-----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, VAHnRAQkQLVCRUjX//CX8bGeY1tHKENP7a+C2stsUeIbhyPJEXk9GL9hJJHsXeyN CcxX2WYRSNpCNb6wG+NphQ== 0000950130-99-000781.txt : 19990217 0000950130-99-000781.hdr.sgml : 19990217 ACCESSION NUMBER: 0000950130-99-000781 CONFORMED SUBMISSION TYPE: 20FR12B PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BID COM INTERNATIONAL INC CENTRAL INDEX KEY: 0001079171 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 20FR12B SEC ACT: SEC FILE NUMBER: 001-14835 FILM NUMBER: 99539246 BUSINESS ADDRESS: STREET 1: 6725 AIRPORT RD STE 201 STREET 2: MISSISSAUGA ONTARIO CITY: CANADA L4V 1V2 BUSINESS PHONE: 9056727469 MAIL ADDRESS: STREET 1: 6725 AIRPORT RD STE 201 STREET 2: MISSISSAUGA ONTARIO CITY: CANADA L4V 1V2 20FR12B 1 FORM 20-F SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 20-F [X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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. _____ BID.COM INTERNATIONAL INC. (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. Common Shares Securities registered or to be registered pursuant to Section 12(g) of the Act. None 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. 45,017,956 Common Shares as of February 8, 1999 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) has been subject to such filing requirements for the past 90 days. Yes ________ No X ------ Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 X Item 18 ______ --------- TABLE OF CONTENTS EXCHANGE RATES....................................................................................... 1 FORWARD LOOKING STATEMENTS........................................................................... 1 PART I............................................................................................... 3 ITEM 1 - DESCRIPTION OF BUSINESS.................................................................. 3 RISK FACTORS............................................................................. 18 ITEM 2 - DESCRIPTION OF PROPERTY.................................................................. 29 ITEM 3 - LEGAL PROCEEDINGS........................................................................ 29 ITEM 4 - CONTROL OF REGISTRANT.................................................................... 29 ITEM 5 - NATURE OF TRADING MARKET................................................................. 30 ITEM 6 - EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS....................... 31 ITEM 7 - TAXATION................................................................................. 31 ITEM 8 - SELECTED FINANCIAL DATA.................................................................. 33 ITEM 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................................... 35 ITEM 9A - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK............................... ITEM 10 - DIRECTORS AND OFFICERS OF REGISTRANT.................................................... 43 ITEM 11 - COMPENSATION OF DIRECTORS AND OFFICERS.................................................. 45 ITEM 12 - OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES.......................... 47 ITEM 13 - INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.......................................... 48 PART II.............................................................................................. 50 ITEM 14 - DESCRIPTION OF SECURITIES TO BE REGISTERED.............................................. 50 PART III............................................................................................. 51 ITEM 15 - DEFAULTS UPON SENIOR SECURITIES......................................................... 51 ITEM 16 - CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES AND USE OF PROCEEDS.................................................................. 51 PART IV.............................................................................................. 51 ITEM 17 - FINANCIAL STATEMENTS.................................................................... 51 ITEM 18 - FINANCIAL STATEMENTS.................................................................... 51 ITEM 19 - FINANCIAL STATEMENTS AND EXHIBITS....................................................... 51 AUDITORS' REPORT..................................................................................... F-
i EXCHANGE RATES The following table sets forth, for the period 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 February 8, 1999, the exchange rate was $1.00 (Canadian) = US $1.4875. Certain financial information presented in this Registration Statement has been translated from Canadian dollars to U.S. dollars at an exchange rate of Cdn$1.5262 to US$1.00, the noon buying rate in New York City on September 30, 1998 for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York.
Year Ended December 31, ---------------------------------------------------- Rate 1994 1995 1996 1997 1998 - ---- ---- ---- ---- ---- ---- Last Day of year $.7128 $.7323 $.7301 $.6999 $.6504 Average(1) during year .7319 .7286 .7332 .7221 .6740 High during year .7632 .7527 .7513 .7487 .7105 Low during year .7103 .7023 .7235 .6945 .6341
(1) The average rate is the average of the exchange rates on the last day of each month during the year. FORWARD LOOKING STATEMENTS This Registration Statement includes forward-looking statements, regarding among other items: . acceptance of BID.COM auction services in the marketplace . the Company's marketing and sales plans . the Company's expectations about the markets for its online auction services . the Company's future capital needs . the acceptance of the Internet and/or online auctions as a viable commercial medium . the success of the Company's patent application and protection of its proprietary technology . Year 2000 compliance efforts and anticipated Year 2000 problems relating to suppliers and service providers The Company has based these forward-looking statements largely on its expectations. Forward-looking statements are subject to risks and uncertainties, certain of which are beyond the Company's control. Actual results could differ materially from those anticipated as a result of the factors described in the "Risks Factors" section beginning on page ___, including, among others: . uncertainty about the acceptance of the Internet and/or online auctions as a viable commercial medium . uncertainty of market acceptance of the Company's auction services . the timing of future capital needs and inability to raise additional capital when needed . the Company's ability to compete with other online retailing and auction businesses . failure to timely develop or license new technologies delays in the issuance of, or the failure to obtain, patents for certain proprietary technologies . problems with important vendors and business partners on whom the Company relies . inability of the Company, directly and/or through its marketing and advertising alliances, to attract a sufficient number of customers to the Company's Web site . risk of system failure or interruption . implementation and enforcement of government regulations . the failure of the Company's suppliers and strategic partners to resolve any Year 2000 issues . problems which may arise in connection with the acquisition or integration of new businesses, products, services, technologies or other strategic relationships The Company does not undertake any obligation to publicly update or revise any forward-looking statements contained in this Registration Statement, whether as a result of new information, future events or otherwise. Because of these risks and uncertainties, the forward-looking events and circumstances discussed in this Registration Statement might not transpire. 2 PART I ITEM 1 - DESCRIPTION OF BUSINESS Unless otherwise indicated, all references in this Registration Statement to "dollars" or "$" are references to U.S. dollars. Certain financial information presented in this Registration Statement has been translated from Canadian dollars to U.S. dollars at an exchange rate of Cdn$1.5262 to US$1.00, the noon buying rate in New York City on September 30, 1998 for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York. Such translations should not be construed as representations that the Canadian dollars represent, or have been or could be converted into, U.S. dollars at that or any other rate. Unless otherwise indicated, all references to the "Company" or "BID.COM" in this Registration Statement are deemed references to the Company and its subsidiaries and predecessor. OVERVIEW BID.COM International Inc. ("BID.COM" or the "Company") is a sales and marketing company striving to become the pre-eminent online auction house and a leading electronic retailer ("E-tailer"). The Company conducts business-to- consumer auctions at its Web site, www.BID.COM, and at other uniform resource locators ("URLs"). The Company's Web site has been operating online since April 1996, and has progressed from the developmental stage to revenue generation. The Company launched its BID.COM brand name auctions in March, 1998 and as of February 1, 1999, the Company had approximately 95,000 registered bidders. In December 1998, the Company completed the development of a business-to-business auction service. The Company plans to operate business-to-business auctions in selected vertical industry sectors and to conduct liquidation auctions for bankruptcy trustees and other liquidators. The Company also seeks to license its proprietary online auction technology to support private brand online auctions and interactive auctions in a variety of other electronic media. The Company's business is an entertaining and cost-effective method of selling a wide array of goods and services to retail shoppers and businesses via the Internet. BID.COM offers traditional rising price auctions and declining price, or "Dutch," auctions. The Company's auctions combine the brand name selection of a department store and the value of a discount superstore with the excitement of an auction environment and the convenience and security of in-home online shopping. The Company's auctions run on a proprietary state-of-the-art E- commerce platform with an engaging format, scaleable transactional backbone and efficient delivery system. The BID.COM business-to-consumer auctions sell a broad range of products at prices that usually are lower than those charged by traditional retailers for the same or similar items. The Company sells primarily brand name, front-line products under manufacturers warranty, including computer hardware and software, consumer electronics, toys, games, sporting goods, jewelry, memorabilia, collectible sports and entertainment cards and travel and entertainment products and services. The Company believes that manufacturers view the online auction as a new distribution channel that complements existing retail, catalog, telemarketing and other distribution channels. The Company offers products from many brand name manufacturers, including: AST, Canon, Compaq, Creative Labs, Dell, Epson, General Electric, Hewlett Packard, IBM, JVC, Koss, Magnavox, Motorola, Nikon, Nintendo, Panasonic, Pentax, Samsung, Seagate, Sega, Seiko, Sharp, Sony, Toshiba, U.S. Robotics, Western Digital and Zenith. The Company is able to offer a broad range of products at low prices because electronic retailing, or "E-tailing," significantly reduces or eliminates many of the costs typically associated with retail store sales, including costs of sales staff and store management, store rent and maintenance, fixtures and merchandising. Similarly, manufacturers are able to eliminate many of the distribution costs typically incurred in selling through retail stores and, therefore, are able to sell goods to E-tailers at lower prices. In addition, retailing online enables the Company to purchase goods from suppliers only after customers have ordered and paid for them, thereby allowing the Company to eliminate significant inventory cost and risk. These cost savings help ensure that the Company's overhead costs of operation remain relatively fixed and allow the Company to pass on savings directly to customers. 3 INDUSTRY BACKGROUND THE INTERNET. The Internet is an increasingly significant global medium for communications, information and commerce. In May 1998, International Data Corporation ("IDC") estimated that the number of Web users worldwide will grow from approximately 69.0 million in 1997 to approximately 320.0 million by the end of 2002. The Company believes that Internet growth will result from a number of factors, including the large and growing use of personal computers ("PCs") in the workplace and home, increasing reliance on the Internet by the business-to- business sector, advances in the performance and speed of PCs and modems, improvements in network infrastructure, easier and cheaper access to the Internet and increased awareness of the Internet among businesses and consumers. Jupiter Communications LLC ("Jupiter") estimates that the number of online households (households using e-mail, the Internet or a consumer online service) in the United States will grow from an estimated 15.2 million households in 1996 to 57.0 million households, representing over 50% of U.S. households, by the year 2002. It is anticipated that online users will continue to grow as communications, cable and computer related companies begin to offer access to the Internet through home television sets via Web TV or cable. Several large communications companies have announced plans to acquire or invest in cable television providers with the goal of selling high speed online access and Internet phone service over existing broadband cable lines. Cable modems have the advantage of delivering data faster than telephone modems. In addition, a cable modem is always connected, thereby eliminating the need for a user to dial up access to the Internet. Forrester Research Inc. ("Forrester") estimates that the number of homes in North America accessing the Internet with cable modems will grow from about 700,000 by the end of 1999 to approximately 13.6 million by the end of 2002. The Company believes that a significant opportunity exists for online business-to-consumer and business-to-business trade. In May 1998, IDC estimated that the total value of goods and services purchased worldwide on the Internet grew from approximately $296.0 million in 1995 to approximately $32.0 billion in 1998 and that worldwide sales of goods and services on the Internet will grow to approximately $426.0 billion by 2002. Industry analysts predict that the business-to-business sector will account for much of the growth of E-commerce over the Internet. Forester projects that in the United States, intercompany trade of hard goods over the Internet will hit $31.3 billion in 1998 and will reach $983.0 billion by 2003 (in each case excluding trade in utilities and petrochemicals). The Internet has evolved into a unique marketing channel. By directly operating their own Web sites, Internet retailers can interact with customers in real-time by frequently adjusting their product mix, pricing and visual presentation. In addition, the global reach of the Internet allows E-tailers to build large, geographically-dispersed customer bases more quickly than traditional retailers and catalog marketers. Unlike traditional marketing channels, Internet retailers do not have the burdensome costs of a significant retail store infrastructure, the continuous printing and mailing costs of a catalog marketer or the store personnel or call center costs incurred by traditional retailers and catalog marketers. The Internet offers many data management and multimedia features which enable consumers to search for products by category or brand. In addition, the Internet allows consumers to access a wealth of information, including reviews and competitive pricing and audio and video presentations which enhance static catalog formats. Internet retailers can more easily obtain demographic and behavioral data about their customers, providing them with greater direct marketing opportunities and the ability to offer a more personalized shopping experience. Internet retailers also offer consumers the convenience of home shopping and 24-hour-a-day, seven-days-a-week operations, available to any location, foreign or domestic, that has access to the Internet. Many traditional retailers are compelled, because of store size and other factors, to limit the amount of inventory they carry at each store and focus on a smaller selection of faster-selling products. Online retailers are able to offer consumers a broader range of products because they have fewer space constraints and because they are often able to purchase products from suppliers only after products have been sold to the consumer. Online retailers can also both test market new products and re-merchandise existing products for sale, with greater speed and for relatively nominal cost. INTERNET AUCTIONS. The Company believes that a number of characteristics of online auctions make the sale of consumer goods via the Internet particularly attractive relative to traditional retail stores or to static priced online stores 4 and catalogs. The primary advantage is that customers are empowered to set their own price for a purchase. Online auctions represent a dynamically changing sales format that leverages the unique characteristics of the Internet, such as interactivity and the sense of community built by customers competitively bidding in an exciting auction environment. Online auctions also provide immediate feedback to E-tailers regarding price-points that are attractive to consumers. This constitutes an efficient market model that enables supply and demand functions to move to equilibrium in real-time, and provides online auctioneers the opportunity to respond to market conditions quickly. Jupiter predicts that online business-to-consumer auctions will result in sales of $3.2 billion worth of merchandise each year by 2002 and that online auction purchasers in the United States will grow from 1.2 million in 1998 to 6.5 million in 2002. Due to the rapidly growing business-to-business sector, the Company believes that online auctions servicing the business-to-business sector will grow contemporaneously. BUSINESS STRATEGY The Company's business strategy is comprised of the following key components: DIVERSIFYING REVENUE SOURCES. The Company seeks to leverage its proprietary auction technology to generate revenue opportunities in several distinct online auction categories and selected other interactive auction media. The Company believes that by diversifying its revenue sources, it will be able to expand its customer base and reduce reliance on any one source of customer or auction category. . Online Business-to-Consumer Auctions. The Company conducts business-to- consumer auctions at its www.BID.COM Web site and at other URLs. BID.COM offers rising price and declining price "Dutch" auctions. The Company's Web site has been online since April 1996 and the Company has offered a wide variety of business-to-consumer online auctions since May, 1997. The Company launched its BID.COM brand name auctions in March 1998. As of February 1, 1999, the Company had approximately 95,000 registered bidders. . Online Business-to-Business Auctions. In December 1998, the Company completed the development of a business-to-business auction service. The Company plans to operate business-to-business auctions in selected vertical industry sectors and plans to conduct liquidation auctions for bankruptcy trustees, banks and other liquidators. The Company has been designated a preferred vendor by The ASCII Group (Canada), a 340-member network of independent computer value-added resellers ("VAR") and plans to conduct online auctions of products directed to members of the VAR market. The Company also plans to seek licensing or co- branding opportunities with distribution partners within a number of additional business-to-business vertical markets. . Licensing Online Platform for Private Brand Auctions. The Company seeks to license its online proprietary auction platform for private brand auctions in local and regional markets that will not compete directly with the national focus of the BID.COM auction site. The Company has licensed its auction platform to, and contracted its operational services to support, a private brand online auction for, Toronto Star Newspapers Limited ("Toronto Star") in Ontario. The Toronto Star is the largest circulation newspaper in Canada. The Company plans to enter into similar private brand auction arrangements with other local and regional newspapers, retailers, charities, community based organizations and national affinity groups. The Company believes that this licensing model will have particular appeal in European and Pacific Rim countries. See "--Licensing Proprietary Online Platform For Private Brand Auctions." . Licensing Technology and Co-branding BID.COM to Achieve Multi-Media Distribution. The Company also seeks to license its technology and co-venture with strategic partners to conduct interactive auctions in other electronic communications media. In December 1998, the Company and American Interactive Media, Inc. ("AIM") entered into a joint venture to develop auction opportunities for broadband, set-top box/Web TV and network television, and to develop technological improvements to enhance the consumer auction experience offered through the narrowband Internet medium. The Company has licensed its auction technology to AIM and will provide operational services for auctions to be conducted on AIM's online and cable networks. See "--Licensing Technology and Co-branding BID.COM to Achieve Multi-Media Distribution." . Sales of Advertising on BID.COM Web Site. The Company seeks to promote its Web site as an advertising medium for the products and services of other companies and organizations. In January 1999, the Company entered 5 into an agreement with 24/7 Media Inc. ("24/7"), a global online advertising and direct marketing company, under which 24/7 will sell advertising space on BID.COM's Web Site. Initially, the Company plans to offer banner advertisement placement on various sections of its Web sites. The Company believes that the shopping demographics of its registered bidder base creates a desirable target audience for companies and advertising agencies. EXPANDING THE COMPANY'S CUSTOMER BASE THROUGH DIVERSE MARKETING STRATEGY. The Company believes that the use of multiple marketing channels will increase the number of people visiting the Company's Web sites and auction sites, maximize brand awareness and reduce its reliance on any one source of customers. The Company implements its marketing strategy by: .Forming Strategic Alliances with Internet Service and Content Providers. The Company has initiated strategic alliances with large Internet service and content providers that it believes will maximize traffic to the Company's Web sites and enhance the awareness and credibility of the Company's BID.COM brand. The Company believes that these relationships will allow BID.COM to broadly expand its customer base as well as capitalize on new advertising opportunities by leveraging the strong brand names and subscriber bases of its alliance partners. These alliances also help attract a broad supply of products and services from high quality vendors for sale in the Company's auctions. The Company has entered into an Interactive Marketing Agreement with America Online, Inc. ("AOL" or "America Online") pursuant to which the Company operates BID.COM, The Online Auction(R), for AOL subscribers and has purchased or been granted advertising space on a number of AOL's current high traffic pages and a variety of AOL's new Web pages. AOL is the world's largest online service provider, with a subscriber base of more than 15.0 million people. See "--Marketing -Strategic Alliances With Major Content and Service Providers" and "Risk Factors- Continuance of Existing Strategic Alliances." The Company has also entered into a strategic alliance with Rogers Media Inc. ("Rogers Media"), a leading Canadian media company. Under this arrangement, BID.COM granted Rogers Media the exclusive right to co-brand the Canadian BID.COM auction and Rogers Media has agreed that the Canadian BID.COM auction will be the only online auction displayed on the home page of Rogers Media's new E-commerce portal. Rogers Media has also agreed to generate specified levels of site traffic and advertising revenues for the Canadian BID.COM Web site, and has committed to minimum levels of annual advertising. Rogers Media national media properties include some of Canada's most widely read publications, Canada's only television shopping network, a number of Canadian radio stations and several leading Internet properties in Canada. Rogers Media's parent company owns the largest cable network in Canada. In addition, Rogers Media publishes a number of trade magazines which the Company may use to support the development of its business-to-business online auctions. See "Marketing--Strategic Alliances with Major Content and Service Providers." .Referral and Database Marketing; Key Word Advertising. The Company has also adopted several cost effective marketing approaches to attract targeted traffic to its Web sites. The Company pursues referral-based marketing arrangements under which the Company pays referral sources in cash or kind for the generation of registered bidders at BID.COM. In addition, the Company has recently begun to access its own database of registered bidders to directly market both auction and non-auction products to purchasers with demonstrated purchasing histories. To reach audiences that have a propensity to buy goods and services online, the Company has entered into, and continues to seek, key word agreements with Internet service providers that promote BID.COM when a user searches key words, such as "auction." The Company has an arrangement with go2net, Inc. ("go2net") pursuant to which a banner advertisement and hyperlink for clicking through to the BID.COM auction site is prominently positioned on the page when a user of the MetaCrawler search engine searches certain key words, such as "auction" or "auctions." MetaCrawler is go2net's specialized search engine that aggregates the results of other systems such as Yahoo!, Inc. ("Yahoo!") and Excite, Inc. ("Excite"). See "--Marketing--Referral and Database Marketing and Key Word Advertising." .Cause Marketing. The Company attempts to stimulate additional E-commerce activity by operating online auctions for, and/or licensing its auction platform to, charities and special causes. BID.COM has hosted the Digital City All Charities Online Auction and Hootie and the Blowfish Monday After the Masters Charity Auction. The Company has also built the international Web site for RADD (Recording Artists Against Drunk Driving) and hosts the Canadian BACCHUS Web site. 6 OFFERING A BROAD RANGE OF FRONT LINE BRAND NAME PRODUCTS AT LOW PRICES AND UNDER MANUFACTURERS WARRANTY. The Company believes that Internet consumers are price sensitive and seek to purchase brand name goods at discounts from prices charged by retail stores and catalog companies. The Company offers a broad range of brand name consumer goods from nationally recognized manufacturers at low prices and under manufacturers warranty. Product offerings within categories are rotated daily to enhance consumer interest. By operating online and purchasing products from suppliers only after they have been ordered and paid for by the customer, the Company is able to substantially reduce overhead costs typically associated with retail stores and catalogs and is able to pass on the savings directly to its customers. Historically, the Company has offered lower margin categories of products, such as computers, computer accessories and computer upgrades. While the Company plans to continue offering these product categories, it has begun to shift its product mix and increase the number and variety of goods in higher margin product categories, such as consumer electronics, toys, games, sporting goods, memorabilia, jewelry, collectible sports and entertainment cards and travel and entertainment products and services. SEEKING EXCLUSIVE DISTRIBUTION OF UNIQUE PRODUCTS. The Company seeks to obtain electronic media distribution rights for select groups of unique products that it can offer in its auctions as well as through database marketing and fixed price merchandising. In December 1998, the Company entered into an exclusive, worldwide Internet distribution agreement with Micra SoundCards Inc. ("Micra SoundCards"), the inventor and producer of a patented collectible "talking" trading card. The Company markets the cards, which play the actual sound of the sports or entertainment event that is featured on the card, along with a card player. The debut series of the talking cards distributed by the Company in Canada include Paul Henderson's "Goal of the Century" commemorating the winning goal in the 1972 Russia-Canada hockey series, and, in the United States, Michael Jordan's winning basket in the 1998 NBA championship. See "--Products." PROVIDING A PROPRIETARY STATE-OF-THE-ART AUCTION PLATFORM THAT IS ENTERTAINING, SECURE AND EASY TO OPERATE. The Company believes that to sustain consumer interest in online auctions, it must provide an entertaining, secure and easy-to-use E-commerce environment. The Company's proprietary auction platform incorporates state-of-the-art interactive technology, including enhanced, customized user interfaces designed to bring participants into the online equivalent of a live auction room. The Company's technology provides product descriptions with catalog quality pictures and graphical representations. The design allows the Company to change and upgrade the auction site with ease, and quickly respond to requests by marketing partners and advertising sponsors to change the look of products offered. On-screen real-time data provides customer information about the current bid status of all bidders in order to facilitate an interactive auction process. The Company has patent applications pending in the United States and Canada seeking patent protection for the process of conducting its Dutch auctions over electronic distribution channels. BID.COM uses leading security and encryption systems to maintain the security of online purchases and customer data. See "--Auction Operations" and " Technology Platform." ACQUISITIONS AND STRATEGIC INVESTMENTS. The Company plans to continue to expand by seeking technologies, products, services and transaction formats that compliment its existing business. If appropriate opportunities are available, BID.COM may acquire businesses, technologies or products or enter into strategic relationships that may further diversify revenue sources and product offerings, expand the Company's customer base or enhance the Company's auction platform. AUCTION OPERATIONS The Company currently operates two national business-to consumer auction sites, one in the United States and one in Canada, and operates other private brand local or regional stand-alone auctions. Customers who access the online auction through the Company's Web site or the Web sites or search engines of the Company's strategic or advertising partners, are all channeled to one of the two national auction sites, depending on the geographic location of the customer. In this manner the Company is able to maximize the number of participants in each auction and minimize the number of auctions which are operated concurrently. As the Company expands to Europe and the Pacific Rim, it anticipates that it will increase the number of "national" or other broad geographic auctions which it operates concurrently. Customers participating in private brand auctions operated by the Company access only the stand-alone auction site of the Company's private brand customer. 7 The Company's proprietary auction platform can support a large number of concurrent and sequential participants, capturing the excitement of a live event in an online environment. Customers can interact at their convenience and have access to a variety of merchandise at constantly changing prices. The Company generates transactional revenues using the conventional rising price auction format and the declining bid, or "Dutch," auction format. Management believes that its capability within the Dutch auction sector is a key point of differentiation in the online marketplace that will grow in significance as more online shoppers become familiar with this E-tailing platform. Rising Price Auctions. In the conventional rising price auction format, the highest bids win the items auctioned. The rising price auction allows participants to competitively bid on available merchandise by incrementally adjusting their bid positions. The BID.COM 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. Participants can also use the Company's Bid Buddy(TM) tool, launched in October 1998, to place absentee bids up to a pre-determined limit. This "intelligent" bidding agent will check bid activity at regular intervals and increase a customer's bid by the minimum required increment to ensure that products are purchased at the best possible price. If outbid, the customer receives an e-mail alert and is permitted to increase his bid via the Company's Web site. The interactive nature of the bid update system encourages continued customer participation throughout the auction lifecycle. Customers can also use the Company's Search Buddy(TM), a search tool introduced in October 1998, which may be pre-programmed, up to a maximum seven days in duration, to find products offerings customized to a customer's specific areas of interest. If Search Buddy finds a match for a customer's search, the customer receives immediate notification by e-mail, with a direct link to the desired product. Customers may also use "BID.COM Recommends," an affinity engine introduced in November 1998, which recommends items targeted to a customer's product preferences, based on a customer's viewing and bidding history. The recommendations are provided in real time. The rising price auction initially was conducted over a seven day period, but, with the growth of the Company's customer base, auction cycles have been shortened to one day. The Company normally re-merchandises its United States and Canadian Web sites daily and stages 24 hour auctions every day of the week. Dutch Auctions. The Company also offers declining price, or "Dutch," auctions, an effective method of high volume merchandising. A starting price is set and a limited time period is allocated for a given quantity of product to be auctioned (three to five minutes for most BID.COM items). As time advances, the price drops in small increments. The longer one waits, the lower the price. However, if a shopper waits too long the inventory 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. The BID.COM declining price auction was initially introduced in April 1996 and was re-introduced over BID.COM's updated platform in July 1998. The Company has patent applications pending in the United States and Canada seeking patent protection for the process of conducting its Dutch auctions over electronic distribution channels. This unique format lends itself to a multitude of consumer products and services and special event auctions, particularly in the emerging vertical markets of travel, entertainment and memorabilia. BID.COM has secured the URL www.dutchauction.com. which the Company plans to use in the future in connection with certain online declining auction offerings. Introduction of Business-to-Business Platform. BID.COM completed the development of a business-to-business auction service in December 1998. The Company plans to introduce a series of online business-to-business auctions tailored to selected vertical business markets that may benefit from expanding the traditional physical auction audience to online participants. In December 1998, the Company was designated a preferred vendor by The ASCII Group (Canada), a network of 340 independent computer VARs, and plans to conduct online auctions of products suited to the VAR market for members of the ASCII Group. In addition, the Company plans to license or co-brand business auctions with distribution partners within a number of additional business-to-business vertical markets. This business niche creates potential for new revenue streams without the costs associated with business-to-consumer auctions, such as advertising, customer service, logistics and credit card processing. The Company will also seek to 8 introduce pure liquidation auctions on behalf of banks, bankruptcy trustees and other liquidators. The Company believes that over time, the business-to-business marketplace for online auctions (and consequently this segment of BID.COM's transactional volume) will become larger than business-to-consumer auction activity. User-Friendly Design. The Company's Web site has been designed with the goal of bringing participants into the online equivalent of a live auction. Customers view detailed product descriptions with catalog quality pictures and graphical representations. Winning bidders can complete the purchase transaction quickly, usually within minutes for repeat customers. In addition, the system design allows the Company to change and upgrade the auction site with ease and quickly respond to requests by marketing partners and advertising sponsors to change the look of the products offered. The front-end user interfaces can undergo continual enhancements without requiring changes to the transactional back-end of the system. The system provides full delivered cost disclosure prior to the consumer completing the purchase by adjusting the cost charged to purchasers for all added taxes and delivery charges to the customers' door, anywhere in North America. Bidder Registration. Customers may view BID.COM without cost or registration. However, they must provide certain registration information before participating in the online auction, including verifiable location and billing information and a commercial credit card. The Company uses the registration information for processing successful bids into customer orders. Using this information, the Company's data systems determine shipping and handling charges and applicable taxes, charge customer credit cards, print order information, transmit order information to the Company's contract warehouses and vendors and provide transaction information for the Company's accounting system. Customers are generally required to pay for purchased goods by commercial credit card, thereby significantly reducing the Company's credit risk. See "Risk Factors-- Internet Commerce Security." Limited Inventory. The Company normally obtains products for sale in its auctions from suppliers under consignment-type arrangements that allow the Company to purchase merchandise only after the Company's customer has purchased and paid for the product. As a result, the Company does not usually stock inventory and consequently has no liability for unsold merchandise. In certain circumstances, the Company may place purchase orders in advance for unique products. As part of its customer satisfaction policy, the Company may allow its customers to return merchandise upon payment of a re-stocking fee, in which case, the merchandise is returned to the supplier for credit or resold by the Company. Transactional revenues from the sale of products create gross margin for BID.COM either in the form of a negotiated commission based on the final selling price of goods, or the difference between the actual selling price and the reserve price negotiated by the Company with its suppliers. Shipping, handling and applicable taxes are added to the auction price and are paid by the customer. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." LICENSING PROPRIETARY ONLINE PLATFORM FOR PRIVATE BRANDED AUCTIONS. The Company seeks to license its online auction platform in local and regional markets that will not compete directly with the national focus of the BID.COM auction. The Company has licensed its auction platform and contracted its operational services to support a private brand online auction for Toronto Star Newspapers Limited and plans to enter into similar private brand auction arrangements with other local and regional newspapers, retailers, charities and community-based organizations. The Company believes that community-based content is a fundamental trend in Internet programming and views local and regional newspapers such as Toronto Star as ideal candidates for private brand auctions. Newspapers in many major urban centers face potential loss of conventional paper advertising revenue as advertisers allocate larger portions of their advertising budgets to electronic advertising. By creating a credible Internet presence, newspapers may be able to recapture advertising revenue that is being shifted from paper to electronic advertising. In addition, by offering online auction and cybermall services, newspapers may provide their advertising clients with an opportunity to establish a Web presence without the need to develop their own Web sites. Newspapers may also be able to generate commissions or other revenues from sales and other transactions conducted through their private Web sites. The Company believes there will be opportunities to license platforms to local partners in many major urban centers and national affinity groups in the United States as well as through local partners in the European and Pacific Rim markets. The Company's technology allows it to offer licensees a turnkey custom branded auction platform, as well as a wide range of E-commerce support services. 9 In February 1997, the Company entered into an E-Commerce Services Agreement (the "Torstar Agreement") with Toronto Star Newspapers Limited, Canada's largest circulation newspaper, to provide local auctions and cybermall services in the Province of Ontario. These services provide the capability to extend Toronto Star's City Search initiative to market online content in the Province of Ontario by adding a Toronto Star online auction branded site. In addition, pursuant to the Torstar Agreement, the Company granted to Toronto Star a non- exclusive license to use the Company's technology for non-auction related uses, such as games and contests. In return for such services, Toronto Star will share with the Company all net revenues received in connection with the sale of products and services using the Company's platform. The percentage of revenue payable to the Company is a function of a number of factors, including the location of the purchaser and whether the Company or Toronto Star has sourced the products and services sold. In addition, Toronto Star is entitled to receive a percentage of certain other sales made through the Company's platform in the Province of Ontario. The Torstar Agreement expires on January 31, 2000, but will continue, unless earlier terminated by the Company or Toronto Star, for consecutive one year periods, upon terms to be mutually agreed upon by the Company and Toronto Star. In connection with the Torstar Agreement, Toronto Star purchased an aggregate of 1.5 million common shares of the Company ("Common Shares") for an aggregate purchase price of Cdn$1.425 million. The Toronto Star is the largest circulation newspaper in Canada with a daily circulation of approximately one million readers. LICENSING TECHNOLOGY AND CO-BRANDING BID.COM TO ACHIEVE MULTI-MEDIA DISTRIBUTION. The Company seeks to use its auction technology to support interactive auctions in other electronic communications media. In December 1998, the Company and AIM entered into a joint venture to develop auction opportunities outside the Internet in broadband, set-top box/Web TV and network television, and to develop technological improvements to enhance the consumer experience offered through the narrowband Internet medium. The Company has licensed its technology to AIM, which AIM intends to use in creating celebrity-hosted live television auctions using the two-way interactive capabilities of set-top boxes. Initially, AIM intends to introduce live auctions on ComedyNet, its 24 hour Internet comedy network. Thereafter, AIM plans to launch a customized branded version of BID.COM's dutch auction on a shopping network available through set-top boxes, or Web TV. In addition, AIM plans to use the Company's technology to support various E-commerce initiatives on AIM's other in-house internet and cable networks and on AIM's customized affinity group internet portals. AIM is the creator of a wide range of programming and services incorporating video and audio information through an interactive environment designed specifically for the Internet, digital cable and other electronic media distribution platforms. AIM's first network, ComedyNet, has won various independent awards. The Company believes that a joint venture with AIM will broaden the exposure of the Dutch auction as a means to provide consumers with an entertaining shopping experience in a variety of electronic media platforms. Additional goals of the joint venture include increasing the appeal to others to license BID.COM technology and creating the potential for increased revenue. BID.COM and AIM will share in the gross margin created through their joint venture pursuant to a formula set forth in the license agreement. SALES OF ADVERTISING ON BID.COM WEB SITE The Company seeks to promote its Web site as an advertising medium for the products and services of other companies and organizations. In January 1999, the Company entered into an agreement with 24/7 under which 24/7 will sell advertising space on BID. COM's Web site. Initially, the Company plans to offer banner advertisement placement on various sections of the U.S. and Canadian BID.COM Web sites. The company believes that the shopping demographics of its registered bidder base creates a desirable target audience for companies and advertising agencies. MARKETING BID.COM's marketing strategy is designed to increase traffic to the Company's auction Web sites and promote awareness of its BID.COM brand. To implement its strategy, the Company: (i) has developed strategic marketing relationships with AOL and Rogers Media and plans to enter into similar arrangements with other major 10 Internet service and content providers; (ii) is building its own BID.COM brand and channeling potential bidders to its site through referral and database marketing and key word advertising; and (iii) hosts co-branded and private branded Cause Marketing events such as the 1998 Hootie & the Blowfish Monday After the Masters Charity Auction at BID.COM. STRATEGIC ALLIANCES WITH MAJOR CONTENT AND SERVICE PROVIDERS The Company has developed strategic alliances with AOL and Rogers Media and is seeking similar relationships with other large Internet service and content providers as well as other large, consumer-oriented companies. The Company believes that these relationships will allow BID.COM to broadly expand its customer base as well as capitalize on new advertising opportunities by leveraging the strong brand names and subscriber bases of its alliance partners. These alliances also increase traffic to the BID.COM sites due to advertising carriage arrangements which usually include a combination of hyperlink banner advertisements and the directing of key words such as "Auction" and "Online Auction" to the BID.COM site. Since the launch of the BID.COM brand name in March 1998, the Company's customer base has increased significantly. As of February 1, 1999, the Company had approximately 95,000 registered bidders, representing a 375.0% increase in registered bidders from January 1, 1998. Steadily increasing distribution of the BID.COM E-commerce offering to a larger audience of Internet users while establishing exclusivity in certain distribution channels is an important component of the Company's marketing strategy. The Company believes that the credibility of its current strategic partners will strengthen its ability to enter into future business alliances. America Online. In February 1997, the Company entered into an agreement with AOL to provide AOL subscribers with access to the Company's auction sites. AOL is the world's largest online service provider with a subscriber base of over 15.0 million people. BID.COM's Web site initially went live with an AOL branded interface, the "AOL Online Auction." Satisfied with its initial relationship with AOL, the Company entered into an Interactive Marketing Agreement (the "AOL Marketing Agreement") with AOL in November 1997 under which the Company agreed to purchase $1.25 million of advertising and promotion from AOL each quarter. The AOL Marketing Agreement provides BID.COM with anchor tenant positioning in a number of AOL's E-commerce offerings, plus various keywords such as "Online Auction." In March 1998, the brand the Company used within AOL was changed from Online Auction to BID.COM The Online Auction, and has been supported by substantial online advertising. Pursuant to the AOL Marketing Agreement, the Company provides product procurement, transactional processing and order fulfillment services to AOL in connection with BID.COM The Online Auction. The agreement currently provides that after the Company reaches certain revenue thresholds or receives a specified number of cumulative impressions on AOL Web sites, AOL will be entitled to receive 50% of the Company's excess gross profit earned from such revenues or impressions. The AOL Marketing Agreement will expire on November 1, 1999. AOL has purchased an aggregate of 1.0 million Common Shares for an aggregate purchase price of Cdn$1.0 million, which was paid by AOL extending to the Company advertising credits in the same amount. A representative of AOL currently serves as a member of the Company's Board of Directors. See "Directors and Officers of Registrant" and "Interest of Management in Certain Transactions." Rogers Media. In July 1998, the Company and Rogers Media, a subsidiary of Rogers Media Communications Inc., entered into an E-Commerce and Promotion Services Agreement (the "Rogers Media Agreement") pursuant to which BID.COM granted Rogers Media the exclusive right within Canada to co-brand the Canadian BID.COM auction, subject to the rights granted to the Toronto Star. See "-- Licensing Proprietary Online Platform for Private Branded Auctions." Rogers Media has agreed that the Canadian BID.COM auction will be the only online auction displayed on the home page of Rogers Media's new E-commerce portal. In addition, Rogers Media has agreed to generate specified levels of site traffic and advertising revenues, and has committed to in excess of Cdn$1.0 million in minimum annual advertising for the Canadian BID.COM auction on the media properties of Rogers Media, its affiliates and certain non-affiliated media. BID.COM and Rogers Media share equally in the revenue from all transaction and advertising sales generated through the co-branded site in Canada, net of all taxes, costs, transaction fees, duties, and credits for returns or unpaid items. 11 The Company believes that this exclusive national partnership with Rogers Media will enable the Company to leverage Rogers Media numerous media properties to establish the Canadian BID.COM auction as a leading online shopping destination in Canada. In addition, the Company anticipates that trade magazines published by Rogers Media may be used by the Company to support the development of its business-to-business online auctions. Rogers Media's national media properties include some of Canada's most widely read publications including Macleans, Chatelaine, Flare, Canadian Business, Profit and Marketing Magazine; numerous trade and professional magazines covering a broad range of industries; "680 News" and other leading English language radio stations in Canada; CFMT - a multi-lingual television station in Toronto; The Shopping Channel - Canada's only television shopping network, and several Canadian radio stations and some of the leading Canadian Internet properties such as Quicken.ca, Electric Library Canada, Chatelaine Connects and Macleans Online. Rogers Media's parent company, Rogers Media Communications Inc., owns Rogers Media Cablesystems, the largest cable network in Canada, is in partnership with Shaw and Cogeco in @Home Canada, a Canadian leader in offering broadband Internet service through cable networks, and owns Cantel, Canada's largest national digital wireless company. Rogers Media has purchased an aggregate of 1.5 million Common Shares of BID.COM for an aggregate purchase price of Cdn$1.875 million. Rogers Media also holds a warrant to purchase an additional 100,000 Common Shares at Cdn$1.40 per share. A representative of Rogers Media currently serves as a member of the Company's Board of Directors. See "Directors and Officers of Registrant," "Options to Purchase Securities From Registrant and Subsidiaries" and "Interest of Management in Certain Transactions." REFERRAL AND DATABASE MARKETING AND KEY WORD ADVERTISING After launching its BID.COM brand in March 1998, the Company initially relied, in part, on broad-based banner advertising arrangements with Internet service providers such as Yahoo! and Excite to promote brand awareness of BID.COM. The Company has recently implemented a more selective marketing approach that blends brand promotion with lower cost customer acquisitions and retention through referral marketing, database marketing and key word advertising. The Company believes that this approach will more effectively and efficiently target potential bidders who have a propensity to buy products online. Referral Marketing. The Company pursues referral based marketing arrangements which reward individuals and companies for referring bidders to the Company's Web site. By utilizing specialized referral software, the Company can track the source of new registrations for its auction sites and reimburse these sources based on the number of new registrations referred to BID.COM. Potential referral services include hyperlinks from other Web sites and the Company's existing registered bidders. Payments may be made in cash, return referral registrations from BID.COM's site traffic, or a combination of cash and in-kind arrangements. Database Marketing. While the Company does not disclose registered bidder data to third parties, the Company has recently begun to access its own database of registered bidders to directly market both auction and non-auction products to purchasers with demonstrated purchasing histories. The Company plans to offer registered bidders by e-mail special promotions of auction and unique non- auction products, such as the "talking" collectible sports and entertainment cards. Key Word Advertising. The Company's experience with AOL and other Internet service providers has demonstrated that key word advertising is another effective method of reaching an audience that has a propensity to buy goods and services online. The Company has entered into and continues to seek key word agreements with Internet service providers that promote BID.COM when a user searches key words, such as "auction." The Company has an arrangement with go2net pursuant to which a banner advertisement and hyperlink for clicking through to the BID.COM auction site is prominently positioned on the page when a user of the MetaCrawler search engine searches certain key words, such as "auction" or "auctions." The go2net agreement expires in January 2000. 12 CAUSE MARKETING The Company attempts to stimulate additional E-commerce activity by operating online auctions for, and/or licensing its auction platform to, charities and special causes. These special event auctions provide a positive contribution to communities and offer cross-promotional opportunities with celebrities and other popular figures, and often involve special products that typically are attractive to emerging demographic segments of the Internet user market. The Company believes many auction participants bookmark BID.COM once they participate in an auction, and, therefore, have a high probability of becoming repeat customers. The Company views these promotional events as marketing opportunities especially in the 18 to 30 year old consumer sector which is Internet user friendly and is likely to gain increasing purchasing power in the near future. In April 1998, BID.COM hosted the Hootie & the Blowfish Monday After The Masters Charity Auction. In June 1997, BID.COM hosted the Digital City All Charities Online Auction in partnership with Digital Cities Inc., a community- based Internet content subsidiary of AOL, as well as over 50 community groups and six media partners in the Dallas/Ft. Worth area. BID.COM also built the international Web site for RADD, an organization chaired by David Niven Jr., with approximately 300 tier one recording artist members including Paul McCartney, Elton John, Rod Stewart, KISS and Melissa Etheridge. BID.COM also hosts the Canadian BACCHUS Web site, which is part of an international charity promoting responsible use of alcoholic beverages, with over 100 Canadian and 750 U.S. affiliated organizations. FIXED PRICE SALES The Company's technology also allows for online fixed price retail shopping and provides online customers static-priced storefront merchandising. The Company offers Micra SoundCards collectible sports and entertainment cards and other products through this platform. The Company believes that this diversified technology platform provides it with a broader range of turnkey E-commerce licensing opportunities, as well as database marketing opportunities. PRODUCTS The Company's BID.COM auctions offer a broad range of nationally recognized brand name goods at low prices and under manufacturers warranty. Historically, a substantial amount of E-commerce activity has focused on competitive and low gross margin categories of products such as refurbished computers. The Company believes that with the growing use of the Internet by a larger segment of the population, Internet consumers will seek higher quality and a broader mix of products than in the past. The Company has offered and will continue to offer lower margin computers, computer accessories and computer upgrades at its auction sites. However, the Company has begun to shift its product mix and increase the number and variety of goods in other product categories, many of which generate higher margins, including consumer electronics, toys, games, sporting goods, memorabilia, jewelry and travel and entertainment products and services. From time to time, the Company intends to introduce other product categories on a selected basis. The Company will also seek to obtain electronic media distribution rights to select groups of unique products. The Company believes that the successful marketing of such products will accelerate the growth of its registered bidder base as well as stimulate both its database marketing and auction activities. In December 1998, the Company entered into an exclusive, worldwide Internet distribution agreement with Micra SoundCards, the inventor and producer of a patented collectible "talking" trading cards which play the actual sound of the sports or entertainment event featured on the card. The Company markets the sound cards along with a card player. The debut series of the talking cards distributed by the Company in Canada includes Paul Henderson's "Goal of the Century," commemorating the winning goal in the 1972 Russia-Canada hockey series, and in the United States, Michael Jordan's winning basket in the 1998 NBA championship. The agreement with Micra SoundCards expires December 31, 2001, and is automatically renewable thereafter for consecutive two year terms, subject to either party's notice not to renew. 13 Approximately 70% of the Company's products are front-line goods and typically 30% are clearance or other end-of-the-line items. The Company offers products from many brand name manufacturers, including AST, Canon, Compaq, Creative Labs, Dell, Epson, General Electric, Hewlett Packard, IBM, JVC, Koss, Magnavox, Motorola, Nikon, Nintendo, Panasonic, Pentax, Samsung, Seagate, Sega, Seiko, Sharp, Sony, Toshiba, U.S. Robotics, Western Digital and Zenith. The Company also offers travel packages, gold and precious gem jewelry and authentic sports collectibles, from multiples sources. Within its broad product categories, the Company rotates the products it offers to consumers on a daily basis. The products supplied to the Company for sale through the Company's Web sites are usually backed by a manufacturer's warranty. Front-line goods typically carry a full manufacturer's warranty, while clearance and other end of the line items are accompanied by limited warranties. The Company itself provides no warranties on the products or services sold through its Web sites. The Company believes that Internet consumers are price sensitive and seek to purchase brand name goods at significant discounts from prices charged by retail stores and catalog companies. The Company's products are generally priced lower than the prices typically charged by retail stores or catalog companies for the same or similar items. The Company is able to offer products at lower prices because many of the costs typically associated with retail stores and catalog companies, including the cost of sales staff and management, store rent and maintenance, fixtures and merchandising, can be significantly reduced or eliminated. Manufacturers are also able to offer more competitive prices to the Company because many of their distribution costs, such as co-op advertising, training and restocking of unsold merchandise, are substantially reduced or eliminated. In addition, by operating online and purchasing products from suppliers only after they have been ordered and paid for by the customer, the Company is able to substantially reduce overhead costs typically associated with retail stores and catalog companies. In order to lower the costs of goods sold in its auctions, the Company seeks to obtain volume discounts by purchasing large quantities of products from selected suppliers. Accordingly, during 1998, one computer products supplier provided over 30% of the Company's products and four unrelated suppliers of computer and other products accounted for up to 90% of the Company's supply base at various times. The Company believes that, while it will likely continue to be reliant on one supplier, or a small group of suppliers, for its computer products, the percentage of the Company's supply base attributable to these suppliers will decrease as the Company continues to change its product mix from computer related goods to higher margin products. For 1999, the Company anticipates that, at any given time, four unrelated suppliers may each be supplying up to 20-30% of the Company's product offerings. See "Risk Factors-- Reliance on Merchandise Vendors." The products sold at BID.COM auctions are typically shipped directly by the Company's suppliers to the winning bidders. From time to time, the Company may offer its own fulfillment capability to new suppliers that are not initially equipped to ship directly to customers. The Company currently uses Purolator Courier, Federal Express and United Parcel Service to distribute purchased goods and is in the process of adding other courier services. The Company does not maintain its own warehouse, but relies on third party contract warehouses. See "Risk Factors--Reliance on Merchandise Vendors." CUSTOMER SUPPORT AND SERVICE The Company believes that its ability to establish and maintain long-term relationships with its customers and encourage repeat visits and purchases is dependent, in part, on the strength of its customer service support and staff. The Company currently employs a staff of eight full-time customer support and service personnel who are responsible for handling customer inquiries from 9:00 a.m. to 5:00 p.m. (Eastern Standard Time) seven days a week. The customer service staff answer customer questions about the bidding process, track shipments, investigate problems with merchandise and act as liaisons between customers and the Company's vendors. The Company is actively working to enhance its customer service support operations through a variety of measures, including improved customer reporting systems and automation. The Company accepts returns from its customers but charges customers a re-stocking fee. 14 TECHNOLOGY PLATFORM The Company's proprietary, state-of-the-art interactive auction technology enables the Company to offer its customers an entertaining, easy to use and secure E-commerce environment. BID.COM's technology allows the Company to operate a large number of simultaneous rising and falling price auctions and fixed price merchandising, each with many customers, across multiple technical platforms. The Company has devoted significant resources to developing its proprietary software technology. The Company believes that its success depends, in part, on its internally developed proprietary E-commerce management software, which implements a variety of customized auction and fixed price sales formats. 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 licenses commercially available technology whenever possible, rather than seek a custom-made or internally-developed solution. The Company believes that this strategy lowers its operating costs and increases its ability to respond to changing demands resulting from growth and technological shifts. This approach also allows the Company to focus its development efforts on creating and enhancing the specialized proprietary software that is unique to the Company's business. BID.COM works with its strategic partners, including AOL and Rogers Media, to develop applications and content. The technology platform is based on Microsoft core applications, including the Windows NT operating system and an SQL server relational database, all residing on scaleable hardware. The Company uses Intel-based Hewlett Packard Netservers and DEC Alpha enterprise servers, which employ symmetrical multiprocessing as the basis of the Company's hardware systems. BID.COM was the first company to process a secure Canadian online Visa credit card transaction. BID.COM uses leading security and encryption systems to maintain the security of online purchases and customer data. Each customer who pre-registers or makes a purchase selects a unique user ID and a password. Repeat purchases are transacted using only the user's unique ID and password. Credit card transactions with the banking community are conducted over a separate ISDN line, through a server which maintains customer information behind a number of state-of-the-art firewalls "off line" from the Internet and which employ encryption technology such as SSL (Secure Socket Layer). Consumers not wishing to transmit registration information online may use one of the Company's toll-free telephone lines to register with BID.COM. See "Risk Factors--Internet Commerce Security." The Company has embraced leading edge high performance switching technologies, including Asynchronous Transfer Mode (ATM), to provide end users with what BID.COM believes is the fastest access possible to its Web site. BID.COM's access to telecommunications infrastructure is scaleable on demand and has been proven to provide reliable transactional support. In October 1998, the Company launched two technology tools, Bid Buddy and Search Buddy. In November 1998, the Company also implemented an affinity engine "BID.COM Recommends" using technology provided by Net Perceptions Inc. Based on collaborative filtering technology, this affinity engine software allows BID.COM to personalize its product offerings to customers' areas of interest. The first feature was implemented as "BID.COM Recommends." See "--Auction Operations." In November 1998, BID.COM won three Canadian Information Productivity Awards ("CIPA"), for its online auction technology, including an Award of Excellence, Best of Category Award for Small Business, and top honors with the Best of Show Award. BID.COM's development work received distinction within a group of award-winning IT solutions which included such organizations as GE Capital, IBM Canada, Scotiabank, Air Canada, Revenue Canada, ING Canada, Canadian Pacific Railways, National Bank of Canada, Rogers Media Cantel and Royal Bank of Canada. The Company's engineering, production and research and development staff currently consists of 10 software development engineers and three system consultants. 15 RESEARCH AND DEVELOPMENT The Company believes that its proprietary auction management software provides a competitive advantage over other online auction companies and that its future success depends, in part, on its ability to continue developing and enhancing that software. Therefore, the Company has focused its research and development efforts on the continued development of its proprietary auction management software. The Company's ongoing research and development efforts are aimed at enhancing the features and functionality of its existing software components, the development of new software components, and the integration of superior third party technology into its environment. The Company's research and development expenditures were Cdn$679,000 for the nine months ended September 30, 1998 and Cdn$661,000 for the year ended December 31, 1997, including salaries and related expenses of Company personnel engaged in research and development. Research and development activity during 1998 included the redevelopment and release of the BID.COM technology platform, with Year 2000 compliant architecture and an award winning solution design, the purchase of a new accounting software package and the purchase and implementation of the personalization software engine "BID.COM Recommends." See "--Auction Operations." COMPETITION The online commerce market is new, rapidly evolving and intensely competitive, and the Company expects that online commerce competition in general, and online auction competition in particular, will further intensify in the future. Barriers to entry are minimal, and current and new competitors can launch new sites at a relatively low cost. In addition, the broader retail consumer product industry is intensely competitive. The Company's competitors, determined on the basis of type of merchandise and sales format offered by such entities to customers, include: (i) companies providing business-to-consumer online auctions services such as Onsale, Inc. ("Onsale"), First Auction by Internet Shopping Network Inc. ("First Auction"), uBid, Inc. ("uBid") and Egghead.com Inc. ("Egghead"); (ii) person-to-person online auction services such as eBay Inc. ("eBay"), Yahoo!, Auctions Powered by Onsale, Auction Universe, a Times-Mirror Company ("Auction Universe"), Excite Inc. ("Excite") and a number of small services, including those that serve specialty markets; (iii) companies providing online communities and services that specialize in or otherwise have expertise in developing online commerce and some of whom currently offer a variety of business-to-consumer trading services, including Amazon.com, AOL and Microsoft Corporation; (iv) companies that offer merchandise similar to that of the Company but through physical auctions and with which the Company competes for sources of supply; (v) catalog companies with substantial customer data bases, which may devote greater resources to Internet commerce in the future; and (vi) large retailers and other companies with strong brand recognition and experience in online commerce that are increasingly directing greater resources to Internet commerce and who seek to compete in the online auction market, including Cendant Corporation and QVC, Inc. ("QVC"). In addition, because the barriers to the E-commerce industry are minimal, the Company may in the future face additional competitors who the Company cannot currently identify. The Company also anticipates that one or more of these companies and other companies engaged in the business-to-business sector will offer business-to-business online auctions as this sector continues to grow. The Company believes that the principal competitive factors in its online auction market are brand recognition, product selection, variety of value-added services, ease of use, site content, quality of service, reliability of delivery of products, quality of search tools, system reliability, technical expertise and price. Many of the Company's competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than the Company. In addition, other online trading services may be acquired by, receive investments from or enter into other commercial relationships with larger, well-established and well- financed companies as use of the Internet and other online services increases. Therefore, certain of the Company's competitors with other revenue sources may be able to devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing policies and devote substantially more resources to Web site and systems development than the Company or may try to attract traffic by offering services for free. See "Risk Factors - Competition." 16 INTELLECTUAL PROPERTY The Company's performance and ability to compete are dependent to a significant degree on its proprietary technology. The Company relies on a combination of copyright, trademark, trade secret and patent laws, as well as confidentiality agreements and technical measures, to establish and protect its proprietary rights. The Company's proprietary software is protected by copyright laws. The source code for the Company's proprietary software is also protected as a trade secret. The Company has patent applications pending in the United States and Canada seeking patent protection for the process whereby the Company conducts declining price, or Dutch, auctions over electronic distribution channels. BID.COM, BID.COM THE ONLINE AUCTION, INTERNET LIQUIDATORS, ILUSA, $BUCK A MONTH CLUB, CLUB.RADD, ONLINE OUTLET MALL, ONLINE AUCTION, BID BUDDY, SEARCH BUDDY AND EXPERIENCE ENGINE are trademarks or tradenames of the Company, most of which are the subject of pending applications for registration in either or both of the United States and Canada, and one of which is registered in Canada. See "Risk Factors--Protection of Intellectual Property." The Company's competitive position is also dependent upon its unpatented trade secrets. In an effort to protect its trade secrets, and as part of its confidentiality procedures, the Company generally enters into confidentiality and non-disclosure agreements with its employees and consultants and generally limits access to and distribution of its software, documentation and other proprietary information. See "Risk Factors--Protection of Intellectual Property." EMPLOYEES As of the date hereof, the Company employs 33 full-time employees, including three in engineering support, four in operations, seven in merchandise acquisition and marketing, five in customer support and service, and 14 in finance, administrative and senior management functions. The Company also employs three part-time employees, all of whom are in customer support and service. The Company also hires independent contractors for software development, technical documentation, artistic design merchandising and administration, as needed. None of the Company's employees are represented by a labor union, and the Company considers its employee relations to be good. The Company's success is substantially dependent on the ability and experience of its senior management and other key personnel. Moreover, to accommodate its current size and manage its anticipated growth, the Company must maintain and expand its employee base. Competition for personnel, particularly persons having software development and other technical expertise, is intense, and there can be no assurance that the Company will be able to retain existing personnel or hire additional, qualified personnel. The inability of the Company to retain and attract the necessary personnel or the loss of services of any of its key personnel could have a material and adverse effect on the Company. All key employees have been granted stock options. See "Risk Factors--Dependence on Key Personnel; Need for Additional Personnel" and "Management." HISTORY The business of the Company was commenced by Internet Liquidators Inc., an Ontario corporation, in September 1995. In May 1996, Internet Liquidators International Inc., an Ontario corporation, acquired all of the shares of Internet Liquidators Inc. In January 1997, the Company was formed, as an Ontario corporation, by amalgamation of Internet Liquidators Inc. and Internet Liquidators International Inc. In June 1998, the Company changed its name from Internet Liquidators International Inc. to BID.COM International Inc. The Company converted its consumer brand URL from www.Internetliquidators.com to www.BID.COM in March 1998. The Company's offices are located at 6725 Airport Road, Suite 201, Mississauga, Ontario L4V 1V2, Canada and the Company's subsidiary, Internet Liquidators USA Inc., maintains offices at 2701 North Rocky Point Drive, Suite 510, Tampa, Florida 33607-1013. The Company's Web site is www.BID.COM. Information contained on the Company's Web site shall not constitute a part of this Registration Statement. 17 RISK FACTORS An investment in the securities of BID.COM is speculative, involves significant risk and is suitable for investment only by purchasers who can bear the economic risk of a complete loss of their investment. Prior to making an investment decision, prospective purchasers should consider carefully the following risk factors, together with the information and financial statements set forth elsewhere in this Registration Statement. LIMITED OPERATING HISTORY The Company was founded in September 1995 and began conducting auctions on the Internet in April 1996. Accordingly, there is only a limited operating history upon which to base an evaluation of the Company and its business and prospects. The Company's business and prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets such as E-commerce. Such risks include the evolving and unpredictable nature of the Company's business, the Company's ability to anticipate and adapt to a developing market and technological changes, acceptance by consumers of the Company's Internet auctions and the merchandise sold at such auctions, the ability to identify, attract and retain qualified personnel and the other risks described in this Registration Statement. There can be no assurance that the Company will successfully overcome these risks. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT AND NEGATIVE CASH FLOW The Company has not earned profits to date and had accumulated losses of Cdn $21.8 million as at September 30, 1998. For the nine months ended September 30, 1998 and the year ended December 31, 1997, the Company's net loss was Cdn $12.9 million and Cdn $6.7 million, respectively. The Company intends to continue to invest heavily in marketing and promotion, development of its technology, business to business auctions and other areas of its business. As a result, the Company believes that it will incur substantial operating losses for the foreseeable future. There can be no assurance that the Company will earn profits or generate positive cash flows form operations in the future, or that profitability, if achieved, will be sustained. The success of the Company will ultimately depend on its ability to generate revenues from its auction activities in amounts sufficient to permit the Company's operations and development activities to be financed by revenues instead of external financing. There can be no assurance that future revenues will be sufficient to generate the required funds to operate the business profitably. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." ADDITIONAL FINANCING REQUIREMENTS 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, and cash flow from operations. The Company expects its capital requirements to increase significantly due to the proposed expansion of its marketing and business development activity, the introduction of business-to- business auctions, and continued development of its technology. The Company believes that its present capital, anticipated proceeds from the expected exercise of outstanding in-the-money options and warrants expiring at various times during 1999 and revenue from operations will be sufficient to finance its cash requirements for the next 12 months. Thereafter, the Company may need to raise additional funds. The exact amount of the Company's future capital requirements will depend on numerous factors, including, but not limited to, slower growth and adverse changes in the E-commerce environment, delays in the growth of the Company's customer base, government regulations, failure or delays in executing marketing programs, growth that is more rapid than anticipated or competitive pressures. The Company may also need to raise additional funds sooner than anticipated in order to acquire businesses, technologies or products or fund investments and other relationships the Company believes are strategic. In addition, while the exercise prices of the outstanding options and warrants may currently be below the trading prices of the Company's Common Shares on the Toronto Stock Exchange, there can be no assurance that the Common Shares will continue to trade at prices that justify the exercise of the warrants, or that the holders will, in fact, exercise them. Accordingly, the Company's actual capital requirements may vary from currently anticipated needs and such variations could be material. 18 There can be no assurance that additional financing will be available on commercially reasonable terms or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to funds its expansion, take advantage of strategic acquisitions, investment or licensing opportunities or respond to competitive pressures. Such inability to obtain additional financing when needed would have a material adverse effect on the Company's business, results of operations, cash flow, financial condition and prospects. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of the shareholders of the Company 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. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Description of Securities." POTENTIAL FLUCTUATIONS IN RESULTS OF OPERATIONS The Company's 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 the Company's control. Factors that may affect the Company's quarterly operating results include: (i) the Company's ability to increase its customer base; (ii) the availability and pricing of merchandise from vendors; (iii) the announcement or introduction of new sites, services and products by the Company or its competitors; (iv) the success of the Company's brand building and marketing campaigns; (v) introduction and success of the Company's business-to-business auction; (vi) the success of any future acquisition by the Company of businesses, technologies or products or any strategic investments or relationships into which the Company may enter; (vii) price competition; (viii) the level of use of the Internet and online services; (ix) increasing consumer confidence in and acceptance of the Internet and other online services for commerce and, in particular, products such as those offered by the Company; (x) consumer confidence in the security of transactions over the Internet and other online services; (xi) the Company's ability to upgrade and develop its systems and infrastructure to accommodate growth; (xii) the Company's ability to attract new personnel in a timely and effective manner; (xiii) the timing, cost and availability of advertising in traditional media and on other Web sites and online services; (xiv) technical difficulties or service interruptions; (xv) the amount and timing of operating costs and capital expenditures relating to expansion of the Company's business, operations and infrastructure; (xvi) consumer trends and popularity of certain categories of collectible items; (xvii) governmental regulation by Federal or local governments; and (xviii) general economic conditions as well as economic conditions specific to the Internet and online commerce industries. As a result of the Company's limited operating history, the emerging nature of the markets in which it competes and the inherent degree of variability in auctions, it is difficult for the Company to accurately forecast its revenues or earnings from auction activities. In addition, the Company has no backlog and a significant portion of the Company's net revenues for a particular quarter are derived from auctions that are conducted during that quarter. The Company's current and future expense levels are based largely on its investment plans and estimates of future revenues and are, to a large extent, fixed. The Company may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues relative to the Company's planned expenditures would have an immediate adverse effect on the Company's business, results of operations, cash flow and financial condition. Further, as a strategic response to changes in the competitive environment, the Company may from time to time make certain pricing, service or marketing decisions that could have a material adverse effect on its business, results of operations, financial condition and prospects. Due to the foregoing factors, the Company's quarterly revenues and operating results are difficult to forecast. The Company believes that period-to-period comparisons of its 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 the Company's operating results will fall below the expectations of securities analysts and investors. In such event, the trading price of the Common Shares would almost certainly be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." DEVELOPING ONLINE COMMERCE MARKETS The Company's long-term viability is substantially dependent upon the widespread acceptance and use by consumers and businesses of the Internet as a medium of commerce. Use of the Internet as a means of effecting 19 retail and wholesale transactions is at an early stage of development, and demand and market acceptance for recently introduced products and services over the Internet is uncertain. The Company cannot predict the extent to which consumers and businesses will be willing to shift their purchasing habits from traditional retailers and distributors to online retailers and distributors. See "--Uncertain Acceptance of the BID.COM Brand; Evolving and Unpredictable Business Model." 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. Changes in or insufficient availability of telecommunications services to support the Internet also could result in slower response times and adversely affect usage of the Internet generally and the Company in particular. Moreover, adverse publicity and consumer 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, the Company would be materially and adversely affected. See "--Dependence on the Web Infrastructure," "--Reliance on Other Third Parties," "--Rapid Technological Change," "--Internet Commerce Security," "--Risk of System Failure; Single Site," and "--Government Regulation and Legal Uncertainties." In addition, even if consumers and businesses accept the use of the Internet as a viable medium of commerce, there can be no assurance that Internet auctions generally, or the Company's online auctions in particular, will develop successfully or achieve widespread acceptance. If the market for Internet-based online auctions fails to develop, or develops more slowly than expected or becomes saturated with competitors, or if the Company's Internet auctions do not achieve market acceptance, the Company's business, financial condition, results of operations, cash flow and prospects would be materially adversely affected. See "Business--Industry Background" and "Business--Competition." RELIANCE ON MERCHANDISE VENDORS The Company is dependent upon third party vendors to supply it with merchandise for sale through the Company's Internet auctions and the availability of merchandise from such suppliers is unpredictable. The Company does not have long-term contracts or arrangements with most of its vendors guaranteeing the availability of merchandise for its auctions. There can be no assurance that the Company's current vendors will continue to sell merchandise to the Company or otherwise provide merchandise for sale in the Company's auctions or that the Company will be able to establish new vendor relationships that ensure merchandise will be available for auction on the Company's Web site. The Company also relies on many of its vendors to process and ship merchandise to customers. The Company has limited control over the shipping procedures of its vendors, and shipments by these vendors may be subject to delays. There can be no assurance that the Company will be able to continue to develop and maintain satisfactory relationships with vendors on acceptable commercial terms and obtain sufficient quantities of merchandise and quality of service on a consistent basis. During 1998,one computer products supplier provided over 30% of the merchandise offered in the Company's auctions, and four unrelated suppliers of computers and other products accounted for up to 90% of the Company's supply base at various times. For 1999, the Company anticipates that, at any given time, four unrelated suppliers may each be supplying up to 20-30% of the Company's product offerings. See "Business--Products." RELIANCE ON OTHER THIRD PARTIES In addition to its merchandise vendors, the Company's operations depend on a number of other third parties. The Company has limited control over these third parties and no long-term relationships with any of them. The Company does not own a gateway onto the Internet. Instead, the Company relies on Internet service providers to connect the Company's Web site to the Internet. From time to time, the Company has experienced temporary interruptions in its Web site connection and in its telecommunications access. Continuous or prolonged interruptions in the Company's Web site connection or in its telecommunications access would have a material adverse effect on the Company. There can be no assurance that the Company will be able to maintain satisfactory, or develop new, relationships with such third parties on acceptable commercial terms, or at all. 20 CONTINUANCE OF EXISTING STRATEGIC ALLIANCES The Company's business strategy is based, to a substantial degree, on seeking out and forming strategic alliances with Internet service and content providers, Internet aggregators and search engines and other marketing partners which can drive traffic to the Company's online auction sites. Many of the Company's strategic alliances with its marketing and distribution partners are of limited duration or may be terminated at any time. The Company's agreement with AOL expires in November 1999. The Rogers Media Agreement may be terminated by Rogers Media at any time upon 90 days' advance written notice, subject to certain conditions. There can be no assurance that these marketing and advertising arrangements will not be terminated prior to their expiration, or that upon expiration will be renewed on favorable terms or at all. The discontinuance of these arrangements could have a material adverse effect on the Company. To date, most of the strategic alliances entered into by the Company in the United States have not been exclusive or restricted as to location or technological environment. The Company has therefore retained the necessary flexibility to broaden its distribution by increasing the number of its strategic alliances and advertising relationships. There can be no assurance that future alliances with such partners or alliances with any other partners will provide the Company with the same flexibility. See "--Developing Online Commerce Markets," "--Reliance on Other Third Parties" and "Business--Business Strategy." COMPETITION The online commerce market is new, rapidly evolving and intensely competitive, and the Company expects that online commerce competition in general, and online auction competition in particular, will further intensify in the future. Barriers to entry are minimal, and current and new competitors can launch new sites at a relatively low cost. In addition, the broader retail consumer product industry is intensely competitive. The Company's competitors, determined on the basis of type of merchandise and sales format offered by such entities to customers, include: (i) companies providing business-to-consumer online auctions services such as Onsale, First Auction, uBid, and Egghead; (ii) person-to-person online auction services such as eBay, Yahoo!, Auctions Powered by Onsale, Auction Universe, Excite and a number of small services, including those that serve specialty markets; (iii) companies providing online communities and services that specialize in or otherwise have expertise in developing online commerce and some of whom currently offer a variety of business-to-consumer trading services, including Amazon.com, AOL and Microsoft Corporation; (iv) companies that offer merchandise similar to that of the Company but through physical auctions and with which the Company competes for sources of supply; (v) catalog companies with substantial customer data bases, which may devote greater resources to Internet commerce in the future; and (vi) large retailers and other companies with strong brand recognition and experience in online commerce that are increasingly directing greater resources to Internet commerce and who seek to compete in the online auction market, including Cendant Corporation and QVC. In addition, because the barriers to the E-commerce industry are minimal, the Company may in the future face additional competitors who the Company cannot currently identify. The Company also anticipates that one or more of these companies and other companies engaged in the business-to-business sector will offer business-to-business online auctions as this sector continues to grow. Competitive pressures created by any one or more of these competitors could have a material adverse effect on the Company's business, results of operations, cash flow, financial condition and prospects. See "Business--Competition." The Company believes that the principal competitive factors in its online auction market are brand recognition, product selection, variety of value-added services, ease of use, site content, quality of service, reliability of delivery of products, quality of search tools, system reliability, technical expertise and price. Many of the Company's competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than the Company. In addition, other online trading services may be acquired by, receive investments from or enter into other commercial relationships with larger, well-established and well- financed companies as use of the Internet and other online services increases. Therefore, certain of the Company's competitors with other revenue sources may be able to devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing policies and devote substantially more resources to Web site and systems development than the Company or may try to attract traffic by offering services for free. Further, as a strategic response to changes in the competitive environment, the Company may, from time to time, make certain pricing, service or marketing decisions or acquisitions that could have a material adverse effect 21 on its business, results of operations and financial condition. New technologies and the expansion of existing technologies may increase the competitive pressures on the Company by enabling the Company's competitors to offer a lower- cost service. Certain Web-based applications that direct Internet traffic to certain Web sites may channel users to trading services that compete with the Company. The Company is aware that certain of its competitors have and may continue to adopt aggressive pricing or inventory availability policies, establish cooperative relationships among themselves or directly with vendors to obtain exclusive or semi-exclusive sources of merchandise, secure merchandise from vendors on more favorable terms than the Company, and respond more quickly to changes in customer preferences or devote greater resources to the development, promotion and sale of their merchandise than can the Company. Accordingly, the Company believes that new competitors or alliances among competitors and vendors may emerge and rapidly acquire market share. Increased competition may result in reduced operating margins, loss of market share and diminished brand recognition, any one of which would have a material adverse effect on the Company. See " Business--Competition." UNCERTAIN ACCEPTANCE OF THE BID.COM BRAND The Company believes that strong brand recognition is critical to achieving widespread acceptance of BID.COM, especially in light of the intensely competitive nature of the online business-to-consumer auction market. The Company's ability to promote and position its brand will depend largely on the success of the Company's marketing efforts and the Company's ability to offer a broad range of products and provide high quality, easy-to-use, secure auction service. If vendors do not perceive BID.COM as an effective marketing and sales channel for their merchandise, or if customers do not perceive BID.COM as offering an entertaining, secure and user-friendly platform to purchase merchandise, the Company will be unsuccessful in promoting and maintaining its brand. Furthermore, to attract and retain customers and to promote and maintain the BID.COM brand in response to competitive pressures, the Company must increase its marketing and advertising budgets and otherwise increase substantially its financial commitment to creating and maintaining brand loyalty among vendors and consumers. There can be no assurance that the Company's brand promotion efforts will result in increased revenues, or that resulting increased revenues would offset the expenses incurred by the Company in promoting its brand. If the Company is unable to promote or maintain its brand, the Company's business, financial condition, results of operations, cash flow and prospects would be materially and adversely affected. See "Business--Business Strategy-- Expanding the Company's Customer Base Through Diverse Marketing Strategy" and "Business--Marketing." RISKS ASSOCIATED WITH EVOLVING BUSINESS MODEL The Company's business model continues to evolve. The Company seeks to develop and promote new or complimentary opportunities, services, products or transaction formats and expand the breadth and depth of services. These include the use of the Company's Web site as an advertising medium for the products and services of other companies, licensing its technology, initiating under a different brand name its business-to-business auctions, entering into strategic relationships' to co-brand auctions in the business-to-business category and to develop and operate interactive auctions in other electronic media, and acquiring businesses, technologies, services or products, or funding investments or other relationships that the Company believes are strategic. There can be no assurance that the Company will be able to expand its operations in a cost- effective or timely manner or that any such efforts will maintain or increase overall market acceptance. Furthermore, any new business or service launched by the Company that is not favorably received by customers could damage the Company's reputation and diminish the value of its brand name. Expansion of the Company's operations in this manner would also require significant additional expenses and development, operations and other resources and would strain the Company's management, financial and operational resources. The lack of market acceptance of such services or the Company's inability to generate satisfactory revenues from such expanded services to offset their cost could have a material adverse effect on the Company's business, results of operations, cash flow, financial condition and prospects. RISKS ASSOCIATED WITH ACQUISITIONS If appropriate opportunities present themselves, the Company intends to acquire businesses, technologies, services or products that the Company believes are strategic or enter into other strategic relationships. The Company currently has no understandings, commitments or agreements with respect to any material acquisition or strategic relationship and no material acquisition or strategic relationship is currently being pursued. There can be 22 no assurance that the Company will be able to identify, negotiate or finance future acquisitions or strategic relationships successfully, or to integrate such acquisitions or strategic relationship with its current business. The process of integrating an acquired business, technology, service or product into the Company may result in unforeseen operating difficulties and expenditures and may absorb significant management attention that would otherwise be available for ongoing development of the Company's business. Moreover, there can be no assurance that the anticipated benefits of any acquisition or strategic relationship will be realized. Acquisitions or strategic relationships could result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities and/or amortization expenses related to goodwill and other intangible assets, which could materially adversely affect the Company's business, results of operations, cash flow, financial condition and prospects. Any such future acquisitions of other businesses, technologies, services or products or strategic relationship might require the Company to obtain additional equity or debt financing, which might not be available on terms favorable to the Company, or at all, and such financing, if available, might be dilutive. See "--Need For Additional Financing." DEPENDENCE ON THE WEB INFRASTRUCTURE The success of the BID.COM branded auction service and the private brand auction service operated by the Company for certain of its customers will depend to a significant degree upon the development and maintenance of the Web infrastructure and reliable Web access and services. The Web has experienced, and is expected to continue to experience, significant growth in the numbers of users and amount of traffic. There can be no assurance that the Web infrastructure will continue to be able to support the demands placed on it by this continued growth or that such growth will not adversely affect the performance or reliability of the Web. Furthermore, from time to time, the Web has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and could face such outages and delays in the future, including outages and delays resulting from the inability of certain computers or software to distinguish dates in the 21st century from dates in the 20th century. See "--Risks Associated with the Year 2000." These outages and delays could adversely affect the level of Web usage and the level of traffic and the processing of on-line auctions. In addition, the Web could lose its viability due to delays in the development or adoption of new standards and protocols to handle increased levels of activity. If the necessary infrastructure, standards, protocols or complementary products, services or facilities are not developed, or if the Web does not become a viable commercial marketplace, the Company's business, results of operations, cash flow and financial condition will be materially and adversely affected. Even if the infrastructure, standards, protocols and complementary products, services or facilities are developed and the Web becomes a viable commercial marketplace in the long term, the Company might be required to incur substantial expenditures in order to adapt its service to changing Web technologies, which could have a material adverse effect on the Company's business, financial condition, results of operations, cash flow and prospects. INTERNET COMMERCE SECURITY A significant barrier to E-commerce and Internet communications is the secure transmission of confidential information over public networks. Currently, all bidders are required to authorize the Company to bill their credit card accounts directly for the purchase price and shipping costs of goods purchased at the Company's online auction. The Company relies on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to effect the secure transmission of confidential information, including customer credit card numbers. There can be no assurance that the advances in computer capabilities, new discoveries in the field of cryptography or other events or developments will not result in a compromise or breach of the technology used by the Company to protect customer transaction data. Furthermore, a party who is able to circumvent the Company's security measures could misappropriate proprietary information or cause interruptions in the Company's operations. The Company may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. Concerns over the security of Internet transactions and the privacy of users may also inhibit the growth of the Internet generally, and the World Wide Web in particular, as a means of conducting commercial transactions. To the extent that activities of the Company involve the storage and transmission of proprietary information, such as credit card numbers, security breaches could damage the Company's reputation and expose the Company to a risk of loss or litigation and possible liability. There can be no assurance that the Company's security measures will prevent security breaches and protect the Company from any resulting risk of loss. See " Business-- Technology Platform." 23 RISK OF SYSTEM FAILURE; SINGLE SITE The Company's operations are largely dependent upon its communications hardware and computer hardware, substantially all of which are located at a leased facility in Mississauga, Ontario in Canada. The Company's systems are vulnerable to damage from earthquake, fire, floods, power loss, telecommunications failure, break-ins and similar events. While the Company has developed preliminary plans for redundant systems and a formal disaster recovery plan, no such system or plans are currently in effect. A substantial interruption in these systems would have a material adverse effect on the Company. The Company's coverage limits on its property and business interruption insurance may not be adequate to compensate the Company for all losses that may be incurred. Despite the implementation of network security measures by the Company, its servers are also vulnerable to computer viruses, physical or electronic break-ins, attempts by third parties to deliberately exceed the capacity of the Company's systems and similar disruptive problems. Computer viruses, break-ins or other problems caused by third parties could lead to interruptions, delays, loss of data or cessation in service to users of the Company's services. The occurrence of any of these events could materially and adversely affect the Company's business, financial condition, results of operations, cash flow and prospects. RISK OF CAPACITY CONSTRAINTS The Company seeks to generate a high volume of traffic and transactions on the BID.COM auction. Accordingly, the satisfactory performance, reliability and availability of the Company's Web site, processing systems and network infrastructure are critical to the Company's reputation and its ability to attract and retain large numbers of users who bid for items on its service while maintaining adequate customer service levels. Any system interruptions that result in the unavailability of the Company's service or reduced customer activity would reduce the volume of transactions completed. Interruptions of service may also diminish the attractiveness of the Company and its services. Any substantial increase in the volume of traffic on the Company's Web site will require the Company to expand its technology, transaction processing systems and network infrastructure. There can be no assurance that the Company will be able to accurately project the rate or timing of increases, if any, in the use of its services or timely expand its systems and infrastructure in a timely manner to accommodate such increases. Any failure to expand its systems could have a material adverse effect on the Company's business, results of operations, cash flow, financial condition and prospects. RAPID TECHNOLOGICAL CHANGE The Internet and E-commerce industries are 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 or all of which could render the Company's existing Web site and proprietary technology obsolete. The Company's performance will depend, in part, on its ability to license leading technologies, develop new proprietary technology that address the increasingly sophisticated and varied needs of its existing and prospective customers, respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis and continually improve the performance, features and reliability of its services in response to evolving market demands. In addition, the widespread adoption of new Internet, networking or telecommunications technologies or other technological changes could require substantial expenditures by the Company to modify or adapt its services or infrastructure. There can be no assurance that the Company will be successful in using new technologies effectively or adapting its Web site and proprietary technology and services to customer requirements or emerging industry standards. See " Business--Technology Platform" and "Business--Research and Development." RISKS ASSOCIATED WITH THE YEAR 2000 The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. As a result, date- sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failures or financial miscalculations causing disruptions of operations, including, among others, a temporary inability to process transactions, send invoices or engage in similar normal business activities. 24 The Company does not believe that it has material exposure to Year 2000 complications with respect to its own information systems since its existing systems correctly define the year 2000. The Company intends to conduct an analysis in 1999 to determine the extent to which its major suppliers', service providers' and marketing and advertising partners' systems (insofar as they relate to the Company's business) are subject to the Year 2000 issue. The Company is currently unable to predict the extent to which the Year 2000 issue will affect its suppliers, service providers and marketing or advertising partners, or the extent to which it would be vulnerable to such parties' failure to remedy any Year 2000 issues on a timely basis. The failure of a major supplier, service provider or marketing or advertising partner subject to the Year 2000 issue to convert its systems on a timely basis, or the conversion of these systems that is incompatible with the Company's systems, could have a material adverse effect on the Company. In addition, most of the purchases from the Company's auctions are paid for using credit cards. If the bank systems used to process credit card transactions for a significant portion of transactions on BID.COM's auction site are not Year 2000 compliant, the Company's operations may be materially and adversely affected to the extent customers are unable to use their credit cards to make purchases. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL The Company's success is substantially dependent on the ability and experience of its senior management and other key personnel. The Company does not have long term employment agreements with any of its key personnel and maintains no "key person" life insurance policies. Moreover, to accommodate its current size and manage its anticipated growth, the Company must maintain and expand its employee base. Competition for personnel, particularly persons having software development and other technical expertise, is intense, and there can be no assurance that the Company will retain existing personnel or hire additional, qualified personnel. The inability of the Company to retain and attract the necessary personnel or the loss of services of any of its key personnel could have a material adverse effect on the Company. See "Business--Employees" and "Management." MANAGEMENT OF GROWTH The Company has recently experienced, and may continue to experience, growth in its operations, financial systems and the number of its employees. Such growth has and will continue to place significant demands on the Company's management, administrative, operating and financial resources. In order to manage its current operations and any future growth effectively, the Company will need to continue to implement and improve its operational, financial and management information systems and to hire, train, motivate, manage and retain its employees. There can be no assurance that the Company will be able to manage such growth effectively, that its management, personnel or systems will be adequate to support the Company's operations, or that the Company will be able to achieve levels of revenue commensurate with the increased levels of operating expenses associated with such growth. PROTECTION OF INTELLECTUAL PROPERTY The Company's performance and ability to compete are dependent to a significant degree on its proprietary technology. The Company relies on a combination of copyright, trademark, trade secret and patent laws, as well as confidentiality agreements and technical measures, to establish and protect its proprietary rights. The Company's proprietary software is protected by copyright laws. The source code for the Company's proprietary software is also protected as a trade secret. The Company has patent applications pending in the United States and Canada seeking patent protection for the process whereby the Company conducts declining price, or Dutch, auctions over electronic distribution channels.. There can be no assurance that patents under application will be allowed or issued in whole or in part. The Company is not aware of any infringement by its technology on the proprietary rights of any third parties, but there can be no assurance that current or future technologies developed by the Company do not or, in the future, will not, infringe on the rights of others. The cost of any litigation against the Company regarding its patent rights could be significant and any successful litigation could materially and adversely affect the Company's business. In addition, there can be no assurance that any patent issued to or licensed by the Company will not be challenged or circumvented by competitors. As part of its confidentiality-protection procedures, the Company generally enters into agreements with its employees and consultants and limits access to, and distribution of, its software, documentation and other proprietary information. There can be no assurance that the steps taken by the Company will prevent misappropriation of its technology or that agreements entered into for that purpose will be 25 enforceable. The laws of other countries may afford the Company little or no protection of its intellectual property. The Company also relies on a variety of technology that it licenses from third parties, including its database and Internet server software, which is used in the Company's Web site to perform key functions. There can be no assurance that these third party technology licenses will continue to be available to the Company on commercially reasonable terms, if at all. The loss of or inability of the Company to maintain or obtain upgrades to any of these technology licenses could result in delays in completing its proprietary software enhancements and new development until equivalent technology could be identified, licensed or developed and integrated. Any such delays would materially and adversely affect the Company's business, financial condition, results of operations, cash flow and prospects. See "Business--Intellectual Property." GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES The Company is subject, both directly and indirectly, to various laws and regulations relating to its business, although there are presently few laws or regulations directly applicable to Internet access. However, due to the increasing popularity and use of the Internet, it is possible that laws and regulations will be adopted in the near future. Such laws and regulations may cover issues such as user privacy, pricing, content, copyrights, distribution and characteristics and quality of products and services. Furthermore, the growth and development of the market for online commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on those companies conducting business online. The enactment of any additional laws or regulations may impede the growth of commerce on the Internet which could, in turn, decrease the demand for the Company's products and services and increase the Company's cost of doing business or otherwise have a material adverse effect on the Company. The applicability of existing laws to the Internet in various jurisdictions governing issues such as property ownership, sales and other taxes, contests and sweepstakes, libel, personal privacy, rights of publicity, language requirements and content restrictions is uncertain and could expose the Company to substantial liability. The application of existing and new laws and regulations to the Internet could have a material adverse effect on the Company. An allegation that the Company was violating U.S, Canadian, or international civil or criminal law could have a material adverse effect on the Company even if the Company successfully defended such claims. In addition, several telecommunications carriers are seeking to have telecommunications over the Internet regulated by the Federal Communications Commission (the "FCC") in the same manner as other telecommunications services. Also, because the growing popularity and use of the Internet has burdened the existing telecommunications infrastructure and many areas with high Internet use have begun to experience interruptions in telephone service, certain local telephone carriers have petitioned the FCC to regulate Internet service providers and online service providers in a manner similar to long distance telephone carriers and to impose access fees on such providers. If any of these petitions are granted, or the relief sought therein is otherwise granted, the costs of communicating on the Internet could increase substantially, potentially slowing the growth in use of the Internet. Any such new legislation or regulation or application or interpretation of existing laws could have a material adverse effect on the Company's business, financial condition and results of operations. U.S. and foreign laws regulate certain uses of customer information and development and sale of mailing lists. The Company believes that it is in material compliance with such laws, but new restrictions may arise in this area that could materially adversely affect the Company. POTENTIAL LIABILITY FOR SALES AND OTHER TAXES. With the exception of sales to bidders in Florida and California, the states in which the Company has a physical presence, the Company does not collect sales or other similar taxes in respect of goods sold through BID.COM hosted auctions. However, one or more states may seek to impose sales tax collection obligations on out-of-state companies such as the Company which engage in or facilitate online commerce, and a number of proposals have been made at the state and local level that would impose additional taxes on the sale of goods and services through the Internet. Such proposals, if adopted, could substantially impair the growth of electronic commerce, and could adversely affect the Company's opportunity to derive financial benefit from such activities. Moreover, a successful assertion by one or more states, Canada or any other foreign country that the Company 26 should collect sales or other taxes on the exchange of merchandise on its system could have a material adverse effect on the Company's business, results of operations, cash flow and financial condition. In the United States, the Internet Tax Freedom Act, limiting the ability of the states to impose certain taxes on Internet-based transactions, was enacted in October, 1998. Pursuant to such legislation, a general three-year moratorium expiring in October 2001 was implemented banning the imposition of state and local taxes on Internet access (unless such taxes were generally imposed and actually enforced prior to October 1, 1998) and discriminatory or multiple taxes on E-commerce. Additionally, the legislation provides for the establishment of an Advisory Committee on Electronic Commerce whose responsibility is to conduct a thorough study of federal, state and local, and international taxation and tariff treatment of transactions using the Internet and Internet access and other comparable intrastate, interstate or international sales activities and present legislative recommendations to the U.S. Congress. It is possible that the moratorium could not be renewed when it terminates in October 2001. Failure to renew the moratorium could allow state and local government to impose taxes on Internet based sales, and such taxes could have a material adverse effect on the Company's business, financial condition, results of operation, cash flow and prospects. EXCHANGE RATE FLUCTUATIONS The Company transacts substantially all of its purchases and sales in U.S. dollars while the majority of the Company's operating expenses are in Canadian dollars. The Company does not have any hedging programs in place to manage the potential exposure to fluctuations in the U.S./ Canadian dollar exchange rate. Fluctuations in the U.S./ Canadian dollar exchange rate could have a material adverse effect on the Company's earnings and cash flows. See "Exchange Rates" at the forepart of this Registration Statement. FORWARD-LOOKING STATEMENTS In addition to historic information, this Registration Statement includes forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Such statements are indicated by words or phrases such as "anticipate," "estimate," "project," "plans," "intends," "management believes," "the Company believes" and similar words or phrases. Such statements are based on current expectations and are subject to risks, uncertainties and assumptions. Certain of these risks are described in the section of this Registration Statement entitled "Risk Factors." Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Although the Company believes that its expectations are based on reasonable assumptions within the bounds of its business and operations, actual results may differ materially from expectations that may be expressed or implied from any forward-looking statements contained in this Registration Statement. Factors that could cause actual results to differ from expectations include, and are not limited to, the failure of the Internet and/or online auctions to become widely accepted as a viable medium of commerce, inability of the Company directly and/or through its marketing and advertising alliances to attract a sufficient number of customers to the Company's site, the failure or delay of market acceptance of the Company's auction services, the Company's future need for additional capital and the uncertainty of the availability of funding, the ability of the Company to compete with other E-tailing and online auction businesses, failure to timely license or develop new technologies, delays in the issuance of, or the failure to obtain, patents for certain proprietary technologies, problems with important vendors and business partners on whom the Company relies, risk of system failure or interruption, implementation and enforcement of government regulations, the failure of the Company's suppliers and strategic partners to resolve any Year 2000 issues and other risks or uncertainties described in this Registration Statement. POSSIBLE ISSUANCE OF PREFERENCE SHARES The Company's Preference Shares may be issued by the Board of Directors without shareholder approval on such terms and conditions, and having such rights, privileges and preferences, as the Board of Directors may determine. 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. The issuance of a series of Preference Shares could have the effect of delaying, deterring or preventing a change in control of the Company. See "Description of Securities To Be Registered." 27 POSSIBLE VOLATILITY OF STOCK PRICE Concurrently with the effectiveness of this Registration Statement, the Common Shares will be quoted for trading on The Nasdaq National Market under the symbol ______. The trading price of the Common Shares on The Nasdaq National Market is likely to be highly volatile and could be subject to wide fluctuations in response to factors such as actual or anticipated variations in the Company's quarterly operating results, announcements of technological innovations or new services by the Company or its competitors, changes in financial estimates by securities analysts, conditions or trends in the Internet and online commerce industries, changes in the market valuations of other Internet or online service companies, announcements by the Company or its competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments, additions or departures of key personnel, sales of Common Shares or other securities of the Company in the open market and other events or factors, many of which are beyond the Company's control. Further, the stock markets in general, and The Nasdaq National Market and the market for Internet-related and technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. The trading prices of many technology companies' stocks are at or near historical highs and reflect valuations substantially above historical levels. There can be no assurance that these trading prices and valuations will be sustained. These broad market and industry factors may materially and adversely affect the market price of the Common Shares, regardless of the Company's operating performance. Market fluctuations, as well as general political and economic conditions such as recession or interest rate or currency rate fluctuations or economic turmoil in Southeast Asia, South America or elsewhere in the world, may also adversely affect the market price of the Common 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 the subject company. Such litigation, if instituted against the Company, could result in substantial costs and a diversion of management's attention and resources, which would have a material adverse effect on the Company's business, results of operations, cash flow, financial condition and prospects. NO PRIOR MARKET FOR COMMON SHARES IN UNITED STATES Prior to the effective date of this Registration Statement, there has been no public market for the Company's Common Shares in the United States, and there can be no assurance that an active public market will develop in the United States or be sustained after the effective date of this Registration Statement or that investors will be able to sell the Common Shares should they desire to do so. SHARES ELIGIBLE FOR FUTURE SALE As of the effective date of this Registration Statement, there will be _______________ Common Shares outstanding, all of which are being registered hereunder and, except for shares held by affiliates, may be immediately sold on the effective date of this Registration Statement. In addition, as of February 8, 1999, there were outstanding options and warrants to purchase an aggregate of 6,481,734 Common Shares. The Common Shares issued upon exercise of such options and warrants will be restricted securities ("Restricted Securities") under the Securities Act of 1933, as amended (the "Securities Act"). As of the effective date, no Restricted Securities will be eligible for sale in the public market in the United States. Following the expiration of 90 days from the effective date, the Restricted Securities will be eligible for sale from time to time upon expiration of applicable holding periods under Rule 144 under the Securities Act and subject to certain volume and other restrictions under Rule 144. Shares held by affiliates may be sold following 90 days from the effective date subject to certain volume and other restrictions under Rule 144. Sales of substantial amounts of the Company's Common Shares (including shares issued upon the exercise of outstanding options and warrants) in the public market could adversely affect the market price of the Common Shares. Such sales also might make it more difficult for the Company to sell equity or equity-related securities in the future at a time and price that the Company deems appropriate. ENFORCEABILITY OF CIVIL LIABILITIES The enforcement by purchasers of Common Shares of civil liabilities under the United States federal securities laws may be affected adversely by the fact that the Company is governed by the laws of the Province of Ontario, a majority of the Company's directors and officers are residents of Canada and a substantial part of the assets of the Company and the assets of such persons are located outside the United States. 28 NO DIVIDENDS The Company has paid no cash dividends on any of its shares of capital stock and has no plans to pay dividends in the foreseeable future. The Company currently intends to retain all other earnings, if any, for working capital and general corporate purposes. ITEM 2 - DESCRIPTION OF PROPERTY The Company's principal administrative, engineering, merchandising and marketing facilities total approximately 10,165 square feet and are located on one floor of an office building in Mississauga, Ontario, Canada, under a lease that commenced on November 1, 1998 for a three year term. The Company also leases premises in Tampa, Florida where four employees are located. The Company believes that it has adequate space for its current needs. As the Company expands, it expects that suitable additional space will be available on commercially reasonable terms. The Company does not own any real estate nor does it currently own or lease warehouse space. The Company relies, instead, on direct shipments from vendors or contract warehouses for its fulfillment and logistics requirements. ITEM 3 - LEGAL PROCEEDINGS Neither the Company nor any of its subsidiaries, is a party to or the subject of any material legal proceedings nor are any such proceedings known by the Company to be contemplated against the Company or any of its subsidiaries. ITEM 4 - CONTROL OF REGISTRANT To the knowledge of the Company, no person beneficially owns, directly or indirectly, or exercises control or direction over more than 10% of the issued and outstanding Common Shares of the Company. The following table shows certain information as of February 8, 1999 with respect to the beneficial ownership of Common Shares by the Company's executive officers and directors as a group (11 persons).
