an infringement that is caused, in whole or in part, by the actions or direction of BID.COM or THE 29 BRICK, including any content displayed or data processed by the Software that was provided by either of them. 4.0 COVENANTS OF RETAILER AND SUPPLIER (a) Without limitation to Section 5.2 of the Agreement to which this Schedule is attached, the Retailer and the Supplier shall not disclose, or permit any of their officers, employees, representatives, or legal advisors to disclose, any information, data, plans or specifications of a confidential nature concerning the Software or the Services, during the Term or at any time thereafter, including, without limiting the generality of the foregoing, any designs, drawings, technical specifications or other such information, service manuals, commercial data or quotations, this Agreement or the terms hereof, to anyone or assist or permit anyone in obtaining knowledge of any part of the Software or the Services other than such as may be necessary for competent operators trained or approved by NEW ADB to utilize the Software as contemplated hereby, or as may be required by law. (b) Commencing from Activation, the Retailer and the Supplier, jointly and severally, shall indemnify and hold harmless NEW ADB from and against any and all liabilities, claims and judgments for damage arising out of, or for injury to or death of persons, or damage to property occasioned by the operation or use of the Software by them and shall obtain appropriate comprehensive general liability insurance in this regard naming NEW ADB as an additional insured in form and with limits reasonably acceptable to NEW ADB. The Retailer and the Supplier hereby acknowledge that they are solely responsible for all show production, product placement, collection, customer service, fulfilment and other non-technical aspects of each auction or transaction conducted through the Software. (c) The Retailer and the Supplier hereby acknowledge and agree that, during the Term of the Agreement to which this Schedule forms a part, they shall not directly or indirectly solicit, offer employment to, or otherwise attempt to engage the services of any employee of NEW ADB or any Affiliate of NEW ADB, and NEW ADB hereby acknowledges and agrees that, during the Term of the Agreement to which this Schedule forms a part, it shall not directly or indirectly solicit, offer employment to, or otherwise attempt to engage the services of any employee of the Retailer or the Supplier. Nothing in this paragraph shall prevent a Party from soliciting the employment of, or from offering employment to, the other Parties' employees in accordance with the Transaction Documents or through generalized searches for employees through the publication of advertisements or other public announcements that are not specifically targeted at the other Party's employees. 30 5.0 FORCE MAJEURE Provided that prompt notice of the delay or failure is given to the other Parties, NEW ADB shall not be liable for delays or failure in their performance or observation of their covenants or obligations under the Agreement to which this Schedule is attached including for certainty this Schedule and any other Schedule thereto, where such delays or failure are beyond its control, respectively, including, but not limited to, delays caused by the Payment System or the Fulfillment System's lack of functionality for any reason, fire, carriers, acts of God, war, insurrection, riot, e-sabotage, spamming or any governmental authority. 31 SCHEDULE "A" BID.COM ASSETS Old ADB Domain Names (as defined in the Loan Agreement) Old ADB Trade-Marks (as defined in the Loan Agreement) All goodwill associated with the Bid.Com Assets and the Bid.Com Liabilities registered user data base for www.bid.com Employment Agreements with Ken Martin, Craig Martin and Stoney Jiang Employee Workstations (3 units) - Personal computers: Hewlett Packard, 256 RAM - Monitors - Printer (1): Hewlett Packard 1100 - Cellular Phones: Rogers - Desk telephones - Pagers Office Furniture - One workstation cluster (4 employee stations) - Office chairs - Filing cabinet unit THE FOLLOWING ITEMS ARE SUBJECT TO A LEASE WITH HEWLETT-PACKARD: WEB SERVER - Quad CPU Intel Pentium Xeon 500 MHZ (2 MB L2 Cache) - 2 GB Ram - 2 - - RaidCard - 2 10/100 NIC's - 2x18 Raid 0 HDD - 3x18 Raid 5 HDD - Tape Drive - Floppy Drive - DATABASE (2 NODE CLUSTER) - Node Configuration: 2 Units - Dual CPU Intel Pentium Xeon 500 MHZ (2 MB L2 Cache) - 1 GB Ram - Raid Card - 2 10/100 NIC's - 3x18 Raid 5 HDD - Tape Drive - Floppy Drive - Shared Data Storage (1 Unit) - Raid Disk Array - 6xl8 GB HDD Domain Controllers (2 Units) - Dual CPU 500 MHZ - 512 MB RAM - Raid Card -3- - 1 NIC - 3xl8 GB HDD - Tape Backup THE ITEMS LISTED BELOW ARE NOT INCLUDED IN THE BID.COM ASSETS BUT SHALL BE ADDRESSED AS PART OF THE BUDGET PROCESS CONTEMPLATED BY THE SUPPLY, SERVICES AND LICENSE AGREEMENT BETWEEN ADB, NEW ADB AND THE BRICK WAREHOUSE CORPORATION Other Software - MS Windows 2000 Server - MS SQL 2000 Server - Verisign secure certificate - SA-FileUP Other Hardware - Internet Connection: T1 1.5 MB - Router: Cisco 2500/2600 series - Firewall: Cisco Pix 515 or 525 Series - Switch: Cisco/HP/3Com - 8 Leased IP addresses - UPS's - Server Racks - Monitor - Cables - 4 - SCHEDULE B BID.COM LIABILITIES 1. Employment obligations under agreements with Ken Martin, Craig Martin and Stoney Jiang. 2. Obligations to be assumed/retained by Bid.Com under cell phone, pager and office phone arrangements for the employees specified in 1. above. 3. Obligations to be assumed/retained by Bid.Com in respect of hardware, software and connectivity arrangements pursuant to the budgetary process contemplated by the Supply, Services and License Agreement between ADB, New ADB and The Brick Warehouse Corporation. APPENDIX B TO SCHEDULE A SOFTWARE FUNCTIONALITIES, SCOPE OF NEW ADB IMPLEMENTATION SERVICES AND SOFTWARE AND HARDWARE CONNECTIVITY REQUIREMENTS As soon as reasonably possible after the Effective Date, the Project Managers shall work together diligently and using reasonable commercial efforts to supplement this Appendix by mutual agreement. This Appendix, when fully supplemented, shall set out: 1. the scope of the Implementation services to be provided by NEW ADB and the schedule for completion thereof; 2. Acceptance testing procedures with respect to the Implementation and the Activation; 3. the software and hardware connectivity requirements of each Party for all purposes of the Services including detailed plans as to how such requirements will be fulfilled; and 4. the functionality to be provided by NEW ADB for the Site, all subject to and in accordance with the terms and provisions of the Agreement and the Schedules thereto. The Scope of the Implementation services to be provided by NEW ADB shall include the following, subject to amendment or supplementation by mutual agreement of the Project Managers: Site Construction - Conduct review sessions with Retailer to identify where and how the existing Dyn@mic Seller software meets Retailers' requirements and where enhancements will be required to meet Retailers' unique methods of operation - Design, develop, test and deploy the enhanced Dyn@mic Seller as defined above - Design, source, test and deploy a computing hardware, operating system, database, and Dyn@mic Seller application software infrastructure capable of supporting Retailer's business processes and volume Site Operation - Provide computer hardware, operating system and database software, Dyn@mic Seller web site application software and communications infrastructure to support the operation of the Sites on an on-going basis 3 - Conduct facilities monitoring activities to ensure that the sites are available to Retailer's customers in an uninterrupted manner 24X7, and report on site activity and availability on a periodic basis - Provide the necessary repair and remediation services should the sites become unavailable to Retailer's customers The Project Managers will develop the scope for the functionality of the Site, and supplement this Appendix to reflect the same, based on the following objectives: Corporate Communication - Communicate promotional activities of Supplier's bricks-and-mortar stores - Communicate the Supplier's general warranties, policies and procedures, and the special capabilities of the Supplier's specific business units including, but not limited to, Commercial Sales, Consumer Credit, Franchise operations, T.V. and Appliance Service, and Customer Service. - Communicate employment opportunities with the Supplier - Communicate other static corporate information regarding the Supplier as required - Enable internet users to locate the Supplier's facilities across Canada - Enable connections with other third-party sites including the Supplier's vendors and other partners as required On-line Shopping - Display the Supplier's Products' pictures, features and benefits, prices, terms and conditions of sale, availability and purchase instructions - Organize the Supplier's Products into a number of flexible hierarchical product groups to enable the Retailer's customers a number of paths to quickly identify Products of interest - Enable a site-wide search capability to assist Retailer's internet visitors to directly access product information and/or other material of interest to them - Support a number of pricing models for product sale including time-sensitive and geography-specific fixed and auction (a la bid.com) pricing - Enable Retailer's customers to build and modify product orders including any number of specific products with the appropriate price 4 - Solicit product-specific sale of optional add-on products and services - Collect bill-to and ship-to information from Retailer's customers to enable subsequent order fulfillment - Display order summary information for Retailer's customer's to enable review of products, pricing, tax and delivery information - Collect credit card information to enable order funding - Communicate completed order information to Supplier's Fulfillment System - Process delivery or cancellation confirmations from Supplier's fulfillment system 5 SCHEDULE B NEW ADB SERVICES, SERVICE LEVEL COMMITMENT 1.0 STATEMENT OF INTENT The purpose of this Schedule is to establish service level objectives, negotiated in good faith, and to provide best in class service to meet the expectations of the end user(s). This Schedule represents a Schedule between THE BRICK (the "Supplier") and BID.COM (the "Retailer") and NEW ADB (the "Service Provider"), describes the responsibilities of the participants named in this Schedule, and outlines the objectives by which attainment is measured. 2.0 CHANGES TO THIS SCHEDULE This Schedule can be re-negotiated at any time due to changes in business requirements, operating environment, needs of the Supplier and/or the ability of the Retailer and the Service Provider to consistently and satisfactorily meet the objectives. Any Party can initiate renegotiations. 3.0 SYSTEM DESIGN 3.1 The Service Provider agrees that the equipment hosted by the Retailer for the purposes of this Agreement is for the sole use of the Sites and will not be shared with any existing or future clientele. 3.2 The Service Provider agrees to provide the Retailer and the Supplier with 24 hours of notice prior to any change of an externally visible TCPIP address at the hosting facility. 4.0 TECHNICAL SUPPORT PLAN AND ESCALATION PROCEDURES 4.1 The Service Provider agree to provide ongoing Software support for the Sites throughout the Term of the Agreement. The Parties agree that the Project Managers will work together diligently and reasonably after the Effective Date to determine specifically what ongoing Software support will be provided for the Sites. 4.2 The Service Provider will provide ongoing access to consulting talent, with the general intention that such consulting talent relate to: (a) Software Troubleshooting 6 (b) Internal Software audits (d) Software changes and enhancements however the Parties agree that the Project Managers will work together diligently and reasonably after the Effective Date to determine more specifically what shall constitute "access" and whether items (a) to (d) above, and/or access to other consulting talent, is to be provided. 4.3 NEW ADB shall respond to any report that the Software is failing to operate within normal operating parameters within the time frames set out below. The severity of any particular failure shall be determined by Retailer, acting reasonably, and communicated to the other Parties, based on the following definitions: SEVERITY 1: total inability to use any material part of the Software, resulting in a critical impact on user objectives. SEVERITY 2: ability to use the Software, but user operation is severely restricted. SEVERITY 3: ability to use the Software; failures relate to functions that are not critical to overall user operations. SEVERITY 4: failure has been bypassed or temporarily corrected and is not affecting customer operations. The Service Provider shall respond to each of the other Parties within the following time frames: SEVERITY 1: within 2 hours of notification by Retailer SEVERITY 2: within 4 hours of notification by Retailer SEVERITY 3: within 2 Business Days of notification by Retailer SEVERITY 4: within 5 Business Days of notification by Retailer The Service Provider shall use best efforts to resolve the failure promptly upon response to the other Parties. 7 SCHEDULE C BID.COM PERFORMANCE COMMITMENT 1.0 STATEMENT OF INTENT The purpose of this Schedule is to establish performance criteria objectives, negotiated in good faith, and to provide best functionality to meet the expectations of the end user(s). This Schedule represents a Schedule between THE BRICK (the "Supplier") and BID.COM (the "Retailer") and NEW ADB (the "Service Provider"), describes the responsibilities of the participants named this Schedule, and outlines the objectives by which attainment is measured. 2.0 CHANGES TO THIS SCHEDULE THIS SCHEDULE CAN BE RE-NEGOTIATED AT ANY TIME DUE TO CHANGES IN BUSINESS REQUIREMENTS, OPERATING ENVIRONMENT, NEEDS OF THE SUPPLIER AND/OR THE ABILITY OF THE RETAILER AND THE SERVICE PROVIDER TO CONSISTENTLY AND SATISFACTORILY MEET THE OBJECTIVES. ANY PARTY CAN INITIATE RENEGOTIATIONS. 3.0 SOFTWARE HOSTING 3.1 The Retailer shall host and maintain the Software and the related hardware throughout the Term of this Agreement. The Supplier specifically acknowledges that the Retailer's hosting and maintenance obligations hereunder extend to the Retailer and the Supplier's complete web presence at the Sites and to the hosting and maintenance of the server(s) hosting the same, and that the service level commitments contained herein shall extend to all elements of the Sites. 3.2 The Retailer agrees that the servers, hardware and third party software used to host or service the Software shall be maintained by the Retailer at its sole cost and expense, in accordance with the budgets prepared pursuant to the Agreement. 3.3 The Retailer shall provide monthly reports regarding site activity in such detail and by such means as Supplier may reasonably require. 3.4 The Supplier shall not have any access to the hosting servers, the Software or the facilities in which same are maintained except: (a) Supplier shall have the ability to post and access electronically "real-time" transaction-specific; and (b) Supplier shall have the right, upon reasonable notice and during normal business hours, to have representatives escorted by the Retailer's employees tour the premises where the hosting servers and Software are located to the extent reasonably necessary to ensure the Retailer's compliance with this Agreement. 8 3.5 The Retailer shall be responsible for input of transaction-specific data into the Software as is necessary for the purposes of this Agreement through such means as specified by the Service Provider from time to time. The Retailer and the Supplier, as the case may be, hereby grant the Service Provider a royalty-free right and license to use and to modify such data as may be necessary in the provision of the Services to be provided by the Service Provider under the Agreement to which this Schedule is attached. 4.0 SERVICE COMMITMENTS 4.1 The Retailer will ensure that the Sites will be available for use 24 hours a day, 7 days per week, excluding periods for Scheduled Maintenance or Emergency Maintenance. 4.2 SCHEDULED MAINTENANCE: The Retailer will ensue that one scheduled maintenance window per week will be available from 3:00 am to 5:00 am ET each Sunday. 4.3 EMERGENCY MAINTENANCE: When emergency maintenance is required, the Retailer will provide the greatest amount of lead-time and arrange, a solution that minimises the impact on the Supplier and the Service Provider. 4.4 AVAILABILITY COMMITMENT: The Sites will be monitored and managed to ensure that the Sites will be available 99.5% of the time, excluding the scheduled maintenance periods. 4.5 RESPONSE TIME COMMITMENT: The Sites and the Software will be monitored and managed to ensure that on a monthly basis, the response time to users will not exceed a level to be agreed on by the Project Managers pursuant to the agreement to be made by them pursuant to paragraph 2.l(b) of Schedule A with respect to the scope and functionality of the production site. 4.6 FILE BACKUP: The Retailer will maintain operative processes that ensure data safekeeping and recovery and will run daily backup of user files and system files necessary for system recovery and send them to secure off site vault storage on a weekly basis 5.0 SYSTEM DESIGN 5.1 The Retailer will agree to provide certain hardware for operation of the Sites as soon as reasonably possible after the Effective Date. The Project Managers shall work together diligently and reasonably to determine the hardware that will be necessary and how it will be provided, and the costs thereof shall be reflected in the budgets to be prepared pursuant to Section 5.5 of the Agreement to which this Schedule forms a part. 5.2 The Retailer agrees to provide and maintain adequate Internet firewalls at the selected hosting facility to ensure security of website against unauthorized attacks and intrusions. 9 5.3 The Retailer agrees to maintain/upgrade/replace components as necessary to meet all service level expectations outlined in this Schedule and the Agreement. 5.4 The Retailer agrees to the system architecture detailed in Appendix B to Schedule A. The Retailer agrees not to deviate from is design at any time without written consent from the Supplier and the Service Provider. 5.5 The Retailer agrees that the equipment listed above is for the sole use of the Sites and will not be shared with any existing or future clientele. 5.6 The Retailer agrees to provide suitable hosting facilities at its expense for the duration of the Term of the Agreement. 5.7 The Retailer agrees to provide the Supplier access to the system components upon request, provided that the Retailer is given a minimum of 24 hours notice where each of such 24 hours is on a Business Day. 5.8 The Retailer agrees to provide the Supplier with 24 hours of notice prior to any change of an externally visible TCPIP address at the hosting facility. 6.0 DATA INTEGRITY 6.1 The Retailer shall back-up transaction data daily onto tapes at the hosting facility. Tapes to be stored offsite and overwritten every 5th day. 7.0 TECHNICAL SUPPORT PLAN AND ESCALATION PROCEDURES 7.1 The Retailer will provide ongoing access to consulting talent, with the general intention that such consulting talent relate to: (a) Troubleshooting (b) System inquiries (c) Internal audits (d) Hardware, infrastructure and/or connectivity changes and enhancements however the Parties agree that the Project Managers will work together diligently and reasonably after the Effective Date to determine more specifically what shall constitute "access" and whether items (a) to (d) above, and/or access to other consulting talent, is to be provided. 7.2 Retailer shall respond to any report that the Software or the Sites are failing to operate within normal operating parameters within the time frames set out below. The severity of 10 any particular failure shall be determined by Supplier, acting reasonably, and communicated to the other Parties, based on the following definitions: SEVERITY 1: total inability to use any material part of the Software or the Site, resulting in a critical impact on user objectives. SEVERITY 2: ability to use the Software or the Site, but user operation is severely restricted. SEVERITY 3: ability to use the Software or the Site; failures relate to functions that are not critical to overall user operations. SEVERITY 4: failure has been bypassed or temporarily corrected and is not affecting customer operations. The Retailer shall respond to each of the Parties within the following time frames: SEVERITY 1: within 2 hours of notification by Supplier SEVERITY 2: within 4 hours of notification by Supplier SEVERITY 3: within 2 Business Days of notification by Supplier SEVERITY 4: within 5 Business Days of notification by Supplier In each case the Retailer shall use best efforts to resolve the failure promptly upon response to the other Parties. 11 SCHEDULE D DYN@MIC SELLER(TM) JOINT OWNERSHIP AGREEMENT THIS AGREEMENT is made as of the 23rd day of August, 2002 between ADB SYSTEMS INTERNATIONAL INC. ("OLD ADB"), corporation having its principal place of business at 6725 Airport Road, Suite 201, Mississauga, Ontario L4V 1V2, and THE BRICK WAREHOUSE CORPORATION ("THE BRICK"), a corporation having its principal place of business at 16930 - 114 Avenue, Edmonton, Alberta, T5M 3S2. RECITALS WHEREAS, OLD ADB is the owner of the DYN@MIC SELLER(TM) proprietary software (the "Software") which enables the completion of on-line retail transactions; WHEREAS, OLD ADB, ADB Systems International Inc. ("BID.COM") and THE BRICK have entered into a Supply, Services and License Agreement dated as of August 23rd, 2002 (the "SUPPLY AND SERVICES AGREEMENT"); and WHEREAS, OLD ADB wishes to convey to THE BRICK certain rights and grant certain licenses in and to the Software pursuant to the Supply and Services Agreement and subject to the terms and conditions of this Agreement; NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereby agree as follows: 1. Defined Terms All capitalized terms not otherwise defined herein shall have the meaning attributed thereto in the Supply and Services Agreement. 2. Assignment and License (a) OLD ADB hereby assigns, conveys and transfers irrevocably, perpetually and exclusively to THE BRICK an equal one-half interest as a tenant in common in and to all of OLD ADB's Intellectual Property Rights including, for greater certainty, copyright and all patent rights, if any, whether such patent rights are now in existence or hereafter acquired, in and to the Software solely for use by THE BRICK and its Affiliates for their internal business purposes limited to the on-line sale of Products to buyers with addresses for delivery in the United States of America or Canada only but such assignment, conveyance and transfer specifically excludes any and all rights OLD ADB has under the Patent License Agreement made between it and NCR 12 Corporation dated April 17th, 2001 (the "PATENT LICENSE AGREEMENT") including, for certainty, U.S. Patent No. 5,721,906 and also excludes any and all Intellectual Property Rights of OLD ADB under U.S. Patent Nos. 5,890,138 and 6,266,652 and, in addition, OLD ADB grants to THE BRICK a royalty-free, irrevocable, perpetual, worldwide license to use the Software and all of OLD ADB's Intellectual Property Rights therein, including for greater certainty all copyrights, patent rights (whether such patent rights are now existing or hereafter acquired) and trade secrets, including the right to copy, prepare derivative works, modify, adapt and combine the Software, for use by THE BRICK and its affiliates for the aforesaid use only, subject to the terms and conditions of this Agreement, including any and all Intellectual Property Rights of OLD ADB under U.S. Patent Nos. 5,890,138 and 6,266,652 but excluding any and all rights OLD ADB has under the Patent License Agreement including, for certainty, U.S. Patent No. 5,721,906, but provided that the Parties acknowledge and agree that it is their intention that OLD ADB's benefits under Section 11.2 of the Patent License Agreement shall be afforded to THE BRICK; and further provided that OLD ADB hereby reserves for itself an equal interest as tenant in common with THE BRICK in the rights granted to THE BRICK hereunder, whether such rights are now existing or hereafter acquired, in and to the Software and all other Intellectual Property Rights and other property rights in and to the Software, including the right of OLD ADB to use the Software for any purpose it sees fit and the right to license, sub-license, convey and grant security interests in the Software in whole or in part (but subject to the rights of THE BRICK hereunder) to third parties and to keep all royalties and other moneys earned through licensing and sublicensing of the Software; and provided that nothing in the assignments and grants contained herein shall restrict the rights of OLD ADB or its affiliates to use the Software. (b) OLD ADB and NEW ADB covenant and agree to assign, convey and transfer irrevocably, perpetually and exclusively to THE BRICK and its Affiliates from time to time, upon reasonable request of THE BRICK, all Intellectual Property Rights in all software, including graphic user interfaces and code created specifically to display the contents of the Site, created by OLD ADB and NEW ADB pursuant to the Supply and Services Agreement with respect to the Site, provided this paragraph 2(b) shall exclude the Software and any Intellectual Property Rights in the Software and, for added certainty, shall exclude any Intellectual Property Rights of OLD ADB that existed prior to the commencement of its Services under the Supply and Service Agreement. (c) In addition to the license granted by OLD ADB to THE BRICK pursuant to paragraph 2(a) above, OLD ADB agrees to provide the rights in connection with the Software that it does for its current customers to THE BRICK, in perpetuity, for THE BRICK's purposes limited to the on-line sale of Products to buyers with addresses for delivery in the United States of America or Canada. For greater certainty, this paragraph 2(c) does not constitute a license, sublicense, transfer or assignment of any of the licenses or rights granted to OLD ADB under the Patent License Agreement including, for certainty, U.S. Patent No. 5,721,906, provided that the Parties acknowledge and agree that it is their intention that OLD ADB's benefits under Section 11.2 of the Patent License Agreement shall be afforded to THE BRICK. 