Amount of Shares Beneficially Owned Percent of Class -------------------------------------------------------------- All Directors and Executive Officers as a Group 2,665,900(1)(2) 5.92% (11 persons)
_________________ /(1)/ Includes an aggregate of 165,000 Common Shares subject to options and warrants exercisable within 60 days from the effective date of this Registration Agreement held by certain directors and executive officers. /(2)/ Does not include: (i) with respect to T. Christopher Bulger, options to purchase 184,500 Common Shares held by HDL Capital Corporation ("HDL"); Mr. Bulger is an officer and principal of HDL; (ii) with respect to Fred Singer, 1.0 million Common Shares purchased by AOL; Mr. Singer is an officer of AOL Studios, a division of AOL; and (iii) with respect to Michael Abramsky, 1.5 million Common Shares and a warrant to purchase 100,000 Common Shares purchased by Rogers Media; Mr. Abramsky is an officer of Rogers Media. See "Directors and Officers of Registrant" and "Interest of Management in Certain Transactions." BID.COM knows of no arrangements, the operation of which may at a subsequent date result in a change in control of the Company. 29 ITEM 5 - NATURE OF TRADING MARKET The Common Shares of the Company commenced trading on The Toronto Stock Exchange (the "TSE") on February 9, 1998. The Common Shares have been traded under the symbol "BII" since July 18, 1998, and prior to that traded on the TSE under the symbol "ILI." From June 6, 1996 to February 9, 1998, the Common Shares were quoted for trading on the Canadian Dealing Network ("CDN") under the symbol "ILII." Prior to the effective date of this Registration Statement, the Common Shares were not listed or quoted for trading on any securities markets within the United States. Concurrently with the effectiveness of this Registration Statement, the Common Shares will be quoted for trading on The Nasdaq National Market under the symbol ______. The following table sets forth the range of high and low sales prices (rounded to the nearest hundredth) as reported by CDN and the TSE during the calendar quarters set forth therein:
1997 High Low ---- ---- --- (Cdn $) (Cdn $) 1st Quarter 1.45 0.80 2nd Quarter 1.25 0.73 3rd Quarter 4.05 0.85 4th Quarter 5.00 2.25
1998 High Low ---- ---- --- (Cdn $) (Cdn $) 1st Quarter 3.90 1.95 2nd Quarter 3.80 1.12 3rd Quarter 2.08 0.65 4th Quarter 6.00 0.56
1999 High Low ---- ---- --- (Cdn$) (Cdn$) 1st Quarter 7.60 3.80 (through February 8, 1999)
As of January 29, 1999, the Company had 1,093 shareholders of record holding 44,562,696 Common Shares, of which 35 shareholders holding 4,246,002 Common Shares had an address of record in the United States. Common Shares held by the principal depositary in the United States amounted to 4,551,010 or 10.2% of the issued Common Shares of BID.COM, which shares are held for participant's accounts. 30 ITEM 6 - EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS The Investment Canada Act was enacted on July 2, 1985 to regulate investment in Canada by non-Canadians. It requires the filing of a notice of the acquisition of control of a Canadian business or the establishment of a new Canadian business by a non-Canadian, but does not require a review and approval of the investment (as was the case under the predecessor legislation) except where the investment is in a business related to Canada's cultural heritage or national identity or the investment surpasses prescribed thresholds. Except for the Investment Canada Act and the tax withholding provisions discussed below in "Taxation", there are no Canadian federal or provincial laws, decrees or regulations that restrict the export or import of capital or affect the remittance of dividends, interest or other payments to holders of BID.COM's securities who are not residents of Canada and there are no limitations on the right of non-residents of Canada to hold or vote such securities imposed by Canadian or provincial laws or any constituent document of BID.COM. ITEM 7 - TAXATION The following summary describes certain material Canadian federal income tax consequences generally applicable to a holder of Common Shares who is not a resident of Canada, and who, for purposes of the Income Tax Act (Canada) (the "ITA"), (i) holds such shares as capital property and (ii) deals at arm's length with the Company. 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 adventure in the nature of trade. This summary is based upon the current provisions of the ITA and the regulations thereunder and on an understanding of the published administrative practices of Revenue Canada. 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 Common Shares of the Company. Taxation of Dividends. A holder of a Common Share who is not resident in Canada for purposes of the ITA (a "Non-Resident") will be subject to Canadian withholding tax on dividends paid or credited, or deemed under the ITA to be paid or credited, to the holder of the Common Share. The rate of withholding tax under the ITA 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. Pursuant to the tax treaty that Canada has entered into with the United States (the "Canada-U.S. Treaty"), 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 stock. A foreign tax credit for the tax withheld may be available to a holder resident in the United States against U.S. federal income taxes. 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 ITA 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 ITA). Shares of a corporation 31 that are listed on a prescribed stock exchange (which includes shares traded on a U.S. stock exchange and the National Association of Securities Dealers Automated Quotation System) are generally not considered to be taxable Canadian property. However, shares that are traded on a prescribed Canadian or prescribed foreign exchange (including those noted above in the United States) can be taxable Canadian property since the definition of taxable Canadian property also includes any Common Share held by a Non-Resident if, at any time during the five-year period immediately preceding its disposition, not less than 25% of the issued shares of any class or series of shares of the Company belong to the Non- Resident, to persons with whom the Non-Resident did not deal at arm's length or to any combination thereof. For the purposes of determining whether a property is a taxable Canadian property, a person holding an option to acquire Common Shares or other securities convertible into or exchangeable for Common Shares, or otherwise having an interest in Common Shares, will be considered to own 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. 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 Common Share will also constitute taxable Canadian property of a former Canadian resident who made an election under section 128.1 of the ITA in respect of such shares on ceasing to be resident in Canada. The aforementioned rules can apply to any class of shares. 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. Three-quarters of any capital gain realized by a holder (a taxable capital gain) will be included in computing the holder's income. Three-quarters 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 ITA. A purchase of Common Shares by the Company (other than a purchase of Common Shares by the Company 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 ITA equal to the difference between the amount paid by the Company on the purchase and the paid-up capital of such shares determined in accordance with the ITA. The paid-up capital of such shares may be less than the cost of such shares to the holder. The amount of any such deemed dividend will reduce the proceeds of disposition of the Common Shares to the holders for the purpose of computing the amount of the capital gain or loss under the ITA of 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 ITA. Even if the Common Shares constitute or are deemed to 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 ITA 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. Article XIII paragraph 5 of the Canada-U.S. Treaty provides that the treaty provision which normally exempts U.S. residents from Canadian tax on the sale of property (paragraph 4) such as shares does not apply where the U.S. resident was a Canadian resident for 120 months during any period of 20 consecutive years preceding the time of the sale and the individual was resident in Canada at any time during the ten years immediately preceding the sale. 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 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. 32 ITEM 8 - SELECTED FINANCIAL DATA The selected financial data set forth below should be read in conjunction with, and are qualified by reference to, the consolidated financial statements of the Company, and notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Registration Statement. The selected financial data as at, and for the years ended, December 31, 1996 and 1997, and as at, and for the four months ended, December 31, 1995, are derived from the consolidated audited financial statements of the Company, including the notes thereto, included elsewhere in this Registration Statement. The selected financial data as at, and for the nine months ended, September 30, 1998 and for the nine months ended September 30, 1997 are derived from the consolidated unaudited financial statements of the Company included elsewhere in this Registration Statement. The results for the first nine months of 1998 are not necessarily indicative of the results expected for the year ended December 31, 1998 or for any future periods. The Company has prepared its audited financial statements in accordance with accounting principles generally accepted in Canada ("Canadian GAAP"), which differ in certain respects from generally accepted accounting principles in the United States ("U.S. GAAP"). However, as applied to the Company, for all fiscal periods for which financial data are presented in this Registration Statement, Canadian GAAP and U.S. GAAP were substantially identical in all material respects, except as disclosed in Note 15 to the Company's consolidated financial statements. The Company's financial statements and the selected financial data set forth below are presented in Canadian dollars. Where applicable, financial data presented in this table for the nine month period ended September 30, 1998 and the year ended December 31, 1997 has been translated from Canadian dollars into U.S. dollars for convenience purposes at the representative exchange rates of Cdn$1.5262 to US$1.00, the noon buying rate in New York City on September 30, 1998 for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York. Such translation should not be construed as a representation that the Canadian dollar amount represents, or has been converted into, U.S. dollars at this or any other rate. 33 SELECTED FINANCIAL DATA Statement of Operations Data:
Four Nine Months Ended Year Ended Months September 30 December 31 Ended -------------------------- ----------------- Dec 31 1998 1998 1997 1997 1997 1996 1995(1) -------- ------- ------- ------ ------- ------- -------- (CDN$) (U.S.$) (Cdn$) (Cdn$) (U.S.$) (Cdn$) //(Cdn$) (unaudited) (in thousands except for per share data) Net revenues................ 13,712 8,984 1,176 2,671 1,750 51 - Cost of revenues........ 13,422 8,794 1,455 2,916 1,911 12 - Expenses Advertising and promotion.............. 8,902 5,832 1,234 2,521 1,652 403 12 General & administrative......... 3,634 2,831 1,914 3,296 2,160 1,504 112 Software development and technology.......... 494 324 163 541 354 143 10 Depreciation and amortization............ 136 89 83 122 80 100 1 Total expenses.......... 13,166 8,626 3,394 6,480 4,246 2,150 135 Loss from operations.............. (12,876) (8,436) (3,673) (6,725) (4,407) (2,111) (135) Net (loss).............. (12,876) (8,436) (3,673) (6,725) (4,407) (2,111) (135) Loss per common share.......... (0.62) (0.41) (0.31) (0.55) (0.36) (0.21) (0.01) Weighted average number of common shares....... 20,888 - 12,282 12,297 - 9,598 3,375
BALANCE SHEET DATA:(2)
As at September 30 As at December 31 ----------------------- ------------------------- 1998 1998 1997 1997 1996 1995 ------- ------ ------ ------ ------ ------ (Cdn$) (U.S.$) (Cdn$) (U.S.$) (Cdn$) (Cdn$) (unaudited) (audited) (in thousands) Working capital................ 6,649 4,357 5,088 3,334 (559) 62 Total assets................... 12,095 7,925 6,886 4,511 471 145 Total long-term debt........... - - - - - - Shareholders equity............ 7,331 4,804 5,563 3,645 (209) 116
__________________________ (1) The Company commenced its present business in September 1995. (2) The Company has not paid dividends since its formation. 34 ITEM 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW - -------- BID.COM is a sales and marketing company striving to become the pre-eminent online auction house and a leading E-tailer. The Company operates business-to- consumer online auctions at its BID.COM Web site and at other URLs. The Company recently completed the development of a business-to-business auction service and intends to operate business-to-business auctions in selected vertical industry sectors and to conduct liquidation auctions for bankruptcy trustees and other liquidators. The Company also seeks to license its proprietary online auction technology to support private brand online auctions and interactive auctions in a variety of other communication media. The business of the Company was commenced by Internet Liquidators Inc., an Ontario corporation, in September 1995. In May 1996, Internet Liquidators USA Inc., a wholly owned subsidiary of Internet Liquidator Inc. was incorporated under the laws of Florida, and Internet Liquidators International Inc., an Ontario corporation, acquired all of the shares of Internet Liquidators Inc. In January 1997, the Company was formed, as an Ontario corporation, by amalgamation of Internet Liquidators Inc. and Internet Liquidators International Inc. In June 1998, the Company changed its name from Internet Liquidators International Inc. to BID.COM International Inc. From incorporation through April 1996, the Company had no revenues. During this period, the Company focused on development of its proprietary technology and computer infrastructure and the initial planning and development of its Web site and operations. The Company launched its auction Web site in April 1996 under the URL www.internetliquidators.com, but did not begin to actively promote or advertise its Web site until May 1997. From April 1996 until May 1997, the Company focused on securing its initial strategic relationships with AOL and the Toronto Star, which were concluded in February 1997, and developing an advertising and promotion plan for its business, while continuing to develop its technology and Web site and build its business infrastructure. The Company generated only minimal revenues during this period. In May 1997, the Company initiated its marketing and advertising campaign and, as a result, began generating more significant commercial revenues for auctions conducted at its Web site. In March 1998, the Company changed its Web site address to www.BID.COM. Since launching its BID.COM brand name, the Company's customer base has increased significantly. As of February 1, 1999, the Company had approximately 95,000 registered bidders, representing a 375.0% increase in registered bidders from January 1, 1998. The Company has not earned profits to date and at September 30, 1998 had an accumulated deficit of Cdn$21.8 million. The Company intends to continue to invest heavily in marketing and promotion, development of its technology, business-to-business auctions, multi-media auction platforms, the distribution of specialty products and other areas of its business, including the acquisition of, or strategic investments in, complimentary products, businesses or technologies. As a result, the Company expects to continue to incur losses for the foreseeable future and there can be no assurance that the Company 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. The Company's policy is, generally, not to purchase inventory from merchandise vendors for resale in BID.COM auctions. Rather, the Company usually acquires the right to sell the merchandise under consignment-type relationships with its vendors. Prior to sale, the Company negotiates to receive either an agreed upon commission based upon the final selling price of the goods, or the difference between the actual selling price and a reserve price negotiated by the Company with a particular vendor. The Company typically does not take actual possession of goods sold because goods are shipped directly from the supplier to the customer. When an auction is completed, the Company charges the successful bidder's credit card. The Company records the gross amount as revenue upon verification of the credit card authorization and shipment of the merchandise to the customer. Historically, the Company has offered lower margin categories of products, such as computers, computer accessories and computer upgrades. While the Company plans to continue offering these product categories, it has begun to shift its product mix and increase the number and variety of goods in higher margin product categories, 35 such as consumer electronics, toys, games, sporting goods, memorabilia, jewelry, collectible sports and entertainment cards and travel and entertainment products and services. In addition, as part of its strategy to diversify revenue sources, the Company is seeking to increase revenue opportunities that yield higher gross margins than sales of products in online auctions, such as licensing its auction platform, marketing the Micra SoundCard collectible trading cards and other unique products and selling advertising space on its Web site. In connection with the introduction of the Company's marketing program in the third and fourth quarters of 1997, the Company initiated a promotional pricing strategy under which products were sold below cost or at significantly reduced profit margins. The Company continued that approach through most of 1998. As a result, the Company's earnings were significantly impacted. The Company recorded advertising and promotional expenses of Cdn$698,000 for the year ended December 31, 1997 and Cdn$2.605 million for the nine months ended September 30, 1998 to reflect the cost to the Company of its promotional pricing program during those periods. During the fourth quarter of 1998, the Company began to limit its promotional pricing practices and has continued this trend during the first quarter of 1999. However, in the future, the Company may from time to time use promotional pricing programs in connection with the introduction of new products and services, in response to competitive pressures or for other business reasons. In such cases, the Company anticipates that earnings will be reduced and such reductions may be significant. The following analysis of the financial condition and results of operations of the Company should be read in conjunction with the "Selected Financial Data" and the Company's financial statements (including the notes thereto) appearing elsewhere in this Registration Statement. The financial statements appearing in the Registration Statement have been prepared in Canadian dollars and in accordance with Canadian GAAP and the results of operations discussed below are in Canadian dollars. At September 30, 1998 the exchange rate was US$1.00 to Cdn$1.5262. See "Exchange Rates." For a discussion of the differences between Canadian GAAP and U.S. GAAP as they apply to the financial statements of the Company, see Note 15 to the financial statements of the Company included elsewhere in this Registration Statement. RESULTS OF OPERATIONS - --------------------- NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 Revenues. Revenues are comprised of transactional revenues from the sale of merchandise plus commissions, shipping and handling costs. Revenues increased to Cdn$13.712 million for the nine months ended September 30, 1998 from Cdn$1.176 million for the nine months ended September 30, 1997, an increase of 1,066.0%. The increase reflects commercial sales for the full nine month period ending September 30, 1998 as compared to only five months (May to September) during the period ended September 30, 1997. In addition, the increase is attributable to the introduction of the BID.COM brand in March 1998, and a significant increase in marketing and advertising expenditures and marketing relationships during the nine months ending September 30, 1998 as compared to the same period in 1997. From January 1, 1998 to September 30, 1998, the Company's customer base grew substantially as reflected by a 200.0% increase in registered bidders from approximately 20,000 to over 60,000. Cost of Revenues. Cost of revenues reflect negotiated reserve prices with vendors for the supply of goods sold by the Company. Cost of revenues was Cdn$13.422 million (97.9% of revenues) for the nine months ended September 30, 1998 resulting in a gross margin of Cdn$290,000 or 2.1%, as compared to Cdn$1.455 million (123.7% of revenues) for the nine months ended September 30, 1997, resulting in a negative gross margin of Cdn$(279,000) or (23.7)%. The increase in cost of revenues reflects the significant growth of revenues during the nine months ended September 30, 1998 as compared to the nine months ended September 30, 1997. Improvement in the gross margin for the nine months ended September 30, 1998 reflects the commencement of the Company's efforts to change its product mix to include sales of higher margin goods. The Company anticipates that its cost of revenues will vary, and may increase, as a percentage of revenues in future quarters. Advertising and Promotion Expenses. Advertising and promotion expenses consist primarily of advertising and marketing fees, loss leader promotions and expenses paid to strategic partners and other third parties from which the Company purchases advertising space, but does not include salaries and related expenses of the Company's sales and marketing personnel which are included in general and administrative expenses. Advertising and promotion 36 expenses were Cdn$8.902 million for the nine months ended September 30, 1998, as compared to Cdn$1.234 million for the nine months ended September 30, 1997, an increase of 621.4%. As a percentage of revenues, advertising and promotion expenses fell to 64.9% of revenues for the nine months ended September 30, 1998 from 104.9% during the nine months ended September 30, 1997. Advertising and promotion expenses for the nine months ended September 30, 1998 include Cdn$2.605 million (19% of revenue) attributable to loss leader promotions. Advertising and promotion expenses for the year ended December 31, 1997 included Cdn$698,000 (26.0% of revenue for the year ended December 31, 1997) for loss leader promotions, a significant portion of which was attributable to the nine months ended September 30, 1997. The increase in advertising and promotion expenses reflects the substantial increase in advertising and marketing which the Company undertook in order to promote the BID.COM brand name, attract track traffic to its Web site and enlarge its customer base. Reduction of advertising and promotion expenses as a percentage of revenue reflects the significant growth in revenues from 1997 to 1998 and a reduced amount of promotional pricing activity. General and Administrative Expenses. General and administrative expenses include, primarily: all salaries and related expenses (including benefits and payroll taxes) of the Company other than fees to independent contractors on the research and development and technology staff which are included in software and development expenses; facility costs; foreign exchange expenses; professional fees; insurance costs; investor relations; computing and communications expenses; regulatory filing fees and travel and related costs. General and administrative expenses increased to Cdn$3.634 million during the nine months ended September 30, 1998 from Cdn$1.914 million in nine months ended September 30, 1997, an increase of 89.9%. As a percentage of revenues, general and administrative expenses decreased to 26.5% of revenues in 1998 from 162.8% of revenues in 1997. The increase in general and administrative expenses is attributable to an increase in salary and related expenses resulting from staff hired to accommodate the growth in business during 1998, and an increase in office supplies, rent, communication and other ancillary costs due primarily to the Company's growth during 1998. The reduction in general and administrative expenses as a percentage of sales reflects economies of scales achieved as a result of a significant growth of revenues during the nine months ended September 30, 1998. Software Development and Technology Expenses. Software development and technology expenses consist of costs associated with acquired and internally developed software, license agreements and research and development expenses, including fees to independent contractors, but excluding salaries and related expenses of Company personnel engaged in these activities, which are included in general and administrative expenses. Software development and technology expenses increased to Cdn$494,000 for the nine months ended September 30, 1998 from Cdn$163,000 for the nine months ended September 30, 1997, a 203.1% increase. As a percentage of revenues, software development and technology expenses decreased to 3.6% of revenues during the nine months ended September 30, 1998 from 13.9% during the nine months ended September 30, 1997. The increase in software development and technology expenses is attributable primarily to the increased expenses incurred in connection with the redevelopment of the Company's auction platform, the purchase of a new accounting software package and the purchase and implementation of the personalization software engine. The reduction in software development and technology expense as a percentage of revenues is attributable to the significant growth in revenues during the period, and resulting economies of scale. Depreciation and Amortization. Depreciation and amortization expense was Cdn$136,000 for the nine months ended September 30, 1998 as compared to Cdn$83,000 for the nine months ended September 30, 1997, an increase of 63.9%. This increase was a result of a significant increase in equipment, computers, furniture and fixtures acquired by the Company during 1997 as the result of the growth of the Company. FOUR MONTH PERIOD ENDED DECEMBER 31, 1995 AND YEARS ENDED DECEMBER 31, 1996 AND 1997 Revenues. The Company did not commence actively marketing and promoting its Web site auctions until May 1997, and therefore generated only minimal revenues until May 1997. During the four month period ended December 31, 1995, the Company had no revenues as it was in the early stage of development of its technology platform and retail concept. Revenues for the year ended December 31, 1996 were Cdn$51,000. Revenues for the year ended December 31, 1997 were Cdn$2.671 million as a result of the commencement of more significant transactional business on the Web site in May 1997 and the growth of the Company's customer base due to alliances with the Company's strategic partners and the significant increase in Company's advertising. 37 Cost of Revenues. Cost of revenues for the four months ended December 31, 1995 and for the year ended December 31, 1996 were nil and Cdn$12,000, respectively, because the Company did not generate any significant revenues during these periods. Cost of revenues was Cdn$2.916 million for the year ended December 31, 1997, resulting in a negative gross margin of Cdn$(245,000). The significant increase in cost of revenues during 1997 and the resulting negative gross margin is attributable to a substantial increase in revenues. In addition, 1997 gross margins were affected by higher shipping and handling costs incurred by the Company to minimize shipping delays during a UPS strike. The Company elected not to pass these costs on to its customers. Advertising and Promotion Expenses. Advertising and promotion expenses were Cdn$2.521 million in the year ended December 31, 1997, including Cdn$698,000 for loss leader promotions, a significant portion of which is attributable to the first nine months of 1997. Advertising and promotion expenses were Cdn$403,000 in the year ended December 31, 1996 and Cdn$12,000 in the four months ended December 31, 1995. The Company conducted preliminary marketing during 1996, but substantially increased its efforts in 1997 with the execution of strategic alliances with AOL and the Toronto Star. General and Administrative Expenses. General and administrative expenses for the years ended December 31, 1997 and 1996 were Cdn$3.296 million and Cdn$1.504 million, respectively. General and administrative expenses were Cdn$112,000 for the four month period ended December 31, 1995. The increase from period to period reflects the growth of the Company's infrastructure and staff as the Company progressed from the development to revenue generation stage. Software Development and Technology Expenses. Software development and technology expense was Cdn$10,000 for the four months ended December 31, 1995, Cdn$143,000 for the year ended December 31, 1996 and Cdn$541,000 for the year ended December 31, 1997. Software development and technology expenses for the four months ended December 31, 1995 and the year ended December 31, 1996 were attributable primarily to the engagement of a software consultant. Software development and technology expenses increased in1997 due to the addition of a second software consultant and increased expenses incurred in connection with the redevelopment of the Company's auction platform launched in early 1998. Depreciation and Amortization. Depreciation and amortization expense for the four months ended December 31, 1995 and the years ended December 31, 1996 and 1997, were, respectively, Cdn$1,000, Cdn$100,000 and Cdn$122,000. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Company has been funded to date primarily through a series of private placements of equity and, in one instance a convertible debenture, sales of equity to and investments from strategic partners and cash flow from operations. The Company has received aggregate proceeds of Cdn$47.760 million through its private offerings, including, as of February 8, 1999, an aggregate of Cdn$11.701 million from the subsequent exercise of options and Common Share purchase warrants sold in such offerings, and an aggregate of Cdn$4.30 million (including Cdn$1.0 in the form of advertising credits) from sales to and investments from Rogers Media, Toronto Star and AOL. As of February 8, 1999, the Company had cash on hand and short-term investments of approximately Cdn$19.0 million. In addition, as of February 8, 1999, the Company had outstanding 4,938,609 exercisable options and warrants which expire at various time during 1999 ("Exercisable Warrants"). The exercise price of the Exercisable Warrants range from Cdn$1.40 to Cdn$1.75, and on February 8, 1999, the closing sales price of the Company's Common Shares on the TSE was Cdn$7.00. See "Trading History." If all of the Exercisable Warrants are exercised prior to their expiration, the Company will receive aggregate proceeds of Cdn$8.091 million. At September 30, 1998, the Company had cash on hand and short-term investments of approximately Cdn$9.1 million. See "Risk Factors-Need For Additional Financing." The Company believes that its present capital, anticipated proceeds from the expected exercise of the Exercisable Warrants and revenue from operations will be sufficient to finance its cash requirements for the next 12 months. Thereafter, the Company may need to raise additional funds. The exact amount of the Company's future 38 capital requirements will depend on numerous factors, including, but not limited to, slower growth and adverse changes in the E-commerce environment, delays in the growth of the Company's customer base, government regulations, failure or delays in executing marketing programs, growth that is more rapid than anticipated or competitive pressures. The Company may also need to raise additional funds sooner than anticipated in order to acquire businesses, technologies or products or fund investments and other relationships the Company believes are strategic. In addition, while the exercise prices of the Exercisable Warrants may currently be below the trading prices of the Company's Common Shares on the TSE, there can be no assurance that the Common Shares will continue to trade at prices that justify the exercise of the Exercisable Warrants, or that the holders of such warrants will, in fact, exercise them. Accordingly, the Company's actual capital requirements may vary from currently anticipated needs and such variations could be material. There can be no assurance that additional financing will be available when needed on commercially reasonable terms or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to funds its expansion, take advantage of strategic acquisitions, investment or licensing opportunities or respond to competitive pressures. Such inability to obtain additional financing when needed would have a material adverse effect on the Company's business, results of operations, financial condition and prospects . If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of the shareholders of the Company 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. In the four month period ended December 31, 1995, the Company invested Cdn$55,000 in fixed assets for computer hardware, equipment, furniture and fixtures. Additions to fixed assets during 1996 and 1997 were Cdn$396,000 and Cdn$247,000, respectively, primarily for computer hardware. During the nine months ended September 30, 1998, the Company invested Cdn$273,000 in fixed assets, primarily for computer hardware, leasehold improvements and furniture and fixtures, and Cdn$70,000 for trademarks. The Company has an agreement with a financial institution that settles credit card transactions for online auction sales. Under this agreement, the Company is required to maintain a cash reserve account in an amount determined based on a percentage of sales for the preceding six months. As of September 30, 1998, the Company was required to maintain Cdn$1.55 million in this account. The Company has available an aggregate of approximately Cdn$21.735 million of net operating losses for tax purposes that may be used to reduce taxable income in future years, of which Cdn$135,000 expires in 2001, Cdn$2.1 million expires in 2002, Cdn$6.7 million expires in 2003 and Cdn$12.8 million expires in 2004. The Company's net operating losses are subject to assessment of the Company's tax returns by taxation authorities. Since its inception, the Company raised a significant portion of its funding from the following strategic investments and financings: Strategic Investments. In February 1997, Toronto Star purchased from the Company 1.0 million Common Shares and a warrant to purchase an additional 500,000 Common Shares which it subsequently exercised, resulting in aggregate proceeds to the Company of Cdn$1.425 million. In addition, in February 1997, AOL purchased 1.0 million Common Shares for an aggregate purchase price of Cdn$1.0 million, which AOL paid by extending to the Company advertising credits in the same amount in lieu of cash. In July 1998, the Company issued to Rogers Media a Series B special warrant and a Common Share warrant for an aggregate purchase price of Cdn$1.875 million. The Series B special warrant was deemed exercised on October 7, 1998, and the Company issued to Rogers Media 1,500,000 Common Shares for no additional consideration. The Common Share purchase warrant entitles Rogers Media to acquire up to 100,000 Common Shares of the Company at a price of Cdn$1.40 per Common Share. This Common Share purchase warrant is exercisable on the date which is the earlier of: (i) the 10th business day following the date on which the Company delivers a notice to the holder of such common share warrant confirming it has filed a registration statement or preliminary prospectus for an initial public offering of shares of the Company in the United States for proceeds of at least Cdn$7.0 million; and (ii) July 31, 1999. 39 October 1997 Special Warrants. On October 3, 1997, the Company sold in a private placement a total of 6,335,000 special warrants at a price of Cdn$1.50 per special warrant for aggregate gross proceeds of Cdn$9.503 million. Each special warrant entitled the holder to acquire, for no additional consideration, one unit consisting of one Common Share and one-half of one share purchase warrant. The special warrants were exercised on February 2, 1998, for 6,335,000 Common Shares and 3,167,500 Common Share purchase warrants, each exercisable to purchase one Common Share at Cdn$1.65 per share. The 3,167,500 Common Share purchase warrants were exercised on January 3, 1999 resulting in additional proceeds to the Company of Cdn$5.226 million. The Company also granted to Yorkton Securities Inc. ("Yorkton") and First Marathon Securities Limited ("First Marathon"), placement agents for the offering, compensation warrants entitling them to receive, without the payment of any further consideration, up to 633,500 units (each unit consisting of one Common Share and one-half of one share purchase warrant) at a price of Cdn$1.50 per unit at any time until January 3, 1999. Both the compensation warrants and the underlying warrants were exercised at $1.65 per share resulting in aggregate proceeds to the Company of Cdn$1.473 million. August 1998 Special Warrants. On August 4, 1998, the Company sold in a private placement a total of 8,100,000 special warrants at a price of Cdn$1.40 per special warrant for aggregate gross proceeds of Cdn$11.340 million. Each special warrant entitled the holder to acquire, for no additional consideration, one unit consisting of one Common Share and one-half of one share purchase warrant. The special warrants were exercised on September 30, 1998, for 8,100,000 Common Shares and 4,050,000 share purchase warrants, each exercisable to purchase one Common Share at Cdn$1.65 per share. Of these 4,050,000 share purchase warrants, as of February 8, 1999, 1,829,010 were exercised, resulting in proceeds to the Company of Cdn$3.018 million. The remaining 2,220,990 share purchase warrants are exercisable until the date which is the earlier of (i) 10 business days following the date upon which the Company delivers a notice to all holders of such share purchase warrants confirming that it has filed a preliminary prospectus or registration statement in connection with a public offering in the United States of at least Cdn$7. 0 million; and (ii) August 4, 1999. The Company also granted to Yorkton, placement agent for the offering, compensation warrants entitling Yorkton to receive, without payment of any further consideration, up to 860,000 units (each unit consisting of one Common Share and one-half of one share purchase warrant) at a price of Cdn$1.40 per unit at any time until November 4, 1999. The compensation warrants were exercised resulting in proceeds to the Company of Cdn$1.204 million. The underlying share purchase warrants remain outstanding and are exercisable to purchase an aggregate of 430,000 Common Shares at Cdn$1.65 per share. November 1998 Special Warrants. On November 30, 1998, the Company sold in a private placement 5,714,984 special warrants at a price of Cdn$1.75 per special warrant. The Company received proceeds of Cdn$10.001 million. Each special warrant entitles the holder thereof to acquire, for no additional consideration, one unit consisting of one Common Share and one-quarter of one share purchase warrant. The special warrants issued by the Company were exercised on January 28, 1999 for 5,714,984 Common Shares and 1,428,746 share purchase warrants, each exercisable to purchase one Common Share at Cdn$1.75 per share. Of these share purchase warrants, as of February 8, 1999, 145,500 were exercised, resulting in proceeds to the Company of Cdn$254,625. The remaining 1,283,246 warrants are exercisable until 5:00 p.m. (Toronto time) on the date which is the earlier of (i) 10 business days following the date upon which the Company delivers a notice to all holders of share purchase warrants confirming that it has filed a preliminary prospectus or registration statement in connection with a public offering in the United States of America of at least Cdn$7.0 million, and (ii) December 31, 1999. The Company also granted to Yorkton, placement agent for the offering, compensation warrants which entitle Yorkton to receive, without payment of additional consideration, options to purchase up to 611,498 units (each unit consisting of one Common Share and one-quarter of one share purchase warrant) at a price of Cdn$1.75 per unit at any time prior to December 31, 1999. In January 1999, Yorkton exercised 300,000 options for units consisting of 300,000 Common Shares and 75,000 Common Share purchase warrants, each exercisable to purchase one Common Share at Cdn$1.75 per share, resulting in proceeds to the Company of Cdn$525,000. In exercising the remaining 311,498 options (whether in whole or in part), the underwriter may, at its sole option, in lieu of satisfying the exercise price in cash, elect to receive an equal number of share purchase warrants issuable upon exercise of the units, but a lesser number of Common Shares of the Company, as determined in accordance with a formula set forth in the underwriting agreement between the Company and Yorkton. 40 YEAR 2000 As the year 2000 approaches, an issue exists for companies that rely on computers as a result of the computer industry's past practice of using two digits rather than four digits to identify the applicable year. Consequently, many software applications and programs may not properly recognize calendar dates beginning in the year 2000. If not corrected, these applications and programs could fail or create erroneous results. To correctly identify the Year 2000, a four-digit year code field will be required to be what is commonly termed "Year 2000 compliant." The Company has conducted a comprehensive examination of its information technology systems and software applications to determine year 2000 compliance. Based on its examination, the Company believes that these systems and software applications are year 2000 compliant. The Company's auction site at www.bid.com has been developed to be fully Year 2000 compliant. The Company recently began the process of reviewing its communications systems and other non-information technology systems to ascertain whether they are year 2000 compliant. The Company expects to complete this review by the end of February 1999. The Company believes that the costs to be incurred in reviewing its non- information technology systems will not be significant and that, overall, the costs of achieving year 2000 compliance will not be material. Management estimates that total costs attributable to year 2000 compliance efforts, both for past efforts and anticipated future efforts, will be approximately Cdn$270,000. The Company has begun contacting significant suppliers and third-party service providers to identify year 2000 problems and provide solutions to prevent the disruption of BID.COM business activities. Material areas of potential exposure include electronic data exchange systems operated by third parties with whom the Company transacts business, credit card processing companies and banks on whom the Company relies for purchase transactions and other Internet providers and services such as AOL and Rogers, on whom the Company relies for advertising and promotion. At present, the Company has very little information regarding the extent of year 2000 compliance by suppliers and third-party service providers. The Company expects to complete its review of the compliance efforts by these parties in February 1999. Until the Company gains a better understanding of the readiness and plans of its third-party suppliers and service providers, it does not have a basis for determining, or developing a response to, a worst case scenario which might result from their failure to be year 2000 compliant. At present, management anticipates that a likely worst case scenario would involve disruption of credit card transactions for purchases of products on the Web site auctions. This would likely lead to material interruption in product sales. When the Company completes its review of significant third party suppliers, it will assess worst case scenarios and, if necessary, develop one or more contingency plans. Readers are cautioned that forward-looking statements contained in this subsection "Year 2000" should be read in conjunction with the Company's disclosure under the heading "Forward Looking Statements" in the forepart of this Registration Statement. FINANCIAL RISKS AND OUTLOOK The Company transacts substantially all of its purchases and sales in U.S. dollars while the majority of the Company's operating expenses are in Canadian dollars. The Company does not have any hedging programs in place to manage the potential exposure to fluctuations in the U.S./ Canadian dollar exchange rate. Fluctuations in the U.S./ Canadian dollar exchange rate could have a material adverse effect on the Company's earnings and cash flows. See "Exchange Rates" at the forepart of this Registration Statement. 41 ITEM 9A- QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK (a) Quantitative Information about Market Risk Not applicable. (b) Qualitative Information about Market Risk Not applicable. 42 ITEM 10 - DIRECTORS AND OFFICERS OF REGISTRANT The following table sets forth the name, age and position of each of the directors and executive officers of the Company.
Name Age Position - ---- --- -------- Paul Godin/2,4/ 45 Chairman of the Board of Directors and Chief Executive Officer Jeffrey Lymburner/2,4/ 42 Director, President, Secretary and Treasurer T. Christopher Bulger/1,2,3,4/ 41 Director, Executive Vice President and Assistant Secretary Michael Abramsky 40 Director Dr. Duncan Copeland/1,3/ 42 Director David Pamenter 51 Director and Assistant Secretary Fred Singer 35 Director Brent Bowes 40 Vice President, Corporate Controller and Assistant Secretary Paul Hart 43 Chief Financial Officer Robert W.A. Joynt 51 Vice President--General Merchandising Manager James I. Moskos 36 Vice President--Technology
________________________ (1) Member of Audit Committee (2) Member of Executive Committee (3) Member of the Compensation Committee (4) Member of the Stock Option Committee The business experience of each of the directors and executive officers of the Company for at least the last five years is as follows: Paul Godin is a founding shareholder of the Company and has served as Chairman of the Board of Directors and Chief Executive Officer since September 1995. Mr. Godin served as President of the Company from September 1995 until June 1998. Mr. Godin has 20 years of marketing experience in the retail and wholesale electronics and computer industries. From 1994 to 1995, Mr. Godin was Senior Vice President--Corporate Sales and Marketing for Completely Mobile Inc., a Canadian company which designs and implements wireless data systems. From 1993 to 1994, he was Vice President and General Manager of Casio Canada Inc., makers of calculators and household electronic goods. From 1990 to 1993 Mr. Godin was Vice President--Sales and Marketing, for Alpine Electronics of Canada Inc. and, prior to that, he privately consulted to Canadian Airlines, H.J. Heinz, and Clarion Canada. Jeffrey Lymburner is a founding shareholder of the Company and has served as President of the Company since August 1998, Executive Vice President from September 1995 until August 1998 and as a Director, Secretary and Treasurer since September 1995. Mr. Lymburner is also President of the Company's subsidiary, Internet Liquidators USA Inc. From 1990 to 1995, Mr. Lymburner was President of Completely Mobile Inc., and prior to that, he served in various management positions with Multitech Warehouse Direct, a Canadian consumer electronics retail chain. T. Christopher Bulger has served as Executive Vice President of the Company since September 1998, and as a Director since June 1996 and as Assistant Secretary since September 1996. Mr. Bulger served as Chief Financial Officer of the Company from April 1996 to September 1998. Since 1994, Mr. Bulger has been a partner with HDL Capital Corporation, a Toronto-based merchant bank. Michael Abramsky has served as a Director of the Company since August 1998. Mr. Abramsky joined Rogers New Media, in March 1997 and since January 1998 has been its President. From March 1996 to March 1997, Mr. 43 Abramsky was Vice President-Marketing for InSystems, a software development company. From February 1993 to March 1996, Mr. Abramsky was Vice President- Marketing for Delrina Corp. (now part of the Symantec Group), a software company. Prior to joining Delrina, Mr. Abramsky was the Marketing Director for Interleaf Canada. Dr. Duncan Copeland has served as a Director of the Company since September 1995. Dr. Copeland is the President of Copeland & Company, a Washington D.C.- based international consultancy firm, and is a Visiting Professor of business at Georgetown University. From July 1989 to June 1996, Dr. Copeland served on the faculty of the Richard Ivey School of Business at the University of Western Ontario as a professor of Information Management and as Chief Information Officer of the institution. David Pamenter has served as a Director of the Company since June 1997 and as an Assistant Secretary since January 1997. Since July 1995, Mr. Pamenter has been a partner in the Toronto, Ontario law firm of Gowling, Strathy & Henderson, Barristers & Solicitors, and from 1977 to 1995, Mr. Pamenter was a partner in the Toronto law firm of Lang Michener, Barristers & Solicitors. Fred Singer has served as a Director of the Company since June 1997. Mr. Singer has been the Senior Vice President of AOL Studios, a division of AOL, since November 1997. Mr. Singer also serves as an advisor and board member on several AOL Studios companies. From April 1996 to November 1996, Mr. Singer was Vice President--Corporate Development of AOL, and from November 1996 to November 1997 he was Vice President of AOL Studios. From 1992 to March 1996, Mr. Singer was founder and Vice President of Digital Inc., the Washington Post electronic subsidiary, and from August 1992 to July 1993, he served as a director of corporate development for the Washington Post Company. Mr. Singer also previously worked as an international consultant at Bain and Company and in various brand management positions with Proctor and Gamble. Brent Bowes has served as Vice President of the Company since October 1998, as its Corporate Controller since May 1996 and as an Assistant Secretary since January 1997. From February 1991 to April 1996, Mr. Bowes was a Senior Accountant in the Corporate Finance Group of Deloitte & Touche, Chartered Accountants. Prior to that, Mr. Bowes served in various management positions within the manufacturing, financial and retail sectors. Paul Hart has served as Chief Financial Officer of the Company since October 1998 and Senior Vice President - Finance from August 1998 to September 1998. From March 1995 to July 1998, Mr. Hart was Vice President-Finance of Canadian Automatic Data Processing Services, Limited, and from June 1990 to February 1995, Mr. Hart served as Vice President and Treasurer of Simcoe Erie Investor Limited, an insurance company and part of the GAN Group. Robert W.A. Joynt has served as the Vice President--General Merchandising Manager of the Company since January 1996. From July 1994 to December 1995, Mr. Joynt was Vice President--Sales and Marketing of Logitech Electronics Inc., a consumer electronics company and from September 1984 to June 1994, he served as President of Koss Limited and Vice President of Koss Corporation, a consumer electronics company. James I. Moskos has served as the Vice President--Technology of the Company since September 1997. From September 1994 to August 1997, Mr. Moskos was Senior Technology Manager for the Canadian Department of Indian Affairs and Northern Development (the "Department") responsible for setting the technical direction for all aspects of application development. From 1992 to 1994, Mr. Moskos was Client Services Manager for the Department. Under Canadian law, a majority of the Board of Directors must be residents of Canada. Each director of the Company holds office until the next annual meeting of shareholders or until his successor has been elected and qualified. The executive officers of the Company are appointed by the Board of Directors of the Company and serve at the discretion of the Board of Directors. 44 ITEM 11 - COMPENSATION OF DIRECTORS AND OFFICERS SUMMARY COMPENSATION TABLE The following table provides a summary of compensation earned during the fiscal year ended December 31, 1998 by the Executive Officers of the Company. /(1)/
Other Annual Compensation Annual All Other ---------------------------- Compen- Options Compen- Name And Principal Position Salary Bonus sation Granted Sation --------------------------- ------ ------ ------ -------- ------ (Cdn $) (Cdn $) (Cdn.$) (#) (Cdn $) Paul Godin...................... 178,300 Nil 12,000/(2)/ 50,000 Nil Chairman & CEO Jeffrey Lymburner............. 170,500 Nil Nil 100,000 Nil President T. Christopher Bulger......... 132,000 100,000 12,000/(2)/ 125,000 Nil Executive Vice-President Brent Bowes..................... 80,800 Nil 6,000/(2)/ 50,000 Nil Vice-President, Corporate Controller Robert W.A. Joynt............ 154,300 8,500 6,000/(2)/ 35,000 21,000/(3)/ Vice-President James I. Moskos................ 102,200 Nil 4,500/(2)/ 100,000 Nil Vice-President, Technology
__________ (1) For the purposes of disclosure of Compensation of Directors and Executive Officers in Item 11, "Executive Officer" means the Chairman, President, Chief Executive Officer, Vice-President, and any other officer of the Corporation or person who performed a policy making function and whose total compensation earned during the fiscal year was greater than Cdn $100,000. (2) Received on account of car reimbursement expenses and other expenses. (3) Net proceeds on the exercise of stock options. Each of Paul Godin and Jeffrey Lymburner has entered into a non-competition and salary protection agreement with the Company dated February 21, 1997, which provides, among other things, that he (i) will not compete with the Company for a period of 12 months, which may be extended by the Company to 24 months, following the termination of his employment with the Company, in consideration of which the Company will pay his full annual salary during such period; and (ii) if his employment with the Company is terminated other than by reason of death, disability or cause (as such terms are defined in such agreements), the Company will continue to pay his full annual salary for 12 months (or 24 months if the Company exercises its option to extend the non-competition restrictions for 24 months) following the date of termination. STOCK OPTION PLAN The Company has adopted a Stock Option Plan pursuant to which it grants options to purchase Common Shares. The purpose of the Stock Option Plan is to afford directors, executive officers and key employees of the 45 Company and its subsidiaries (such persons, collectively, "Insiders") who are responsible for the continued growth of the Company an opportunity to acquire an ownership interest in the Company, and thus create in such persons an increased interest in, and a greater concern for, the welfare of the Company and its subsidiaries. The Stock Option Plan is administered by the Board of Directors. The Board of Directors determines those individuals who will receive options, the time period during which the options may be partially or fully exercised and the number of Common Shares that may be purchased under each option. Options may be granted for a term not to exceed ten years. The Board of Directors may determine the exercise price of options granted under the Stock Option Plan, provided that the options may not have an exercise price of an amount less than the market price of the Common Shares on the date of the grant. There are 2,100,000 Common Shares available for option grants under the plan. The granting of options under the Stock Option Plan is subject to the following conditions: (i) not more than 10% of the number of Common Shares issued and outstanding from time to time (the "Outstanding Issue") may be reserved for the granting of options to Insiders within a one-year period; and (ii) not more than 5% of the Outstanding Issue may be issued to any one Insider in a one-year period. Options granted under the Stock Option Plan are not transferable. Except under certain circumstances such as death, disability or retirement and unless otherwise specified by the Board of Directors, options granted under the Stock Option Plan become null and void upon the termination of an option holder's employment with the Company. Subject to certain limits, the Board of Directors may amend the Stock Option Plan. OPTIONS GRANTED TO EXECUTIVE OFFICERS DURING FISCAL YEAR ENDED DECEMBER 31, 1998 The following table sets forth the stock options granted to the Executive Officers pursuant to the Stock Option Plan during the fiscal year ended December 31, 1998.
Name Securities % of Total Exercise Price Market Value Expiration - ---------------------- Underlying Options Per Share Per Share of Date Options Granted Granted to (Cdn $) Securities Executives --------------- Underlying in Fiscal Year Options on the -------------- Date of Grant (Cdn $) ---------------- Paul Godin................. 50,000 5.5% 1.40 1.40 6/30/00 Jeffrey Lymburner.......... 50,000 5.5% 2.35 2.35 0 50,000 5.5% 1.40 1.40 6/30/00 T. Christopher Bulger..... 75,000 8.2% 2.35 2.35 2/2/00 50,000 5.5% 1.40 1.40 6/30/00 Brent Bowes............... 25,000 2.7% 2.35 2.35 2/2/00 25,000 2.7% 1.40 1.40 6/30/00 Robert W. A. Joynt........ 10,000 1.1% 1.40 1.40 6/30/00 25,000 2.7% 2.35 2.35 2/2/00 James I. Moskos............ 50,000 5.5% 2.35 2.35 2/2/00 50,000 5.5% 1.40 1.40 6/30/00
46 OPTIONS EXERCISED BY EXECUTIVE OFFICERS DURING FISCAL YEAR ENDED DECEMBER 31, 1998 The following table sets forth certain information regarding stock options exercised by the Executive Officers during the fiscal year ended December 31, 1998.