13 3. Transfer of Source and Executable Code (a) Within a reasonable period of time after execution of this Agreement, OLD ADB will deposit an executable version of the Software and related Source Materials to THE BRICK at the address noted above, and from time to time within a reasonable time after request by THE BRICK will deposit compiled versions of the software described in 2(b) hereof and related Source Materials, to THE BRICK at such address, in which THE BRICK shall have the rights provided in Section 2(a) and 2(b) of this Agreement, respectively. (b) In this Agreement, "SOURCE MATERIALS" means, in relation to the Software, all materials that would enable a reasonably skilled programmer to compile, debug, and make Improvements to such software in a reasonable manner including: (i) all source code related thereto, reasonably annotated; (ii) all technical and system documentation including specifications, flowcharts, diagrams, business rules, data and database models and structures, and compilation instructions related to such software; (iii) listings by name, version and developer of all third-party compilers, utilities and other software relating to the software, including sufficient information to procure a license, from such developers; (iv) a listing of all relevant equipment necessary to operate the Software (but not any of such equipment itself); and (v) copies, in source and object code form, of all compilers, utilities and other software that are proprietary to the developer that is the owner of software and which are used in relation to the Software. 4. Representations and Warranties OLD ADB represents and warrants that: (a) Except as has been disclosed to THE BRICK, OLD ADB has no actual knowledge of any alleged or actual infringement by any version of the Software, of any copyright, patent right, trademark, trade secret or other intellectual property rights of any third party; and (b) OLD ADB has the right and authority to assign, convey and transfer an equal undivided interest in and to the Software in accordance with Section 1, and otherwise enter into this Agreement and perform its obligations hereunder. 5. Enforcement (a) THE BRICK shall promptly bring to the attention of OLD ADB any improper or wrongful use or infringement or suspected or threatened infringement or violation of any Intellectual Property Right in the Software (an "Infringement") which comes to its attention and shall assist OLD ADB, at OLD ADB's expense, in taking all necessary steps to enforce, defend and protect such rights. In the event of an Infringement of any Intellectual Property Right in the Software by a third party, OLD ADB shall decide in its absolute discretion whether and what steps should be taken to prevent or terminate such Infringement including the institution of legal 14 proceedings where necessary and OLD ADB shall notify THE BRICK of any such Infringement and its intended response. OLD ADB shall have sole control over and shall conduct any such actions as it shall deem necessary and THE BRICK shall, at OLD ADB's expense provide or procure such assistance including the furnishing of documents and information and the execution of all necessary documents to or conducting any legal proceedings as OLD ADB may request to protect and defend such rights. (b) Notwithstanding Section 5(a), THE BRICK, with the consent of OLD ADB in writing, which consent will not be unreasonably withheld or delayed, shall have the right, at its expense, to bring a claim, action or other proceeding against third parties alleging infringement of copyright in the Software. OLD ADB will, if desired, be entitled to participate in such claim at its own expense. 6. Warranty Disclaimer EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER PARTY MAKES AND THE OTHER PARTY RECEIVES NO WARRANTY, WHETHER EXPRESS, IMPLIED OR STATUTORY, HEREUNDER AND ALL REPRESENTATIONS, WARRANTIES AND CONDITIONS OF ANY KIND OR NATURE, EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO, IMPLIED WARRANTIES AND CONDITIONS OF MERCHANTABILITY, MERCHANTABLE OR SATISFACTORY QUALITY, FITNESS FOR A PARTICULAR PURPOSE, DURABILITY, TITLE, AND THOSE ARISING BY STATUTE OR OTHERWISE IN LAW OR FROM A COURSE OF DEALING OR USE OF TRADE ARE HEREBY DISCLAIMED AND EXCLUDED. 7. Consequential Damages WHETHER OR NOT ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR ANY OTHER PERSON FOR INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL OR SIMILAR DAMAGES, INCLUDING WITHOUT LIMITATION LOST PROFITS OR REVENUES, LOSS OF GOODWILL, WORK STOPPAGE, LOST DATA OR COMPUTER HARDWARE OR SOFTWARE DAMAGE, FAILURE OR MALFUNCTION, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT. 8. Assignment (a) Nothing in this Agreement shall prevent OLD ADB from assigning its interest, in whole or in part, in this Agreement and the subject matter hereof at any time and from time to time. THE BRICK and its Affiliates may not assign this Agreement nor any rights or licenses granted hereby without OLD ADB's written consent, which consent may be withheld by NEW ADB at its sole and unfettered discretion, and any such assignment shall be null and void; provided that, nothing in this subsection 8(a) shall be construed as prohibiting any assignment of this Agreement by THE BRICK without the consent of OLD ADB if such assignment is part of a 15 sale of substantially all of the assets of, or a majority interest in the voting shares of, THE BRICK, or the merger or amalgamation of THE BRICK with any entity. (b) Subject to paragraph 8(a) above, this Agreement shall ensure to the benefit of and be binding upon any successor or assign of each party. 9. Independent Contractors It is understood and agreed that in giving effect to this Agreement, no party shall be or be deemed a partner, agent or employee of the other party for any purpose and that their relationship to each other shall be that of independent contractors. Nothing in this Agreement shall constitute a partnership or a joint venture between the parties. No party shall have the right to enter contracts or pledge the credit of or incur expenses of liabilities on behalf of the other party. 10. Further Assurances Upon the request from time to time of THE BRICK, OLD ADB shall execute all such conveyances, bills of sale, transfers, assignments, notices and other documents and use all reasonable efforts to secure all necessary consents and approvals as, in the reasonable opinion of THE BRICK, may be necessary to effectively vest title to the interest in the Software granted hereunder in THE BRICK or otherwise to protect or perfect any rights of THE BRICK in the Software. THE BRICK shall be responsible for the costs of preparing, executing and registering with all necessary offices of public record any such conveyance, bill of sale, transfer, assignment, notice or other document in respect of the Software, including OLD ADB's legal and consultant's costs with respect thereto. 11. Waiver A waiver by a party hereto of any its rights hereunder or of the performance by the other party of any of its obligations hereunder shall be without prejudice to all of the other rights hereunder of the party so waiving and shall not constitute a waiver of any such other rights or, in any other instance, of the rights so waived, or a waiver of the performance by the other party of any of its other obligations hereunder or of the performance by the other party of any of its other obligations hereunder or of the performance, in any other instance, of the obligations waived. No waiver shall be effective or binding upon a party unless the same shall be expressed in writing and executed by the party to be bound. 12. Interpretation This Agreement has been negotiated by the parties hereto and their respective counsel and shall be fairly interpreted in accordance with its terms and without any rules of construction relating to which party drafted the agreement being applied in favour or against either party. 16 13. Amendment No amendment of any provision of this Agreement shall be effective unless such amendment is embodied in a written agreement which is: (i) expressly stated to be intended to amend this Agreement; and (ii) executed by an authorized signing officer of OLD ADB and an authorized signing officer of THE BRICK. 14. Governing Law This Agreement shall be governed and construed according to the laws of the Province of Ontario and the laws of Canada applicable therein, and shall be treated, in all respects, as an Ontario contract, without prejudice to or limitation of any rights or remedies available under the laws of any jurisdiction where property or assets of either party may be found. Each of the parties hereby attorns to the jurisdiction of the Courts of the Province of Ontario. 15. Counterparts This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Counterparts may be executed either in original or faxed form and the parties adopt any signatures received by a receiving fax machine as original signatures of the Parties. 16. Entire Agreement This Agreement, and any Schedules and Exhibits attached hereto, constitute the entire agreement between the parties hereto with respect to the subject matter hereof and cancels and supersedes any prior understandings and agreements between the parties hereto with respect thereto. There are no representations, warranties, terms, conditions, undertakings, licenses granted, or collateral agreements, expressed, implied or statutory, between the parties related to the subject matter hereof other than as expressly set forth in this Agreement. 17 IN WITNESS WHEREOF, the parties have executed this Joint Ownership Agreement, with all required authority, this 23rd day of August, 2002. ADB SYSTEMS INTERNATIONAL LTD. By: __________________________________ Name: Title: By: __________________________________ Name: Title: ADB SYSTEMS INTERNATIONAL INC. By: __________________________________ Name: Title: By: __________________________________ Name: Title: 18 THE BRICK WAREHOUSE CORPORATION By: __________________________________ Name: Title: By: __________________________________ Name: Title: 19 SCHEDULE "C" ADB SYSTEMS INTERNATIONAL INC. MARKET BASED VALUATION ESTIMATES 28/08/2002 ADB Systems international Inc Market Based Valuation Estimates 28/08/2002
Estimated Accounting Values Estimated Tax Values at August 22, 2002 at August 22, 2002 ASSETS CURRENT Cash $ 66,308 $ 66,308 Marketable securities $ 105,615 $ 105,615 Accounts receivable $ 35,312 $ 35,312 Intercompany receivable (payable) $ 5,796,667 $ 5,796,667 Deposits and prepaid expenses $ 207,670 $ 1,133,598 -------------------------------------- $ 6,211,572 $ 7,137,500 $ 0 CAPITAL ASSETS AT COST $ 3,013,636 Less accumulated depreciation $ (2,680,893) -------------------------------------- $ 332,743 3,332,168 STRATEGIC INVESTMENTS $ 80,078 2,806,400 INVESTMENT IN SUBSIDIARIES $ (2,581,412) 3,167,190 TRADEMARKS AND INTELLECTUAL PROPERTI $ 27,617 162,910 -------------------------------------- TOTAL ASSETS $ 4,070,598 $ 16,606,168 ====================================== LIABILITIES CURRENT Accounts payable $ 468,663 $ 468,663 Accrued liabilities $ 23,294 $ 23,294 Current portion of long term capital lease $ 16,714 $ 16,714 Current portion of deferred revenue $ 107,820 $ 107,820 -------------------------------------- $ 616,491 $ 616,491 Minority Interest $ 0 $ 0 SHAREHOLDERS' EQUITY Share capital $ 94,516,037 $ 94,516,037 GE Warrants $ 1,348,994 0 Non Employee Options $ 115,967 0 Options Issued - Norway Employees $ 575,533 0 FTC Account $ 8,844 0 Deficit - Opening Balance $(87,592,746) Deficit - Current Year $ (5,518,522) Total Deficit $(93,111,268) (78,526,360) -------------------------------------- Net Equity $ 3,454,107 $ 15,989,677 -------------------------------------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 4,070,598 $ 16,606,168 ====================================== Outstanding Share Capital at June 30, 2002 $ 41,494,400 Closing Share Price Aug 22, 2002 0.12 FMV of ADB Systems