Number of Value of Number of Unexercised Unexercised Securities Options at 12/31/98 in-the-Money Options Acquired Value Exercisable/ at Name on Exercise Realized Unexercisable 12/31/98 - --------------------- ------------ ---------- ------------------- -------- (Cdn$) (Cdn$) Paul Godin................ NIL NIL 150,000/NIL 348,000 Jeffrey Lymburner......... NIL NIL 175,000/NIL 352,250 T. Christopher Bulger..... NIL NIL 300,000/NIL 621,000 Brent Bowes............... NIL NIL 50,000/NIL 87,250 Robert W. A. Joynt........ 15,000 21,000 47,500/NIL 86,067 James I. Moskos........... NIL NIL 150,000/NIL 305,500
ITEM 12 - OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES As of February 8, 1999, options and warrants to purchase 6,379,609 Common Shares were outstanding as follows: ISSUED UNDER STOCK OPTIONPLAN
Optionee Number of Date of Grant Exercise Expiry Date - -------- Shares -------------- Price ----------- ------ ----- (Cdn$) Executive Officers 50,000 February 29, 1996 1.25 February 28, 1999 (7 persons) 10,000 September 2, 1997 1.00 August 31, 1999 200,000 September 2, 1997 1.25 August 31, 1999 225,000 February 3, 1998 2.35 February 2, 2000 235,000 June 23, 1998 1.40 June 30, 2000 100,000 October 22, 1998 1.00 November 17, 2002 265,000 January 25, 1999 5.05 January 24, 2002 Directors who are not 10,000 February 29, 1996 1.25 February 28, 1999 Executive Officers 50,000 September 2, 1997 1.25 August 31, 1999 (3 persons) 80,000 June 23, 1998 1.40 June 30, 2000 25,000 January 25, 1999 5.05 January 24, 2002 Other employees 5,000 February 29, 1996 1.25 February 28, 1999 (15 persons) 55,000 September 2, 1997 1.00 August 31, 1999 98,500 February 3, 1998 2.35 February 2, 2000 77,500 June 23, 1998 1.40 June 30, 2000 35,000 January 25, 1999 5.05 January 24, 2002 --------- Total 1,521,000 =========
47
ISSUED UNDER OTHER SECURITIES EXEMPTIONS Optionee Number of Date of Grant Exercise Expiry Date - --------- Shares ------------ Price ----------- ------ ----- (Cdn$) Other 60,000 September 2, 1997 1.00 August 31, 1999 50,000 October 22, 1998 0.80 October 21, 2001 250,000 November 11, 1998 1.16 November 10, 2001 100,000 July 29, 1998 1.40 /(1)/ 2,220,990 August 4, 1998 1.65 /(2)/ 430,000 August 4, 1998 1.65 November 4, 1999 1,283,246 November 30, 1998 1.75 /(3)/ 464,373/(4)/ November 30, 1998 1.75 December 31, 1999 --------- Total 4,858,609 =========
- ---------------------- (1) This Common Share purchase warrant held by Rogers Media is exercisable until 5:00p.m. (Toronto time) on the date which is the earlier of: (i) the 10th business day following the date on which the Company delivers a notice to the holder of such common share warrant confirming it has filed a registration statement or preliminary prospectus for an initial public offering of shares of the Company in the United States for proceeds of at least Cdn$7,000,000; and (ii) July 31, 1999. (2) These Common Share purchase warrants issued in connection with the Company's August 1998 private placement are exercisable until 5 p.m. (Toronto time) on the date which is the earlier of (i) ten (10) business days following the date upon which the Company delivers a notice to all holders of such share purchase warrants confirming that it has filed a preliminary prospectus or registration statement in connection with a public offering in the United States of at least Cdn$7,000,000; and (ii) August 4, 1999. (3) These Common Share purchase warrants issued in connection with the Company's November 1998 private placement are exercisable until 5:00 p.m. (Toronto time) on the date which is the earlier of (i) ten (10) business days following the date upon which the Company delivers a notice to all holders of share purchase warrants confirming that it has filed a preliminary prospectus or registration statement in connection with a public offering in the United States of America of at least Cdn$7,000,000, and (ii) December 31, 1999. (4) Includes: (i) 311,498 unexercised options to purchase units issued to Yorkton in connection with the Company's November 1998 private placement, each unit consisting of one Common Share and one-quarter of one Common Share purchase warrant, at Cdn$1.75 per unit, and warrants to purchase 77,875 Common Shares issuable upon exercise of those options; and (ii) 75,000 Common Share purchase warrants, issued to Yorkton upon its exercise of 300,000 additional options. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources." ITEM 13 - INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS Paul Godin and Jeffrey Lymburner, the founders and promoters of the Company, sold all of their shares of Internet Liquidators Inc. to Avonlee Capital Corporation (a predecessor of the Company) for consideration equal to Cdn$0.80 per share payable in previously unissued shares of Avonlee Capital Corporation. This transaction was completed on May 28, 1996 pursuant to a share exchange agreement dated May 15, 1996. The value of the consideration received by Messrs. Godin and Lymburner was based upon an independent valuation of Internet Liquidators Inc. as of March 31, 1996, prepared by SLF Valuation Services Inc. 48 The Company and AOL have entered into the AOL Marketing Agreement and related agreements. AOL purchased 1.0 million Common Shares. The Company has granted to AOL certain registration rights with respect to such Common Shares. Fred Singer, an officer of AOL, is a director of the Company. Mr. Singer was appointed as a director of the Company pursuant to a shareholders agreement between AOL and the Company that had, among other things, granted AOL the right to nominate representatives to the Company's Board of Directors. The shareholders agreement was terminated in February 1998, but Mr. Singer remains a director of the Company. See "Business--Marketing." The Company and Toronto Star have entered into the Torstar Agreement and related agreements. Toronto Star purchased 1.5 million Common Shares. Rocco Rossi, an officer of Toronto Star, was a director of the Company from February 1997 through November 1998. Mr. Rossi was appointed as a director of the Company pursuant to a shareholders agreement between Toronto Star and the Company that had, among other things, granted the Toronto Star the right to nominate representatives to the Company's Board of Directors. The shareholders agreement was terminated in February 1998. The Company and Rogers Media entered into the E-Commerce and Promotion Services Agreement on July 29, 1998. Rogers Media purchased 1.5 million Common Shares and warrants to purchase 100,000 Common Shares at Cdn$1.40 per Common Share. Michael Abramsky, an officer of Rogers Media, is a director of the Company. Mr. Abramsky was appointed as a director of the Company pursuant to the E-Commerce and Promotion Services Agreement. See "Options to Purchase Securities from Registrant and Subsidiaries." During 1996, 1997 and 1998, the Company paid to HDL aggregate fiscal agent fees of Cdn$178,000, Cdn$161,280 and Cdn$96,000, respectively, in connection with investment banking services provided by HDL to the Company. T. Christopher Bulger, a Director, Executive Vice President and Assistant Secretary of the Company, is a principal and Vice President of HDL. HDL owns options to purchase 200,000 Common Shares. David Pamenter, a director of the Company, is a partner in the Toronto law firm of Gowlings, Strathy & Henderson, which provided legal services to the Company during 1996, 1997 and 1998 and continues to provide legal services to the Company. 49 PART II ITEM 14 - DESCRIPTION OF SECURITIES TO BE REGISTERED The authorized capital of the Company consists of an unlimited number of Common Shares and an unlimited number of preference shares ("Preference Shares"), issuable in series. As of February 8, 1999, 45,017,956 Common Shares and no Preference Shares were issued and outstanding. The issued and outstanding Common Shares are fully paid and non-assessable. Holders of Common Shares are entitled to one vote per share in the election of directors and on all other matters on which shareholders are entitled or permitted to vote. Cumulative voting in the election of directors is not permitted. Holders of Common Shares have no redemption, conversion, preemptive or other subscription rights. The holders of the Common Shares are entitled to receive, on a pro-rata basis, such dividends as may be declared by the Board of Directors of the Company out of funds legally available for such payments. In the event of the liquidation, dissolution or winding-up of the Company, the holders of Common Shares will be entitled, subject to the rights of any holder of Preferred Shares, to share, on a pro rata basis, in all of the assets of the Company remaining after payment of all the Company's liabilities. Under the Company's Articles of Amalgamation, the Board of Directors is authorized, subject to certain limitations prescribed by law, to issue an unlimited number of Preference Shares without shareholder approval in one or more series and to fix the designations, rights, privileges and restrictions thereof, including the dividend rate, conversion or exchange rights and redemption price of any such series. The Company's Articles of Amalgamation currently provide that all series of such Preference Shares are entitled to share ratably in the assets of the Company in the event of liquidation, dissolution, or the winding up of the affairs of the Company. The Company has not issued any Preference Shares to date. Any Preference Shares issued in the future could have conversion rights which may result in the issuance of additional Common Shares which could dilute the interests of the holders of Common Shares. Such shares could also have voting rights and liquidation preferences which are senior to the rights and preferences of the Common Shares. Additionally, such shares could have dividend rates and redemption or other provisions which could adversely affect the Company's ability to pay dividends on the Common Shares or prohibit payment of such dividends. Such shares could also be issued, under certain circumstances, in an attempt to prevent a takeover of the Company, and such issuance could adversely impact holders of Common Shares who might vote in favor of a proposed merger, tender offer or similar transaction. The Company has no current plans to issue any Preference Shares. The Company's transfer agent and registrar for the Common Shares and warrant agent for the Company's warrants is CIBC Mellon Trust Company, 320 Bay Street, Toronto, Ontario, M5H 4A6, Canada. 50 PART III ITEM 15 - DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 16 - CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES AND USE OF PROCEEDS Not applicable. PART IV ITEM 17 - FINANCIAL STATEMENTS Attached. See Item 19(a). ITEM 18 - FINANCIAL STATEMENTS Not applicable. ITEM 19 - FINANCIAL STATEMENTS AND EXHIBITS (A) CONSOLIDATED FINANCIAL STATEMENTS FILED AS PART OF THIS REGISTRATION STATEMENT. Auditors' Report for the periods ended December 31, 1997, 1996 and 1995...................................................... F-1 Consolidated Balance Sheets as at December 31, 1997 and 1996 (audited) and as at September 30, 1998 and 1997 (unaudited).......................................... F-2 Consolidated Statements of Loss for the periods ended December 31, 1997, 1996 and 1995 (audited) and for the nine months ended September 30, 1998 and 1997 (unaudited)................................................... F-3 Consolidated Statements of Deficit for the periods ended December 31, 1997, 1996 and 1995 (audited) and for the nine months ended September 30, 1998 and 1997 (unaudited)................................................... F-4 Consolidated Statements of Changes in Financial Position for the periods ended December 31, 1997, 1996 and 1995 (audited) and for the nine months ended September 30, 1998 and 1997 (unaudited).......................................... F-5 Notes to Financial Statements for the periods ended December 31, 1997, 1996 and 1995 (audited) and for the nine months ended September 30, 1998 and 1997 (unaudited)................................................... F-6 (B) EXHIBITS FILED AS PART OF THIS REGISTRATION STATEMENT. *1.1 Articles of Incorporation of the Company. *1.2 By-laws of the Company. 51 *3.1 Subscription Agreement dated February 12, 1997, between the Company and Toronto Star. *3.2 E-Commerce Services Agreement dated as of February 12, 1997 between The Company and Toronto Star and Clarification letter dated July 22, 1998. *3.3 Intellectual Property Rights and Non-Competition Agreement dated February 12, 1997 between the Company and the Toronto Star. *3.4 Subscription Agreement dated February 18, 1997, between the Company and AOL. *3.5 Intellectual Property Rights and Non-Competition Agreement dated February 21, 1997 between the Company and AOL. *3.6 Interactive Marketing Agreement dated as of November 1, 1997 between the Company and AOL (replacing the Auction Services Agreement dated February 21, 1997, between the Company and AOL). 3.7 Form of Subscription Agreement dated October 3, 1997 between the Company and each of the Investors in the October 3, 1997 private placement. 3.8 Special Warrant Indenture dated October 3, 1997 between the Company and CIBC Mellon Trust Company. *3.9 Share Purchase Warrant Indenture dated October 3, 1997 between the Company and CIBC Mellon Trust Company. 3.10 Underwriting Agreement dated October 3, 1997 between the Company, Yorkton Securities Inc. and First Marathon Securities Limited. 3.11 Form of Subscription Agreement dated August 4, 1998 between the Company and each of the Investors in the August 4, 1998 private placement 3.12 Special Warrant Indenture dated August 4, 1998 among the Company, certain Selling Shareholders and CIBC Mellon Trust Company. 3.13 Share Purchase Warrant Indenture dated August 4, 1998 among the Company, Certain Selling Shareholders and CIBC Mellon Trust Company. 3.14 Underwriting Agreement dated August 4, 1998 between the Company and Yorkton Securities Inc. *3.15 Subscription Agreement dated July 29, 1998 between the Company and Rogers Media. *3.16 E-Commerce and Promotional Services Agreement between the Company and Rogers Media dated as of July 29, 1998. 3.17 Form of Subscription Agreement dated November 30, 1998 among the Company and the Investors in the November 30, 1998 private placement. 3.18 Underwriting Agreement dated November 30, 1998 between the Company and Yorkton Securities Inc. 52 3.19 Special Warrant Indenture dated November 30, 1998 among the Company, certain Selling Shareholders and CIBC Mellon Trust Company. 3.20 Share Purchase Warrant Indenture dated November 30, 1998 among the Company, certain Selling Shareholders and CIBC Mellon Trust Company. *3.21 License Agreement between the Company and American Interactive Media Inc. *3.22 Distribution Agreement between the Company and Micra SoundCards. _________________ * To be filed by Amendment to this Registration Statement. 53 Auditors' Report To the Directors of BID.COM International Inc. (formerly known as Internet Liquidators International Inc.) We have audited the consolidated balance sheets of BID.COM International Inc. as at December 31, 1997 and 1996 and the consolidated statements of operations, deficit and changes in cash flows for the periods ended December 31, 1997, 1996 and 1995. 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 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. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1997 and 1996 and the results of its operations and the changes in its cash flows for the periods ended December 31, 1997, 1996 and 1995 in accordance with generally accepted accounting principles. DELOITTE & TOUCHE LLP Chartered Accountants Toronto, Ontario March 23, 1998, except as to Note 13 which is as of January 18, 1999. BID.COM INTERNATIONAL INC. (Formerly Internet Liquidators International Inc.) Consolidated Balance Sheets (expressed in thousands of Canadian Dollars) - -------------------------------------------------------------------------
September 30, December 31, ---------------------------- ------------------------------------- 1998 1998 1997 1997 1996 --------- ----------------- -------- ----------------- -------- (unaudited) Convenience Convenience translation into translation into U.S. $ (Note 14) U.S. $ (Note 14) ASSETS CURRENT Cash and short-term investments (Note 10(a)) $ 9,090 $ 5,956 $ 2,177 $ 1,426 $ 62 Accounts receivable 284 186 166 109 49 Special warrants receivable (Note 8) - - 2,189 1,434 - Inventory 216 142 201 132 - Deposits and prepaid expenses 1,823 1,194 1,678 1,099 10 - ------------------------------------------------------------------------------------------------------------- 11,413 7,478 6,411 4,200 121 CAPITAL ASSETS (Note 4) 625 410 475 311 350 TRADEMARKS AND INTELLECTUAL PROPERTY 57 37 - - - - ------------------------------------------------------------------------------------------------------------- $ 12,095 $ 7,925 $ 6,886 $ 4,511 $ 471 ============================================================================================================= LIABILITIES CURRENT Accounts payable $ 1,933 $ 1,266 $ 1,216 $ 796 396 Accrued liabilities 2,831 1,855 107 70 26 Loan payable (Note 5) - - - - 258 - ------------------------------------------------------------------------------------------------------------- 4,764 3,121 1,323 866 680 - ------------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY) Share capital (Note 7) 29,178 19,118 6,140 4,023 2,037 Special warrants (Note 8) - - 8,394 5,500 - Deficit (21,847) (14,314) (8,971) (5,878) (2,246) - ------------------------------------------------------------------------------------------------------------- 7,331 4,804 5,563 3,645 (209) - ------------------------------------------------------------------------------------------------------------- $ 12,095 $ 7,925 $ 6,886 $ 4,511 $ 471 =============================================================================================================
BID.COM INTERNATIONAL INC. Consolidated Statements of operations (expressed in thousands of Canadian Dollars) - -----------------------------------------------------------------------------
Four months Nine months ended Year ended ended September 30, December 31, December 31, ----------------------------------- ---------------------------------- ------------- 1998 1998 1997 1997 1997 1996 1995 ---------- ------------ --------- --------- ------------ --------- ------------- (unaudited) Convenience Convenience translation translation into U.S. $ into U.S. $ (Note 14) (Note 14) REVENUE $ 13,712 $ 8,984 $ 1,176 $ 2,671 $ 1,750 $ 51 $ - - ----------------------------------------------------------------------------------------------------------------------------- COST OF REVENUES 13,422 8,794 1,455 2,916 1,911 12 - - ----------------------------------------------------------------------------------------------------------------------------- 290 190 (279) (245) (161) 39 - EXPENSES Advertising and promotion (Note 12) 8,902 5,832 1,234 2,521 1,652 403 12 Computing and communication fees 151 99 170 271 178 79 2 Depreciation and amortization 136 89 83 122 80 100 1 Filing fees and investor relations 261 171 72 104 68 87 3 Interest expense 5 3 8 19 12 - - Office and general 984 645 247 510 334 214 21 Professional fees 332 218 207 354 232 291 28 Salaries and consulting 1,651 1,082 1,122 1,845 1,209 709 56 Software development and technology 494 324 163 541 354 143 10 Travel and entertainment 250 163 88 193 127 124 2 - ----------------------------------------------------------------------------------------------------------------------------- 13,166 8,626 3,394 6,480 4,246 2,150 135 - ----------------------------------------------------------------------------------------------------------------------------- NET LOSS FOR THE PERIOD $(12,876) $(8,436) $(3,673) $(6,725) $(4,407) $(2,111) $ (135) ============================================================================================================================= BASIC AND DILUTED LOSS PER SHARE $(0.62) $(0.41) $(0.31) $(0.55) $(0.36) $(0.21) $(0.01) =============================================================================================================================
BID.COM INTERNATIONAL INC. Consolidated Statements of Deficit (expressed in thousands of Canadian Dollars) - --------------------------------------------------------------------------------
Four months Nine months ended Year ended ended September 30, December 31, December 31, ----------------------------------- ---------------------------------- ------------- 1998 1998 1997 1997 1997 1996 1995 ---------- ------------ --------- --------- ------------ --------- ------------- (unaudited) Convenience Convenience translation translation into U.S. $ into U.S. $ (Note 14) (Note 14) DEFICIT, BEGINNING OF PERIOD $ (8,971) $ (5,878) $(2,246) $(2,246) $(1,471) $ (135) $ - NET LOSS FOR THE PERIOD (12,876) (8,436) (3,673) (6,725) (4,407) (2,111) (135) DEFICIT, END OF PERIOD $(21,847) $(14,314) $(5,919) $(8,971) $(5,878) $(2,246) $(135)
BID.COM INTERNATIONAL INC. Consolidated Statements of Changes in Cash Flows (expressed in thousands of Canadian Dollars) - --------------------------------------------------------------------------------
Four months Nine months ended Year ended ended September 30, December 31, December 31, ----------------------------------- ---------------------------------- ------------- 1998 1998 1997 1997 1997 1996 1995 ---------- ------------ --------- --------- ------------ --------- ------------- (unaudited) Convenience Convenience translation translation into U.S. $ into U.S. $ (Note 14) (Note 14) NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING ACTIVITIES OPERATING Net loss for the period $(12,876) $(8,437) $(3,673) $(6,725) $(4,406) $(2,111) $(135) Items not affecting cash Depreciation and amortization 136 89 83 122 80 100 1 - ----------------------------------------------------------------------------------------------------------------------------- (12,740) (8,348) (3,590) (6,603) (4,326) (2,011) (134) Changes in non-cash operating working capital items (Note 11) 3,162 2,072 153 (1,085) (711) 381 9 - ----------------------------------------------------------------------------------------------------------------------------- (9,578) (6,276) (3,437) (7,688) (5,037) (1,630) (125) - ----------------------------------------------------------------------------------------------------------------------------- INVESTING Purchase of capital assets (273) (178) (77) (247) (162) (396) (55) Acquisition of net assets of subsidiary (Note 3) - - - - - (27) - Purchase of trademarks and intellectual property (70) (46) - - - - - - ----------------------------------------------------------------------------------------------------------------------------- (343) (224) (77) (247) (162) (423) (55) - ----------------------------------------------------------------------------------------------------------------------------- FINANCING Issuance of common shares and debentures (net of expenses) (Note 7) 14,645 9,596 3,986 4,103 2,688 1,786 251 Issuance of special warrants (net of expenses) (Note 8) - - - 8,394 5,493 - - Special warrants receivable 2,189 1,434 - (2,189) (1,434) - - Loans payable - - (138) (258) (163) 258 - - ----------------------------------------------------------------------------------------------------------------------------- 16,834 11,030 3,848 10,050 6,584 2,044 251 - ----------------------------------------------------------------------------------------------------------------------------- NET CASH INFLOW (OUTFLOW) DURING THE PERIOD 6,913 4,530 334 2,115 1,385 (9) 71 CASH, BEGINNING OF PERIOD 2,177 1,426 62 62 41 71 - - ----------------------------------------------------------------------------------------------------------------------------- CASH, END OF PERIOD $ 9,090 $ 5,956 $ 396 $ 2,177 $ 1,426 $ 62 $ 71 =============================================================================================================================
BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements (expressed in Canadian Dollars) - -------------------------------------------------------------------------------- Information as at and for the years ended December 31, 1997 and 1996 and four months ended December 31, 1995 is audited, and information as at September 30, 1998 and for the nine months ended September 30, 1998 and 1997 is unaudited. 1. DESCRIPTION OF BUSINESS BID.COM International Inc. (formerly Internet Liquidators International Inc.) was incorporated under the Business Corporations Act of the Province of Ontario on November 28, 1983. Internet Liquidators Inc ., a wholly-owned subsidiary of BID.COM International Inc. was incorporated under the Business Corporations Act of the Province of Ontario on September 1, 1995. Internet Liquidators USA, Inc., a wholly-owned subsidiary of Internet Liquidators Inc. was incorporated under the laws of the State of Florida on May 6, 1996. BID.COM International Inc. and Internet Liquidators Inc. were amalgamated on January 9, 1997. Internet Liquidators International Inc. changed its name to BID.COM International Inc. on June 25, 1998. The Company operates an online retail commerce business, specializing in online auctions, at its Website and at other Websites with whom the Company has strategic alliances. The Company incurred significant start up losses during its development stage as it developed its proprietary technology, infrastructure, Website and business operations. Anticipated ongoing growth will be financed by the achievement of profitable operations and the raising of additional funds from lenders and equity markets, including the common shares issued on January 23, 1998 pursuant to the exercise of the special warrants issued on October 3, 1997 (Note 8). Additional funds have been raised in the period from January 1, 1998 to January 18, 1999 (see Note 13). 2. SIGNIFICANT ACCOUNTING POLICIES Basis of presentation 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 (see Note 15). Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany transactions have been eliminated. Inventory The Company's operating policy is not to purchase inventory for resale but to ship direct from suppliers. Inventory on the balance sheets reflects sales returns in transit which are valued at the lower of cost or net realizable value and at the option of the Company are held for resale or returned to suppliers for credit. Deposits and prepaid expenses Prepaid advertising including that arising on the issuance of common shares is written off as used based on the frequency of advertiser impressions and corresponding rate schedules. 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Capital assets and depreciation Capital assets are carried at cost less accumulated depreciation. Depreciation is calculated on the straight-line basis in amounts sufficient to amortize the cost of capital assets over their estimated useful lives as follows: Equipment - 20% per year Furniture and fixtures - 20% per year Computer hardware - 30% per year Leasehold improvements - 3 years Trademarks and intellectual property Trademarks and intellectual property are recorded at cost and amortized on a straight-line basis over two years. Software development costs The costs of acquired software and internally developed software are expensed as incurred. Translation of foreign currencies The accompanying consolidated financial statements are prepared in Canadian dollars. All foreign denominated transactions 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 revenues and expenses at the average monthly rate. Gains or losses from exchange translations are included in the statements of operations. Loss per share The basic loss per share calculation is based on the weighted average number of shares outstanding during the period. No fully diluted calculation is included as it would reduce the loss per share. Revenue recognition Revenue from product sales, commissions, shipping and handling are recognized when the goods are shipped to customers. 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. 3. BUSINESS COMBINATION On May 28, 1996, Internet Liquidators Inc. and Avonlee Capital Corporation completed a Share Exchange Agreement which resulted in the shareholders of Internet Liquidators Inc. holding approximately 92.5% of the shares of Avonlee Capital Corporation. Coincident with this transaction, Avonlee Capital Corporation filed Articles of Amendment to change its name to Internet Liquidators International Inc. As a result of the business combination, the former shareholders of Internet Liquidators Inc. acquired control of Avonlee Capital Corporation. In accordance with generally accepted accounting principles, this business combination has been accounted for as a "reverse-take-over", as though Internet Liquidators Inc. acquired Avonlee Capital Corporation, although legally, Avonlee is regarded as the parent company. As a result, the accompanying consolidated financial statements are issued under the name "BID.COM International Inc." (formerly "Internet Liquidators International Inc.") but are considered a continuation of the financial statements of Internet Liquidators Inc. For accounting purposes Internet Liquidators Inc. is considered to be the acquirer and its net assets are included in the consolidated balance sheet at book value. The net assets of Avonlee are included at their fair market value, which was also their book value at May 28, 1996. Details of the acquisition, which has been accounted for using the purchase method, are as follows: Current assets $ 60,354 Current liabilities (32,850) - -------------------------------------------------------------------------------- Total consideration (issuance of 720,000 shares) $ 27,504 ================================================================================ 4. CAPITAL ASSETS
September 30, December 31, --------------------------- ------------------------------------------------- 1998 1998 1997 1997 1996 1995 ---------- --------------- ---------- --------------- --------- --------- (unaudited) Convenience Convenience translation translation into U.S. $ into U.S. $ (Note 14) (Note 14) (in thousands of dollars) -------------------------------------------------------------------------------- Cost Equipment $ 71 $ 46 $ 71 $ 46 $ 24 $ 6 Furniture and fixtures 94 62 68 45 32 11 Computer hardware 762 499 559 366 395 38 Leasehold improvements 45 30 - - - - - -------------------------------------------------------------------------------------------------------------------------- $ 972 $ 637 $ 698 $ 457 $ 451 $ 55 ========================================================================================================================== Net book value Equipment $ 52 $ 34 $ 61 $ 40 $ 21 $ 6 Furniture and fixtures 72 47 56 37 27 11 Computer hardware 457 300 358 234 302 37 Leasehold improvements 44 29 - - - - - -------------------------------------------------------------------------------------------------------------------------- $ 625 $ 410 $ 475 $ 311 $ 350 $ 54 ==========================================================================================================================
5. LOAN PAYABLE
September 30, December 31, ------------------ -------------------------------------- 1998 1997 1996 1995 ------------------ ----------- ------------ ----------- (unaudited) Loan payable at prime plus 7-1/2%, secured by a general security agreement, due on demand, repaid June 2, 1997 $ - $ - $257,500 $ - ==============================================================================================================
6. INCOME TAXES The Company's non-capital loss carryforwards as at September 30, 1998, the benefit of which has not been recognized in the financial statements, expire as follows: 2001 $ 135,000 2002 $ 2,100,000 2003 $ 6,700,000 2004 $12,800,000 7. SHARE CAPITAL (a) Authorized Unlimited number of common shares Unlimited number of preference share- issuable in series
Common Shares Amounts ------------------ ------------------ (b) Issued December 31, 1995 22,510,000 $ 251,200 1996 Issued for consideration 3,000,000 1 Consolidation 4 for 1 basis (19,132,500) - Issued pursuant to conversion of convertible debentures 2,500,000 1,758,199 Exchanged on business combination (Note 3) 720,000 27,504 - --------------------------------------------------------------------------------------------------------------------- December 31, 1996 9,597,500 2,036,904 1997 Issued for cash at $0.85 per share (7(c)) 1,000,000 850,000 Issued for other consideration at $1.00 per share (7(d)) 1,000,000 1,000,000 Exercise of warrants at $0.80 per share (7(e)) 1,750,000 1,253,703 Issued for cash at average price of $1.18 per share (7(f)) 578,000 680,920 Exercise of stock options at average price of $1.21 per share (7(g)) 262,500 318,500 - --------------------------------------------------------------------------------------------------------------------- December 31, 1997 14,188,000 6,140,027 1998 (unaudited) Issued for cash at $1.25 per share (7(c)) 500,000 575,000 Exercise of stock options at average price of $0.97 per share (7(g)) 147,700 142,595 Issued for cash at $1.50 per share (7(j)) 6,756,700 9,058,447 Issued for cash at $1.65 per share (7(k)) 376,500 621,225 Issued for cash at $1.25 per share (7(l)) 1,940,000 2,363,053 Issued for cash at $1.40 per share (7(m)) 8,100,000 10,278,113 Adjustment for share certificate conversions 12 - - --------------------------------------------------------------------------------------------------------------------- September 30, 1998 (unaudited) 32,008,912 $29,178,460 ===================================================================================================================== September 30, 1998 (unaudited) convenience translation into U.S. $ (Note 14) 32,008,912 $19,118,372 =====================================================================================================================
(c) On February 12, 1997 the Company issued to Toronto Star Newspapers Limited 1,000,000 common shares at $0.85 per share for cash of $850,000 and a warrant to purchase 500,000 common shares for cash of $1.25 per share at any time from February 12, 1997 to January 30, 1998. This warrant was exercised on January 9, 1998 yielding net proceeds of $575,000. 7. SHARE CAPITAL (continued) (d) On February 18, 1997, the Company agreed to issue 1,000,000 common shares and a warrant to America Online, Inc. (AOL) for $1,000,000 for future advertising (issued 500,000 common shares and the warrant on February 21, 1997 and 500,000 shares on July 1, 1997). The warrant was exercisable in various tranches which if fully exercised in succession, could increase the AOL interest to 51%, at a minimum price of U.S. $3 per share. During 1997, no shares were issued under this warrant. Effective February 15, 1998, the Company and AOL mutually agreed that the warrant has expired. (e) As a result of the conversion of the convertible debentures in 1996 and the business combination, there were 1,750,000 warrants exercisable at $1.00 up to May 31, 1997. These warrants were re-priced in May 1997 at $0.80, extended to June 2, 1997, and fully exercised by June 2, 1997. (f) During 1997, 578,000 common shares were issued to an employee for cash of $680,920. (g) Stock Options Authorized under the Stock Option Plan September 30, 1998 2,100,000 options (December 31, 1997 1,500,000). (i) Stock Options Outstanding under Stock Option Plan
Shares Under Per Share Options Price Expiry ----------------- ----------------- --------------------- Balance, December 31, 1995 - - - 1996 Granted 423,500 $0.75 to $1.25 September 1998 to August 1999 Exercised - - - Terminated - - --------- Balance, December 31, 1996 423,500 $0.75 to $1.25 September 1998 to August 1999 1997 Granted 450,000 $0.90 to $1.25 February 1999 to August 1999 Exercised (217,500) $0.99 to $1.25 Various Terminated (5,000) $1.25 August 1999 --------- Balance, December 31, 1997 651,000 $0.75 to $1.25 September 1998 to August 1999 1998 (unaudited) Granted 816,000 $1.40 to $2.35 February 2000 to June 2000 Exercised (97,700) $0.75 to $2.35 Various Terminated (2,500) $1.00 - --------- Balance, September 30, 1998 September 1998 (unaudited) 1,366,800 $1.00 to $2.35 to June 2000 =========
7. SHARE CAPITAL (continued) (g) Stock options (continued) (ii) Stock Options Outstanding to Third Parties
Shares Under Per Share Options Price Expiry ----------------- ----------------- --------------------- Balance, December 31, 1995 - - - 1996 Granted 475,000 $1.25 April 1999 Exercised - - - ------- Balance, December 31, 1996 475,000 $1.25 April 1999 1997 Granted 210,000 $0.80 to $1.25 May 1999 to August 1999 Exercised (45,000) $1.25 April 1999 ------- Balance, December 31, 1997 640,000 $0.80 to $1.25 April 1999 to August 1999 1998 (unaudited) Granted - - - Exercised (50,000) $1.00 August 1998 ------- Balance, September 30, 1998 April 1999 to (unaudited) 590,000 $0.80 to $1.25 August 1999 =======
(h) Share purchase warrants, exercisable at $1.65 per share up to January 3, 1999. (i) Issued 3,167,500 on January 23, 1998 (Note 8) 3,167,500 Exercised (319,000) 2,848,500 --------- (ii) Issued 210,850 on exercise of 421,700 210,850 compensation warrants between January 23, 1998 and September 30, 1998 (Notes 7 (i) (i) and 8)) Exercised (57,500) 153,350 --------- Share purchase warrants, exercisable at $1.65 per share up to the earlier of August 4, 1999 and date of United States offering (Note 13 (viii)) (iii) Issued on September 30, 1998 4,050,000 - ---------------------------------------------------------------------------------------------------------- Balance, September 30, 1998 (unaudited) 7,051,850 ==========================================================================================================
A further 535,900 share purchase warrants are subject to issuance upon exercise of outstanding compensation warrants (Note 7 (i) (i) and (ii)). 7. SHARE CAPITAL (continued) (i) (i) Issued 633,500 compensation warrants on January 23, 1998, entitling the underwriter to purchase one unit, consisting of one common share and one half of one share purchase warrant, at a price of $1.50 per unit up to January 3, 1999 (Note 8) 633,500 - Exercised (421,700) 211,800 -------- (ii) Issued compensation warrants to the underwriter on August 4, 1998, entitling the holder to acquire compensation options entitling the holder to purchase up to 860,000 units of the Company at a price of $1.40 per unit before November 4, 1999. Each unit consists of one common share and one-half of one share purchase warrant. In exercising the compensation options the underwriter may, at its option, receive a number of common shares based on a formula dependent upon the market value of the common shares as of the day preceding the election. (Note 13(vii)) 860,000 - ------------------------------------------------------------------------------------------------------------ Balance September 30, 1998 (unaudited) 1,071,800 ============================================================================================================
(j) Exercise of 6,335,000 special warrants at $1.50 per share and 421,700 compensation warrants at $1.50 per share (Note 7 (h) (ii) and 8). (k) Exercise of 376,500 share purchase warrants at $1.65 per share (Note 7 (h) (i) (ii) and 8). (l) Exercise of one Series B special warrant for 1,500,000 common shares at $1.25 per share and the issue of 440,000 common shares at $1.25 per share (Note 13 (vi) and (viii)). (m) Exercise of 8,100,000 special warrants at $1.40 per share (Note 13 (vii)). (n) Issued one common share warrant exercisable for up to 100,000 common shares at a price of $1.40 per common share up to the earlier of July 31, 1999 and ten (10) business days following the date on which notice is provided to the holder confirming the filing of a registration statement or preliminary prospectus for a public offering of shares of the Company in the United States of proceeds of at least $7.0 million Canadian. Issued on July 31, 1998 1 - -------------------------------------------------------------------------------- Balance, September 30, 1998 (unaudited) 1 ================================================================================ 8. SPECIAL WARRANTS On October 3, 1997 the Company closed a private placement of $9,502,500 in equity for net proceeds of $6,440,305 with the remaining $2,189,231 of net proceeds held in trust pending the filing of a final prospectus. The Company issued 6,335,000 special warrants, each special warrant being exercisable to acquire one unit (subject to adjustment in certain circumstances) for no additional consideration, at a price of $1.50 per special warrant. Each unit consisted of one common share of the Company and one half of one common share purchase warrant. Each common share purchase warrant entitles the holder to purchase one common share at a price of $1.65 per common share up to January 3, 1999. The Company also issued 633,500 compensation warrants. Each compensation warrant entitles the underwriter to purchase one unit, consisting of one common share and one half of one common share purchase warrant at a price of $1.50 per unit ;up to January 3, 1999. On January 23, 1998, the final prospectus was filed resulting in the conversion of 6,335,000 special warrants into 6,335,000 common shares and the issue of 3,167,500 common share purchase warrants. 9. FINANCIAL INSTRUMENTS Foreign exchange risk The Company transacts substantially all of its product sales and purchases in United States dollars and a significant portion of operating expenditures are in United States dollars. The Company does not use derivative instruments to manage exposure to foreign exchange fluctuations. Interest rate risk The Company has limited exposure to any fluctuation 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 obligations. The collection risk is minimized because the majority of sales are settled before shipping by pre-authorized credit card payments through a significant financial institution. In addition, the diverse customer base minimizes any concentration of credit risk. Fair value Fair value of assets and liabilities approximate amounts at which they could be exchanged between knowledgeable and unrelated persons. The amounts recorded in the financial statements approximate fair value. 10. COMMITMENTS AND CONTINGENCIES (a) As a condition of the agreement with a financial institution to settle sales transactions through pre-authorized credit card payments, the Company must maintain a cash reserve account based on a percentage of sales for the preceding six months. At December 31, 1997, the Company was required to maintain $300,000 in this reserve account (September 30, 1998 - $1,550,000). This arrangement is under renegotiation by the Company. (b) Minimum lease payments during the next five years are as follows: 1998 $100,450 1999 $211,200 2000 $192,300 2001 $155,000 (c) The Company is committed under an Interactive Marketing Agreement with AOL to expend $1,250,000 U.S. per quarter for advertising and promotion with AOL to November 1, 1999. The agreement can be cancelled by either party on sixty days notice. 11. CHANGE IN NON-CASH OPERATING WORKING CAPITAL
September 30, December 31, ------------------------------- -------------------------------------- 1998 1998 1997 1997 1997 1996 1995 -------- ------------ ------- --------- ------------ ----- ------ (unaudited) Convenience Convenience translation translation into U.S. $ into U.S. $ (Note 14) (Note 14) (in thousands of dollars) Accounts receivable $ (118) $ (77) $(131) $ (117) $ (77) $ 19 $ (8) Inventory (16) (10) (35) (200) (131) - - Deposits and prepaid expenses (145) (95) (414) (1,668) (1,093) 1 (11) Accounts payable and accrued liabilities 3,442 2,254 733 900 590 361 28 - ----------------------------------------------------------------------------------------------------------- $3,162 $2,072 $ 153 $(1,085) $ (711) $ 381 $ 9 ===========================================================================================================
12. OPERATIONS In June 1997 the Company, as part of its marketing program in conjunction with AOL, introduced special promotional pricing in order to stimulate new bidder registrations and first time sales. For 1997, this resulted in quarter over quarter sales growth of 37% in the third quarter and 124% in the fourth quarter. This special promotional pricing cost the Company approximately $698,000 in 1997 which has been included in advertising and promotion (nine months to September 30, 1998 - $2,605,447). On November 1, 1997 the Company entered into an interactive marketing agreement with AOL whereby the Company will purchase advertising and promotion for U.S. $1,250,000 per quarter for two years. This agreement provides the company with anchor tenant positioning in a number of AOL's E- commerce offerings, plus ownership of various keywords such as "Online Auction". In addition, the Company secured significant visibility and presence on AOL.COM which is one of the most visited sites on the World Wide Web. On March 9, 1998 the Company launched its new consumer brand "BID.COM". 13. SUBSEQUENT EVENTS (i) On January 9, 1998 the warrant for 500,000 shares issued to Toronto Star Newspapers Limited on February 12, 1997 was exercised yielding net proceeds of $575,000 (see Note 7(c)). (ii) Issue of Shares and Share Purchase Warrants The Company filed a final prospectus on January 23, 1998 in connection with the special warrants issued October 3, 1997 and received the remaining $2,189,231 of the special warrant receivable. Upon the exercise of the special warrants on January 23, 1998, the Company issued 6,335,000 common shares and 3,167,500 common share purchase warrants (see Note 8). (iii) Stock Option Plan The Option Committee of the Board of Directors approved the issue of 391,000 options to directors and employees on February 3, 1998, exercisable at $2.35 per share until February 3, 2000. The Option Committee of the Board of Directors also approved the issue of 425,000 options to directors and employees on June 23, 1998 exercisable at $1.40 per share until June 30, 2000. (iv) A condition of the special warrant financing required the Company to make an application to The Toronto Stock Exchange to list its common shares for trading on The Toronto Stock Exchange. The Company's shares began trading on the Toronto Stock Exchange on February 9, 1998 under the symbol "ILI". Due to the Company's name change on June 25, 1998 (Note 1), the Company now trades on the Toronto Stock Exchange under the symbol "BII". (v) On February 15, 1998 the warrant issued to AOL on February 18, 1997 expired (see Note 7(d)). (vi) On July 29, 1998, the Company closed a private placement with Rogers Media Inc. ("Rogers") for aggregate proceeds of $1,875,000 whereby: (a) the Company issued a Series B special warrant which entitled the holder to acquire 1,500,000 common shares for no additional consideration upon the earlier of December 11, 1998 and five days after a receipt for a prospectus has been issued in the Province of Ontario; and (b) the Company issued a warrant which entitled the holder to acquire one Common Share warrant. The warrant is exercisable on the earlier of (i) the fifth business day after a receipt for the prospectus has been issued in Ontario and (ii) the date which is the earlier of July 31, 1999 and 10 business days following the date on which a notice is provided to the holder confirming the filing of a registration statement or preliminary prospectus for a public offering of shares of the Company in the United states for proceeds of a least $7,000,000. The common share warrant entitles the holder to acquire up to 100,000 common shares at $1.40 per share up to the earlier of July 31, 1999 or 10 business days following the date on which notice is provided to the holder confirming the filing of a registration statement or preliminary prospectus for a public offering of shares of the Company in the United States for proceeds of a least $7,000,000 Canadian. On September 30, 1998 the final prospectus was filed resulting in the conversion of the Series B special warrant into 1,500,000 common shares and the issue of one common share warrant. 13. SUBSEQUENT EVENTS (continued) (vii) Effective August 4, 1998, the Company issued 8,100,000 special warrants at a price of $1.40 per special warrant for total proceeds of $11,340,000 to the Company. Pursuant to the issuance of the special warrants, the Company agreed to pay the underwriter a fee of $907,200, being 8% of the issue price of the special warrants. An additional 500,000 special warrants were issued by certain shareholders of the Company and are included in the underwriting agreement. The Company received $2,835,000 on August 5, 1998 and received the balance of $7,456,500 (net of underwriter's fees and issue costs) on September 30, 1998 upon the issuance of a final receipt for the prospectus by the securities commissions of Ontario, Alberta and British Columbia. Each special warrant entitled the holder to acquire one unit for no additional consideration. Each unit consists of one common share and one-half of one share purchase warrant. Any special warrant not exercised by August 4, 1999 will be deemed to be exercised immediately prior to such date. Each share purchase warrant entitled the holder to purchase one common share at a price of $1,65 per common share up to the earlier of August 4, 1999 or 10 business days following the date by which the Company delivers a notice to all holders that it has filed a registration statement or preliminary prospectus for a public offering of shares of the Company in the United States for at least $7,000,000 Canadian. On September 30, 1998 the final prospectus was filed, resulting in the conversion of 8,100,000 special warrants into 8,100,000 common shares and the issue of 4,050,000 share purchase warrants. The Company also issued compensation warrants to the underwriter entitling the underwriter to receive compensation options. The compensation options entitle the underwriter to acquire up to 860,000 units at a price of $1.40 per unit prior to November 4, 1999. Each unit consists of one common share and one-half of one share purchase warrant. In exercising the compensation options, the underwriter may, at its option, elect to receive a number of common shares based on a formula dependent upon the market value of the common shares as of the day preceding the election. (viii)On August 5, 1998 the Company closed a private placement for $550,000 and issued 440,000 common shares at a price of $1.25 per common share in settlement of trade payables. (ix) On November 30, 1998, the Company issued 5,714,984 special warrants at a price of $1.75 per special warrant for total proceeds of $10,001,222 to the Company. Pursuant to the issuance of the special warrants, the Company agreed to pay the underwriter a fee of $800,098, being 8% of the issue price of the special warrants. An additional 400,000 special warrants have been issued by certain shareholders of the Company and are included in the underwriting agreement. The Company received $6,863,460 on November 30, 1998 and will receive the balance of $2,150,766 (net of underwriter's fees and issue costs) upon the issuance of a final receipt for the prospectus by the Securities Commissions of Ontario, Alberta and British Columbia. 13. SUBSEQUENT EVENTS (continued) (ix) (continued) Each special warrant entitles the holder to acquire one unit for no additional consideration. Each unit consists of one common share and one-quarter of one share purchase warrant. In the event that the company has not obtained a receipt for the prospectus from the Securities Commissions of Ontario, Alberta and British Columbia before February 28, 1999, the special warrants will thereafter entitle each holder to receive 1.05 units upon the exercise of each special warrant. Any special warrant not exercised by November 30, 1999 will be deemed to be exercised immediately prior to such date. Each share purchase warrant entitles the holder to purchase one common share at a price of $1.75 per common share up to the earlier of December 31, 1999 or 10 business days following the date by which the Company delivers a notice to all holders that it has filed a registration statement or preliminary prospectus for a public offering of shares of the Company in the United States for at least $7,000,000 Canadian. Upon the issuance of a receipt by the Securities Commissions before February 28, 1999 for filing of the final prospectus, and the exercise of the special warrants, the Company will have an additional 1,428,746 share purchase warrants outstanding (1,500,183 if the receipts for the final prospectus is received after February 28, 1999) (receipts received January 20, 1999). The Company has also issued compensation warrants to the underwriter entitling the underwriter to receive compensation options. The compensation options entitle the underwriter to acquire up to 611,498 units at a price of $1.75 per unit at any time prior to December 31, 1999. Each unit consists of one common share and one-quarter of one share purchase warrant. In exercising the compensation options, the underwriter may, at its option, elect to receive a number of common shares based on a formula dependent upon the market value of the common shares as of the day preceding the election. (x) On October 22, 1998 the Company issued 100,000 options at a price of $1.00 expiring November 17, 2002 to an employee, and issued 100,000 options at a price of $0.80 expiring October 21, 2001 under other securities exemptions. On November 11, 1998, the Company issued 250,000 options at a price of $1.16 expiring November 10, 2001 under other securities exemptions. (xi) During the period from October 1, 1998 to January 18, 1999, the Company issued 617,500 common shares upon the exercise of options at prices ranging from $0.80 to $2.35 per share for aggregate consideration of $786,000 and cancelled 8,300 stock options at $2.35 per common share subsequent to termination of employment of employees. (xii) During the period from October 1, 1998 to January 18, 1999, the Company issued 211,800 common shares upon the exercise of 211,800 compensation warrants at $1.50 per share, issued 774,000 common shares upon the exercise of 774,000 compensation warrants at $1.40 per share and issued 492,900 share purchase warrants exercisable at $1.65 per share. (xiii)During the period from October 1, 1998 to January 18, 1999 the Company issued 4,407,260 common shares upon the exercise of 4,407,260 share purchase warrants at $1.65 per share. 14. CONVENIENCE TRANSLATION The financial statements as at September 30, 1998 and December 31, 1997 and for the periods then ended have been translated into U.S. dollars using the exchange rate of the U.S. dollar at September 30, 1998 as published by the Federal Reserve Bank of New York (U.S. $1.00 = Cdn. $1.5262). 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. 15. RECONCILIATION OF UNITED STATES GAAP These financial statements have been prepared in accordance with generally accepted accounting principles in Canada (Canadian GAAP). The Company must disclose the following additional information to present the financial statements in accordance with generally accepted accounting principles in the United States (United States GAAP). For the periods covered by these financial statements, FASB 123 - Accounting for Stock Based Compensation is the only additional disclosure required under United States GAAP. The Company has not recorded compensation expense for stock based compensation but the information is disclosed in the following table. The Company does not anticipate that its future financial statement disclosure will be impacted by the adoption of any other existing or contemplated financial reporting standards in the United States. Under United States GAAP, net losses and losses per share would be affected as follows:
Nine Months Ended September 30 Year ended December 31, 1998 1998 1997 1997 1996 ---- ---- ---- ---- ---- (unaudited) Convenience Convenience Translation translation into U.S. $ into U.S. $ Note 14 Note 14 ----------- ------------ OPERATIONS Canadian GAAP (12,876) (8,436) (6,725) (4,407) (2,111) Adjustment to Expenses with respect to employee stock options (380) (249) (1,409) (923) (170) ----- ----- ------- ----- ----- United States GAAP (13,256) (8,685) (8,134) (5,330) (2,281) -------- ------- ------- ------- ------- LOSS PER SHARE BASED ON UNITED STATES GAAP (Basic and fully diluted) (0.63) (0.42) (0.66) (0.43) (0.24) ------ ------ ------ ------ ------ ASSUMPTIONS AND OTHER INFORMATION Volatility 100% - 100% - 100% Dividend yield - - - - - Risk free interest rate 5.10% - 4.9% - 3.68% Assumed for forfeiture Rate 1.60% - 1.13% - 1.10% Expected life (years) 1.39 - 1.40 - 2.02
F-19 SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized. BID.COM INTERNATIONAL INC. By: /s/ Paul Godin ------------------------------------ Name: Paul Godin Title: Chief Executive Officer Dated: February 16, 1999 EX-3.7 2 FORM OF SUBSCRIPTION AGREEMENT DATED OCTOBER 3, 1997 EXHIBIT 3.7 INTERNET LIQUIDATORS INTERNATIONAL INC. SUBSCRIPTION AGREEMENT FOR SPECIAL WARRANTS TO: INTERNET LIQUIDATORS INTERNATIONAL INC. AND TO: YORKTON SECURITIES INC. AND TO: FIRST MARATHON SECURITIES INC. 1. SUBSCRIPTION ------------ The undersigned (the "Purchaser") hereby irrevocably subscribes for and agrees to purchase, on and subject to the terms and conditions set forth herein and in the Underwriting Agreement and the Special Warrant Indenture (each as defined below), from Internet Liquidators International Inc. (the "Corporation") such number of special warrants of the Corporation ("Special Warrants") as set forth in section 18 (collectively the "Purchased Warrants") at a price of $1.50 per Special Warrant (the "Subscription Price"). The Purchased Warrants form part of a larger offering of a minimum of 5,000,000 and a maximum of 6,335,000 Special Warrants by the Corporation pursuant to an underwriting agreement (the "Underwriting Agreement") to be entered into by Yorkton Securities Inc. and First Marathon Securities Inc. (collectively the "Underwriters") and the Corporation on October 3, 1997 or such other date as the Corporation and the Underwriters may agree (the "Closing Date"). 2. DESCRIPTION OF SPECIAL WARRANTS ------------------------------- The Special Warrants shall be created and issued pursuant to a special warrant indenture (the "Special Warrant Indenture") to be entered into between CIBC Mellon Trust Company of Canada or another registered trust company, in its capacity as Special Warrant agent thereunder, and the Corporation dated as of the Closing Date. The specific attributes of the Special Warrants shall be set forth in the Special Warrant Indenture, which will provide, among other things, that the holders of Special Warrants shall be entitled to receive, upon the exercise thereof and without payment of any consideration, one unit of the Corporation ("Unit") for each Special Warrant held, provided that, if a receipt for a (final) prospectus of the Corporation (the "Prospectus") qualifying the issuance of the Subject Securities (defined below) to be issued upon exercise of the Special Warrants is not issued by the securities regulatory authority in the province in which the Purchaser resides (such province hereinafter referred to as a "Qualifying Province") on or before 5:00 p.m. (Toronto time) on the date that is 120 days following the Closing Date (the "Qualification Deadline"), any Special Warrants exercised after the Qualification Deadline shall entitle the holders thereof resident in such Qualifying Province to receive 1.1 Units (in lieu of one Unit), without payment of any additional consideration, for each Special Warrant held. The specific attributes of the Special Warrants shall be set forth in the Special Warrant Indenture, which will provide, among other things, that the holders of Special Warrants shall be entitled to receive, upon the exercise thereof and without payment of any consideration, one unit of the Corporation ("Unit") for each Special Warrant held, provided that, if a receipt for a (final) prospectus of the Corporation (the "Prospectus") qualifying the issuance of the Subject Securities (defined below) to be issued upon exercise of the Special Warrants is not issued by the securities regulatory authority in the province in which the Purchaser resides (such province hereinafter referred to as a "Qualifying Province") on or before 5:00 p.m. (Toronto time) on the date that is 120 days following the Closing Date (the "Qualification Deadline"), any Special Warrants exercised after the Qualification Deadline shall entitle the holders thereof resident in such Qualifying Province to receive 1.1 Units (in lieu of one Unit), without payment of any additional consideration, for each Special Warrant held. Each Unit will consist of one common share of the Corporation ("Common Share") and one-half of one Common Share purchase warrant ("Warrant"). Each whole Warrant will entitle the holder thereof to purchase one additional Common Share at a price of $1.65 per Common Share until the date that is 15 months after the Closing Date. The Common Shares and the Warrants issuable on exercise of the Special Warrants are collectively referred to herein as the "Subject Securities". The Special Warrants shall be exercisable at any time prior to 5:00 p.m. (Toronto time) on the date (such date hereinafter referred to as the "Expiry Date") which is the earlier of: (i) five Business Days after a receipt is issued for the Prospectus by the last securities regulatory authority in each of the Qualifying Provinces qualifying the issuance of the Subject Securities; and (ii) one year after the Closing Date. Any Special Warrants not exercised prior to 5:00 p.m. (Toronto time) on the Expiry Date shall be deemed to have been exercised immediately prior thereto without any further action on the part of the holder. For the purposes hereof, "Business Day" means any day except Saturday, Sunday or a statutory holiday in Toronto, Ontario. IN THE EVENT THAT THE CORPORATION IS UNABLE TO OBTAIN A RECEIPT FOR THE PROSPECTUS IN A QUALIFYING PROVINCE, THE SPECIAL WARRANTS AND SUBJECT SECURITIES MAY BE SUBJECT TO STATUTORY RESALE RESTRICTIONS UNDER THE APPLICABLE SECURITIES LEGISLATION OF THAT PROVINCE. IN ADDITION, STATUTORY RESTRICTIONS MAY APPLY ON THE RESALE OF THE SUBJECT SECURITIES THAT ARE ACQUIRED PRIOR TO THE ISSUANCE OF RECEIPTS FOR THE PROSPECTUS BY THE SECURITIES REGULATORY AUTHORITIES IN ANY OF THE QUALIFYING PROVINCES. PURCHASERS ARE ADVISED TO CONSULT THEIR OWN LEGAL ADVISORS IN THIS REGARD. 75% of the gross proceeds (net of an amount equal to the Underwriters' pro-rata commission thereon and its costs and expenses incurred in connection with the Offering) shall be paid to the Corporation on the Closing Date. The balance of the proceeds will be deposited into escrow with a mutually agreed upon escrow agent as interest bearing funds. Such proceeds, inclusive of interest (the "Escrowed Proceeds"), shall be released to the Corporation on the issuance of -2- receipts for the Prospectus, by the securities regulatory authorities in each of the Qualifying Provinces less an amount equal to the remainder of the Underwriters' commission, a pro-rata share of the interest earned on the Escrowed Proceeds and any remaining costs and expenses incurred in connection with the Offering not previously paid. If the Prospectus is not filed and a receipt issued therefor by the securities regulatory authority in the Qualifying Province in which the Purchaser resides on or before the Qualification Deadline, such Purchaser shall also be entitled at its option, on the surrender of a pro rata share of its Special Warrants, to obtain from the Escrowed Proceeds a refund of its subscription proceeds together with all interest thereon. THE PURCHASER ACKNOWLEDGES AND AGREES THAT THE RIGHTS OF SPECIAL WARRANTHOLDERS MAY BE MODIFIED UNDER THE SPECIAL WARRANT INDENTURE PURSUANT TO AN EXTRAORDINARY RESOLUTION APPROVED EITHER BY SPECIAL WARRANTHOLDERS THAT ATTEND OR ARE REPRESENTED AT A DULY CONVENED MEETING OF SPECIAL WARRANTHOLDERS AND ARE ENTITLED TO ACQUIRE NOT LESS THAN 66 2/3 PERCENT OF THE AGGREGATE NUMBER OF COMMON SHARES IN THE CAPITAL OF THE CORPORATION ("COMMON SHARES") WHICH WOULD BE ISSUED OR TRANSFERRED ON THE EXERCISE OF ALL OF THE THEN OUTSTANDING SPECIAL WARRANTS OR BY WRITTEN CONSENT OF SPECIAL WARRANTHOLDERS ENTITLED TO ACQUIRE NOT LESS THAN 66 2/3 PERCENT OF THE AGGREGATE NUMBER OF COMMON SHARES WHICH WOULD BE ISSUED OR TRANSFERRED ON THE EXERCISE OF ALL OF THE THEN OUTSTANDING SPECIAL WARRANTS. REFERENCE SHOULD BE MADE TO THE SPECIAL WARRANT INDENTURE, FOR A COMPLETE DESCRIPTION OF THE TERMS AND CONDITIONS ON WHICH THE SPECIAL WARRANTS ARE TO BE ISSUED. The foregoing description of the Special Warrants is a summary only and is subject to the detailed provisions of the Special Warrant Indenture under which such securities shall be issued. All dollar amounts referred to herein are in Canadian dollars. 3. PAYMENT ------- The aggregate amount payable by the Purchaser in respect of the Purchased Warrants (the "Subscription Price") must accompany this Subscription Agreement and shall be made by certified cheque or bank draft drawn on a Canadian chartered bank, and payable to the Underwriters or payable in such other manner as may be specified by the Underwriters. 4. CONDITIONS OF CLOSING --------------------- The Purchaser must complete, sign and return one executed copy of this Subscription Agreement to Marilia Costa, Yorkton Securities Inc., BCE Place, 181 Bay Street, Suite 3100, P.O. Box 843, Toronto, Ontario, M5J 2T3, as soon as possible, and, in any event, no later than 5:00 p.m. (Toronto time) on October 1, 1997. As a condition of Closing (defined below), the Corporation must obtain any -3- necessary approvals of The Canadian Dealing Network ("CDN") in respect of the issue of the Special Warrants (and the Subject Securities into which they are exercisable). The Purchaser agrees to promptly execute and deliver all such documents and other instruments as CDN may require. Closing shall also be subject to conditions of closing in favour of the Underwriters to be provided for in the Underwriting Agreement. 5. FACSIMILED SUBSCRIPTIONS ------------------------ The Corporation and the Underwriters will be entitled to rely on delivery by facsimile of an executed copy of this subscription, and acceptance by the Corporation of such facsimile copy will be legally effective to create a valid and binding agreement between the Purchaser and the Corporation in accordance with the terms hereof. 6. CLOSING ------- Delivery and payment for the Special Warrants will be completed (the "Closing") at the offices of counsel to the Company, Gowling, Strathy & Henderson, Suite 4900, Commerce Court West, Toronto, Ontario, M5L 1J3 at 11:00 a.m. (Toronto time) (the "Closing Time") on October 3, 1997 or such earlier or later dates or times as the Corporation and the Underwriters may agree (the "Closing Date"). This executed Subscription Agreement is open for acceptance in whole or in part by the Corporation at any time prior to the Closing Time. Confirmation of acceptance or rejection of a subscription will be forwarded to the Purchaser promptly after acceptance or rejection has been made. If this subscription is rejected in whole and if the Purchaser has delivered a certified cheque or bank draft representing the Subscription Price for the Purchased Warrants, then such cheque or bank draft will be promptly returned to the Purchaser without interest. If this subscription is accepted only in part and the Purchaser has delivered a certified cheque or bank draft as aforesaid, a cheque representing the portion of the Subscription Price for that portion of the Purchaser's subscription for Special Warrants which is not accepted will be promptly returned to the Purchaser without interest. Certificates representing the Special Warrants (individually, a "Special Warrant Certificate", and collectively, the "Special Warrant Certificates") will be available for delivery against payment of the Subscription Price in the manner specified above. If the Purchaser does not choose to attend the Closing to receive the Special Warrant Certificate representing the Purchased Warrants, then the Purchaser, on its own behalf or on behalf of others for whom it is contracting hereunder, hereby appoints the Underwriters, with full power of substitution, as its true and lawful attorney and agent with the full power and authority in its place and stead to swear, execute, file and record any document necessary to accept delivery of the Special Warrants on the Closing Date, to terminate this subscription on its behalf in the event that any condition precedent to the offering has not been satisfied, to execute a receipt for the Purchased Warrants and all other documentation, modify or waive any conditions or grant any waivers on -4- its behalf in connection with this transaction, and to deliver Special Warrant Certificates to the undersigned at the address set forth above promptly after Closing. 7. PROSPECTUS EXEMPTIONS --------------------- The Purchaser acknowledges and agrees that the sale and delivery of the Purchased Warrants to the Purchaser (or to others for whom it is contracting hereunder) is conditional upon such sale being exempt from the requirements under applicable securities legislation requiring the filing of a prospectus in connection with the distribution of the Special Warrants or the delivery of an offering memorandum (as defined in the applicable securities legislation), or upon the issuance of such rulings, orders, consents or approvals as may be required to permit such sale without the requirement of filing a prospectus or delivering an offering memorandum. The Purchaser, on its own behalf (or on behalf of others for whom it is contracting hereunder) acknowledges and agrees that: (a) it has received a term sheet in the form attached hereto as Schedule II setting out the principal terms of this Subscription Agreement and the offering of Special Warrants; (b) it (or others for whom it is contracting hereunder) has not received, nor has it requested, nor does it have any need to receive, a prospectus or any offering memorandum, or any other document (other than financial statements, interim financial statements or any other document, the content of which is prescribed by statute or regulation) describing the business and affairs of the Corporation which has been prepared for delivery to, and reviewed by, prospective purchasers in order to assist it in making an investment decision in respect of the Purchased Warrants; (c) its decision to execute this Subscription Agreement and purchase the Purchased Warrants (on its own behalf or on behalf of others for whom it is contracting hereunder) has not been based upon any verbal or written representations as to fact or otherwise made by or on behalf of the Underwriters or the Corporation and that its decision (or the decision of others for whom it is contracting hereunder) is based entirely upon information concerning the Corporation contained in documents the content of which is prescribed by statute or regulation (any such information having been delivered to it without independent investigation or verification by the Underwriters); (d) the sale of the Purchased Warrants was not accompanied by any advertisement in printed media of general and regular paid circulation, radio or television; (e) the Underwriters and each of their respective directors, officers, employees, agents and representatives assume no responsibility or liability of any nature whatsoever for the accuracy or adequacy of any such publicly available information or as to whether all information concerning the Corporation required to be disclosed by it has been generally disclosed; (f) it (or others for whom it is contracting hereunder) has been advised to consult its own legal advisors with respect to trading in the Special Warrants, the Subject Securities and securities underlying the Subject Securities and to resale restrictions imposed by applicable securities legislation in the jurisdiction in which it resides, that no representation has been made respecting the applicable hold periods or other resale restrictions applicable to such securities, that the Purchaser (or others for whom it is contracting hereunder) is solely responsible (and neither the Corporation nor the Underwriters is in any way responsible) for compliance with applicable resale restrictions and that it is aware that it may not be able to resell such securities except in accordance with limited exemptions under applicable securities legislation and regulatory policy; and (g) the Special Warrants are -5- otherwise subject to the terms, conditions and provisions of the Special Warrant Indenture and the Underwriting Agreement. The Purchaser agrees that the Corporation and/or the Underwriters may be required by law or otherwise to disclose to regulatory authorities the identity of the Purchaser and each beneficial purchaser of Special Warrants for whom the Purchaser may be acting. 8. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER ---------------------------------------------------------- The Purchaser hereby represents, warrants and covenants to and with the Underwriter and the Corporation (which representations, warranties and covenants shall survive Closing) that: (A) in the case of a purchase by the Purchaser of Special Warrants as principal for its own account and not for the benefit of any other person, the Purchaser is purchasing the Purchased Warrants as principal for its own account, and not for the benefit of any other person or company and not with a view to the resale or distribution of all or any of the Purchased Warrants, and this Subscription Agreement has been authorized, executed and delivered by, and constitutes a legal, valid and binding agreement of the undersigned, and: (1) the Purchaser is one of the following: (i) if subject to applicable securities legislation of the Province of Alberta, a loan corporation, trust corporation, treasury branch or credit union or a subsidiary of such an entity where such entity owns beneficially all of the voting securities of that subsidiary; (ii) if subject to applicable securities legislation of the Province of Ontario, a loan corporation or trust corporation registered under the Loan and Trust Corporations Act (Ontario); (iii) if subject to the applicable securities legislation of the Province of Quebec, a savings company holding a licence under the Act respecting trust companies and savings companies (Quebec), a loan and investment society registered in accordance with the Loan and Investment Societies Act (Quebec), a federation or a confederation of savings and credit unions within the meaning of the Savings and Credit Unions Act (Quebec), the Caisse centrale Desjardins du Quebec established under the Act respecting the Mouvement des caisses Desjardins (Quebec) or a trust company licensed under the Act respecting trust companies and savings companies (Quebec) or a subsidiary of such trust company to the extent that such trust company holds all of the voting securities of -6- that subsidiary; (iv) if subject to applicable securities legislation of the Province of Alberta, an insurance company licensed under the Insurance Act (Alberta) or a subsidiary of such insurance company where such insurance company owns beneficially all of the voting securities of the subsidiary; (v) if subject to applicable securities legislation of the Province of Alberta, an insurance company licensed under the Insurance Act (Alberta) or a subsidiary of such insurance company where such insurance company owns beneficially all of the voting securities of the subsidiary; (vi) if subject to applicable securities legislation of the Province of British Columbia, an insurance company or a subsidiary of such insurance company where such insurance company owns beneficially all of the voting securities of the subsidiary, except the voting securities required by law to be owned by directors of that subsidiary; (vii) if subject to applicable securities legislation of the Province of Ontario, an insurance company licensed under the Insurance Act (Ontario); (viii) if subject to applicable securities legislation of the Province of Quebec, an insurance company licensed under the Act respecting insurance (Quebec) or a subsidiary of such insurance company to the extent that such insurance company holds all voting securities of that subsidiary; or (ix) a bank listed in Schedule I or II of the Bank Act (Canada), or the Business Development Bank of Canada incorporated under the Federal Business Development Bank Act (Canada); (2) the Purchaser is recognized or designated as an exempt purchaser under applicable securities legislation and, if subject to the securities legislation of one of the provinces of Alberta, British Columbia or Ontario, is not an individual; or (3) the Purchaser is purchasing a sufficient number of Special Warrants such that the aggregate acquisition cost to the Purchaser of such Special Warrants is not less than $150,000 (if subject to the securities legislation of the provinces of Ontario or Quebec) or $97,000 (if subject to the securities legislation of the province of Alberta or British Columbia); -7- (B) in the case of the purchase by the Purchaser of Special Warrants as agent for a disclosed principal, each beneficial purchaser of the Purchased Warrants for whom the Purchaser is acting is purchasing as principal for its own account and not for the benefit of any other person; the Purchaser is an agent with due and proper authority to execute this Subscription Agreement and all other documentation in connection with the purchase of the Purchased Warrants on behalf of the beneficial purchaser; and this Subscription Agreement has been duly authorized, executed and delivered by or on behalf of, and constitutes the legal, valid and binding agreement of, the disclosed principal; and the beneficial purchaser: (1) is recognized or designated as an exempt purchaser under applicable Canadian provincial securities legislation and, if subject to the securities legislation of one of the provinces of Alberta or Ontario, is not an individual; or (2) is purchasing a sufficient number of Special Warrants such that the aggregate acquisition cost to the beneficial purchaser of such Special Warrants is not less than $150,000 (if subject to the securities legislation of the provinces of Ontario or Quebec), or $97,000 (if subject to the securities legislation of the provinces of Alberta or British Columbia); (C) in the case of the purchase by the Purchaser of Special Warrants as trustee or as agent for a principal which is undisclosed or identified by account number only, this Subscription Agreement has been duly authorized, executed and delivered by, and constitutes a legal, valid and binding agreement of, the undersigned acting in such capacity, and either: (1) (i) if subject to applicable securities legislation of the Province of Alberta, the Purchaser is: (a) a trust corporation as defined in such securities legislation, and any amendments thereto, trading as a trustee or an agent; or (b) a portfolio manager or a person or a company trading as an agent that is exempt from registration as a portfolio manager under applicable securities legislation, -8- for accounts that are fully managed by the Purchaser; or (ii) if subject to the applicable securities legislation of the Province of Ontario, the Purchaser is a trust company registered under the Loan and Trust Corporations Act (Ontario) and is purchasing the Purchased Warrants as trustee or as agent for accounts that are fully managed by the Purchaser; (2) the beneficial purchaser of the Purchased Warrants for whom the Purchaser is acting is an individual or corporation and is purchasing as principal for its own account, and not for the benefit of any other person, and (i) is purchasing a sufficient number of Special Warrants such that the beneficial purchaser's aggregate acquisition cost of such Special Warrants is not less than $150,000 (if subject to the securities legislation of the provinces of Ontario or Quebec) or $97,000 (if subject to the securities legislation of the provinces of Alberta or British Columbia); or (ii) is recognized or designated as an exempt purchaser under applicable securities legislation and, if subject to the securities legislation of one of the provinces of Alberta, British Columbia or Ontario, is not an individual; (D) if the Purchaser is an individual, the Purchaser has attained the age of majority and is legally competent to execute this Subscription Agreement and to take all actions required pursuant hereto; (E) if the Purchaser is not an individual or a corporation, each member of the partnership, syndicate or other unincorporated organization which is the beneficial purchaser, or each beneficiary of the trust which is the beneficial purchaser, as the case may be, is an individual who is purchasing Special Warrants having an aggregate acquisition cost to such individual of not less than $150,000 (if subject to the securities legislation of the provinces of Ontario or Quebec) or $97,000 (if subject to the securities legislation of the provinces of Alberta or British Columbia); (F) if the Purchaser is not a corporation, an individual or other unincorporated organization (including, without limitation, a syndicate, partnership, trust, association or other form of unincorporated organization), then the Purchaser falls within one of the following categories: (i) pension plans; (ii) groups of pension plans under common management; (iii) organizations of members of a family fund formed to make investments of family funds; (iv) testamentary trusts and -9- estates; (v) organizations which have primary ongoing business activities other than investing in securities; (vi) mutual funds other than "private mutual funds" (within the meaning of subsection 1(1) of the Securities Act (Ontario)) or the equivalent provision of other applicable Canadian provincial securities legislation; (vii) group registered retirement savings plans or group deferred profit sharing plans; or (viii) a partnership, interests in which are offered by prospectus, which in turn invests in securities in reliance upon clause 72(1)(d) of the Securities Act (Ontario) and section 27 of the Regulation (the "Regulation") made thereunder or upon subsection 14(f) of the Regulation (or in each case, the equivalent provisions of other applicable Canadian provincial securities legislation); (G) if the Purchaser is a resident of British Columbia, then the Purchaser is hereby notified that: (1) with respect to a sale by the Purchaser of any Purchased Warrants (or with respect to a sale by the Purchaser of the Subject Securities into which such Purchased Warrants are exercisable where a receipt for the Prospectus is not obtained in British Columbia), the Purchaser must file with the British Columbia Securities Commission (i) a report in the form required under the British Columbia Securities Commission's blanket order ruling #95/17 - "In the Matter of the Legending of Certificates" (the "Initial Trade Report"), or (ii) the report required under the laws of the jurisdiction in which the Corporation carries on business or which the Corporation is incorporated, organized or continued, provided that the report requires substantially the same information as required in the Initial Trade Report (the "Purchaser's Report"), within 10 days of the initial trade of the Purchased Warrants (or Subject Securities into which such Purchased Warrants are exercisable where a receipt for the Prospectus is not obtained in British Columbia), by the Purchaser; and (2) where the Purchaser has filed an Initial Trade Report or a Purchaser's Report with respect to any Purchased Warrants (or Subject Securities into which such Purchased Warrants are exercisable where a receipt for the Prospectus is not obtained in British Columbia), the Purchaser is not required to file a further report in respect of additional trades of Purchased Warrants (or Subject Securities where a receipt for the Prospectus has not been obtained from the British Columbia Securities Commission) acquired on the same date and under the same exemptions as the Purchased Warrants (or Subject Securities where a receipt for the Prospectus has not been obtained from the British Columbia Securities Commission) that are the subject of the Initial Trade Report or the Purchaser's Report; (H) neither the Purchaser nor any party on whose behalf it is acting has been established, formed or incorporated solely to acquire or permit the purchase of the Purchased Warrants without a prospectus in reliance on an exemption from the -10- prospectus requirements of applicable securities legislation; (I) if the Purchaser sells the Purchased Warrants or the Subject Securities before any receipt for a Prospectus is obtained, it will comply with the securities legislation of the jurisdiction within which such Purchaser and the person to whom such Purchaser sells the Purchased Warrants or the Subject Securities resides; (J) as the Purchased Warrants and the Subject Securities are subject to resale restrictions under applicable Canadian provincial securities legislation, the Purchaser, or in the case of a purchase by the Purchaser acting as agent for a disclosed principal, each beneficial purchaser, shall comply with all relevant securities legislation concerning any resale of the Purchased Warrants or the Subject Securities (and neither the Corporation nor the Underwriters is in any way responsible for such compliance) and shall consult with its own legal advisors with respect to such compliance; (K) the Purchaser (or, if applicable, others for whom it is contracting hereunder) will execute and deliver within the applicable time periods all documentation as may be required by applicable Canadian securities legislation and regulations to permit the purchase of the Purchased Warrants on the terms herein set forth; (L) if required by applicable securities legislation, policy or order of a securities regulatory authority, stock exchange or other regulatory authority, the Purchaser will execute, deliver, file and otherwise assist the Corporation in filing such reports, undertakings and other documents with respect to the issuance of the Special Warrants or Subject Securities as may be required; (M) the Purchaser will promptly execute and deliver all documentation as may be required by applicable Canadian securities legislation and policy statements and by CDN to permit the purchase of the Purchased Warrants hereunder on the terms as set forth herein; (N) either (i) the Purchaser and each beneficial purchaser for whom it is acting are resident in the province set out in their address in this Subscription Agreement; or (ii) the Purchaser is not a citizen or resident of Canada or the United States, or a corporation, partnership or other entity created in or organized under the laws of Canada or the United States or any province or territory thereof (collectively a "Canadian person") and such Purchaser is not purchasing the Special Warrants or the Subject Securities for the account of any Canadian person; (O) if the Purchaser is a resident of a jurisdiction other than Canada or the United States: (i) the Purchaser is purchasing the Purchased Warrants as principal for investment purposes only and not with a view to resale or -11- distribution; (ii) the Purchaser has knowledge and experience with respect to an investment of this type enabling it to evaluate the merits and risks thereof and has the capacity to obtain competent independent, business, legal and tax advice regarding this investment; and (iii) the purchase of the Special Warrants by such Purchaser does not contravene any of the applicable securities legislation in the jurisdiction in which it is resident and does not trigger (A) any obligation to prepare and file a prospectus or similar document, or any other report with respect to such purchase, and (B) any registration or other obligation on the part of the Underwriters; (P) the Purchaser hereby acknowledges that no prospectus has been filed by the Corporation with any securities commission in any jurisdiction in connection with the issuance of the Special Warrants and the issuance is exempted from the prospectus requirements available under the provisions of applicable securities legislation and applicable securities regulations (the "Securities Legislation") and as a result: (i) the Purchaser is restricted from using most of the civil remedies available under the Securities Legislation; (ii) the Purchaser may not receive information that would otherwise be required to be provided to him under the Securities Legislation; and (iii) the Corporation is relieved from certain obligations that would otherwise apply under the Securities Legislation; and (P) the Purchaser is capable of assessing the proposed investment as a result of the Purchaser's financial or investment experience or as a result of advice received from a registered person other than the Corporation or an affiliate thereof, and is able to bear the economic loss of its investment. -12- 9. RELIANCE UPON REPRESENTATIONS, WARRANTIES AND COVENANTS ------------------------------------------------------- The Purchaser acknowledges that the representations and warranties and covenants contained in this Subscription Agreement are made with the intent that they may be relied upon by the Underwriters and the Corporation and their respective counsel to, among other things, determine its eligibility or (if applicable) the eligibility of others on whose behalf it is contracting hereunder to purchase Purchased Warrants. The Purchaser further agrees that by accepting the Purchased Warrants, the Purchaser shall be representing and warranting that the foregoing representations and warranties are true as at the Closing Time with the same force and effect as if they had been made by the Purchaser at the Closing Time and that they shall survive the purchase by the Purchaser of the Purchased Warrants and shall continue in full force and effect notwithstanding any subsequent disposition by it of the Purchased Warrants or the Subject Securities, as the case may be. 10. COMMISSION TO THE UNDERWRITERS ------------------------------ The Purchaser understands that upon completion of the sale by the Corporation of the Special Warrants, the Underwriters will receive from the Corporation a cash commission equal to 8.0% of the issue price of all Special Warrants to be sold by the Underwriters. It is further understood that, as additional compensation for the services provided, the Corporation will grant to the Underwriters compensation warrants exercisable to acquire, without payment of any consideration, compensation options, which compensation options are exercisable to acquire a number of Units equal to 10% of the total number of Special Warrants sold by the Underwriters, at an exercise price equal to $1.50 per Unit for a term of fifteen months from the Closing Date. No other fee or commission is payable by the Corporation in connection with the sale of the Special Warrants. However, the Corporation will pay those fees and expenses in connection with the offering as are set out in the Underwriting Agreement. The Purchaser understands that the Underwriters and representatives of the Underwriters may have an interest in securities of the Corporation. 11. CONTRACTUAL RIGHT OF ACTION FOR RESCISSION ------------------------------------------ By its acceptance of this Subscription Agreement, the Corporation hereby grants to the undersigned a contractual right of action for rescission in the form attached hereto as Schedule I and the Purchaser agrees to assign and explicitly extend the benefit of such right (but without liability to a Purchaser who is not one of the Underwriters) to any permitted assignee or transferee of the Purchased Warrants. The Purchaser expressly waives and releases the Corporation and the Underwriters from all rights of withdrawal to which it might otherwise be entitled pursuant to -13- subsection 71(2) of the Securities Act (Ontario), subsection 106(1) of the Securities Act (Alberta), or equivalent provisions of securities laws of the jurisdiction in which the Purchaser is resident. 12. COSTS ----- The Purchaser acknowledges and agrees that all costs and expenses incurred by the Purchaser (including any fees and disbursements of any special counsel retained by the Purchaser) relating to the sale of the Purchased Warrants to the Purchaser shall be borne by the Purchaser. 13. APPOINTMENT OF UNDERWRITERS --------------------------- The Purchaser, on its own behalf and (if applicable) on behalf of others for whom the Purchaser is contracting hereunder, hereby: (a) irrevocably authorizes the Underwriters to negotiate and settle the form of the Special Warrant Indenture and any other agreement to be entered into in connection with this transaction and to waive on its own behalf and on behalf of the purchasers of Special Warrants in whole or in part, or extend the time for compliance with, any of the closing conditions in such manner and on such terms and conditions as the Underwriters may determine, acting reasonably, without in any way affecting the Purchaser's obligations or the obligations of such others hereunder; and (b) acknowledges and agrees that the Underwriters and the Corporation may vary, amend, alter or waive, in whole or in part, one or more of the conditions set forth in the Underwriting Agreement in such manner and on such terms and conditions as they may determine, acting reasonably, without affecting in any way the Purchaser or such others' obligations hereunder; provided however, that the Underwriters shall not vary, amend, alter or waive any such condition where to do so would result in a material change to any of the material attributes of the Special Warrants described herein. 14. GOVERNING LAW ------------- This Subscription Agreement is governed by the laws of the Province of Ontario and the federal laws of Canada applicable therein. The Purchaser, in its personal or corporate capacity and, if applicable, on behalf of each beneficial purchaser for whom it is acting, irrevocably attorns to the jurisdiction of the courts of the Province of Ontario. -14- 15. SURVIVAL -------- This Subscription Agreement, including without limitation the representations, warranties and covenants contained herein, shall survive and continue in full force and effect and be binding upon the Purchaser notwithstanding the completion of the purchase of the Purchased Warrants by the Purchaser pursuant hereto, the completion of the offering of Special Warrants of the Corporation and any subsequent disposition by the Purchaser of the Purchased Warrants or the Subject Securities. 16. ASSIGNMENT ---------- This Subscription Agreement is not transferable or assignable by the parties hereto. 17. COUNTERPARTS ------------ This Subscription Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which shall constitute one and the same document. -15- 18. SUBSCRIPTION PARTICULARS ------------------------ SUBSCRIPTION. The aggregate number of the Special Warrants being subscribed for is _______________________________. At a price equal to $1.50 per Special Warrant, the aggregate price of the Special Warrants being subscribed for is $__________________________________. REGISTRATION. The Special Warrants and the Subject Securities are to be registered in the name of: _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ DELIVERY. The certificate representing the Special Warrants and the certificates representing the Subject Securities are to be delivered to: _________________________________________________________________ (name) _________________________________________________________________ (address) _________________________________________________________________ _________________________________________________________________ (contact name and number) AGENT FOR DISCLOSED PRINCIPAL. If the Purchaser is signing as agent for one or more disclosed principals and not as agent for a fully managed account, the name and address of each such principals: _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ (if space is insufficient, attach a list). DATED _________________________________, 1997. ______________________________________________________ Name of Purchaser (please type or print) By: __________________________________________________ (Signature of Authorized Representative) __________________________________________________ (Name of Person Signing) __________________________________________________ (Office or Title) _______________________________________________ (Address of Purchaser) _______________________________________________ _______________________________________________ IN ORDER TO FACILITATE SETTLEMENT, THESE INSTRUCTIONS MUST BE RECEIVED BY 5:00 P.M. (TORONTO TIME) ON OCTOBER 1, 1997. -16- 19. ACCEPTANCE ---------- The above subscription is hereby accepted and agreed to by the Corporation. DATED ________________, 1997. INTERNET LIQUIDATORS INTERNATIONAL INC. By: _____________________________________ Authorized Signing Officer -17- SCHEDULE I CONTRACTUAL RIGHT OF ACTION FOR RESCISSION 1. In the event that the subscriber executing the Subscription Agreement to which this Schedule is annexed (the "Purchaser") acquires Common Shares (as defined in the Subscription Agreement) upon the exercise of the Special Warrants (as defined in the Subscription Agreement) and is or becomes entitled under applicable Canadian provincial securities legislation to the remedy of rescission by reason of the (final) prospectus to be filed (as contemplated in the Subscription Agreement) or any amendment thereto containing a misrepresentation, the Purchaser shall be entitled to rescission with respect to not only the Purchaser's exercise of the Special Warrants but also to the purchase of the Special Warrants, and shall be entitled in connection with such rescission to a full refund from the Corporation of the amount of the purchase price paid in respect of the Special Warrants. The provisions hereof are a direct contractual right extended by the Corporation alone (but specifically not by the directors or officers of the Corporation or by the Underwriters) to the Purchaser and to any permitted assignee of the Special Warrants of the Purchaser, such assignee to be entitled to exercise such rights of rescission and refund as if such assignee was the original subscriber. The foregoing is in addition to any other right or remedy available to the holder of the Special Warrants under section 130 of the Securities Act (Ontario) or other applicable Canadian provincial securities legislation, or otherwise at law and is subject to sections 2 and 3 below. 2. The foregoing contractual rights of action for rescission described in paragraph 1 shall be subject to the defences, limitations and other provisions described under section 130 of the Securities Act (Ontario) and the equivalent provisions of any other applicable Canadian provincial securities legislation, each of which are incorporated herein by reference, mutatis mutandis. 3. No action shall be commenced to enforce the foregoing rights of action for rescission more than 180 days after the Expiry Date (as defined in the Subscription Agreement). -18- SCHEDULE II TERM SHEET ISSUER: Internet Liquidators International Inc. (the "Corporation") SECURITIES: Special warrants ("Special Warrants") to acquire units ("Units"), each Unit to consist of one common share ("Common Share") of the Corporation and one-half of one Common Share purchase warrant ("Warrant"). Each whole Warrant is exercisable for a period of one year following the Closing Date to acquire one Common Share at a price of $0.30 per share. SIZE OF ISSUE: 5,000,000 to 6,335,000 Special Warrants. OFFERING AMOUNT: $7,500,000 to $8,835,000 PRICE: $1.50 per Special Warrant. CLOSING DATE: October 3, 1997 (the "Closing Date"). EXPIRY DATE: Unless exercised earlier by the holder thereof, the Special Warrants will be deemed to have been exercised immediately prior to 5:00 p.m. (Toronto time) on the date ("Expiry Date") which is the earlier of: (i) the date which is five Business Days after a receipt is issued by the securities regulatory authority (the "Regulator") in the province (the "Qualifying Province") in which the purchaser of the Special Warrants resides for the (final) prospectus qualifying the issuance of the Units on the exercise of the Special Warrants ("Prospectus"); and (ii) one year from the Closing Date. ESCROW: 75% of the net proceeds of the Offering shall be released to the Corporation on the Closing Date and the balance of the net proceeds (the "Escrowed Proceeds") shall be held in escrow pending the issuance of a receipt for the Prospectus by the Regulator in each Qualifying Province. -19- ADJUSTMENT: In the event that a receipt for the Prospectus is not issued by the Regulator in any Qualifying Province on or before 5:00 p.m. (Toronto time) on the date that is 120 days after the Closing Date, each Special Warrant exercised by a holder resident in the Qualifying Province after such date shall entitle the holder to receive 1.1 Common Shares and 0.55 Warrants instead of one Common Share and one-half of one Warrant, without payment of additional consideration. Alternatively, the holder shall have the option to obtain from the Escrowed Proceeds a refund of its subscription price, and all interest accrued thereon, upon surrender of a pro rata share of its Special Warrants. -20- EX-3.8 3 SPECIAL WARRANT INDENTURE DATED OCTOBER 3, 1997 EXHIBIT 3.8 INTERNET LIQUIDATORS INTERNATIONAL INC. - and - CIBC MELLON TRUST COMPANY SPECIAL WARRANT INDENTURE Providing for the Issue of up to 6,335,000 Special Warrants of Internet Liquidators International Inc. October 3, 1997 TABLE OF CONTENTS Article 1 - Interpretation......................................................... 2. 1.1 Definitions................................................................. 2. 1.2 Number and Gender........................................................... 5. 1.3 Interpretation Not Affected by Headings, etc................................ 5. 1.4 Business Day................................................................ 5. 1.5 Time of the Essence......................................................... 5. 1.6 Applicable Law.............................................................. 5. 1.7 Choice of Language.......................................................... 6. 1.8 Currency.................................................................... 6. Article 2 - Issue of Special Warrants.............................................. 6. 2.1 Issue of Special Warrants................................................... 6. 2.2 Form and Terms of Special Warrants.......................................... 6. 2.3 Signing of Special Warrant Certificates..................................... 7. 2.4 Certification by the Special Warrant Agent.................................. 7. 2.5 Special Warrantholder Not a Shareholder..................................... 7. 2.6 Issue in Substitution for Lost Special Warrant Certificates................. 8. 2.7 Special Warrants to Rank Pari Passu......................................... 8. 2.8 Registers for Special Warrants.............................................. 8. 2.9 Transferee Entitled to Registration......................................... 9. 2.10 Registers Open for Inspection............................................... 9. 2.11 Exchange of Special Warrants................................................ 9. 2.12 Ownership and Transfer of Special Warrants.................................. 10. 2.13 Adjustment of Subscription Rights........................................... 10. 2.14 Adjustment Rules............................................................ 11. 2.15 Notice of Adjustment of Subscription Rights................................. 12. 2.16 Proceedings Prior to any Action Requiring Adjustment........................ 13. Article 3 - Exercise of Special Warrants........................................... 13. 3.1 Exercise of Special Warrants and Deemed Exercise of Special Warrants........ 13. 3.3 Effect of Exercise of Special Warrants...................................... 14. 3.4 Postponement of Delivery of Certificates.................................... 15. 3.5 Cancellation of Special Warrant Certificates................................ 15. Article 4 - Covenants.............................................................. 15. 4.1 General Covenants........................................................... 15. 4.2 Securities Qualification Requirements....................................... 17. 4.3 Special Warrant Agent's Remuneration and Expenses........................... 17. 4.4 Performance of Covenants by Special Warrant Agent........................... 18.
i Article 5 - Enforcement................................................ 18. 5.1 Suits by Special Warrantholders................................. 18. 5.2 Immunity of ShareholderS, etc................................... 18. 5.3 Limitation of Liability......................................... 18. Article 6 - Meetings of Special Warrantholders......................... 19. 6.1 Right to Convene Meetings....................................... 19. 6.2 Notice.......................................................... 19. 6.3 Chairman........................................................ 19. 6.4 Quorum.......................................................... 20. 6.5 Power to Adjourn................................................ 20. 6.6 Show of Hands................................................... 20. 6.7 Poll and Voting................................................. 20. 6.8 Regulations..................................................... 21 6.9 Corporation, Special Warrant Agent and Counsel may be Represented..................................................... 21. 6.10 Powers Exercisable by Extraordinary Resolution.................. 22. 6.11 Meaning of Extraordinary Resolution............................. 22. 6.12 Powers Cumulative............................................... 23. 6.13 Minutes......................................................... 23. 6.14 Instruments in Writing.......................................... 24. 6.15 Binding Effect of Resolutions................................... 24. 6.16 Holdings by the Corporation or Subsidiaries of the Corporation Disregarded......................................... 24. Article 7 - Supplemental Indentures.................................... 24 7.1 Supplemental Indentures......................................... 24. 7.2 Successor Corporations.......................................... 25. Article 8 - Concerning the Special Warrant Agent....................... 26. 8.1 Trust Indenture Legislation..................................... 26. 8.2 Rights and Duties of Special Warrant Agent...................... 26. 8.3 Evidence, Experts and Advisers.................................. 28. 8.4 Documents, Monies, etc. Held by Special Warrant Agent........... 29. 8.5 Action by Special Warrant Agent to Protect Interests............ 29. 8.6 Special Warrant Agent Not Required to Give Security............. 29. 8.7 Protection of Special Warrant Agent............................. 29. 8.8 Replacement of Special Warrant Agent............................ 30. 8.9 Conflict of Interest............................................ 31. 8.10 Acceptance of Trusts............................................ 31. 8.11 Special Warrant Agent Not to be Appointed Receiver.............. 31. 8.12 Authorization to Carry on Business.............................. 32. 8.13 Liability of Special Warrant Agent.............................. 32.