Estimated FMV at August 22, 2002 ASSETS CURRENT Cash $ 66,308 FMV=Book Value Marketable securities $ 105,615 FMV=Book Value Accounts receivable $ 35,312 FMV=Book Value Intercompany receivable (payable) 0 FMV of 0 as no subsidiary has the capacity, to repay Deposits and prepaid expenses $ 21,514 FMV reflects only amounts recoverable ------------ $ 228,749 CAPITAL ASSETS AT COST Less accumulated depreciation ------------ 332,743 FMV=Book Value STRATEGIC INVESTMENTS $ 80,078 Fair Market Value based on Trading Prices INVESTMENT IN SUBSIDIARIES 3,042,415 FMV based book value of assets/liabilities plus depreciated value of software since October purchase TRADEMARKS AND INTELLECTUAL PROPERTI $ 1,295,343 FMV=Unallocated residual ------------ TOTAL ASSETS $ 4,979,328 ============ LIABILITIES CURRENT Accounts payable $ 468,663 FMV=Book Value Accrued liabilities $ 23,294 FMV=Book Value Current portion of long term capital lease $ 16,714 FMV=Book Value Current portion of deferred revenue $ 0 FMV=0 as no go forward obligation present ------------ $ 508,671 Minority Interest $ 0 SHAREHOLDERS' EQUITY Share capital GE Warrants Non Employee Options Options Issued - Norway Employees FTC Account Deficit - Opening Balance Deficit - Current Year Total Deficit ------------ Net Equity $ 4,470,657 ------------ TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 4,979,328 ============ $ 0 Outstanding Share Capital at June 30, 2002 Closing Share Price-Aug 22, 2002 FMV of ADB Systems $ 4,979,328
For Discussion Purposes Only. Do Not Distribute SCHEDULE D GENERAL CONVEYANCE AND ASSUMPTION AGREEMENT THIS AGREEMENT is dated as of the 23rd day of August, 2002 BETWEEN: ADB SYSTEMS INTERNATIONAL INC., a corporation incorporated under the laws of the Province of Ontario, having its principal place of business at 6725 Airport Rd., Mississauga, Ontario L4V 1V2 ("ADB") - and - ADB SYSTEMS INTERNATIONAL LTD., a corporation incorporated under the laws of the Province of Ontario, having its principal place of business at 6725 Mississauga, Ontario L4V 1V2 ("New ADB") BACKGROUND: 1. Pursuant to a co-operation agreement dated as of August 23, 2002, among ADB, New ADB and The Brick Warehouse Corporation (the "Co-Operation Agreement"), ADB agreed to assign and transfer to New ADB certain of its assets and New ADB agreed to assume certain of ADB's liabilities. 2. Pursuant to a resolution of the board of directors, it was resolved to transfer such assets to new ADB as a return of capital and this agreement is intended to implement such return of capital. 3. ADB's G.S.T. registration number is 88676-3960-RT0001 and New ADB will apply for a G.S.T. registration number forthwith. NOW THEREFORE, in consideration of the premises and the mutual agreements and covenants contained in this Agreement and for other good and valuable consideration (the receipt and adequacy of which are hereby mutually acknowledged), the parties agree as follows: 1. DEFINITIONS - Unless otherwise specifically defined in this Agreement, any capitalized terms used in this Agreement shall have the meanings ascribed to them in the Co-Operation Agreement. 2. TRANSFER OF ASSETS - ADB hereby transfers, conveys, assigns and delivers unto New ADB, its successors and assigns, effective as at the Effective Time, all of ADB's right, title and - 2 - interest in all of its assets on a going concern basis and including goodwill, except the Bid.Com Assets as described in Schedule "A" hereto. For their respective tax purposes, the parties agree that the fair market value of the assets is as indicated on Schedule "C" hereto. In the event that Canada Customs and Revenue Agency ("CCRA") should take the view, and it should be ultimately determined by CCRA, the Tax Court of Canada or a higher tribunal that the fair market value of the assets is an amount different than an amount set out on Schedule C, then the parties agree to adopt such different amount for purposes of determining their proceeds or cost amounts, as the case may be. 3. TAX - New ADB shall pay all retail sales tax and G.S.T. in respect of the transactions contemplated hereby. ADB and New ADB shall jointly make and New ADB shall file in prescribed form and manner an election pursuant to section 167 of the Excise Tax Act (Canada) in connection with the transfer of assets hereunder. New ADB will indemnify and save harmless ADB from and against all Liabilities incurred by ADB directly or indirectly as a result of ADB not collecting or remitting any tax in respect of the transfer of assets hereunder or as a result of any failure to file the election referred to in the last sentence in a timely fashion. 4. EMPLOYEES - New ADB will offer employment to all employees of ADB on substantially the same terms as they presently enjoy, except in respect of Ken Martin, Craig Martin and Stoney Jiang and will continue to be responsible for and will discharge all Liabilities to such employees for wages, severance pay, termination pay, notice of termination of employment or pay in lieu of such notice, damages for wrongful dismissal or other employee benefits or claims, including vacation pay, whether arising under a written contract of employment or otherwise. 5. ASSUMPTION AND INDEMNIFICATION - New ADB hereby assumes all the ADB liabilities except the Bid.Com Liabilities as described in Schedule B hereto, and undertakes to pay or discharge such liabilities in accordance with their terms. New ADB shall indemnify and hold harmless ADB and its respective Affiliates, officers, directors, shareholders, representatives and agents (collectively the "INDEMNITEES") from and against and in respect of any and all Losses incurred by, resulting from, arising out of, relating to, imposed upon or incurred by any other Indemnitee by reason of any indebtedness, obligation or liability of any kind in respect of the liabilities assumed pursuant to this agreement. For purposes of this Agreement, the term, "LOSSES" means any and all deficiencies, judgments, settlements, demands, claims, suits, actions or causes of action, liabilities, losses, damages, interest, fines, penalties, costs and expenses (including reasonable legal, accounting and other costs and expenses incurred in connection with investigating, defending, settling or satisfying any and all demands, claims, actions, causes of action, suits, proceedings, assessments, judgments or appeals, and in seeking indemnification therefor.) 6. RETURN OF CAPITAL - The amount by which the fair market value of the transferred assets exceeds the assumed liabilities shall be paid to New ADB as a return of capital on its shares of ADB. 7. FURTHER ASSURANCES - Upon the request from time to time of New ADB, ADB shall execute all such conveyances, bills of sale, transfers, assignments, notices and other documents and use all reasonable efforts to secure all necessary consents and approvals as, in the reasonable opinion of New ADB, may be necessary to effectively vest title to the assets in New ADB or - 3 - otherwise to protect or perfect any rights of New ADB in the assets. New ADB shall be responsible for the costs of preparing, executing and registering with all necessary offices of public record any such conveyance, bill of sale, transfer, assignment, notice or other document in respect of the assets. 8. REMEDIES - The rights and remedies conferred under this Agreement are not intended to be exclusive of any other rights or remedies available to either New ADB or ADB in connection with the breach or failure of any of the covenants, warranties, representations or other obligations of the other party given in this Agreement or the Co-Operation Agreement, and nothing contained in this Agreement shall be construed in any manner as restricting or derogating from any other such rights or remedies. 9. CONFLICT - This General Conveyance and Assumption Agreement is executed and delivered pursuant to the Co-operation Agreement, and ADB covenants and agrees with New ADB that this General Conveyance and Assumption Agreement is subject to every agreement, representation, warranty, indemnification, covenant and provision contained in the provisions of the Co-operation Agreement. In the event there is a conflict between the terms and the provisions of this Agreement and the Co-operation Agreement, the terms and provisions of the Co-operation Agreement shall govern. 10. TRUST - ADB hereby declares that, as to any of the ADB assets or interest in any of the ADB assets intended to be hereby transferred, assigned, conveyed and set over to New ADB, and the title to which may not have passed to New ADB by virtue of this Agreement or any transfers or conveyances which may from time to time be executed and delivered in connection with this Agreement, ADB holds such property or interest in trust for New ADB to convey, assign and transfer the same as ADB may from time to time direct. Any Liabilities associated with ADB assets transferred or intended to be transferred hereunder shall be assumed by New ADB even though title to such ADB assets may be held in trust by ADB and New ADB will indemnify and save harmless ADB from and against all such Liabilities. 11. NOTICE - Any notice or other communication (a "Notice") required or permitted to be given or made hereunder shall be in writing and shall be well and sufficiently given or made if: (a) delivered by overnight courier service; (b) sent by facsimile transmission or other means of electronic communication; in the case of a Notice to New ADB addressed to it at: c/o The Brick Warehouse Corporation 16930 - 114 Avenue Edmonton, Alberta T5M 3S2 Attention: Ron Tweddle, Chief Financial Officer Fax No.: (780) 454-0969 - 4 - with a copy to: McCarthy Tetrault LLP Box 48, Suite 4700 Toronto-Dominion Bank Tower Toronto, ON M5K 1E6 Attention: Jonathan Grant Fax No.: (416) 868-0673 and in the case of a Notice to ADB, addressed to it at: ADB Systems International Inc. 201-6725 Airport Road Mississauga, Ontario L4V 1V2 Attention: John Mackie Fax No.: (905) 672-7514 with a copy to: Gowling Lafleur Henderson LLP Suite 5800 Scotia Plaza Toronto, Ontario M5H 3Z7 Attention: David Pamenter Fax No.: (416) 863-3611 Any Notice given or made in accordance with this Section 11 shall be deemed to have been given or made and to have been received on the next Business Day after it was delivered, if delivered as aforesaid. Either party may from time to time change its address for notice by giving Notice to the other party in accordance with the provisions of this Section 11. 12. ASSIGNMENT - Neither ADB or New ADB may assign its rights and obligations under this Agreement, in whole or in part, without the prior consent in writing of the other party. Any purported assignment made by ADB or New ADB without required consent is void and of no effect. No assignment of this Agreement shall relieve either party from any obligation under this Agreement. - 5 - 13. BINDING ON SUCCESSORS - This Agreement shall ensure to the benefit of and be binding upon the parties and their respective successors and permitted assigns. 14. FURTHER ASSURANCES - Each party agrees that upon the written request of the other party, it will do all such acts and execute all such further documents, assignments, and the like, and will cause the doing of all such acts and will cause the execution of all such further documents as are within its power to cause the doing or execution of, as any other party hereto may from time to time reasonably request be done and/or executed as may be reasonably necessary or desirable to give effect to this Agreement. 15. INDEPENDENT CONTRACTORS - It is understood and agreed that in giving effect to this Agreement, no party shall be or be deemed a partners, agent or employee of the other party for any purpose and that their relationship to each other shall be that of independent contractors. Nothing in this Agreement shall constitute a partnership or a joint venture between the parties. No party shall have the right to enter contracts or pledge the credit of or incur expenses of liabilities on behalf of the other party. 16. WAIVER - A waiver by a party hereto of any its rights hereunder or of the performance by the other party of any of its obligations hereunder shall be without prejudice to all of the other rights hereunder of the party so waiving and shall not constitute a waiver of any such other rights or, in any other instance, of the rights so waived, or a waiver of the performance by the other party of any of its other obligations hereunder or of the performance by the other party of any of its other obligations hereunder or of the performance, in any other instance, of the obligations waived. No waiver shall be effective or binding upon a party unless the same shall be expressed in writing and executed by the party to be bound. 17. INTERPRETATION - This Agreement has been negotiated by the parties hereto and their respective counsel and shall be fairly interpreted in accordance with its terms and without any rules of construction relating to which party drafted the agreement being applied in favour or against either party. 18. AMENDMENT - No amendment of any provision of this Agreement shall be effective unless such amendment is embodied in a written agreement which is: (i) expressly stated to be intended to amend this Agreement; and (ii) executed by an authorized signing officer of ADB and an authorized signing officer of New ADB. 19. GOVERNING LAW - This Agreement shall be governed and construed according to the laws of the Province of Ontario and the laws of Canada applicable therein, and shall be treated, in all respects, as an Ontario contract, without prejudice to or limitation of any rights or remedies available under the laws of any jurisdiction where property or assets of either party may be found. Each of the parties hereby attorns to the jurisdiction of the courts of the Province of Ontario. 