ii Article 9 - Form of Special Warrant................................... 32. 9.1 Form of Special Warrant Certificate.......................... 32. 9.2 Subscription Form............................................ 33. Article 10 - General................................................... 41. 10.1 Notice to the Corporation and the Special Warrant Agent...... 41. 10.2 Notice to the Special Warrantholders......................... 42. 10.3 Mail Service Interruption.................................... 42. 10.4 Counterparts and Formal Date................................. 42. 10.5 Satisfaction and Discharge of Indenture...................... 42. 10.6 Provisions of Indenture and Special Warrants for the Sole Benefit of Parties and Special Warrantholders................ 43. iii THIS SPECIAL WARRANT INDENTURE made as of the 3rd day of October, 1997. B E T W E E N: INTERNET LIQUIDATORS INTERNATIONAL INC., a corporation constituted under the laws of the Province of Ontario, Canada (hereinafter called the "CORPORATION") -- and -- CIBC MELLON TRUST COMPANY, a trust company incorporated under the laws of Canada (hereinafter called the " SPECIAL WARRANT AGENT") WHEREAS: A. The Corporation proposes to issue and sell by means of a private placement up to 6,335,000 special warrants (the "SPECIAL WARRANTS"), each Special Warrant entitling the holder thereof to receive one (1) Common Share in the capital of the Corporation and one-half ( 1/2) a Share Purchase Warrant, subject to adjustments, all upon the terms and conditions herein set forth; B. For such purpose the Corporation deems it necessary to create and issue the Special Warrants as provided for in this Indenture; C. The Corporation is duly authorized to create and issue the Special Warrants to be created and issued, as herein provided; D. All things necessary have been done and performed to make the Special Warrants, when certified by the Special Warrant Agent and issued as in this Indenture provided, legal, valid and binding upon the Corporation with the benefits of, and subject to the terms of, this Indenture; E. The foregoing recitals are made as representations and statements of fact by the Corporation and not by the Special Warrant Agent. 2. NOW THEREFORE for good and valuable consideration mutually given and received, the receipt and sufficiency of which is hereby acknowledged, it is hereby agreed and declared as follows: ARTICLE 1 - INTERPRETATION 1.1 DEFINITIONS In this Indenture, unless there is something in the subject matter or context inconsistent therewith, the following phrases and words have the respective meanings indicated opposite them as follows: (a) "APPLICABLE LEGISLATION" has the meaning ascribed thereto in subsection 8.1(a); (b) "BUSINESS DAY" means a day which is not a Saturday or Sunday or statutory holiday in any of the cities where special warrant certificates may be submitted to the Special Warrant Agent pursuant to subsection 3.1 hereof; (c) "CAPITAL REORGANIZATION" has the meaning ascribed thereto in section 2.13; (d) "COMMON SHARES" means fully paid and non-assessable common shares in the capital of the Corporation as currently constituted; (e) "CORPORATION" means Internet Liquidators International Inc., a corporation constituted under the laws of the Province of Ontario, Canada; (f) "CORPORATION'S AUDITORS" means Deloitte & Touche or such other chartered accountant or firm of chartered accountants duly appointed as auditor or auditors of the Corporation from time to time and acceptable to the Special Warrant Agent; (g) "COUNSEL" means Corporation's counsel or such other firm of barristers and solicitors retained by the Special Warrant Agent from time to time and acceptable to the Special Warrant Agent; (h) "CORPORATION'S COUNSEL" means Gowling, Strathy & Henderson or such other barrister or solicitor or firm of barristers and solicitors retained by the Corporation from time to time and acceptable to the Special Warrant Agent; (i) "DIRECTOR" means a director of the Corporation for the time being and, unless otherwise specified herein, reference to "ACTION BY THE DIRECTORS" means action by the directors of the Corporation as a board or, whenever duly empowered, action by a committee of such board; 3. (j) "ESCROW AGENT" means Wildeboer Rand Thomson Apps & Dellelce, Barristers and Solicitors, Toronto; (k) "EXERCISE DATE" means the day upon which a Special Warrant is exercised pursuant to the provisions of Section 3.1 or deemed to be exercised pursuant to Section 3.1(b); (l) "EXPIRY TIME" means 5:00 p.m. (Toronto time) on the earlier of: (i) the fifth Business Day after the Qualification Date; and (ii) October 3, 1998; (m) "EXTRAORDINARY RESOLUTION" has the meaning ascribed thereto in Section 6.11 and 6.14; (n) "FINAL PROSPECTUS" means the (final) prospectus of the Corporation relating to the distribution of the Subject Securities in the Qualifying Jurisdictions; (o) "FIRST MARATHON" means First Marathon Securities Inc.; (p) "PERSON" includes an individual, a corporation, a partnership, any unincorporated organization or any other juridical entity and words importing persons have a similar meaning; (q) "PRELIMINARY PROSPECTUS" means the preliminary prospectus of the Corporation relating to the distribution of the Subject Securities in the Qualifying Jurisdictions; (r) "QUALIFICATION DATE" means the date of issuance of a receipt or similar document by the last of the Securities Administrators to issue a receipt or similar document for the Final Prospectus; (s) "QUALIFICATION DEFAULT" means the failure on the part of the Corporation to obtain a receipt for the Final Prospectus from the Securities Administrators in each of the Qualifying Jurisdictions, on or before 5:00 p.m. (Toronto time) on February 1, 1998; (t) "QUALIFYING JURISDICTIONS" means the Province of Ontario and any such additional provinces in which purchasers of the Special Warrants are resident; (u) "SECURITIES ADMINISTRATORS" means collectively the securities commission or comparable authority in each of the Qualifying Jurisdictions; (v) "SHARE PURCHASE WARRANTS " means the warrants issuable upon the exercise or deemed exercise of the Special Warrants subject to the terms and conditions of the Share Purchase Warrant Indenture which indenture shall govern the entitlement of a holder to acquire one (1) additional Common Share at $1.65 at any time prior to 5:00 p.m. (Toronto time) on January 3, 1999; 4. (w) "SHARE PURCHASE WARRANT INDENTURE " means the indenture dated as of even date herewith between the Corporation and CIBC Mellon Trust Company as Agent pursuant to which the Share Purchase Warrants will be issued; (x) "SHAREHOLDER" means a holder of record of one or more Common Shares; (y) "SPECIAL WARRANT AGENT" means CIBC Mellon Trust Company and its lawful successors for the time being in the trusts hereby created; (z) "SPECIAL WARRANTHOLDER" OR "HOLDER" means a person whose name is entered for the time being in the register maintained by the Special Warrant Agent pursuant to subsection 2.8(a); (aa) "SPECIAL WARRANTHOLDERS' REQUEST" means an instrument signed in one or more counterparts by Special Warrantholders holding in the aggregate not less than 25% of the then outstanding Special Warrants which requests the Special Warrant Agent to take some action or proceeding specified therein; (bb) "SPECIAL WARRANTS" mean the special warrants of the Corporation created hereby, each entitling the registered holder thereof to receive one (1) Share and one-half ( 1/2) of one Share Purchase Warrant for each special warrant on the exercise of such special warrant or such other kind and amount of shares or other securities or property calculated or otherwise determined pursuant to Sections 2.13 and 2.14 or subsection 2.2(c) hereof as the case may be, on the exercise of each such special warrant; and (cc) "SUBJECT SECURITIES" means the Common Shares and Share Purchase Warrants issuable upon the exercise of the Special Warrants, including the Common Shares and Share Purchase Warrants or other securities or property issuable upon the exercise of the Special Warrants as a result of any adjustment of subscription rights pursuant to Sections 2.13 and 2.14 or subsection 2.2(c) hereof; (dd) "SUCCESSOR CORPORATION" has the meaning ascribed thereto in Section 7.2; (ee) "THIS SPECIAL WARRANT INDENTURE", "THIS INDENTURE", HEREIN", "HEREBY" and similar expressions mean and refer to this Indenture and any indenture, deed or instrument supplemental or ancillary hereto; and the expressions "ARTICLE", "SECTION", "SUBSECTION" AND "CLAUSE" followed by a number mean and refer to the specified Article, Section, subsection or clause of this Indenture; 5. (ff) "TRANSFER AGENT" means the transfer agent or agents for the time being of the Common Shares; (gg) "UNDERWRITING AGREEMENT" means the underwriting agreement made as of the date hereof between the Underwriters and the Corporation; (hh) "UNDERWRITERS" means, Yorkton and First Marathon; (ii) "WRITTEN ORDER OF THE CORPORATION", "WRITTEN REQUEST OF THE CORPORATION", "WRITTEN CONSENT OF THE CORPORATION", "CERTIFICATE OF THE CORPORATION" and any other document required to be signed by the Corporation, means, respectively, a written order, request, consent, certificate or other document signed in the name of the Corporation by any one of the president, any vice-president, or the secretary of the Corporation, and may consist of one or more instruments so executed; (jj) "YORKTON" means Yorkton Securities Inc. 1.2 NUMBER AND GENDER Unless elsewhere otherwise expressly provided or unless the context otherwise requires, words importing the singular include the plural and vice versa and words importing the masculine gender include the feminine and neuter genders. 1.3 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC. The division of this Indenture into Articles, Sections, subsections and clauses, the provision of a table of contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Indenture. 1.4 BUSINESS DAY In the event that any day on or before which any action is required or permitted to be taken hereunder is not a Business Day, then such action shall be required or permitted to be taken on or before the requisite time on the next succeeding day that is a Business Day. 1.5 TIME OF THE ESSENCE Time shall be of the essence in all respects in this Indenture. 6. 1.6 APPLICABLE LAW This Indenture and the Special Warrants shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal law applicable therein and shall be treated in all respects as Ontario contracts. 1.7 CHOICE OF LANGUAGE The parties hereby acknowledge that they have expressly requested that this Indenture and all notices, statements of account and other documents required or permitted to be given or entered into pursuant hereto be drawn up in the English language only. LES PARTIES RECONNAISSENT AVOIR EXPRESSMENT DEMANDEES QUE LA PRESENTE CONVENTION AINSI QUE TOUT AVIS, TOUT ETAT DE COMPTE ET TOUT AUTRE DOCUMENT A ETRE OU POUVANT ETRE DONNE OU CONCLU EN VERTU DES DISPOSITIONS DES PRESENTES, SOIENT REDIGES EN LANGUE ANGLAISE SEULEMENT. 1.8 CURRENCY Unless otherwise stated, all dollar amounts referred to in this Indenture are in Canadian dollars. ARTICLE 2 - ISSUE OF SPECIAL WARRANTS 2.1 ISSUE OF SPECIAL WARRANTS A total of 6,335,000 Special Warrants entitling the registered holders thereof to acquire up to an aggregate of 6,335,000 Common Shares and 3,167,500 Share Purchase Warrants (subject to adjustments as provided in Sections 2.13 and 2.14 or subsection 2.2(c) hereof) are hereby created and authorized to be issued hereunder upon the terms and conditions herein set forth and shall be executed by the Corporation and certified by or on behalf of the Special Warrant Agent and delivered by it in accordance with and upon receipt of a written direction signed by the Corporation. 2.2 FORM AND TERMS OF SPECIAL WARRANTS (a) The Special Warrant certificates for the 6,335,000 Special Warrants shall be substantially in the form set out in Article 9, shall be dated as of the date of this Indenture (regardless of their actual date of issue), and shall have such distinguishing letters and numbers as the Corporation may, with the approval of the Special Warrant Agent, prescribe. (b) Each Special Warrant authorized to be issued hereunder shall entitle the registered holder thereof to acquire in accordance with Section 3.1, at no extra cost, one (1) Common Share and one-half ( 1/2) a Share Purchase Warrant, or such other kind and amount of shares or securities or property, calculated pursuant to the provisions of Sections 2.13 and 2.14 or subsection 2.2(c), as the case may be, of this Indenture. 7. (c) Each Special Warrant authorized to be issued hereunder shall in the event of a Qualification Default prior to the exercise or deemed exercise of the Special Warrants pursuant to Section 3.1 hereof, entitle the registered holder hereof to acquire in accordance with said Section 3.1, at no extra cost, 1.1 Common Shares and 0.55 Share Purchase Warrants, or such other kind and amount of shares or securities or property calculated pursuant to the provisions of Sections 2.13 and 2.14 of this Indenture. (d) Fractional Special Warrants shall not be issued or otherwise provided for. 2.3 SIGNING OF SPECIAL WARRANT CERTIFICATES The Special Warrant certificates shall be signed by any one of the chairman, president, any vice-president, or the secretary of the Corporation, and may, but need not be, under the corporate seal of the Corporation or a reproduction thereof. The signature of such officer may be mechanically reproduced in facsimile and Special Warrant certificates bearing such facsimile signatures shall be binding upon the Corporation as if they had been manually signed by such officer. Notwithstanding that the person whose manual or facsimile signature appears on any Special Warrant certificate as such officer may no longer hold office at the date of issue of such Special Warrant certificate or at the date of certification or delivery thereof, any Special Warrant certificate signed as aforesaid shall, subject to Section 2.4, be valid and binding upon the Corporation and the registered holder thereof shall be entitled to the benefits of this Indenture. 2.4 CERTIFICATION BY THE SPECIAL WARRANT AGENT (a) No Special Warrant certificate shall be issued or, if issued, shall be valid for any purpose or entitle the registered holder to the benefit hereof or thereof until it has been certified by manual signature by or on behalf of the Special Warrant Agent in the form of the certificate set out in Article 9 and such certification by the Special Warrant Agent upon any Special Warrant certificate shall be conclusive evidence as against the Corporation that the Special Warrant certificate so certified has been duly issued hereunder and the holder is entitled to the benefits hereof. (b) The certification of the Special Warrant Agent on the Special Warrant certificates issued hereunder shall not be construed as a representation or warranty by the Special Warrant Agent as to the validity of this Indenture or the Special Warrants (except the due certification thereof) or as to the performance by the Corporation of its obligations under this Indenture and the Special Warrant Agent shall in no respect be liable or answerable for the use made of the Special Warrants or any of them or of the consideration therefor except as otherwise specified herein. 8. 2.5 SPECIAL WARRANTHOLDER NOT A SHAREHOLDER The holding of a Special Warrant shall not be construed as conferring upon a Special Warrantholder any right or interest whatsoever as a Shareholder, nor entitle the Special Warrantholder to any right or interest in respect thereof except as herein and in the Special Warrants expressly provided. 2.6 ISSUE IN SUBSTITUTION FOR LOST SPECIAL WARRANT CERTIFICATES (a) In case any of the Special Warrant certificates shall become mutilated or be lost, destroyed or stolen, the Corporation, subject to applicable law, and subsection (b) of this Section 2.6, shall issue and thereupon the Special Warrant Agent shall certify and deliver a new Special Warrant certificate of like tenor as the one mutilated, lost, destroyed or stolen in exchange for and in place of such mutilated certificate, or in lieu of and in substitution for such lost, destroyed or stolen certificate, and the substituted certificate shall be in a form approved by the Special Warrant Agent and shall entitle its holder to the benefits hereof and shall rank equally in accordance with its terms with all other Special Warrant certificates issued or to be issued hereunder. (b) The applicant for the issue of a new certificate pursuant to this Section 2.6 shall bear the cost of the issue thereof and in case of mutilation, as a condition precedent to the issue thereof, shall deliver to the Special Warrant Agent the mutilated certificate and in the case of loss, destruction or theft shall, as a condition precedent to the issue thereof, furnish to the Corporation and to the Special Warrant Agent such evidence of ownership and of the loss, destruction or theft of the certificate so lost, destroyed or stolen as shall be satisfactory to the Corporation and to the Special Warrant Agent in their sole discretion, acting reasonably, and such applicant may also be required to furnish an indemnity bond or security in amount and form satisfactory to the Corporation and the Special Warrant Agent in their sole discretion, acting reasonably, and shall pay the reasonable charges of the Corporation and the Special Warrant Agent in connection therewith. 2.7 SPECIAL WARRANTS TO RANK PARI PASSU All Special Warrants shall rank pari passu, whatever may be their actual date of issue. 2.8 REGISTERS FOR SPECIAL WARRANTS (a) The Corporation hereby appoints the Special Warrant Agent as the registrar of the Special Warrants. The Corporation may hereafter, with the consent of the Special Warrant Agent, appoint one or more other additional registrars of the Special Warrants. The Corporation shall cause a register to be kept by the Special Warrant Agent, and the Special Warrant Agent agrees to maintain such a register, at its principal transfer office in the city of Toronto, Ontario in which shall be entered the name and addresses of the holders of the Special Warrants and other particulars of the Special Warrants held by them respectively and the 9. number of Special Warrants held by them. The Corporation shall also cause transfer agencies to be maintained by the Special Warrant Agent, and the Special Warrant Agent shall maintain such transfer agencies at its principal transfer office in the city of Toronto, Ontario and in such other place or places and by such other agent or agents as the Corporation with the approval of the Special Warrant Agent may designate. (b) Subject to the terms of this Indenture and to applicable law, Special Warrants may be transferred. No transfer of a Special Warrant shall be valid unless made by the holder or his executors, administrators or other legal representatives, or his or her attorney duly appointed by an instrument in writing in form and manner satisfactory to the Special Warrant Agent, acting reasonably, with signatures guaranteed by a Canadian chartered bank, a Canadian trust company, a member firm of any Canadian stock exchange or such other guarantor as the Special Warrant Agent determines to be acceptable, upon surrender of the Special Warrant to the Special Warrant Agent and upon compliance with such other reasonable requirements as the Special Warrant Agent may prescribe and shall thereafter be recorded on the register of transfers maintained by the Special Warrant Agent pursuant to subsection (a) of this Section 2.8, provided all taxes or governmental or other charges arising by reason of such transfer have first been paid by or on behalf of the Special Warrantholder requesting such a transfer. 2.9 TRANSFEREE ENTITLED TO REGISTRATION The transferee of a Special Warrant shall, after the transfer form attached to the Special Warrant or any other form of transfer acceptable to the Special Warrant Agent is duly executed and completed and the Special Warrant is lodged with the Special Warrant Agent, and upon compliance with all other conditions in that regard required by this Indenture or by law, be entitled to have his name entered on the register of holders as the owner of such Special Warrant free from all equities or rights of set-off or counterclaim as set forth in Section 2.12. 2.10 REGISTERS OPEN FOR INSPECTION The registers hereinbefore referred to shall be open at all reasonable times for inspection by the Corporation, the Underwriters, the Special Warrant Agent or any Special Warrantholder. The Special Warrant Agent shall, from time to time when requested to do so in writing by the Corporation or the Underwriters, furnish the Corporation or the Underwriters, as the case may be, with a list of the names and addresses of holders of Special Warrants entered in the register of holders maintained by the Special Warrant Agent and showing the number of Common Shares which may then be acquired upon the exercise of the Special Warrants held by each such holder. 10. 2.11 EXCHANGE OF SPECIAL WARRANTS (a) Special Warrant certificates may, upon compliance with the reasonable requirements of the Special Warrant Agent, be exchanged for Special Warrant certificates in any other authorized denomination representing in the aggregate the same number of Special Warrants. The Corporation shall sign and the Special Warrant Agent shall certify, in accordance with Sections 2.3 and 2.4, all Special Warrant certificates necessary to carry out the exchanges contemplated herein. (b) Special Warrant certificates may be exchanged only at the principal office of the Special Warrant Agent in the City of Toronto, Ontario or at any other place that is designated by the Corporation with the approval of the Special Warrant Agent. Any Special Warrant certificates tendered for exchange shall be surrendered to the Special Warrant Agent and canceled. (c) Except as otherwise herein provided, the Special Warrant Agent may charge Special Warrantholders requesting an exchange a reasonable sum for each Special Warrant certificate issued, and payment of such charges and reimbursement of the Special Warrant Agent or the Corporation for any and all taxes or governmental or other charges required to be paid shall be made by the party requesting such exchange as a condition precedent to such exchange. 2.12 SPECIAL WARRANT RETRACTION PRIVILEGE (1) In the event of a Qualification Default not later than the Business Day next following the date of such Qualification Default, the Corporation shall notify or cause the Special Warrant Agent to notify the Escrow Agent and the Special Warrantholders of that fact and of the Retraction Privilege (defined below) by facsimile transmission or, in the event that the Corporation and the Special Warrant Agent do not have a facsimile number for a Warrantholder in the manner provided in Section 10.2, and each holder of the Special Warrants upon receiving said notice, shall have the right to retract (the "Retraction Privilege") 25% of the Special Warrants held by such holders at any time prior to 5:00 p.m. (Toronto time) on the fifth Business Day following the date of the Qualification Default (the "Retraction Deadline") and to receive in consideration therefor an amount equal to $1.50 per Special Warrant, together with accrued interest thereon to and including the date of payment less any amount required to be held by applicable law (the "Retraction Amount"). Any failure to exercise the Retraction Privilege shall not affect or otherwise limit a Special Warrantholder's right pursuant to section 2(c) of this Indenture to receive 1.1 Common Shares and 0.55 Share Purchase Warrants upon exercise or deemed exercise of the holder's Special Warrants following a Qualification Default. (2) In order to exercise the Retraction Privilege, a Special Warrantholder must surrender to the Special Warrant Agent, at its principal office in the City of Toronto (or at such additional place or places as may be decided by the Corporation from time to time and approved by the Special Warrant Agent), the Special Warrants held by such holder which such holder is entitled to retract (provided 11. that such Special Warrant shall be deemed to be surrendered only upon personal delivery thereof, or if sent by mail or other means of transmission, upon actual receipt thereof by the Special Warrant Agent) together with a notice (the "Notice of Retraction") in the form attached as Schedule "C" to the Special Warrant certificate, signed by such holder retracting such Special Warrants and the Special Warrant Agent shall as soon as practicable provide a copy of such Notice of Retraction to the Escrow Agent and request a cheque payable to the Special Warrantholder equal to the aggregate Retraction Amount for all such Special Warrants to be retracted. (3) On the date of the receipt by the Special Warrant Agent of a Notice of Retraction and a Warrant Certificate representing the Special Warrants surrendered for retraction, the Retraction Amount payable to such Warrantholder shall become due and, within three Business Days thereafter, the Special Warrant Agent shall send the Warrantholder the Escrow Agent's cheque payable in Canadian funds in the amount of such Retraction Amount; cancel the Warrant Certificate or Certificates so surrendered, and issue a new Special Warrant Certificate to each Special Warrantholder representing any remaining Special Warrants which the holder did not retract. (4) If Special Warrants are surrendered for retraction pursuant hereto and the Retraction Amounts representing such Special Warrants are not paid in full when due, such Special Warrants shall remain outstanding and the Warrant Agent shall hold the certificates representing such Special Warrants on behalf of and for the benefit of the relevant Warrantholders until such Retraction Amounts are paid in full at which time the retraction shall be completed. 2.13 OWNERSHIP AND TRANSFER OF SPECIAL WARRANTS The Corporation and the Special Warrant Agent may deem and treat the registered holder of any Special Warrant certificate as the absolute owner of the Special Warrant evidenced thereby for all purposes, and the Corporation and the Special Warrant Agent shall not be affected by any notice or knowledge to the contrary except where the Corporation or the Special Warrant Agent is required to take notice by statute or by order of a court of competent jurisdiction. A Special Warrantholder shall be entitled to the rights evidenced by such Special 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 Special Warrantholder of Common Shares pursuant to the exercise thereof shall be a good discharge to the Corporation and the Special Warrant Agent for the same, and neither the Corporation nor the Special Warrant Agent shall be bound to inquire into the title of any such holder, except where the Corporation or the Special Warrant Agent is required to take notice by statute or by order of a court of competent jurisdiction. 2.14 ADJUSTMENT OF SUBSCRIPTION RIGHTS Subject to Sections 2.14 and 2.15, if at any time after the date hereof and prior to the Expiry Time, and provided that any Special Warrants remain unexercised, there shall be: 12. (a) a reclassification of the Common Shares at any time or a change of the Common Shares into other shares or securities or a subdivision or consolidation of the Common Shares into a greater or lesser number of shares or any other capital reorganization; (b) a consolidation, amalgamation or merger of the Corporation with or into any other corporation (other than a consolidation, amalgamation or merger which does not result in any reclassification of the outstanding Common Shares or a change of the Common Shares into other Common Shares or securities); (c) a transfer of the undertaking or assets of the Corporation as an entirety or substantially as an entirety to another corporation or other entity; or (d) an issue or distribution to the holders of all or substantially all of the Corporation's outstanding Common Shares or securities of the Corporation including rights, options or warrants to acquire Common Shares or securities convertible into or exchangeable for Common Shares or any property or assets including any evidences of indebtedness, other than cash dividends paid in the ordinary course of the Corporation or securities issued pursuant to the Corporation's stock option plans, (any of such events being called a "Capital Reorganization"), the holder of any Special Warrants that may thereafter be exercised to acquire Common Shares shall be entitled to receive, and shall accept for no extra cost, in lieu of the number of Common Shares to which he was theretofore entitled upon such exercise, the kind and amount of shares or other securities or property which such holder would have been entitled to receive as a result of such Capital Reorganization if, on the effective date thereof or the record date, as the case may be, he had been the registered holder of the number of Common Shares which he was theretofore entitled to acquire upon such exercise. Any such adjustments shall be made by and set forth in an indenture supplemental hereto approved by the directors and shall for all purposes be prima facie deemed to be an appropriate adjustment absent manifest error. 2.15 ADJUSTMENT RULES (1) The adjustments provided for in Section 2.13 are cumulative and shall apply (without duplication) to successive Capital Reorganizations or other events resulting in any adjustment under the provisions of Section 2.13; provided that, notwithstanding any other provision of this Article 2, no adjustment shall be made in the number of Common Shares which may be acquired on the exercise of a Special Warrant unless it would result in a change of at least one one-hundredth of a Share (provided, however, that any adjustments which by reason of this subsection 2.14(1) are not required to be made shall be carried forward and taken into account in any subsequent adjustment). (2) The Corporation shall not issue fractional Common Shares in satisfaction of its obligations hereunder. If any fractional interests in a Share would, except for the provisions of this subsection 2.14(2), be deliverable upon the exercise of the Special Warrant, the Corporation shall make a cash payment equal to the fair value of the fraction of a Share not so issued as determined by the 13. Corporation's auditors in their sole discretion. No cheque shall be issued or cash payment made to any Special Warrantholder for an amount less than $5.00. (3) If any question arises with respect to the adjustments provided in this Article 2 such question shall, absent manifest error, be conclusively determined by the Corporation's auditors or such other firm of chartered accountants appointed by the Corporation and acceptable to the Special Warrant Agent (who may be the Corporation's auditors). Such chartered accountants shall have access to all necessary records of the Corporation and such determination shall be binding upon the Corporation, the Special Warrant Agent and the Special Warrantholders absent manifest error. (4) No adjustment in the number of Common Shares which may be acquired upon exercise of a Special Warrant shall be made in respect of any event described in Section 2.13 if Special Warrantholders are entitled to participate in such event on the same terms mutatis mutandis as if Special Warrantholders had exercised their Special Warrants prior to or on the effective date or record date of such event. (5) If, after the date of this Indenture, the Corporation shall take any action affecting the Common Shares other than the actions described in this Article 2 which in the opinion of the directors of the Corporation would materially affect the rights of Special Warrantholders, the number of Common Shares which may be acquired upon the exercise of a Special Warrant shall be adjusted in such manner and at such time, by action by the directors, in their sole discretion, acting reasonably, as they may determine to be equitable in the circumstances; provided that no such adjustment will be made unless prior approval of any stock exchange on which the Common Shares are listed for trading, if required, has been obtained. Failure of the directors to make such an adjustment shall be conclusive evidence that the directors have determined that it is equitable to make no adjustment in the circumstances. In the event that any such adjustment is made, the Corporation shall deliver a certificate of the Corporation to the Special Warrant Agent describing such adjustment. 2.16 NOTICE OF ADJUSTMENT OF SUBSCRIPTION RIGHTS (1) At least 10 days prior to the effective date or record date, as the case may be, of any event which would require an adjustment in any of the subscription rights pursuant to any of the Special Warrants, including the number of Common Shares which may be acquired upon the exercise thereof, the Corporation shall: (a) file with the Special Warrant Agent a certificate of the Corporation specifying the particulars of such event and, if determinable, the required adjustment and the computation of such adjustment; and (b) give notice to the Special Warrantholders of the particulars of such event and, if determinable, the required adjustment, in the manner provided for in Section 10.2. 14. (2) In case of any adjustment for which a notice provided for in subsection 2.15(1) has been given is not then determinable or in case a question arises and a determination has been made in accordance with Section 2.14(3), the Corporation shall promptly after such adjustment is determinable or conclusion reached: (a) file with the Special Warrant Agent a certificate of the Corporation showing how such adjustment was computed; and (b) give notice to the Special Warrantholders of the adjustment in the manner provided for in Section 10.2. (3) Where a notice referred to in subsection 2.15(1) or (2) has been given, the Special Warrant Agent shall be entitled to rely absolutely on any adjustment calculation of the Corporation or the Corporation's auditors. 2.17 PROCEEDINGS PRIOR TO ANY ACTION REQUIRING ADJUSTMENT As a condition precedent to the taking of action which would require an adjustment pursuant to Sections 2.13 and 2.14, the Corporation shall take any action which may, in the opinion of the Corporation's counsel, be necessary in order that the Corporation may validly and legally issue as fully paid and non- assessable all the Subject Securities which the holders of the Special Warrants are entitled to receive on the complete exercise thereof in accordance with the provisions hereof. 2.18 PROTECTION OF THE SPECIAL WARRANT AGENT The Special Warrant Agent shall be entitled to act and rely on any adjustment calculation of the Corporation's auditors and the Special Warrant Agent shall not: (a) at any time be under any duty or responsibility to any holder to determine whether facts exist which may require any adjustment contemplated by this article, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed in making same; (b) be accountable with respect to the validity or value (or the kind or amount) of any shares or of any other shares or securities or property which may at any time be issued or delivered upon the exercise or deemed exercise of any Special Warrant; or (c) be responsible for any failure of the Corporation to make any cash payment or to issue, transfer or deliver shares or share certificates upon the surrender of any Special 15. Warrant for the purpose of exercise or deemed exercise, or to comply with any of the covenants contained in this article. ARTICLE 3 - EXERCISE OF SPECIAL WARRANTS 3.1 EXERCISE OF SPECIAL WARRANTS AND DEEMED EXERCISE OF SPECIAL WARRANTS (a) Upon and subject to the provisions of this Article 3, any holder of a Special Warrant may exercise the right thereby conferred on him to acquire the Subject Securities, at no additional cost, by surrendering to the Special Warrant Agent at any time prior to the Expiry Time, in the manner set forth in subsection 3.1(c), the certificate evidencing the Special Warrants, with the Exercise Form attached to the Special Warrant certificate duly completed and executed by the holder or his executors, administrators or other legal representatives or his or their attorney duly appointed by an instrument in writing in form and manner satisfactory to the Special Warrant Agent, acting reasonably. The Exercise Form attached to the Special Warrant certificate shall be signed as set out above and shall specify: (i) the number of Subject Securities which the Special Warrantholder desires to acquire on exercise of the Special Warrants (being not more than those which he is entitled to acquire pursuant to the Special Warrant certificate so surrendered); and (ii) the person or persons in whose names the Subject Securities are to be issued, his or their address or addresses and the number of Subject Securities to be issued to each such person if more than one is so specified. If any of the Subject Securities in respect of which the Special Warrants are exercised are to be issued to a person or persons other than the Special Warrantholder, the Special Warrantholder shall pay to the Special Warrant Agent all requisite stamp or security transfer taxes or other governmental charges exigible in connection with the issue of such Subject Securities to such other person or persons or shall establish to the satisfaction of the Special Warrant Agent that such taxes and charges have been paid. Furthermore, in such event the signature on the Exercise Form must be guaranteed by a Canadian chartered bank, a Canadian trust company, a member firm of any Canadian stock exchange or such other guarantor as the Special Warrant Agent determines to be acceptable. If at the time of the exercise of the Special Warrants, there remain trading restrictions on the Subject Securities acquired, due to applicable securities legislation, the Corporation may, on the advice of counsel, endorse the certificates representing the Subject Securities to such effect, and prior to issuance of any such certificates the Special Warrant Agent shall consult the Corporation to determine whether such endorsement or legending is required. 16. (b) Any Special Warrants not otherwise exercised for the Subject Securities shall be deemed to have been exercised on the earlier of (i) the fifth Business Day after the Qualification Date, and (ii) immediately prior to the Expiry Time without any further action on the part of the holder thereof. (c) In order to acquire certificates representing the Subject Securities, a holder of one or more Special Warrants must deliver the Special Warrant certificates evidencing such Special Warrants to the Special Warrant Agent at its principal office in the City of Toronto, Ontario (or at such additional place or places as may be determined by the Corporation from time to time with the approval of the Special Warrant Agent) or by first class mail, postage prepaid to CIBC Mellon Trust Company at its principal office in Toronto, Ontario. A Special Warrant certificate shall be deemed to be surrendered only upon personal delivery thereof or if sent by mail, upon actual receipt thereof by the Special Warrant Agent. 3.2 EFFECT OF EXERCISE OF SPECIAL WARRANTS (a) The Subject Securities in respect of which the Special Warrants are exercised shall be deemed to have been issued on the Exercise Date at which time each Special Warrantholder shall be deemed to have become the holder of record of the Subject Securities issued in respect of the Special Warrants held by such Special Warrantholder unless the transfer books of the Corporation shall be closed by law on the said date of such exercise, in which case such Subject Securities shall be deemed to have been issued and such Special Warrantholder shall be deemed to have become the holder of record of such Subject Securities on the date on which such transfer books are next re-opened. (b) Forthwith after the Exercise Date and subject to the delivery by a Special Warrantholder of Special Warrant Certificates and the Exercise Form to the Special Warrant Agent as provided in subsection 3.1(c), and 3.1(a)(i) and (ii) respectively, the Corporation shall, subject to the provisions of Section 3.3, cause to be delivered to each Special Warrantholder or mailed to it at its address specified in the register of holders maintained by the Special Warrant Agent or certificates for the appropriate number of Subject Securities not exceeding those which such Special Warrantholder is entitled to acquire pursuant to the Special Warrants delivered by the Special Warrantholder to the Special Warrant Agent. 3.3 POSTPONEMENT OF DELIVERY OF CERTIFICATES The Corporation shall not be required to deliver certificates for Common Shares during the period when the transfer books of the Corporation are closed by law and, in the event of a surrender of a Special Warrant for the acquisition of Subject Securities during such period, the delivery of certificates may be postponed for a period not exceeding five (5) Business Days after the date of the re-opening of the transfer books. 17. 3.4 CANCELLATION OF SPECIAL WARRANT CERTIFICATES All Special Warrant certificates surrendered to the Special Warrant Agent pursuant to Sections 2.6, 2.9, 2.11, 2.12 or 3.1 shall be cancelled by the Special Warrant Agent. The Special Warrant certificates evidencing all Special Warrants exercised pursuant to Section 3.1 shall be deemed to have been cancelled on the Exercise Date and the Special Warrant Agent shall record the cancellation or deemed cancellation of such Special Warrant certificates on the register of holders maintained by the Special Warrant Agent pursuant to subsection 2.8(a). The Special Warrant Agent shall, if required in writing by the Corporation, furnish the Corporation with a certificate of destruction identifying the Special Warrant certificates so cancelled and deemed to have been cancelled. All Special Warrants evidenced by Special Warrant certificates which have been validly cancelled or which are deemed to have been cancelled pursuant to this Section 3.4 shall be without further force or effect whatsoever. ARTICLE 4 - COVENANTS 4.1 GENERAL COVENANTS The Corporation covenants with the Special Warrant Agent that so long as any Special Warrants remain outstanding: (a) It will maintain its corporate existence and will carry on and conduct its business in accordance with good business practice. (b) It will send to each Special Warrantholder copies of all financial statements and other material furnished to the holders of Common Shares after the date of this Indenture. (c) It will reserve and there will remain unissued out of its authorized capital a sufficient number of Common Shares to satisfy the rights of acquisition on the exercise of the Special Warrants and the Share Purchase Warrants as provided for herein. (d) It will cause the Subject Securities issuable upon the exercise of the Special Warrants in the manner herein provided to be duly issued and delivered in accordance with the Special Warrants and the terms hereof. (e) It will use its reasonable best efforts to maintain the quotation of the Common Shares on the Canadian Dealing Network and to become or maintain its status as (as the case may be) a "reporting issuer" not in default of the requirements of the securities legislation and policies of each of the Qualifying Jurisdictions. (f) All of the Subject Securities which are issued on the exercise of the Special Warrants shall be issued as fully-paid and non-assessable and the holders thereof shall not be liable to the Corporation or its creditors in respect of the issue of such Subject Securities. 18. (g) The Corporation covenants and agrees to (i) file a preliminary prospectus for the purpose of qualifying the issuance and distribution of the Subject Securities upon the exercise of the Special Warrants in each of the Qualifying Jurisdictions within 60 days of the date hereof; (ii) resolve all comments received or deficiencies raised by the Securities Administrators; and (iii) file and obtain receipts for the Final Prospectus in each of the Qualifying Jurisdictions qualifying the Subject Securities as soon as possible after such regulatory comments and deficiencies have been resolved and obtain the quotation of the Common Shares issuable on exercise of the Special Warrants upon the Canadian Dealing Network on or before the Expiry Time. (h) It will not take any other action which might deprive the Special Warrantholders of the opportunity of exercising their rights pursuant to the Special Warrants held by such persons during the period of notice required by subsection 2.15(1). (i) It will perform all its covenants and carry out all of the acts or things to be done by it as provided in this Indenture. (j) It will not amend the attributes of the Subject Securities without the prior written consent, in the form of an Extraordinary Resolution, of the holders of two-thirds of the outstanding Special Warrants. (k) It will send a written notice to the Special Warrant Agent and to each holder of Special Warrants of the issuance of the receipts referred to in subsection 4.1(g), together with a commercial copy of the final prospectus qualifying the Subject Securities for distribution, as soon as practicable but, in any event, not later than three Business Days after the Qualification Date and, in the case of the Special Warrant Agent, copies of such receipts and written confirmation of any adjustment to subscription rights. (l) It will send a written notice to the Special Warrant Agent and to each Special Warrantholder of the record date for the determination of holders of Common Shares for the purposes of any dividend or other distribution or rights offering to holders of such securities not later than 10 Business Days prior to such record date. (m) It will send a written notice to the Special Warrant Agent and to Special Warrantholders of the occurrence of a Qualification Default and, as a result therefrom, each Special Warrantholder's increased entitlement as contemplated by section 2.2(c). (n) In the event that it offers any of its securities for sale in the United States or files a registration statement with the United States Securities Exchange Commission in respect of any of its securities, whether in connection with a public offering of such securities, an application for listing or quotation of its securities on any stock market or quotation system in the United States or otherwise, the Corporation shall ensure that the Subject Securities are 19. also registered for resale in the United States or on such stock exchange and take all such other steps and actions as may be necessary to ensure that the Subject Securities are not subject to any statutory hold period. 4.2 SECURITIES QUALIFICATION REQUIREMENTS (a) If, in the opinion of the Corporation's counsel, any instrument (other than the Final Prospectus) is required to be filed with, or any permission, order or ruling is required to be obtained from, any Securities Administrator or any other step is required under any federal or provincial law of Canada before any Subject Securities may be issued or delivered to a Special Warrantholder in any of the Qualifying Jurisdictions upon exercise of its Special Warrants, free of any restrictions or limitations on resale of such Subject Securities, the Corporation covenants that it will file such instrument, obtain such permission, order or ruling or take all such other actions, at its expense, as is required or appropriate in the circumstances. (b) The Corporation will give written notice of the issue of the Subject Securities pursuant to the exercise of Special Warrants in such detail as may be required to the Securities Administrator in each of the Qualifying Jurisdictions in which there is legislation requiring the giving of any such notice. 4.3 SPECIAL WARRANT AGENT'S REMUNERATION AND EXPENSES The Corporation covenants that it will pay to the Special Warrant Agent such fees as the parties agree upon from time to time for its services hereunder and will pay or reimburse the Special Warrant Agent upon its request for all reasonable expenses and disbursements of the Special Warrant Agent in the administration or execution of the trusts hereby created (including, pursuant to subsection 8.3(f), the reasonable compensation and the disbursements of its counsel and all other advisers, experts, accountants and assistants not regularly in its employ) both before any default hereunder and thereafter until all duties of the Special Warrant Agent hereunder shall be finally and fully performed, except any such expense or disbursement in connection with or related to or required to be made as a result of the negligence, wilful misconduct or bad faith of the Special Warrant Agent. 4.4 PERFORMANCE OF COVENANTS BY SPECIAL WARRANT AGENT Subject to subsection 8.2(g), if the Corporation shall fail to perform any of its covenants contained in this Indenture and the Corporation has not rectified such failure within ten Business Days after receiving written notice from the Special Warrant Agent of such failure, the Special Warrant Agent shall notify the Special Warrantholders of such failure on the part of the Corporation unless the Special Warrant Agent shall itself perform any of the said covenants capable of being 20. performed by it, but shall be under no obligation to perform said covenants or to notify the Special Warrantholders. All reasonable sums expended or disbursed by the Special Warrant Agent in so doing shall be repayable as provided in Section 4.3. No such performance, expenditure or disbursement by the Special Warrant Agent shall be deemed to relieve the Corporation of any default herein or of its continuing obligations under the covenants herein contained. ARTICLE 5 - ENFORCEMENT 5.1 SUITS BY SPECIAL WARRANTHOLDERS All or any of the rights conferred upon a Special Warrantholder by the terms of the Special Warrants held by such Special Warrantholder and/or this Indenture may be enforced by such Special Warrantholder by appropriate legal proceedings, but subject to the rights which are hereby conferred upon the Special Warrant Agent and subject to the provisions of Section 6.10. 5.2 IMMUNITY OF SHAREHOLDERS, ETC. Subject to applicable laws, the Special Warrant Agent and, by the acceptance of the Special Warrant certificates and as part of the consideration for the issue of the Special Warrants, the Special Warrantholders hereby waive and release any right, cause of action or remedy now or hereafter existing in any jurisdiction against any person in his capacity as an incorporator or any past, present or future shareholder of the Corporation or other security holder, director, officer, employee or agent of the Corporation for the issue of the Common Shares pursuant to the exercise of any Special Warrant or on any covenant, agreement, representation or warranty by the Corporation herein or in the Special Warrant certificates contained. 5.3 LIMITATION OF LIABILITY The obligations hereunder are not personally binding upon, nor shall resort hereunder be had to, the shareholders or the directors of the Corporation or any of the past, present or future shareholders or directors of the Corporation or any of the past, present or future officers, employees or agents of the Corporation, but only the Corporation and its property shall be bound in respect hereof. ARTICLE 6 - MEETINGS OF SPECIAL WARRANTHOLDERS 6.1 RIGHT TO CONVENE MEETINGS The Special Warrant Agent may at any time and from time to time, and shall on receipt of a written request of the Corporation or of a Special Warrantholders' Request, convene a meeting of the Special Warrantholders provided that the Special Warrant Agent is indemnified and funded to its reasonable satisfaction by the Corporation or by the Special Warrantholders signing such Special Warrantholders' Request against the costs, charges, expenses and liabilities which may be incurred in connection with the calling and holding of such meeting. If within 15 Business Days after the 21. receipt of a written request of the Corporation or a Special Warrantholders' Request and indemnity and funding given as aforesaid the Special Warrant Agent fails to give the requisite notice specified in Section 6.2 to convene a meeting, the Corporation or such Special Warrantholders, as the case may be, may convene such meeting. Every such meeting shall be held in the City of Toronto or at such other place as may be approved or determined by the Special Warrant Agent and the Corporation. 6.2 NOTICE At least 15 days' prior notice of any meeting of Special Warrantholders shall be given to the registered Special Warrantholders, at the expense of the Corporation, in the manner provided for in Section 10.2 and a copy of such notice shall be delivered to the Special Warrant Agent unless the meeting has been called by the Special Warrant Agent, and also to the Corporation, unless the meeting has been called by the Corporation. Such notice shall state the time and place of the meeting and the general nature of the business to be transacted thereat, and shall contain such information as is reasonably necessary to enable the Special Warrantholders to make a reasoned decision on the matters for which such meeting has been called, but it shall not be necessary for any such notice to set out the terms of any resolution to be proposed or any of the provisions of this Article 6. The notice convening any such meeting may be signed by the Special Warrant Agent or of the Corporation or the person designated by such Special Warrantholders, as the case may be. 6.3 CHAIRMAN The Special Warrant Agent may nominate in writing an individual to be chairman of the meeting and if no individual is so nominated, or if the individual so nominated is not present within 15 minutes after the time fixed for the holding of the meeting, the Special Warrantholders present in person or by proxy shall appoint an individual present to be chairman of the meeting. The chairman of the meeting need not be a Special Warrantholder. 6.4 QUORUM Subject to the provisions of Section 6.11, at any meeting of the Special Warrantholders a quorum shall consist of one or more Special Warrantholders present in person or represented by proxy and holding at least 25% of the then issued and outstanding Special Warrants. If a quorum of the Special Warrantholders shall not be present within one half-hour from the time fixed for holding any meeting, the meeting, if summoned by the Special Warrantholders or on a Special Warrantholder's Request, shall be dissolved; but in any other case the meeting shall be adjourned to the same day in the next week (unless such day is not a Business Day in which case it shall be adjourned to the next following Business Day) at the same time and place to the extent possible and, subject to the provisions of Section 6.1, no notice of the adjournment need be given. Any business may be brought before or dealt with at an adjourned meeting which might have been dealt with at the original meeting in accordance with the notice calling the same. At the adjourned meeting the Special Warrantholders present in person or represented by proxy (regardless of number) shall form a quorum and may transact the business for which the meeting was originally convened, 22. notwithstanding that they may hold less than 25% of the then issued and outstanding Special Warrants. No business shall be transacted at any meeting unless a quorum is present at the commencement of the meeting. 6.5 POWER TO ADJOURN The chairman of any meeting at which a quorum of the Special Warrantholders is present may, with the consent of the meeting, adjourn any such meeting, and no notice of such adjournment need be given except such notice, if any, as the meeting may prescribe. 6.6 SHOW OF HANDS Every question submitted to a meeting shall be decided in the first place by a majority of the votes given on a show of hands except that votes on an extraordinary resolution shall be given in the manner hereinafter provided. At any such meeting, unless a poll is duly demanded as herein provided, a declaration by the chairman of the meeting that a resolution has been carried or carried unanimously or by a particular majority or lost or not carried by a particular majority shall be conclusive evidence of the fact. 6.7 POLL AND VOTING On every extraordinary resolution, and when demanded by the chairman of the meeting or by one or more of the Special Warrantholders acting in person or by proxy on any other question submitted to a meeting and after a vote by show of hands, a poll shall be taken in such manner as the chairman of the meeting shall direct. Questions other than those required to be determined by extraordinary resolution shall be decided by a majority of the votes cast on the poll. On a show of hands, every person who is present and entitled to vote, whether as a Special Warrantholder or as a proxy for one or more absent Special Warrantholders, or both, shall have one vote. On a poll, each Special Warrantholder present in person or represented by a proxy duly appointed by instrument in writing shall be entitled to one vote in respect of each Special Warrant which he (or the Special Warrantholder appointing him as proxy) then holds. A proxy need not be a Special Warrantholder. The chairman of any meeting shall be entitled, both on a show of hands and on a poll, to vote in respect of the Special Warrants, if any, held or represented by him. 6.8 REGULATIONS Subject to the provisions of this Indenture, the Special Warrant Agent or the Corporation with the approval of the Special Warrant Agent may from time to time make and from time to time vary such regulations as it shall reasonably consider necessary or appropriate: (a) for the deposit of instruments appointing proxies at such place and time as the Special Warrant Agent, the Corporation or the Special Warrantholders convening the meeting, as the case may be, may in the notice convening the meeting direct, and enabling particulars of such instruments appointing proxies to be mailed or transmitted by facsimile before the meeting 23. to the Corporation or to the Special Warrant Agent and for the voting of proxies so deposited as though the instruments themselves were produced at the meeting; (b) as to the form of the instrument of proxy; and (c) generally for the calling of meetings of Special Warrantholders and the conduct of business thereat, including setting a record date for Special Warrantholders entitled to receive notice of or to vote at such meeting; such regulations to be effectual only once notice thereof has been given to Special Warrantholders in accordance with the provisions of Section 10.2 hereof prior to or concurrently with notice of the first meeting at which such regulations are to apply. Any regulations so made shall be binding and effective and the votes given in accordance therewith shall be valid and shall be counted. Save as such regulations may provide, the only persons who shall be recognized at any meeting as a Special Warrantholder, or be entitled to vote or be present at the meeting in respect thereof (subject to Section 6.9), shall be Special Warrantholders or persons holding proxies of Special Warrantholders. 6.9 CORPORATION, SPECIAL WARRANT AGENT AND COUNSEL MAY BE REPRESENTED The Corporation, the Underwriters and the Special Warrant Agent, by their respective directors, officers and employees and the counsel for each of the Corporation, the Underwriters, the Special Warrantholders and the Special Warrant Agent may attend any meeting of the Special Warrantholders and speak thereat but shall have no vote as such. 6.10 POWERS EXERCISABLE BY EXTRAORDINARY RESOLUTION In addition to all other powers conferred upon them by any other provisions of this Indenture or by law, the Special Warrantholders at a meeting of Special Warrantholders shall have the power, exercisable from time to time by extraordinary resolution: (a) to agree with the Corporation to any modification, alteration, compromise or arrangement of the rights of Special Warrantholders and/or the Special Warrant Agent in its capacity as special warrant agent hereunder subject to the Special Warrant Agent's prior written consent or on behalf of the Special Warrantholders against the Corporation whether such rights arise under this Indenture or the Special Warrants or otherwise; (b) to amend or repeal any extraordinary resolution previously passed or sanctioned by the Special Warrantholders; (c) to direct or authorize the Special Warrant Agent subject to receipt of funding and indemnity to enforce any of the covenants on the part of the Corporation contained in this Indenture or the Special Warrants or to enforce any of the rights of the Special Warrantholders in any manner specified in such extraordinary resolution or to refrain from enforcing any such covenant or right; (d) to waive and/or direct the Special Warrant Agent to waive any default on the part of the Corporation in complying with any provisions of this Indenture or the Special Warrants either unconditionally or upon any conditions specified in such extraordinary resolution; (e) to restrain any Special Warrantholder from taking or instituting any suit, action or proceeding against the Corporation for the enforcement of any of the covenants on the part of the Corporation contained in this Indenture or the Special Warrants or to enforce any of the rights of the Special Warrantholders; (f) to direct any Special Warrantholder who, as such, has brought any suit, action or proceeding to stay or discontinue or otherwise deal with any such suit, action or proceeding, upon payment of the costs, charges and expenses reasonably and properly incurred by such Special Warrantholder in connection therewith; and (g) to remove the Special Warrant Agent and to appoint a successor special warrant agent. 6.11 MEANING OF EXTRAORDINARY RESOLUTION (a) The expression "EXTRAORDINARY RESOLUTION" when used in this Indenture means, subject as hereinafter in this Section 6.11 and in Section 6.14 provided, a resolution proposed at a meeting of Special Warrantholders duly convened for that purpose and held in accordance with the provisions of this Article 6 at which there are present in person or represented by proxy Special Warrantholders holding at least 25% of the then issued and outstanding Special Warrants and passed by the affirmative votes of Special Warrantholders holding not less than 66% of the then issued and outstanding Special Warrants represented at the meeting and voted on the poll upon such resolution. (b) If, at any meeting called for the purpose of passing an extraordinary resolution, Special Warrantholders holding at least 25% of the then issued and outstanding Special Warrants are not present in person or by proxy within one half-hour after the time appointed for the meeting, then the meeting, if convened by Special Warrantholders or on a Special Warrantholders' Request, shall be dissolved; but in any other case it shall stand adjourned to such day, being not less than four or more than ten Business Days later, and to such place and time as may be appointed by the chairman of the meeting. Not less than three Business Days' prior notice shall be given of the time and place of such adjourned meeting in the manner provided in Sections 10.1, 10.2 and 10.3. Such notice shall state that at the adjourned meeting the Special Warrantholders present in person or represented by proxy shall form a quorum but it shall not be necessary to set forth the purposes for which the meeting was originally called or any other particulars. At the adjourned meeting the Special Warrantholders present in person or represented by proxy shall form a quorum and may transact the business for which the meeting was originally convened and a resolution 25. proposed at such adjourned meeting and passed by the requisite vote as provided in subsection (a) of this Section 6.11 shall be an extraordinary resolution within the meaning of this Indenture notwithstanding that Special Warrantholders holding at least 25% of the then issued and outstanding Special Warrants are not present in person or represented by proxy at such adjourned meeting. (c) Votes on an extraordinary resolution shall always be given on a poll and no demand for a poll on an extraordinary resolution shall be necessary. 6.12 POWERS CUMULATIVE It is hereby declared and agreed that any one or more of the powers or any combination of the powers in this Indenture stated to be exercisable by the Special Warrantholders by extraordinary resolution or otherwise may be exercised from time to time and the exercise of any one or more of such powers or any combination of powers from time to time shall not be deemed to exhaust the right of the Special Warrantholders to exercise such powers or combination of powers then or thereafter from time to time. 6.13 MINUTES Minutes of all resolutions and proceedings at every meeting of Special Warrantholders shall be made and duly entered in books to be from time to time provided for that purpose by the Special Warrant Agent at the reasonable expense of the Corporation, and any such minutes as aforesaid, if signed by the chairman of the meeting at which such resolutions were passed or proceedings held, or by the chairman of the next succeeding meeting of the Special Warrantholders, shall be prima facie evidence of the matters therein stated and, until the contrary is proved, every such meeting in respect of the proceedings of which minutes shall have been made shall be deemed to have been duly convened and held, and all resolutions passed thereat or proceedings taken shall be deemed to have been duly passed and taken. 6.14 INSTRUMENTS IN WRITING All actions which may be taken and all powers that may be exercised by the Special Warrantholders at a meeting held as provided in this Article 6 may also be taken and exercised by Special Warrantholders holding at least 66% of the then issued and outstanding Special Warrants by an instrument in writing signed in one or more counterparts by such Special Warrantholders in person or by attorney duly appointed in writing, and the expression "extraordinary resolution" when used in this Indenture shall include an instrument so signed. 6.15 BINDING EFFECT OF RESOLUTIONS 26. Every resolution and every extraordinary resolution passed in accordance with the provisions of this Article 6 at a meeting of Special Warrantholders shall be binding upon all the Special Warrantholders, whether present at or absent from such meeting, and every instrument in writing signed by Special Warrantholders in accordance with Section 6.14 shall be binding upon all the Special Warrantholders, whether signatories thereto or not, and each and every Special Warrantholder and the Special Warrant Agent (subject to the provisions for indemnity herein contained) shall be bound to give effect accordingly to every such resolution and instrument in writing. In the case of an instrument in writing, the Special Warrant Agent shall give notice in the manner contemplated in Sections 10.1 and 10.2 of the effect of the instrument in writing to all Special Warrantholders and the Corporation as soon as is reasonably practicable. 6.16 HOLDINGS BY THE CORPORATION OR SUBSIDIARIES OF THE CORPORATION DISREGARDED In determining whether Special Warrantholders holding the required number of Special Warrants are present at a meeting of Special Warrantholders for the purpose of determining a quorum or have concurred in any consent, waiver, resolution, extraordinary resolution, Special Warrantholders' Request or other action under this Indenture, Special Warrants owned legally or beneficially by the Corporation or any associate or affiliate (as those terms are defined in the Securities Act (Ontario)) of the Corporation shall be disregarded. The Corporation shall provide to the Special Warrant Agent upon request a Certificate of the Corporation stating the exact number and registrations of Special Warrants held by the Corporation or any associate or affiliate. ARTICLE 7 - SUPPLEMENTAL INDENTURES 7.1 SUPPLEMENTAL INDENTURES From time to time the Corporation and the Special Warrant Agent may, subject to the provisions of this Indenture, and they shall, when so directed by this Indenture, execute and deliver by their proper officers, indentures or instruments supplemental hereto, which thereafter shall form part hereof, for any one or more or all of the following purposes: (a) adding to the provisions hereof such additional covenants and enforcement provisions as in the opinion of counsel are necessary or advisable, provided that the same are not, in the opinion of the Special Warrant Agent, based on the advice of its counsel, prejudicial to the interests of the Special Warrantholders as a group; (b) giving effect to any extraordinary resolution passed as provided in Article 6; (c) making such provisions not inconsistent with this Indenture as may be necessary or desirable with respect to matters or questions arising hereunder, provided that such provisions are not, in the opinion of the Special Warrant Agent, based on the advice of its counsel, prejudicial to the interests of the Special Warrantholders as a group; 27. (d) adding to or amending the provisions hereof in respect of the transfer of Special Warrants, providing for the exchange of Special Warrants, and making any modification in the form of the certificates for the Special Warrants provided that such additions, amendments or modifications are not, in the opinion of the Special Warrant Agent, based on the advice of its counsel, prejudicial to the interests of the Special Warrantholders as a group; (e) amending any of the provisions of this Indenture or relieving the Corporation from any of the obligations, conditions or restrictions herein contained, provided that no such amendment or relief shall be or become operative or effective if, in the opinion of the Special Warrant Agent, based on the advice of its counsel, such amendment or relief impairs any of the rights of the Special Warrantholders as a group or of the Special Warrant Agent, and provided further that the Special Warrant Agent may in its sole discretion decline to enter into any such supplemental indenture which in its opinion, based on the advice of its counsel, may not afford adequate protection to the Special Warrant Agent when the same shall become operative; (f) for any other purpose not inconsistent with the terms of this Indenture, including the correction or rectification of any ambiguities, defective or inconsistent provisions, errors or omission herein, provided that, in the opinion of the Special Warrant Agent, based on the advice of its counsel, the rights of the Special Warrant Agent and of the Special Warrantholders as a group are not prejudiced thereby; and (g) amending the type or number of Subject Securities or other securities of the Corporation issuable upon exercise of the Special Warrants as contemplated by Sections 2.13 and 2.14 hereof. 7.2 SUCCESSOR CORPORATIONS In the case of the consolidation, amalgamation, arrangement, merger or transfer of the undertaking or assets of the Corporation as an entirety or substantially as an entirety to another corporation (a "SUCCESSOR CORPORATION"), forthwith following the occurrence of such event the successor corporation resulting from such consolidation, amalgamation, arrangement, merger or transfer (if not the Corporation) shall expressly assume, by supplemental indenture satisfactory in form to counsel to the Special Warrant Agent and executed and delivered to the Special Warrant Agent, the due and punctual performance and observance of each and every covenant and condition of this Indenture to be performed and observed by the Corporation. ARTICLE 8 - CONCERNING THE SPECIAL WARRANT AGENT 8.1 TRUST INDENTURE LEGISLATION (a) In this Article, the term "APPLICABLE LEGISLATION" means the provisions of any statute of Canada or a province thereof and of regulations under any such named or other statute relating to trust indentures and/or to the rights, duties and obligations of warrant agents and 28. of corporations under trust indentures, to the extent that such provisions are at the time in force and applicable to this Indenture. (b) If and to the extent that any provision of this Indenture limits, qualifies or conflicts with a mandatory requirement of Applicable Legislation, such mandatory requirement shall prevail. (c) The Corporation and the Special Warrant Agent agree that each will at all times in relation to this Indenture and any action to be taken hereunder observe and comply with and be entitled to the benefit of Applicable Legislation. 8.2 RIGHTS AND DUTIES OF SPECIAL WARRANT AGENT (a) In the exercise of the rights and duties prescribed or conferred by the terms of this Indenture, the Special Warrant Agent shall act honestly and in good faith with a view to the best interests of the Special Warrantholders as a group and shall exercise the degree of care, diligence and skill that a reasonably prudent warrant Agent would exercise in comparable circumstances. No provision of this Indenture shall be construed to relieve the Special Warrant Agent from or require any other person to indemnify the Special Warrant Agent against liability for its own negligence, wilful misconduct or bad faith. (b) Subject only to subsection (a) of this Section 8.2, the Special Warrant Agent shall not be bound to do or take any act, action or proceeding for the enforcement of any of the obligations of the Corporation under this Indenture unless and until it shall have received a Special Warrantholders' Request specifying the act, action or proceeding which the Special Warrant Agent is requested to take. The obligation of the Special Warrant Agent to commence or continue any act, action or proceeding for the purpose of enforcing any rights of the Special Warrant Agent or the Special Warrantholders hereunder shall be conditional upon the Special Warrantholders furnishing, when required by notice in writing by the Special Warrant Agent, sufficient funds to commence or continue such act, action or proceeding and an indemnity reasonably satisfactory to the Special Warrant Agent and its officers, directors, employees and agents to protect and hold harmless the Special Warrant Agent and its officers, directors, employees and agents against the costs, charges, expenses and liabilities to be incurred thereby and any loss and damage it may suffer by reason thereof. None of the provisions contained in this Indenture shall require the Special Warrant Agent to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties or in the exercise of any of its rights or powers unless indemnified and funded as aforesaid. (c) The Special Warrant Agent may, before commencing or at any time during the continuance of any such act, action or proceeding, require the Special Warrantholders at whose instance it is acting to deposit with the Special Warrant Agent the Special Warrants held by them, for which Special Warrants the Special Warrant Agent shall issue receipts. 29. (d) Every provision of this Indenture that by its terms relieves the Special Warrant Agent of liability or entitles it to act and rely upon any evidence submitted to it is subject to the provisions of Applicable Legislation, and to the provisions of this Section 8.2 and of Section 8.3. (e) The Special Warrant Agent shall retain the right not to act and shall not be held liable for refusing to act unless it has received clear and reasonable documentation which complies with the terms of this Indenture. Such documentation must not require the exercise of any discretion or independent judgment. In the event that the Special Warrant Agent refuses to act because any documentation received by it is not clear and reasonable, the Special Warrant Agent shall immediately provide notice to the party who provided such documentation advising such party of the Special Warrant Agent's refusal to act together with a brief explanation of the reason for its refusal. (f) In the event of any disagreement arising regarding the terms of this Indenture, the Special Warrant Agent shall be entitled, at its option, to refuse to comply with any or all demands whatsoever until the dispute is settled either by agreement amongst the various parties or by a court of competent jurisdiction. (g) The Special Warrant Agent shall not be bound to give any notice or do or take any act, action or proceeding by virtue of the powers conferred on it hereby unless and until it shall have been required so to do under the terms hereof; nor shall the Special Warrant Agent be required to take notice of any default hereunder, unless and until notified in writing of such default, which notice shall distinctly specify such default and in the absence of any such notice the Special Warrant Agent may for all purposes of this Indenture conclusively assume that no default has been made in the observance or performance of any of the representations, warranties, covenants, agreements or conditions contained herein. Any such notice shall in no way limit any discretion herein given to the Special Warrant Agent to determine whether or not the Special Warrant Agent shall take action with respect to any default. 8.3 EVIDENCE, EXPERTS AND ADVISERS (a) In addition to the reports, certificates, opinions and other evidence required by this Indenture, the Corporation shall furnish to the Special Warrant Agent such additional evidence of compliance with any provision hereof in such form as may be prescribed by Applicable Legislation, or as the Special Warrant Agent may reasonably require by written notice to the Corporation. (b) In the exercise of its rights and duties hereunder, the Special Warrant Agent may, if it is acting in good faith, rely as to the truth of the statements and the accuracy of the opinions expressed therein, upon statutory declarations, opinions, reports, written requests, consents, orders of the Corporation, certificates of the Corporation or other evidence furnished to the Special Warrant Agent, provided that such evidence complies with Applicable Legislation. 30. (c) Whenever Applicable Legislation requires that evidence referred to in subsection (a) of this Section 8.3 be in the form of a statutory declaration, the Special Warrant Agent may accept such statutory declaration in lieu of a certificate of the Corporation required by any provision hereof. Any such statutory declaration may be made by one or more of the chairman, president, vice-president, secretary or treasurer of the Corporation. (d) The Special Warrant Agent may act and rely and shall be protected in acting and relying upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, letter, telegram, cablegram or other paper or document believed by it to be genuine and to have been signed, sent, or presented by or on behalf of the proper party or parties. (e) Proof of the execution of an instrument in writing, including a Special Warrantholders' Request, by any Special Warrantholder may be made by the certificate of a notary public, or other officer with similar powers, that the person signing such instrument acknowledged to him the execution thereof, or by an affidavit of a witness to such execution or in any other manner which the Special Warrant Agent may consider adequate and in respect of a corporate Special Warrantholder shall include a certificate of incumbency of such Special Warrantholder together with a certified copy of a resolution authorizing the person who signed such instrument to sign such instrument. (f) The Special Warrant Agent may employ or retain such counsel, accountants or other experts or advisers as it may reasonably require for the purpose of discharging its duties hereunder, may act on and rely upon the advice or opinion so obtained and may pay reasonable remuneration for all services so performed by any of them, without taxation of costs of any counsel, and shall not be responsible for any misconduct on the part of any of them. The cost of such services shall be added to and be part of the Special Warrant Agent's fees hereunder. 8.4 DOCUMENTS, MONIES, ETC. HELD BY SPECIAL WARRANT AGENT Any securities, documents of title or other instruments that may at any time be held by the Special Warrant Agent subject to the trusts hereof may be placed in the deposit vaults of the Special Warrant Agent or of any Canadian chartered bank or trust company or deposited for safekeeping with any such bank or trust company. 8.5 ACTION BY SPECIAL WARRANT AGENT TO PROTECT INTERESTS Subject to the provisions of this Indenture and Applicable Legislation, the Special Warrant Agent shall have the power to institute and to maintain such action and proceedings as it may consider necessary or expedient to preserve, protect or enforce its interests and the interests of the Special Warrantholders. 31. 8.6 SPECIAL WARRANT AGENT NOT REQUIRED TO GIVE SECURITY The Special Warrant Agent shall not be required to give any bond or security in respect of the execution of the trusts and powers of this Indenture or otherwise. 8.7 PROTECTION OF SPECIAL WARRANT AGENT By way of supplement to the provisions of any law for the time being relating to warrant agents, it is expressly declared and agreed as follows: (a) The Special Warrant Agent shall not be liable for or by reason of any statements of fact or recitals in this Indenture or in the Special Warrants (except the representation contained in Sections 8.9 and 8.12 or in the certificate of the Special Warrant Agent on the Special Warrants) or be required to verify the same. (b) Nothing herein contained shall impose any obligation on the Special Warrant Agent to see to or to require evidence of the registration or filing (or renewal thereof) of this Indenture or any instrument ancillary or supplemental hereto. (c) The Special Warrant Agent shall not be bound to give notice to any person of the execution hereof. (d) The Special Warrant Agent shall not incur any liability or responsibility whatsoever or be in any way responsible for the consequence of any breach on the part of the Corporation of any of the covenants herein contained or of any acts of any directors, officers, employees, agents or servants of the Corporation. (e) The Corporation hereby indemnifies and saves harmless the Special Warrant Agent and its officers, directors, employees and agents from and against any and all liabilities, losses, costs, claims, action or demands whatsoever which may be brought against the Special Warrant Agent or which it may suffer or incur as a result or arising out of the performance of its duties and obligations under this Indenture, save only in the event of negligence or wilful misconduct of the Special Warrant Agent or any of its officers, directors, employees or agents. It is understood and agreed that this indemnification shall survive the termination of this Indenture or the resignation or removal of the Special Warrant Agent. 8.8 REPLACEMENT OF SPECIAL WARRANT AGENT (a) The Special Warrant Agent may resign its trust and be discharged from all further duties and liabilities hereunder by giving to the Corporation not less than 45 days' prior notice in writing or such shorter prior notice as the Corporation may accept as sufficient. The Special Warrantholders by extraordinary resolution shall have the power at any time to remove the existing Special Warrant Agent and to appoint a new warrant agent. In the event of the Special Warrant Agent resigning or being removed as aforesaid or being dissolved, becoming 32. bankrupt, going into liquidation or otherwise becoming incapable of acting hereunder, the Corporation shall forthwith appoint a new warrant agent unless a new warrant agent has already been appointed by the Special Warrantholders; failing such appointment by the Corporation, the retiring Special Warrant Agent or any Special Warrantholder may apply to a justice of the Ontario Court of Justice (General Division) at the Corporation's expense, on such notice as such justice may direct, for the appointment of a new warrant agent; but any new warrant Agent so appointed by the Corporation or by the Court shall be subject to removal as aforesaid by the Special Warrantholders. Any new warrant agent appointed under any provision of this Section 8.8 shall be a corporation authorized to carry on the business of a trust company in the Province of Ontario and, if required by Applicable Legislation of any other province, in such other province. On any such appointment the new warrant agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as Special Warrant Agent without any further assurance, conveyance, act or deed; but there shall be immediately executed, at the expense of the Corporation, all such conveyances or other instruments as may, in the opinion of counsel, be necessary or advisable for the purpose of assuring the same to the new warrant agent, provided that any resignation or removal of the Special Warrant Agent and appointment of a successor warrant Agent shall not become effective until the successor warrant agent shall have executed an appropriate instrument accepting such appointment and, at the request of the Corporation, the predecessor Special Warrant Agent, upon payment of its outstanding remuneration and expenses, shall execute and deliver to the successor warrant agent an appropriate instrument transferring to such successor warrant agent all rights and powers of the Special Warrant Agent hereunder and all securities, documents of title and other instruments, and all monies and properties, held by the Special Warrant Agent hereunder. (b) Upon the appointment of a successor warrant agent, the Corporation shall promptly notify the Special Warrantholders thereof in the manner provided for in Section 10.2. (c) Any corporation into or with which the Special Warrant Agent may be merged or consolidated or amalgamated, or any corporation succeeding to the trust business of the Special Warrant Agent, shall be the successor to the Special Warrant Agent hereunder without any further act on its part or of any of the parties hereto, provided that such corporation would be eligible for appointment as a new warrant agent under subsection (a) of this Section 8.8. (d) Any Special Warrants certified but not delivered by a predecessor warrant agent may be certified by the successor warrant agent in the name of the predecessor or successor warrant agent. 8.9 CONFLICT OF INTEREST 33. (a) The Special Warrant Agent represents to the Corporation that at the time of execution and delivery hereof no material conflict of interest exists in the Special Warrant Agent's role as a fiduciary hereunder and agrees that in the event of a material conflict of interest arising hereafter it will, within 90 days after ascertaining that it has such a material conflict of interest, either eliminate the same or resign its trust hereunder to a successor warrant agent approved by the Corporation. If any such material conflict of interest exists or hereafter shall exist, the validity and enforceability of this Indenture and the Special Warrants shall not be affected in any manner whatsoever by reason thereof. (b) Subject to subsection (a) of this Section 8.9, the Special Warrant Agent, in its personal or any other capacity, may buy, lend upon and deal in securities of the Corporation and generally may contract and enter into financial transactions with the Corporation or any subsidiary of the Corporation without being liable to account for any profit made thereby. 8.10 ACCEPTANCE OF TRUSTS The Special Warrant Agent hereby accepts the trusts in this Indenture declared and provided for and agrees to perform the same upon the terms and conditions herein set forth. 8.11 SPECIAL WARRANT AGENT NOT TO BE APPOINTED RECEIVER The Special Warrant Agent and any person related to the Special Warrant Agent shall not be appointed a receiver or receiver and manager or liquidator of all or any part of the assets or undertaking of the Corporation. 8.12 AUTHORIZATION TO CARRY ON BUSINESS The Special Warrant Agent represents to the Corporation that it is duly authorized and qualified to carry on the business of a trust company in each of the provinces of Canada. 8.13 LIABILITY OF SPECIAL WARRANT AGENT The Special Warrant Agent shall not be liable or accountable for any loss or damage whatsoever to any person caused by the performance or failure to perform by it of its responsibilities under this agreement save only to the extent that such loss or damage is attributable to the negligence, fraud or wilful misconduct of the Special Warrant Agent. 34 ARTICLE 9 - FORM OF SPECIAL WARRANT 9.1 FORM OF SPECIAL WARRANT CERTIFICATE SPECIAL WARRANT CERTIFICATE INTERNET LIQUIDATORS INTERNATIONAL INC. (the "Corporation") (Constituted pursuant to the laws of the Province of Ontario, Canada) NO. ____________ __________________ SPECIAL WARRANTS (each entitling the holder to subscribe for one Common Share and one-half a Share Purchase Warrant for no additional consideration) THIS IS TO CERTIFY that, for value received, __________________________ (the "holder") is entitled to acquire, in the manner herein provided, subject to the restrictions contained in the Indenture hereinafter referred to, at any time and from time to time on or prior to 5:00 p.m. Toronto time (the "Expiry Time"), on the earlier of: 1. the date which is five Business Days following the date of issuance of a receipt by the last of the securities regulatory authorities in the Qualifying Jurisdictions for a Prospectus; and 2. October 3, 1998, (the "Expiry Date") one common share of the Corporation ("Common Share") (or, in the circumstances described below, acquire one and one tenth (1.1) Common Shares) and one-half a warrant ("Share Purchase Warrant") (or in the circumstances described below, acquire fifty-five one-hundredths (0.55) Share Purchase Warrants) for each Special Warrant represented by this certificate without payment of any consideration in addition to the subscription price for such Special Warrant. The Special Warrants represented by this certificate are issued under and pursuant to a Special Warrant Indenture (the "Indenture") dated as of October 3, 1997 between the Corporation and CIBC Mellon Trust Company (the "Special Warrant Agent") (which expression shall include any successor warrant agent appointed under the Indenture), to which Indenture (and any amendments thereto and instruments supplemental thereto) reference is hereby made for a full description of the rights of the holders of the Special Warrants and the terms and conditions upon which such Special Warrants are or are to be, issued and held, all to the same effect as if the provisions of the Indenture and all amendments thereto and instruments supplemental thereto were 35 herein set forth and to all of which provisions the holder of these Special Warrants by acceptance hereof assents. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture. In the event of any conflict or inconsistency between the provisions of the Indenture (and any amendments thereto and instruments supplemental thereto) and the provisions of this Special Warrant Certificate, except those that are necessary by context, the provisions of the Indenture (and any amendments thereto and instruments supplemental thereto) shall prevail. The terms and provisions of the Indenture (and any amendments thereto and instruments supplemental thereto) are incorporated herein by reference. Such right to exercise Special Warrants for the Common Shares and Share Purchase Warrants in the capital of the Corporation may be effected by the holder hereof by: (a) duly completing in the manner indicated and executing the Exercise Form attached hereto; and (b) surrendering this Special Warrant Certificate to the Special Warrant Agent as hereinafter set forth, provided that any Special Warrant not so exercised on or before the Expiry Time shall be deemed to have been exercised by the holder immediately prior thereto. This Special Warrant Certificate shall be validly surrendered only upon delivery thereof or by mailing the same to the Special Warrant Agent at its principal office in the City of Toronto, Ontario. The Exercise Form attached hereto shall not be deemed to be duly completed if the name and mailing address of the holder do not appear legibly on such Exercise Form or such Exercise Form is not signed by the holder. In the case of a Special Warrant which is exercised by a holder in accordance with the provisions of Subsection 3.1(c) of the Indenture, within five (5) Business Days after the Exercise Date of such Special Warrant, the Special Warrant Agent shall: (a) cause to be mailed to the person in whose name the Common Shares and Share Purchase Warrants issuable upon the exercise of the exercise rights of the Special Warrants are to be issued, as specified in the Special Warrant, at the address specified therein; (b) if so specified therein, cause to be delivered to such person at the office of the Special Warrant Agent where such Special Warrant was surrendered; or (c) if no specification as contemplated by (a) or (b) is provided, cause to be mailed to the person in whose name the Common Shares and Share Purchase Warrants are to be issued at the address of such person last appearing on the register maintained by the 36 Special Warrant Agent pursuant to the Indenture or as such person may otherwise notify the Special Warrant Agent in writing on or prior to the Exercise Date, a certificate or certificates for the Common Shares and Share Purchase Warrants to which the holder is entitled. In the case of a Special Warrant which is deemed exercised in accordance with the provisions of Subsection 3.1(b) of the Indenture, within five (5) Business Days after the Exercise Date of such Special Warrants, the Corporation shall without any further act on the part of the Special Warrantholder, cause to be mailed to the Special Warrantholder at the address of such person last appearing on the register of Special Warrants maintained by the Special Warrant Agent pursuant to the Indenture or as such person may otherwise instruct the Special Warrant Agent in writing on or prior to the mailing a certificate or certificates for the Common Shares and Share Purchase Warrants to which the Special Warrantholder is entitled. Upon due exercise or deemed exercise of the Special Warrants as provided herein, the person or persons in whose name or names the Common Shares and Share Purchase Warrants are issuable, shall be deemed for all purposes (except as provided in the Indenture hereinafter referred to) to be the holder or holders of record of such Common Shares and Share Purchase Warrants and the Corporation covenants that it will (subject to and in accordance with the provisions of the aforesaid Indenture) cause a certificate or certificates representing such Common Shares and Share Purchase Warrants to be delivered or mailed to such person or persons at the address or addresses specified in such Exercise Form or on the register of Special Warrants maintained by the Special Warrant Agent (if deemed to have been exercised). No fractional Common Shares or Share Purchase Warrants will be issued. To the extent that the holder of a Special Warrant is entitled to receive on the exercise or partial exercise thereof a fraction of a Common Share or Share Purchase Warrants, the Corporation shall make a cash payment equal to the fair value of the fraction not so issued as determined by the directors of the Corporation in their sole discretion. No cheque shall be issued or cash payment made to any Special Warrantholder for an amount less than $5.00. The Indenture provides for adjustments to the subscription rights attaching to these Special Warrants in certain events and also provides for the giving of notice by the Corporation prior to taking certain actions specified therein. The holding of the Special Warrants evidenced by this Special Warrant Certificate shall not constitute the holder hereof a shareholder of the Corporation or entitle such holder to any right or interest in respect thereof except as herein and in the Indenture expressly provided. The Special Warrants evidenced by this Special Warrant Certificate are not transferable except as set forth in Subsection 2.8(b) of the Indenture which makes reference to the fact that no transfer of a Special Warrant shall be valid unless made by the holder or his executors, administrators or other legal representatives, or his or her attorney duly appointed by an instrument in writing in form and manner satisfactory to the Agent, acting reasonably, with signatures 37 guaranteed by a Canadian chartered bank, a Canadian trust company, a member of any Canadian stock exchange or such other guarantor as the Special Warrant Agent determines to be acceptable and upon compliance with such other reasonable requirements as the Special Warrant Agent may prescribe. Upon compliance with these transfer requirements, and with applicable securities legislation and requirements of regulatory authorities, the transferee shall become noted upon the register of holders. If any of the Common Shares and Share Purchase Warrants in respect of which the Special Warrants are exercised are to be issued to a person or persons other than the holder (as aforesaid), the holder shall pay to the Special Warrant Agent all requisite stamp transfer taxes or other governmental charges exigible in connection with the issue of such Common Shares and Share Purchase Warrants to such other person or persons or shall establish to the satisfaction of the Special Warrant Agent that such taxes and charges have been paid. This Special Warrant Certificate shall not be valid for any purpose whatever unless and until it has been countersigned by or on behalf of the Special Warrant Agent. Time shall be of the essence hereof. The Special Warrants and the Indenture (and any amendments thereto and instruments supplemental thereto) shall be governed by, performed, construed and enforced in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein and shall be treated in all respects as Ontario contracts. The Corporation has covenanted and agreed to use its reasonable commercial efforts to promptly finalize and obtain a receipt for a preliminary prospectus and a final Prospectus in the Qualifying Jurisdictions qualifying the issuance of the Common Shares and Share Purchase Warrants issuable upon the due exercise or deemed exercise of the Special Warrants. IN THE EVENT THE CORPORATION FAILS TO OBTAIN A RECEIPT FOR THE FINAL PROSPECTUS FROM THE SECURITIES ADMINISTRATORS IN EACH OF THE QUALIFYING JURISDICTIONS ON OR PRIOR TO 5:00 P.M. (TORONTO TIME) ON FEBRUARY 1, 1998, (A "QUALIFICATION DEFAULT") THEN EACH SPECIAL WARRANT SHALL ENTITLE THE HOLDER TO ACQUIRE ONE AND ONE TENTH (1.1) COMMON SHARES (IN LIEU OF ONE (1) COMMON SHARE) AND FIFTY-FIVE ONE HUNDREDTHS (0.55) SHARE PURCHASE WARRANTS (IN LIEU OF ONE- HALF ( 1/2) A SHARE PURCHASE WARRANT), WITHOUT PAYMENT OF FURTHER CONSIDERATION, ON EXERCISE OR DEEMED EXERCISE OF SUCH SPECIAL WARRANT. IN THE EVENT OF A QUALIFICATION DEFAULT, THE HOLDER IS ENTITLED TO RETRACT UP TO 25% OF THE SPECIAL WARRANTS REPRESENTED BY THIS CERTIFICATE BY COMPLETING AND FORWARDING A NOTICE OF RETRACTION IN THE FORM ATTACHED AS SCHEDULE "C" HERETO AND SUBMITTING THE SAME TOGETHER WITH THIS CERTIFICATE TO THE SPECIAL WARRANT AGENT AT ITS PRINCIPAL OFFICE IN TORONTO, ONTARIO AS SOON AS PRACTICABLE AFTER RECEIPT FROM THE SPECIAL WARRANT AGENT OF NOTIFICATION BY 5:00 P.M. DEADLINE OF SUCH QUALIFICATION DEFAULT. UPON RECEIPT BY THE SPECIAL WARRANT AGENT OF THE ESCROW AGENT'S CHEQUE PAYABLE TO THE SHAREHOLDER, THE SPECIAL WARRANT AGENT SHALL REMIT TO THE HOLDER WITHIN 3 BUSINESS DAYS OF RECEIPT OF THIS CERTIFICATE AND HOLDER'S NOTICE OF RETRACTION, A CHEQUE IN THE AMOUNT OF THE PURCHASE PRICE OF THE SPECIAL WARRANTS BEING 38 RETRACTED PLUS ANY ACCRUED INTEREST TOGETHER WITH A NEW CERTIFICATE REPRESENTING THOSE OF THE HOLDER'S SPECIAL WARRANTS WHICH HAVE NOT BEEN RETRACTED. FURTHERMORE, IN THE EVENT THAT A RECEIPT FOR A FINAL PROSPECTUS RELATING TO THE DISTRIBUTION OF THE COMMON SHARES AND SHARE PURCHASE WARRANTS IS NOT OBTAINED FROM THE SECURITIES ADMINISTRATORS IN ANY OF THE QUALIFYING JURISDICTIONS, THE COMMON SHARES AND SHARE PURCHASE WARRANTS MAY BE SUBJECT TO STATUTORY HOLD PERIODS DURING WHICH TIME THESE SECURITIES MAY NOT BE RESOLD IN SUCH PROVINCES EXCEPT PURSUANT TO APPLICABLE PROSPECTUS AND REGISTRATION EXEMPTIONS. IN ADDITION, ANY SPECIAL WARRANTS THAT ARE EXERCISED OR COMMON SHARES AND SHARE PURCHASE WARRANTS RECEIVED ON SUCH EXERCISE PRIOR TO THE ISSUANCE OF A RECEIPT FOR THE FINAL PROSPECTUS BY THE SECURITIES ADMINISTRATORS IN THE QUALIFYING JURISDICTIONS MAY BE SUBJECT TO STATUTORY RESTRICTIONS. HOLDERS ARE ADVISED TO CONSULT THEIR LEGAL ADVISORS IN THIS REGARD. IN WITNESS WHEREOF the Corporation has caused this Special Warrant Certificate to be signed by its duly authorized officer as of October 3, 1997. INTERNET LIQUIDATORS INTERNATIONAL INC. Per:___________________________________c/s Authorized Signing Officer Countersigned by: CIBC MELLON TRUST COMPANY Per: __________________________ Authorized Signing Officer 39 TRANSFER FORM FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto (Please print or typewrite name and address of assignee) ______________________________ Special Warrant(s) represented by the within certificate, and do(es) hereby irrevocably constitute and appoint ______________________________ the attorney of the undersigned to transfer the said Special Warrant(s) on the register of Special Warrants maintained by the Special Warrant Agent with full power of substitution hereunder. DATED this ________ day of ________, 199___. ___________________________________________ Signature of Special Warrantholder _____________________ ___________________________________________ Signature Guarantee Name of Special Warrantholder (please print) The signature of the Special Warrantholder to this assignment must correspond exactly with the name of the Special Warrantholder as set forth on the face of this Special Warrant certificate in every particular, without alteration or enlargement or any change whatsoever and the signature must be guaranteed by a Canadian chartered bank or by a trust company or by a member firm of any Canadian stock exchange, any of whose signature must be on file with the Special Warrant Agent. 