20. TIME OF THE ESSENCE - Time is of the essence of this Agreement. 21. COUNTERPARTS - This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the - 6 - same instrument. Counterparts may be executed either in original or faxed form and the parties adopt any signatures received by a receiving fax machine as original signatures of the Parties. IN WITNESS WHEREOF this Agreement is executed by the Parties as of the date first written, above. ADB SYSTEMS INTERNATIONAL INC. By: __________________________________ Name: Title: ADB SYSTEMS INTERNATIONAL LTD. By: __________________________________ Name: Title: SCHEDULE E SUPPLY, SERVICES AND LICENSE AGREEMENT THIS AGREEMENT is made as of the 23rd day of August, 2002 (the "EFFECTIVE DATE") between ADB SYSTEMS INTERNATIONAL INC. ("BID.COM"), a corporation having its principal place of business at 6725 Airport Road, Suite 201, Mississauga, Ontario L4V 1V2, THE BRICK WAREHOUSE CORPORATION ("THE BRICK"), a corporation having its principal place of business at 16930 - 114 Avenue, Edmonton, Alberta, T5M 3S2, and ADB SYSTEMS INTERNATIONAL LTD. ("NEW ADB"), a corporation having its principal place of business at 6725 AIRPORT ROAD, SUITE 201, Mississauga, Ontario L4V 1V2. WHEREAS: 1. BID.COM is the registered owner of the url at www.bid.com which is used for the purposes of conducting on-line retail sales, and has skill and expertise in operating on-line retail websites; 2. THE BRICK is Canada's largest volume retailer of home furnishings, mattresses, bedding, appliances, televisions, video recorders, stereo equipment and computers, and presently operates an on-line retail website through www.thebrick.com; 3. BID.COM and THE BRICK wish to combine their respective web resources, to establish a profitable venture which would be mutually beneficial to them; 4. BID.COM wishes to access THE BRICK's supply channel to operate the combined website that will be accessible through each of the respective URLs; 5. NEW ADB (after restructuring) is the owner of the DYN@MIC SELLER(TM) proprietary software, which enables the completion of on-line retail transactions; 6. BID.COM wishes to license the DYN@MIC SELLER(TM) proprietary software for BID.COM's sale of products supplied by THE BRICK, and NEW ADB wishes to license the software to BID.COM for such purpose; 7. BID.COM wishes to have the DYN@MIC SELLER(TM) proprietary software power the combined website; 8. THE BRICK wishes to purchase an interest in the DYN@MIC SELLER(TM) proprietary software to ensure continued availability of the software and BID.COM (prior to Restructuring) wishes to sell an interest in the software to THE BRICK for such purpose. NOW THEREFORE in consideration of the premises, the mutual covenants contained in this Agreement, and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Parties agree as follows: ARTICLE I INTERPRETATION 1.1 DEFINITIONS. In this Agreement, unless the context otherwise requires, each capitalized term shall have the meanings indicated below. "AGREEMENT" means this Supply, Services and License Agreement and all schedules annexed to this Agreement as the same may be amended from time to time in accordance with the provisions hereof or thereof, "hereof" "hereto" and "hereunder" and similar expressions mean and refer to this Agreement and not to any particular article or section; except where the context specifically requires, "Article" or "Section" means and refers to the specified article or section of this Agreement. "AFFILIATE" means any entity controlled by, controlling or under common control of a Party. "BUSINESS DAY" means any day from Monday to Friday inclusive, except statutory or civic holidays observed in Toronto, Ontario or Edmonton, Alberta. "CONFIDENTIAL INFORMATION" means all information relating to any Party or to such Party's business, products, sales, users, trade secrets, technology or financial position to which access is obtained or granted hereunder, which is treated by the disclosing Party as confidential provided, however, that Confidential Information of the disclosing Party shall not include any data or information which the receiving Party can demonstrate: (a) is or becomes publicly available through no fault of the receiving Party; (b) is already in the rightful possession of the receiving Party prior to its receipt from another Party; (c) is independently developed by the receiving Party, as proven by written documentation; (d) is rightfully obtained by the receiving Party from a third party not subject to an obligation of confidentiality; 2 (e) is disclosed by the Receiving Party with the written consent of the disclosing Party whose information it is; or (f) is disclosed by the Receiving Party pursuant to court order or other legal compulsion, provided the receiving Party gives the disclosing Party prompt notice of any such requirement to afford, if possible, the disclosing Party an opportunity to obtain a protective order. "DISCLOSING PARTY" has the meaning attributed thereto in Section 5.2(a) of this Agreement. "EFFECTIVE DATE" has the meaning attributed thereto on the face page of this Agreement. "FULFILLMENT SYSTEM" means THE BRICK's system of software commonly called the "Brick Retail System", warehouses, logistics procedures and know-how, and other assets that establish and maintain its capability to acquire, warehouse and deliver the Products, as currently carried out in its retail business in Canada. "IMPROVEMENTS" means, in relation to any software, any changes, corrections, modifications, improvements, adaptations, enhancements, and derivative works based upon or derived from, and additions to, such software. "INTELLECTUAL PROPERTY RIGHTS" means (A) any and all proprietary rights provided under (i) patent law, (ii) copyright law, (iii) trademark law, (iv) design patent or industrial design law, (v) semi-conductor chip or mask work law, or (vi) any other statutory provision or common law principle including without limiting the generality of the foregoing, laws protecting confidential information, applicable to this Agreement including trade secret law, which may provide a right in either (a) ideas, formulae, algorithms, concepts, inventions or know-how generally, or (b) the expression or use of such ideas, formulae, algorithms, concepts, inventions or know-how; and (B) any and all applications, registrations, renewals, extensions, continuations, continuations-in- part, divisions, re-issues, licenses, sub-licenses, franchises, agreements or any other evidence of a right in any of the foregoing. "NOTICE" has the meaning attributed thereto in Section 9.1 hereof. "PARTIES" means BID.COM, THE BRICK and NEW ADB and "PARTY" means any one of them. "PAYMENT SYSTEM" means THE BRICK's custom point of sale system and its methods, procedures and technology used to fund consumer sales as currently used in its retail business in Canada. "PERSON" includes an individual, company, corporation, partnership, government or government agency, authority or entity howsoever designated or constituted. "PRODUCTS" means consumer goods and related accessories as determined by THE BRICK from time to time. 3 "PROJECT MANAGER" means an individual officer or employee of a Party holding one of the positions described in Section 5.1. "RECEIVING PARTY" has the meaning attributed thereto in Section 5.2(a) hereof. "RESTRUCTURING" has the meaning attributed thereto in the Co-Operation Agreement made among the Parties dated as of the date hereof. "RETAILER" means BID.COM. "SCHEDULES" means the following schedules annexed to this Agreement, and such other schedules as the Parties may append by mutual agreement, evidenced by their initialing of same: Schedule A - Software Restrictions, NEW ADB Service Descriptions and minimum requirements. Schedule B - NEW ADB Services, Service Level Commitment Schedule C - BID.COM Services, Performance Criteria Schedule D - DYN@MIC SELLER(TM) Joint Ownership Agreement "SENIOR FINANCIAL EXECUTIVE" means, in the case of THE BRICK, the Senior Vice President and Treasurer of THE BRICK and in the case of BID.COM, the Director of Finance for BID.COM, or their respective appointees. "SERVICES" means the services to be provided by NEW ADB pursuant to this Agreement. "SERVICE PROVIDER" means NEW ADB. "SITES" means the web-sites operated at www.bid.com and www.thebrick.com and "SITE" means either of them. "SOFTWARE" has the meaning attributed thereto in Section 4.1 of this Agreement. "SOURCE MATERIALS" means, in relation to any software, all materials that would enable a reasonably skilled programmer to compile, debug, and make Improvements to such software in a reasonable manner including: (a) all source code related thereto, reasonably annotated; (b) all technical and system documentation including specifications, flowcharts, diagrams, business rules, data and database models and structures, and compilation instructions related to such software; (c) listings by name, version and developer of all third-party compilers, utilities and other software relating to the software, including sufficient information to procure a license from such developers; (d) a listing of all relevant equipment necessary to operate the software; and (e) copies, in source and object code form, of all compilers, utilities and other software that are proprietary to the developer that is the owner of software and which are used in relation to the software. "SUPPLIER" means THE BRICK. 4 "TERM" means the term during which this Agreement is in force, as set out in Section 7.1. "TRANSACTION DOCUMENTS" has the meaning attributed thereto in the Loan Agreement made among the Parties and dated as of the date hereof. Transaction Documents include, Inter alia, this Agreement and the aforesaid Loan Agreement. 1.2 HEADINGS. The use of headings in this Agreement is for convenience of reference only and shall not affect its interpretation. 1.3 EXTENDED MEANINGS. Words expressed in the singular include the plural and vice-versa and words in one gender include all genders. 1.4 ENTIRE AGREEMENT. The Transaction Documents, and any agreements and other documents to be delivered pursuant to any Transaction Document, constitute the entire agreement between the Parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, oral or written between the Parties. The execution of this Agreement has not been induced by, nor do either of the Parties rely upon or regard as material, any representations, warranties, conditions, other agreements or acknowledgments not expressly made in this Agreement, the Transaction Documents or in the agreements or other documents to be delivered pursuant hereto. 1.5 INVALIDITY. If in any jurisdiction a provision contained in this Agreement is found by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein, or of such provision in any other jurisdiction shall not be affected or impaired thereby. 1.6 CONSENT. Wherever any Party is required to obtain consent or approval from another Party, such consent or approval shall not be unreasonably withheld or delayed and shall be obtained in writing or electronically. 1.7 INTERPRETATION. This Agreement has been negotiated by the parties hereto and their respective counsel and shall be fairly interpreted in accordance with its terms and without any rules of construction relating to which Party drafted the Agreement being applied in favour or against any Party. 5 1.8 CURRENCY. Unless otherwise specifically provided herein, all amounts expressed or described hereunder are in lawful currency of Canada. ARTICLE II BID.COM RESPONSIBILITIES 2.1 OPERATION OF SITES (a) BID.COM will continue to operate its website at www.bid.com. (b) Immediately upon completion of the Restructuring, THE BRICK will license to BID.COM the www.thebrick.com website for sale of Products supplied by THE BRICK pursuant to a license agreement, the terms of which will be agreed upon by THE BRICK and BID.COM. (c) At a time to be agreed upon by the Project Managers, BID.COM will combine the www.bid.com website and the www.thebrick.com website. At the time the Sites are combined, the combined website will be accessible through each of the respective URL's. (d) BID.COM will ensure it has the appropriate employees and equipment to operate the Sites in accordance with the terms of this Agreement. (e) BID.COM will ensure the performance criteria for the Sites as set out in Schedule C will be met to ensure continued and uninterrupted sale of Product through the Sites. BID.COM shall not be responsible for its failure to comply with these criteria in a timely way or at all, as the case may be, where such performance criteria depend, directly or indirectly, on the functioning of the Fulfillment System and/or the Payment System and where there is delay due to limits on the functionality, or the lack of functioning, of such systems. 