40 EXERCISE OF EXCHANGE RIGHTS INSTRUCTIONS TO SPECIAL WARRANTHOLDER The registered holder hereof may exercise his right to exercise Special Warrants for Common Shares and Share Purchase Warrants of INTERNET LIQUIDATORS INTERNATIONAL INC. (the "Corporation"), subject to the adjustments described in the Special Warrant Indenture by completing the Exercise Form and surrendering this Special Warrant certificate and the duly completed Exercise Form to CIBC Mellon Trust Company by delivering or mailing it to CIBC Mellon Trust Company at the following office: Lower Level Attention: Special Projects 393 University Avenue Toronto, Ontario M5G 2M7 UPON EXERCISE, THE SPECIAL WARRANTS WILL BE CANCELLED AND BECOME ABSOLUTELY VOID AND ALTERNATIVELY, IF NOT EXERCISED ON OR PRIOR TO 5:00 P.M., TORONTO TIME, ON THE EXPIRY DATE WILL BE DEEMED TO HAVE BEEN EXERCISED IN FULL BY SUCH HOLDER IMMEDIATELY PRIOR TO THAT TIME. For your own protection, it is suggested that all documentation be forwarded to the Special Warrant Agent by registered mail. 41 EXERCISE FORM TO: INTERNET LIQUIDATORS INTERNATIONAL INC. The undersigned hereby exercises the right to exercise _________ Special Warrants for ________ Common Shares and __________ Share Purchase Warrants of INTERNET LIQUIDATORS INTERNATIONAL INC. (or such number of other securities or property to which such Special Warrants entitle the undersigned in lieu thereof or in addition thereto under the provisions of the Indenture mentioned in the within Special Warrant Certificate) according to the terms of the Indenture mentioned in the within Special Warrant Certificate. If any of the Common Shares and Share Purchase Warrants are to be issued to a person or persons other than the holder in those circumstances as set forth in the within Special Warrant Certificate, the holder must pay to CIBC Mellon Trust Company all requisite stamp or security transfer taxes or other governmental charges related thereto. (Print clearly) Name: Address in Full: Number of Special Warrants being Exercised: DATED this day of , 199_______. ______________________________ Signature of Special Warrantholder ______________________________ Name of Special Warrantholder (As registered on Special Warrant Certificate) ______________________________ ______________________________ ______________________________ Print Full Address 42 SCHEDULE "B" NOTICE TO SPECIAL WARRANTHOLDERS Reference is made to the Special Warrant Indenture made as of October 3, 1997 (the "Special Warrant Indenture") between Internet Liquidators International Inc. and CIBC Mellon Trust Company. Unless defined herein, capitalized terms used herein have the respective meanings ascribed to them in the Special Warrant Indenture. We hereby confirm that receipts have been issued by the securities commissions in each of the Qualifying Jurisdictions in respect of the prospectus qualifying the distribution of the Common Shares and Share Purchase Warrants issuable upon exercise of the Special Warrants. The last receipt was issued on __________________________ by the ______________________ Securities Commission. The Expiry Time is therefore 5:00 p.m. (Toronto Time) on ______________. A copy of the prospectus is enclosed herewith. 43 SCHEDULE "C" NOTICE OF RETRACTION OF SPECIAL WARRANTS TO: INTERNET LIQUIDATORS INTERNATIONAL INC. The undersigned hereby exercises the right to retract _________ Special Warrants (not to exceed 25% of the Special Warrants represented by the within certificate) of INTERNET LIQUIDATORS INTERNATIONAL INC. according to the terms of the Indenture mentioned in the within Special Warrant Certificate. The undersigned hereby requests payment of the sum of $1.50 for each Special Warrant being retracted plus any accrued interest thereon. The undersigned further surrenders herewith the written Special Warrant Certificate and requests the issue and delivery of a new certificate representing those of the holder's Special Warrants which have not been retracted. Number of Special Warrants being Retracted: DATED this day of , 199_______. ______________________________ Signature of Special Warrantholder ______________________________ Name of Special Warrantholder (As registered on Special Warrant Certificate) ______________________________ ______________________________ Print Full Address 44 ARTICLE 10 - GENERAL 10.1 NOTICE TO THE CORPORATION AND THE SPECIAL WARRANT AGENT (i) Unless herein otherwise expressly provided, any notice to be given hereunder to the Corporation or the Special Warrant Agent shall be deemed to be validly given if delivered or if sent by registered letter, postage prepaid, or if sent by facsimile transmission, telex or other means of prepaid transmission or recorded communication: (A) if to the Corporation: INTERNET LIQUIDATORS INTERNATIONAL INC. 5915 Airport Road Suite 330 Mississauga, Ontario L4V 1T1 Facsimile: (905) 672-5705 if to the Special Warrant Agent: CIBC MELLON TRUST COMPANY 393 University Avenue, 5th Floor Toronto, Ontario M5G 2M7 Facsimile: 416-813-4575 Attention: Assistant Vice-President, Client Services (B) if to the Escrow Agent: WILDEBOER RAND THOMSON APPS & DELLELCE Barristers and Solicitors Suite 810 P.O. Box 4 First Canadian Place Toronto, Ontario M5X 1A9 Facsimile: 416-361-1790 Attention: Troy Pocaluyko and any such notice if delivered in accordance with the foregoing shall be deemed to have been received on the date of delivery if that date is a Business Day or the Business Day following the date of delivery if such date is not a Business Day or, if mailed, on the fifth Business Day following the date of deposit in the mail, or if sent by facsimile transmission, on the date of such facsimile 45 transmission if that date is a Business Day or the Business Day following the date of sending if such date is not a Business Day or if sent after normal business hours. (ii) The Corporation or the Special Warrant Agent, as the case may be, may from time to time notify the other in the manner provided in subsection 10.1(i) of a change of address which, from the effective date of such notice and until changed by like notice, shall be the address of the Corporation or the Special Warrant Agent, as the case may be, for all purposes of this Indenture. A copy of any notice of change of address given pursuant to this subsection 10.1(ii) shall be available for inspection at the Corporation's office by Special Warrantholders during normal business hours. 10.2 NOTICE TO THE SPECIAL WARRANTHOLDERS Any notice to the Special Warrantholders under the provisions of this Indenture shall be deemed to be validly given if delivered, or if sent by prepaid first class mail posted from within Canada in envelopes addressed to the Special Warrantholders at their respective addresses appearing in the register of holders maintained by the Special Warrant Agent. Any notice so delivered shall be deemed to have been received on the date of delivery if that date is a Business Day, or the Business Day following the date of delivery if such date is not a Business Day, and if mailed shall be deemed to have been received on the fifth Business Day following the date of deposit in the mail. Accidental error or omission in giving notice or accidental failure to give notice to any Special Warrantholder shall not invalidate any action or proceeding founded thereon. 10.3 MAIL SERVICE INTERRUPTION If by reason of any interruption of mail service, actual or threatened, any notice to be given to the Special Warrant Agent, the Corporation or the Special Warrantholders would reasonably be unlikely to reach its destination in the ordinary course of mail, such notice shall be valid and effective only if delivered to the party to which it is addressed or, in the case of a notice to either the Corporation or the Special Warrant Agent, if sent to such party, at the appropriate address in accordance with Section 10.1, by facsimile transmission. 10.4 COUNTERPARTS AND FORMAL DATE This Indenture may be executed in several counterparts, each of which when so executed shall be deemed to be an original and such counterparts together shall constitute one and the same instrument and notwithstanding their date of execution shall be deemed to be dated as of the date appearing at the top of this Indenture. 10.5 SATISFACTION AND DISCHARGE OF INDENTURE 46 Upon the date upon which all obligations of the Corporation under this Special Warrant Indenture have been performed in full (including the obligation to deliver Common Shares and certificates therefor), this Special Warrant Indenture shall cease to be of further effect in respect of the Corporation. The Special Warrant Agent, on written demand of and at the cost and expense of the Corporation, and upon delivery to the Special Warrant Agent of a certificate of the Corporation stating that all conditions precedent to the satisfaction and discharge of this Special Warrant Indenture have been complied with and upon payment by the Corporation to the Special Warrant Agent of the expenses, fees and other remuneration payable to the Special Warrant Agent, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture; provided that if the Special Warrant Agent has not then performed any of its obligations hereunder any such satisfaction and discharge of the Corporation's obligations hereunder shall not affect or diminish the rights of any Special Warrantholder or the Corporation against the Special Warrant Agent. 10.6 PROVISIONS OF INDENTURE AND SPECIAL WARRANTS FOR THE SOLE BENEFIT OF PARTIES AND SPECIAL WARRANTHOLDERS Except as provided in Sections 5.2 and 5.3, nothing in this Indenture or the Special Warrants, express or implied, shall give or be construed to give to any person other than the parties hereto, the Underwriters (in the case of Sections 2.10 and 6.9) and the holders from time to time of the Special Warrants any legal or equitable right, remedy or claim under this Indenture, or under any covenant or provision herein contained, all such covenants and provisions being for the sole benefit of the parties hereto and the Special Warrantholders. IN WITNESS WHEREOF the parties hereto have executed this Indenture under the hands of their proper officers duly authorized in that behalf. INTERNET LIQUIDATORS INTERNATIONAL INC. By: CIBC MELLON TRUST COMPANY By: By: EX-3.10 4 UNDERWRITING AGREEMENT DATED OCTOBER 3, 1997 EXHIBIT 3.10 UNDERWRITING AGREEMENT October 3, 1997 Internet Liquidators International Inc. 5915 Airport Road Suite 330 Mississauga, Ontario L4V 1T1 ATTENTION: PAUL GODIN, PRESIDENT AND CHIEF EXECUTIVE OFFICER - ------------------------------------------------------------- Dear Sirs: The undersigned, Yorkton Securities Inc. ("Yorkton") and First Marathon Securities Limited ("First Marathon") (collectively, the "Underwriters"), understand that Internet Liquidators International Inc. (the "Company") proposes to create, issue and sell (the "Offering") 6,335,000 special warrants (the "Special Warrants") which will be exercisable for units ("Units"), each consisting of one common share ("Common Share") and one-half of one common share purchase warrant ("Warrant") of the Company having the attributes specified herein. Subject to adjustment in certain events, each Special Warrant shall entitle the holder thereof to acquire one Unit upon the exercise of the Special Warrant in accordance with the terms of the Special Warrant Indenture (as hereinafter defined) without payment of any further consideration to the Company. Each whole Warrant shall be exercisable to acquire one Common Share at a price of $1.65 per Common Share at any time on or before January 3, 1999. Upon and subject to the terms and conditions set forth herein, the Underwriters hereby agree to purchase from the Company 6,335,000 Special Warrants at a price of $1.50 per Special Warrant (the "Offering Price") for an aggregate purchase price of up to $9,502,500 and agree to act as underwriters to arrange for substituted purchasers for the Special Warrants resident in the Qualifying Provinces (as hereinafter defined) or in those jurisdictions outside of Canada and the United States where the Special Warrants may be lawfully sold pursuant to the terms and conditions hereof. The Company shall prepare and file, in accordance herewith, a preliminary prospectus and a (final) prospectus in order to qualify the Underlying Securities (as hereinafter defined) and, to the extent permitted by applicable securities regulatory authorities, the Compensation Options (as hereinafter defined) for distribution in each of the Qualifying Provinces. In consideration of the services to be rendered by the Underwriters in connection with such purchase, including assisting in the preparation of the Prospectus and all other matters in connection with the issue and sale of the Special Warrants and the issue of the Underlying -2- Securities, the Company shall (i) pay to the Underwriters a commission equal to 8.0% of the gross proceeds realized by the Company in respect of the sale of the Special Warrants (the "Commission"); and (ii) grant to the Underwriters the Brokers' Warrants (as hereinafter defined) upon and subject to the provisions of Section 16 of this Agreement. The obligation of the Company to pay the Commission shall arise at the Closing Time (as hereinafter defined) and the Commission shall be fully earned by the Underwriters at that time (notwithstanding the actual date of payment). DEFINITIONS In this Agreement, in addition to the terms defined above, the following terms shall have the following meanings: "AGREEMENT" means the agreement resulting from the acceptance by the Company of the offer made hereby; "BUSINESS DAY" means a day which is not a Saturday, Sunday or statutory or civic holiday in the City of Toronto, Canada; "BROKERS' WARRANTS" has the meaning ascribed thereto in subparagraph 16(a); "CDN" means The Canadian Dealing Network Inc.; "CANADIAN SECURITIES LAWS" means all applicable securities laws in each of the Qualifying Provinces and the respective regulations made thereunder, together with applicable published fee schedules, prescribed forms, policy statements, orders, blanket rulings and other regulatory instruments of the securities regulatory authorities in such provinces; "CLAIM" has the meaning ascribed thereto in subparagraph 14(b); "CLOSING DATE" means October 3, 1997 or such earlier or later date as the Underwriters and the Company shall in writing agree; "CLOSING TIME" means 12:00 noon (Toronto time) on the Closing Date or such other time on the Closing Date as the Company and the Underwriters may agree; "COMPANY'S AUDITORS" means Deloitte & Touche Inc., Chartered Accountants, or such other firm of chartered accountants as the Company may from time to time appoint as auditors of the Company. "COMPENSATION OPTIONS" has the meaning ascribed thereto in subparagraph 16(a); "DISCLOSURE DOCUMENTS" means, at any time, all documents which have been filed as of that time by the Company with any securities regulatory authority or stock exchange having jurisdiction over the securities of the Company; -3- "ESCROWED FUNDS" has the meaning ascribed thereto in subparagraph 3(a); "FINAL PROSPECTUS" has the meaning ascribed thereto in subparagraph 2(b); "INDEMNIFIED PARTY" has the meaning ascribed to it in subparagraph 14(b); "MISREPRESENTATION", "MATERIAL FACT", "MATERIAL CHANGE", "SUBSIDIARY", "AFFILIATE", "ASSOCIATE", and "DISTRIBUTION" have the respective meanings ascribed thereto in the Securities Act (Ontario); "OPTIONED SECURITIES" means, collectively, (i) the Compensation Options issuable upon the exercise of the Brokers' Warrants; (ii) the Common Shares and Warrants comprising the Optioned Units; and (iii) the Warrant Shares issuable upon the exercise of the Warrants comprising the Optioned Units; "OPTIONED UNITS" has the meaning ascribed thereto in subparagraph 16(a); "PERSON" means any individual, corporation, partnership, joint venture, association, trust or other legal entity; "PRELIMINARY PROSPECTUS" has the meaning ascribed thereto in subparagraph 2(a); "PROSPECTUS" means, collectively, the Preliminary Prospectus and the Final Prospectus; "PROSPECTUS DEFAULT" has the meaning ascribed thereto in subparagraph 3(c); "PURCHASERS" means the persons (which may include the Underwriters) who, as purchasers, acquire Special Warrants by duly completing, executing and delivering Subscription Agreements and permitted assignees or transferees of such persons from time to time; "QUALIFICATION DATE" means, with respect to any Qualifying Province, the date upon which a receipt is issued for the Final Prospectus by the Securities Commissions of the Qualifying Province; "QUALIFICATION DEADLINE" means 5:00 p.m. (Toronto time) on the day which is the 120th day after the Closing Date; "QUALIFYING PROVINCES" means the Province of Ontario and such other Provinces of Canada in which Purchasers who acquire Special Warrants at the Special Warrant Closing are resident; "RETRACTION DEADLINE" has the meaning ascribed thereto in subparagraph 3(b); "SECURITIES COMMISSIONS" means, collectively, the securities commissions or other securities regulatory authorities in the Qualifying Provinces; -4- "SPECIAL WARRANT CLOSING" means the completion of the issue and sale by the Company of the Special Warrants offered hereunder and the purchase by the Underwriters and the Purchasers of the Special Warrants pursuant to the Subscription Agreements; "SPECIAL WARRANT INDENTURE" means a special warrant indenture to be dated as of the Closing Date between the Company and CIBC Mellon Trust Company, as special warrant agent, providing for the issue of the Special Warrants and in a form to be agreed upon between the Company and the Underwriters, each acting reasonably; "SUBSCRIPTION AGREEMENT" means a subscription agreement in the form agreed upon by the Underwriters and the Company pursuant to which Purchasers agree to subscribe for and purchase the Special Warrants herein contemplated and shall include, for greater certainty, all schedules thereto; "SUBSIDIARY" has the meaning ascribed thereto in subparagraph 8(a)(ii); "SUPPLEMENTARY MATERIAL" has the meaning ascribed thereto in subparagraph 4(b); "TIME OF EXPIRY" means 5:00 p.m. (Toronto time) on the earlier of (i) five (5) Business Days following the Qualification Date; and (ii) one year from the Closing Date; "UNDERLYING SECURITIES" means collectively, the (i) the Common Shares and Warrants comprising the Units; and (ii) the Warrant Shares issuable on exercise of the Warrants comprising the Units; "WARRANT AGENT" means CIBC Mellon Trust Company, in its capacity as special warrant agent pursuant to the Special Warrant Indenture and as warrant agent pursuant to the Warrant Indenture, as the context may require; "WARRANT INDENTURE" means the warrant indenture to be dated as of the Closing Date between the Company and CIBC Mellon Trust Company, as warrant agent, providing for the creation and issuance of the Warrants and in a form to be agreed upon by the Company and the Underwriters, each acting reasonably; and "WARRANT SHARES" means the Common Shares issuable on exercise of the Warrants including, for greater certainty, the Warrants comprising both the Units and the Optioned Units. TERMS AND CONDITIONS 1. (a) SALE ON EXEMPT BASIS. The Company understands that although the offer to act as underwriters with respect to the Offering is presented on behalf of the Underwriters as purchaser, the Underwriters will endeavour to arrange for Purchasers for the Special Warrants in the Qualifying Provinces and in such other jurisdictions outside of Canada and the United States on a private placement basis in compliance with all applicable Canadian Securities Laws and all applicable securities laws of such other jurisdictions. -5- (b) FILINGS. The Company undertakes to file or cause to be filed all forms or undertakings required to be filed by the Company in connection with the purchase and sale of the Special Warrants so that the distribution of the Special Warrants may lawfully occur without the necessity of filing a prospectus or an offering memorandum in Canada (but on terms that will permit Underlying Securities acquired by the Purchasers in the Qualifying Provinces to be sold by such Purchasers at any time in the Qualifying Provinces subject to applicable Canadian Securities Laws), and the Underwriters undertake to use their commercially reasonable efforts to cause Purchasers of Special Warrants to complete any forms required by Canadian Securities Laws or CDN. All fees payable in connection with such filings shall be at the expense of the Company. (c) NO OFFERING MEMORANDUM. Neither the Company nor the Underwriters shall (i) provide to prospective purchasers any document or other material that would constitute an offering memorandum within the meaning of Canadian Securities Laws; or (ii) cause the sale of the Special Warrants to be advertised in printed media of general and regular paid circulation, radio or television. 2. (a) PRELIMINARY PROSPECTUS. The Company shall, as soon as practicable following the Special Warrant Closing under applicable Canadian Securities Laws of each of the Qualifying Provinces, prepare, file (and use all reasonable best efforts to obtain a receipt for) a preliminary prospectus (the "Preliminary Prospectus") in form and substance satisfactory to the Company and the Underwriters, each acting reasonably, and other related documents relating to the proposed distribution of the Underlying Securities. The Company shall use its reasonable best efforts to (i) cause the Preliminary Prospectus to be filed in each of the Qualifying Provinces forthwith after the Closing Date and, in any event, within sixty (60) days of the Closing Date; and (ii) satisfy as expeditiously as practicable any comments made by the Securities Commission in respect of the Preliminary Prospectus. (b) FINAL PROSPECTUS. The Company shall, as soon as practicable after all comments of the Securities Commissions have been satisfied with respect to the Preliminary Prospectus, prepare and file (and use all commercially reasonable efforts to obtain a receipt for) under applicable Canadian Securities Laws, a (final) prospectus in form and substance satisfactory to the Company and the Underwriters (the "Final Prospectus"), each acting reasonably, and fulfil and comply with, to the satisfaction of the Underwriters' counsel, acting reasonably, all applicable Canadian Securities Laws to be fulfilled or complied with by the Company to enable the Underlying Securities to be lawfully distributed to the public in the Qualifying Provinces in connection with the exercise of the Special Warrants through the Underwriters or any other investment dealer or broker registered as such in the Qualifying Provinces in compliance with Canadian Securities Laws. The Company shall use all commercially reasonable efforts to ensure that such requirements (including the issuance of a receipt by the Securities Commissions) shall be fulfilled as soon as possible after all regulatory comments and deficiencies have been resolved in connection with the Preliminary Prospectus and, in any event, no later than the Qualification Deadline. -6- 3. PROCEEDS TO BE ESCROWED AND RETRACTION RIGHT. (a) On the Closing Date: (i) 75% of the gross proceeds derived from the sale of the Special Warrants less an amount equal to 75% of the Commission and the costs and expenses of the Underwriters in connection with the Offering as of the Closing Date shall be released to the Company; and (ii) an amount equal to 75% of the Commission and the costs and expenses of the Underwriters as of the Closing Date shall be paid to the Underwriters. The balance of the proceeds derived from the sale of the Special Warrants (collectively, the "Escrowed Funds") shall be deposited in escrow with counsel to the Underwriters, Wildeboer Rand Thomson Apps & Dellelce, to be held and invested in Government of Canada Treasury Bills and released in accordance with the provisions of this paragraph 3 or any joint direction of the Company and Yorkton given to Wildeboer Rand Thomson Apps & Dellelce in writing. (b) The Escrowed Funds shall be held in escrow by Wildeboer Rand Thomson Apps & Dellelce in order to repurchase, if necessary, 25% of the Special Warrants on any exercise of the retraction right described in subparagraph 3(c) below. Subject to the provisions of paragraph 3(c), the Escrowed Funds less an amount equal to 25% of the Commission and the costs and expenses of the Underwriters subsequent to the Closing Date, together with a pro rata share of all interest accrued thereon, shall be released to the Company and the balance of the Escrowed Funds, which shall include a pro rata share of all interest accrued thereon, shall be released to the Underwriters, on the earlier of: (i) the date of the exercise of the Special Warrants; and (ii) the fifth business day after a receipt has been issued by the Securities Commission in each of the Qualifying Provinces for the Prospectus qualifying the distribution of the Underlying Securities. (c) The Company recognizes that it is fundamental to Purchasers of the Special Warrants that the distribution of the Underlying Securities be qualified under a prospectus in the Qualifying Provinces so that the Underlying Securities will be freely tradeable in such Qualifying Provinces without the necessity of the holder thereof filing a prospectus or effecting the trade in a manner which falls within one of the various prospectus exemptions under applicable Canadian Securities Laws. The Company acknowledges that it is for this reason that the Company has agreed that the Preliminary Prospectus and the Final Prospectus are to be filed with the Securities Commissions in the Qualifying Provinces and receipts are to be obtained therefor within the time periods contemplated by this Agreement. Accordingly, it shall be a term of the Special Warrant Indenture pursuant to which the Special Warrants are to be issued that if a receipt for the Prospectus has not been issued by the Securities Commission of each of the -7- Qualifying Provinces on or before the Qualification Deadline (a "Prospectus Default"), each holder of Special Warrants resident in such Qualifying Province shall thereafter: (i) be entitled to receive 1.1 Units upon the due exercise of each Special Warrant (in lieu of one Unit), without the payment of additional consideration; or (ii) have the right at any time until 5:00 p.m. on the fifth business day after the Qualification Deadline (the "Retraction Deadline") to require the Company to repurchase up to 25% of its Special Warrants for $1.50 per Special Warrant plus accrued interest thereon by executing and delivering to the Warrant Agent (with a copy to Wildeboer Rand Thomson Apps & Dellelce) a Notice of Retraction in the form appended to the Special Warrant certificate, together with its original Special Warrant certificate, and to receive 1.1 Units upon the due exercise of the balance of its Special Warrants (in lieu of one Unit), without payment of any additional consideration. If a holder of Special Warrants does not exercise its retraction right by the Retraction Deadline, such holder will thereafter only have the right to receive 1.1 Units upon the due exercise of each Special Warrant (in lieu of one Unit), without the payment of additional consideration. Upon receipt of a Notice of Retraction, Wildeboer Rand Thomson Apps & Dellelce shall release from the Escrowed Funds to such Purchaser an amount equal to 25% of the aggregate Offering Price for such Purchaser's Special Warrants, together with all interest accrued thereon, and the Warrant Agent shall cancel the Special Warrant certificate and issue to the Purchaser a new Special Warrant certificate representing 75% of the number of Special Warrants represented by the original Special Warrant certificate. In the event that the Escrowed Funds are not sufficient to satisfy the Company's obligation to repurchase Special Warrants, the Company shall be obligated to forthwith deliver to Wildeboer Rand Thomson Apps & Dellelce sufficient funds to satisfy such obligations. In the event that a Prospectus Default occurs, the Company will continue to be obligated to use commercially reasonable efforts to file and clear the Final Prospectus until the Time of Expiry. 4. (a) DELIVERIES AT TIME OF FILING. The Company shall deliver to the Underwriters contemporaneously with or prior to the filing with the Ontario Securities Commission of the Preliminary Prospectus or the Final Prospectus, as the case may be: (i) an executed copy of the Preliminary Prospectus or the Final Prospectus, as the case may be, in the English language, and if the Province of Quebec is one of the Qualifying Provinces, in the French language; (ii) executed copies of any other document required to be filed by the Company at such time under the laws of each of the Qualifying Provinces in compliance with Canadian Securities Laws applicable therein; (iii) in the case of the Final Prospectus, a letter of the Company's Auditors dated the date of the Final Prospectus addressed to the Underwriters and the board of directors of the Company, in form and substance satisfactory to the Underwriters, -8- with respect to certain financial and accounting information relating to the Company in the Final Prospectus and which shall be based on a review by the Company's Auditors to a date not more than two Business Days prior to the date of the Final Prospectus and which letter shall be in addition to the Company's Auditors' report contained in the Final Prospectus; and (iv) if the Province of Quebec is one of the Qualifying Provinces, an opinion of Quebec counsel to the Company that the French language version of the Preliminary Prospectus and the Final Prospectus, as the case may be, is an accurate and complete translation of the English language version of the Preliminary Prospectus or the Final Prospectus, as the case may be. (b) SUPPLEMENTARY MATERIAL. The Company shall also prepare and deliver promptly to the Underwriters duly signed copies of all amended or supplementary prospectuses or supplemental statements and related documents required to be filed by the Company under the laws of any Qualifying Province or by Canadian Securities Laws and of any amendment to the Preliminary Prospectus or the Final Prospectus or other document required to be filed under paragraph 7 of this Agreement (collectively, the "Supplementary Material"). The Prospectus and the Supplementary Material shall be in form and substance satisfactory to the Underwriters, acting reasonably. (c) COPIES. The Company shall cause copies of the Preliminary Prospectus and the Final Prospectus in the English language, and if the Province of Quebec is one of the Qualifying Provinces, in the French language, to be delivered to the Underwriters without charge, in such numbers and in such cities in the Qualifying Provinces as the Underwriters may reasonably request. Such delivery shall be effected as soon as practicable and, in any event, on or before a date two Business Days after the filing thereof with the Ontario Securities Commission. The Company shall similarly cause to be delivered copies of any Supplementary Material. The Underwriters shall cause to be delivered to holders of Special Warrants copies of the Final Prospectus and any required Supplementary Materials. 5. REPRESENTATION AS TO PROSPECTUS AND SUPPLEMENTARY MATERIAL. Delivery of the Prospectus and any Supplementary Material shall constitute a representation and warranty by the Company to the Underwriters, the Purchasers and their permitted assigns that all information and statements (except information and statements relating solely to or provided solely by the Underwriters) contained in the Prospectus and Supplementary Material are true and correct in all material respects at the time of delivery thereof and contain no misrepresentations and constitute full, true and plain disclosure of all material facts relating to the Company and the Underlying Securities and that no material fact or information has been omitted therefrom (except facts or information relating solely to the Underwriters) which is required to be stated therein or is necessary to make the statements or information contained therein not misleading in light of the circumstances under which they were made. Such delivery shall also constitute the Company's consent to the Underwriters' use of the Prospectus, any Supplementary Material and any other public documents supplied to the Underwriters by the Company for the distribution of the Underlying Securities in the Qualifying Provinces in compliance with the provisions of this Agreement and Canadian Securities Laws. -9- 6. COVENANTS. (a) COMPANY'S COVENANTS. The Company hereby covenants to the Underwriters, the Purchasers and their permitted assigns and acknowledges that each of them is relying on such covenants in purchasing Special Warrants, that it shall: (i) at all times, remain a reporting issuer under Canadian Securities Laws not in default of any requirement of such Canadian Securities Laws; (ii) allow the Underwriters and their representatives to conduct all due diligence which the Underwriters may reasonably require to be conducted prior to the date of the Final Prospectus in order to fulfil their obligations as Underwriters under Canadian Securities Laws and in order to enable the Underwriters responsibly to execute any certificate required to be executed by the Underwriters in connection with a Prospectus, and it shall be a condition precedent to the Underwriters' execution of any certificate in any Prospectus that they be satisfied, acting reasonably, as to the form and content of such Prospectus; (iii) duly execute and deliver the Special Warrant Indenture, the Subscription Agreements, the Warrant Indenture, the Special Warrants and the Brokers' Warrants at the Closing Time, and comply with and satisfy all terms, conditions and covenants therein contained to be complied with or satisfied by the Company; (iv) use its best efforts to fulfil, at or prior to the Closing Date, each of the conditions set out in paragraph 10; (v) ensure that the Special Warrants shall be duly and validly created, authorized and issued on payment of the purchase price therefor, and shall have attributes corresponding in all material respects to the description thereof set forth in this Agreement and the Subscription Agreements; (vi) ensure that the Underlying Securities shall, upon issuance, be duly issued as fully paid and non-assessable securities in the capital of the Company, and shall have attributes corresponding in all material respects to the description thereof set forth in this Agreement and the Subscription Agreements; (vii) ensure that at all times prior to the expiry thereof, sufficient Common Shares are allotted and reserved for issuance upon the due exercise of the Special Warrants, the Warrants and the Compensation Options; (viii) ensure that as soon as possible following the Closing Date, the Common Shares issuable on exercise of the Special Warrants and the Compensation Options and the Warrant Shares issuable on exercise of the Warrants are quoted for trading on CDN upon their respective dates of issuance; -10- (ix) maintain the Warrant Agent or a substituted licensed trust company as the transfer agent and registrar in respect of the Common Shares, as special warrant agent in respect of the Special Warrants, and as warrant agent in respect of the Warrants; (x) the Company will apply the net proceeds from the issue and sale of the Special Warrants to fund the roll-out of the Company's marketing program and advertising campaign and general corporate purposes; (xi) not issue or announce the issuance of any Common Shares or any securities convertible into or exchangeable for or exercisable to acquire Common Shares without the prior consent of Yorkton, which consent shall not be unreasonably withheld, during the period commencing on the date hereof and ending ten (10) Business Days after the Qualification Date, other than pursuant to: (A) presently outstanding rights or agreements, including options, warrants and other convertible securities (including the Special Warrants, the Warrants, the Brokers' Warrants and the Compensation Options); or (B) presently outstanding options granted to officers, directors, employees or consultants of the Company or any subsidiary pursuant to existing stock option plans as detailed in the Company's management information circular dated June 18, 1997; (xii) grant to Yorkton, during the period of two years following the Closing Date, the first right to act as lead or co-lead manager or underwriter in connection any offering of securities in Canada and to act as a managing underwriter (with a minimum 20% participation) in connection with any offering of securities in the United States. The Company shall provide to Yorkton prior notice in writing of the terms of any offering that the Company proposes to make and shall provide Yorkton the right to act as lead or co-lead manager or underwriter or as managing underwriter (as the case may be) of that offering and to select the members of the underwriting group for that offering. This right of first refusal must be exercised by Yorkton within ten (10) days following receipt of such notice by notifying the Company that Yorkton will agree to act as lead or co- lead manager or underwriter or as managing underwriter (as the case may be) of such offering on the terms set out in the notice, failing which the Company will be free to make other arrangements to proceed with such offering on the same terms or on terms no less favourable to the Company. Failure to elect to act as lead or co- lead manager or underwriter or as managing underwriter (as the case may be) in respect of a proposed offering referred to in a notice shall not, however, disentitle Yorkton with respect to its rights hereunder in respect of any subsequent notice. This right of first refusal is conditional upon Yorkton's publication within six (6) months of the Closing Date of a stand-alone research report on the Company prepared in accordance with standard investment industry practice, failing which Yorkton's right of first refusal will terminate; (xiii) apply for a listing or quotation of the Common Shares on The Toronto Stock Exchange (the "TSE") or the National Association of Securities Dealers Automated Quotation System ("NASDAQ") as soon as reasonably practicable following the Special Warrant Closing and to use its reasonable commercial efforts to pursue such -11- listing or quotation and satisfy as expeditiously as possible all such conditions of listing or quotation as the TSE or NASDAQ may reasonably require; (xiv) in the event the Company offers any of its securities for sale in the United States or files a registration statement with the United States Securities Exchange Commission in respect of any of its securities, whether in connection with a public offering of such securities, an application for listing or quotation of its securities on any stock market or quotation system in the United States or otherwise, the Company shall ensure that the Underlying Securities and the Optioned Securities are also registered for resale in the United States or on such stock exchange and take all such other steps and actions as may be necessary to ensure that the Underlying Securities are not subject to any statutory hold period; and (xv) as soon as reasonably practicable following the Closing Date, appoint or cause the appointment of a nominee of the Purchasers to the Board of Directors of the Company, such nominee to be mutually acceptable to the Company and the Underwriters, each acting reasonably. (b) UNDERWRITERS' OBLIGATION. The obligation of the Underwriters to execute any certificate or deliver any documents pertaining to either the Preliminary Prospectus or the Final Prospectus shall be conditional upon compliance by the Company to the date of such execution and delivery with those of its covenants contained in this Agreement to be complied with prior to the filing of either the Preliminary Prospectus or the Final Prospectus, as the case may be. 7. (a) MATERIAL CHANGES DURING DISTRIBUTION. During the period from the date hereof to the completion of distribution of the Underlying Securities, the Company shall promptly notify the Underwriters (and, if requested by the Underwriters, confirm such notification in writing) of: (i) any material change (actual, anticipated, contemplated or threatened, financial or otherwise) in the business, affairs, operations, assets, liabilities (contingent or otherwise) or capital of the Company and its subsidiaries; (ii) any material fact which has arisen and would have been required to have been stated in the Final Prospectus had the fact arisen on, or prior to, the date of the Final Prospectus; and (iii) any change in any material fact contained in the Final Prospectus or the Supplementary Material or any amendments or supplements thereto which change is, or may be, of such a nature as to render any material statement in the Final Prospectus or any Supplementary Material misleading or untrue or which would result in a misrepresentation in the Final Prospectus or Supplementary Material or which would result in the Final Prospectus or Supplementary Material not complying (to the extent that such compliance is required) with the Canadian Securities Laws or which would reasonably be expected to have a significant effect on the market price or value of the Underlying Securities. -12- During the period from the date hereof to the completion of distribution of the Underlying Securities, the Company shall promptly, and in any event, within any applicable time limitation, comply with all applicable filing and other requirements under Canadian Securities Laws as a result of such change; provided that the Company shall not file any Supplementary Material or other document without first obtaining approval of the Underwriters, after consultation with the Underwriters with respect to the form and content thereof, which approval shall not be unreasonably withheld. The Company shall in good faith discuss with the Underwriters any fact or change in circumstances (actual, anticipated, contemplated or threatened, and financial or otherwise) which is of such a nature that there is reasonable doubt as to whether notice in writing need be given to the Underwriters pursuant to this paragraph 7. (b) CHANGE IN CANADIAN SECURITIES LAWS. If during the period of distribution to the public of the Underlying Securities, there shall be any change in Canadian Securities Laws which in the opinion of counsel to the Company or counsel to the Underwriters requires the filing of Supplementary Material, the Company shall, to the satisfaction of its counsel and the Underwriters' counsel, promptly prepare and file such Supplementary Material with the appropriate securities regulatory authority in each of the Qualifying Provinces where such filing is required. 8. (a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Underwriters, the Purchasers and their permitted assigns, and acknowledges that each of them is relying upon such representations and warranties in purchasing Special Warrants, that: (i) the Company has been duly incorporated and is validly existing under the laws of Ontario, has all requisite power and authority and is duly qualified to carry on its business as now conducted and to own its properties and assets and the Company has all requisite power and authority to carry out its obligations under this Agreement, the Special Warrant Indenture, the Warrant Indenture and the Brokers' Warrants; (ii) the only material subsidiary of the Company is Internet Liquidators USA Inc. (the "Subsidiary") which has been duly incorporated and is validly existing under the laws of the State of Florida, has all requisite power and authority and is duly qualified to carry on its business as now conducted and to own its properties and assets; (iii) all consents, approvals, permits, authorizations or filings as may be required under Canadian Securities Laws and the rules and regulations of CDN necessary for the execution and delivery of and the performance by the Company of its obligations under this Agreement, the Special Warrants, the Special Warrant Indenture, the Warrant Indenture, the Brokers' Warrants and the Compensation Options have been made or obtained, as applicable; -13- (iv) each of the execution and delivery of this Agreement, the Subscription Agreement, the Special Warrant Indenture, the Warrant Indenture, the Brokers' Warrants and the Compensation Options, the performance by the Company of its obligations hereunder or thereunder, the sale of the Special Warrants hereunder and the consummation of the transactions contemplated in this Agreement, including the issuance and delivery of the Underlying Securities and the Optioned Securities, do not and will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, (whether after notice or lapse of time or both), (A) any statute, rule or regulation applicable to the Company including, without limitation, Canadian Securities Laws; (B) the constating documents, by-laws or resolutions of the Company which are in effect at the date hereof; (C) any mortgage, note, indenture, contract, agreement, instrument, lease or other document to which the Company or any of its subsidiaries is a party or by which it is bound; or (D) any judgment, decree or order binding the Company or any of its subsidiaries or the property or assets of the Company or any of its subsidiaries; (v) the Company is in compliance with its timely disclosure obligations under Canadian Securities Laws and the rules and regulations of CDN and, without limiting the generality of the foregoing, there has not occurred any material adverse change, financial or otherwise, in the assets, liabilities (contingent or otherwise), business, financial condition, capital or prospects of the Company since December 31, 1996, which has not been publicly disclosed; (vi) none of the Disclosure Documents contains a misrepresentation at the date of filing thereof which has not been corrected and, without limiting the generality of the foregoing, the Disclosure Documents disclose all material facts relating to the Company and its subsidiaries, assets, undertaking, ownership and securities; (vii) the audited financial statements of the Company as at and for the period ended December 31, 1996, and the unaudited interim financial statements as at and for the six month period ended June 30, 1997 have been prepared in accordance with generally accepted accounting principles and present fully, fairly and correctly the financial position of the Company as at the dates thereof and the results of its operations and the changes in its financial position for the periods then ended; (viii) as at the Closing Date, except as contemplated by this Agreement, and other than stock options to acquire an aggregate of not more than 1,279,520 Common Shares which have been granted in the ordinary course in accordance with the Company's stock option plan, no holder of outstanding shares in the capital of the Company will be entitled to any pre-emptive or any similar rights to subscribe for any of the Common Shares or other securities of the Company and no rights, warrants or options to acquire, or instruments convertible into or exchangeable for, any shares in the capital of the Company are outstanding, except as set out in Schedule "A" to this Agreement; -14- (ix) no legal or governmental proceedings are pending to which the Company or any subsidiary is a party or to which the property of any of them is subject that would result individually or in the aggregate in any material adverse change in their operation, business or condition of the Company and, to the knowledge of the Company and its subsidiaries, no such proceedings have been threatened against or are contemplated with respect to the Company or any subsidiary or with respect to any of their respective properties; (x) the Company and each of its subsidiaries have conducted and are conducting their business in material compliance with all applicable laws and regulations of each jurisdiction in which they carry on business (including, without limitation, all applicable Canadian and United States federal, provincial, state, municipal and local environmental anti-pollution and licensing laws, regulations and other lawful requirements of any governmental or regulatory body) and have not received a notice of non-compliance, or knows of, or has reasonable grounds to know of, any facts that could give rise to a notice of non-compliance with any such laws or regulations which would have a material adverse effect on the Company on a consolidated basis; (xi) the Company and each of its subsidiaries have all licenses, leases, permits, authorizations and other approvals (collectively, "Licenses") and the proprietary rights provided in law and at equity to all patents, trademarks, copyrights, industrial designs, software, firmware, trade secrets, know-how, show-how, concepts, information and other intellectual and industrial property (collectively, "Intellectual Property") necessary to permit them to conduct their business as currently conducted, except where the failure to do so would not have a material adverse effect on the Company on a consolidated basis; (xii) the Company is the holder of and in good standing under all of its Licenses and is the exclusive owner of Intellectual Property free and clear of any encumbrances which would have a material adverse effect on the Company, and has no knowledge of any claim of adverse ownership in respect thereof; (xiii) this Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting the rights of creditors generally and except as limited by the application of equitable principles when equitable remedies are sought, and by the fact that rights to indemnity, contribution and waiver, and the ability to sever unenforceable terms, may be limited by applicable law; (xiv) at the Closing Time, each of this Agreement, the Subscription Agreements, the Special Warrant Indenture, the Warrant Indenture, the Brokers' Warrants, the Compensation Options and the Special Warrants shall have been duly authorized and, other than the Compensation Options, executed and delivered by the -15- Company and upon such execution and delivery each shall constitute a valid and binding obligation of the Company and each shall be enforceable against the Company in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting the rights of creditors generally and except as limited by the application of equitable principles when equitable remedies are sought, and by the fact that rights to indemnity, contribution and waiver, and the ability to sever unenforceable terms, may be limited by applicable law; (xv) at the Closing Time, all necessary corporate action will have been taken by the Company to allot and authorize the issuance of the Underlying Securities and the Optioned Securities, and upon due exercise of the Special Warrants, the Warrants, the Brokers' Warrants and the Compensation Options in accordance with the provisions thereof, such Underlying Securities and Optioned Securities (as the case may be) will be validly issued as fully paid and non-assessable securities in the capital of the Company; (xvi) the authorized capital of the Company consists of an unlimited number of Common Shares and an unlimited number of Preference Shares, issuable in series, of which 14,138,980 Common Shares are issued and outstanding as fully paid and non-assessable; (xvii) the Company is the registered and beneficial owner of all the issued and outstanding shares in the capital of each of its subsidiaries, free and clear of any claim, lien, security interest or other encumbrance which would have a material adverse effect on the Company, and no person has any right, warrant or option to acquire, or other instrument convertible into or exchangeable for, any shares in the capital of its subsidiaries; (xviii) the Company is a reporting issuer not in default of its obligations under applicable securities laws in the Province of Ontario; (xix) the Company and each of its subsidiaries have timely filed all necessary federal, provincial, state, local and foreign tax returns and notices and has paid or made provision for all applicable taxes of whatever nature for all tax years to the date hereof to the extent such taxes have become due or have been alleged to be due and the Company is not aware of any material tax deficiencies or material interest or penalties accrued or accruing, or alleged to be accrued or accruing thereon which have not otherwise been provided for by the Company; (xx) the Company has no material investment or other interest in, and has not made any loans to or guaranteed the obligations of, any person other than its subsidiaries; (xxi) the Warrant Agent, at its principal office in the City of Toronto, has been duly appointed as registrar and transfer agent in respect of the Common Shares, as -16- special warrant agent in respect of the Special Warrants and as warrant agent in respect of the Warrants; (xxii) other than the Underwriters, Royal Bank Capital Corporation and HDL Capital Limited, there is no person acting or purporting to act at the request or on behalf of the Company, that is entitled to any brokerage or finder's fee in connection with the transactions contemplated by this Agreement; (xxiii) no order ceasing or suspending trading in the securities of the Company has been issued and no proceedings for this purpose have been instituted or, to the best of its knowledge and belief, are pending, contemplated or threatened; (xxiv) the Common Shares are quoted for trading on CDN and all necessary notices and filings have been made with and all necessary consents, approvals and authorizations obtained from CDN to ensure that the Common Shares issuable on exercise of the Special Warrants and the Compensation Options, and the Warrant Shares issuable on the exercise of the Warrants will be quoted for trading on CDN upon their issuance; and (xxv) the business conducted by the Subsidiary is limited to credit card processing and inventory procurement. (b) REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE UNDERWRITERS. The Underwriters hereby represent, warrant and covenant to the Company, and acknowledge that the Company is relying upon such representations and warranties, that: (i) in respect of the offer and sale of the Special Warrants, they will comply with all Canadian Securities Laws and all applicable laws of the jurisdictions outside Canada in which they offer Special Warrants; (ii) they have not made or authorized any advertising, and shall not make or authorize any advertising, in connection with or in respect of the Special Warrants or the Underlying Securities in any printed media or general and regular paid circulation, or radio, television or otherwise; (iii) they will not solicit offers to purchase or sell the Special Warrants so as to require the filing of a prospectus with respect thereto or the provision of a contractual right of action (as defined in section 32(1) of the Regulation made under the Securities Act (Ontario)) under the laws of any jurisdiction, including without limitation, the United States of America; and (iv) they will, subject to compliance by the Company with its obligations hereunder and provided that it shall otherwise be responsible for the Underwriters to do so, execute and deliver to the Company any certificate required to be executed by it under Canadian Securities Laws in connection with the Preliminary Prospectus, Final Prospectus and any Supplementary Material. -17- 9. SPECIAL WARRANT CLOSING DELIVERIES. The purchase and sale of the Special Warrants shall be completed at the Closing Time at the offices of Gowling, Strathy & Henderson, Toronto, or at such other place as the Underwriters and the Company may agree upon. At or prior to the Closing Time, the Company shall duly and validly deliver to the Underwriters certificates in definitive form representing Special Warrants registered in the names of such Purchasers or as indicated on their respective Subscription Agreements, against payment at the direction of the Company of 75% the subscription price therefor to or to the order of the Company less a pro rata portion of the Commission and the costs and expenses of the Underwriters as at the Closing Date and the balance to Wildeboer Rand Thomson Apps & Dellelce, in lawful money of Canada by certified cheque or banker's draft payable at par in the City of Toronto. 10. SPECIAL WARRANT CLOSING CONDITIONS. Each Purchaser's obligation to purchase the Special Warrants at the Closing Time shall be conditional upon the fulfilment at or before the Closing Time of the following conditions: (a) the Underwriters shall have received a certificate, dated as of the Closing Date, signed by the Chief Executive Officer and the Chief Financial Officer of the Company, or such other officers of the Company as the Underwriters may agree, certifying for and on behalf of the Company, to the best of the knowledge, information and belief of the persons so signing, that: (i) since December 31, 1996 (A) there has been no material change (actual, anticipated, contemplated or threatened, whether financial or otherwise) in the business, affairs, operations, assets, liabilities (contingent or otherwise) or capital of the Company and its subsidiaries, except as has been publicly disclosed on a non- confidential basis; and (B) no transaction has been entered into by the Company or any of its subsidiaries which is or would be material to the Company and its subsidiaries on a consolidated basis except as has been publicly disclosed on a non-confidential basis; (ii) no order, ruling or determination having the effect of suspending the sale or ceasing the trading in any securities of the Company (including the Special Warrants, the Underlying Securities and the Optioned Securities) has been issued by any regulatory authority and is continuing in effect and no proceedings for that purpose have been instituted or are pending or, to the knowledge of such officers, contemplated or threatened by any regulatory authority; (iii) the Company has duly complied with all the terms, covenants and conditions of this Agreement on its part to be complied with up to the Closing Time; (iv) the representations and warranties of the Company contained in this Agreement are true and correct as of the Closing Time with the same force and effect as if made at and as of the Closing Time after giving effect to the transactions contemplated by this Agreement; and -18- (v) such other matters as the Underwriters may reasonably request; (b) the Underwriters shall have received at the Closing Time certificates dated the Closing Date, signed by appropriate officers of the Company addressed to the Underwriters and their counsel, with respect to the articles and by- laws of the Company, all resolutions of the Company's board of directors relating to this Agreement, the Special Warrant Indenture, the Warrant Indenture, the Brokers' Warrants, the Compensation Options and the transactions contemplated hereby and thereby, the incumbency and specimen signatures of signing officers and such other matters as the Underwriters may reasonably request; (c) the Special Warrant Indenture, the Subscription Agreements, the Warrant Indenture, the Brokers' Warrants and the certificates representing the Special Warrants shall have been executed and delivered by the parties thereto in form and substance satisfactory to the Underwriters and their counsel, acting reasonably; (d) the Underwriters shall have received favourable legal opinions addressed to the Underwriters and counsel to the Underwriters, in form and substance satisfactory to the Underwriters' counsel, dated the Closing Date, from Messrs. Gowling, Strathy & Henderson, counsel for the Company, as to the laws of Canada and the Qualifying Provinces, which counsel in turn may rely upon the opinions of local counsel where they deem such reliance proper as to the laws other than those of Canada and the Province of Ontario and, as to matters of fact, on certificates of auditors, public officials and officers of the Company, with respect to the following matters: (i) as to the incorporation and subsistence of the Company and the Subsidiary under the laws of their jurisdiction of incorporation and as to the corporate power of the Company to carry out its obligations under this Agreement, the Subscription Agreements, the Special Warrant Indenture, the Warrant Indenture, the Brokers' Warrants and the Compensation Options and to issue the Special Warrants, the Underlying Securities and the Optioned Securities; (ii) as to the authorized capital of the Company and the Subsidiary; (iii) the Company and the Subsidiary has all requisite corporate power and authority under the laws of its jurisdiction of incorporation to carry on its business as presently carried on and to own its properties and the Company has all requisite corporate power and authority to carry out the transactions contemplated by this Agreement, the Subscription Agreements, the Special Warrant Indenture, the Warrant Indenture, the Brokers' Warrants and the Compensation Options; (iv) none of the execution and delivery of this Agreement, the Subscription Agreements, the Special Warrant Indenture, the Warrant Indenture, the Brokers' Warrants and the Compensation Options, the performance by the Company of its obligations hereunder and thereunder, or the sale or issuance of the Special -19- Warrants, the Underlying Securities and the Optioned Securities will conflict with or result in any breach of the constating documents or by-laws of the Company; (v) each of this Agreement, the Subscription Agreements, the Special Warrant Indenture, the Warrant Indenture, the Brokers' Warrants and the Compensation Options has been duly authorized and, other than the Compensation Options, executed and delivered by the Company, and constitute or, in the case of the Compensation Options, upon execution and delivery shall constitute, a valid and legally binding agreement of the Company enforceable against it in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, liquidation, reorganization, moratorium or similar laws affecting the rights of creditors generally and except as limited by the application of equitable principles when equitable remedies are sought, and the qualification that the enforceability of rights of indemnity and contribution may be limited by applicable law; (vi) the Underlying Securities and the Optioned Securities have been authorized and allotted for issuance to the holders of the Special Warrants and the Underwriters (as the case may be) and, upon the due exercise of the Special Warrants, the Warrants, the Brokers' Warrants and the Compensation Options in accordance with the provisions thereof, such Underlying Securities and Optioned Securities (as the case may be) will be validly issued as fully paid and non-assessable securities in the capital of the Company; (vii) the Special Warrants (A) have been validly created and issued by the Company; (B) have been duly executed and delivered by the Company; and (C) are valid, legal and binding obligations of the Company enforceable in accordance with their terms subject to qualifications as in subclause (v) above; (viii) the issuance and sale by the Company of the Special Warrants to the Purchasers and the Brokers' Warrants to the Underwriters are exempt from the prospectus requirements of applicable Canadian Securities Laws and no documents are required to be filed (other than specified forms accompanied by requisite filing fees), proceedings taken or approvals, permits, consents or authorizations obtained under the applicable Canadian Securities Laws to permit such issuance and sale; and the issuance of the Underlying Securities and Optioned Securities upon the exercise of the Special Warrants, the Warrants, the Brokers' Warrants and the Compensation Options (as the case may be) is exempt from the prospectus and registration requirements of applicable Canadian Securities Laws subject to certain provisos and specified resale restrictions; (ix) upon the filing of the Final Prospectus and the issuance of receipts therefor under applicable Canadian Securities Laws, all legal requirements will have been fulfilled by the Company under the Canadian Securities Laws to qualify, without resort to the prospectus exemption provisions of such applicable laws, the distribution in each of the Qualifying Provinces of the Underlying Securities -20- issuable upon the exercise of Special Warrants in accordance with the Special Warrant Indenture, the Warrant Shares issuable upon the exercise of Warrants in accordance with the Warrant Indenture, the Compensation Options issuable upon the exercise of the Brokers' Warrants, and the Optioned Securities issuable upon the exercise of the Compensation Options and that the issuance of the Underlying Securities and Optioned Securities by the Company upon such exercise will be exempt from the registration requirements of such applicable laws subject to certain provisos; the Underlying Securities and Optioned Securities will not be subject to any statutory hold period and no other documents will be required to be filed, proceedings taken, or approvals, permits, consents, or authorizations obtained under the Canadian Securities Laws to permit the trading in the Qualifying Provinces of such Underlying Securities and Optioned Securities, through registrants registered under applicable laws who have complied with such applicable laws or in circumstances in which there is an exemption from the registration requirements of such applicable laws, subject to usual exceptions; (x) the Warrant Agent has been duly appointed by the Company as registrar and transfer agent in respect of the Common Shares, as special warrant agent in respect of the Special Warrants and as warrant agent in respect of the Warrants; (xi) the Company is a reporting issuer not on the list of defaulting reporting issuers maintained pursuant to the applicable securities laws in the Province of Ontario; and (xii) all necessary notices and filings have been made and consents, approvals and authorizations obtained to ensure that the Common Shares issuable on the exercise of the Special Warrants and the Compensation Options, and the Warrant Shares issuable on the exercise of the Warrants, will be quoted for trading on CDN on their issue. (e) the Underwriters shall have received written undertakings of Paul Godin, 1184041 Ontario Inc., Jeffrey Lymburner, Smythe Group Inc., America Online, Inc. and Toronto Star Newspapers Limited in favour of the Underwriters: (i) not to sell, transfer, assign or otherwise dispose of any securities of the Company owned, directly or indirectly, by such persons for a period ending on the date that is ten (10) Business Days following the Qualification Deadline, without the prior written consent of the Underwriters; and (ii) to vote their Common Shares of the Company and take all such other actions as are within its power and control to ensure that a nominee of the Purchasers is appointed to of the Board of Directors of the Company; (f) the Underwriters shall have received a certificate of the registrar and transfer agent of the Company as to the number of issued and outstanding Common Shares; -21- (g) the Underwriters shall have received certificates of status or similar certificates with respect to each jurisdiction in which the Company and the Subsidiary is required to be licensed to carry on a material part of its business; and (h) the Underwriters shall have received copies of written waivers of each of Paul Godin, 1184041 Ontario Inc., Jeffrey Lymburner, Smythe Group Inc. and Toronto Star Newspapers Limited in respect of their pre-emptive rights pursuant to certain shareholders' agreements among them and the Company. 11. RIGHTS OF TERMINATION (a) LITIGATION. If any enquiry, action, suit, investigation or other proceeding whether formal or informal is instituted or threatened or any order is made by any federal, provincial or other governmental authority in relation to the Company or any of the officers or directors of the Company or any of its principal shareholders which, in the reasonable opinion of the Underwriters or either of them, operates to prevent or restrict the distribution or trading of the Special Warrants or the Underlying Securities which may reasonably be seen to materially and adversely affect the financial markets or the business, affairs or profitability of the Company or the future market price or the present or future value of the securities of the Company, the Underwriters shall be entitled, at their option and in accordance with subparagraph 11(f) of this Agreement, to terminate their obligations under this Agreement (and the obligations of the Purchasers arranged by them to purchase Special Warrants) by notice to that effect given to the Company any time prior to the Closing Time. (b) DISASTER OUT CLAUSE. In the event that prior to the Closing Time there should develop, occur or come into effect any occurrence of national or international consequence or any event, action, condition, law, governmental regulation, inquiry or other occurrence of any nature whatsoever which, in the reasonable opinion of the Underwriters, seriously adversely affects or involves, or will seriously adversely affect or involve, the Canadian financial markets or the business, operations or affairs of the Company and its subsidiaries on a consolidated basis, any of the Underwriters shall be entitled at their option, in accordance with subparagraph 11(f) of this Agreement, to terminate their obligations under this Agreement (and the obligations of the Purchasers arranged by them to purchase Special Warrants) by written notice to that effect given to the Company prior to the Closing Time. (c) CHANGE IN MATERIAL FACT. In the event that prior to the Closing Time there should occur any material change, there should be discovered any previously undisclosed material fact, or there should occur a change in any material fact such as is contemplated by subparagraph 7(a), which results or, in the reasonable opinion of the Underwriters, could reasonably be expected to result, in the Purchasers of a material number of Special Warrants exercising their contractual right of rescission granted to the Purchasers in respect of the Special Warrants or the rights of rescission or damages under section 130 of the Securities Act (Ontario) or the corresponding provisions of applicable securities legislation in the other Qualifying Provinces or, in the reasonable opinion of the Underwriters, has or could reasonably be expected to have a material adverse effect on the market price or value of the Special Warrants or the Underlying Securities, the Underwriters shall be entitled, at their option, in accordance with subparagraph 11(f), to -22- terminate their obligations under this Agreement (and the obligations of the Purchasers arranged by them to purchase Special Warrants) by written notice to that effect given to the Company prior to the Closing Time. (d) NON-COMPLIANCE WITH CONDITIONS. The Company agrees that all terms and conditions in this Agreement shall be construed as conditions and complied with so far as the same relate to acts to be performed or caused to be performed by the Company that it will use its best efforts (or all commercially reasonable efforts, as applicable) to cause such conditions to be complied with, and any breach or failure by the Company to comply with any of such conditions shall entitle the Underwriters, or any of them, at their option in accordance with subparagraph 11(f), to terminate their obligations under this Agreement (and the obligations of the Purchasers arranged by them to purchase Special Warrants) by notice to that effect given to the Company at or prior to the Closing Time. The Underwriters may waive, in whole or in part, or extend the time for compliance with, any terms and conditions without prejudice to their rights in respect of any other of such terms and conditions or any other or subsequent breach or non- compliance, provided that any such waiver or extension shall be binding upon the Underwriters only if the same is in writing and signed by all of the Underwriters. (e) CEASE TRADE ORDER. In the event that any order to cease trading in securities of the Company is made or threatened by a securities regulatory authority, the Underwriters shall be entitled, at their option, in accordance with subparagraph 11(f) of this Agreement, to terminate their obligations under this Agreement (and the obligations of the Purchasers arranged by them to purchase Special Warrants) by written notice to that effect given to the Company prior to the Special Warrant Closing Time. (f) EXERCISE OF TERMINATION RIGHTS. The rights of termination contained in subparagraphs 11(a), (b), (c), (d) and (e) may be exercised by either of the Underwriters and are in addition to any other rights or remedies the Underwriters or any of them may have in respect of any default, act or failure to act or non-compliance by the Company in respect of any of the matters contemplated by this Agreement or otherwise. In the event of any such termination, there shall be no further liability on the part of the Underwriters to the Company or on the part of the Company to the Underwriters except in respect of any liability which may have arisen or may arise after such termination in respect of acts or omissions prior to such termination under paragraphs 12, 14 and 15. A notice of termination given by an Underwriter under subparagraphs 11(a), (b), (c), (d) and (e) shall not be binding upon any other Underwriter. 12. EXPENSES. Whether or not the sale of the Special Warrants or the issuance of the Underlying Securities upon exchange of such Special Warrants shall be completed, all expenses of or incidental to the issue and delivery of such Special Warrants and Underlying Securities or incidental to all matters in connection with the transactions herein set out shall be borne by the Company including, without limitation, expenses in connection with the issuance and sale of the Special Warrants, all private placement fees required under Canadian Securities Laws, the qualification of the Underlying Securities for distribution to the public, the fees and expenses of counsel to the Company and all local counsel selected by the Company, the reasonable fees and expenses of counsel to the Underwriters to a maximum of $75,000 (exclusive of disbursements and all applicable GST), with the balance, if any, being the obligation of the Underwriters, the -23- fees and expenses of the Warrant Agent, all out-of-pocket expenses of the Underwriters, and all costs incurred in connection with the preparation and printing of the Preliminary Prospectus, the Final Prospectus and any Supplementary Material. All fees and expenses incurred by the Underwriters or on their behalf prior to the Closing Time shall be payable by the Company at the Closing Time and any such expenses incurred thereafter shall be payable from the Escrowed Proceeds upon release of the Escrowed Proceeds. 13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All warranties, representations, covenants and agreements herein contained or contained in any documents submitted pursuant to this Agreement and in connection with the transaction herein contemplated shall survive the purchase and sale of the Special Warrants and the exchange of such Special Warrants for the Underlying Securities by the Purchasers and continue in full force and effect for the benefit of the Purchasers for a period of three years from the Closing Date and shall not be limited or prejudiced by any investigation made by or on behalf of the Underwriters in connection with the purchase and sale of the Special Warrants or the preparation of the Preliminary Prospectus, the Final Prospectus or otherwise. 14. (a) INDEMNITY. The Company shall indemnify and save harmless each of the Underwriters and each of their directors, officers, employees and Underwriters from and against all liabilities, claims, actions, suits, proceedings, losses (other than loss of profits), costs, damages and expenses in any way caused by, or arising directly or indirectly from, or in consequence of: (i) any misrepresentation or alleged misrepresentation (as such term is defined in the Securities Act (Ontario)) contained herein or made by the Company in connection with the sale by the Company of the Special Warrants or the Underlying Securities, or in any material change report or public document filed or issued by the Company or on its behalf prior to the date of the Final Prospectus; (ii) any information or statement (except any information or statement relating solely to the Underwriters) contained in the Prospectus or any Supplementary Material or in any certificate of the Company delivered under this Agreement or pursuant to this Agreement which at the time and in the light of the circumstances under which it was made contains or is alleged to contain a misrepresentation; (iii) any omission or alleged omission to state in the Prospectus, any Supplementary Material or any certificate of the Company delivered under this Agreement or pursuant to this Agreement any fact (except facts relating solely to the Underwriters), whether material or not, required to be stated in such document or necessary to make any statement in such document not misleading in light of the circumstances under which it was made; (iv) any order made or enquiry, investigation or proceedings commenced or threatened by any securities commission or other competent authority based upon any untrue statement or omission or alleged untrue statement or alleged omission or any misrepresentation or alleged misrepresentation (except a statement or -24- omission or alleged statement or omission relating solely to the Underwriters) in the Prospectus or any Supplementary Material or based upon any failure to comply with Canadian Securities Laws (other than any failure or alleged failure to comply by the Underwriters), preventing or restricting the trading in or the sale or distribution of the Special Warrants or the Underlying Securities in any of the Qualifying Provinces; or (v) the non-compliance or alleged non-compliance by the Company with any of the Canadian Securities Laws, including the Company's non- compliance with any statutory requirement to make any document available for inspection. (b) NOTIFICATION OF CLAIMS. If any matter or thing contemplated by this paragraph (any such matter or thing being referred to as a "Claim") is asserted against any person or company in respect of which indemnification is or might reasonably be considered to be provided, such person or company (the "Indemnified Party") will notify the Company as soon as possible of the nature of such Claim and the Company shall be entitled (but not required) to assume the defence of any suit brought to enforce such Claim; provided, however, that the defence shall be conducted through legal counsel acceptable to the Indemnified Party acting reasonably and that no settlement of any such Claim may be made by the Company, or the Indemnified Party without the prior written consent of the other party. (c) RIGHT OF INDEMNITY IN FAVOUR OF OTHERS. With respect to any Indemnified Party who is not a party to this Agreement, the Underwriters shall obtain and hold the rights and benefits of this paragraph and paragraph 15 in trust for and on behalf of such Indemnified Party. (d) RETAINING COUNSEL. In any such Claim, the Indemnified Party shall have the right to retain other counsel to act on his or its behalf and to participate in the defence thereof, provided that the fees and disbursements of such counsel shall be paid by the Indemnified Party unless: (i) the Company and the Indemnified Party shall have mutually agreed to the retention of the other counsel; (ii) the Company fails to assume the defence of such Claim on behalf of the Indemnified Party within ten days of receiving notice of such Claim; or (iii) the named parties to any such Claim (including any added third party) include both the Indemnified Party and the Company and the Indemnified Party shall have been advised by counsel that representation of the Indemnified Party by counsel for the Company is inappropriate as a result of potential or actual differing interests of those represented; in each of which cases the Company shall not have the right to assume the defence of such Claim on behalf of the Indemnified Party but the Company shall be liable to pay the reasonable fees and disbursements of counsel to the Indemnified Party. 15. (a) CONTRIBUTION. In order to provide for a just and equitable contribution in circumstances in which the indemnity provided in paragraph 14 would otherwise be available in accordance with its terms but is, for any reason, held to be unavailable to or unenforceable by the Underwriters or enforceable otherwise than in accordance with its terms, the Company and the Underwriters shall severally contribute to the aggregate of all claims, expenses, costs and liabilities and all losses (other than loss of profits) of a nature contemplated in paragraph 14 in such proportions so that the Underwriters are responsible for the portion represented by the percentage that the aggregate fee payable by the Company to the Underwriters bears to the -25- aggregate offering price of the Special Warrants and the Company is responsible for the balance, whether or not it has been sued together or sued separately. The Underwriters shall not in any event be liable to contribute, in the aggregate, any amounts in excess of such aggregate fee or any portion of such fee actually received. However, no party who has engaged in any fraud, fraudulent misrepresentation or gross negligence shall be entitled to claim contribution from any person who has not engaged in such fraud, fraudulent misrepresentation or gross negligence. (b) RIGHT OF CONTRIBUTION IN ADDITION TO OTHER RIGHTS. The rights to contribution provided in this paragraph 15 shall be in addition to and not in derogation of any other right to contribution which the Underwriters may have by statute or otherwise at law. (c) CALCULATION OF CONTRIBUTION. In the event that the Company may be held to be entitled to contribution from the Underwriters under the provisions of any statute or at law, the Company shall be limited to contribution in an amount not exceeding the lesser of: (i) the portion of the full amount of the loss or liability giving rise to such contribution for which the Underwriters are responsible, as determined in subparagraph 15(a) above; and (ii) the amount of the aggregate fee actually received by the Underwriters from the Company under this Agreement. (d) NOTICE. If the Underwriters have reason to believe that a claim for contribution may arise, they shall give the Company notice of such claim in writing, as soon as reasonably possible, but failure to notify the Company shall not relieve the Company of any obligation which it may have to the Underwriters under this paragraph. 16. (a) BROKERS' WARRANTS AND COMPENSATION OPTIONS. In consideration for the Underwriters' services in (i) obtaining Purchasers for the Special Warrants and assisting in the preparation and completion of the offering of Special Warrants contemplated by this Agreement; (ii) assisting in the preparation of the Preliminary Prospectus, Final Prospectus and the Supplementary Material; (iii) forming and managing any banking, selling or other groups established by the Underwriters or either of them in their sole discretion in connection with the distribution of the Special Warrants; (iv) distributing the Special Warrants, both directly and through other registered dealers and brokers in the Qualifying Provinces; and (v) all other matters in connection with the issue and sale of the Special Warrants in the Qualifying Provinces, the Company hereby irrevocably and unconditionally agrees to issue to the Underwriters on the Closing Date, irrevocable non-assignable special brokers' warrants (the "Brokers' Warrants") exercisable, without payment of additional consideration, into irrevocable non- assignable options (the "Compensation Options") to purchase up to such number of Units as is equal to 10.0% of the aggregate number of Units sold pursuant to the Offering (the "Optioned Units") exercisable in whole or in part during the period commencing as at the Closing Date and expiring on the date that is fifteen (15) months after the Closing Date, at an exercise price of $1.50 per Optioned Unit. -26- (b) QUALIFICATION OF COMPENSATION OPTIONS. Subject to Canadian Securities Laws and as may be permitted by applicable securities regulatory authorities, the Prospectus shall qualify for distribution all of the Compensation Options issuable upon exercise of the Brokers' Warrants. The Compensation Options may be exercised by the Underwriters, individually or collectively, at any time in whole or from time to time in part from the time granted until their expiry (initially, up to each Agent's pro rata portion thereof) upon delivering written notice to the Company together with a certified cheque or bank draft representing the subscription price for the applicable number of Optioned Units. In the event that either Agent does not elect to exercise its entire pro rata portion of either of the Compensation Options, it shall give written notice to the other Agent not less than ten (10) business days prior to the expiry of the Compensation Options and the other Agent shall be entitled to exercise all or any portion of such unexercised Compensation Options in accordance with the provisions hereof. (c) ANTI-DILUTION PROVISIONS. If the Company subdivides, consolidates or otherwise changes, reorganizes or reclassifies its Common Shares in any way, declares any stock dividend, or becomes subject to any amalgamation, arrangement, business combination, reorganization or other similar transaction prior to the expiry of the Compensation Options (each such event being a "capital reorganization event"), the Compensation Options shall be similarly subdivided, consolidated, reorganized, reclassified or changed such that the Underwriters receive, on any exercise of the Compensation Options subsequent to the effective date of such capital reorganization event, the same number and type of securities that they would have otherwise received had they fully exercised such Compensation Options (including the Warrants comprising the Optioned Units) prior to each such capital reorganization event. The exercise price shall be adjusted accordingly and notice shall be given to the Underwriters of such adjustment. If the Underwriters disagree with such adjustment the matter shall be determined conclusively by the Company's Auditors at the expense of the Company. The Company shall at all times while the Compensation Options are in effect, reserve and keep available out of its authorized but unissued Common Shares, such number of Common Shares as shall from time to time be required to be issued on each exercise of the Compensation Options (including the Warrants comprising the Optioned Units) and such additional Common Shares as may be issuable as a result of each capital reorganization event). If any Common Shares required to be reserved for purposes of issuance upon any exercise of Compensation Options require, in addition to such compliance with the Canadian Securities Laws as is contemplated by this Agreement, any additional registration with or approval of any authority under the Canadian Securities Laws, or listing on any securities exchange on which the Common Shares or other securities as may be issuable as a result of any capital reorganization event may then be listed, before they may be issued, the Company shall cause them to be duly registered, approved and listed forthwith following the exercise of such Compensation Options. 17. UNDERWRITERS' OBLIGATIONS. The Underwriters' obligations under this Agreement shall be several and not joint, and the Underwriters' respective obligations and rights and benefits hereunder shall be as to the following percentages: Yorkton Securities Inc. - 80% First Marathon Securities Limited - 20% -27- In the event that either of the Underwriters shall fail to purchase or arrange for the purchase of the number of Special Warrants allocated to such Agent hereunder, the other Agent shall have the right but shall not be obligated to purchase or arrange for the purchase of all of such Special Warrants which would otherwise have been allocated to the Agent in default. In the event that one but not both of the Underwriters shall exercise its rights of termination under paragraph 11, the other shall have the right, but shall not be obligated, to purchase or arrange for the purchase of all of the percentage of the Special Warrants which would otherwise have been allocated to the Agent which has so exercised its rights of termination. 18. UNDERWRITERS' AUTHORITY. The Company shall be entitled to and shall act on any notice, request, direction, consent, waiver, extension and other communication given or agreement entered into by or on behalf of the Underwriters by Yorkton who shall represent the Underwriters and have authority to bind the Underwriters hereunder except in respect of a notice of termination pursuant to paragraph 11, indemnity provisions in paragraph 14, contribution provisions in paragraph 15, and exercise of the Brokers' Warrants and Compensation Options pursuant to paragraph 16. In all cases, Yorkton shall use its best efforts to consult with First Marathon prior to taking any action contemplated herein. 19. PREVIOUS ENGAGEMENTS. In consideration of the payment of its pro rata allocation of the Commission, First Marathon hereby waives and releases the Company from its obligations pursuant to any and all engagement arrangements entered into, whether in writing or otherwise, between the Company and First Marathon prior to the date hereof (other than the engagement letter dated September 25, 1997 between the Company and Yorkton on its own behalf and on behalf of First Marathon) and acknowledges and confirms that it shall have no further rights or benefits under such engagement arrangements. 20. ADVERTISEMENTS. The Company acknowledges that the Underwriters shall have the right, subject always to clauses 1(a) and (c) of this Agreement, at their own expense, to place such advertisement or advertisements relating to the sale of the Special Warrants or the Underlying Securities contemplated herein as the Underwriters may consider desirable or appropriate and as may be permitted by applicable law. The Company, and the Underwriters each agree that they will not make or publish any advertisement in any media whatsoever relating to, or otherwise publicise, the transaction provided for herein so as to result in any exemption from the prospectus and registration requirements of applicable securities legislation in any of the provinces of Canada being unavailable in respect of the sale of the Special Warrants to prospective purchasers. 21. CONTRACTUAL RIGHT OF ACTION FOR RESCISSION. As part of the Subscription Agreements, the Company has delivered, and shall be deemed to have delivered, to the Purchasers (including the Underwriters) contractual rights of action for rescission at the Special Warrant Closing Time or subsequent thereto. 20. NOTICES. Unless otherwise expressly provided in this Agreement, any notice or other communication to be given under this Agreement (a "notice") shall be in writing addressed as follows: -28- (a) If to the Company, to it at: 5915 Airport Road Suite 330 Mississauga, Ontario L4V 1T1 Attention: Paul Godin Telecopier: (905) 672-5705 with a copy to: Gowling, Strathy & Henderson Commerce Court West Suite 4900 Toronto, Ontario M5L 1J3 Attention: Neil Steenberg Telecopier: (416) 862-7661 (b) If to the Underwriters, to: Yorkton Securities Inc. 181 Bay Street Suite 3100 Toronto, Ontario M5J 2T3 Attention: Brian Campbell Telecopier: (416) 864-1043 - and - First Marathon Securities Limited The Exchange Tower 2 First Canadian Place Suite 3200 P.O. Box 21 Toronto, Ontario M5X 1J9 Attention: George Fowlie Telecopier: (416) 869-6411 with a copy, in either of such cases, to: -29- Wildeboer Rand Thomson Apps & Dellelce 1 First Canadian Place Suite 810 Toronto, Ontario M5X 1A9 Attention: Troy Pocaluyko Telecopier: (416) 361-1790 or to such other address as any of the parties may designate by notice given to the others. Each notice shall be personally delivered to the addressee or sent by telex or facsimile transmission to the addressee and (i) a notice which is personally delivered shall, if delivered on a Business Day, be deemed to be given and received on that day and, in any other case, be deemed to be given and received on the first Business Day following the day on which it is delivered; and (ii) a notice which is sent by telex or facsimile transmission shall be deemed to be given and received on the first Business Day following the day on which it is sent. 24. TIME OF THE ESSENCE. Time shall, in all respects, be of the essence hereof. 25. CANADIAN DOLLARS. All references herein to dollar amounts are to lawful money of Canada. 26. HEADINGS. The headings contained herein are for convenience only and shall not affect the meaning or interpretation hereof. 27. SINGULAR AND PLURAL, ETC. Where the context so requires, words importing the singular number include the plural and vice versa, and words importing gender shall include the masculine, feminine and neuter genders. 28. ENTIRE AGREEMENT. This Agreement constitutes the only agreement between the parties with respect to the subject matter hereof and shall supersede any and all prior negotiations and understandings. This Agreement may be amended or modified in any respect by written instrument only. 29. SEVERABILITY. The invalidity or unenforceability of any particular provision of this Agreement shall not affect or limit the validity or enforceability of the remaining provisions of this Agreement. 30. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein. 31. SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement shall be binding upon and enure to the benefit of the Company, the Underwriters and the Purchasers and their respective successors and permitted assigns; provided that, except as provided herein or in the -30- Subscription Agreements, this Agreement shall not be assignable by any party without the written consent of the others. 32. FURTHER ASSURANCES. Each of the parties hereto shall do or cause to be done all such acts and things and shall execute or cause to be executed all such documents, agreements and other instruments as may reasonably be necessary or desirable for the purpose of carrying out the provisions and intent of this Agreement. 33. EFFECTIVE DATE. This Agreement is intended to and shall take effect as of the date first set forth above, notwithstanding its actual date of execution or delivery. 34. COUNTERPARTS. This Agreement may be executed in any number of counterparts, which taken together shall form one and the same agreement. If the Company is in agreement with the foregoing terms and conditions, please so indicate by executing a copy of this letter where indicated below and delivering the same to Yorkton on behalf of the Underwriters. Yours very truly, YORKTON SECURITIES INC. Per: (signed): Brian Campbell ------------------------------- Authorized Signing Officer FIRST MARATHON SECURITIES LIMITED Per: (signed): George Fowlie ------------------------------ Authorized Signing Officer The foregoing is hereby accepted on the terms and conditions therein set forth. DATED as of October _____ , 1997. INTERNET LIQUIDATORS INTERNATIONAL INC. Per: (signed): Paul Godin ------------------------------ Authorized Signing Officer -31- SCHEDULE "A" OUTSTANDING WARRANTS, CONVERTIBLE SECURITIES, PRE-EMPTIVE OR SIMILAR RIGHTS TO SUBSCRIBE FOR COMMON SHARES 1. Pre-emptive rights in favour of America Online, Inc. as contained in Article 4 of an Agreement dated February 21, 1997 among the Corporation, certain shareholders of the Corporation and America Online Inc.; 2. Warrants in favour of America Online, Inc. to subscribe for additional common shares at: (i) U.S. $1.50 on or before October 15, 1997, or at U.S. $2.00 on or before February 15, 1998 to permit America Online, Inc. to hold 13% of the then issued shares of the Corporation on a fully diluted basis; (ii) provided that option (i) above has been fully exercised, at U.S. $3.00 on or before July 1, 1998 to hold up to 23% of the then issued shares of the Corporation on a fully diluted basis; (iii) provided that option (ii) above has been fully exercised, at U.S. $3.00 on or before February 15, 1999 to hold up to 33% of the then issued shares of the Corporation on a fully diluted basis; and (iv) provided that option (iii) above has been fully exercised, at the greater of 75% of Fair Market Value or U.S. $3.00 on or before February 15, 2000 to hold up to 51% of the then issued shares of the Corporation on a fully diluted basis; 3. Pre-emptive rights in favour of Toronto Star Newspapers Limited as contained in Article 4 of an agreement dated February 12, 1997 among the Corporation, certain shareholders of the Corporation and Toronto Star Newspapers Limited; and 4. Warrants in favour of Toronto Star Newspapers Limited to acquire up to 500,000 common shares at Cdn $1.25 on or before January 30, 1998. EX-3.11 5 FORM OF SUBSCRIPTION AGREEMENT DATED AUGUST 4, 1998 EXHIBIT 3.11 BID.COM INTERNATIONAL INC. (FORMERLY, INTERNET LIQUIDATORS INTERNATIONAL INC.) SUBSCRIPTION AND PURCHASE AGREEMENT U.S. PURCHASERS TO: BID.COM INTERNATIONAL INC, (FORMERLY, INTERNET LIQUIDATORS INTERNATIONAL INC.) AND TO: PAUL GODIN JEFFERY LYMBURNER AND TO: YORKTON SECURITIES INC. 1. SUBSCRIPTION ------------ The undersigned (the "Purchaser") hereby irrevocably subscribes for and agrees to purchase, on and subject to the terms and conditions set forth herein and in the Underwriting Agreement and the Special Warrant Indenture (each as defined below), from Bid.Com International Inc. (formerly, Internet Liquidators International Inc.) (the "Corporation") such number of special warrants of the Corporation ("Special Warrants") as set forth in section 19 (collectively the "Purchased Warrants") at a price of $1.40 per Special Warrant (the "Subscription Price"). The Purchased Warrants form part of a larger offering (the "Offering") of 8,600,000 Special Warrants, of which 8,100,000 Special Warrants (the "Treasury Special Warrants") shall be issued and sold by the Corporation and 500,000 Special Warrants (the "Secondary Special Warrants") to be issued and sold by Paul Godin and Jeffrey Lymburner (collectively, the "Selling Securityholders") on a pro rata basis (or such other basis as the Selling Securityholders and the Underwriter (as hereinafter defined) may otherwise agree) pursuant to an underwriting agreement (the "Underwriting Agreement") to be entered into by Yorkton Securities Inc. (the "Underwriter"), the Selling Securityholders and the Corporation on August 4, 1998 or such other date as the Corporation, the Selling Securityholders and the Underwriter may agree (the "Closing Date"). Certain details of the Offering are provided in the term sheet attached hereto as Schedule II. 2. DESCRIPTION OF SPECIAL WARRANTS ------------------------------- The Special Warrants shall be created and issued pursuant to a special warrant indenture (the "Special Warrant Indenture") to be entered into between CIBC Mellon Trust Company or another registered trust company, in its capacity as Special Warrant agent thereunder, the Selling Securityholders and the Corporation dated as of the Closing Date. The specific attributes of the Special Warrants shall be set forth in the Special Warrant Indenture, which will provide, among other things, that the holders of Special Warrants shall be entitled to receive, upon the exercise thereof and without payment of any consideration, one unit of the Corporation ("Unit"). Each Unit will consist of one common share of the Corporation ("Common Share") and one-half of one Common Share purchase warrant ("Warrant"). Each whole Warrant will entitle the holder thereof to acquire one Common Share at a price of $1.65 per Common Share for a period ending on the date which is the earlier of: (i) ten (10) business days following the date on which the Corporation delivers a notice (the "U.S. Offering Notice") to all holders of Warrants confirming that it has filed a preliminary prospectus or registration statement in connection with a U.S. public offering (the "U.S. Offering") of at least $7,000,000; and (ii) 12 months following the Closing Date. The Purchaser hereby acknowledges and understands that notwithstanding the delivery of a U.S. Offering Notice, the U.S. Offering may not proceed to completion for a variety of reasons including, without limitation, the state of the financial markets and the demand for the Corporation's securities at the relevant time. ACCORDINGLY, THE DELIVERY OF THE U.S. OFFERING NOTICE SHALL NOT CONSTITUTE OR BE DEEMED TO CONSTITUTE A GUARANTEE OR ASSURANCE BY THE CORPORATION OR THE UNDERWRITER THAT THE U.S. OFFERING WILL BE COMPLETED AND, IN DETERMINING WHETHER OR NOT TO EXERCISE THEIR WARRANTS, HOLDERS ARE ADVISED TO CAREFULLY CONSIDER THE POSSIBILITY THAT THE U.S. OFFERING ULTIMATELY MAY NOT PROCEED. The Common Shares and the Warrants issuable on exercise of the Special Warrants are collectively referred to herein as the "Subject Securities". Unless previously retracted, the Special Warrants shall be exercisable by the holders thereof at any time and will be automatically exercised at 5:00 p.m. (Toronto time) on the earlier of the following dates (such date being the "Expiry Date"): (i) the fifth business day after a receipt is issued by the last of the relevant securities regulatory authorities in each of the Qualifying Jurisdictions (the "Securities Regulators") for a (final) prospectus (the "Final Prospectus") qualifying the Units issuable on the exercise of the Special Warrants; and (ii) one year after the Closing Date. IN THE EVENT THAT THE CORPORATION IS UNABLE TO OBTAIN A RECEIPT FOR THE FINAL PROSPECTUS IN A QUALIFYING JURISDICTION, THE SPECIAL WARRANTS AND SUBJECT SECURITIES MAY BE SUBJECT TO STATUTORY RESALE RESTRICTIONS UNDER THE APPLICABLE SECURITIES LEGISLATION OF THAT PROVINCE. IN ADDITION, STATUTORY RESTRICTIONS MAY APPLY ON THE RESALE OF THE SUBJECT SECURITIES THAT ARE ACQUIRED PRIOR TO THE ISSUANCE OF RECEIPTS FOR THE PROSPECTUS BY THE SECURITIES REGULATORY AUTHORITIES IN ANY OF THE QUALIFYING JURISDICTIONS. PURCHASERS ARE ADVISED TO CONSULT THEIR OWN LEGAL ADVISORS IN THIS REGARD. In the event that the Corporation is unable to obtain the written consent to the Offering by holders of not less than 50% of the Common Shares on or prior to the date that is ten (10) Business Days following the Closing Date, the Corporation shall covenant and agree to convene a special meeting (the "Meeting") of the shareholders of the Corporation (the "Shareholders") as soon as possible and in any event within 75 days following the Closing Date in accordance with the by-laws of the Corporation and applicable corporate and securities laws in order to seek approval of the Offering by the Shareholders (the "Shareholder Approval"). -2- At the Closing, the gross proceeds of the Offering less an amount equal to 75% of the Underwriter's commission and estimated costs and expenses incurred in connection with the Offering (the "Escrowed Proceeds") shall be deposited into escrow with a mutually agreed upon escrow agent (the "Escrow Agent") as interest bearing funds. Upon the execution and delivery of a binding agreement announced in the public domain in respect of a private placement (the "Private Placement") on or before August 15, 1998 pursuant to which a strategic investor purchases not less than 1,500,000 Common Shares of the Corporation (the "Private Placement Shares") at a price of not less than $1.20 per share, the Escrow Agent shall release 25% of the Escrowed Proceeds (less a holdback of $200,000 to be applied against any cash penalty events as described below) to the Corporation and the Selling Securityholders on a pro rata basis. Provided that the Shareholder Approval has been obtained, the Private Placement has closed and a receipt for the Final Prospectus has been issued by the last of the Securities Regulators in each of the Qualifying Jurisdictions, the Escrow Agent shall release the balance of the Escrowed Proceeds less, for greater certainty, the aggregate Automatic Retraction Price and Discretionary Retraction Price (as hereinafter defined), if any, and the remaining 25% of the Underwriter's commission and estimated costs and expenses incurred in connection with the Offering, to the Corporation and the Selling Securityholders on a pro rata basis. If the Private Placement has not closed on or before August 15, 1998 or the Final Prospectus is not filed and a receipt issued therefor by the last of the Securities Regulators on or before the date (such date being hereinafter referred to as the "Qualification Deadline") that is: (i) 90 days after the Closing Date, where the Meeting is not required to be convened; (ii) 105 days following the Closing Date, where the Meeting is required to be convened; each Special Warrant exercised or deemed to be exercised thereafter shall entitle the holder to receive 1.07 Units (in lieu of one Unit). In the event that the Meeting must be convened but is not convened within 75 days of the Closing Date, Purchasers shall be entitled to receive from the Escrowed Proceeds an amount (the "Cash Penalty Price") equal to 7% of the Subscription Price per Special Warrant for each Treasury Special Warrant purchased. In the event that the Shareholder Approval is not obtained within 90 days of the Closing Date, the Corporation shall retract and cancel, on a pro rata basis, that number of Treasury Special Warrants sold pursuant to the Offering less the number of Treasury Special Warrants that may be issued and sold by the Corporation without Shareholder Approval (being a minimum of 1.9 million Special Warrants), at a retraction price per Special Warrant (the "Automatic Retraction Price") payable from the Escrowed Proceeds equal to the sum of the Subscription Price per Special Warrant (together with all interest accrued thereon) and 7% of the aggregate Subscription Price of the Treasury Special Warrants divided by the number of Treasury Special Warrants to be retracted. -3- In the event that the Private Placement has not occurred on or before August 15, 1998 or the Final Prospectus has not been filed and receipts issued therefor by the last of the Securities Regulators in each of the Qualifying Jurisdictions or on before the Qualification Deadline, the Purchasers shall be entitled, at their option, to require the Corporation to retract and cancel on a pro rata basis up to such number of Special Warrants as may be retracted from the Escrowed Proceeds at a retraction price per Special Warrant (the "Discretionary Retraction Price") equal to the Subscription Price per Special Warrant (together with all interest accrued thereon). For greater certainty, any amounts paid to the Underwriter out of the gross proceeds of the Offering in respect of the Underwriter's commission or expenses shall be paid by the Corporation to the Escrow Agent prior to the payment of the Discretionary Retraction Price. In the event that the Escrowed Proceeds are not sufficient to satisfy the aggregate Automatic Retraction Price or the Cash Penalty Price, the Corporation shall pay to the Escrow Agent, prior to the return of the Escrowed Proceeds to the Purchasers, an amount equal to the shortfall. THE PURCHASER ACKNOWLEDGES AND AGREES THAT THE RIGHTS OF SPECIAL WARRANTHOLDERS MAY BE MODIFIED UNDER THE SPECIAL WARRANT INDENTURE PURSUANT TO AN EXTRAORDINARY RESOLUTION APPROVED EITHER BY SPECIAL WARRANTHOLDERS THAT ATTEND OR ARE REPRESENTED AT A DULY CONVENED MEETING OF SPECIAL WARRANTHOLDERS AND ARE ENTITLED TO ACQUIRE NOT LESS THAN 66 2/3 PERCENT OF THE AGGREGATE NUMBER OF COMMON SHARES IN THE CAPITAL OF THE CORPORATION ("COMMON SHARES") WHICH WOULD BE ISSUED OR TRANSFERRED ON THE EXERCISE OF ALL OF THE THEN OUTSTANDING SPECIAL WARRANTS OR BY WRITTEN CONSENT OF SPECIAL WARRANTHOLDERS ENTITLED TO ACQUIRE NOT LESS THAN 66 2/3 PERCENT OF THE AGGREGATE NUMBER OF COMMON SHARES WHICH WOULD BE ISSUED OR TRANSFERRED ON THE EXERCISE OF ALL OF THE THEN OUTSTANDING SPECIAL WARRANTS. REFERENCE SHOULD BE MADE TO THE SPECIAL WARRANT INDENTURE, FOR A COMPLETE DESCRIPTION OF THE TERMS AND CONDITIONS ON WHICH THE SPECIAL WARRANTS ARE TO BE ISSUED. The foregoing description of the Special Warrants is a summary only and is subject to the detailed provisions of the Special Warrant Indenture under which such securities shall be issued. All dollar amounts referred to herein are in Canadian dollars. 3. PAYMENT ------- The aggregate amount payable by the Purchaser in respect of the Purchased Warrants (the "Subscription Price") must accompany this Subscription Agreement and shall be made by certified cheque or bank draft drawn on a Canadian chartered bank, and payable to the Underwriters or payable in such other manner as may be specified by the Underwriters. -4- 4. CONDITIONS OF CLOSING --------------------- The Purchaser must complete, sign and return one executed copy of this Subscription Agreement to Marilia Costa, Yorkton Securities Inc., BCE Place, 181 Bay Street, Suite 3100, P.O. Box 843, Toronto, Ontario, M5J 2T3, as soon as possible, and, in any event, no later than 5:00 p.m. (Toronto time) on July 31, 1998. As a condition of Closing (defined below), the Corporation must obtain any necessary approvals of The Toronto Stock Exchange (the "TSE") in respect of the issue of the Special Warrants (and the Subject Securities into which they are exercisable). The Purchaser agrees to complete and return the form of TSE Private Placement Questionnaire and Undertaking attached as Schedule III with this Subscription Agreement and to promptly execute and deliver all such documents and other instruments as the TSE may require. If the Purchaser is resident in the Province of British Columbia, the Purchaser must complete and return a report in the form attached hereto as Schedule IV with this Subscription Agreement. Closing shall also be subject to conditions of closing in favour of the Underwriter to be provided for in the Underwriting Agreement. 5. FACSIMILED SUBSCRIPTIONS ------------------------ The Corporation and the Underwriter will be entitled to rely on delivery by facsimile of an executed copy of this subscription, and acceptance by the Corporation of such facsimile copy will be legally effective to create a valid and binding agreement between the Purchaser and the Corporation in accordance with the terms hereof. -5- 6. CLOSING ------- Delivery and payment for the Special Warrants will be completed (the "Closing") at the offices of counsel to the Company, Gowling, Strathy & Henderson, Suite 4900, Commerce Court West, Toronto, Ontario, M5L 1J3 at 11:00 a.m. (Toronto time) (the "Closing Time") on August 4, 1998 or such earlier or later dates or times as the Corporation and the Underwriters may agree (the "Closing Date"). This executed Subscription Agreement is open for acceptance in whole or in part by the Corporation and the Selling Securityholders at any time prior to the Closing Time. Confirmation of acceptance or rejection of a subscription will be forwarded to the Purchaser promptly after acceptance or rejection has been made. If this subscription is rejected in whole and if the Purchaser has delivered a certified cheque or bank draft representing the Subscription Price for the Purchased Warrants, then such cheque or bank draft will be promptly returned to the Purchaser without interest. If this subscription is accepted only in part and the Purchaser has delivered a certified cheque or bank draft as aforesaid, a cheque representing the portion of the Subscription Price for that portion of the Purchaser's subscription for Special Warrants which is not accepted will be promptly returned to the Purchaser without interest. Certificates representing the Special Warrants (individually, a "Special Warrant Certificate", and collectively, the "Special Warrant Certificates") will be available for delivery against payment of the Subscription Price in the manner specified above. If the Purchaser does not choose to attend the Closing to receive the Special Warrant Certificate representing the Purchased Warrants, then the Purchaser, on its own behalf or on behalf of others for whom it is contracting hereunder, hereby appoints the Underwriter, with full power of substitution, as its true and lawful attorney and agent with the full power and authority in its place and stead to swear, execute, file and record any document necessary to accept delivery of the Special Warrants on the Closing Date, to terminate this subscription on its behalf in the event that any condition precedent to the offering has not been satisfied, to execute a receipt for the Purchased Warrants and all other documentation, modify or waive any conditions or grant any waivers on its behalf in connection with this transaction, and to deliver Special Warrant Certificates to the undersigned at the address set forth above promptly after Closing. 7. PROSPECTUS EXEMPTIONS --------------------- The Purchaser acknowledges and agrees that the sale and delivery of the Purchased Warrants to the Purchaser (or to others for whom it is contracting hereunder) is conditional upon such sale being exempt from the requirements under applicable securities legislation requiring the filing of a prospectus in connection with the distribution of the Special Warrants or the delivery of an offering memorandum (as defined in the applicable securities legislation), or upon the issuance of such rulings, orders, consents or approvals as may be required to permit such sale without the requirement of filing a prospectus or delivering an offering memorandum. The Purchaser, on its own behalf (or on behalf of others for whom it is contracting hereunder) acknowledges and agrees that: (a) it has received a term sheet in the form attached hereto as Schedule II setting out the principal terms of this Subscription Agreement and the -6- offering of Special Warrants; (b) it (or others for whom it is contracting hereunder) has not received, nor has it requested, nor does it have any need to receive, a prospectus or any offering memorandum, or any other document (other than financial statements, interim financial statements or any other document, the content of which is prescribed by statute or regulation) describing the business and affairs of the Corporation which has been prepared for delivery to, and reviewed by, prospective purchasers in order to assist it in making an investment decision in respect of the Purchased Warrants; (c) its decision to execute this Subscription Agreement and purchase the Purchased Warrants (on its own behalf or on behalf of others for whom it is contracting hereunder) has not been based upon any verbal or written representations as to fact or otherwise made by or on behalf of the Underwriters or the Corporation and that its decision (or the decision of others for whom it is contracting hereunder) is based entirely upon information concerning the Corporation contained in documents the content of which is prescribed by statute or regulation (any such information having been delivered to it without independent investigation or verification by the Underwriters); (d) the sale of the Purchased Warrants was not accompanied by any advertisement in printed media of general and regular paid circulation, radio or television; (e) the Underwriters and each of their respective directors, officers, employees, agents and representatives assume no responsibility or liability of any nature whatsoever for the accuracy or adequacy of any such publicly available information or as to whether all information concerning the Corporation required to be disclosed by it has been generally disclosed; (f) it (or others for whom it is contracting hereunder) has been advised to consult its own legal advisors with respect to trading in the Special Warrants, the Subject Securities and securities underlying the Subject Securities and to resale restrictions imposed by applicable securities legislation in the jurisdiction in which it resides, that no representation has been made respecting the applicable hold periods or other resale restrictions applicable to such securities, that the Purchaser (or others for whom it is contracting hereunder) is solely responsible (and neither the Corporation nor the Underwriters is in any way responsible) for compliance with applicable resale restrictions and that it is aware that it may not be able to resell such securities except in accordance with limited exemptions under applicable securities legislation and regulatory policy; and (g) the Special Warrants are otherwise subject to the terms, conditions and provisions of the Special Warrant Indenture and the Underwriting Agreement. The Purchaser agrees that the Corporation, the Selling Securityholders and/or the Underwriter may be required by law or otherwise to disclose to regulatory authorities the identity of the Purchaser and each beneficial purchaser of Special Warrants for whom the Purchaser may be acting. -7- 8. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER ---------------------------------------------------------- The Purchaser hereby represents, warrants and covenants to and with the Underwriter and the Corporation (which representations, warranties and covenants shall survive Closing) that: (A) the Purchaser is purchasing the Special Warrants as principal for its own account and not for the benefit of any other person except as otherwise set forth below under its name in Section 18 - "Subscription Particulars"; (B) the Purchaser will execute and deliver all documentation as may be required by applicable Securities Laws and The Toronto Stock Exchange, including the Private Placement Questionnaire and Undertaking attached as Schedule "II" hereto; (C) the address set forth below is the true and correct address of a place of business of the Purchaser (or, if the Purchaser is acting as agent for any person, of such person) and the Purchaser (or such person) is resident in that jurisdiction; (D) upon acceptance by the Corporation and/or the Selling Shareholders, this subscription will constitute a valid and legally binding contract of the Purchaser enforceable against the Purchaser in accordance with its terms; (E) if an individual, the Purchaser has obtained the age of majority and is legally competent to execute this agreement and to take all actions required pursuant thereto. (F) the Purchaser is an "accredited investor" within the meaning of Regulation D ("Regulation D") of the General Rules and Regulations promulgated under the Securities Act of 1933, as amended (the "Securities Act") since the Purchaser meets one of the following standards for determination of "accredited investor" status: (i) Any broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended; (ii) Any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1,000,000; (iii) Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year; -8- (iv) Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D; (v) Any organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000; or (vi) Any entity in which all of the equity owners are "accredited investors". (G) The Purchaser has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Special Warrants, and that he is able to bear the economic risk of such investment for an indefinite period of time. The Purchaser is purchasing the Special Warrants for the Purchaser's own account, for investment purposes only and not with a view to any resale or distribution thereof and the Purchaser does not have any contracts, understandings, agreements or arrangements with any person or entity to sell, transfer or grant a participation with respect to any of the Special Warrants or Subject Securities of the Company. The Purchaser understands that the Special Warrants and the Subject Securities being purchased are characterized as "restricted securities" (as defined in Rule 144 under the Securities Act) and that the Special Warrants and the Subject Securities may not be resold without registration or an exemption from registration under the Securities Act. (H) The Purchaser understands and agrees that the certificates evidencing the Special Warrants and the Subject Securities will bear an appropriate legend evidencing the restricted nature of the Special Warrants and the Subject Securities indicating that no transfer of any of the Special Warrants or the Subject Securities may be made unless such Special Warrants and the Subject Securities are registered under the Securities Act or an exemption from such registration is available, and that the Company will instruct its transfer agent not to transfer any such Special Warrants or Subject Securities unless such transfer shall be made in compliance with such legend. The legend shall be substantially in the form set forth below: "THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR HYPOTHECATION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS DULY REGISTERED UNDER THE ACT OR UNLESS, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, SUCH -9- TRANSACTION IS EXEMPT FROM THE REGISTRATION PROVISIONS OF THE ACT." (I) The Purchaser has had: (i) the opportunity to seek outside advice with respect to the terms and conditions of the offering and his investment in the Special Warrants; and (ii) the opportunity to ask questions and receive answers from the Company concerning the terms and conditions of the offering of the Special Warrants and the Company and any additional information or documents relating to the Company which he believes necessary to his purchase of the Special Warrants. 9. RELIANCE UPON REPRESENTATIONS, WARRANTIES AND COVENANTS ------------------------------------------------------- The Purchaser acknowledges that the representations and warranties and covenants contained in this Subscription Agreement are made with the intent that they may be relied upon by the Underwriter, the Selling Securityholders and the Corporation and their respective counsel to, among other things, determine its eligibility or (if applicable) the eligibility of others on whose behalf it is contracting hereunder to purchase Purchased Warrants. The Purchaser further agrees that by accepting the Purchased Warrants, the Purchaser shall be representing and warranting that the foregoing representations and warranties are true as at the Closing Time with the same force and effect as if they had been made by the Purchaser at the Closing Time and that they shall survive the purchase by the Purchaser of the Purchased Warrants and shall continue in full force and effect notwithstanding any subsequent disposition by it of the Purchased Warrants or the Subject Securities, as the case may be. 10. COMMISSION TO THE UNDERWRITERS ------------------------------ The Purchaser understands that upon completion of the sale by the Corporation and the Selling Securityholders of the Special Warrants, the Underwriter will receive from the Corporation and the Selling Securityholders, on a pro rata basis, a cash commission equal to 8.0% of the issue price of all Special Warrants to be sold by the Underwriter. It is further understood that, as additional compensation for the services provided, the Corporation will grant to the Underwriter compensation warrants exercisable to acquire, without payment of any consideration, compensation options, which compensation options are exercisable to acquire a number of Units equal to 10% of the total number of Special Warrants sold by the Underwriter and not retracted, at an exercise price equal to $1.40 per Unit for a term of fifteen months from the Closing Date. The compensation warrants will be exercisable on the same basis as the Special Warrants and the compensation options issuable upon exercise of the compensation warrants will be qualified pursuant to the Prospectus (to the extent permitted by applicable securities laws). In exercising the compensation options (whether in whole or in part), the Underwriter may, at its sole discretion, in lieu of satisfying the exercise price in cash, elect to receive a specified number of Common Shares and Warrants. -10- No other fee or commission is payable by the Corporation or the Selling Securityholders in connection with the sale of the Special Warrants. However, the Corporation and the Selling Securityholders will pay those fees and expenses in connection with the offering as are set out in the Underwriting Agreement. The Purchaser understands that the Underwriter and representatives of the Underwriter may have an interest in securities of the Corporation. 11. COSTS ----- The Purchaser acknowledges and agrees that all costs and expenses incurred by the Purchaser (including any fees and disbursements of any special counsel retained by the Purchaser) relating to the sale of the Purchased Warrants to the Purchaser shall be borne by the Purchaser. 12. APPOINTMENT OF UNDERWRITER -------------------------- The Purchaser, on its own behalf and (if applicable) on behalf of others for whom the Purchaser is contracting hereunder, hereby: (a) irrevocably authorizes the Underwriter to negotiate and settle the form of the Special Warrant Indenture, the warrant indenture pursuant to which the Warrants will be created and issued and any other agreement to be entered into in connection with this transaction and to waive on its own behalf and on behalf of the purchasers of Special Warrants in whole or in part, or extend the time for compliance with, any of the closing conditions in such manner and on such terms and conditions as the Underwriter may determine, acting reasonably, without in any way affecting the Purchaser's obligations or the obligations of such others hereunder; and (b) acknowledges and agrees that the Underwriter, the Selling Securityholders and the Corporation may vary, amend, alter or waive, in whole or in part, one or more of the conditions set forth in the Underwriting Agreement in such manner and on such terms and conditions as they may determine, acting reasonably, without affecting in any way the Purchaser or such others' obligations hereunder; provided however, that the Underwriter shall not vary, amend, alter or waive any such condition where to do so would result in a material change to any of the material attributes of the Special Warrants described herein. -11- 13. GOVERNING LAW ------------- This Subscription Agreement is governed by the laws of the Province of Ontario and the federal laws of Canada applicable therein. The Purchaser, in its personal or corporate capacity and, if applicable, on behalf of each beneficial purchaser for whom it is acting, irrevocably attorns to the jurisdiction of the courts of the Province of Ontario. 14. SURVIVAL -------- This Subscription Agreement, including without limitation the representations, warranties and covenants contained herein, shall survive and continue in full force and effect and be binding upon the Purchaser notwithstanding the completion of the purchase of the Purchased Warrants by the Purchaser pursuant hereto, the completion of the offering of Special Warrants of the Corporation and any subsequent disposition by the Purchaser of the Purchased Warrants or the Subject Securities. 15. ASSIGNMENT ---------- This Subscription Agreement is not transferable or assignable by the parties hereto. 16. ENGLISH LANGUAGE ---------------- We, the undersigned, hereby acknowledge that we have consented and requested that all documents evidencing or relating in any way to the sale of the Special Warrants be drawn up in the English language only. Nous, soussignes, reconnaissons par les presentes avoir consenti et demande que tous les documents faisant foi ou se rapportant de quelque maniere a la vente de ces bons de souscription achets soient redigis en anglais seulement. 17. COUNTERPARTS ------------ This Subscription Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which shall constitute one and the same document. -12- 18. SUBSCRIPTION PARTICULARS ------------------------ SUBSCRIPTION. The aggregate number of the Special Warrants being subscribed for is _______________________________. At a price equal to $1.40 per Special Warrant, the aggregate price of the Special Warrants being subscribed for is $__________________________________. REGISTRATION. The Special Warrants and the Subject Securities are to be registered in the name of: ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ DELIVERY. The certificate representing the Special Warrants and the certificates representing the Subject Securities are to be delivered to: ______________________________________________________________ (name) ______________________________________________________________ (address) ______________________________________________________________ ______________________________________________________________ (contact name and number) AGENT FOR DISCLOSED PRINCIPAL. If the Purchaser is signing as agent for one or more disclosed principals and not as agent for a fully managed account, the name and address of each such principals: ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ (if space is insufficient, attach a list). DATED as of the ____ day of ___________, 1998. ____________________________________________________ Name of Purchaser (please type or print) By: ________________________________________________ (Signature of Authorized Representative) ________________________________________________ (Name of Person Signing) ________________________________________________ (Office or Title) ______________________________________________________________ (Address of Purchaser) ______________________________________________________________ ______________________________________________________________ IN ORDER TO FACILITATE SETTLEMENT, THESE INSTRUCTIONS MUST BE RECEIVED BY 5:00 P.M. (TORONTO TIME) ON JULY 31, 1998. -13- 19. ACCEPTANCE ---------- The Corporation and/or the applicable Selling Securityholder(s) hereby accept the above-mentioned offer to purchase Special Warrants. DATED as of this _____ day of _____________, 1998. BID.COM INTERNATIONAL INC. By:___________________________________________ Authorized Signing Officer _______________________ ____________________________ Witness Paul Godin _______________________ ____________________________ Witness Jeffrey Lymburner -14- SCHEDULE I TERM SHEET ISSUER: Bid.Com International Inc. (formerly Internet Liquidators International Inc.) (the "Corporation"). SIZE OF OFFERING: $12,040,000 PURCHASED SECURITIES: 8,600,000 special warrants ("Special Warrants"), of which 8,100,000 shall be issued and sold by the Corporation (the "Treasury Special Warrants") and 500,000 shall be issued and sold by Paul Godin and Jeffrey Lymburner (the "Secondary Special Warrants") on a pro rata basis (or on such other basis as the Underwriter and the Paul Godin and Jeffrey Lymburner may otherwise agree). Subject to adjustment in certain events, each Special Warrant shall be exercisable, for no additional consideration, to acquire one unit ("Unit"), each Unit consisting of one common share ("Common Share") and one-half of one Common Share purchase warrant ("Warrant") of the Corporation. WARRANTS: Each whole Warrant shall entitle the holder thereof to acquire one Common Share for a period ending on the date which is the earlier of (i) ten (10) business days following the date on which the Corporation delivers a notice to all holders of Warrants confirming that it has filed a preliminary prospectus or registration statement in connection with a U.S. public offering of at least $7,000,000 and (ii) 12 months following the Closing Date (defined below) at an exercise price of $1.65 per Common Share. PURCHASE PRICE: $1.40 per Special Warrant. UNDERWRITER: Yorkton Securities Inc. CLOSING DATE: August 4, 1998 or such other date as the Underwriter and the Corporation may agree (the "Closing Date"). EXERCISE AND Unless previously retracted, the Special Warrants shall PROSPECTUS CONDITIONS: be exercisable by the holders thereof at any time and will be automatically exercised at 5:00 p.m. (Toronto time) on the earlier of the following dates (such date being the "Expiry Date"): (i) the fifth business day after a receipt is issued by the last of the relevant securities regulatory authorities in the Qualifying Jurisdictions (the "Securities Regulators") for a (final) prospectus (the "Final Prospectus") qualifying the Units issuable on the exercise of the Special Warrants; and (ii) one year after the Closing Date. SHAREHOLDER APPROVAL: In the event that the Corporation is unable to obtain the written consent to the Offering by holders of not less than 50% of the Common Shares on or prior to the date that is ten (10) business days -15- following the Closing Date, the Corporation shall covenant and agree to convene a special meeting (the "Meeting") of the shareholders of the Corporation (the "Shareholders") as soon as possible and in any event within 75 days following the Closing Date in accordance with the by-laws of the Corporation and applicable corporate and securities laws in order to seek approval of the Offering by the Shareholders (the "Shareholder Approval"). CLOSING CONDITIONS: Among other conditions of closing standard for a transaction of this nature, on or prior to the Closing Date (i) holders of not less than 7,500,000 Common Shares shall have executed and delivered written consents to the Offering as required by The Toronto Stock Exchange; (ii) the principal shareholders of the Corporation shall have executed and delivered irrevocable undertakings to vote all of their Common Shares in favour of the Offering if the Meeting is required; and (iii) Paul Godin and Jeffrey Lymburner shall have deposited a sufficient number of Common Shares in escrow to satisfy their obligations upon exercise of the Secondary Special Warrants and the Warrants comprising part of the Secondary Special Warrants. ESCROW ARRANGEMENTS: The gross proceeds of the Offering less an amount equal to 75% of the Underwriter's commission and estimated costs and expenses incurred in connection with the Offering (the "Escrowed Proceeds") shall be deposited into escrow with counsel to the Underwriter (the "Escrow Agent") as interest bearing funds on the Closing Date. Upon the execution and delivery of a binding agreement announced in the public domain in respect of a private placement (the "Private Placement") on or prior to August 15, 1998 pursuant to which a strategic investor (the "Strategic Investor") purchases not less than 1,500,000 Common Shares of the Corporation at a price of not less than $1.20 per share, the Escrow Agent shall release 25% of the Escrowed Proceeds (less a holdback of $200,000 to be applied against any cash penalty events as described below) to the Corporation, Paul Godin and Jeffrey Lymburner on a pro rata basis. Provided that the Shareholder Approval has been obtained, the Private Placement has closed and a receipt for the Final Prospectus has been issued by the last of the Securities Regulators in each of the Qualifying Provinces, the Escrow Agent shall release the balance of the Escrowed Proceeds less, for greater certainty, the aggregate Automatic Retraction Price and Discretionary Retraction Price (as hereinafter defined), if any, and the remaining 25% of the Underwriter's commission and estimated costs and expenses incurred in connection with the Offering, to the Corporation, Paul Godin and Jeffrey Lymburner on a pro rata basis. PENALTY EVENTS: In the event that the Private Placement has not closed on or before -16- August 15, 1998 or in the event that the Final Prospectus has not been filed and receipts issued therefor by the last of the Securities Regulators on or prior to the date (such date being hereinafter referred to as the "Qualification Deadline") that is: (i) 90 days after the Closing Date, in the case where the Meeting is not required to be convened; and (ii) 105 days following the Closing Date, in the case where the Meeting is required to be convened, each Special Warrant exercised or deemed to be exercised thereafter shall entitle the holder to receive 1.07 Units (in lieu of one Unit). In the event a Meeting must be convened but is not convened within 75 days of the Closing Date, Purchasers shall be entitled to receive from the Escrowed Proceeds an amount (the "Cash Penalty Price") equal to 7% of the Purchase Price per Special Warrant for each Treasury Special Warrant purchased. RETRACTION: In the event that the Shareholder Approval is not obtained within 90 days of the Closing Date, the Corporation shall retract and cancel, on a pro rata basis, that number of Treasury Special Warrants equal to the total number of Treasury Special Warrants sold pursuant to the Offering less the number of Treasury Special Warrants that may be issued and sold by the Corporation without Shareholder Approval (being a minimum of 1.9 million Special Warrants), at a retraction price per Special Warrant (the "Automatic Retraction Price") payable from the Escrowed Proceeds equal to the sum of (i) the Purchase Price per Special Warrant (together with all interest accrued thereon); and (ii) 7% of the aggregate Purchase Price of the Treasury Special Warrants divided by the number of Treasury Special Warrants to be retracted. In the event that the Private Placement has not occurred on or before August 15, 1998 or the Final Prospectus has not been filed and receipts issued therefor by the last of the Securities Regulators on or before the Qualification Deadline, the Purchasers shall be entitled, at their option, to require the Corporation to retract and cancel on a pro rata basis up to such number of Special Warrants as may be retracted from the Escrowed Proceeds at a retraction price per Special Warrant (the "Discretionary Retraction Price") equal to the Purchase Price per Special Warrant (together with all interest accrued thereon). For greater certainty, any amounts paid to the Underwriter out of the gross proceeds of the Offering in respect of the Underwriter's commission or expenses shall be paid by the Corporation to the Escrow Agent prior to payment of the Discretionary Retraction Price. For greater certainty, in the event that the Escrowed Proceeds are not sufficient to satisfy the aggregate Automatic Retraction Price or the -17- Cash Penalty Price, the Corporation shall pay to the Escrow Agent, prior to the return of the Escrowed Proceeds to the Purchasers, an amount equal to the shortfall. -18- SCHEDULE II 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: Bid.Com International Inc. (formerly, Internet Liquidators International Inc.) (b) Number and Description of Securities to be Purchased: ________ Special Warrants (c) Purchase Price: $1.40 per Special Warrant 2. DETAILS OF PURCHASER (a) Name of Purchaser :_____________________________________________________ (b) Address:________________________________________________________________ (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)? Is so, state the capacity in which the Purchaser (or person named in response to 2(c)) qualifies as an insider ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ (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: ________________________________________________________________________ ________________________________________________________________________ 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 60 days preceding the date hereof: ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ -19- UNDERTAKING TO: THE TORONTO STOCK EXCHANGE The undersigned has subscribed for and agreed to purchase, as principal, the securities described in Item 1 of this 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 the lesser of: (a) a period of six months from the date of the closing of the transaction herein or for such period as is prescribed by applicable securities legislation, whichever is longer; and (b) a period ending on the date that a receipt for a final prospectus in respect of the said securities or any securities derived therefrom has been issued by the Ontario Securities Commission, without the prior consent of The Toronto Stock Exchange and any other regulatory body having jurisdiction. DATED at __________________ this ________ day of _____________________, 1998. __________________________________________ (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) -20- EX-3.12 6 SPECIAL WARRANT INDENTURE DATED AUGUST 4, 1998 EXHIBIT 3.12 BID.COM INTERNATIONAL INC. - and - 1184041 ONTARIO INC. ==================== - and - SMYTHE GROUP COMPANY ==================== - and - CIBC MELLON TRUST COMPANY SPECIAL WARRANT INDENTURE Providing for the Issue of up to 8,600,000 Special Warrants of Bid.Com International Inc. August 4, 1998 TABLE OF CONTENTS Article 1 - Interpretation............................................................ 2. 1.1 Definitions.................................................................... 2. 1.2 Number and Gender.............................................................. 6. 1.3 Interpretation Not Affected by Headings, etc................................... 6. 1.4 Business Day................................................................... 6. 1.5 Time of the Essence............................................................ 6. 1.6 Applicable Law................................................................. 6. 1.7 Choice of Language............................................................. 7. 1.8 Currency....................................................................... 7. Article 2 - Issue of Special Warrants................................................. 7. 2.1 Issue of Primary Special Warrants and Secondary Special Warrants............... 7. 2.2 Form and Terms of Special Warrants............................................. 7. 2.3 Signing of Special Warrant Certificates........................................ 8. 2.4 Deposit of Shares Underlying Secondary Special Warrants........................ 8. 2.5 Certification by the Special Warrant Agent..................................... 9. 2.6 Special Warrantholder Not a Shareholder........................................ 9. 2.7 Issue in Substitution for Lost Special Warrant Certificates.................... 9. 2.8 Special Warrants to Rank Pari Passu............................................ 10. 2.9 Registers for Special Warrants................................................. 10. 2.10 Transferee Entitled to Registration............................................ 11. 2.11 Registers Open for Inspection.................................................. 11. 2.12 Exchange of Special Warrants................................................... 11. 2.13 Ownership and Transfer of Special Warrants..................................... 12. 2.14 Adjustment of Subscription Rights.............................................. 12. 2.15 Adjustment Rules............................................................... 13. 2.16 Notice of Adjustment of Subscription Rights.................................... 14. Article 3 - Exercise of Special Warrants.............................................. 15. 3.1 Exercise of Special Warrants and Deemed Exercise of Special Warrants........... 15. 3.2 Effect of Exercise of Special Warrants......................................... 17. 3.3 Postponement of Delivery of Certificates....................................... 17. 3.4 Cancellation of Special Warrant Certificates................................... 17. Article 4 - Covenants................................................................. 19. 4.1 General Covenants.............................................................. 19. 4.2 Securities Qualification Requirements.......................................... 20. 4.3 Special Warrant Agents's Remuneration and Expenses............................. 21. 4.4 Performance of Covenants by Special Warrant Agent.............................. 21.
i Article 5 - Enforcement............................................................... 22. 5.1 Suits by Special Warrantholders................................................ 22. 5.2 Immunity of Shareholders, etc.................................................. 22. 5.3 Limitation of Liability........................................................ 22. Article 6 - Meetings of Special Warrantholders........................................ 22. 6.1 Right to Convene Meetings...................................................... 22. 6.2 Notice......................................................................... 23. 6.3 Chairman....................................................................... 23. 6.4 Quorum......................................................................... 23. 6.5 Power to Adjourn............................................................... 24. 6.6 Show of Hands.................................................................. 24. 6.7 Poll and Voting................................................................ 24. 6.8 Regulations.................................................................... 24. 6.9 Issuers, Special Warrant Agent and Underwriter may be Represented.............. 25. 6.10 Powers Exercisable by Extraordinary Resolution................................. 25. 6.11 Meaning of Extraordinary Resolution............................................ 26. 6.12 Powers Cumulative.............................................................. 27. 6.13 Minutes........................................................................ 27. 6.14 Instruments in Writing......................................................... 27. 6.15 Binding Effect of Resolutions.................................................. 28. 6.16 Holdings by the Corporation or Subsidiaries of the Corporation Disregarded..... 28. Article 7 - Supplemental Indentures................................................... 28. 7.2 Successor Corporations......................................................... 29. Article 8 - Concerning the Special Warrant Agent...................................... 30. 8.1 Trust Indenture Legislation.................................................... 30. 8.2 Rights and Duties of Special Warrant Agent..................................... 30. 8.3 Evidence, Experts and Advisers................................................. 32. 8.4 Documents, Monies, etc. Held by Special Warrant Agent.......................... 33. 8.5 Action by Special Warrant Agent to Protect Interests........................... 33. 8.6 Special Warrant Agent Not Required to Give Security............................ 33. 8.7 Protection of Special Warrant Agent............................................ 33. 8.8 Replacement of Special Warrant Agent........................................... 34. 8.9 Conflict of Interest........................................................... 35. 8.10 Acceptance of Trusts........................................................... 35.
ii 8.11 Special Warrant Agent Not to be Appointed Receiver.............................. 35. 8.12 Authorization to Carry on Business................................................. 36. 8.13 Liability of Special Warrant Agent.............................................. 36. Article 9 - Form of Special Warrant.................................................. 36. 9.1 Form of Special Warrant Certificate............................................. 36. Article 10 - General.................................................................. 47. 10.1 Notice to the Issuers and the Special Warrant Agent............................. 47. 10.2 Notice to the Special Warrantholders............................................ 48. 10.3 Mail Service Interruption....................................................... 49. 10.4 Counterparts and Formal Date.................................................... 49. 10.5 Satisfaction and Discharge of Indenture......................................... 49. 10.6 Provisions of Indenture and Special Warrants for the Sole Benefit of Parties and Special Warrantholders...................................................... 49.
iii THIS SPECIAL WARRANT INDENTURE made as of the 4th day of August, 1998. B E T W E E N: BID.COM INTERNATIONAL INC. (FORMERLY INTERNET LIQUIDATORS INTERNATIONAL INC.), a corporation constituted under the laws of the Province of Ontario, Canada (hereinafter called the "CORPORATION") [_] and [_] 1184041 ONTARIO INC. (hereinafter called "1184041") [_] and [_] SMYTHE GROUP COMPANY (hereinafter called "SMYTHE" ) [_] and [_] CIBC MELLON TRUST COMPANY, a trust company incorporated under the laws of Canada (hereinafter called the " SPECIAL WARRANT AGENT") WHEREAS: A. The Corporation proposes to issue and sell by means of a private placement 8,100,000 special warrants (the "PRIMARY SPECIAL WARRANTS"), and 1184041 and Smythe propose to issue and sell by means of a private placement up to 500,000 special warrants (the "SECONDARY SPECIAL WARRANTS"). Subject to adjustment in certain events, each Primary and Secondary Special Warrant entitles the holder thereof to receive one (1) unit ("Unit"). Each Unit consists of one common share ("Common Share") and one-half ( 1/2) a Common Share purchase warrant ("Share Purchase Warrant"), in the capital of the Corporation, all upon the terms and conditions herein set forth; B. For such purpose the Corporation, 1184041 and Smythe, deem it necessary to create and issue the Primary and Secondary Special Warrants as provided for in this Indenture; 2. C. The Issuers (as hereinafter defined) are duly authorized to create and issue the Primary and Secondary Special Warrants to be created and issued, as herein provided; D. 1184041 and Smythe (collectively the "Sellers") have deposited with the Special Warrant Agent a sufficient number of common shares of the Corporation together with all necessary transfer documentation to discharge their respective obligations pursuant to the Secondary Special Warrants and this Indenture. E. All things necessary have been done and performed to make the Primary and Secondary Special Warrants, when certified by the Special Warrant Agent and issued as in this Indenture provided, legal, valid and binding upon the Corporation with the benefits of, and subject to the terms of, this Indenture; F. The foregoing recitals are made as representations and statements of fact by the Sellers and not by the Special Warrant Agent. NOW THEREFORE for good and valuable consideration mutually given and received, the receipt and sufficiency of which is hereby acknowledged, it is hereby agreed and declared as follows: ARTICLE 1 - INTERPRETATION 1.1 DEFINITIONS In this Indenture, unless there is something in the subject matter or context inconsistent therewith, the following phrases and words have the respective meanings indicated opposite them as follows: (a) "APPLICABLE LEGISLATION" has the meaning ascribed thereto in subsection 8.1(a); (b) "BUSINESS DAY" means a day which is not a Saturday or Sunday or statutory holiday in any of the cities where special warrant certificates may be submitted to the Special Warrant Agent pursuant to subsection 3.1 hereof; (c) "CAPITAL REORGANIZATION" has the meaning ascribed thereto in section 2.14; (d) "COMMON SHARES" means fully paid and non-assessable common shares in the capital of the Corporation as currently constituted; (e) "CORPORATION" means Bid.Com International Inc., a corporation constituted under the laws of the Province of Ontario, Canada; 3. (f) "CORPORATION'S AUDITORS" means Deloitte & Touche or such other chartered accountant or firm of chartered accountants duly appointed as auditor or auditors of the Corporation from time to time and acceptable to the Special Warrant Agent; (g) "COUNSEL" means Corporation's counsel or such other firm of barristers and solicitors retained by the Special Warrant Agent from time to time and acceptable to the Special Warrant Agent; (h) "CORPORATION'S COUNSEL" means Gowling, Strathy & Henderson or such other barrister or solicitor or firm of barristers and solicitors retained by the Corporation from time to time and acceptable to the Special Warrant Agent; (i) "DIRECTOR" means a director of the Corporation for the time being and, unless otherwise specified herein, reference to "ACTION BY THE DIRECTORS" means action by the directors of the Corporation as a board or, whenever duly empowered, action by a committee of such board; (j) "ESCROW AGENT" means Wildeboer Rand Thomson Apps & Dellelce, Barristers and Solicitors, Toronto; (k) "ESCROWED PROCEEDS" means the amount of $8,217,600 representing 75% of the gross proceeds of the sale of the Primary and Secondary Special Warrants less an amount equal to 75% of the Underwriter's commission and estimated costs and expenses incurred in connection with such sale, which shall be deposited into escrow with the Escrow Agent; (l) "EXERCISE DATE" means the day upon which a Special Warrant is exercised pursuant to the provisions of Section 3.1 or deemed to be exercised pursuant to Section 3.1(b); (m) "EXPIRY TIME" means 5:00 p.m. (Toronto time) on the earlier of: (i) the fifth Business Day after the Qualification Date; and (ii) August 4, 1999; (n) "EXTRAORDINARY RESOLUTION" has the meaning ascribed thereto in Section 6.11 and 6.14; (o) "FINAL PROSPECTUS" means the (final) prospectus of the Corporation relating to the distribution of the Subject Securities in the Qualifying Jurisdictions; (p) "ISSUERS" means the Corporation, 1184041 and Smythe; 4. (q) "PERSON" includes an individual, a corporation, a partnership, any unincorporated organization or any other juridical entity and words importing persons have a similar meaning; (r) "PRELIMINARY PROSPECTUS" means the preliminary prospectus of the Corporation relating to the distribution of the Subject Securities in the Qualifying Jurisdictions; (s) "PRIMARY SPECIAL WARRANTS" means the 8,100,000 Special Warrants being created hereunder and issued and sold by the Corporation pursuant to the Underwriting Agreement; (t) "QUALIFICATION DATE" means the date of issuance of a receipt or similar document by the last of the Securities Administrators to issue a receipt or similar document for the Final Prospectus; (u) "QUALIFICATION DEADLINE" means the date which is 90 days after the date of issuance of the Primary and Secondary Special Warrants; (v) "QUALIFICATION DEFAULT" means the failure on the part of the Corporation to obtain a receipt for the Final Prospectus from the Securities Administrators in each of the Qualifying Jurisdictions, on or before 5:00 p.m. (Toronto time) on the Qualification Deadline; (w) "QUALIFYING JURISDICTIONS" means the Province of Ontario and any such additional provinces in which purchasers of the Special Warrants are resident; (x) "SECONDARY SPECIAL WARRANTS" means the 500,000 Special Warrants being created hereunder and sold by the Sellers pursuant to the Underwriting Agreement; (y) "SECURITIES ADMINISTRATORS" means collectively the securities commission or comparable authority in each of the Qualifying Jurisdictions; (z) "SHARE PURCHASE WARRANTS " means the warrants issuable upon the exercise or deemed exercise of the Special Warrants subject to the terms and conditions of the Share Purchase Warrant Indenture which indenture shall govern the entitlement of a holder to acquire one (1) additional Common Share at $1.65 at any time prior to the earlier of (i) ten (10) business days following the date on which the Corporation delivers a notice to all holders of Share Purchase Warrants confirming that it has filed a preliminary prospectus or registration statement in connection with a U.S. public offering of at least $7,000,000 and (ii) 5:00 p.m. (Toronto time) on August 4, 1999; (aa) "SHARE PURCHASE WARRANT INDENTURE " means the indenture dated as of even date herewith among the Corporation, 1184041, Smythe and CIBC Mellon Trust Company as Agent pursuant to which the Share Purchase Warrants will be issued; 5. (bb) "SHAREHOLDER" means a holder of record of one or more Common Shares; (cc) "SPECIAL WARRANT AGENT" means CIBC Mellon Trust Company and its lawful successors for the time being in the trusts hereby created; (dd) "SPECIAL WARRANTHOLDER" OR "HOLDER" means a person whose name is entered for the time being in the register maintained by the Special Warrant Agent pursuant to subsection 2.8(a); (ee) "SPECIAL WARRANTHOLDERS' REQUEST" means an instrument signed in one or more counterparts by Special Warrantholders holding in the aggregate not less than 25% of the then outstanding Special Warrants which requests the Special Warrant Agent to take some action or proceeding specified therein; (ff) "SPECIAL WARRANTS" mean the special warrants of the Corporation created hereby, including the Primary Special Warrants and the Secondary Special Warrants each entitling the registered holder thereof to receive one Unit, consisting of (1) Common Share and one- half ( 1/2) of one Share Purchase Warrant for each special warrant on the exercise of such special warrant or such other kind and amount of shares or other securities or property calculated or otherwise determined pursuant to Sections 2.14 and 2.15 or subsection 2.2(c) hereof as the case may be, on the exercise of each such special warrant; and (gg) "SUBJECT SECURITIES" means the Common Shares and Share Purchase Warrants issuable upon the exercise of the Special Warrants, including the Common Shares and Share Purchase Warrants or other securities or property issuable upon the exercise of the Special Warrants as a result of any adjustment of subscription rights pursuant to Sections 2.14 and 2.15 or subsection 2.2(c) hereof; (hh) "SUCCESSOR CORPORATION" has the meaning ascribed thereto in Section 7.2; (ii) "THIS SPECIAL WARRANT INDENTURE", "THIS INDENTURE", HEREIN", "HEREBY" and similar expressions mean and refer to this Indenture and any indenture, deed or instrument supplemental or ancillary hereto; and the expressions "ARTICLE", "SECTION", "SUBSECTION" AND "CLAUSE" followed by a number mean and refer to the specified Article, Section, subsection or clause of this Indenture; (jj) "TRANSFER AGENT" means the transfer agent or agents for the time being of the Common Shares; (kk) "TSE" means the Toronto Stock Exchange; 6. (ll) "UNDERWRITING AGREEMENT" means the underwriting agreement made as of the date hereof between the Underwriters, the Sellers, Paul Godin, Jeffrey Lymburner and the Corporation; (mm) "UNDERWRITERS" means, Yorkton Securities Inc.; and (nn) "WRITTEN ORDER OF THE CORPORATION", "WRITTEN REQUEST OF THE CORPORATION", "WRITTEN CONSENT OF THE CORPORATION", "CERTIFICATE OF THE CORPORATION" and any other document required to be signed by the Corporation, means, respectively, a written order, request, consent, certificate or other document signed in the name of the Corporation by any one of the president, any vice-president, or the secretary of the Corporation, and may consist of one or more instruments so executed. 1.2 NUMBER AND GENDER Unless elsewhere otherwise expressly provided or unless the context otherwise requires, words importing the singular include the plural and vice versa and words importing the masculine gender include the feminine and neuter genders. 1.3 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC. The division of this Indenture into Articles, Sections, subsections and clauses, the provision of a table of contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Indenture. 1.4 BUSINESS DAY In the event that any day on or before which any action is required or permitted to be taken hereunder is not a Business Day, then such action shall be required or permitted to be taken on or before the requisite time on the next succeeding day that is a Business Day. 1.5 TIME OF THE ESSENCE Time shall be of the essence in all respects in this Indenture. 1.6 APPLICABLE LAW This Indenture and the Special Warrants shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal law applicable therein and shall be treated in all respects as Ontario contracts. 7. 1.7 CHOICE OF LANGUAGE The parties hereby acknowledge that they have expressly requested that this Indenture and all notices, statements of account and other documents required or permitted to be given or entered into pursuant hereto be drawn up in the English language only. LES PARTIES RECONNAISSENT AVOIR EXPRESSMENT DEMANDEES QUE LA PRESENTE CONVENTION AINSI QUE TOUT AVIS, TOUT ETAT DE COMPTE ET TOUT AUTRE DOCUMENT A ETRE OU POUVANT ETRE DONNE OU CONCLU EN VERTU DES DISPOSITIONS DES PRESENTES, SOIENT REDIGES EN LANGUE ANGLAISE SEULEMENT. 1.8 CURRENCY Unless otherwise stated, all dollar amounts referred to in this Indenture are in Canadian dollars. ARTICLE 2-ISSUE OF SPECIAL WARRANTS 2.1 ISSUE OF PRIMARY SPECIAL WARRANTS AND SECONDARY SPECIAL WARRANTS A total of 8,600,000 Special Warrants entitling the registered holders thereof to acquire up to an aggregate of 8,600,000 Common Shares and 4,300,000 Share Purchase Warrants (subject to adjustments as provided in Sections 2.14 and 2.15 or subsection 2.2(c) hereof) are hereby created and authorized to be issued hereunder upon the terms and conditions herein set forth and shall be executed by the Corporation as to 8,100,000 Primary Special Warrants, 1184041 as to 350,000 Secondary Special Warrants and Smythe as to 150,000 Secondary Special Warrants certified by or on behalf of the Special Warrant Agent and delivered by it in accordance with and upon receipt of a written direction signed by the Corporation, 1184041 and Smythe, as the case may be. 2.2 FORM AND TERMS OF SPECIAL WARRANTS (a) The Special Warrant certificates for the 8,600,000 Special Warrants shall be substantially in the form set out in Article 9, shall be dated as of the date of this Indenture (regardless of their actual date of issue), and shall have such distinguishing letters and numbers as the Corporation may, with the approval of the Special Warrant Agent, prescribe. (b) Subject to adjustment as provided in Sections 2.13 and 2.14 or subsection 2.2(c), each Special Warrant authorized to be issued hereunder shall entitle the registered holder thereof to acquire in accordance with Section 3.1, at no extra cost, one (1) Unit, each Unit consisting of Common Share and one-half ( 1/2) a Share Purchase Warrant, or such other kind and amount of shares or securities or property, calculated pursuant to the provisions of Sections 2.14 and 2.15 or subsection 2.2(c), as the case may be, of this Indenture. (c) Unless previously retracted in accordance with the provisions of Section 3.5, each Special Warrant authorized to be issued hereunder shall in the event of a Qualification Default prior to the exercise or deemed exercise of the Special Warrants pursuant to Section 3.1 hereof, 8. entitle the registered holder hereof to acquire in accordance with said Section 3.1, at no extra cost, 1.07 Units or such other kind and amount of shares or securities or property calculated pursuant to the provisions of Sections 2.14 and 2.15 of this Indenture. (d) Fractional Special Warrants shall not be issued or otherwise provided for. 2.3 SIGNING OF SPECIAL WARRANT CERTIFICATES The Special Warrant certificates shall be signed by any one of the chairman, president, any vice-president, or the secretary of the Sellers, and may, but need not be, under their respective corporate seals or a reproduction thereof. The signature of such officer may be mechanically reproduced in facsimile and Special Warrant certificates bearing such facsimile signatures shall be binding upon the Corporation as if they had been manually signed by such officer. Notwithstanding that the person whose manual or facsimile signature appears on any Special Warrant certificate as such officer may no longer hold office at the date of issue of such Special Warrant certificate or at the date of certification or delivery thereof, any Special Warrant certificate signed as aforesaid shall, subject to Section 2.5, be valid and binding upon the Corporation and the registered holder thereof shall be entitled to the benefits of this Indenture. 2.4 DEPOSIT OF SHARES UNDERLYING SECONDARY SPECIAL WARRANTS The Sellers shall deliver to the Special Warrant Agent contemporaneously with the execution of this Indenture, certificates representing a sufficient number of Common Shares of the corporation (as presently constituted) to satisfy all their respective obligations under the Secondary Special Warrants, namely 374,500 Common Shares in the case of 1184041 and 160,500 Common Shares in the case of Smythe, together with all such transfer instruments, powers of attorney corporate resolutions and other writings as may be necessary or advisable, in the opinion of the Special Warrant Agent to properly transfer such shares into the name of the Special Warrant Agent for the purpose of and subject to the terms and conditions of this Indenture. Any such Common Shares remaining registered in the name of the Special Warrant Agent after the expiry of the Share Purchase Warrants shall be transferred back to the Sellers pro rata. The delivery of such Common Share certificates and other documentation shall constitute the Sellers' irrevocable direction and authority to the Special Warrant Agent to deal with such Common Shares in accordance with this Indenture and to deliver such Common Shares to the holders of the Secondary Special Warrants upon the due exercise thereof. 2.5 CERTIFICATION BY THE SPECIAL WARRANT AGENT 9. (a) No Special Warrant certificate shall be issued or, if issued, shall be valid for any purpose or entitle the registered holder to the benefit hereof or thereof until it has been certified by manual signature by or on behalf of the Special Warrant Agent in the form of the certificate set out in Article 9 and such certification by the Special Warrant Agent upon any Special Warrant certificate shall be conclusive evidence as against the Corporation that the Special Warrant certificate so certified has been duly issued hereunder and the holder is entitled to the benefits hereof. (b) The certification of the Special Warrant Agent on the Special Warrant certificates issued hereunder shall not be construed as a representation or warranty by the Special Warrant Agent as to the validity of this Indenture or the Special Warrants (except the due certification thereof) or as to the performance by any of the Sellers of its obligations under this Indenture and the Special Warrant Agent shall in no respect be liable or answerable for the use made of the Special Warrants or any of them or of the consideration therefor except as otherwise specified herein. 2.6 SPECIAL WARRANTHOLDER NOT A SHAREHOLDER The holding of a Special Warrant shall not be construed as conferring upon a Special Warrantholder any right or interest whatsoever as a Shareholder, nor entitle the Special Warrantholder to any right or interest in respect thereof except as herein and in the Special Warrants expressly provided. 2.7 ISSUE IN SUBSTITUTION FOR LOST SPECIAL WARRANT CERTIFICATES (a) In case any of the Special Warrant certificates shall become mutilated or be lost, destroyed or stolen, the Corporation, subject to applicable law, and subsection (b) of this Section 2.7, shall issue and thereupon the Special Warrant Agent shall certify and deliver a new Special Warrant certificate of like tenor as the one mutilated, lost, destroyed or stolen in exchange for and in place of such mutilated certificate, or in lieu of and in substitution for such lost, destroyed or stolen certificate, and the substituted certificate shall be in a form approved by the Special Warrant Agent and shall entitle its holder to the benefits hereof and shall rank equally in accordance with its terms with all other Special Warrant certificates issued or to be issued hereunder. (b) The applicant for the issue of a new certificate pursuant to this Section 2.7 shall bear the cost of the issue thereof and in case of mutilation, as a condition precedent to the issue thereof, shall deliver to the Special Warrant Agent the mutilated certificate and in the case of loss, destruction or theft shall, as a condition precedent to the issue thereof, furnish to the Corporation and to the Special Warrant Agent such evidence of ownership and of the loss, destruction or theft of the certificate so lost, destroyed or stolen as shall be satisfactory to the Corporation and to the Special Warrant Agent in their sole discretion, acting reasonably, and such applicant may also be required to furnish an indemnity bond or security in amount and 10. form satisfactory to the Corporation and the Special Warrant Agent in their sole discretion, acting reasonably, and shall pay the reasonable charges of the Corporation and the Special Warrant Agent in connection therewith. 2.8 SPECIAL WARRANTS TO RANK PARI PASSU All Special Warrants shall rank pari passu, whatever may be their actual date of issue. 2.9 REGISTERS FOR SPECIAL WARRANTS (a) The Issuers appoint the Special Warrant Agent as the registrar of the Special Warrants. The Issuers may hereafter, with the consent of the Special Warrant Agent, appoint one or more other additional registrars of the Special Warrants. The Issuers shall cause a register to be kept by the Special Warrant Agent, and the Special Warrant Agent agrees to maintain such a register, at its principal transfer office in the city of Toronto, Ontario in which shall be entered the name and addresses of the holders of the Special Warrants and other particulars of the Special Warrants held by them respectively and the number of Special Warrants held by them. The Issuers shall also cause transfer agencies to be maintained by the Special Warrant Agent, and the Special Warrant Agent shall maintain such transfer agencies at its principal transfer office in the city of Toronto, Ontario and in such other place or places and by such other agent or agents as the Issuers with the approval of the Special Warrant Agent may designate. (b) Subject to the terms of this Indenture and to applicable law, Special Warrants may be transferred. No transfer of a Special Warrant shall be valid unless made by the holder or his executors, administrators or other legal representatives, or his or her attorney duly appointed by an instrument in writing in form and manner satisfactory to the Special Warrant Agent, acting reasonably, with signatures guaranteed by a Canadian chartered bank, a Canadian trust company, a member firm of any Canadian stock exchange or such other guarantor as the Special Warrant Agent determines to be acceptable, upon surrender of the Special Warrant to the Special Warrant Agent and upon compliance with such other reasonable requirements as the Special Warrant Agent may prescribe and shall thereafter be recorded on the register of transfers maintained by the Special Warrant Agent pursuant to subsection (a) of this Section 2.9, provided all taxes or governmental or other charges arising by reason of such transfer have first been paid by or on behalf of the Special Warrantholder requesting such a transfer. 2.10 TRANSFEREE ENTITLED TO REGISTRATION 11. The transferee of a Special Warrant shall, after the transfer form attached to the Special Warrant or any other form of transfer acceptable to the Special Warrant Agent is duly executed and completed and together with the Special Warrant is lodged with the Special Warrant Agent, and upon compliance with all other conditions in that regard required by this Indenture or by law, be entitled to have his name entered on the register of holders as the owner of such Special Warrant free from all equities or rights of set-off or counterclaim as set forth in Section 2.11. 2.11 REGISTERS OPEN FOR INSPECTION The registers hereinbefore referred to shall be open at all reasonable times for inspection by the Issuers, the Underwriter, the Special Warrant Agent or any Special Warrantholder. The Special Warrant Agent shall, from time to time when requested to do so in writing by the Corporation or the Underwriter, furnish the Corporation or the Underwriter, as the case may be, with a list of the names and addresses of holders of Special Warrants entered in the register of holders maintained by the Special Warrant Agent and showing the number of Common Shares which may then be acquired upon the exercise of the Special Warrants held by each such holder. 2.12 EXCHANGE OF SPECIAL WARRANTS (a) Special Warrant certificates may, upon compliance with the reasonable requirements of the Special Warrant Agent, be exchanged for Special Warrant certificates in any other authorized denomination representing in the aggregate the same number of Special Warrants. The Corporation shall sign and the Special Warrant Agent shall certify, in accordance with Sections 2.3 and 2.5, all Special Warrant certificates necessary to carry out the exchanges contemplated herein. (b) Special Warrant certificates may be exchanged only at the principal office of the Special Warrant Agent in the City of Toronto, Ontario or at any other place that is designated by the Corporation with the approval of the Special Warrant Agent. Any Special Warrant certificates tendered for exchange shall be surrendered to the Special Warrant Agent and canceled. (c) Except as otherwise herein provided, the Special Warrant Agent may charge Special Warrantholders requesting an exchange a reasonable sum for each Special Warrant certificate issued, and payment of such charges and reimbursement of the Special Warrant Agent or the Issuers for any and all taxes or governmental or other charges required to be paid shall be made by the party requesting such exchange as a condition precedent to such exchange. 2.13 OWNERSHIP AND TRANSFER OF SPECIAL WARRANTS 12. The Issuers and the Special Warrant Agent may deem and treat the registered holder of any Special Warrant certificate as the absolute owner of the Special Warrant evidenced thereby for all purposes, and the Issuers and the Special Warrant Agent shall not be affected by any notice or knowledge to the contrary except where the Issuers or the Special Warrant Agent is required to take notice by statute or by order of a court of competent jurisdiction. A Special Warrantholder shall be entitled to the rights evidenced by such Special Warrant free from all equities or rights of set-off or counterclaim between the Issuers and the original or any intermediate holder thereof and all persons may act accordingly, and the receipt by any such Special Warrantholder of Common Shares pursuant to the exercise thereof shall be a good discharge to the Issuers and the Special Warrant Agent for the same, and neither the Corporation nor the Special Warrant Agent shall be bound to inquire into the title of any such holder, except where the Corporation or the Special Warrant Agent is required to take notice by statute or by order of a court of competent jurisdiction. 2.14 ADJUSTMENT OF SUBSCRIPTION RIGHTS Subject to Sections 2.15 and 2.16, if at any time after the date hereof and prior to the Expiry Time, and provided that any Special Warrants remain unexercised, there shall be: (a) a reclassification of the Common Shares at any time or a change of the Common Shares into other shares or securities or a subdivision or consolidation of the Common Shares into a greater or lesser number of shares or any other capital reorganization; (b) a consolidation, amalgamation or merger of the Corporation with or into any other corporation (other than a consolidation, amalgamation or merger which does not result in any reclassification of the outstanding Common Shares or a change of the Common Shares into other Common Shares or securities); (c) a transfer of the undertaking or assets of the Corporation as an entirety or substantially as an entirety to another corporation or other entity; or (d) an issue or distribution to the holders of all or substantially all of the Corporation's outstanding Common Shares or securities of the Corporation including rights, options or warrants to acquire Common Shares or securities convertible into or exchangeable for Common Shares or any property or assets including any evidences of indebtedness, other than cash dividends paid in the ordinary course of the Corporation or securities issued pursuant to the Corporation's stock option plans, (any of such events being called a "Capital Reorganization"), the holder of any Special Warrants that may thereafter be exercised to acquire Common Shares shall be entitled to receive, and shall accept for no extra cost, in lieu of the number of Common Shares to which he was theretofore entitled upon such exercise, the kind and amount of shares or other securities or property which such holder would have been entitled to receive as a result of such Capital Reorganization if, on the effective date thereof or the record date, as the case may be, he had been the registered holder of the number of Common Shares which he was theretofore entitled to acquire upon such exercise. Any such 13. adjustments shall be made by and set forth in an indenture supplemental hereto approved by the directors and shall for all purposes be prima facie deemed to be an appropriate adjustment absent manifest error. 2.15 ADJUSTMENT RULES (1) The adjustments provided for in Section 2.14 are cumulative and shall apply (without duplication) to successive Capital Reorganizations or other events resulting in any adjustment under the provisions of Section 2.14; provided that, notwithstanding any other provision of this Article 2, no adjustment shall be made in the number of Common Shares which may be acquired on the exercise of a Special Warrant unless it would result in a change of at least one one-hundredth of a Share (provided, however, that any adjustments which by reason of this subsection 2.15(1) are not required to be made shall be carried forward and taken into account in any subsequent adjustment). (2) The Corporation shall not issue fractional Common Shares in satisfaction of its obligations hereunder. If any fractional interests in a Common Share would, except for the provisions of this subsection 2.15(2), be deliverable upon the exercise of the Special Warrant, the Corporation shall make a cash payment equal to the fair value of the fraction of a Share not so issued as determined by the Corporation's auditors in their sole discretion. No cheque shall be issued or cash payment made to any Special Warrantholder for an amount less than $5.00. (3) If any question arises with respect to the adjustments provided in this Article 2 such question shall, absent manifest error, be conclusively determined by the Corporation's auditors or such other firm of chartered accountants appointed by the Corporation and acceptable to the Special Warrant Agent (who may be the Corporation's auditors). Such chartered accountants shall have access to all necessary records of the Corporation and such determination shall be binding upon the Corporation, the Special Warrant Agent and the Special Warrantholders absent manifest error. (4) No adjustment in the number of Common Shares which may be acquired upon exercise of a Special Warrant shall be made in respect of any event described in Section 2.15 if Special Warrantholders are entitled to participate in such event on the same terms mutatis mutandis as if Special Warrantholders had exercised their Special Warrants prior to or on the effective date or record date of such event. (5) If, after the date of this Indenture, the Corporation shall take any action affecting the Common Shares other than the actions described in this Article 2 which in the opinion of the directors of the Corporation would materially affect the rights of Special Warrantholders, the number of Common Shares which may be acquired upon the exercise of a Special Warrant shall be adjusted in such manner and at such time, by action by the directors, in their sole discretion, acting reasonably, as they may determine to be equitable in the circumstances; provided that no such adjustment will be made unless prior approval of any stock exchange on which the Common Shares are listed for trading, if required, has been obtained. Failure of the directors to make such an adjustment shall be conclusive evidence that the directors have determined that it is equitable to make no adjustment in the circumstances. In the event that any such adjustment is made, the 14. Corporation shall deliver a certificate of the Corporation to the Special Warrant Agent describing such adjustment. 2.16 NOTICE OF ADJUSTMENT OF SUBSCRIPTION RIGHTS (1) At least 10 days prior to the effective date or record date, as the case may be, of any event which would require an adjustment in any of the subscription rights pursuant to any of the Special Warrants, including the number of Common Shares which may be acquired upon the exercise thereof, the Corporation shall: (a) file with the Special Warrant Agent a certificate of the Corporation specifying the particulars of such event and, if determinable, the required adjustment and the computation of such adjustment; and (b) give notice to the Special Warrantholders of the particulars of such event and, if determinable, the required adjustment, in the manner provided for in Section 10.2. (2) In case of any adjustment for which a notice provided for in subsection 2.16(1) has been given is not then determinable or in case a question arises and a determination has been made in accordance with Section 2.15(3), the Corporation shall promptly after such adjustment is determinable or conclusion reached: (a) file with the Special Warrant Agent a certificate of the Corporation showing how such adjustment was computed; and (b) give notice to the Special Warrantholders of the adjustment in the manner provided for in Section 10.2. (3) Where a notice referred to in subsection 2.16(1) or (2) has been given, the Special Warrant Agent shall be entitled to act and rely absolutely on any adjustment calculation of the Corporation or the Corporation's auditors. 2.17 PROCEEDINGS PRIOR TO ANY ACTION REQUIRING ADJUSTMENT As a condition precedent to the taking of action which would require an adjustment pursuant to Sections 2.14 and 2.15, the Corporation shall take any action which may, in the opinion of the Corporation's counsel, be necessary in order that the Corporation may validly and legally issue as fully paid and non- assessable all the Subject Securities which the holders of the Special Warrants are entitled to receive on the complete exercise thereof in accordance with the provisions hereof. 2.18 PROTECTION OF THE SPECIAL WARRANT AGENT The Special Warrant Agent shall be entitled to act and rely on any adjustment calculation of the Issuers' auditors and the Special Warrant Agent shall not: 15. (a) at any time be under any duty or responsibility to any holder to determine whether facts exist which may require any adjustment contemplated by this article, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed in making same; (b) be accountable with respect to the validity or value (or the kind or amount) of any shares or of any other shares or securities or property which may at any time be issued or delivered upon the exercise or deemed exercise of any Special Warrant; or (c) be responsible for any failure of the Issuers to make any cash payment or to issue, transfer or deliver shares or share certificates upon the surrender of any Special Warrant for the purpose of exercise or deemed exercise, or to comply with any of the covenants contained in this article. ARTICLE 3 - EXERCISE OF SPECIAL WARRANTS 3.1 EXERCISE OF SPECIAL WARRANTS AND DEEMED EXERCISE OF SPECIAL WARRANTS (a) Upon and subject to the provisions of this Article 3, any holder of a Special Warrant which has not previously been retracted pursuant to Section 3.5 may exercise the right thereby conferred on him to acquire the Subject Securities, at no additional cost, by surrendering to the Special Warrant Agent at any time prior to the Expiry Time, in the manner set forth in subsection 3.1(c), the certificate evidencing the Special Warrants, with the Exercise Form attached to the Special Warrant certificate duly completed and executed by the holder or his executors, administrators or other legal representatives or his or their attorney duly appointed by an instrument in writing in form and manner satisfactory to the Special Warrant Agent, acting reasonably. The Exercise Form attached to the Special Warrant certificate shall be signed as set out above and shall specify: (i) the number of Subject Securities which the Special Warrantholder desires to acquire on exercise of the Special Warrants (being not more than those which he is entitled to acquire pursuant to the Special Warrant certificate so surrendered); and (ii) the person or persons in whose names the Subject Securities are to be issued, his or their address or addresses and the number of Subject Securities to be issued to each such person if more than one is so specified. If any of the Subject Securities in respect of which the Special Warrants are exercised are to be issued to a person or persons other than the Special Warrantholder, the Special Warrantholder shall pay to the Special Warrant Agent all requisite stamp or security transfer 16. taxes or other governmental charges exigible in connection with the issue of such Subject Securities to such other person or persons or shall establish to the satisfaction of the Special Warrant Agent that such taxes and charges have been paid. Furthermore, in such event the signature on the Exercise Form must be guaranteed by a Canadian chartered bank, a Canadian trust company, a member firm of any Canadian stock exchange or such other guarantor as the Special Warrant Agent determines to be acceptable. If at the time of the exercise of the Special Warrants, there remain trading restrictions on the Subject Securities acquired, due to applicable securities legislation, the Corporation may, on the advice of counsel, endorse the certificates representing the Subject Securities to such effect, and prior to issuance of any such certificates the Special Warrant Agent shall consult the Corporation to determine whether such endorsement or legending is required. (b) Any Special Warrants not otherwise exercised for the Subject Securities or retracted pursuant to Section 3.5 shall be deemed to have been exercised on the earlier of (i) the fifth Business Day after the Qualification Date, and (ii) immediately prior to the Expiry Time without any further action on the part of the holder thereof. (c) In order to acquire certificates representing the Subject Securities, a holder of one or more Special Warrants must deliver the Special Warrant certificates evidencing such Special Warrants to the Special Warrant Agent at its principal office in the City of Toronto, Ontario (or at such additional place or places as may be determined by the Corporation from time to time with the approval of the Special Warrant Agent) or by first class mail, postage prepaid to CIBC Mellon Trust Company at its principal office in Toronto, Ontario. A Special Warrant certificate shall be deemed to be surrendered only upon personal delivery thereof or if sent by mail, upon actual receipt thereof by the Special Warrant Agent. 3.2 EFFECT OF EXERCISE OF SPECIAL WARRANTS (a) The Subject Securities in respect of which the Special Warrants are exercised shall be deemed to have been issued on the Exercise Date at which time each Special Warrantholder shall be deemed to have become the holder of record of the Subject Securities issued in respect of the Special Warrants held by such Special Warrantholder unless the transfer books of the Corporation shall be closed by law on the said date of such exercise, in which case such Subject Securities shall be deemed to have been issued and such Special Warrantholder shall be deemed to have become the holder of record of such Subject Securities on the date on which such transfer books are next re-opened. (b) Forthwith after the Exercise Date and subject to the delivery by a Special Warrantholder of Special Warrant Certificates and the Exercise Form to the Special Warrant Agent as provided in subsection 3.1(c), and 3.1(a)(i) and (ii) respectively, the Issuers shall, subject to the provisions of Section 3.3, cause to be delivered to each Special Warrantholder or mailed to it at its address specified in the register of holders maintained by the Special Warrant Agent 17. or certificates for the appropriate number of Subject Securities not exceeding those which such Special Warrantholder is entitled to acquire pursuant to the Special Warrants delivered by the Special Warrantholder to the Special Warrant Agent. 3.3 POSTPONEMENT OF DELIVERY OF CERTIFICATES The Issuers shall not be required to deliver certificates for Common Shares during the period when the transfer books of the Corporation are closed by law and, in the event of a surrender of a Special Warrant for the acquisition of Subject Securities during such period, the delivery of certificates may be postponed for a period not exceeding five (5) Business Days after the date of the re-opening of the transfer books. 3.4 CANCELLATION OF SPECIAL WARRANT CERTIFICATES All Special Warrant certificates surrendered to the Special Warrant Agent pursuant to Sections 2.7, 2.10, 2.12, 3.1 or 3.5 shall be cancelled by the Special Warrant Agent. The Special Warrant certificates evidencing all Special Warrants exercised pursuant to Section 3.1 shall be deemed to have been cancelled on the Exercise Date and the Special Warrant Agent shall record the cancellation or deemed cancellation of such Special Warrant certificates on the register of holders maintained by the Special Warrant Agent pursuant to subsection 2.9(a). The Special Warrant Agent shall, if required in writing by the Issuers, furnish the Issuers with a certificate of destruction identifying the Special Warrant certificates so cancelled and deemed to have been cancelled. All Special Warrants evidenced by Special Warrant certificates which have been validly cancelled or which are deemed to have been cancelled pursuant to this Section 3.4 shall be without further force or effect whatsoever. 18. 3.5 SPECIAL WARRANT RETRACTION PRIVILEGE (1) In the event of a Qualification Default not later than the Business Day next following the date of such Qualification Default, the Corporation shall notify or cause the Special Warrant Agent to notify the Escrow Agent and the Special Warrantholders of that fact and of the Retraction Privilege (defined below) by facsimile transmission or, in the event that the Corporation and the Special Warrant Agent do not have a facsimile number for a Warrantholder in the manner provided in Section 10.2, and each holder of the Special Warrants upon receiving said notice, shall have the right to retract (the "Retraction Privilege") up to 75% of the Special Warrants held by such holders at any time prior to 5:00 p.m. (Toronto time) on the fifth Business Day following the date of the Qualification Default (the "Retraction Deadline") and to receive in consideration therefor an amount equal to $1.40 per Special Warrant, together with accrued interest thereon to and including the date of payment less any amount required to be held by applicable law (the "Retraction Amount"). Any failure to exercise the Retraction Privilege shall not affect or otherwise limit a Special Warrantholder's right pursuant to section 2(c) of this Indenture to receive 1.07 Common Shares and 0.535 Share Purchase Warrants upon exercise or deemed exercise of the holder's Special Warrants following a Qualification Default. (2) In order to exercise the Retraction Privilege, a Special Warrantholder must surrender to the Special Warrant Agent, at its principal office in the City of Toronto (or at such additional place or places as may be decided by the Corporation from time to time and approved by the Special Warrant Agent), the Special Warrants held by such holder which such holder is entitled to retract (provided that such Special Warrant shall be deemed to be surrendered only upon personal delivery thereof, or if sent by mail or other means of transmission, upon actual receipt thereof by the Special Warrant Agent) together with a notice (the "Notice of Retraction") in the form attached as Schedule "C" to the Special Warrant certificate, signed by such holder retracting such Special Warrants and the Special Warrant Agent shall as soon as practicable provide a copy of such Notice of Retraction to the Escrow Agent and request a cheque payable to the Special Warrantholder equal to the aggregate Retraction Amount for all such Special Warrants to be retracted. (3) On the date of the receipt by the Special Warrant Agent of a Notice of Retraction and a Warrant Certificate representing the Special Warrants surrendered for retraction, the Retraction Amount payable to such Warrantholder shall become due and, within three Business Days thereafter, the Special Warrant Agent shall send the Warrantholder the Escrow Agent's cheque payable in Canadian funds in the amount of such Retraction Amount; cancel the Warrant Certificate or Certificates so surrendered, and issue a new Special Warrant Certificate to each Special Warrantholder representing any remaining Special Warrants which the holder did not retract. (4) If Special Warrants are surrendered for retraction pursuant hereto and the Retraction Amounts representing such Special Warrants are not paid in full when due, such Special Warrants shall remain outstanding and the Special Warrant Agent shall hold the certificates representing such Special Warrants on behalf of and for the benefit of the relevant Special Warrantholders until such Retraction Amounts are paid in full at which time the retraction shall be completed. 19. ARTICLE 4 - COVENANTS 4.1 GENERAL COVENANTS Each of the Corporation and, in the case of paragraphs 4.1(a), (d), (f), (h), (i), (j) and (k), the Sellers, covenants with the Special Warrant Agent that so long as any Special Warrants remain outstanding: (a) It will maintain its corporate existence and will carry on and conduct its business in accordance with good business practice. (b) It will send to each Special Warrantholder copies of all financial statements and other material furnished to the holders of Common Shares after the date of this Indenture. (c) It will reserve and there will remain unissued out of its authorized capital a sufficient number of Common Shares to satisfy the rights of acquisition on the exercise of the Primary Special Warrants and the Share Purchase Warrants as provided for herein. (d) It will cause the Subject Securities issuable upon the exercise of the Special Warrants in the manner herein provided to be duly issued and delivered in accordance with the Special Warrants and the terms hereof. (e) It will use its reasonable best efforts to maintain the quotation of the Common Shares on the TSE and to become or maintain its status as (as the case may be) a "reporting issuer" not in default of the requirements of the securities legislation and policies of each of the Qualifying Jurisdictions. (f) All of the Subject Securities which are issued on the exercise of the Special Warrants shall be issued as fully-paid and non-assessable and the holders thereof shall not be liable to the Corporation or its creditors in respect of the issue of such Subject Securities. (g) The Corporation covenants and agrees to (i) file a Preliminary Prospectus for the purpose of qualifying the issuance and distribution of the Subject Securities upon the exercise of the Primary and Secondary Special Warrants in each of the Qualifying Jurisdictions as soon as practicable following the date hereof; (ii) resolve all comments received or deficiencies raised by the Securities Administrators; and (iii) file and obtain receipts for the Final Prospectus in each of the Qualifying Jurisdictions qualifying the Subject Securities as soon as possible after such regulatory comments and deficiencies have been resolved and obtain the listing and posting of the Common Shares issuable on exercise of the Special Warrants upon the TSE on or before the Expiry Time. 20. (h) It will not take any other action which might deprive the Special Warrantholders of the opportunity of exercising their rights pursuant to the Special Warrants held by such persons during the period of notice required by subsection 2.16(1). (i) It will perform all its covenants and carry out all of the acts or things to be done by it as provided in this Indenture. (j) It will not amend the attributes of the Subject Securities without the prior written consent, in the form of an Extraordinary Resolution, of the holders of two-thirds of the outstanding Special Warrants. (k) It will send a written notice to the Special Warrant Agent and to each holder of Special Warrants of the issuance of the receipts referred to in subsection 4.1(g), together with a commercial copy of the Final Prospectus qualifying the Subject Securities for distribution, as soon as practicable but, in any event, not later than three Business Days after the Qualification Date and, in the case of the Special Warrant Agent, copies of such receipts and written confirmation of any adjustment to subscription rights. (l) It will send a written notice to the Special Warrant Agent and to each Special Warrantholder of the record date for the determination of holders of Common Shares for the purposes of any dividend or other distribution or rights offering to holders of such securities not later than 10 Business Days prior to such record date. (m) It will send a written notice to the Special Warrant Agent and to Special Warrantholders of the occurrence of a Qualification Default and, as a result therefrom, each Special Warrantholder's increased entitlement as contemplated by section 2.2(c). (n) In the event that it offers any of its securities for sale in the United States or files a registration statement with the United States Securities Exchange Commission in respect of any of its securities, whether in connection with a public offering of such securities, an application for listing or quotation of its securities on any stock market or quotation system in the United States or otherwise, the Corporation shall ensure that the Subject Securities are also registered for resale in the United States or on such stock exchange and take all such other steps and actions as may be necessary to ensure that the Subject Securities are not subject to any statutory hold period. 4.2 SECURITIES QUALIFICATION REQUIREMENTS 21. (a) If, in the opinion of the Corporation's counsel, any instrument (other than the Final Prospectus) is required to be filed with, or any permission, order or ruling is required to be obtained from, any Securities Administrator or any other step is required under any federal or provincial law of Canada before any Subject Securities may be issued or delivered to a Special Warrantholder in any of the Qualifying Jurisdictions upon exercise of its Special Warrants, free of any restrictions or limitations on resale of such Subject Securities, the Corporation covenants that it will file such instrument, obtain such permission, order or ruling or take all such other actions, at its expense, as is required or appropriate in the circumstances. (b) The Corporation will give written notice of the issue of the Subject Securities pursuant to the exercise of Special Warrants in such detail as may be required to the Securities Administrator in each of the Qualifying Jurisdictions in which there is legislation requiring the giving of any such notice. 4.3 SPECIAL WARRANT AGENT'S REMUNERATION AND EXPENSES The Corporation covenants that it will pay to the Special Warrant Agent such fees as the parties agree upon from time to time for its services hereunder and will pay or reimburse the Special Warrant Agent upon its request for all reasonable expenses and disbursements of the Special Warrant Agent in the administration or execution of the trusts hereby created (including, pursuant to subsection 8.3(f), the reasonable compensation and the disbursements of its counsel and all other advisers, experts, accountants and assistants not regularly in its employ) both before any default hereunder and thereafter until all duties of the Special Warrant Agent hereunder shall be finally and fully performed, except any such expense or disbursement in connection with or related to or required to be made as a result of the negligence, wilful misconduct or bad faith of the Special Warrant Agent. 4.4 PERFORMANCE OF COVENANTS BY SPECIAL WARRANT AGENT Subject to subsection 8.2(g), if the Issuers shall fail to perform any of their covenants contained in this Indenture and the Issuers have not rectified such failure within ten Business Days after receiving written notice from the Special Warrant Agent of such failure, the Special Warrant Agent shall notify the Special Warrantholders of such failure on the part of the Issuers unless the Special Warrant Agent shall itself perform any of the said covenants capable of being performed by it, but shall be under no obligation to perform said covenants or to notify the Special Warrantholders. All reasonable sums expended or disbursed by the Special Warrant Agent in so doing shall be repayable as provided in Section 4.3. No such performance, expenditure or disbursement by the Special Warrant Agent shall be deemed to relieve the Issuers of any default herein or of their continuing obligations under the covenants herein contained. 22. ARTICLE 5-ENFORCEMENT 5.1 SUITS BY SPECIAL WARRANTHOLDERS All or any of the rights conferred upon a Special Warrantholder by the terms of the Special Warrants held by such Special Warrantholder and/or this Indenture may be enforced by such Special Warrantholder by appropriate legal proceedings, but subject to the rights which are hereby conferred upon the Special Warrant Agent and subject to the provisions of Section 6.10. 5.2 IMMUNITY OF SHAREHOLDERS, ETC. Subject to applicable laws, the Special Warrant Agent and, by the acceptance of the Special Warrant certificates and as part of the consideration for the issue of the Special Warrants, the Special Warrantholders hereby waive and release any right, cause of action or remedy now or hereafter existing in any jurisdiction against any person in his capacity as an incorporator or any past, present or future shareholder of the Issuers or other security holder, director, officer, employee or agent of the Issuers for the issue of the Common Shares pursuant to the exercise of any Special Warrant or on any covenant, agreement, representation or warranty by the Corporation herein or in the Special Warrant certificates contained. 5.3 LIMITATION OF LIABILITY The obligations hereunder are not personally binding upon, nor shall resort hereunder be had to, the shareholders or the directors of the Issuers or any of the past, present or future shareholders or directors of the Issuers or any of the past, present or future officers, employees or agents of the Issuers, but only the Issuers and their property shall be bound in respect hereof. ARTICLE 6 - MEETINGS OF SPECIAL WARRANTHOLDERS 6.1 RIGHT TO CONVENE MEETINGS The Special Warrant Agent may at any time and from time to time, and shall on receipt of a written request of the Issuers or of a Special Warrantholders' Request, convene a meeting of the Special Warrantholders provided that the Special Warrant Agent is indemnified and funded to its reasonable satisfaction by the Issuers or by the Special Warrantholders signing such Special Warrantholders' Request against the costs, charges, expenses and liabilities which may be incurred in connection with the calling and holding of such meeting. If within 15 Business Days after the receipt of a written request of the Issuers or a Special Warrantholders' Request and indemnity and funding given as aforesaid the Special Warrant Agent fails to give the requisite notice specified in Section 6.2 to convene a meeting, the Issuers or such Special Warrantholders, as the case may be, may convene such meeting. Every such meeting shall be held in the City of Toronto or at such other place as may be approved or determined by the Special Warrant Agent and the Issuers. 23. 