2.2 POSTING OF PRODUCTS AND OTHER CONTENT. BID.COM will list Products for auction and fixed price sales, and post all other content for the Sites received by it from THE BRICK pursuant to Section 3.2 hereof. BID.COM shall create the graphical user interfaces for the Sites through the population of the display templates for the web pages created by NEW ADB. 2.3 TITLE TO PRODUCTS. BID.COM shall be the retailer of Products sold on the Sites. THE BRICK, as supplier, will deliver Products to BID.COM's customers. BID.COM will acquire title to the Products from THE BRICK immediately before such purchaser accepts delivery thereof. Risk of loss or 6 damage shall follow title, and the Parties shall each be responsible for maintaining insurance on Products as they deem appropriate. 2.4 FINANCIAL SETTLEMENT. When a purchase is made of a Product, BID.COM will process the retail customer's credit card information and receive the order information. Credit card information will be processed by BID.COM using THE BRICK's existing Payment Systems, and order information will link directly into THE BRICK's Fulfillment System. 2.5 SHIPPING AND HANDLING. BID.COM shall be responsible for paying all third party shipping and handling charges for shipping and handling of Products in fulfillment of customer orders accepted by BID.COM. 2.6 PRODUCT RETURNS. BID.COM shall be responsible for processing returns of Products to retail customers and shall remit credits and refunds as may be required. Credits and refunds to retail customers' credit cards will be processed by BID.COM using THE BRICK's Payment System. 2.7 TAX REMITTANCES. BID.COM shall be responsible for collecting and remitting to the proper tax authorities, any tax arising from the sale of Products. 2.8 FINANCIAL RESPONSIBILITIES. BID.COM shall be responsible for maintaining such books and records with respect to the Sites, for producing such financial statements and for all other bookkeeping with respect to the Sites as would a prudent owner and operator of such commercial web sites in Canada. 2.9 REGISTERED USER DATABASE. BID.COM shall e-mail those individuals presently in its registered user database and through an "opt-in" procedure shall allow such individuals to become registered users of the Sites. THE BRICK shall e-mail those individuals presently in its registered user database and through an "opt-in" procedure shall allow such individuals to become registered users of the Sites. The registered user database for the Sites, as modified after the "opt in" procedure has been completed, shall be a joint asset of BID.COM and THE BRICK, and the terms and conditions of the Sites shall specify as such. In furtherance of the foregoing, each of BID.COM and THE BRICK hereby grants to the other a perpetual, royalty-free, personal right to use such database for the purposes disclosed to, and consented to by, the individuals that become registered users of the Sites. Each of THE BRICK and BID.COM shall obtain the other's prior approval of the procedures used by it to obtain the consent of the individuals presently in its registered user databases to registration in the database for the Sites. Such prior approval shall also be obtained 7 with respect to the content of the terms communicated to such users for the aforesaid purpose. Each of BID.COM and THE BRICK shall not unreasonably withhold the granting of the aforesaid consents to the other. 2.10 NEW ADB FEES FOR SERVICES BID.COM will pay all fees for NEW ADB services as provided in Schedule A. 2.11 TRADE-MARKS The Parties acknowledge and agree that BID.COM will use THE BRICK's name, trademarks, trade names, branding and "look and feel" in developing the graphical user interfaces for the Software. BID.COM shall not make any of the foregoing uses or any other use of THE BRICK's name, trademarks, trade names, branding and "look and feel" in such a way as to significantly harm the goodwill or reputation of THE BRICK and will not alter THE BRICK's trademarks, trade names or branding. ARTICLE III THE BRICK RESPONSIBILITIES 3.1 PRODUCT SELECTION. THE BRICK shall make available for sale through the Site the Products and THE BRICK shall advise BID.COM of any minimum price applicable to each such Product in advance of the listing of such Product on the Site. THE BRICK shall assign a Project Manager who shall be responsible for the daily selection and management of Products to be sold through the Site. 3.2 PRODUCT INFORMATION. THE BRICK shall, at its expense, provide and maintain all content of the Sites that is not otherwise specified herein as to be provided by another Party. The content to be provided by THE BRICK shall include, without limitation, the data required to list Products on the Site including the number of such Products available for sale on the Site, the dates of their availability for sale, a stock keeping unit number for each such Product and any other similar information that is necessary, all in such form and by such means as BID.COM shall advise from time to time. THE BRICK hereby grants to each of BID.COM and to NEW ADB a personal, royalty-free right to use, copy, prepare derivative works from, modify, adapt and combine throughout the Term of this Agreement all content provided by it pursuant to this Section as necessary for the provision of the Services pursuant to, and in accordance with, the terms and provisions of this Agreement. 8 3.3 CUSTOMER SERVICE. THE BRICK shall be responsible for all customer relations with retail customers purchasing Products from the Site, except that THE BRICK will refer disputes related to the Sites and related technical issues to BID.COM for resolution. 3.4 ADVERTISING THE BRICK will identify the Sites in its regularly scheduled media advertising and will encourage customers, in such advertising and by other appropriate marketing vehicles, to visit the Sites and to purchase Products. 3.5 TRADE-MARKS The Parties acknowledge and agree that THE BRICK will use BID.COM's name, trademarks, trade names, branding and "look and feel" in its advertising and other appropriate communications. THE BRICK shall not make any of the foregoing uses or any other use of BID.COM's name, trademarks, trade names, branding and "look and feel" in such a way as to significantly harm the goodwill or reputation of BID.COM and will not alter BID.COM's trademarks, trade names or branding. 3.6 FINANCIAL SETTLEMENT. THE BRICK shall remit all monies received on financial settlement through the Payment System with a retail customer to a bank account for BID.COM (the "BID.COM ACCOUNT") at such times as agreed to by the Senior Financial Executives.. 3.7 SHIPPING AND HANDLING. Upon a customer order being entered into THE BRICK's Fulfilment System by BID.COM, THE BRICK shall generate a shipping order, and pick, pack and deliver such Product for shipping. THE BRICK shall confirm all shipments to BID.COM in electronic form within 24 hours of shipment. 3.8 RIGHTS OF USE (a) Subject to the provisions of this Agreement, THE BRICK hereby grants to BID.COM a personal, royalty-free right to use the Payment System and the Fulfillment System for the purposes set out in this Agreement throughout the Term of this Agreement. (b) Subject to the provisions of this Agreement, THE BRICK hereby grants, and covenants and agrees to grant from time to time throughout the Term of this Agreement as necessary, to each of BID.COM and to NEW ADB a personal, royalty-free right to use, copy, prepare derivative works from, modify, adapt and combine all software, including graphic user interfaces and code created 9 specifically to display the contents of the Site, conveyed and transferred to THE BRICK pursuant to Section 2(b) of Schedule D, for the sole purpose of the performance of obligations as required by them pursuant to this Agreement. 3.9 THE BRICK CHARGES In consideration of THE BRICK's provision of the services and the supply of Products as set out in Section 3.1 to 3.8(a) hereof, THE BRICK will charge BID.COM, and BID.COM will pay, charges as set by the Brick from time to time. THE BRICK agrees that the charges will be on commercial terms. ARTICLE IV NEW ADB RESPONSIBILITIES 4.1 GRANT OF RIGHTS (a) On the Effective Date, BID.COM will grant certain rights to the use of the most recent version, as of the date hereof, of the DYN@MIC SELLER(TM) software, including all modifications and add-ons created by it pursuant to this Agreement (the "SOFTWARE"), to THE BRICK pursuant to the agreement attached hereto as Schedule D. (b) Immediately upon completion of the Restructuring, NEW ADB will grant the licence of the most recent version of the Software to BID.COM as described in Section 1.1 of Schedule A. 4.2 SERVICES NEW ADB will perform those services specified as being its responsibility in Schedule A to this Agreement, as well as the pertinent Service Provider responsibilities specified in Schedule B and C. Payment for such Services will be as provided in Schedule A. NEW ADB, as the Service Provider, will provide the Services specified in Schedule B as to be provided by it, at the Service levels specified in that Schedule. The Service Provider shall not be responsible for its failure to provide Services, in a timely way or at all, as the case may be, where such Services depend, directly or indirectly, on the functioning of the Fulfillment System and/or the Payment System and where the provision of such Services is delayed due to limits on the functionality, or the lack of functioning, of such systems. 4.3 TRANSITION Should the computer hardware on which the Software shall operate be physically moved at any time during the Term of this Agreement NEW ADB will cooperate in good faith with, and provide reasonable assistance to, the other Parties hereto in order to help minimize the resulting disruption to the other activities contemplated by this Agreement. 10 ARTICLE V GENERAL MATTERS 5.1 MANAGEMENT AND IMPLEMENTATION. (a) NEW ADB shall appoint a Project Manager who shall be responsible for the implementation, management and enforcement of the technical aspects of this Agreement on behalf of NEW ADB, including working with the other Parties to mutually develop a Project Charter and a Design Document, to prepare Progress/Open Issues reports and to achieve first-line resolution of disputes between the Parties regarding the performance or non-performance of their technical obligations under this Agreement. The Project Manager shall be responsible for attending all Project Review Committee meetings and Development Team meetings and shall cooperate with the other Parties' Project Managers in resolving all outstanding issues in a timely manner. Upon such designation, NEW ADB shall concurrently provide the other Parties with details with respect to its Project Manager, including name, work and home address, work and home telephone number, and e-mail address. (b) The Retailer and the Supplier shall each appoint a Project Manager from their respective companies. Upon such designations, each of BID.COM and THE BRICK shall concurrently provide the other Parties with details with respect to its Project Manager, including name, work and home address, work and home telephone number, and e-mail address. The Project Managers for the Retailer and the Supplier shall each: (i) work with the other Project Managers to develop a Project Charter, participate in Project Review Committee meetings in order to ensure that all Parties shall have the right to rely upon the instructions and decisions made in the Project Review Committee meetings, and shall be available for the first-line resolution of disputes between the Parties regarding the performance or non-performance of their obligations with respect to the technical aspects of their relationship under this Agreement; and (ii) work with the other Project Managers to develop a Design Document, participate in the Development Team meetings, assist NEW ADB's Project Manager in preparing Progress/Open Issues Reports and shall cooperate in resolving all outstanding issues in a timely manner. (c) Each of the Project Managers may, on written notice to the others, delegate his or her responsibilities under this Agreement to one or more individuals and may exercise his or her responsibilities as a member of a committee that includes representatives of the other Parties. 11 (d) Each Party shall be entitled to replace its Project Manager on notice to the other Parties. In the event that any Party replaces its Project Manager it shall be the responsibility of such Party to ensure an orderly transition and to ensure that the replacement does not adversely affect the timely provision of the Services. 