6.2 NOTICE At least 15 days' prior notice of any meeting of Special Warrantholders shall be given to the registered Special Warrantholders, at the expense of the Issuers, in the manner provided for in Section 10.2 and a copy of such notice shall be delivered to the Special Warrant Agent unless the meeting has been called by the Special Warrant Agent, and also to the Issuers, unless the meeting has been called by the Issuers. Such notice shall state the time and place of the meeting and the general nature of the business to be transacted thereat, and shall contain such information as is reasonably necessary to enable the Special Warrantholders to make a reasoned decision on the matters for which such meeting has been called, but it shall not be necessary for any such notice to set out the terms of any resolution to be proposed or any of the provisions of this Article 6. The notice convening any such meeting may be signed by the Special Warrant Agent or of the Issuers or the person designated by such Special Warrantholders, as the case may be. 6.3 CHAIRMAN The Special Warrant Agent may nominate in writing an individual to be chairman of the meeting and if no individual is so nominated, or if the individual so nominated is not present within 15 minutes after the time fixed for the holding of the meeting, the Special Warrantholders present in person or by proxy shall appoint an individual present to be chairman of the meeting. The chairman of the meeting need not be a Special Warrantholder. 6.4 QUORUM Subject to the provisions of Section 6.11, at any meeting of the Special Warrantholders a quorum shall consist of one or more Special Warrantholders present in person or represented by proxy and holding at least 25% of the then issued and outstanding Special Warrants. If a quorum of the Special Warrantholders shall not be present within one half-hour from the time fixed for holding any meeting, the meeting, if summoned by the Special Warrantholders or on a Special Warrantholder's Request, shall be dissolved; but in any other case the meeting shall be adjourned to the same day in the next week (unless such day is not a Business Day in which case it shall be adjourned to the next following Business Day) at the same time and place to the extent possible and, subject to the provisions of Section 6.1, no notice of the adjournment need be given. Any business may be brought before or dealt with at an adjourned meeting which might have been dealt with at the original meeting in accordance with the notice calling the same. At the adjourned meeting the Special Warrantholders present in person or represented by proxy (regardless of number) shall form a quorum and may transact the business for which the meeting was originally convened, notwithstanding that they may hold less than 25% of the then issued and outstanding Special Warrants. No business shall be transacted at any meeting unless a quorum is present at the commencement of the meeting. 24. 6.5 POWER TO ADJOURN The chairman of any meeting at which a quorum of the Special Warrantholders is present may, with the consent of the meeting, adjourn any such meeting, and no notice of such adjournment need be given except such notice, if any, as the meeting may prescribe. 6.6 SHOW OF HANDS Every question submitted to a meeting shall be decided in the first place by a majority of the votes given on a show of hands except that votes on an extraordinary resolution shall be given in the manner hereinafter provided. At any such meeting, unless a poll is duly demanded as herein provided, a declaration by the chairman of the meeting that a resolution has been carried or carried unanimously or by a particular majority or lost or not carried by a particular majority shall be conclusive evidence of the fact. 6.7 POLL AND VOTING On every extraordinary resolution, and when demanded by the chairman of the meeting or by one or more of the Special Warrantholders acting in person or by proxy on any other question submitted to a meeting and after a vote by show of hands, a poll shall be taken in such manner as the chairman of the meeting shall direct. Questions other than those required to be determined by extraordinary resolution shall be decided by a majority of the votes cast on the poll. On a show of hands, every person who is present and entitled to vote, whether as a Special Warrantholder or as a proxy for one or more absent Special Warrantholders, or both, shall have one vote. On a poll, each Special Warrantholder present in person or represented by a proxy duly appointed by instrument in writing shall be entitled to one vote in respect of each Special Warrant which he (or the Special Warrantholder appointing him as proxy) then holds. A proxy need not be a Special Warrantholder. The chairman of any meeting shall be entitled, both on a show of hands and on a poll, to vote in respect of the Special Warrants, if any, held or represented by him. 6.8 REGULATIONS Subject to the provisions of this Indenture, the Special Warrant Agent or the Issuers with the approval of the Special Warrant Agent may from time to time make and from time to time vary such regulations as it shall reasonably consider necessary or appropriate: (a) for the deposit of instruments appointing proxies at such place and time as the Special Warrant Agent, the Issuers or the Special Warrantholders convening the meeting, as the case may be, may in the notice convening the meeting direct, and enabling particulars of such instruments appointing proxies to be mailed or transmitted by facsimile before the meeting to the Issuers or to the Special Warrant Agent and for the voting of proxies so deposited as though the instruments themselves were produced at the meeting; 25. (b) as to the form of the instrument of proxy; and (c) generally for the calling of meetings of Special Warrantholders and the conduct of business thereat, including setting a record date for Special Warrantholders entitled to receive notice of or to vote at such meeting; such regulations to be effectual only once notice thereof has been given to Special Warrantholders in accordance with the provisions of Section 10.2 hereof prior to or concurrently with notice of the first meeting at which such regulations are to apply. Any regulations so made shall be binding and effective and the votes given in accordance therewith shall be valid and shall be counted. Save as such regulations may provide, the only persons who shall be recognized at any meeting as a Special Warrantholder, or be entitled to vote or be present at the meeting in respect thereof (subject to Section 6.9), shall be Special Warrantholders or persons holding proxies of Special Warrantholders. 6.9 ISSUERS, SPECIAL WARRANT AGENT AND UNDERWRITER MAY BE REPRESENTED The Issuers, the Underwriter and the Special Warrant Agent, by their respective directors, officers and employees and the counsel for each of the Issuers, the Underwriter, the Special Warrantholders and the Special Warrant Agent may attend any meeting of the Special Warrantholders and speak thereat but shall have no vote as such. 6.10 POWERS EXERCISABLE BY EXTRAORDINARY RESOLUTION In addition to all other powers conferred upon them by any other provisions of this Indenture or by law, the Special Warrantholders at a meeting of Special Warrantholders shall have the power, exercisable from time to time by extraordinary resolution: (a) to agree with the Issuers to any modification, alteration, compromise or arrangement of the rights of Special Warrantholders and/or the Special Warrant Agent in its capacity as special warrant agent hereunder subject to the Special Warrant Agent's prior written consent or on behalf of the Special Warrantholders against the Corporation whether such rights arise under this Indenture or the Special Warrants or otherwise; (b) to amend or repeal any extraordinary resolution previously passed or sanctioned by the Special Warrantholders; (c) to direct or authorize the Special Warrant Agent subject to receipt of funding and indemnity to enforce any of the covenants on the part of the Issuers contained in this Indenture or the Special Warrants or to enforce any of the rights of the Special Warrantholders in any manner specified in such extraordinary resolution or to refrain from enforcing any such covenant or right; 26. (d) to waive and/or direct the Special Warrant Agent to waive any default on the part of the Issuers in complying with any provisions of this Indenture or the Special Warrants either unconditionally or upon any conditions specified in such extraordinary resolution; (e) to restrain any Special Warrantholder from taking or instituting any suit, action or proceeding against the Issuers for the enforcement of any of the covenants on the part of the Issuers contained in this Indenture or the Special Warrants or to enforce any of the rights of the Special Warrantholders; (f) to direct any Special Warrantholder who, as such, has brought any suit, action or proceeding to stay or discontinue or otherwise deal with any such suit, action or proceeding, upon payment of the costs, charges and expenses reasonably and properly incurred by such Special Warrantholder in connection therewith; and (g) to remove the Special Warrant Agent and to appoint a successor special warrant agent. 6.11 MEANING OF EXTRAORDINARY RESOLUTION (a) The expression "EXTRAORDINARY RESOLUTION" when used in this Indenture means, subject as hereinafter in this Section 6.11 and in Section 6.14 provided, a resolution proposed at a meeting of Special Warrantholders duly convened for that purpose and held in accordance with the provisions of this Article 6 at which there are present in person or represented by proxy Special Warrantholders holding at least 25% of the then issued and outstanding Special Warrants and passed by the affirmative votes of Special Warrantholders holding not less than 66% of the then issued and outstanding Special Warrants represented at the meeting and voted on the poll upon such resolution. (b) If, at any meeting called for the purpose of passing an extraordinary resolution, Special Warrantholders holding at least 25% of the then issued and outstanding Special Warrants are not present in person or by proxy within one half-hour after the time appointed for the meeting, then the meeting, if convened by Special Warrantholders or on a Special Warrantholders' Request, shall be dissolved; but in any other case it shall stand adjourned to such day, being not less than four or more than ten Business Days later, and to such place and time as may be appointed by the chairman of the meeting. Not less than three Business Days' prior notice shall be given of the time and place of such adjourned meeting in the manner provided in Sections 10.1, 10.2 and 10.3. Such notice shall state that at the adjourned meeting the Special Warrantholders present in person or represented by proxy shall form a quorum but it shall not be necessary to set forth the purposes for which the meeting was originally called or any other particulars. At the adjourned meeting the Special Warrantholders present in person or represented by proxy shall form a quorum and may transact the business for which the meeting was originally convened and a resolution proposed at such adjourned meeting and passed by the requisite vote as provided in subsection (a) of this Section 6.11 shall be an extraordinary resolution within the meaning 27. of this Indenture notwithstanding that Special Warrantholders holding at least 25% of the then issued and outstanding Special Warrants are not present in person or represented by proxy at such adjourned meeting. (c) Votes on an extraordinary resolution shall always be given on a poll and no demand for a poll on an extraordinary resolution shall be necessary. 6.12 POWERS CUMULATIVE It is hereby declared and agreed that any one or more of the powers or any combination of the powers in this Indenture stated to be exercisable by the Special Warrantholders by extraordinary resolution or otherwise may be exercised from time to time and the exercise of any one or more of such powers or any combination of powers from time to time shall not be deemed to exhaust the right of the Special Warrantholders to exercise such powers or combination of powers then or thereafter from time to time. 6.13 MINUTES Minutes of all resolutions and proceedings at every meeting of Special Warrantholders shall be made and duly entered in books to be from time to time provided for that purpose by the Special Warrant Agent at the reasonable expense of the Issuers, and any such minutes as aforesaid, if signed by the chairman of the meeting at which such resolutions were passed or proceedings held, or by the chairman of the next succeeding meeting of the Special Warrantholders, shall be prima facie evidence of the matters therein stated and, until the contrary is proved, every such meeting in respect of the proceedings of which minutes shall have been made shall be deemed to have been duly convened and held, and all resolutions passed thereat or proceedings taken shall be deemed to have been duly passed and taken. 6.14 INSTRUMENTS IN WRITING All actions which may be taken and all powers that may be exercised by the Special Warrantholders at a meeting held as provided in this Article 6 may also be taken and exercised by Special Warrantholders holding at least 66% of the then issued and outstanding Special Warrants by an instrument in writing signed in one or more counterparts by such Special Warrantholders in person or by attorney duly appointed in writing, and the expression "extraordinary resolution" when used in this Indenture shall include an instrument so signed. 6.15 BINDING EFFECT OF RESOLUTIONS Every resolution and every extraordinary resolution passed in accordance with the provisions of this Article 6 at a meeting of Special Warrantholders shall be binding upon all the Special Warrantholders, whether present at or absent from such meeting, and every instrument in writing signed by Special Warrantholders in accordance with Section 6.14 shall be binding upon all the Special Warrantholders, whether signatories thereto or not, and each and every Special 28. Warrantholder and the Special Warrant Agent (subject to the provisions for indemnity herein contained) shall be bound to give effect accordingly to every such resolution and instrument in writing. In the case of an instrument in writing, the Special Warrant Agent shall give notice in the manner contemplated in Sections 10.1 and 10.2 of the effect of the instrument in writing to all Special Warrantholders and the Issuers as soon as is reasonably practicable. 6.16 HOLDINGS BY THE CORPORATION OR SUBSIDIARIES OF THE CORPORATION DISREGARDED In determining whether Special Warrantholders holding the required number of Special Warrants are present at a meeting of Special Warrantholders for the purpose of determining a quorum or have concurred in any consent, waiver, resolution, extraordinary resolution, Special Warrantholders' Request or other action under this Indenture, Special Warrants owned legally or beneficially by the Issuers or any associate or affiliate (as those terms are defined in the Securities Act (Ontario)) of the Issuers shall be disregarded. The Issuers shall provide to the Special Warrant Agent upon request a Certificate of the Issuers stating the exact number and registrations of Special Warrants held by the Corporation or any associate or affiliate. ARTICLE 7 - SUPPLEMENTAL INDENTURES 7.1 SUPPLEMENTAL INDENTURES From time to time the Issuers and the Special Warrant Agent may, subject to the provisions of this Indenture, and they shall, when so directed by this Indenture, execute and deliver by their proper officers, indentures or instruments supplemental hereto, which thereafter shall form part hereof, for any one or more or all of the following purposes: (a) adding to the provisions hereof such additional covenants and enforcement provisions as in the opinion of counsel are necessary or advisable, provided that the same are not, in the opinion of the Special Warrant Agent, based on the advice of its Counsel, prejudicial to the interests of the Special Warrantholders as a group; (b) giving effect to any extraordinary resolution passed as provided in Article 6; (c) making such provisions not inconsistent with this Indenture as may be necessary or desirable with respect to matters or questions arising hereunder, provided that such provisions are not, in the opinion of the Special Warrant Agent, based on the advice of its counsel, prejudicial to the interests of the Special Warrantholders as a group; (d) adding to or amending the provisions hereof in respect of the transfer of Special Warrants, providing for the exchange of Special Warrants, and making any modification in the form of the certificates for the Special Warrants provided that such additions, amendments or modifications are not, in the opinion of the Special Warrant Agent, based on the advice of its Counsel, prejudicial to the interests of the Special Warrantholders as a group; 29. (e) amending any of the provisions of this Indenture or relieving the Issuers from any of the obligations, conditions or restrictions herein contained, provided that no such amendment or relief shall be or become operative or effective if, in the opinion of the Special Warrant Agent, based on the advice of its Counsel, such amendment or relief impairs any of the rights of the Special Warrantholders as a group or of the Special Warrant Agent, and provided further that the Special Warrant Agent may in its sole discretion decline to enter into any such supplemental indenture which in its opinion, based on the advice of its counsel, may not afford adequate protection to the Special Warrant Agent when the same shall become operative; (f) for any other purpose not inconsistent with the terms of this Indenture, including the correction or rectification of any ambiguities, defective or inconsistent provisions, errors or omission herein, provided that, in the opinion of the Special Warrant Agent, based on the advice of its Counsel, the rights of the Special Warrant Agent and of the Special Warrantholders as a group are not prejudiced thereby; and (g) amending the type or number of Subject Securities or other securities of the Corporation issuable upon exercise of the Special Warrants as contemplated by Sections 2.14 and 2.15 hereof. 7.2 SUCCESSOR CORPORATIONS In the case of the consolidation, amalgamation, arrangement, merger or transfer of the undertaking or assets of the Issuers as an entirety or substantially as an entirety to another corporation (a "SUCCESSOR CORPORATION"), forthwith following the occurrence of such event the successor corporation resulting from such consolidation, amalgamation, arrangement, merger or transfer (if not the Corporation) shall expressly assume, by supplemental indenture satisfactory in form to Counsel to the Special Warrant Agent and executed and delivered to the Special Warrant Agent, the due and punctual performance and observance of each and every covenant and condition of this Indenture to be performed and observed by the Issuers. ARTICLE 8 - CONCERNING THE SPECIAL WARRANT AGENT 8.1 TRUST INDENTURE LEGISLATION (a) In this Article, the term "APPLICABLE LEGISLATION" means the provisions of any statute of Canada or a province thereof and of regulations under any such named or other statute relating to trust indentures and/or to the rights, duties and obligations of warrant agents and of corporations under trust indentures, to the extent that such provisions are at the time in force and applicable to this Indenture. (b) If and to the extent that any provision of this Indenture limits, qualifies or conflicts with a mandatory requirement of Applicable Legislation, such mandatory requirement shall prevail. 30. (c) The Issuers and the Special Warrant Agent agree that each will at all times in relation to this Indenture and any action to be taken hereunder observe and comply with and be entitled to the benefit of Applicable Legislation. 8.2 RIGHTS AND DUTIES OF SPECIAL WARRANT AGENT (a) In the exercise of the rights and duties prescribed or conferred by the terms of this Indenture, the Special Warrant Agent shall act honestly and in good faith with a view to the best interests of the Special Warrantholders as a group and shall exercise the degree of care, diligence and skill that a reasonably prudent warrant Agent would exercise in comparable circumstances. No provision of this Indenture shall be construed to relieve the Special Warrant Agent from or require any other person to indemnify the Special Warrant Agent against liability for its own negligence, wilful misconduct or bad faith. (b) Subject only to subsection (a) of this Section 8.2, the Special Warrant Agent shall not be bound to do or take any act, action or proceeding for the enforcement of any of the obligations of the Issuers under this Indenture unless and until it shall have received a Special Warrantholders' Request specifying the act, action or proceeding which the Special Warrant Agent is requested to take. The obligation of the Special Warrant Agent to commence or continue any act, action or proceeding for the purpose of enforcing any rights of the Special Warrant Agent or the Special Warrantholders hereunder shall be conditional upon the Special Warrantholders furnishing, when required by notice in writing by the Special Warrant Agent, sufficient funds to commence or continue such act, action or proceeding and an indemnity reasonably satisfactory to the Special Warrant Agent and its officers, directors, employees and agents to protect and hold harmless the Special Warrant Agent and its officers, directors, employees and agents against the costs, charges, expenses and liabilities to be incurred thereby and any loss and damage it may suffer by reason thereof. None of the provisions contained in this Indenture shall require the Special Warrant Agent to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties or in the exercise of any of its rights or powers unless indemnified and funded as aforesaid. (c) The Special Warrant Agent may, before commencing or at any time during the continuance of any such act, action or proceeding, require the Special Warrantholders at whose instance it is acting to deposit with the Special Warrant Agent the Special Warrants held by them, for which Special Warrants the Special Warrant Agent shall issue receipts. (d) Every provision of this Indenture that by its terms relieves the Special Warrant Agent of liability or entitles it to act and rely upon any evidence submitted to it is subject to the provisions of Applicable Legislation, and to the provisions of this Section 8.2 and of Section 8.3. (e) The Special Warrant Agent shall retain the right not to act and shall not be held liable for refusing to act unless it has received clear and reasonable documentation which complies 31. with the terms of this Indenture. Such documentation must not require the exercise of any discretion or independent judgment. In the event that the Special Warrant Agent refuses to act because any documentation received by it is not clear and reasonable, the Special Warrant Agent shall immediately provide notice to the party who provided such documentation advising such party of the Special Warrant Agent's refusal to act together with a brief explanation of the reason for its refusal. (f) In the event of any disagreement arising regarding the terms of this Indenture, the Special Warrant Agent shall be entitled, at its option, to refuse to comply with any or all demands whatsoever until the dispute is settled either by agreement amongst the various parties or by a court of competent jurisdiction. (g) The Special Warrant Agent shall not be bound to give any notice or do or take any act, action or proceeding by virtue of the powers conferred on it hereby unless and until it shall have been required so to do under the terms hereof; nor shall the Special Warrant Agent be required to take notice of any default hereunder, unless and until notified in writing of such default, which notice shall distinctly specify such default and in the absence of any such notice the Special Warrant Agent may for all purposes of this Indenture conclusively assume that no default has been made in the observance or performance of any of the representations, warranties, covenants, agreements or conditions contained herein. Any such notice shall in no way limit any discretion herein given to the Special Warrant Agent to determine whether or not the Special Warrant Agent shall take action with respect to any default. 8.3 EVIDENCE, EXPERTS AND ADVISERS (a) In addition to the reports, certificates, opinions and other evidence required by this Indenture, the Issuers shall furnish to the Special Warrant Agent such additional evidence of compliance with any provision hereof in such form as may be prescribed by Applicable Legislation, or as the Special Warrant Agent may reasonably require by written notice to the Issuers. (b) In the exercise of its rights and duties hereunder, the Special Warrant Agent may, if it is acting in good faith, rely as to the truth of the statements and the accuracy of the opinions expressed therein, upon statutory declarations, opinions, reports, written requests, consents, orders of the Issuers, certificates of the Issuers or other evidence furnished to the Special Warrant Agent, provided that such evidence complies with Applicable Legislation. (c) Whenever Applicable Legislation requires that evidence referred to in subsection (a) of this Section 8.3 be in the form of a statutory declaration, the Special Warrant Agent may accept such statutory declaration in lieu of a certificate of the Corporation required by any provision 32. hereof. Any such statutory declaration may be made by one or more of the chairman, president, vice-president, secretary or treasurer of the Issuers. (d) The Special Warrant Agent may act and rely and shall be protected in acting and relying upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, letter, telegram, cablegram or other paper or document believed by it to be genuine and to have been signed, sent, or presented by or on behalf of the proper party or parties. (e) Proof of the execution of an instrument in writing, including a Special Warrantholders' Request, by any Special Warrantholder may be made by the certificate of a notary public, or other officer with similar powers, that the person signing such instrument acknowledged to him the execution thereof, or by an affidavit of a witness to such execution or in any other manner which the Special Warrant Agent may consider adequate and in respect of a corporate Special Warrantholder shall include a certificate of incumbency of such Special Warrantholder together with a certified copy of a resolution authorizing the person who signed such instrument to sign such instrument. (f) The Special Warrant Agent may employ or retain such counsel, accountants or other experts or advisers as it may reasonably require for the purpose of discharging its duties hereunder, may act on and rely upon the advice or opinion so obtained and may pay reasonable remuneration for all services so performed by any of them, without taxation of costs of any counsel, and shall not be responsible for any misconduct on the part of any of them. The cost of such services shall be added to and be part of the Special Warrant Agent's fees hereunder. 8.4 DOCUMENTS, MONIES, ETC. HELD BY SPECIAL WARRANT AGENT Any securities, documents of title or other instruments that may at any time be held by the Special Warrant Agent subject to the trusts hereof may be placed in the deposit vaults of the Special Warrant Agent or of any Canadian chartered bank or trust company or deposited for safekeeping with any such bank or trust company. 8.5 ACTION BY SPECIAL WARRANT AGENT TO PROTECT INTERESTS Subject to the provisions of this Indenture and Applicable Legislation, the Special Warrant Agent shall have the power to institute and to maintain such action and proceedings as it may consider necessary or expedient to preserve, protect or enforce its interests and the interests of the Special Warrantholders. 8.6 SPECIAL WARRANT AGENT NOT REQUIRED TO GIVE SECURITY 33. The Special Warrant Agent shall not be required to give any bond or security in respect of the execution of the trusts and powers of this Indenture or otherwise. 8.7 PROTECTION OF SPECIAL WARRANT AGENT By way of supplement to the provisions of any law for the time being relating to warrant agents, it is expressly declared and agreed as follows: (a) The Special Warrant Agent shall not be liable for or by reason of any statements of fact or recitals in this Indenture or in the Special Warrants (except the representation contained in Sections 8.9 and 8.12 or in the certificate of the Special Warrant Agent on the Special Warrants) or be required to verify the same. (b) Nothing herein contained shall impose any obligation on the Special Warrant Agent to see to or to require evidence of the registration or filing (or renewal thereof) of this Indenture or any instrument ancillary or supplemental hereto. (c) The Special Warrant Agent shall not be bound to give notice to any person of the execution hereof. (d) The Special Warrant Agent shall not incur any liability or responsibility whatsoever or be in any way responsible for the consequence of any breach on the part of the Corporation of any of the covenants herein contained or of any acts of any directors, officers, employees, agents or servants of the Corporation. (e) The Issuers hereby jointly and severally indemnify and saves harmless the Special Warrant Agent and its officers, directors, employees and agents from and against any and all liabilities, losses, costs, claims, action or demands whatsoever which may be brought against the Special Warrant Agent or which it may suffer or incur as a result or arising out of the performance of its duties and obligations under this Indenture, save only in the event of negligence or wilful misconduct of the Special Warrant Agent or any of its officers, directors and employees. It is understood and agreed that this indemnification shall survive the termination of this Indenture or the resignation or removal of the Special Warrant Agent. 8.8 REPLACEMENT OF SPECIAL WARRANT AGENT (a) The Special Warrant Agent may resign its trust and be discharged from all further duties and liabilities hereunder by giving to the Issuers not less than 45 days' prior notice in writing or such shorter prior notice as the Issuers may accept as sufficient. The Special Warrantholders by extraordinary resolution shall have the power at any time to remove the existing Special Warrant Agent and to appoint a new warrant agent. In the event of the Special Warrant Agent resigning or being removed as aforesaid or being dissolved, becoming bankrupt, going into liquidation or otherwise becoming incapable of acting hereunder, the Issuers shall forthwith appoint a new warrant agent unless a new warrant agent has already been appointed by the 34. Special Warrantholders; failing such appointment by the Issuers, the retiring Special Warrant Agent or any Special Warrantholder may apply to a justice of the Ontario Court of Justice (General Division) at the Issuers' expense, on such notice as such justice may direct, for the appointment of a new warrant agent; but any new warrant Agent so appointed by the Issuers or by the Court shall be subject to removal as aforesaid by the Special Warrantholders. Any new warrant agent appointed under any provision of this Section 8.8 shall be a corporation authorized to carry on the business of a trust company in the Province of Ontario and, if required by Applicable Legislation of any other province, in such other province. On any such appointment the new warrant agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as Special Warrant Agent without any further assurance, conveyance, act or deed; but there shall be immediately executed, at the expense of the Issuers, all such conveyances or other instruments as may, in the opinion of counsel, be necessary or advisable for the purpose of assuring the same to the new warrant agent, provided that any resignation or removal of the Special Warrant Agent and appointment of a successor warrant Agent shall not become effective until the successor warrant agent shall have executed an appropriate instrument accepting such appointment and, at the request of the Issuers, the predecessor Special Warrant Agent, upon payment of its outstanding remuneration and expenses, shall execute and deliver to the successor warrant agent an appropriate instrument transferring to such successor warrant agent all rights and powers of the Special Warrant Agent hereunder and all securities, documents of title and other instruments, and all monies and properties, held by the Special Warrant Agent hereunder. (b) Upon the appointment of a successor warrant agent, the Issuers shall promptly notify the Special Warrantholders thereof in the manner provided for in Section 10.2. (c) Any corporation into or with which the Special Warrant Agent may be merged or consolidated or amalgamated, or any corporation succeeding to the trust business of the Special Warrant Agent, shall be the successor to the Special Warrant Agent hereunder without any further act on its part or of any of the parties hereto, provided that such corporation would be eligible for appointment as a new warrant agent under subsection (a) of this Section 8.8. (d) Any Special Warrants certified but not delivered by a predecessor warrant agent may be certified by the successor warrant agent in the name of the predecessor or successor warrant agent. 8.9 CONFLICT OF INTEREST (a) The Special Warrant Agent represents to the Issuers that at the time of execution and delivery hereof no material conflict of interest exists in the Special Warrant Agent's role as a fiduciary hereunder and agrees that in the event of a material conflict of interest arising hereafter it will, within 90 days after ascertaining that it has such a material conflict of interest, either eliminate the same or resign its trust hereunder to a successor warrant agent approved by the 35. Issuers. If any such material conflict of interest exists or hereafter shall exist, the validity and enforceability of this Indenture and the Special Warrants shall not be affected in any manner whatsoever by reason thereof. (b) Subject to subsection (a) of this Section 8.9, the Special Warrant Agent, in its personal or any other capacity, may buy, lend upon and deal in securities of the Corporation and generally may contract and enter into financial transactions with the Corporation or any subsidiary of the Corporation without being liable to account for any profit made thereby. 8.10 ACCEPTANCE OF TRUSTS The Special Warrant Agent hereby accepts the trusts in this Indenture declared and provided for and agrees to perform the same upon the terms and conditions herein set forth. 8.11 SPECIAL WARRANT AGENT NOT TO BE APPOINTED RECEIVER The Special Warrant Agent and any person related to the Special Warrant Agent shall not be appointed a receiver or receiver and manager or liquidator of all or any part of the assets or undertaking of the Issuers. 8.12 AUTHORIZATION TO CARRY ON BUSINESS The Special Warrant Agent represents to the Issuers that it is duly authorized and qualified to carry on the business of a trust company in each of the provinces of Canada. 8.13 LIABILITY OF SPECIAL WARRANT AGENT The Special Warrant Agent shall not be liable or accountable for any loss or damage whatsoever to any person caused by the performance or failure to perform by it of its responsibilities under this agreement save only to the extent that such loss or damage is attributable to the negligence, fraud or wilful misconduct of the Special Warrant Agent. ARTICLE 9 - FORM OF SPECIAL WARRANT 9.1 FORM OF SPECIAL WARRANT CERTIFICATE PSW - 0 or SSW - 0 SPECIAL WARRANT CERTIFICATE BID.COM INTERNATIONAL INC. (the "Corporation") (Constituted pursuant to the laws of the Province of Ontario, Canada) 36. NO. ____________ __________________ SPECIAL WARRANTS (each entitling the holder to subscribe for one Common Share and one-half a Share Purchase Warrant for no additional consideration) THIS IS TO CERTIFY that, for value received, ___________________ (the "holder") is entitled to acquire, in the manner herein provided, subject to the restrictions contained in the Indenture hereinafter referred to, at any time and from time to time on or prior to 5:00 p.m. Toronto time (the "Expiry Time"), on the date (the "Expiry Date") that is the earlier of: 1. the date which is five (5) Business Days following the date of the issuance of a receipt by the last of the securities regulatory authorities in the Qualifying Jurisdictions for a Prospectus; and 2. August 4, 1999; one unit ("Unit") comprised of one common share of the Corporation ("Common Share") (or, in the circumstances described below, acquire one and one seven- hundredth (1.07) Common Shares and one-half a warrant ("Share Purchase Warrant") (or in the circumstances described below, acquire 0.535 Share Purchase Warrants) for each Special Warrant represented by this certificate without payment of any consideration in addition to the subscription price for such Special Warrant. The Special Warrants represented by this certificate are issued under and pursuant to a Special Warrant Indenture (the "Indenture") dated as of August 4, 1998 between the Issuers and CIBC Mellon Trust Company (the "Special Warrant Agent") (which expression shall include any successor warrant agent appointed under the Indenture), to which Indenture (and any amendments thereto and instruments supplemental thereto) reference is hereby made for a full description of the rights of the holders of the Special Warrants and the terms and conditions upon which such Special Warrants are or are to be, issued and held, all to the same effect as if the provisions of the Indenture and all amendments thereto and instruments supplemental thereto were herein set forth and to all of which provisions the holder of these Special Warrants by acceptance hereof assents. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture. In the event of any conflict or inconsistency between the provisions of the Indenture (and any amendments thereto and instruments supplemental thereto) and the provisions of this Special Warrant Certificate, except those that are necessary by context, the provisions of the Indenture (and any amendments thereto and instruments supplemental thereto) shall prevail. The terms and provisions of the Indenture (and any amendments thereto and instruments supplemental thereto) are incorporated herein by reference. 37. Such right to exercise Special Warrants for the Common Shares and Share Purchase Warrants may be effected by the holder hereof by: (a) duly completing in the manner indicated and executing the Exercise Form attached hereto; and (b) surrendering this Special Warrant Certificate to the Special Warrant Agent as hereinafter set forth, provided that any Special Warrant not so exercised on or before the Expiry Time shall be deemed to have been exercised by the holder immediately prior thereto. This Special Warrant Certificate shall be validly surrendered only upon delivery thereof or by mailing the same to the Special Warrant Agent at its principal office in the City of Toronto, Ontario. The Exercise Form attached hereto shall not be deemed to be duly completed if the name and mailing address of the holder do not appear legibly on such Exercise Form or such Exercise Form is not signed by the holder. In the case of a Special Warrant which is exercised by a holder in accordance with the provisions of Subsection 3.1(c) of the Indenture, within five (5) Business Days after the Exercise Date of such Special Warrant, the Special Warrant Agent shall: (a) cause to be mailed to the person in whose name the Common Shares and Share Purchase Warrants issuable upon the exercise of the exercise rights of the Special Warrants are to be issued, as specified in the Special Warrant, at the address specified therein; (b) if so specified therein, cause to be delivered to such person at the office of the Special Warrant Agent where such Special Warrant was surrendered; or (c) if no specification as contemplated by (a) or (b) is provided, cause to be mailed to the person in whose name the Common Shares and Share Purchase Warrants are to be issued at the address of such person last appearing on the register maintained by the Special Warrant Agent pursuant to the Indenture or as such person may otherwise notify the Special Warrant Agent in writing on or prior to the Exercise Date, a certificate or certificates for the Common Shares and Share Purchase Warrants to which the holder is entitled. In the case of a Special Warrant which is deemed exercised in accordance with the provisions of Subsection 3.1(b) of the Indenture, within five (5) Business Days after the Exercise Date of such Special Warrants, the Issuers shall without any further act on the part of the Special Warrantholder, cause to be mailed to the Special Warrantholder at the address of such person last appearing on the register of Special Warrants maintained by the Special Warrant Agent pursuant to the Indenture or as such person may otherwise instruct the Special Warrant Agent in writing on or prior to the 38. mailing a certificate or certificates for the Common Shares and Share Purchase Warrants to which the Special Warrantholder is entitled. Upon due exercise or deemed exercise of the Special Warrants as provided herein, the person or persons in whose name or names the Common Shares and Share Purchase Warrants are issuable, shall be deemed for all purposes (except as provided in the Indenture hereinafter referred to) to be the holder or holders of record of such Common Shares and Share Purchase Warrants and the Issuers covenant that they will (subject to and in accordance with the provisions of the aforesaid Indenture) cause a certificate or certificates representing such Common Shares and Share Purchase Warrants to be delivered or mailed to such person or persons at the address or addresses specified in such Exercise Form or on the register of Special Warrants maintained by the Special Warrant Agent (if deemed to have been exercised). No fractional Common Shares or Share Purchase Warrants will be issued. To the extent that the holder of a Special Warrant is entitled to receive on the exercise or partial exercise thereof a fraction of a Common Share or Share Purchase Warrants, the Issuers shall make a cash payment equal to the fair value of the fraction not so issued as determined by the directors of the Corporation in their sole discretion. No cheque shall be issued or cash payment made to any Special Warrantholder for an amount less than $5.00. The Indenture provides for adjustments to the subscription rights attaching to these Special Warrants in certain events and also provides for the giving of notice by the Issuers prior to taking certain actions specified therein. The holding of the Special Warrants evidenced by this Special Warrant Certificate shall not constitute the holder hereof a shareholder of the Corporation or entitle such holder to any right or interest in respect thereof except as herein and in the Indenture expressly provided. The Special Warrants evidenced by this Special Warrant Certificate are not transferable except as set forth in Subsection 2.9(b) of the Indenture which makes reference to the fact that no transfer of a Special Warrant shall be valid unless made by the holder or his executors, administrators or other legal representatives, or his or her attorney duly appointed by an instrument in writing in form and manner satisfactory to the Agent, acting reasonably, with signatures guaranteed by a Canadian chartered bank, a Canadian trust company, a member of any Canadian stock exchange or such other guarantor as the Special Warrant Agent determines to be acceptable and upon compliance with such other reasonable requirements as the Special Warrant Agent may prescribe. Upon compliance with these transfer requirements, and with applicable securities legislation and requirements of regulatory authorities, the transferee shall become noted upon the register of holders. If any of the Common Shares and Share Purchase Warrants in respect of which the Special Warrants are exercised are to be issued to a person or persons other than the holder (as aforesaid), the holder shall pay to the Special Warrant Agent all requisite stamp transfer taxes or other governmental charges exigible in connection with the issue of such Common Shares and Share 39. Purchase Warrants to such other person or persons or shall establish to the satisfaction of the Special Warrant Agent that such taxes and charges have been paid. This Special Warrant Certificate shall not be valid for any purpose whatever unless and until it has been countersigned by or on behalf of the Special Warrant Agent. Time shall be of the essence hereof. The Special Warrants and the Indenture (and any amendments thereto and instruments supplemental thereto) shall be governed by, performed, construed and enforced in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein and shall be treated in all respects as Ontario contracts. The Corporation has covenanted and agreed to use its reasonable commercial efforts to promptly finalize and obtain a receipt for a preliminary prospectus and a final Prospectus in the Qualifying Jurisdictions qualifying the issuance of the Common Shares and Share Purchase Warrants issuable upon the due exercise or deemed exercise of the Special Warrants. IN THE EVENT THE CORPORATION FAILS TO OBTAIN A RECEIPT FOR THE FINAL PROSPECTUS FROM THE SECURITIES ADMINISTRATORS IN EACH OF THE QUALIFYING JURISDICTIONS ON OR PRIOR TO 5:00 P.M. (TORONTO TIME) ON NOVEMBER 2, 1998, (A "QUALIFICATION DEFAULT") THEN EACH SPECIAL WARRANT SHALL ENTITLE THE HOLDER TO ACQUIRE ONE AND ONE SEVEN-HUNDREDTH (1.07) UNITS (IN LIEU OF ONE (1) UNIT), WITHOUT PAYMENT OF FURTHER CONSIDERATION, ON EXERCISE OR DEEMED EXERCISE OF SUCH SPECIAL WARRANT. IN THE EVENT OF A QUALIFICATION DEFAULT, THE HOLDER IS ENTITLED TO RETRACT UP TO 75% OF THE SPECIAL WARRANTS REPRESENTED BY THIS CERTIFICATE BY COMPLETING AND FORWARDING A NOTICE OF RETRACTION IN THE FORM ATTACHED AS SCHEDULE "C" HERETO AND SUBMITTING THE SAME TOGETHER WITH THIS CERTIFICATE TO THE SPECIAL WARRANT AGENT AT ITS PRINCIPAL OFFICE IN TORONTO, ONTARIO AS SOON AS PRACTICABLE AFTER RECEIPT FROM THE SPECIAL WARRANT AGENT OF NOTIFICATION OF SUCH QUALIFICATION DEFAULT BUT IN ANY EVENT NOT LATER THAN 5:00 P.M. (TORONTO TIME) ON THE FIFTH BUSINESS DAY FOLLOWING THE DATE OF THE QUALIFICATION DEFAULT (THE "RETRACTION DEADLINE"). UPON RECEIPT BY THE SPECIAL WARRANT AGENT OF THE ESCROW AGENT'S CHEQUE PAYABLE TO THE HOLDER, THE SPECIAL WARRANT AGENT SHALL REMIT TO THE HOLDER WITHIN 3 BUSINESS DAYS OF RECEIPT OF THIS CERTIFICATE AND THE HOLDER'S NOTICE OF RETRACTION, A CHEQUE IN THE AMOUNT OF THE PURCHASE PRICE OF THE SPECIAL WARRANTS BEING RETRACTED PLUS ANY ACCRUED INTEREST TOGETHER WITH A NEW CERTIFICATE REPRESENTING THOSE OF THE HOLDER'S SPECIAL WARRANTS WHICH HAVE NOT BEEN RETRACTED. FURTHERMORE, IN THE EVENT THAT A RECEIPT FOR A FINAL PROSPECTUS RELATING TO THE DISTRIBUTION OF THE COMMON SHARES AND SHARE PURCHASE WARRANTS IS NOT OBTAINED FROM THE SECURITIES ADMINISTRATORS IN ANY OF THE QUALIFYING JURISDICTIONS, THE COMMON SHARES AND SHARE PURCHASE WARRANTS MAY BE SUBJECT TO STATUTORY HOLD PERIODS DURING WHICH TIME THESE SECURITIES MAY NOT BE RESOLD IN SUCH PROVINCES EXCEPT PURSUANT TO APPLICABLE PROSPECTUS AND REGISTRATION EXEMPTIONS. IN ADDITION, ANY SPECIAL WARRANTS THAT ARE EXERCISED OR COMMON SHARES AND SHARE PURCHASE WARRANTS RECEIVED ON SUCH EXERCISE PRIOR TO THE ISSUANCE OF A RECEIPT FOR THE FINAL PROSPECTUS BY THE SECURITIES ADMINISTRATORS IN THE QUALIFYING 40. JURISDICTIONS MAY BE SUBJECT TO STATUTORY RESTRICTIONS. HOLDERS ARE ADVISED TO CONSULT THEIR LEGAL ADVISORS IN THIS REGARD. IN WITNESS WHEREOF the Issuers have caused this Special Warrant Certificate to be signed by its duly authorized officer as of August 4, 1998. BID.COM INTERNATIONAL INC. Per:_______________________________c/s Authorized Signing Officer 1184041 ONTARIO INC. Per:_______________________________c/s Authorized Signing Officer SMYTHE GROUP COMPANY Per:_______________________________c/s Authorized Signing Officer Countersigned by: CIBC MELLON TRUST COMPANY Per: ____________________________ Authorized Signing Officer 41. TRANSFER FORM FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto (Please print or typewrite name and address of assignee) ______________________________ Special Warrant(s) represented by the within certificate, and do(es) hereby irrevocably constitute and appoint ______________________________ the attorney of the undersigned to transfer the said Special Warrant(s) on the register of Special Warrants maintained by the Special Warrant Agent with full power of substitution hereunder. DATED this ________ day of _______________ , 199_________. ______________________________ Signature of Special Warrantholder ___________________ _______________________________________ Signature Guarantee Name of Special Warrantholder (please print) The signature of the Special Warrantholder to this assignment must correspond exactly with the name of the Special Warrantholder as set forth on the face of this Special Warrant certificate in every particular, without alteration or enlargement or any change whatsoever and the signature must be guaranteed by a Canadian chartered bank or by a trust company or by a member firm of any Canadian stock exchange, any of whose signature must be on file with the Special Warrant Agent. 42. EXERCISE OF EXCHANGE RIGHTS INSTRUCTIONS TO SPECIAL WARRANTHOLDER The registered holder hereof may exercise his right to exercise Special Warrants for Common Shares and Share Purchase Warrants of BID.COM INTERNATIONAL INC. (the "Corporation"), subject to the adjustments described in the Special Warrant Indenture by completing the Exercise Form and surrendering this Special Warrant certificate and the duly completed Exercise Form to CIBC Mellon Trust Company by delivering or mailing it to CIBC Mellon Trust Company at the following office: By courier or by hand: Special projects 199 Bay Street Commerce Court West Securities Level Toronto, Ontario M5L 1B9 Attention: Courier Window By mail: P.O. Box 1036 Adelaide Street Postal Station Toronto, Ontario M5C 2K4 UPON EXERCISE, THE SPECIAL WARRANTS WILL BE CANCELLED AND BECOME ABSOLUTELY VOID AND ALTERNATIVELY, IF NOT EXERCISED ON OR PRIOR TO 5:00 P.M., TORONTO TIME, ON THE EXPIRY DATE WILL BE DEEMED TO HAVE BEEN EXERCISED IN FULL BY SUCH HOLDER IMMEDIATELY PRIOR TO THAT TIME. For your own protection, it is suggested that all documentation be forwarded to the Special Warrant Agent by registered mail. 43. EXERCISE FORM TO: BID.COM INTERNATIONAL INC. The undersigned hereby exercises the right to exercise _________ Special Warrants for ________ Common Shares and __________ Share Purchase Warrants of BID.COM INTERNATIONAL INC. (or such number of other securities or property to which such Special Warrants entitle the undersigned in lieu thereof or in addition thereto under the provisions of the Indenture mentioned in the within Special Warrant Certificate) according to the terms of the Indenture mentioned in the within Special Warrant Certificate. If any of the Common Shares and Share Purchase Warrants are to be issued to a person or persons other than the holder in those circumstances as set forth in the within Special Warrant Certificate, the holder must pay to CIBC Mellon Trust Company all requisite stamp or security transfer taxes or other governmental charges related thereto. (Print clearly) Name: Address in Full: Number of Special Warrants being Exercised: DATED this day of , 199_____. __________________________________ Signature of Special Warrantholder ________________________________ Name of Special Warrantholder (As registered on Special Warrant Certificate) ________________________________ ________________________________ ________________________________ Print Full Address 44. SCHEDULE "B" NOTICE TO SPECIAL WARRANTHOLDERS Reference is made to the Special Warrant Indenture made as of August 4, 1998 (the "Special Warrant Indenture") between the Issuers and CIBC Mellon Trust Company. Unless defined herein, capitalized terms used herein have the respective meanings ascribed to them in the Special Warrant Indenture. We hereby confirm that receipts have been issued by the securities commissions in each of the Qualifying Jurisdictions in respect of the prospectus qualifying the distribution of the Common Shares and Share Purchase Warrants issuable upon exercise of the Special Warrants. The last receipt was issued on __________________________ by the ______________________ Securities Commission. The Expiry Time is therefore 5:00 p.m. (Toronto Time) on ______________. A copy of the prospectus is enclosed herewith. 45. SCHEDULE "C" NOTICE OF RETRACTION OF SPECIAL WARRANTS TO: BID.COM INTERNATIONAL INC. The undersigned hereby exercises the right to retract _________________ Special Warrants (not to exceed 75% of the Special Warrants represented by the within certificate) of BID.COM INTERNATIONAL INC. according to the terms of the Indenture mentioned in the within Special Warrant Certificate. The undersigned hereby requests payment of the sum of $1.40 for each Special Warrant being retracted plus any accrued interest thereon. The undersigned further surrenders herewith the written Special Warrant Certificate and requests the issue and delivery of a new certificate representing those of the holder's Special Warrants which have not been retracted. Number of Special Warrants being retracted: __________________________________ DATED this day of 1998. ____________________________________ Signature of Special Warrantholder ____________________________________ Name of Special Warrantholder (As registered on Special Warrant Certificate) ____________________________________ ____________________________________ ____________________________________ Print Full Address ____________________________________ Telephone No. (day time) 46. ARTICLE 10 - GENERAL 10.1 NOTICE TO THE ISSUERS AND THE SPECIAL WARRANT AGENT (i) Unless herein otherwise expressly provided, any notice to be given hereunder to the Issuers or the Special Warrant Agent shall be deemed to be validly given if delivered or if sent by registered letter, postage prepaid, or if sent by facsimile transmission, telex or other means of prepaid transmission or recorded communication: (A) if to the Corporation BID.COM INTERNATIONAL INC. 5915 Airport Road Suite 330 Mississauga, Ontario L4V 1T1 Facsimile: (905) 672-5705 if to the Special Warrant Agent: (B) CIBC MELLON TRUST COMPANY 320 Bay Street, Ground Floor Toronto, Ontario M5H 4A6 Facsimile: 416-643-5570 Attention: Assistant Vice-President, Client Services (C) if to the Sellers: 1184041 ONTARIO INC. c/o 5915 Airport Road Suite 330 Mississauga, Ontario L4V 1T1 Facsimile: (905) 672-5705 SMYTHE GROUP COMPANY c/o 5915 Airport Road Suite 330 Mississauga, Ontario L4V 1T1 Facsimile: (905) 672-5705 47. BID.COM INTERNATIONAL INC. 5915 Airport Road Suite 330 Mississauga, Ontario L4V 1T1 Facsimile: (905) 672-5705 (D) if to the Escrow Agent: WILDEBOER RAND THOMSON APPS & DELLELCE Barristers and Solicitors Suite 810 P.O. Box 4 First Canadian Place Toronto, Ontario M5X 1A9 Facsimile: 416-361-1790 Attention: Troy Pocaluyko and any such notice if delivered in accordance with the foregoing shall be deemed to have been received on the of delivery if that date is a Business Day or the Business Day following the date of delivery if such date is not a Business Day or, if mailed, on the fifth Business Day following the date of deposit in the mail, or if sent by facsimile transmission, on the date of such facsimile transmission if that date is a Business Day or the Business Day following the date of sending if such date is not a Business Day or if sent after normal business hours. (ii) The Issuers or the Special Warrant Agent, as the case may be, may from time to time notify the other in the manner provided in subsection 10.1(i) of a change of address which, from the effective date of such notice and until changed by like notice, shall be the address of the Issuers or the Special Warrant Agent, as the case may be, for all purposes of this Indenture. A copy of any notice of change of address given pursuant to this subsection 10.1(ii) shall be available for inspection at the Corporation's office by Special Warrantholders during normal business hours. 10.2 NOTICE TO THE SPECIAL WARRANTHOLDERS Any notice to the Special Warrantholders under the provisions of this Indenture shall be deemed to be validly given if delivered, or if sent by prepaid first class mail posted from within Canada in envelopes addressed to the Special Warrantholders at their respective addresses appearing in the register of holders maintained by the Special Warrant Agent. Any notice so delivered shall be deemed to have been received on the date of delivery if that date is a Business Day, or the Business Day following the date of delivery if such date is not a Business Day, and if mailed shall be deemed to have been received on the fifth Business Day following the date of deposit in the mail. Accidental error or omission in giving notice or accidental failure to give notice to any Special Warrantholder shall not invalidate any action or proceeding founded thereon. 48. 10.3 MAIL SERVICE INTERRUPTION If by reason of any interruption of mail service, actual or threatened, any notice to be given to the Special Warrant Agent, the Corporation or the Special Warrantholders would reasonably be unlikely to reach its destination in the ordinary course of mail, such notice shall be valid and effective only if delivered to the party to which it is addressed or, in the case of a notice to either the Corporation or the Special Warrant Agent, if sent to such party, at the appropriate address in accordance with Section 10.1, by facsimile transmission. 10.4 COUNTERPARTS AND FORMAL DATE This Indenture may be executed in several counterparts, each of which when so executed shall be deemed to be an original and such counterparts together shall constitute one and the same instrument and notwithstanding their date of execution shall be deemed to be dated as of the date appearing at the top of this Indenture. 10.5 SATISFACTION AND DISCHARGE OF INDENTURE Upon the date upon which all obligations of the Issuers under this Special Warrant Indenture have been performed in full (including the obligation to deliver Common Shares and certificates therefor), this Special Warrant Indenture shall cease to be of further effect in respect of the Issuers. The Special Warrant Agent, on written demand of and at the cost and expense of the Issuers, and upon delivery to the Special Warrant Agent of a certificate of the Corporation stating that all conditions precedent to the satisfaction and discharge of this Special Warrant Indenture have been complied with and upon payment by the Issuers to the Special Warrant Agent of the expenses, fees and other remuneration payable to the Special Warrant Agent, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture; provided that if the Special Warrant Agent has not then performed any of its obligations hereunder any such satisfaction and discharge of the Issuers' obligations hereunder shall not affect or diminish the rights of any Special Warrantholder or the Corporation against the Special Warrant Agent.-- 10.6 PROVISIONS OF INDENTURE AND SPECIAL WARRANTS FOR THE SOLE BENEFIT OF PARTIES AND SPECIAL WARRANTHOLDERS Except as provided in Sections 5.2 and 5.3, nothing in this Indenture or the Special Warrants, express or implied, shall give or be construed to give to any person other than the parties hereto, the Underwriter (in the case of Sections 2.11 and 6.9) and the holders from time to time of the Special Warrants any legal or equitable right, remedy or claim under this Indenture, or under any covenant or provision herein contained, all such covenants and provisions being for the sole benefit of the parties hereto and the Special Warrantholders. 49. IN WITNESS WHEREOF the parties hereto have executed this Indenture under the hands of their proper officers duly authorized in that behalf. BID.COM INTERNATIONAL INC. By: CIBC MELLON TRUST COMPANY By: By: 1184041 ONTARIO INC. By: SMYTHE GROUP COMPANY By: EX-3.13 7 SHARE PURCHASE WARRANT INDENTURE DATED AUGUST 4, 1998 EXHIBIT 3.13 BID.COM INTERNATIONAL INC. - AND - 1184041 ONTARIO INC. - AND - SMYTHE GROUP COMPANY - AND - CIBC MELLON TRUST COMPANY WARRANT INDENTURE PROVIDING FOR THE ISSUE OF COMMON SHARE PURCHASE WARRANTS DATED AS OF AUGUST 4,1998 -2- THIS WARRANT INDENTURE dated as of the 4th day of August, 1998, is made B E T W E E N: BID.COM INTERNATIONAL INC., a company incorporated under the laws of the Province of Ontario (hereinafter called the "CORPORATION") - and - 1184041 ONTARIO INC. (hereinafter referred to as "1184041") - and - SMYTHE GROUP COMPANY (hereinafter referred to as "SMYTHE") - and - CIBC MELLON TRUST COMPANY, a trust company incorporated under the laws of Canada (hereinafter called the "AGENT") WHEREAS the Sellers propose to create and issue up to 4,763,500 Primary Warrants and 267,500 Secondary Warrants to be constituted, issued and sold in the manner herein set forth; and WHEREAS the Agent has agreed to act as warrant agent on behalf of the Warrantholders on the terms and conditions herein set forth; WHEREAS the foregoing statements of fact and recitals are made by the Sellers and not the Agent. NOW THEREFORE in consideration of the premises and in further consideration of the mutual covenants herein set forth, the parties hereto agree as follows: -3- ARTICLE 1 INTERPRETATION -------------- 1.1 DEFINITIONS: In this Indenture, unless there is something in the subject ----------- matter or context inconsistent therewith, the following words have the respective meanings indicated below: (a) "Agent" has the meaning specified above and includes a successor agent determined in accordance with Section 9.2; (b) "Business Day" means a day which is not a Saturday, Sunday or civic or statutory holiday in the Province of Ontario; (c) "Closing Date" means August 4, 1998, being the date of the closing of the completion of the issue and sale by the Sellers of the Special Warrants; (d) "Common Shares" means collectively the fully paid and non-assessable common shares in the capital of the Corporation as presently constituted and, except where the context hereof otherwise requires, includes common shares issued or to be issued in accordance with the due exercise of Warrants hereunder; (e) "counsel" means a barrister and solicitor or a firm of barristers and solicitors retained by the Agent or retained by the Corporation and acceptable to the Agent; (f) "director" means a director of the Corporation for the time being and reference without more to action by the directors means action by the directors of the Corporation as a board or, whenever duly empowered, action by a committee of the board; (g) "Dividends paid in the Ordinary Course" means such dividends payable in cash (or in securities, property or assets of equivalent value) declared payable on a Common Share in any fiscal year of the Corporation to the extent that the amount or value of such dividends in the aggregate do not exceed 5% of the Purchase Price and for such purposes the amount of any dividends paid in other than cash or shares shall be the fair market value of such dividends as determined by the directors acting reasonably; (h) "Exercise Date" has the meaning ascribed to it in section 5.2; (i) "Exercise Form" means the exercise form accompanying a Warrant Certificate; (j) "Exercise Number" means the number of Common Shares which may be received from time to time on exercise of a Warrant; (k) "Expiry Date" means the date which is the earlier of (i) ten (10) business days following the date upon which the Corporation delivers a notice to all holders -4- confirming that it has filed a preliminary prospectus or registration statement in connection with a public offering in the United States of America of at least $7,000,000 and (ii) August 4, 1999; (l) "Expiry Time" means 5:00 p.m., Toronto time, on the Expiry Date; (m) "Extraordinary Resolution" has the meaning ascribed to it in Section 7.10; (n) "person" means any entity whatsoever including without limitation an individual, a corporation, a partnership, a trustee, a trust, an unincorporated organization or a syndicate and words importing persons have a similar meaning; (o) "Primary Warrants" means Warrants to be created and issued by the Corporation entitling the holders thereof to acquire from the Corporation up to 4,763,500 Common Shares subject to the terms and conditions hereof; (p) "Prospectus" means a "final" prospectus qualifying for distribution the Common Shares and Warrants issuable upon exercise or deemed exercise of the exchange rights of the Special Warrants; (q) "Purchase Price" means $1.65 per Common Share; (r) "Qualifying Provinces" means the Province of Ontario and such other jurisdictions in Canada in which purchasers of Special Warrants are resident; (s) "Secondary Warrants " means Warrants to be created and issued by 1184041 as to a maximum of 187,250 Warrants and Smythe as to a maximum of 80,250 Warrants entitling the holders to acquire up to 267,500 Common Shares from 1184041 (as to 187,250 shares), and Smythe (as to 80,250 shares) subject to the terms and conditions hereof; (t) "Sellers" means the Corporation and 1184041 and Smythe collectively or severally depending upon the context; (u) "Special Warrants" means collectively the special warrants of the Corporation issued pursuant to a Special Warrant Indenture dated as of August 4, 1998 (the "Special Warrant Indenture") entitling registered holders thereof to receive upon the exercise of the exchange rights thereof, one unit (herein a "Unit") consisting of one Common Share and one-half a Warrant or alternatively, if a receipt by the last of the securities regulatory authorities in the Qualifying Provinces for a Prospectus is not obtained on or prior to November 2, 1998, each Unit shall consist of 1.07 Common Shares and 0.535 Warrants (in lieu of one Common Share and one-half a Warrant); -5- (v) "subsidiary of the Corporation" means a corporation of which voting securities carrying a majority of the votes attached to all outstanding voting securities are owned, directly or indirectly, by the Corporation or by one or more subsidiaries of the Corporation, or by the Corporation and one or more subsidiaries of the Corporation and, as used in this definition, voting securities means securities, other than debt securities, carrying a voting right to elect directors either under all circumstances or under some circumstances that may have occurred and are continuing; (w) "TSE " means The Toronto Stock Exchange; (x) "Underwriter" means Yorkton Securities Inc.; (y) "Warrant Certificate" means a warrant certificate in the form of warrant certificate attached hereto as Schedule "A"; (z) "Warrantholder" or "holder" means the registered holder of a Warrant hereunder; (aa) "Warrants" means collectively, the Primary and Secondary Warrants of the Corporation entitling registered holders thereof to receive one Common Share (or such kind and amount of shares or other securities or property calculated pursuant to Article 4 hereof, as the case may be) on the exercise of one such warrant at or before the Expiry Time upon payment of the Purchase Price by way of certified cheque or bank draft payable to the Corporation, in the case of Primary Warrants, and the 1184041 or Smythe in the case of the Secondary Warrants; and (bb) "Weighted Average Price" in respect of a Common Share at any date means the weighted average trading price of the Common Shares on The TSE or on any other stock exchange upon which the Common Shares are then listed. The Weighted Average Price will be calculated over the thirty (30) consecutive trading days before the date on which the Weighted Average Price is to be determined. The Weighted Average Price shall be determined by dividing the aggregate of the sale prices of all the Common Shares sold on the said exchange or market, as the case may be, during the said thirty (30) consecutive trading days by the total number of Common Shares so sold. If there is no market for the Common Shares during the period in which the Weighted Average Price thereof would otherwise be determined, the Weighted Average Price shall be determined by the directors of the Corporation acting reasonably and in good faith. (x) "written order of the Corporation", "written request of the Corporation", "written consent of the Corporation", "certificate of the Corporation" and any other document required to be signed by the Corporation, means, respectively, a written order, request, consent, certificate or other document signed in the name of the Corporation -6- by any one of the president, any vice-president, or the secretary of the Corporation, and may consist of one or more instruments so executed. 1.2 ENTIRE INDENTURE: This Indenture constitutes the entire agreement between ---------------- the parties hereto relating to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties and there are no general or specific warranties, representations or other agreements by or among the parties in connection with the entering into of this Indenture or the subject matter hereof except as specifically set forth herein. 1.3 HEADINGS: The division of this Indenture into Articles, Sections, -------- Subsections, paragraphs and other subdivisions, the provision of a Table of Contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Indenture or the Warrants. 1.4 EXTENDING MEANINGS: In this Indenture, whenever the context permits or ------------------ requires, words importing number shall include the singular and the plural and words importing gender shall include all genders. 1.5 REFERENCES: References to an Article, Section, Subsection, paragraph or ---------- other subdivision or schedule shall be construed as references to an Article, Section, Subsection, paragraph or other subdivision of or schedule to this Indenture unless the context otherwise requires. 1.6 BUSINESS DAY: In the event that any day on or before which any action is ------------ required to be taken hereunder is not a Business Day, then such action shall be required to be taken on or before the requisite time on the next succeeding day that is a Business Day. 1.7 MEANING OF "OUTSTANDING": Every Warrant represented by a Warrant ------------------------ Certificate countersigned and delivered by the Agent hereunder shall be deemed to be outstanding until it shall be cancelled or delivered to the Agent for cancellation or until the Expiry Time; provided that where a new Warrant Certificate has been issued pursuant to Section 2.6 to replace one which has been mutilated, lost, stolen or destroyed, the Warrants represented by only such new Warrant Certificate shall be counted for the purpose of determining the aggregate number of Warrants outstanding. 1.8 TIME: Time shall be of the essence hereof and of the Warrants issued ---- hereunder. 1.9 CHOICE OF LANGUAGE: The parties hereby acknowledge that they have expressly ------------------ requested that this Indenture and all notices, statements of account and other documents required or permitted to be given or entered into pursuant hereto be drawn up in the English language only. LES PARTIES RECONNAISSENT AVOIR EXPRESSMENT DEMANDEES QUE LA PRESENTE CONVENTION AINSI QUE TOUT AVIS, TOUT ETAT DE COMPTE ET TOUT AUTRE DOCUMENT A ETRE OU POUVANT ETRE DONNE OU CONCLU EN VERTU DES DISPOSITIONS DES PRESENTES, SOIENT REDIGES EN LANGUE ANGLAISE SEULEMENT. -7- 1.10 APPLICABLE LAW: This Indenture and the Warrants shall be governed by and -------------- construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein. The parties hereto submit to the exclusive jurisdiction of the courts in the Province of Ontario. The parties agree that any litigation between the parties which arises pursuant to or in connection with this Indenture, or any of its provisions, shall be referred to the courts in the Province of Ontario and shall not be referred to the courts in any other jurisdiction. ARTICLE 2 ISSUE AND PURCHASE OF WARRANTS ------------------------------ 2.1 FORM AND TERMS OF WARRANTS: (1) Subject to the provisions hereof, up to an -------------------------- aggregate of 5,031,000 Warrants are hereby authorized to be created by the Sellers and each whole Warrant, together with payment of the Purchase Price prior to the Expiry Time, shall entitle a holder thereof to acquire one Common Share (or other kind and amount of shares and securities or property calculated pursuant to the provisions of Article 4, as the case may be) at any time after their issue and on or prior to the Expiry Time. (2) The Warrants shall be executed by the Corporation, in the case of the Primary Warrants, or 1184041 or Smythe in the case of the Secondary Warrants, and certified by the Agent and shall be in registered form and the Warrant Certificates shall be substantially in the form set out in Schedule "A" hereto with, subject to the provisions of this Indenture, such additions, variations and/or omissions as may from time to time be agreed upon between the Sellers and the Agent and as otherwise provided by this Indenture, and shall be numbered in such manner as the Sellers, with the approval of the Agent, may prescribe. All Warrants shall, save as to denominations, be of like tenor and effect. The Warrant Certificates may be reproduced or printed in such form (except as to content) as the Corporation may determine. No change in the form of the Warrant Certificates shall be required (except as to content) by reason of any adjustment made pursuant to Article 4. 2.2 TRANSFER AND OWNERSHIP OF WARRANTS: (1) The Agent shall maintain a ---------------------------------- register of the holders at its principal office in the City of Toronto which shall be open for inspection by any agent or representative of the Sellers, the Underwriter or a Warrantholder, in which shall be entered the name and addresses of the holders of the Warrants, the number of Warrants held by them and all other information required by law. The Agent shall, from time to time when requested to do so in writing by the Sellers or the Underwriter furnish the Sellers with a list of the names and addresses of holders of Warrants entered in the registers kept by the Agent and showing the number of Common Shares which might then be acquired upon the exercise of the Warrants held by each such holder. (2) Except as otherwise set forth in this Section 2.2, the Warrants are not transferable. (3) A person who furnishes evidence to the reasonable satisfaction of the Agent that he is: -8- (a) a Warrantholder; (b) an executor, administrator, heir or legal representative of the heirs of the estate of a deceased Warrantholder; (c) a guardian, committee, trustee, curator or tutor representing a Warrantholder who is an infant, an incompetent person or a missing person; (d) a liquidator of, or a trustee in bankruptcy for, a Warrantholder; or (e) a transferee of a Warrantholder, may as hereinafter stated, by surrendering such evidence together with the Warrant Certificate in question to the Agent (by delivery or mail as set forth in Section 10.3) and subject to such reasonable requirements with respect to the payment by the holder of the costs associated with the transfer as the Agent may prescribe and all applicable securities legislation and requirements of regulatory authorities, become noted upon the register of Warrantholders. After receiving the surrendered Warrant Certificates and upon the person surrendering the same meeting the requirements as hereinbefore set forth, the Agent shall forthwith give written notice thereof together with confirmation as to the identity of the person entitled to become the holder to the Sellers. Forthwith after receiving written notice from the Agent as aforesaid, the Sellers shall, in accordance with the provisions of Section 2.7, cause a new Warrant Certificate to be issued and sent to the new holder and the Agent shall alter its register of holders accordingly. (4) Subject to the provisions of this Indenture and applicable law, the Warrantholder shall be entitled to the rights and privileges attaching to the Warrants free from all equities and rights of set-off or counterclaim between any of the Sellers and such Warrantholder's transferor or previous holder of Warrants and the issue of Common Shares by the Corporation upon the exercise of Warrants by any Warrantholder in accordance with the terms and conditions herein contained shall discharge all responsibilities of any the Sellers and the Agent with respect to such Warrants. 2.3 WARRANTHOLDERS NOT SHAREHOLDERS: A Warrantholder shall not, as such, be ------------------------------- deemed to be or regarded as a shareholder of the Corporation nor shall such Warrantholder be entitled to any right or interest except as is expressly provided in this Indenture and in the Warrant Certificate. 2.4 SIGNING OF WARRANTS: The Warrant Certificates shall be signed either ------------------- manually or by facsimile signature by any one director or officer of the Corporation in the case of the Primary Warrants or 1184041 or Smythe in the case of the Secondary Warrants and may, but need not be, under their respective corporate seals. A facsimile signature upon any Warrant Certificate shall for all purposes hereof be deemed to be the signature of the person whose signature it purports to be and to have been signed at the time such facsimile signature is reproduced. If a person whose signature, either manually or in facsimile, appears on a Warrant Certificate is not a director or officer of the Corporation or 1184041 or Smythe, as the case may be, at the date of this Indenture or at the date -9- of the countersigning and delivery of such Warrant Certificate, such fact shall not affect in any way the validity of the Warrants or the entitlement of the holder thereof to the benefits of this Indenture. 2.5 COUNTERSIGNING: No Warrant Certificate shall be issued, or if issued, -------------- shall be valid or exercisable or entitle the holder thereof to the benefits of this Indenture until the Warrant Certificate has been manually countersigned by or on behalf of the Agent. The countersignature by or on behalf of the Agent on any Warrant Certificate shall not be construed as a representation or warranty by the Agent as to the validity of this Indenture or of the Warrants or as to the performance by the Corporation of its obligations under this Indenture and the Agent shall in no way be liable or answerable for the use made of the Warrants. The countersignature of the Agent shall, however, be a representation and warranty of the Agent that the Warrant Certificate has been duly countersigned by or on behalf of the Agent pursuant to the provisions of this Indenture and shall be conclusive evidence as against the Sellers that the Warrant Certificate so countersigned has been duly issued hereunder and the holder is entitled to the benefits hereof and thereof. 2.6 LOSS, MUTILATION, DESTRUCTION OR THEFT OF WARRANTS: (1) In case any of -------------------------------------------------- the Warrant Certificates issued and countersigned hereunder shall become mutilated or be lost, destroyed or stolen, the Sellers shall, upon the holder complying with this Section 2.6, issue and thereupon the Agent shall countersign and deliver a new Warrant Certificate of like date and tenor in exchange for and in place of the one mutilated, lost, destroyed or stolen and upon surrender and cancellation of such mutilated Warrant Certificate or in lieu of and in substitution for such lost, destroyed or stolen Warrant Certificate and the substituted Warrant Certificate shall be in a form approved by the Agent and shall entitle the holder thereof to the benefits hereof and rank equally in accordance with its terms with all other Warrants issued hereunder. (2) The applicant for the issue of a new Warrant Certificate pursuant to this Section 2.6 shall bear the reasonable costs of the issue thereof, which costs will include all applicable taxes, and in case of loss, destruction or theft shall, as a condition precedent to the issue thereof, furnish to the Sellers and to the Agent such evidence of ownership and of the loss, destruction or theft of the Warrant Certificate so lost, destroyed or stolen as shall be satisfactory to the Sellers and to the Agent, in their discretion and such applicant may also be required to furnish an indemnity bond in amount and form satisfactory to the Sellers and the Agent in their discretion, and shall pay the reasonable charges of the Sellers and the Agent in connection therewith. 2.7 ISSUE OF WARRANTS: Warrant Certificates shall be signed by the Sellers ----------------- as aforesaid and delivered to the Agent from time to time. The Agent shall countersign any Warrant Certificate delivered by the Sellers to the Agent as aforesaid and shall forthwith deliver to the person or persons in whose name or names the Warrant Certificate is to be issued (as specified in any written order from time to time given by the Sellers to the Agent and signed by the President, Secretary or Assistant Secretary of the Sellers) or mail to such person or persons at their respective addresses specified in the written order from the Sellers the Warrant Certificate for the appropriate number of Warrants. -10- 2.8 WARRANTS TO RANK PARI PASSU: All Warrants shall rank pari passu, --------------------------- whatever may be the actual date of same. 2.9 EXCHANGE OF WARRANTS: -------------------- (a) Warrant Certificates may, upon compliance with the reasonable requirements of the Agent, be exchanged for Warrant Certificates in any other authorized denomination representing in the aggregate the same number of Warrants. The Corporation or 1184041 or Smythe as the case may be shall sign and the Agent shall countersign, in accordance with Sections 2.4 and 2.5, all Warrant Certificates necessary to carry out the exchanges contemplated herein. (b) Warrant Certificates may be exchanged only at the principal office of the Agent in the City of Toronto. Any Warrant Certificates tendered for exchange shall be surrendered to the Agent and cancelled. (c) Except as otherwise herein provided, the Agent may charge registered holders requesting an exchange a reasonable sum for each Warrant Certificate exchanged; and payment of such charges and reimbursement of the Agent or the Sellers for any and all taxes or governmental or other charges required to be paid shall be made by the party requesting such exchange as a condition precedent to such exchange. 2.1 RECOGNITION OF REGISTERED HOLDER: The Sellers and the Agent may deem -------------------------------- and treat the registered holder of any Warrant Certificate as the absolute beneficial owner of the Warrants represented thereby for all purposes under this Indenture and the Sellers and the Agent shall not be affected by any notice or knowledge to the contrary except where the Sellers or the Agent is required to take notice by statute or by order of a court of competent jurisdiction. A Warrantholder shall be entitled to the rights evidenced by the Warrants registered in his name free from all equities or rights of set-off or counterclaim between any of the Sellers and the original or any intermediate holder thereof and all persons may act accordingly and the receipt by any such Warrantholder of Common Shares upon the exercise thereof shall be a good discharge to the Sellers and the Agent for the same and neither the Sellers nor the Agent shall be bound to inquire into the title of any such holder except where the Sellers or the Agent is required to take notice by statute or by order of a court of competent jurisdiction. ARTICLE 3 COVENANTS OF THE SELLERS ------------------------ 3.1 COVENANTS OF THE SELLERS: The Sellers represent, warrant, covenant and ------------------------ agree with the Agent for the benefit of the Agent and the Warrantholders as follows: (a) To Issue Warrants and Reserve Common Shares: That they are duly ------------------------------------------- authorized to create and issue the Warrants and that the Warrant Certificates, when issued and -11- countersigned as herein provided, will be valid and enforceable against the Sellers and that, subject to the provisions of this Indenture, the Sellers will cause the Common Shares from time to time acquired pursuant to the Warrants under this Indenture and the certificates representing such Common Shares to be duly issued and delivered (in the case of the Corporation) and duly transferred and delivered (in the case of 1184041 and Smythe) in accordance with the terms hereof and of the Warrant Certificates. At all times prior to and including the Expiry Time, while any of the Primary Warrants are outstanding, the Corporation shall ensure that its authorized capital shall be sufficient, and shall reserve and allot and conditionally issue out of its authorized capital a number of Common Shares as is sufficient, to enable the Corporation to meet its obligation to issue Common Shares in respect of the exercise of all the Primary Warrants outstanding hereunder from time to time. At all times prior to and including the Expiry Time, while any of the Secondary Warrants are outstanding, 1184041 and Smythe shall ensure that the Agent shall be in possession of certificates representing a sufficient number of Common Shares as presently constituted together with all such additional documentation as provided in paragraph 3.3 as is sufficient to enable 1184041 and Smythe to meet their respective obligations to issue Common Shares in respect of the exercise of all the Secondary Warrants outstanding hereunder from time to time. All Common Shares acquired pursuant to exercise of the Warrants shall be fully paid and non-assessable. (b) To Pay Agent's Remuneration: That they will pay the Agent on a joint ---------------------------- and several basis from time to time reasonable remuneration for its services hereunder and will, upon the Agent's request, pay to or reimburse the Agent for all reasonable expenses, disbursements and advances made or incurred by the Agent in the administration or execution of its obligations hereunder (including the compensation and disbursements of its counsel and other advisors and assistants not regularly in its employ), both before any default hereunder and thereafter until all duties of the Agent hereunder have been finally and fully performed, except any such expense, disbursement or advance that arises out of or results from negligence, willful misconduct or bad faith of the Agent. (c) To Execute Further Assurances: That they will do, execute, acknowledge ----------------------------- and deliver or cause to be done, executed, acknowledged and delivered all other acts, deeds and assurances in law as the Agent may reasonably require for the better accomplishing and effecting the intentions and provisions of this Indenture. (d) Delivery of Financial Statements to Warrantholders: The Corporation -------------------------------------------------- will send to the Warrantholders copies of all financial statements and other material furnished to the holders of its Common Shares during the term of this Indenture. (e) Performance of Covenants by Agent: If the Sellers shall fail to --------------------------------- perform any of their covenants contained in this Indenture, the Agent may notify the Warrantholders of such failure on the part of the Sellers or may itself perform any of the said covenants -12- capable of being performed by it, but, subject to Section 9.2, the Agent shall be under no obligation to do so or to notify the Warrantholders. All sums reasonably expended or advanced by the Agent in performance of its rights provided for in this Subsection 3.1(e) shall be repayable as provided in this Section 3.1. No such performance, expenditure or advance by the Agent shall be deemed to relieve the Sellers of any default hereunder or their continuing obligations hereunder. (f) Performance of Indenture: They will well and truly perform and carry ------------------------- out all of the acts or things to be done by them as provided in this Indenture. (g) Corporate Existence: They will maintain their corporate existences -------------------- and will carry on and conduct its business in accordance with good business practice. (h) Listing: The Corporation will use its reasonable best efforts to -------- maintain the listing of the Common Shares on The TSE and to become or maintain its status as (as the case may be) a "reporting issuer" not in default of the requirements of the securities legislation and policies of each of the Qualifying Provinces. (i) Action During Period of Notice: They will not take any other action ------------------------------- which might deprive the Warrantholders of the opportunity of exercising their rights pursuant to the Warrants held by such persons during the period of notice required by section 4.6. 3.2 SECURITIES QUALIFICATION REQUIREMENTS: ------------------------------------- (a) If, in the opinion of counsel, any instrument (not including a prospectus, except as required by Section 3.1) is required to be filed with or any permission, order or ruling is required to be obtained from any securities regulatory authority or any other action is required under any Canadian federal or any provincial laws of the Qualifying Provinces before any securities or property which a Warrantholder is entitled to receive pursuant to the exercise of a Warrant may properly and legally be delivered upon the due exercise of a Warrant, the Corporation covenants that it will use its best efforts to file such instrument, obtain such permission, order or ruling or take all such other actions, at its expense, as is required or appropriate in the circumstances. (b) The Corporation, or if required by the Corporation, the Agent, will give written notice of the issue of Common Shares pursuant to the exercise of Warrants, in such detail as may be required, to the securities regulatory authorities in the Qualifying Provinces if there is therein any legislation, ruling or order requiring the giving of any such notice in order that the subsequent disposition of the Common Shares so issued will not be subject to the prospectus requirements of such legislation, ruling or order (subject to any applicable hold periods). 3.3 DEPOSIT OF COMMON SHARES UNDERLYING SECONDARY WARRANTS: 1184041 and ------------------------------------------------------ Smythe shall deliver to the Warrant Agent contemporaneously with the execution of this Indenture, certificates -13- representing a sufficient number of Common Shares to satisfy their respective obligations under the Secondary Warrants, namely 187,250 Common Shares in the case of 1184041 and 80,250 Common Shares in the case of Smythe, together with all such transfer instruments, powers of attorney, corporate resolutions and other writings as may be necessary or advisable, in the opinion of the Agent to properly transfer such shares into the name of the Agent for the purpose of and subject to the terms and conditions of this Indenture. Any such Common Shares remaining registered in the name of the Agent after the Expiry Date shall be transferred back to the Sellers pro rata. The delivery of such Common Share certificates and other documentation shall constitute the Sellers irrevocable direction and authority to the Special Warrant Agent to deal with such Common Shares in accordance with this Indenture and to deliver such shares to the holders of the Secondary Warrants upon the due exercise thereof. ARTICLE 4 ADJUSTMENT TO SUBSCRIPTION RIGHTS --------------------------------- 4.1 ADJUSTMENT TO SUBSCRIPTION RIGHTS: The Exercise Number shall be subject to --------------------------------- adjustment from time to time in accordance with the following provisions: (a) Stock Dividends, Subdivisions and Consolidations: If the Corporation ------------------------------------------------- shall: (i) issue Common Shares or securities exchangeable for or convertible into Common Shares without further payment pursuant to a stock dividend to all or substantially all of the holders of the Common Shares (other than as Dividends paid in the Ordinary Course); (ii) make a distribution on its issued and outstanding Common Shares payable in Common Shares or securities exchangeable for or convertible into Common Shares without further payment (other than as Dividends paid in the Ordinary Course); (iii) subdivide its issued and outstanding Common Shares into a greater number of Common Shares; or (iv) consolidate its issued and outstanding Common Shares into a smaller number of Common Shares; (any such event being called a "Share Reorganization"), the Exercise Number then in effect shall be adjusted effective immediately after the record date on which the holders of Common Shares are determined for the purposes of the Share Reorganization to the Exercise Number determined by multiplying the Exercise -14- Number then in effect by the fraction, the numerator of which shall be the number of Common Shares issued and outstanding after the completion of such 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 issued and outstanding had such securities been exchanged for or converted into Common Shares on such record date) and the denominator of which shall be the number of Common Shares issued and outstanding on such record date. (b) Rights Offering: If the Corporation shall distribute rights, options ---------------- or warrants exercisable within a period of forty-five (45) days after the record date for such distribution to subscribe for or purchase Common Shares or securities exchangeable for or convertible into Common Shares at a price per share or at an exchange or conversion value per share in the case of securities exchangeable or convertible into Common Shares equal to or less than ninety-five percent (95%) of the Weighted Average Price for Common Shares determined as of the record date for such distribution, to all or substantially all of the holders of the Common Shares (any such event being called a "Rights Offering"), the Exercise Number shall be adjusted effective immediately after the record date on which holders of Common Shares are determined for the purposes of the Rights Offering to the Exercise number determined by multiplying: (i) the Exercise Number in effect on such record date; by (ii) the fraction (1) the numerator of which shall be the aggregate of (a) the number of Common Shares issued and outstanding on such record date, and (b) the number of Common Shares offered pursuant to the Rights Offering or the maximum number of Common Shares for or into which the securities so offered pursuant to the Rights Offering may be exchanged or converted, as the case may be, and (2) the denominator of which shall be the aggregate of (a) the number of Common Shares issued and outstanding on such record date, and (b) the number determined by dividing either: (1) the product of -15- a) the number of Common Shares so offered; and b) the price at which each of such Common Shares is offered, or (2) the product of a) the maximum number of Common Shares for or into which the securities so offered pursuant to the Rights Offering may be exchanged or converted; and b) the exchange or conversion value of each one of such securities so offered, as the case may be, by the Weighted Average Price of Common Shares determined as of such record date. To the extent that such options, rights or warrants are not exercised prior to the expiry date thereof, the Exercise Number shall be readjusted effective immediately after such expiry date to the Exercise Number which would then have been in effect based upon the number of Common Shares or securities exchangeable for or convertible into Common Shares actually delivered on the exercise of such options, rights or warrants. (c) Special Distributions: If the Corporation shall distribute to all or ---------------------- substantially all of the holders of the Common Shares: (i) shares of any class other than Common Shares; (ii) rights, options or warrants, other than rights, options or warrants referred to in Subsection 4.1(b) and other than rights, options or warrants exercisable within a period of forty-five (45) days after the record date for such distribution to subscribe for or purchase Common Shares or securities exchangeable for or convertible into Common Shares at a price per share or at an exchange or conversion value per share greater than ninety-five percent (95%) of the Weighted Average Price of the Common Shares determined as of the record date for such distribution; (iii) evidences of indebtedness; or -16- (iv) any other assets, excluding Common Shares issued by way of stock dividends and cash dividends paid out of earnings including the value of any shares or other property distributed in lieu of such cash dividends at the option of shareholders; and such issuance or distribution does not constitute a Dividend paid in the Ordinary Course, a Share Reorganization or a Rights Offering (any such event being called a "Special Distribution"), the Exercise Number then in effect shall be adjusted effective immediately after the record date at which the holders of Common Shares are determined for the purpose of the Special Distribution to the Exercise Number determined by multiplying the Exercise Number in effect on the record date of the Special Distribution by: (v) the fraction (1) the numerator of which shall be the number of Common Shares issued and outstanding on such record date multiplied by the Weighted Average Price of the Common Shares determined as of such record date; and (2) the denominator of which shall be the difference between (a) the product of (1) the number of Common Shares issued and outstanding on such record date, and (2) the Weighted Average Price of the Common Shares determined as of such record date, and (b) the fair value, as reasonably determined by the directors of the Corporation, whose determination shall be conclusive, to the holders of the Common Shares of the shares, rights, options, warrants, evidences of indebtedness or other assets issued or distributed in the Special Distribution. (d) Other Reorganization: If and whenever there is a capital --------------------- reorganization of the Corporation not otherwise provided for in this Section 4.1 or a consolidation, merger or amalgamation of the Corporation with or into another body corporate or a sale of all or substantially all of the assets of the Corporation, (any such event being called a "Capital Reorganization"), any Warrantholder who exercises its right to subscribe for Common Shares pursuant to the exercise of a Warrant after the effective date of such Capital Reorganization shall be entitled to receive and shall accept, upon the -17- exercise of such Warrant, in lieu of or in addition to the number of Common Shares to which the Warrantholder was theretofore entitled on conversion, the aggregate number of Common Shares or other securities of the Corporation or of the body corporate resulting from the Capital Reorganization that the Warrantholder would have been entitled to receive as a result of such Capital Reorganization if, on the effective date thereof, the Warrantholder had been the registered holder of the number of Common Shares to which the Warrantholder was theretofore entitled upon exercise of such Warrant subject to adjustment thereafter in accordance with provisions the same, as nearly as may be possible, as those contained in Subsections 4.1(a),(b) and (c), provided that it shall be a condition precedent to such Capital Reorganization that all necessary steps shall have been taken so that the Warrantholder shall thereafter be entitled to receive such number of such Common Shares or other securities of the Corporation or of the body corporate resulting from the Capital Reorganization. (e) Reclassification: If the Corporation shall reclassify the issued and ----------------- outstanding Common Shares (such event being called a "Reclassification"), the Exercise Number shall be adjusted effective immediately after the record date of such Reclassification so that Warrantholders who exercise Warrants shall be entitled to receive the securities that they would have received had such Warrants been exercised immediately prior to such record date, subject to adjustment thereafter in accordance with provisions the same, as nearly as may be possible, as those contained in Subsections 4.1(a),(b) and (c). 