5.2 CONFIDENTIALITY. (a) Each Party, on behalf of its advisors, agents, employees and subcontractors (hereinafter in this section, the "RECEIVING PARTY") covenants with the Party that has disclosed Confidential Information to it (hereinafter in this section, the "DISCLOSING PARTY") that it shall keep confidential the Confidential Information of the Disclosing Party to which the Receiving Party obtains access as a consequence of entering into this Agreement and that it will take all reasonable precautions to protect such Confidential Information from any use, disclosure or copying except as expressly authorized by this Agreement. This Section 5.2 shall survive the termination of this Agreement. (b) Confidential Information that is provided by the Disclosing Party and all rights in and to such Confidential Information shall remain the property of the Disclosing Party and shall be held by the Receiving Party for the benefit of the Disclosing Party. The Receiving Party shall not, except as permitted by Section 5.2(c), directly or indirectly, use or exploit such Confidential Information or disclose such Confidential Information to any third party, for any purpose unless explicitly permitted by this Agreement or otherwise authorized in writing by the Disclosing Party. (c) The Receiving Party may disclose Confidential Information to: i) such of its directors, officers and employees who need to know such information for the purposes of this Agreement; ii) its professional advisors engaged to advise in connection with the purposes of this Agreement or its potential sources of financing; iii) anyone whom the Disclosing Party has agreed in writing may receive the information; iv) any competent judicial, governmental or regulatory body (including any stock exchange) which requires or can require the Confidential Information to be disclosed; or v) the public where required by any specific, applicable requirement of law or pursuant to the requirements of any securities regulatory body having jurisdiction. 12 (d) The Receiving Party may only disclose Confidential Information under Clauses 5.2(c)(iv) and 5.2(c)(v) if, insofar as permitted by law, it has: i) informed the Disclosing Party; ii) obtained legal advice in writing that disclosure is required; iii) advised the recipient of the confidentiality of the information being disclosed; and iv) in the case of disclosure to the public, used its reasonable commercial efforts to agree on the wording of such disclosure with the Disclosing Party. (e) The Receiving party may only disclose Confidential Information under Section 5.2(c) to the extent strictly necessary for the purposes of this Agreement. (f) The Receiving Party shall inform anyone to whom it is allowed to disclose Confidential Information that the contents are confidential and procure that the recipient complies with this Section 5.2 as if the recipient was also bound by it. If required by the Disclosing Party, the Receiving Party shall make the recipient bound by a Confidentiality Agreement on terms equivalent to this Section 5.2. (g) Upon expiry or earlier termination of this Agreement, at the written request of the Disclosing Party, the Receiving Party shall, so far as reasonably practical: i) return all written Confidential Information which has been supplied; ii) destroy or erase all Confidential Information in electronic form or incorporated into other material and procure that anyone to whom the Receiving Party has disclosed Confidential Information also does so; and iii) confirm in writing that the provisions of this Clause have been complied with. (h) A violation of any obligation hereunder will result in immediate and irreparable harm and damage. In the event of such violation by a Party hereto, the Party harmed will, in addition to any other right to relief, be entitled to equitable relief by way of temporary or permanent injunction and to such other relief as any court of competent jurisdiction may deem just and proper. 5.3 AUDIT RIGHTS. Each Party shall provide each other Party hereto, its internal auditors and external auditors and regulators, with access to the Party's service locations and such records and documents as may be reasonably required to audit the fees and expenses hereunder. Each Party shall also provide 13 such persons with any assistance that they may reasonably require in connection with such audits. 5.4 PAYMENT TERMS In respect of all payments to be made by a Party to another Party pursuant to this Agreement: (a) all such payments shall be invoiced by the payee Party to the payor Party at a minimum on a monthly basis, setting out the Services and/or expenses in respect of which the invoice relates, and detailing the calculation thereof. The payor Party shall pay the payee Party the amount of each invoice within the terms agreed to between the Parties from time to time; (b) any overdue payment hereunder shall accrue interest at the rate of the prime rate of interest quoted by the Royal Bank of Canada for its best commercial customers, from time to time, plus 3% per annum calculated monthly from the date it is due until date of payment; (c) the payor Party shall pay all taxes, duties, customs and similar charges respecting the Service fees and other payments to be made by it to another Party, provided that if under local law it may not make such payments, it shall reimburse the payee Party on demand for all such payments made by the payee Party; and (d) the amounts due under this Agreement by the Retailer and/or the Supplier shall be paid without any deduction, abatement or setoff except for income taxes required by law to be deducted at source. 5.5 BUDGET BID.COM Shall formalize, with THE BRICK's input, the draft budget with respect to the revenues, expenses, changes in working capital, investments (including capital expenditures), sources of financing and timing thereof for the initial period commencing September, 2002 and ending December, 2003. Thereafter, the budget will be prepared on at least an annual basis by BID.COM, with THE BRICK's input. The budgets shall include the fees payable by BID.COM to NEW ADB for the implementation and customization Services provided by NEW ADB as contemplated by Section 2.2 (a) of Schedule A and the charges payable by BID.COM to THE BRICK pursuant to Section 3.9 of this Agreement. The budgets shall also reflect BID.COM's costs of obtaining, hosting and maintaining necessary computer hardware. 5.6 TRADE PRACTICES Each Party shall conduct its business in relation to this Agreement and any Services provided by them hereunder in a professional manner that will reflect favourably on the good name and reputation of the Sites and the Parties. In particular, each Party shall comply with all applicable national, international and local laws, ordinances, and regulations in its dealings with the other Parties and in performing its obligations under this Agreement and each Party will refrain from 14 engaging in any unfair, or deceptive trade practice, or unethical business practice whatsoever, or any other practice that could unfavourably reflect upon the Sites or the other Parties hereto. 5.7 OTHER RETAIL BUSINESS (a) Neither NEW ADB nor BID.COM shall be permitted to enter into any other online retail business where either NEW ADB or BID.COM are the vendor of any products without the prior written consent of THE BRICK. THE BRICK shall not operate another combined website with another retailer without the prior written consent of BID.COM. (b) THE BRICK shall be the only supplier of furniture, mattresses, bedding, appliances and consumer electronics for resale by BID.COM. ARTICLE VI REPRESENTATIONS, WARRANTIES AND INDEMNITIES 6.1 REPRESENTATIONS AND WARRANTIES. (a) Each Party hereby represents and warrants to the others that it is legally constituted and validly existing, in good standing, under the laws of the jurisdiction of its constitution, with adequate power to enter into this Agreement. (b) Each Party hereby represents and warrants to the others that all necessary action on the part of such Party has been taken to approve and authorize the execution and delivery of this Agreement, and that this Agreement constitutes a legal and valid agreement binding upon such Party, enforceable in accordance with its terms. (c) Each Party represents, warrants and covenants to each other Party that: (1) it is and will be free to enter into, and to fully perform its obligations under this Agreement and that no agreement or understanding with any other person exists or will exist which would interfere with its obligations hereunder; (2) all Intellectual Property used by it in the course of fulfilling its obligations hereunder will not infringe any Intellectual Property Rights or moral rights of any third party; (3) there is no outstanding litigation, arbitration or other dispute to which the Party is a party which if decided unfavourably to the Party could have a material adverse effect on the Party's ability to carry out its obligations hereunder; and 15 (4) it shall render all services to be provided by it under this Agreement honestly and in good faith and cause its obligations hereunder to be performed in a professional manner consistent with industry standards and practices by fully trained, qualified and competent personnel who have the appropriate skills and experience to perform the duties assigned to them with the highest possible degree of care, skill, diligence and responsiveness and in any case no less than a reasonable degree of care, skill, diligence and responsiveness. (5) NEW ADB represents and warrants that the Software will meet the functionalities specified in Appendix B to Schedule A. 6.2 INDEMNIFICATION Each Party will severally, and not jointly, indemnify, defend and save each other Party harmless from and against any and all claims, damages, liabilities, costs and expenses including legal fees in respect of, arising from, or relating to: (a) any breach by such Party of any representation, warranty, provision, covenant or agreement made by such Party herein; (b) any claim or action brought against that other Party to the extent that such claim or action is based on a claim that the use of such indemnifying Party's Intellectual Property or other material, documents or information provided by such Party infringes the Intellectual Property Rights or moral rights of a third party; or (c) any death, personal injury or loss of or damage to property caused by such Party. 6.3 GENERAL LIMITATION ON LIABILITY. (a) UNDER NO CIRCUMSTANCES WILL ANY PARTY BE LIABLE TO ANOTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES) ARISING FROM BREACH OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS. (b) NO PARTY WILL BE LIABLE TO THE ANOTHER PARTY FOR MORE THAN $200,000 IN DAMAGES PURSUANT TO THIS AGREEMENT. (c) NOTWITHSTANDING SECTION 6.3(a) AND (b) OF THIS AGREEMENT, THERE WILL BE NO LIMITATION OF LIABILITY FOR ANY PARTY WITH RESPECT TO ANY DAMAGES ARISING AT ANY TIME IF THE DAMAGES ARISE FROM THE INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS BELONGING TO A THIRD PARTY. 16 6.4 LIMITATION ON REPRESENTATIONS AND WARRANTIES. Except for those representations and warranties otherwise provided in any Transaction Document, no Party makes any representations or warranties, and there are no conditions, express or implied, in fact or in law, including without limitation, the implied warranties or conditions of merchantable quality and fitness for a particular purpose and those arising by statute or otherwise in law or from a course of dealing or usage of trade. ARTICLE VII DEFAULT AND TERMINATION 7.1 TERM. This Agreement shall commence on the Effective Date and shall continue, subject to early termination in accordance with the terms hereof, until the 10th anniversary of the date of execution of this document (the "INITIAL TERM"). Thereafter, the Agreement shall be extended or renewed (any such extension or renewal being a "SUBSEQUENT TERM") only upon mutual agreement of the Parties. 7.2 TERMINATION. (a) Each of the following shall constitute an "EVENT OF DEFAULT" for the purposes of this Agreement: (i) if a Party fails to perform any material obligation set forth in this Agreement and such default continues for a period of thirty (30) days after written notice of such failure has been given by a non-defaulting Party to all other Parties; or (ii) if a Party declares bankruptcy or becomes insolvent or if it is put into receivership or a trustee is appointed for the benefit of its creditors or it ceases the operation of its business without a successor acceptable to the remaining Parties. (b) Whenever an Event of Default has occurred, the non-defaulting Party may, at its election, terminate this Agreement in writing, in which event the non-defaulting Party shall be entitled to pursue all legal remedies available to it, subject to the terms and conditions hereof. (c) In an Event of Default by the Retailer or the Supplier, the non-defaulting Retailer or Supplier shall have the right by written notice to assume all rights and obligations of the defaulting Retailer or Supplier and cure such default, or, if such default is bankruptcy or insolvency, declare a willingness to continue to meet the obligations of the bankrupt or insolvent Retailer or Supplier, in which case the 17 Agreement shall become one between NEW ADB and the solvent Retailer or Supplier. 7.3 SURVIVAL. The terms of Sections 5.2, 5.3, 5.6, 7.3 and Articles 6 and 8 shall survive any termination or expiry of this Agreement and shall continue in force thereafter for the period contemplated by the Agreement. Other provisions of this Agreement which, by the nature of the rights or obligations set out therein, might reasonably be expected to be intended to so survive, shall survive termination or expiry of this Agreement until they are satisfied or by their nature expire. ARTICLE VIII DISPUTE RESOLUTION 8.1 DISPUTE RESOLUTION PROCESS. If any dispute, disagreement, controversy or claim (a "DISPUTE") arises out of or relating to this Agreement including, without limitation, its application, interpretation, performance, breach, termination, enforcement or damages, or remedies arising out of the breach of or non-compliance therewith, the Dispute shall be referred immediately to the senior finance executive for each Party. For the purposes of this Article 9, "senior finance executive" means, in the case of THE BRICK, the Chief Financial Officer of THE BRICK, and in the case of NEW ADB, the President of New ADB and in the case of BID.COM, a Senior Officer of BID.COM. If the Dispute remains unresolved after 10 days of having been referred to such senior executives, then the Parties shall proceed as set out below. All Disputes and claims arising out of this Agreement shall be finally determined by arbitration to be commenced and conducted in the English language in Toronto, Ontario, Canada in accordance with the rules of the Arbitration Act, 1991 (Ontario) as amended hereby. The Parties agree that: (a) the parties shall agree on a single arbitrator (who shall be trained as a professional arbitrator with expertise in commercial and corporate law) within ten (10) days of notice of reference to arbitration, failing which either party may apply to a court of competent jurisdiction in the Province of Ontario to appoint an arbitrator with the foregoing qualifications; (b) the arbitration shall be held in private and no person except the Parties and their respective representatives and witnesses shall be present unless authorized by the arbitrator; (c) subject to the provisions of this Section 9.1, the Parties will agree, in consultation with the arbitrator, on the rules of the arbitration. Absent such agreement, the arbitrator will be entitled to establish the procedures to be followed, provided that 18 in doing so, the arbitrator shall be guided by the Parties' mutual intention that such procedures should be designed to expedite the proceedings and minimize to the extent practicable the expenses for the Parties; (d) the arbitration award shall be final and binding on the Parties and shall not be subject to any appeal (those provisions of the Arbitration Act, 1991 (Ontario) necessary to achieve such result are hereby expressly excluded); (e) the costs of the arbitration shall be in the discretion of the arbitrator; (f) judgment upon any award may be entered in any court having jurisdiction or application may be made to the court for a judicial recognition of the award or an order of enforcement, as the case may be; (g) the arbitrator shall be instructed that time is of the essence in the arbitration proceeding and, in any event, the arbitration award must be made within 15 days of the submission of the Dispute to arbitration; (h) all Disputes referred to arbitration (including the scope of the agreement to arbitrate, any statute of limitations, set-off claims, conflict of laws rules, tort claims and interest claims) shall be governed by the substantive law of Ontario; and (i) the Parties agree that the arbitration shall be kept confidential and that the existence of the proceeding and any element of it (including any pleadings, briefs or other documents submitted or exchanged, any testimony or other oral submissions and any awards) shall not be disclosed beyond the arbitrator, the Parties, their counsel and any person necessary to the conduct of the proceeding, except as may lawfully be required in judicial proceedings relating to the arbitration or otherwise. ARTICLE IX GENERAL 9.1 NOTICE. Any notice or other communication (a "NOTICE") required or permitted to be given or made hereunder shall be in writing and shall be well and sufficiently given or made if: (a) delivered by overnight courier service; or (b) sent by facsimile transmission and confirmed by prepaid first class mail or overnight courier service. 19 in the case of a Notice to THE BRICK addressed to THE BRICK at: The Brick Warehouse Corporation 16930 - 114 Avenue Edmonton, Alberta T5M 3S2 Attention: Mr. Ron Tweddle, Chief Financial Officer Fax No.: 780-454-0969 with a copy to: McCarthy Tetrault LLP Box 48, Suite 4700 Toronto Dominion Bank Tower Toronto, ON M5K 1E6 Attention: Jonathan Grant Fax No.: 416-868-0673 and in the case of a Notice to BID.COM addressed to it at: ADB Systems International Inc. 201 - 6725 Airport Road Mississauga, Ontario L4V 1V2 Attention: Mr. John Mackie General Counsel Fax No.: (905) 672-7514 with a copy to: Gowling Lafleur Henderson LLP Suite 5800 Scotia Plaza Toronto, Ontario M5H 3Z7 Attention: Mr. David Pamenter Fax No.: (416) 863-3611 and in the case of a Notice to NEW ADB, addressed to it at: ABD Systems International Ltd. 20 201 - 6725 Airport Road Mississauga, Ontario L4V 1V2 Attention: Mr. John Mackie General Counsel Fax No.: (905) 672-7514 with a copy to: Gowling Lafleur Henderson LLP Suite 5800 Scotia Plaza Toronto, Ontario M5H 3Z7 Attention: Mr. David Pamenter Fax No.: (416) 863-3611 Any Notice given or made in accordance with this Section 8.1 shall be deemed to have been given or made and to have been received on the Business Day after it was delivered, if delivered as aforesaid. Either Party may from time to time change its address for notice by giving Notice to other Party in accordance with the provisions of this Section 9.1. 9.2 MERGER, AMALGAMATION AND DISSOLUTION Except as contemplated by the Restructuring, BID.COM shall not amalgamate, merge, consolidate or otherwise enter into any form of business combination with any other Person. BID.COM shall not liquidate, dissolve, or windup or take any steps or proceedings in connection therewith. 9.3 ASSIGNMENT. No Party may assign its rights and obligations under this Agreement, in whole or in part, without the prior consent in writing of the other Parties. Any purported assignment by a Party made without required consent is void and of no effect. No assignment of this Agreement by THE BRICK or NEW ADB shall relieve such Party from any obligation under this Agreement. Notwithstanding the foregoing, THE BRICK may, without the prior consent of BID.COM or NEW ADB at any time, assign its rights and obligations under this Agreement to an Affiliate of THE BRICK or to a bona fide purchaser of all or substantially all of THE BRICK'S business. NEW ADB may, without the prior consent of any other Party at any time, assign its rights and obligations under this Agreement to a bona fide purchaser of all or substantially all of NEW ADB's business. 21 9.4 BINDING ON SUCCESSORS. This Agreement shall enure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns. 9.5 FURTHER ASSURANCES. Each Party agrees that upon the written request of any Party, it will do all such acts and execute all such further documents, assignments, and the like, and will cause the doing of all such acts and will cause the execution of all such further documents as are within its power to cause the doing or execution of, as any other Party hereto may from time to time reasonably request be done and/or executed as may be reasonably necessary or desirable to give effect to this Agreement or as may be requisite to enable them to have the full benefit of all rights and remedies intended to be reserved or created hereby or as may be required under local laws. 9.6 INDEPENDENT CONTRACTORS. It is understood and agreed that in giving effect to this Agreement, no Party shall be or be deemed a partner, agent or employee of any other Party for any purpose and that their relationship to each other shall be that of independent contractors. Nothing in this Agreement shall constitute a partnership or a joint venture between the Parties. No Party shall have the right to enter into contracts or pledge the credit of or incur expenses of liabilities on behalf of any other Party. 9.7 WAIVER. A waiver by a Party hereto of any of its rights hereunder or of the performance by any other Party of any of its obligations hereunder shall be without prejudice to all of the other rights hereunder of the Party so waiving and shall not constitute a waiver of any such other rights or, in any other instance, of the rights so waived, or a waiver of the performance by such other Party of any of its other obligations hereunder or of the performance, in any other instance, of the obligations so waived. No waiver shall be effective or binding upon a Party unless the same shall be expressed in writing and executed by the Party to be bound. Notwithstanding any forbearance or indulgence by any Party, until complete performance of a term or condition, the waiving Party shall be entitled to invoke any remedy available to it under this Agreement or at law. 9.8 COMPLIANCE WITH LAW. Each Party shall, in the performance of this Agreement, fully comply with, and abide by, all laws, regulations, regulatory rulings or directives, court orders, and decisions of administrative tribunals of competent jurisdiction, that may, in any manner or extent, concern, govern, or affect any Party's respective performance of, and obligations under, this Agreement. 22 9.9 EFFECTIVE DATE. This Agreement shall not become a valid and binding contract unless and until each Party has duly executed and delivered this Agreement. 9.10 AMENDMENT. No amendment of any provision of this Agreement shall be effective unless such amendment is embodied in a written agreement which is: (i) expressly stated to be intended to amend this Agreement; and (ii) executed by an authorized signing officer of each of the Parties. For greater certainty, the parties acknowledge and agree that no representations, warranties, conditions, covenants or other statements or commitments, in each case except for those made pursuant to a Transaction Document, whether made orally, in writing, by course of conduct or otherwise, and whether made prior to the Effective Date of this Agreement or thereafter, shall be binding on either of the parties. 9.11 GOVERNING LAW. This Agreement shall be governed and construed according to the laws of the Province of Ontario and the laws of Canada applicable therein, and shall be treated, in all respects, as an Ontario contract. Each of the Parties hereby attorns to the jurisdiction of the Courts of the Province of Ontario. 9.12 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Counterparts may be executed either in original or faxed form and the Parties may adopt any signatures received by a receiving fax machine as original signatures of the Parties. 9.13 SEVERABILITY. If any Article, Section or any portion of any Section of this Agreement is determined to be unenforceable or invalid for any reason whatsoever, that unenforceability or invalidity shall not affect the enforceability or validity of the remaining portions of this Agreement and such unenforceable or invalid Article, Section or portion thereof shall be severed from the remainder of this Agreement. 23 IN WITNESS WHEREOF this Agreement is executed by the Parties as of the date first written above. ADB SYSTEMS INTERNATIONAL INC. By: ______________________________ (Duly Authorized Officer) THE BRICK WAREHOUSE CORPORATION By: ______________________________ (Duly Authorized Officer) ADB SYSTEMS INTERNATIONAL LTD. By: ______________________________ (Duly Authorized Officer) 24 EX-8.1 11 t09678exv8w1.txt LIST OF SUBSIDIARIES LIST OF SUBSIDIARIES Unless otherwise indicated, ADB Systems International Ltd. ("ADB"), or one of its subsidiaries, owns 100% of the outstanding capital stock of the following companies: Name of Subsidiary Country of Incorporation ADB Systemer AS (1) Norway ADB Systems International Limited Ireland ADB Systems Limited England Bid.Com (U.K.) Limited England ADB Systems, Inc. USA (Delaware) Bid.Com USA, Inc. USA (Florida) Bid.Com International Inc. Canada (Ontario) Bid.Com International Pty. Ltd. (2) Australia Internet Liquidators USA, Inc. (2) USA (Florida) (1) As of December 31, 2002, ADB owned 98.3% of the outstanding voting shares of ADB Systemer AS. Under Norwegian corporate law, ADB may trigger compulsory acquisition of the remaining shares at any time. The remaining shareholders each have the same right. The value for the shares acquired shall be as agreed, failing which the value shall be determined by arbitration. (2) Dormant. ADB anticipates dissolving these companies in 2003. EX-10.1 12 t09678exv10w1.txt CERTIFICATION EXHIBIT 10.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned, being the Chief Executive Officer and Director Finance, respectively, of ADB Systems International Ltd. (the "Company") do each hereby certify that: (1) The Annual Report on Form 20-F of the Company for the fiscal year ended December 31, 2002 (the "Report") which this certification accompanies, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended. (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as at, and for the fiscal year ended on, December 31, 2002. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. Dated: May 12, 2003 C/s Jeffrey Lymburner ----------------------------------- Jeffrey Lymburner Chief Executive Officer Dated: May 12, 2003 C/s Michael Robb ----------------------------------- Michael Robb Director of Finance - 96 - -----END PRIVACY-ENHANCED MESSAGE-----