4.2 ADJUSTMENT OF PURCHASE PRICE: The Purchase Price in effect at any date ---------------------------- shall be subject to adjustment from time to time as follows: (a) If and whenever at any time during the term hereof, the Corporation shall complete a Share Reorganization, the Purchase Price shall be adjusted effective immediately after the effective date or record date, as the case may be, on which the holders of Common Shares are determined for the purpose of the Share Reorganization by multiplying the Purchase Price in effect immediately prior to such effective date or record date by a fraction, the numerator of which shall be the number of Common Shares outstanding on such effective date or record date before giving effect to such Share Reorganization and the denominator of which shall be the number of Common Shares outstanding immediately after giving effect to such Share Reorganization. (b) If and whenever at any time during the term hereof, the Corporation shall fix a record date for a Rights Offering, the Purchase Price shall be adjusted immediately after such record date so that it shall equal the price determined by multiplying the Purchase Price in effect on such record date by a fraction of which the numerator shall be the total number of Common Shares outstanding on such record date plus a number equal to the number determined by dividing the aggregate price of the total number of additional Common Shares offered for subscription or purchase, or the -18- aggregate conversion or exchange price of the convertible securities so offered, by such Weighted Average Price per Common Share, and of which the denominator shall be the total number of Common Shares outstanding on such record date plus the total number of additional Common Shares offered for subscription or purchase (or into which the convertible securities so offered are convertible or exchangeable). If by the terms of the rights, options or warrants referred to in this Section 4.2(b), there is more than one purchase, conversion or exchange price per Common Share, the aggregate price of the total number of additional Common Shares offered for subscription or purchase, or the aggregate conversion or exchange price of the convertible securities so offered, shall be calculated for purposes of the exchange price per Common Share, as the case may be. To the extent that any adjustment in Purchase Price occurs pursuant to this Section 4.2(b) as a result of the fixing by the Corporation of a record date for the distribution of rights, options or warrants referred to in this Section 4.2(b), the Purchase Price shall be readjusted immediately after the expiration of any relevant exchange, conversion or exercise right to the Purchase Price which would then be in effect based upon the number of Common Shares actually issued and remaining issuable after such expiration, and shall be further readjusted in such manner upon expiration of any further such right. (c) If and whenever at any time during the term hereof the Corporation shall fix a record date for the issue or distribution to the holders of all or substantially all the outstanding Common Shares of: (i) securities of the Corporation including rights, options or warrants to acquire shares or securities convertible into or exchangeable for shares or property or assets and including evidences of its indebtedness; or (ii) any property or other assets; and if such issuance or distribution is not by way of a Share Reorganization or an issuance of rights, options or warrants referred to in Section 4.2(b) then, in each such case, the Purchase Price shall be adjusted immediately after such record date so that it shall equal the price determined by multiplying the Purchase Price in effect on such date by a fraction, of which the numerator shall be the product of the number of Common Shares outstanding on such record date and the Weighted Average Price on such record date, less the aggregate fair market value (as determined by the directors which determination shall be conclusive) of such securities, property or other assets so issued or distributed, and of which the denominator shall be the product of the number of Common Shares outstanding on such record date and such Weighted Average Price. 4.3 ADJUSTMENT RULES: The following rules and procedures shall be applicable ---------------- to adjustments of the Exercise Number made pursuant to Section 4.1: -19- (a) Subject to the following subsections of this Section 4.3, any adjustment pursuant to Section 4.1 or Section 4.2 shall be made successively whenever an event referred to therein shall occur. All adjustments within this Article 4 are cumulative. (b) No adjustment in the Exercise Number shall be required unless such adjustment would result in a change of at least one one-hundredth of a Common Share; provided, however, that any adjustments which, except for the provisions of this Subsection 4.3(b), would otherwise have been required to be made shall be carried forward and taken into account in any subsequent adjustment with respect to the Exercise Number. (c) No adjustment in the Exercise Number shall be made in respect of any event described in Section 4.1 or to the Purchase Price in respect of any event described in Section 4.2 if the Warrantholders are entitled to participate in such event on the same terms mutatis mutandis as if they had exercised their Warrants prior to or on the effective date or record date of such event, subject to the prior written consent of the Canadian Dealing Network, or such stock exchange upon which the Common Shares of the Corporation are then listed. (d) No adjustment in the Exercise Number shall be made pursuant to Section 4.1 or to the Purchase Price in respect of any event described in Section 4.2 in respect of the issue from time to time of Common Shares to holders of Common Shares who exercise an option to receive substantially equivalent dividends in Common Shares or securities exchangeable for and convertible into Common Shares in lieu of receiving cash dividends, and any such issue shall be deemed not to be a Share Reorganization. (e) If a dispute shall at any time arise with respect to adjustments of the Exercise Number, such dispute shall be conclusively determined by the Corporation's auditors or if they are unable or unwilling to act, by such other firm of independent chartered accountants as may be selected by the directors of the Corporation. In the event any such determination is made, the Corporation shall deliver a certificate to the Agent describing such determination. (f) In the absence of a resolution of the directors of the Corporation fixing a record date at which the holders of Common Shares are determined for a Share Reorganization, Rights Offering, Special Distribution or Reclassification requiring such a record date to be so fixed, the directors of the Corporation shall be deemed to have fixed as the record date therefor the date on which such Share Reorganization, Rights Offering, Special Distribution or Reclassification is effected. (g) In the event that the Corporation after the date of this Indenture shall take any action affecting the Common Shares other than action described in this Article 4, the directors of the Corporation may, but shall not be required to, make any other -20- adjustments to the number of Common Shares which may be acquired upon exercise of the Warrants, to the extent, if any, such directors deem appropriate, provided that no such adjustment shall be made unless prior approval of any stock exchange or quotation system on which the Common Shares are listed or quoted for trading, or have been listed or quoted for trading within the past six months, for trading, if required, has been obtained. (h) In case the Corporation after the date of this Indenture shall take any action affecting the Common Shares, other than an action described in Section 4.1, which would have an adverse effect upon the rights of the Warrantholders, the Exercise Number, subject to the prior approval of any stock exchange or quotation system on which the Common Shares are listed or quoted for trading shall be adjusted in such manner and at such time as the directors of the Corporation may, acting reasonably, determine to be equitable in the circumstances. (i) Subject to Section 4.3 hereof, no adjustment shall be made in the subscription rights attached to the Warrants if the issue of Common Shares is being made pursuant to any stock option or stock purchase plan in force from time to time for directors, officers or employees of the Corporation or any other currently existing obligation of the Corporation. 4.4 PROCEEDINGS PRIOR TO ANY ACTION REQUIRING ADJUSTMENT: As a condition ---------------------------------------------------- precedent to the taking of any action which would require an adjustment in any of the subscription rights arising pursuant to the exercise of any of the Warrants, including the number of Common Shares which are to be issued upon the exercise thereof, the Sellers shall take any corporate action which may, in the opinion of counsel, be necessary in order that the Sellers shall have allotted and reserved for issue in the authorized capital of the Corporation and in the reserves of the other Sellers to enable the Sellers to validly and legally issue as fully paid and non-assessable all the Common Shares and may validly and legally deliver all other securities or property which the holders of such Warrants are entitled to receive on the full exercise thereof in accordance with the provisions hereof. 4.5 CERTIFICATE OF ADJUSTMENT: The Corporation shall from time to time ------------------------- immediately after the occurrence of any event which requires an adjustment or readjustment as provided in Section 4.1 hereof, or which may require an adjustment or readjustment as provided in Subsections 4.3(g) and (h), deliver a certificate of the Corporation to the Agent specifying the nature of the event requiring the same and the amount of the adjustment necessitated thereby and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based, which certificate and the amount of the adjustment specified therein shall be verified by the auditors of the Corporation upon whose verification the Agent shall be entitled to act and rely. When so verified, the Corporation shall forthwith give written notice to the Warrantholders specifying the event requiring such adjustment or readjustment and the results thereof; provided that if the Corporation has given prior notice under Section 4.6 hereof covering all the relevant facts in respect of such event and if the Agent consents in writing, no such notice need be given under this Section 4.5. -21- 4.6 NOTICE OF SPECIAL MATTERS: The Corporation covenants with the Agent ------------------------- that so long as any Warrant remains outstanding it will give at least 14 days' prior written notice in the manner provided for in Article 10 to the Agent and to each Warrantholder of any event which requires an adjustment to the subscription rights attaching to any of the Warrants pursuant to this Article 4. The Corporation covenants and agrees that such notice shall contain the particulars of such event in reasonable detail and, if determinable, the required adjustment in the manner provided for in this Article 4. The Corporation further covenants and agrees that it shall promptly, as soon as the adjustment calculations are reasonably determinable, file a certificate of the Corporation with the Agent showing how such adjustment shall be computed. 4.7 NO ACTION AFTER NOTICE: The Corporation covenants with the Agent that ---------------------- it will not close its transfer books or take any other corporate action which might deprive a Warrantholder of the opportunity of exercising his right of subscription pursuant thereto during the period of thirty (30) days after the giving of the notices set forth in Sections 4.5 and 4.6 hereof. 4.8 PROTECTION OF AGENT: The Agent: ------------------- (a) shall not at any time be under any duty or responsibility to any Warrantholder to determine whether any facts exist which may require any adjustment contemplated by Section 4.1 hereof, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed in making the same; (b) shall not be accountable with respect to the validity or value (or the kind or amount) of any Common Shares or of any shares or other securities or property which may at any time be issued or delivered upon the exercise of the subscription rights attaching to any Warrant; (c) shall not be responsible for any failure of the Sellers to make any cash payment or to issue, transfer or deliver Common Shares or certificates for the same upon the surrender of any Warrants for the purpose of the exercise of such rights or to comply with any of the covenants contained in this Article 4; and (d) shall not incur any liability or responsibility whatever or be in any way responsible for the consequence of any breach on the part of the Sellers of any of the representations, warranties or covenants herein contained or of any acts of the agents or servants of the Sellers. -22- ARTICLE 5 EXERCISE AND CANCELLATION OF WARRANTS ------------------------------------- 5.1 EXERCISE OF WARRANTS: (1) Upon and subject to the provisions of this -------------------- Article 5, any holder of a Warrant may exercise from time to time the right thereby conferred on him to subscribe for Common Shares by surrendering to the Agent after the date upon which the Warrants are issued and until the Expiry Time at its principal office in the City of Toronto, the Warrant Certificate evidencing the Warrants, together with a certified cheque or bank draft in an amount equal to the applicable Purchase Price, multiplied by the number of Common Shares to be received payable to or to the order of the Sellers and the Exercise Form duly completed and executed by the holder or his executors or administrators or other legal representatives or his or their attorney duly appointed by an instrument in writing in form and manner satisfactory to the Agent. (2) The Exercise Form shall be signed as set out above and shall specify: (a) the number of Common Shares which the Warrantholder wishes to subscribe for upon the exercise of the Warrants (being not more than those which he is entitled to subscribe for pursuant to the aggregate number of the Warrants so surrendered); and (b) the person or persons in whose name or names the Common Shares are to be issued, his or their address or addresses and the number of Common Shares to be issued to each such person if more than one is so specified, provided that the Warrantholder shall only be entitled to direct his entitlement to the Common Shares in a manner permitted by applicable securities legislation. (3) Such Warrant Certificate shall be deemed to be so surrendered only upon delivery thereof to the Agent at the Agent's principal office in the City of Toronto (at the address specified in the attachment to the Exercise Form) or by mailing the same to the Agent at the Agent's principal office in the City of Toronto (at the address specified in the attachment to the Exercise Form). Subject as hereinafter in this Section 5.1 provided, but notwithstanding anything else herein contained, the Warrants shall be deemed to be validly exercised only upon actual receipt of the Warrant Certificate(s), together with a certified cheque or bank draft in an amount equal to the applicable Purchase Price, multiplied by the number of Common Shares to be received payable to or to the order of the Corporation and the duly completed Exercise Form attached to said Warrant Certificate(s) by the Agent at the office referred to above (by way of delivery or mail respectively) at or prior to the Expiry Time. (4) The Exercise Form shall not be deemed to be duly completed if the name and mailing address of the holder do not appear legibly on such Exercise Form or such Exercise Form is not signed by the holder, his executors, administrators, other legal representatives or such holder's attorney duly appointed. (5) If any of the Common Shares in respect of which the Warrants are exercised are to be issued to a person or persons other than the Warrantholder in accordance with the provisions of -23- Section 2.2, the Warrantholder shall pay to the Agent all requisite stamp or security transfer taxes or other government charges exigible in connection with the issue of such Common Shares to such other person or persons or shall establish to the satisfaction of the Agent that such taxes and charges have been paid. (6) If at the time of the exercise of the Warrants, there remain trading restrictions on the Common Shares acquired, due to applicable securities legislation, the Sellers may, on the advice of counsel, endorse the certificates evidencing such Common Shares accordingly. 5.2 EFFECT OF EXERCISE OF WARRANTS: (1) Upon valid exercise of the Warrants ------------------------------ as provided in Section 5.1, the Common Shares in respect of which the Warrants are validly exercised shall be deemed to have been issued (in the case of the Primary Warrants) or transferred (in the case of the Secondary Warrants), and such person or persons as are specified pursuant to Section 5.1 shall be deemed to have become the holder or holders of record of such securities on the date of such exercise (herein called the "Exercise Date") and shall be registered as such in the registers maintained for the Common Shares. The Common Shares issued upon the valid exercise of Warrants shall be entitled only to dividends declared in favour of shareholders of record on and after the Exercise Date from which date such shares will for all purposes be and be deemed to be issued and outstanding as fully paid and non-assessable Common Shares. (2) Upon valid exercise of the Warrants as aforesaid, the Agent shall forthwith give written notice thereof to the Sellers. (3) In the case of a Warrant which is exercised by a Warrantholder in accordance with the provisions of Section 5.1, within five (5) Business Days after the Exercise Date of such Warrant, the Corporation shall: (a) cause to be mailed to the person in whose name the Common Shares so subscribed for are to be issued, as specified in the subscription completed on the Warrant, at the address specified in such subscription; (b) if so specified in such subscription, cause to be delivered to such person at the office of the Agent where such Warrant was surrendered; or (c) if no specification as contemplated by paragraphs 5.2(3) (a) or (b) is provided, cause to be mailed to the person in whose name the Common Shares are to be issued at the address of such person last appearing on the register maintained by the Agent pursuant hereto or as such person may otherwise notify the Agent in writing on or prior to the Exercise Date, a certificate or certificates for the Common Shares to which the Warrantholder is entitled. 5.3 POSTPONEMENT OF DELIVERY OF CERTIFICATES: The Sellers shall not be ---------------------------------------- required to deliver certificates in respect of Common Shares during the period when the stock transfer books of the -24- Corporation are closed by law and in the event of a surrender of a Warrant for the subscription for Common Shares during such period, the delivery of certificates may be postponed for a period not exceeding five (5) Business Days after the date of the re-opening of the stock transfer books. 5.4 CANCELLATION OF WARRANTS: All Warrant Certificates evidencing Warrants ------------------------ exercised as provided in Section 5.1, shall be cancelled and destroyed by the Agent and, if required by the Sellers in writing, the Agent shall furnish the Sellers with a certificate as to the destruction. 5.5 WARRANTS VOID AFTER EXPIRY TIME: After the Expiry Time no holder of a ------------------------------- Warrant Certificate representing a Warrant which has not been validly exercised as set forth herein has any rights either under this Indenture or the Warrant, and the Warrants are void and of no value or effect. All provisions of this Indenture are subject to this Section 5.5. 5.6 FRACTIONS OF COMMON SHARES: (1) To the extent that the holder of a -------------------------- Warrant is entitled to receive on the exercise or partial exercise thereof a fraction of a Common Share, such right may only be exercised in respect of such fraction in combination with another Warrant or other Warrants which in the aggregate entitle the holder to receive a whole number of Common Shares. No fractional Common Shares will be issued. (2) If a holder is not able to, or elects not to, combine Warrants so as to be entitled to acquire a whole number of Common Shares, the Sellers shall make an appropriate cash adjustment. However, in respect of any holder, the Sellers shall only be required to make such a cash adjustment once and for one Warrant and no more. The amount of the cash adjustment with respect to the Common Share shall be equal to the fraction of the Common Share to which the holder would be entitled multiplied by the Weighted Average Price. 5.7 SUBSCRIPTION FOR LESS THAN ENTITLEMENT: A Warrantholder may subscribe -------------------------------------- for a number of Common Shares less than the number which the Warrantholder is entitled to purchase pursuant to the surrendered Warrant, in which event the Warrantholder shall be entitled to receive (except after the Expiry Date) a new Warrant Certificate evidencing the balance of the Common Shares which the Warrantholder was entitled to subscribe for pursuant to the surrendered Warrant and which were not then so subscribed for. ARTICLE 6 NON-REDEMPTION -------------- 6.1 NON-REDEMPTION OF WARRANTS: The Warrants shall not be redeemable by the -------------------------- Sellers. Any Warrants not exercised on or before the Expiry Time shall be void and of no value. -25- ARTICLE 7 MEETINGS OF WARRANTHOLDERS -------------------------- 7.1 CONVENING OF MEETING: At any time a meeting of Warrantholders may be -------------------- convened by the Agent or the Corporation or by the holders of Warrants holding not less than twenty-five percent (25%) of the aggregate number of Warrants then outstanding, who shall serve the Agent with a requisition signed by such holders and the Agent shall then be bound to convene a meeting of Warrantholders. In the event that the Agent fails to convene the meeting after being duly required to do so, the holders of the then outstanding Warrants representing no less than twenty-five percent (25%) of the aggregate number of Warrants then outstanding may themselves convene a meeting, the notice of which shall be signed by any person as such Warrantholders may specify, provided that every such meeting shall be held at the City of Toronto or such other place as the Agent may approve and the Agent and the Sellers shall receive notice of such meeting, as provided in Section 7.2. If a meeting is convened by the Warrantholders, the Agent will be funded and indemnified against all costs, charges, expenses and liabilities by the Warrantholders. If a meeting is convened by the Sellers, the Agent will be indemnified against all costs, charges, expenses and liabilities by the Sellers. 7.2 NOTICE: At least fifteen (15) days' prior notice of a meeting of ------ Warrantholders shall be given to all Warrantholders, the Agent, the Underwriter and the Sellers and the notice shall state the time, place and in general terms the nature of the business to be transacted but it shall not be necessary to specify the text of the resolutions to be considered. It shall not be necessary to specify the nature of business to be transacted at an adjourned meeting. 7.3 CHAIRMAN: The chairman of the meeting of Warrantholders may be -------- designated in writing by the Agent and need not be a Warrantholder. If no person is so designated or if the person so designated is not present within thirty (30) minutes after the time fixed for the holding of a meeting, the Warrantholders and proxyholders for Warrantholders present at the meeting shall choose one of their number to be the chairman. 7.4 QUORUM: A quorum consists of those Warrantholders, whether present or ------ represented by proxy, holding not less than twenty-five percent (25%) of the aggregate number of Warrants then outstanding. If at a meeting, a quorum is not present or represented by proxy within thirty (30) minutes after the time appointed for the meeting, then the meeting, if called by or upon the requisition of Warrantholders shall be dissolved, but in any other case after the appointment of a chairman, the meeting shall stand adjourned to such day being not less than five (5) Business Days later and to such place and time as may be appointed by the chairman of the meeting. At the adjourned meeting, those persons present in person and owning Warrants or representing by proxy Warrantholders shall, in any event, constitute a quorum for the transaction of business for which the original meeting was convened. -26- 7.5 SHOW OF HANDS: Subject to Section 7.6, every question submitted to a ------------- meeting, except one requiring an Extraordinary Resolution, shall be decided in the first instance by a majority of hands on a show of hands, the outcome of which will be declared by the chairman. 7.6 POLL: A poll shall be taken when requested by a Warrantholder acting in ---- person or by proxy and, when demanded on the election of a chairman or on the question of adjournment, it shall be taken forthwith. If demanded on any other question or on an Extraordinary Resolution, a poll shall be taken in such manner and either at once or after an adjournment as the chairman may direct. The result of a poll shall be the decision of the meeting at which the poll was demanded. On a poll vote, each Warrantholder acting in person or by proxy shall have one vote for each Warrant which he holds or represents. Votes may be given in person or by proxy and the proxyholder need not be a Warrantholder. The chairman of any meeting shall be entitled to vote in respect of any Warrants and proxies held by him. 7.7 REGULATIONS: (1) The Agent, or the Sellers with the approval of the ----------- Agent, may from time to time make and from time to time vary such regulations not contrary to the provisions of this Indenture as it shall think fit providing for and governing: (a) the setting of the record date for a meeting for the purpose of determining Warrantholders entitled to receive notice of and to vote at a meeting; (b) voting by proxy, the form of instrument appointing proxyholders, the manner in which proxies are to be executed and the production of the authority of any persons signing on behalf of a Warrantholder; (c) the lodging of and means of forwarding the instruments appointing proxyholders and the time before the holding of a meeting or adjourned meeting by which the instruments appointing proxyholders are to be deposited; and (d) any other matter relating to the conduct of meetings of Warrantholders. (2) Any regulations so made shall be binding and effective and votes given in accordance therewith shall be valid. The Agent may require Warrantholders to provide proof of ownership of the Warrants in such manner as the Agent may approve. Save as aforesaid, the only persons who shall be recognized at any meeting as Warrantholders or entitled to vote or, except as provided in Section 7.12, be present at the meeting in respect thereof shall be persons who hold Warrants or are duly appointed proxyholders for registered holders of Warrants. 7.8 MINUTES: Minutes of all resolutions passed and proceedings taken at ------- every meeting as aforesaid shall be made and duly entered in books to be from time to time provided for that purpose by the Agent at the expense of the Corporation and any such minutes as aforesaid, if signed by the chairman of the meeting at which such resolutions were passed or proceedings taken, or by the chairman of the next succeeding meeting of Warrantholders, shall be prima facie evidence of the matters therein stated and until the contrary is proved, every such meeting in respect of the -27- proceedings of which minutes shall have been made shall be deemed to have been duly held and convened and all resolutions passed thereat or proceedings taken to have been duly passed and taken. 7.9 POWERS EXERCISABLE BY EXTRAORDINARY RESOLUTION: (1) In addition to all ---------------------------------------------- other powers conferred upon the Special Warrantholders by any other provision of this Indenture or by law, the Warrantholders shall have the power, in addition to any other powers exercisable by Extraordinary Resolution that may be enumerated herein, from time to time by Extraordinary Resolution: (a) to agree to or sanction any modification, abrogation, alteration or compromise of the rights of the Warrantholders or the Agent in its capacity as agent (subject to the Agent's prior written approval) hereunder or on behalf of Warrantholders against the Corporation which shall be agreed to by the Sellers whether such rights arise under this Indenture or under the Warrants or otherwise; (b) to assent to any change in or omission from the provisions contained in the Warrants and this Indenture or any ancillary or supplemental instrument which may be agreed to by the Sellers and to authorize the Agent to concur in and execute any ancillary or supplemental agreement embodying the change or omission; (c) with the consent of the Sellers, to remove the Agent or its successor in office and to appoint a new agent or agents to take the place of the Agent so removed; (d) upon the Agent being furnished with funding and an indemnity, as it may in its discretion determine, to require, direct or authorize the Agent to enforce any of the covenants on the part of the Sellers contained in this Indenture or the Warrants or to enforce any of the rights of the Warrantholders in any manner specified in such Extraordinary Resolution or to refrain from enforcing any such covenant or right; (e) to restrain any Warrantholder from instituting or continuing any suit or proceedings against the Sellers for the enforcement of the covenants on the part of the Sellers contained in this Indenture or any of the rights conferred upon the Warrantholders by the Warrants and this Indenture; (f) to direct any Warrantholder who, as such, has brought any suit, action or proceeding to stay or discontinue or otherwise deal with the same upon payment of the costs, charges and expenses reasonably and properly incurred by such Warrantholder in connection therewith; (g) to waive and direct the Agent to waive any default on the part of the Sellers in complying with any of the provisions of this Indenture or the Warrants either unconditionally or upon any conditions specified in such Extraordinary Resolution; -28- (h) to assent to any compromise or arrangement with any creditor or creditors or any class or classes of creditors, whether secured or unsecured, and with holders of any shares or other securities of the Sellers; and (i) to amend, alter or repeal any Extraordinary Resolution previously passed or sanctioned by the Warrantholders. (2) An Extraordinary Resolution of the Warrantholders is binding upon all the Warrantholders whether present or not present at the meeting at which the Extraordinary Resolution was passed or whether or not assented to in writing and each Warrantholder, the Agent and the Sellers shall be bound to give effect to the Extraordinary Resolution to the extent that the Extraordinary Resolution applies to such party. 7.10 MEANING OF "EXTRAORDINARY RESOLUTION": (1) The expression ------------------------------------- "Extraordinary Resolution" when used in this Indenture means a resolution proposed to be passed as an extraordinary resolution at a meeting of Warrantholders duly convened for the purpose and held in accordance with the provisions of this Article 7 and attended by Warrantholders holding not less than twenty-five percent (25%) of the Warrants outstanding and passed by not less than sixty-six and two-thirds percent (66 2/3%) of the votes cast upon such resolution. (2) If, at any meeting called for the purpose of passing an Extraordinary Resolution, Warrantholders holding at least twenty-five percent (25%) of the then outstanding Warrants are not present in person or by proxy within thirty (30) minutes after the time appointed for the meeting, then the meeting if convened by Warrantholders or on a Warrantholder's request, shall be dissolved; but in any other case it shall be adjourned to such day, being not less than fifteen (15) or more than sixty (60) days later, and to such place and time as may be appointed by the chairman. Not less than ten (10) days' prior notice shall be given of the time and place of such adjourned meeting. Such notice shall state that at the adjourned meeting the Warrantholders present in person or by proxy shall form a quorum but it shall not be necessary to set forth the purposes for which the meeting was originally convened or any other particulars. At the adjourned meeting the Warrantholders present in person or by proxy shall form a quorum and may transact the business for which the meeting was originally convened and a resolution proposed at such adjourned meeting and passed by the requisite vote as provided in subsection of this Section 7.10 shall be an Extraordinary Resolution within the meaning of this Indenture notwithstanding that Warrantholders holding at least twenty-five percent (25%) of the Warrants outstanding are not present in person or by proxy at such adjourned meeting. (3) All actions that may be taken and all powers that may be exercised by the Warrantholders at a meeting as hereinbefore in this Article provided may also be taken and exercised by holders of not less than sixty-six and two-thirds percent (66 2/3%) of the aggregate number of Warrants then outstanding by an instrument in writing signed in one or more counterparts by such holders and the expression "Extraordinary Resolution" when used in this Indenture shall include an instrument so signed. -29- 7.11 POWERS CUMULATIVE: It is hereby declared and agreed that any one or ----------------- more of the powers or any combination of the powers in this Indenture stated to be exercisable by the Warrantholders by Extraordinary Resolution or otherwise may be exercised from time to time and the exercise of any one or more of such powers or any combination of powers from time to time shall not be deemed to exhaust the right of the Warrantholders to exercise the same or any other such power or powers or combination of powers then or thereafter from time to time. 7.12 SELLERS, UNDERWRITERS, WARRANTHOLDERS AND AGENT MAY BE REPRESENTED: The ------------------------------------------------------------------ Sellers, the Underwriter and the Agent, by their respective employees, officers and directors, and the legal and financial advisors and auditors of the Corporation and the Agent may attend any meeting of the Warrantholders, but they shall have no vote as such. In addition, any Warrantholder is entitled to have his legal or financial advisers present at any such meeting, but they shall have no vote as such. 7.13 BINDING EFFECT OF RESOLUTIONS: Every resolution and every Extraordinary ----------------------------- Resolution passed in accordance with the provisions of this Article 7 at a meeting of Warrantholders shall be binding upon all the Warrantholders, whether present at or absent from such meeting, and every Extraordinary Resolution signed by Warrantholders in accordance with Section 7.10(3) shall be binding upon all the Warrantholders, whether signatories thereto or not and each and every Warrantholder and the Agent (subject to the provisions for indemnity herein contained) shall be bound to give effect accordingly to every such resolution and Extraordinary Resolution. In the case of an Extraordinary Resolution in writing, the Agent shall give notice in the manner contemplated in Article 10 of the effect of the Extraordinary Resolution in writing to all Warrantholders and the Sellers as soon as it is reasonably practicable. 7.14 HOLDINGS BY THE SELLERS OR SUBSIDIARIES OF THE SELLERS DISREGARDED: In ------------------------------------------------------------------ determining whether Warrantholders holding a sufficient number of Warrants are present at a meeting of Warrantholders for the purpose of determining a quorum or have concurred in any consent, waiver, resolution, Extraordinary Resolution or other action under this Indenture, Warrants owned legally or beneficially by the Sellers or any subsidiary of the Sellers shall be disregarded. The Sellers shall provide to the Agent upon request a Certificate of the Sellers the exact registrations of any warrants owned legally or beneficially by the Sellers or any subsidiary of the Sellers. ARTICLE 8 SUPPLEMENTAL INDENTURES, MERGER, SUCCESSORS ------------------------------------------- 8.1 PROVISION FOR SUPPLEMENTAL INDENTURES FOR CERTAIN PURPOSES: From time ----------------------------------------------------------- to time the Sellers (when authorized) and the Agent may, subject to the provisions of these presents, and they shall, when so required by any provision of this Indenture (other than this Section 8.1), execute and deliver by their proper officers, deeds, agreements or instruments supplemental hereto, which thereafter shall form part hereof, for any one or more of the following purposes: (a) adding to the provisions hereof such additional covenants and enforcement provisions as, in the opinion of counsel, are necessary or advisable in the premises, -30- provided that the same are not, in the opinion of the Agent based on the advice of its counsel, prejudicial to the interests of the Warrantholders; (b) giving effect to any Extraordinary Resolution passed as provided in Article 7; (c) making such provisions not inconsistent with this Indenture as may be necessary or desirable with respect to matters or questions arising hereunder or for the purpose of obtaining a listing or quotation of the Warrants or the Common Shares issuable upon the exercise thereof on any stock exchange, provided that such provisions are not, in the opinion of the Agent based on the advice of its counsel, prejudicial to the interests of the Warrantholders; (d) making any modification in the form of the Warrant Certificate which does not affect the substance of the Warrants; (e) evidencing any succession, or successive successions, of other bodies corporate to the Sellers and the assumption by any successor of the covenants of the Sellers herein and in the Warrant Certificates contained as provided hereafter in this Article 8; and (f) for any other purpose not inconsistent with the terms of this Indenture, including the correction or rectification of any ambiguities, defective provisions, errors or omissions herein, provided that, in the opinion of the Agent based on the advice of its counsel, the rights of the Agent and of the Warrantholders are in no way prejudiced thereby. 8.2 SELLERS MAY CONSOLIDATE, ETC. ON CERTAIN TERMS: Subject to Subsection ---------------------------------------------- 4.1(d), nothing in this Indenture shall prevent any consolidation, reorganization, arrangement, amalgamation or merger of any of the Sellers with or into any other body corporate, or bodies corporate, or person, or a conveyance or transfer of all or substantially all the properties and assets of any of the Sellers as an entirety to any body corporate or person lawfully entitled to acquire and operate the same, provided, however, that the body corporate or person formed by such consolidation or amalgamation or arrangement or into which such merger shall have been made or the person which acquires by conveyance or transfer all or substantially all the properties and assets of such Seller as an entirety shall execute and deliver to the Agent prior to or contemporaneously with such consolidation, reorganization, amalgamation, arrangement, merger, conveyance or transfer, and as a condition precedent thereto an agreement supplemental hereto wherein the due and punctual performance and observance of all the covenants and conditions of this Indenture to be performed or observed by such Seller shall be assumed by such body corporate or person on terms and conditions not adverse to the Warrantholders. The Agent shall be entitled to receive and shall be fully protected in relying upon opinions of counsel and such other advisors as it deems necessary, that any such consolidation, reorganization, amalgamation, arrangement, merger, conveyance or transfer and any supplemental agreement executed in connection therewith, complies with the provisions of this Section 8.2. -31- 8.3 SUCCESSOR BODY CORPORATE SUBSTITUTED: In case any of the Sellers, pursuant ------------------------------------ to Section 8.2, shall be consolidated, amalgamated, reorganized, arranged or merged with or into any other body corporate, bodies corporate or person or shall convey or transfer all or substantially all of the properties and any of the assets of the Sellers as an entirety to another body corporate or person, the successor body corporate or person formed by such consolidation, reorganization, arrangement or amalgamation of any of the Sellers or into which the Sellers shall have been merged or which shall have received a conveyance or transfer as aforesaid shall succeed to and be substituted for such Seller hereunder with the same effect as nearly as may be possible as if it had been named herein as the party of the First Part. Such changes may be made in the Warrants as may be appropriate in view of such consolidation, reorganization, amalgamation, merger, conveyance or transfer and as may be necessary to ensure that the Warrantholders are not adversely affected by such consolidation, reorganization, amalgamation, merger, conveyance or transfer. Such changes may be made in the Special Warrants as may be appropriate in view of such consolidation, reorganization, amalgamation, merger, conveyance or transfer and as may be necessary to ensure that the Special Warrantholders are not adversely affected by such consolidation, organization, amalgamation, merger, conveyance or transfer. 8.4 AMENDMENTS FOR LISTING: Notwithstanding any of the terms of this Indenture ---------------------- to the contrary, the Agent and the Sellers shall make such amendments to the provisions of this Indenture as in the opinion of counsel would not prejudice the interests of Warrantholders and would be required to comply with any and all requirements of the stock exchanges or quotation system on which the Common Shares may be listed in order for the Common Shares to be listed or quoted for trading on such stock exchange or quoted for trading on such quotation system. The Agent and the Corporation shall execute and deliver by their proper officers all deeds, agreements or instruments supplemental hereto for the foregoing purpose which are required in the opinion of counsel and thereafter shall form part hereof. For greater certainty, no resolution, approval or meeting of Warrantholders will be required for the Agent and the Sellers to amend or supplement this Indenture as provided in this Section 8.4. ARTICLE 9 CONCERNING THE AGENT -------------------- 9.1 TRUST INDENTURE LEGISLATION: --------------------------- (a) In this Article, the term "APPLICABLE LEGISLATION" means the provisions of any statute of Canada or a province thereof and of regulations under any such named or other statute relating to trust indentures and/or to the rights, duties and obligations of warrant agents and of corporations under trust indentures, to the extent that such provisions are at the time in force and applicable to this Indenture. (b) If and to the extent that any provision of this Indenture limits, qualifies or conflicts with a mandatory requirement of Applicable Legislation, such mandatory requirement shall prevail. -32- (c) Each of the Sellers and the Agent agree that each will at all times in relation to this Indenture and any action to be taken hereunder observe and comply with and be entitled to the benefit of Applicable Legislation. 9.2 RIGHTS AND DUTIES OF AGENT: -------------------------- (a) In the exercise of the rights and duties prescribed or conferred by the terms of this Indenture, the Agent shall act honestly and in good faith with a view to the best interests of the Warrantholders as a group and shall exercise the degree of care, diligence and skill that a reasonably prudent warrant Agent would exercise in comparable circumstances. No provision of this Indenture shall be construed to relieve the Agent from or require any other person to indemnify the Agent against liability for its own negligence, wilful misconduct or bad faith. (b) Subject only to subsection (a) of this Section 9.2, the Agent shall not be bound to do or take any act, action or proceeding for the enforcement of any of the obligations of the Sellers under this Indenture unless and until it shall have received a request in writing signed by a Warrantholder (a "Warrantholders' Request") specifying the act, action or proceeding which the Agent is requested to take. The obligation of the Agent to commence or continue any act, action or proceeding for the purpose of enforcing any rights of the Agent or the Warrantholders hereunder shall be conditional upon the Warrantholders furnishing, when required by notice in writing by the Agent, sufficient funds to commence or continue such act, action or proceeding and an indemnity reasonably satisfactory to the Agent and its officers, directors, employees and agents to protect and hold harmless the Agent and its officers, directors, employees and agents against the costs, charges, expenses and liabilities to be incurred thereby and any loss and damage it may suffer by reason thereof. None of the provisions contained in this Indenture shall require the Agent to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties or in the exercise of any of its rights or powers unless indemnified and funded as aforesaid. (c) The Agent may, before commencing or at any time during the continuance of any such act, action or proceeding, require the Warrantholders at whose instance it is acting to deposit with the Agent the Warrants held by them, for which Warrants the Agent shall issue receipts. (d) Every provision of this Indenture that by its terms relieves the Agent of liability or entitles it to rely upon any evidence submitted to it is subject to the provisions of Applicable Legislation, and to the provisions of this Section 9.2 and of Section 9.3. (e) The Agent shall retain the right not to act and shall not be held liable for refusing to act unless it has received clear and reasonable documentation which complies with the terms of this Indenture. Such documentation must not require the exercise of any discretion or independent judgment. In the event that the Agent refuses to act because any documentation received by it is not clear and reasonable, the Agent shall immediately provide notice to the -33- party who provided such documentation advising such party of the Agent's refusal to act together with a brief explanation of the reason for its refusal. (f) In the event of any disagreement arising regarding the terms of this Indenture, the Agent shall be entitled, at its option, to refuse to comply with any or all demands whatsoever until the dispute is settled either by agreement amongst the various parties or by a court of competent jurisdiction. (g) The Agent shall not be bound to give any notice or do or take any act, action or proceeding by virtue of the powers conferred on it hereby unless and until it shall have been required so to do under the terms hereof; nor shall the Agent be required to take notice of any default hereunder, unless and until notified in writing of such default, which notice shall distinctly specify such default and in the absence of any such notice the Agent may for all purposes of this Indenture conclusively assume that no default has been made in the observance or performance of any of the representations, warranties, covenants, agreements or conditions contained herein. Any such notice shall in no way limit any discretion herein given to the Agent to determine whether or not the Agent shall take action with respect to any default. -34- 9.3 EVIDENCE, EXPERTS AND ADVISERS: ------------------------------ (a) In addition to the reports, certificates, opinions and other evidence required by this Indenture, the Sellers shall furnish to the Agent such additional evidence of compliance with any provision hereof in such form as may be prescribed by Applicable Legislation, or as the Agent may reasonably require by written notice to the Sellers. (b) In the exercise of its rights and duties hereunder, the Agent may, if it is acting in good faith, rely as to the truth of the statements and the accuracy of the opinions expressed therein, upon statutory declarations, opinions, reports, written requests, consents, orders of the Sellers, certificates of the Sellers or other evidence furnished to the Agent, provided that such evidence complies with Applicable Legislation. (c) Whenever Applicable Legislation requires that evidence referred to in subsection (a) of this Section 9.3 be in the form of a statutory declaration, the Agent may accept such statutory declaration in lieu of a certificate of the Sellers required by any provision hereof. Any such statutory declaration may be made by one or more of the chairman, president, vice-president, secretary or treasurer of the Sellers. (d) The Agent may act and rely and shall be protected in acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, letter, telegram, cablegram or other paper or document believed by it to be genuine and to have been signed, sent, or presented by or on behalf of the proper party or parties. (e) Proof of the execution of an instrument in writing, including a Warrantholders' Request, by any Warrantholder may be made by the certificate of a notary public, or other officer with similar powers, that the person signing such instrument acknowledged to him the execution thereof, or by an affidavit of a witness to such execution or in any other manner which the Agent may consider adequate and in respect of a corporate Warrantholder shall include a certificate of incumbency of such Warrantholder together with a certified copy of a resolution authorizing the person who signed such instrument to sign such instrument. (f) The Agent may employ or retain such counsel, accountants or other experts or advisers as it may reasonably require for the purpose of determining and discharging its duties hereunder, may act on and rely upon the advice or opinion so obtained and may pay reasonable remuneration for all services so performed by any of them, without taxation of costs of any counsel, and shall not be responsible for any misconduct on the part of any of them. The cost of such service shall be added to and be part of the Agent=s fees hereunder. 9.4 DOCUMENTS, MONIES, ETC. HELD BY AGENT: -------------------------------------- -35- Any securities, documents of title or other instruments that may at any time be held by the Agent subject to the trusts hereof may be placed in the deposit vaults of the Agent or of any Canadian chartered bank or trust company or deposited for safekeeping with any such bank or trust company. 9.5 ACTION BY AGENT TO PROTECT INTERESTS: ------------------------------------- Subject to the provisions of this Indenture and Applicable Legislation, the Agent shall have the power to institute and to maintain such action and proceedings as it may consider necessary or expedient to preserve, protect or enforce its interests and the interests of the Warrantholders. 9.6 AGENT NOT REQUIRED TO GIVE SECURITY: ----------------------------------- The Agent shall not be required to give any bond or security in respect of the execution of the trusts and powers of this Indenture or otherwise. 9.7 PROTECTION OF AGENT: -------------------- By way of supplement to the provisions of any law for the time being relating to warrant agents, it is expressly declared and agreed as follows: (a) The Agent shall not be liable for or by reason of any statements of fact or recitals in this Indenture or in the Warrants (except the representation contained in Sections 9.9 and 9.12 or in the certificate of the Agent on the Warrants) or be required to verify the same. (b) Nothing herein contained shall impose any obligation on the Agent to see to or to require evidence of the registration or filing (or renewal thereof) of this Indenture or any instrument ancillary or supplemental hereto. (c) The Agent shall not be bound to give notice to any person of the execution hereof. (d) The Agent shall not incur any liability or responsibility whatsoever or be in any way responsible for the consequence of any breach on the part of the Sellers of any of the covenants herein contained or of any acts of any directors, officers, employees, agents or servants of the Sellers. (e) The Sellers hereby jointly and severally indemnify and save harmless the Agent and its officers, directors, employees and agents from and against any and all liabilities, losses, costs, claims, action or demands whatsoever which may be brought against the Agent or which it may suffer or incur as a result or arising out of the performance of its duties and obligations under this Indenture, save only in the event of negligence or wilful misconduct of the Agent or any of its officers, directors, employees or agents. It is understood and agreed that this indemnification shall survive the termination of this Indenture or the resignation of the Agent. -36- 9.8 REPLACEMENT OF AGENT: --------------------- (a) The Agent may resign its trust and be discharged from all further duties and liabilities hereunder by giving to the Sellers not less than 45 days' prior notice in writing or such shorter prior notice as the Sellers may accept as sufficient. The Warrantholders by extraordinary resolution shall have the power at any time to remove the existing Agent and to appoint a new warrant agent. In the event of the Agent resigning or being removed as aforesaid or being dissolved, becoming bankrupt, going into liquidation or otherwise becoming incapable of acting hereunder, the Sellers shall forthwith appoint a new warrant agent unless a new warrant agent has already been appointed by the Warrantholders; failing such appointment by the Sellers, the retiring Agent or any Warrantholder may apply to a justice of the Ontario Court of Justice (General Division) at the Seller's expense, on such notice as such justice may direct, for the appointment of a new warrant agent; but any new warrant Agent so appointed by the Seller or by the Court shall be subject to removal as aforesaid by the Warrantholders. Any new warrant agent appointed under any provision of this Section 9.8 shall be a corporation authorized to carry on the business of a trust company in the Province of Ontario and, if required by Applicable Legislation of any other province, in such other province. On any such appointment the new warrant agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as Agent without any further assurance, conveyance, act or deed; but there shall be immediately executed, at the expense of the Sellers, all such conveyances or other instruments as may, in the opinion of counsel, be necessary or advisable for the purpose of assuring the same to the new warrant agent, provided that any resignation or removal of the Agent and appointment of a successor warrant Agent shall not become effective until the successor warrant agent shall have executed an appropriate instrument accepting such appointment and, at the request of the Sellers, the predecessor Agent, upon payment of its outstanding remuneration and expenses, shall execute and deliver to the successor warrant agent an appropriate instrument transferring to such successor warrant agent all rights and powers of the Agent hereunder and all securities, documents of title and other instruments, and all monies and properties, held by the Agent hereunder. (b) Upon the appointment of a successor warrant agent, the Sellers shall promptly notify the Warrantholders thereof in the manner provided for in Section 10.2. (c) Any corporation into or with which the Agent may be merged or consolidated or amalgamated, or any corporation succeeding to the trust business of the Agent, shall be the successor to the Agent hereunder without any further act on its part or of any of the parties hereto, provided that such corporation would be eligible for appointment as a new warrant agent under subsection (a) of this Section 9.8. (d) Any Warrants certified but not delivered by a predecessor warrant agent may be certified by the successor warrant agent in the name of the predecessor or successor warrant agent. 9.9 CONFLICT OF INTEREST: -------------------- -37- (a) The Agent represents to the Sellers that at the time of execution and delivery hereof no material conflict of interest exists in the Agent's role as a fiduciary hereunder and agrees that in the event of a material conflict of interest arising hereafter it will, within 90 days after ascertaining that it has such a material conflict of interest, either eliminate the same or resign its trust hereunder to a successor warrant agent approved by the Sellers. If any such material conflict of interest exists or hereafter shall exist, the validity and enforceability of this Indenture and the Warrants shall not be affected in any manner whatsoever by reason thereof. (b) Subject to subsection (a) of this Section 9.9, the Agent, in its personal or any other capacity, may buy, lend upon and deal in securities of the Corporation and generally may contract and enter into financial transactions with the Corporation or any subsidiary of the Corporation without being liable to account for any profit made thereby. 9.10 ACCEPTANCE OF TRUSTS: -------------------- The Agent hereby accepts the trusts in this Indenture declared and provided for and agrees to perform the same upon the terms and conditions herein set forth. 9.11 AGENT NOT TO BE APPOINTED RECEIVER: ---------------------------------- The Agent and any person related to the Agent shall not be appointed a receiver or receiver and manager or liquidator of all or any part of the assets or undertaking of the Corporation. 9.12 AUTHORIZATION TO CARRY ON BUSINESS: ---------------------------------- The Agent represents to the Sellers that it is duly authorized and qualified to carry on the business of a trust company in each of the provinces of Canada. 9.13 LIABILITY OF AGENT: ------------------ The Agent shall not be liable or accountable for any loss or damage whatsoever to any person caused by the performance or failure to perform by it of its responsibilities under this agreement save only to the extent that such loss or damage is attributable to the negligence, fraud or wilful misconduct of the Agent. ARTICLE 10 NOTICES ------- 10.1 NOTICE TO SELLERS: Unless and until the Sellers notify the Agent of a ----------------- change of address, any notice or communication required or permitted to be given to the Sellers under the provisions of this Indenture shall be valid and effective if delivered to the Sellers at 5915 Airport Road, Suite 330, Mississauga, Ontario, L4V 1T1, Attention: President, or sent by telecopier to telecopier number (905) 672-5705 (and a copy by regular mail) or other means of prepaid transmitted or recorded -38- communication to such address. Any notice to the Sellers as aforesaid shall be deemed to have been effectively given on the earlier of: (a) the date of delivery, if delivered during normal business hours of the Corporation (and, if not, on the next following Business Day); or (b) the Business Day immediately following the day of sending, if sent by telecopier (with receipt confirmed). 10.2 NOTICE TO WARRANTHOLDERS: Unless and until a Warrantholder notifies the ------------------------ Agent of a change of address, any notice or communication required or permitted to be given to a Warrantholder under the provisions of this Indenture shall be valid and effective if delivered to such holders at their post office addresses appearing on the register to be kept by the Agent or sent by telecopier (and a copy by regular mail) or other means of prepaid transmitted or recorded communication to such address, or subject to the provisions of Section 10.4, if mailed by prepaid first class mail addressed to such holders at their post office addresses appearing on the register to be kept by the Agent. Any notice to a Warrantholder as aforesaid shall be deemed to have been effectively given on the earlier of: (a) the date of delivery, if delivered during normal business hours (and, if not, on the next following Business Day); (b) the Business Day immediately following the day of sending, if sent by telecopier (with receipt confirmed); or (c) on the seventh (7th) Business Day after effectual posting in Canada. 10.3 NOTICE TO AGENT: (1) Unless and until the Agent is changed in accordance --------------- with the provisions of this Indenture or the Agent notifies the Sellers of a change of address, any notice or communication required or permitted to be given to the Agent under the provisions of this Indenture, except under Section 2.2, shall be valid and effective if delivered to the Agent at 320 Bay Street, Ground Floor, Toronto, Ontario M5H 4A6, or sent by telecopier to telecopier number (416) 643-5570 (and a copy by regular mail) or other means of prepaid transmitted or recorded communication to such address, or subject to the provisions of Section 10.4, if mailed by prepaid registered mail addressed to the Agent at 320 Bay Street, P.O. Box 1, Toronto, Ontario M5H 1A6. Any notice to the Agent as aforesaid shall be deemed to have been effectively given on the earlier of: (a) the date of delivery, if delivered during normal business hours of the Agent (and, if not, on the next following Business Day); (b) the Business Day immediately following the day of sending, if sent by telecopier (with receipt confirmed); or (c) on the fifth (5th) Business Day after effectual posting in Canada. -39- (2) Surrender of a Warrant Certificate and evidence relating thereto pursuant to Section 2.2 shall be valid and effective if delivered by hand or by courier to Special Projects, Securities Level, Commerce Court West, 199 Bay Street, Toronto, Ontario M5L 1G9 or if mailed by prepaid mail to P.O. Box 1036, Adelaide Postal Station, Toronto, Ontario M5C 2K4, and shall be deemed to have been effectively surrendered on the date of delivery, if delivered during normal business hours of the Agent (and, if not, on the next following Business Day) or, if mailed, on the fifth (5th) Business Day after effectual posting in Canada. 10.4 MAIL SERVICE INTERRUPTION: If by reason of strike, lockout or other work ------------------------- stoppage, actual or threatened, of postal employees, any notice to be given to the Agent or to the Sellers would be unreasonably delayed in reaching its destination, such notice shall be valid and effective only if delivered to an officer of the party to which it is addressed or if sent to such party, at the appropriate address in accordance with Sections 10.1 or 10.3, as the case may be, by cable, telegram, telecopier, telex or other means of prepaid transmitted or recorded communication. ARTICLE 11 POWER OF BOARD OF DIRECTORS --------------------------- 11.1 BOARD OF DIRECTORS: In this Indenture, wherever the Sellers are required ------------------ or empowered to exercise any acts, all such acts may be exercised by the directors of the Sellers or by those officers of the Sellers authorized to exercise such acts. ARTICLE 12 FORMAL EXECUTION AND EFFECTIVE DATE ----------------------------------- 12.1 SUITS BY WARRANTHOLDERS: (1) No Warrantholder shall have any right to ----------------------- institute any action, suit or proceeding at law or in equity for the purpose of enforcing the execution of any obligations or power hereunder or for the appointment of a liquidator or receiver or for a receiving order under the Bankruptcy and Insolvency Act (Canada) or to have any of the Sellers wound up or to file or prove a claim in any liquidation or bankruptcy proceedings or for any other remedy hereunder unless (i) the Warrantholders by Extraordinary Resolution shall have made a request to the Agent and the Agent shall have been afforded reasonable opportunity to proceed or complete any action or suit for any such purpose whether or not in its own name; (ii) the Warrantholders or any of them shall have furnished to the Agent, when so requested by the Agent, sufficient funds and security and indemnity satisfactory to it against the costs, expenses and liabilities to be incurred therein or thereby; and (iii) the Agent shall have failed to act within a reasonable time or where the Agent shall have failed to have actively pursued any such act or proceeding. (2) Subject to the provisions of this section 12.1 and Section 7.9, all or any of the rights conferred upon a Warrantholder by the terms of a Warrant may be enforced by such Warrantholder by appropriate legal proceedings without prejudice to the right which is hereby conferred upon the -40- Agent to proceed in its own name to enforce each and all of the provisions herein contained for the benefit of the Warrantholders from time to time. 12.2 WAIVER OF DEFAULT: (1) Upon the happening of any default hereunder, the ----------------- Agent shall have power to waive any default hereunder upon such terms and conditions as the Agent may deem advisable, if, in the Agent's opinion, the same shall have been cured or adequate provision made therefor. (2) Subject to the provisions of Section 7.9, no consent or waiver, express or implied, by either party to or of any breach or default by the other party in the performance by the other party of its obligations hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance of obligations hereunder by such party hereunder. Failure on the part of either party to complain of any act or failure to act of the other party or to declare the other party in default, irrespective of how long such failure continues, shall not constitute a waiver by such party of its rights hereunder. 12.3 FURTHER ASSURANCES: The parties hereto and each of them do hereby covenant ------------------ and agree to do such things and execute such further documents, agreements and assurances as may be necessary or advisable from time to time in order to carry out the terms and conditions of this Indenture in accordance with their true intent. 12.4 SEVERABILITY: If any term, covenant or condition of this Indenture or the ------------ application thereof to any party or circumstance shall be invalid or unenforceable to any extent, the remainder of this Indenture or application of such term, covenant or condition to a party or circumstance other than those to which it is held invalid or unenforceable shall not be affected thereby and each remaining term, covenant or condition of this Indenture shall be valid and shall be enforceable to the fullest extent permitted by law. 12.5 SATISFACTION AND DISCHARGE OF INDENTURE: Upon the later of the date when --------------------------------------- the Common Shares have been delivered to Warrantholders who have exercised Warrants to the full extent of the rights attached to all Warrants theretofore certified hereunder and the Expiry Date, this Indenture shall cease to be of further effect and the Agent, on demand of and at the cost and expense of the Agent and upon delivery to the Agent of a certificate of the Sellers stating that all conditions precedent to the satisfaction and discharge of this Indenture have been complied with and upon payment to the Agent of all outstanding fees, the parties hereto shall execute proper instruments acknowledging satisfaction of and discharging this Indenture. 12.6 FORMAL DATE AND EXECUTION DATE: For the purpose of convenience this ------------------------------- Indenture may be referred to as bearing the formal date of August 4, 1998 which shall be the date on which this Indenture shall become effective between the parties hereto, irrespective of the actual date of execution hereof. -41- 12.7 COUNTERPARTS: This Indenture may be executed in one or more counterparts, ------------ each of which so executed shall be deemed to be an original and such counterparts together shall constitute one and the same instrument. 12.8 ENUREMENT: This Indenture shall benefit and bind the parties to it and --------- their respective successors and assigns. IN WITNESS WHEREOF the parties hereto have executed this Indenture as of the 4th day of August, 1998. BID.COM INTERNATIONAL INC. Per:______________________ 1184041 ONTARIO INC. Per:______________________ SMYTHE GROUP COMPANY Per:______________________ CIBC MELLON TRUST COMPANY Per:______________________ Per:______________________ WARRANT CERTIFICATE THE WARRANTS REPRESENTED BY THIS CERTIFICATE WILL BE VOID AND OF NO VALUE UNLESS EXERCISED AT OR PRIOR TO 5:00 P.M., (TORONTO TIME) ON THE DATE WHICH IS THE EARLIER (I) TEN (10) BUSINESS DAYS FOLLOWING THE DATE UPON WHICH THE CORPORATION DELIVERS A NOTICE TO ALL HOLDERS CONFIRMING THAT IT HAS FILED A PRELIMINARY PROSPECTUS OR REGISTRATION STATEMENT IN CONNECTION WITH A PUBLIC OFFERING IN THE UNITED STATES OF AMERICA OF AT LEAST $7,000,000 AND (II) ON AUGUST 4, 1999. BID.COM INTERNATIONAL INC. (the "Corporation") (Constituted pursuant to the laws of the Province of Ontario) WARRANT CERTIFICATE NO. _______ _________ WARRANTS THIS IS TO CERTIFY that _________________________________________________ __________________________________(the "holder") is entitled to subscribe for, in the manner herein provided, subject to adjustment in certain events and to the restrictions contained herein, at any time and from time to time on or prior to 5:00 p.m. (Toronto Time) on the date which is the earlier of (i) ten (10) business days following the date upon which the Corporation delivers a notice (the "U.S. Offering Notice") to all holders confirming that it has filed a preliminary prospectus or registration statement in connection with a public offering in the United States of America of at least $7,000,000 (the "U.S. Offering") and (ii) 5:00 p.m. (Toronto time) on August 4, 1999 (the "Expiry Time"), one Common Share in the capital of the Corporation for each whole Warrant represented hereby at a price per share equal to $1.65, subject to adjustment in certain events. Such right to subscribe for Common Shares in the capital of the Corporation may only be exercised by the registered holder hereof within the time hereinbefore set out by: (a) duly completing in the manner indicated and executing the Exercise Form attached hereto; and (b) surrendering to CIBC Mellon Trust Company ("Agent") as hereinafter set forth this Warrant Certificate evidencing a minimum of one Warrant together with payment by certified cheque or bank draft payable to or to the order of the Corporation for each Common Share subscribed for, subject to adjustment in the manner set forth in the Indenture. This Warrant Certificate shall be validly exercised only upon delivery thereof or by mailing the same to the Agent at its Stock and Bond Transfer Department in its principal stock transfer offices in the City of Toronto (at the address hereinafter indicated). The Exercise Form attached hereto shall not be deemed to be duly completed if the name and mailing address of the holder do not appear legibly on such Exercise Form or such Exercise Form is not signed by the holder. The Warrants represented by this certificate are issued under and pursuant to a Warrant Indenture (the "Indenture") made as of August 4, 1998 among the Corporation, 1184041 Ontario Inc. and Smythe Group Company (collectively "the Sellers") and the Agent (which expression shall include any successor agent appointed under the Indenture), to which Indenture (and any amendments thereto and instruments supplemental thereto) reference is hereby made for a full description of the rights of the holders of the Warrants and the terms and conditions upon which such Warrants are, or are to be, issued and held, all to the same effect as if the provisions of the Indenture and all amendments thereto and instruments supplemental thereto were herein set forth and to all of which provisions the holder of these -2- Warrants by acceptance hereof assents. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture. Notwithstanding the delivery of a U.S. Offering Notice, the U.S. Offering may not proceed to completion for a variety of reasons, including, without limitation, the state of the financial markets and the demand for the Corporation's securities at the relevant time. Accordingly the delivery of the U.S. Offering Notice shall not constitute or be deemed to constitute a guarantee or assurance by the Sellers that the U.S. Offering will be completed and, in determining whether or not to exercise their Warrants, holders are advised to carefully consider the possibility that the U.S. Offering ultimately may not proceed. Upon due exercise of the Warrants as provided herein, the person or persons in whose name or names the Common Shares are issuable, shall be deemed for all purposes (except as provided in the Indenture hereinafter referred to) to be the holder or holders of record of such Common Shares and the Sellers covenant that they will (subject to and in accordance with the provisions of the aforesaid Indenture) cause a certificate or certificates representing such Common Shares to be delivered or mailed to such person or persons at the address or addresses specified in such Exercise Form. The holder of this Warrant Certificate may exercise any lesser number of Common Shares than the aggregate number of Warrants evidenced by this Warrant Certificate and, in such event, shall be entitled to receive, without charge, a new Warrant Certificate representing the balance of the Warrants held by such holder not then exercised. No fractional Common Shares will be issued. To the extent that the holder of a Warrant is entitled to receive on the exercise or partial exercise thereof a fraction of a Common Share, such right may only be exercised in respect of such fraction in combination with another Warrant or other Warrants which in the aggregate entitle the holder to receive a whole number of Common Shares. If a holder is not able to, or elects not to, combine Warrants so as to be entitled to acquire a whole number of Common Shares, the Sellers shall make an appropriate cash adjustment. However, in respect of any holder, the Sellers shall only be required to make such a cash adjustment once and for one Warrant and no more. The amount of the cash adjustment with respect to the Common Shares shall be equal to the fraction of the Common Share to which the holder would be entitled multiplied by the Weighted Average Price (as defined in the Warrant Indenture (as hereinafter defined)). In the event of any conflict or inconsistency between the provisions of the Indenture (and any amendments thereto and instruments supplemental thereto) and the provisions of this Warrant Certificate, except those that are necessary by context, the provisions of the Indenture (and any amendments thereto and instruments supplemental thereto) shall prevail. The terms and provisions of the Indenture (and any amendments thereto and instruments supplemental thereto) are incorporated herein by reference. The holding of the Warrants evidenced by this Warrant Certificate shall not constitute the holder hereof a shareholder of the Corporation or entitle such holder to any right or interest in respect thereof except as herein and in the Indenture expressly provided. The Warrants evidenced by this Warrant Certificate are not transferable except as set forth in Section 2.2 of the Indenture which makes reference to the fact that a person who furnishes evidence to the reasonable satisfaction of the Agent that he is: (a) a Warrantholder; -3- (b) an executor, administrator, heir or legal representative of the heirs of the estate of a deceased registered holder hereof, (c) a guardian, committee, trustee, curator or tutor representing a registered holder who is an infant, an incompetent person or a missing person, (d) a liquidator of, or a trustee in bankruptcy for, a holder hereof, or (e) a transferee of a Warrantholder, may, as set forth in the Indenture, by surrendering such evidence together with the Warrant Certificate in question to the Agent and subject to such reasonable requirements with respect to the payment by the holder of the costs associated with the transfer as the Agent may prescribe and all applicable securities legislation and requirements of regulatory authorities, become noted upon the register of Warrantholders. If any of the Common Shares in respect of which the Warrants are exercised are to be issued to a person or persons other than the holder (as aforesaid), the holder shall pay to the Agent all requisite stamp transfer taxes or other governmental charges exigible in connection with the issue of such Common Shares to such other person or persons or shall establish to the satisfaction of the Agent that such taxes and charges have been paid or are not exigible. This Warrant Certificate shall not be valid for any purpose whatever unless and until it has been countersigned by or on behalf of the Agent. Time shall be of the essence hereof. The Warrants and the Indenture (and any amendments thereto and instruments supplemental thereto) shall be governed by, performed, construed and enforced in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein and shall be treated in all respects as Ontario contracts. IN THE EVENT THAT THE WARRANTS REPRESENTED BY THE WITHIN CERTIFICATE ARE ACQUIRED PRIOR TO THE DATE ON WHICH THE CORPORATION OBTAINS A RECEIPT FOR A (FINAL) PROSPECTUS QUALIFYING THE DISTRIBUTION OF THE WARRANTS FROM THE SECURITIES REGULATORY AUTHORITY IN THE JURISDICTION IN WHICH THE WARRANTHOLDER IS RESIDENT, THE WARRANTS AND THE COMMON SHARES UNDERLYING THEM MAY BE SUBJECT TO STATUTORY HOLD PERIODS DURING WHICH THESE SECURITIES MAY NOT BE RESOLD IN SUCH PROVINCES EXCEPT PURSUANT TO AN APPLICABLE EXEMPTION FROM THE PROSPECTUS AND REGISTRATION REQUIREMENTS OF APPLICABLE SECURITIES LEGISLATION. IN WITNESS WHEREOF the Sellers have caused this Warrant Certificate to be signed by their respective duly authorized officers as of August 4, 1998 BID.COM INTERNATIONAL INC. Per:___________________________c/s 1184041 ONTARIO INC. Per:___________________________c/s -4- SMYTHE GROUP COMPANY Per:___________________________c/s Countersigned CIBC MELLON TRUST COMPANY Per:________________________________ Authorized Signing Officer -5- EXERCISE INSTRUCTIONS TO WARRANTHOLDER The registered holder hereof may exercise his right to subscribe for Common Shares of BID.COM INTERNATIONAL INC. (the "Corporation") by completing the Exercise Form and surrendering this Warrant Certificate (evidencing a minimum of one Warrant) and the appropriate amount per Common Share subscribed for by way of certified cheque or recognized bank draft payable to or to the order of the Corporation and the duly completed Exercise Form to CIBC Mellon Trust Company by delivering or mailing it to CIBC Mellon Trust Company at its principal stock transfer offices in the City of Toronto at its Stock and Bond Transfer Department as follows: In the City of Toronto: P.O. Box 1036 Adelaide Street Postal Station Toronto, Ontario M5C 2K4 If by hand or courier: Special Projects Securities Level Commerce Court West 199 Bay Street Toronto, Ontario M5L 1G9 IF NOT EXERCISED AT OR PRIOR TO THE EXPIRY TIME, THE WARRANTS EVIDENCED BY THIS CERTIFICATE WILL BE CANCELLED AND BECOME ABSOLUTELY VOID. For your own protection, it would be prudent to forward all documentation to the Agent by registered mail. Subject to adjustment in certain events as described in the Indenture, the maximum number of Common Shares which you may acquire is one Common Share for every whole Warrant set out on the face of this Warrant Certificate (provided that the required subscription proceeds are paid for each one Common Share) unless you are otherwise notified by the Corporation. -6- EXERCISE FORM TO: BID.COM INTERNATIONAL INC. The undersigned hereby exercises the right to subscribe for _________ Common Shares in the capital of BID.COM INTERNATIONAL INC. (or such number of other securities or property to which such Warrants entitle the undersigned in lieu thereof or in addition thereto under the provisions of the Indenture mentioned in the within Warrant Certificate) at a price per share of $1.65 (subject to adjustment in certain events) according to the terms of the Indenture mentioned in the within Warrant Certificate and encloses the necessary subscription monies per Common Share, by way of certified cheque or bank draft (or the adjusted dollar amount per share at which the undersigned is entitled to purchase such shares or other securities or property under the provisions of the Indenture). If any of the Common Shares are to be issued to a person or persons other than the holder in those circumstances as set forth in the within Warrant Certificate, the holder must pay to CIBC Mellon Trust Company all requisite stamp or security transfer taxes or other governmental charges related thereto. Such Common Shares should be delivered to the following address in the name of the person(s) listed below. (Print clearly) Name: Address in Full: Number of Warrants Exercised: Number of Common Shares Subscribed for (equal to the Number of Warrants Exercised rounded down to the nearest whole number of shares): Total Amount of Subscription Funds Enclosed: DATED this day of , 19 . _______________________ Signature of Warrantholder _______________________ Name of Warrantholder (As registered on Warrant Certificate) _______________________ _______________________ _______________________ Print Full Address -7- TRANSFER FORM FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto (Please print or typewrite name and address of assignee) _________________________ Warrant(s) represented by the within certificate, and do(es) hereby irrevocably constitute and appoint _______________________________ __________________________________the attorney of the undersigned to transfer the said Warrant(s) on the register of Warrants maintained by the Agent with full power of substitution hereunder. DATED this ________ day of _______________ , 199__. _____________________ Signature of Warrantholder ____________________________ _____________________ Signature Guarantee Name of Warrantholder (please print) The signature of the Warrantholder to this assignment must correspond exactly with the name of the Warrantholder as set forth on the face of this Warrant certificate in every particular, without alteration or enlargement or any change whatsoever and the signature must be guaranteed by a Canadian chartered bank or by a trust company or by a member firm of any Canadian stock exchange, any of whose signature must be on file with the Agent. -1- ARTICLE 1 INTERPRETATION .................................................... - 2 - -------------- 1.1 DEFINITIONS .................................................. - 2 - ----------- 1.2 ENTIRE INDENTURE ............................................. - 5 - --------------- 1.3 HEADINGS ..................................................... - 5 - -------- 1.4 EXTENDING MEANINGS ........................................... - 5 - ------------------ 1.5 REFERENCES ................................................... - 5 - ---------- 1.6 BUSINESS DAY ................................................. - 5 - ------------ 1.7 MEANING OF "OUTSTANDING": .................................... - 5 - ------------------------ 1.8 TIME ......................................................... - 5 - ---- 1.9 CHOICE OF LANGUAGE ........................................... - 6 - ------------------ 1.10 APPLICABLE LAW: .............................................. - 6 - -------------- ARTICLE 2 ISSUE AND PURCHASE OF WARRANTS .................................... - 6 - ------------------------------ 2.1 FORM AND TERMS OF WARRANTS: .................................. - 6 - -------------------------- 2.2 TRANSFER AND OWNERSHIP OF WARRANTS: (1) ...................... - 6 - ---------------------------------- 2.3 WARRANTHOLDERS NOT SHAREHOLDERS: ............................. - 8 - ------------------------------- 2.4 SIGNING OF WARRANTS: ......................................... - 8 - ------------------- 2.5 COUNTERSIGNING: .............................................. - 8 - -------------- 2.6 LOSS, MUTILATION, DESTRUCTION OR THEFT OF WARRANTS: .......... - 8 - -------------------------------------------------- 2.7 ISSUE OF WARRANTS: ........................................... - 9 - ----------------- 2.8 WARRANTS TO RANK PARI PASSU: ................................. - 9 - --------------------------- 2.9 EXCHANGE OF WARRANTS: ........................................ - 9 - -------------------- 2.10 RECOGNITION OF REGISTERED HOLDER: ............................ - 9 - -------------------------------- ARTICLE 3 COVENANTS OF THE SELLERS .......................................... - 10 - ------------------------ 3.1 COVENANTS OF THE SELLERS: .................................... - 10 - ------------------------ 3.2 SECURITIES QUALIFICATION REQUIREMENTS: ....................... - 11 - ------------------------------------- 3.3 DEPOSIT OF COMMON SHARES UNDERLYING SECONDARY WARRANTS: ...... - 12 - ------------------------------------------------------ ARTICLE 4 ADJUSTMENT TO SUBSCRIPTION RIGHTS ................................. - 13 - --------------------------------- 4.1 ADJUSTMENT TO SUBSCRIPTION RIGHTS: ........................... - 13 - --------------------------------- 4.2 ADJUSTMENT OF PURCHASE PRICE: ................................ - 17 - ---------------------------- 4.3 ADJUSTMENT RULES: ............................................ - 18 - ---------------- 4.4 PROCEEDINGS PRIOR TO ANY ACTION REQUIRING ADJUSTMENT: ........ - 20 - ---------------------------------------------------- 4.5 CERTIFICATE OF ADJUSTMENT: ................................... - 20 - ------------------------- 4.6 NOTICE OF SPECIAL MATTERS: ................................... - 21 - ------------------------- 4.7 NO ACTION AFTER NOTICE: ...................................... - 21 - ---------------------- 4.8 PROTECTION OF AGENT: ......................................... - 21 - ------------------- ARTICLE 5 EXERCISE AND CANCELLATION OF WARRANTS ............................. - 22 - ------------------------------------- 5.1 EXERCISE OF WARRANTS: ........................................ - 22 - -------------------- 5.2 EFFECT OF EXERCISE OF WARRANTS ............................... - 23 - ------------------------------ 5.3 POSTPONEMENT OF DELIVERY OF CERTIFICATES: .................... - 24 - ---------------------------------------- 5.4 CANCELLATION OF WARRANTS: .................................... - 24 - ------------------------ 5.5 WARRANTS VOID AFTER EXPIRY TIME: ............................. - 24 - ------------------------------- 5.6 FRACTIONS OF COMMON SHARES: .................................. - 24 - -------------------------- 5.7 SUBSCRIPTION FOR LESS THAN ENTITLEMENT: ...................... - 24 - --------------------------------------
-2- ARTICLE 6 NON-REDEMPTION ............................................................ - 25 - -------------- 6.1 NON-REDEMPTION OF WARRANTS: .......................................... - 25 - -------------------------- ARTICLE 7 MEETINGS OF WARRANTHOLDERS ................................................ - 25 - -------------------------- 7.1 CONVENING OF MEETING: ................................................ - 25 - -------------------- 7.2 NOTICE: .............................................................. - 25 - ------ 7.3 CHAIRMAN: ............................................................ - 25 - -------- 7.4 QUORUM: .............................................................. - 25 - ------ 7.5 SHOW OF HANDS: ....................................................... - 26 - ------------- 7.6 POLL: ................................................................ - 26 - ---- 7.7 REGULATIONS: ......................................................... - 26 - ----------- 7.8 MINUTES: ............................................................. - 27 - ------- 7.9 POWERS EXERCISABLE BY EXTRAORDINARY RESOLUTION: ...................... - 27 - ---------------------------------------------- 7.10 MEANING OF "EXTRAORDINARY RESOLUTION": .............................. - 28 - ------------------------------------- 7.11 POWERS CUMULATIVE: .................................................. - 29 - ----------------- 7.12 SELLERS, UNDERWRITERS, WARRANTHOLDERS AND AGENT MAY BE REPRESENTED: . - 29 - ------------------------------------------------------------------ 7.13 BINDING EFFECT OF RESOLUTIONS: - 29 - ----------------------------- 7.14 HOLDINGS BY THE SELLERS OR SUBSIDIARIES OF THE SELLERS DISREGARDED: . - 29 - ------------------------------------------------------------------ ARTICLE 8 SUPPLEMENTAL INDENTURES, MERGER, SUCCESSORS ............................... - 30 - ------------------------------------------- 8.1 PROVISION FOR SUPPLEMENTAL INDENTURES FOR CERTAIN PURPOSES: .......... - 30 - ---------------------------------------------------------- 8.2 SELLERS MAY CONSOLIDATE, ETC. ON CERTAIN TERMS: ...................... - 30 - ---------------------------------------------- 8.3 SUCCESSOR BODY CORPORATE SUBSTITUTED: ................................ - 31 - ------------------------------------ 8.4 AMENDMENTS FOR LISTING: .............................................. - 31 - ---------------------- ARTICLE 9 CONCERNING THE AGENT ...................................................... - 32 - -------------------- 9.1 TRUST INDENTURE LEGISLATION: ......................................... - 32 - --------------------------- 9.2 RIGHTS AND DUTIES OF AGENT: .......................................... - 32 - -------------------------- 9.3 EVIDENCE, EXPERTS AND ADVISERS: ...................................... - 34 - ------------------------------ 9.4 DOCUMENTS, MONIES, ETC. HELD BY AGENT: .............................. - 35 - -------------------------------------- 9.5 ACTION BY AGENT TO PROTECT INTERESTS: ............................... - 35 - ------------------------------------- 9.6 AGENT NOT REQUIRED TO GIVE SECURITY: ................................. - 35 - ----------------------------------- 9.7 PROTECTION OF AGENT: ................................................ - 35 - -------------------- 9.8 REPLACEMENT OF AGENT: ............................................... - 36 - --------------------- 9.9 CONFLICT OF INTEREST: ................................................ - 37 - -------------------- 9.10 ACCEPTANCE OF TRUSTS: ................................................ - 37 - -------------------- 9.11 AGENT NOT TO BE APPOINTED RECEIVER: .................................. - 37 - ---------------------------------- 9.12 AUTHORIZATION TO CARRY ON BUSINESS: .................................. - 37 - ---------------------------------- 9.13 LIABILITY OF AGENT: ................................................. - 37 - ------------------- ARTICLE 10 NOTICES ................................................................... - 38 - ------- 10.1 NOTICE TO SELLERS: ................................................... - 38 - ----------------- 10.2 NOTICE TO WARRANTHOLDERS: ............................................ - 38 - ------------------------ 10.3 NOTICE TO AGENT: ..................................................... - 38 - --------------- 10.4 MAIL SERVICE INTERRUPTION: ........................................... - 39 - -------------------------
-3- ARTICLE 11 POWER OF BOARD OF DIRECTORS ............................................... - 39 - --------------------------- 11.1 BOARD OF DIRECTORS: ................................................. - 39 - ------------------ ARTICLE 12 FORMAL EXECUTION AND EFFECTIVE DATE ....................................... - 40 - ----------------------------------- 12.1 SUITS BY WARRANTHOLDERS: ............................................ - 40 - ----------------------- 12.2 WAIVER OF DEFAULT ................................................... - 40 - ----------------- 12.3 FURTHER ASSURANCES: ................................................. - 40 - ------------------ 12.4 SEVERABILITY: ....................................................... - 41 - ------------ 12.5 SATISFACTION AND DISCHARGE OF INDENTURE ............................. - 41 - --------------------------------------- 12.6 FORMAL DATE AND EXECUTION DATE: ..................................... - 41 - ------------------------------ 12.7 COUNTERPARTS: ....................................................... - 41 - ------------ 12.8 ENUREMENT: .......................................................... - 41 - ---------
EX-3.14 8 UNDERWRITING AGREEMENT DATED AUGUST 4, 1998 EXHIBIT 3.14 UNDERWRITING AGREEMENT August 4, 1998 Bid.Com International Inc. (formerly Internet Liquidators International Inc.) 5915 Airport Road Suite 330 Mississauga, Ontario L4V 1T1 - - and - 1184041 Ontario Inc. Smythe Group Company c/o Bid.Com International Inc. 5915 Airport Road Suite 330 Mississauga, Ontario L4V 1T1 Dear Sirs: The undersigned, Yorkton Securities Inc. (the "Underwriter"), understands that Bid.Com International Inc. (formerly Internet Liquidators International Inc.) (the "Company") proposes to create, issue and sell (the "Offering") 8,100,000 special warrants (the "Primary Special Warrants") and that 1184041 Ontario Inc. and Smythe Group Company (collectively, the Selling Shareholders") severally propose to create, issue and sell an aggregate of 500,000 special warrants (collectively, the "Secondary Special Warrants") subject to the terms and conditions set out below. The Primary Special Warrants and the Secondary Special Warrants are herein collectively referred to as the "Special Warrants". Unless previously retracted, each Special Warrant shall be exercisable for units ("Units"), each consisting of one common share ("Common Share") and one-half of one common share purchase warrant ("Warrant") of the Company having the attributes specified herein. Subject to adjustment in certain events, each Special Warrant shall entitle the holder thereof to acquire one Unit upon the exercise of the Special Warrant in accordance with the terms of the Special Warrant Indenture (as hereinafter defined) without payment of any further consideration to the Company. Each whole Warrant shall be exercisable to acquire one Common Share at a price of $1.65 per Common Share for a period ending on the date which is the earlier of (i) ten (10) Business Days (as hereinafter defined) following the date upon which the Company delivers a notice to all holders of Warrants confirming that it has filed a preliminary prospectus or registration statement in connection with a U.S. public offering of at least $7,000,000 and (ii) 12 months following the Closing Date (as hereinafter defined). Upon and subject to the terms and conditions set forth herein, the Underwriter hereby agrees to purchase from the Company 8,100,000 Primary Special Warrants and to purchase from the Selling Shareholders 500,000 Secondary Special Warrants at a price of $1.40 per Special Warrant (the "Purchase Price") for an aggregate purchase price of $11,340,000 payable to the Company and $700,000 payable to the Selling Shareholders and agrees to act as underwriter to arrange for substituted purchasers for the Special Warrants resident in the Qualifying Provinces (as hereinafter defined) or in those jurisdictions outside of Canada where the Special Warrants may be lawfully sold pursuant to the terms and conditions hereof. The Company shall prepare and file, in accordance herewith, a preliminary prospectus and a (final) prospectus in order to qualify the Underlying Securities (as hereinafter defined) and, to the extent permitted by applicable securities regulatory authorities, the Compensation Options (as hereinafter defined) for distribution in each of the Qualifying Provinces. In consideration of the services to be rendered by the Underwriter in connection with such purchase, including assisting in the preparation of the Prospectus and all other matters in connection with the issue and sale of the Special Warrants and the issue of the Underlying Securities, the Company and the Selling Shareholders shall pay, on a pro rata basis, to the Underwriter a commission equal to 8.0% of the gross proceeds realized by the Company and the Selling Shareholders in respect of the sale of the Special Warrants (the "Commission"). In addition, the Company shall grant to the Underwriter the Brokers' Warrants (as hereinafter defined) upon and subject to the provisions of Section 16 of this Agreement. The obligation of the Company and the Selling Shareholders to pay the Commission shall arise at the Closing Time (as hereinafter defined) and the Commission shall be fully earned by the Underwriter at that time (notwithstanding the actual date of payment). DEFINITIONS In this Agreement, in addition to the terms defined above, the following terms shall have the following meanings: "Agreement" means the agreement resulting from the acceptance by the Company of the offer made hereby; "Automatic Retraction Price" shall have the meaning ascribed thereto in subparagraph 3(c); "Business Day" means a day which is not a Saturday, Sunday or statutory or civic holiday in the City of Toronto, Canada; "Brokers' Warrants" shall have the meaning ascribed thereto in subparagraph 16(a); "Canadian Securities Laws" means all applicable securities laws in each of the Qualifying Provinces and the respective regulations made thereunder, together with applicable published fee schedules, prescribed forms, policy statements, orders, blanket rulings and other regulatory instruments of the securities regulatory authorities in such provinces; 2 "Cash Penalty Price" shall have the meaning ascribed thereto in subparagraph 3(b); "Claim" shall have the meaning ascribed thereto in subparagraph 14(b); "Closing Date" means August 4, 1998 or such earlier or later date as the Underwriter and the Company shall in writing agree; "Closing Time" means 2:00 p.m. (Toronto time) on the Closing Date or such other time on the Closing Date as the Company, the Selling Shareholders and the Underwriter may agree; "Company's Auditors" means Deloitte & Touche Inc., Chartered Accountants, or such other firm of chartered accountants as the Company may from time to time appoint as auditors of the Company. "Compensation Options" shall have the meaning ascribed thereto in subparagraph 16(a); "Disclosure Documents" means, at any time, all documents which have been filed as of that time by the Company with any securities regulatory authority or stock exchange having jurisdiction over the securities of the Company; "Discretionary Retraction Price" shall have the meaning ascribed thereto in subparagraph 3(d); "Escrow Agent" shall have the meaning ascribed thereto in subparagraph 3(a); "Escrow Agreement" means an escrow agreement to be dated as of the Closing Date between the Company, the Selling Shareholders, the Escrow Agent and the Underwriter, providing for the escrow and release of the Escrowed Proceeds and in a form to be agreed upon between the Company, the Selling Shareholders, the Escrow Agent and the Underwriter, each acting reasonably; "Escrowed Proceeds" shall have the meaning ascribed thereto in subparagraph 3(a); "Final Prospectus" shall have the meaning ascribed thereto in subparagraph 2(b); "Indemnified Party" shall have the meaning ascribed to it in subparagraph 14(b); "Meeting" shall have the meaning ascribed thereto in subparagraph 3(b); "misrepresentation", "material fact", "material change", "subsidiary", "affiliate", "associate", and "distribution" have the respective meanings ascribed thereto in the Securities Act (Ontario); "Optioned Securities" means, collectively, (i) the Compensation Options issuable upon the exercise of the Brokers' Warrants; (ii) the Common Shares and Warrants comprising the 3 Optioned Units; and (iii) the Warrant Shares issuable upon the exercise of the Warrants comprising the Optioned Units; "Optioned Units" shall have the meaning ascribed thereto in subparagraph 16(a); "person" means any individual, corporation, partnership, joint venture, association, trust or other legal entity; "Preliminary Prospectus" shall have the meaning ascribed thereto in subparagraph 2(a); "Private Placement shall have the meaning ascribed thereto in subparagraph 3(a); "Prospectus" means, collectively, the Preliminary Prospectus and the Final Prospectus; "Prospectus Default" shall have the meaning ascribed thereto in subparagraph 3(e); "Purchasers" means the persons (which may include the Underwriter) who, as purchasers, acquire Special Warrants by duly completing, executing and delivering Subscription Agreements and permitted assignees or transferees of such persons from time to time; "Qualification Date" means, with respect to any Qualifying Province, the date upon which a receipt is issued for the Final Prospectus by the Securities Commission of the Qualifying Province; "Qualification Deadline" shall have the meaning ascribed thereto in subparagraph 3(e); "Qualifying Provinces" means the Province of Ontario and such other Provinces of Canada in which Purchasers who acquire Special Warrants at the Special Warrant Closing are resident; "Right of First Refusal" shall have the meaning ascribed thereto in paragraph 17; "Securities Commissions" means, collectively, the securities commissions or other securities regulatory authorities in the Qualifying Provinces; "Shareholder Approval" shall have the meaning ascribed thereto in subparagraph 3(b); "Shareholders" shall have the meaning ascribed thereto in subparagraph 3(b); "Special Warrant Closing" means the completion of the issue and sale by the Company and the Selling Shareholders of the Special Warrants offered hereunder and the purchase by the Underwriter and the Purchasers of the Special Warrants pursuant to the Subscription Agreements; "Special Warrant Indenture" means a special warrant indenture to be dated as of the Closing Date between the Company, the Selling Shareholders and CIBC Mellon Trust Company, as 4 special warrant agent, providing for the issue of the Special Warrants and in a form to be agreed upon between the Company and the Underwriter, each acting reasonably; "Subscription Agreement" means a subscription agreement in the form agreed upon by the Underwriter , the Selling Shareholders and the Company pursuant to which Purchasers agree to subscribe for and purchase the Special Warrants herein contemplated and shall include, for greater certainty, all schedules thereto; "Subsidiary" shall have the meaning ascribed thereto in subparagraph 8(a)(ii); "Supplementary Material" shall have the meaning ascribed thereto in subparagraph 4(b); "Time of Expiry" means 5:00 p.m. (Toronto time) on the earlier of (i) five (5) Business Days following the Qualification Date; and (ii) one year from the Closing Date; "TSE" means The Toronto Stock Exchange; "Underlying Securities" means collectively, the (i) the Common Shares and Warrants comprising the Units; and (ii) the Warrant Shares issuable on exercise of the Warrants comprising the Units; "Warrant Agent" means CIBC Mellon Trust Company, in its capacity as special warrant agent pursuant to the Special Warrant Indenture, and as warrant agent pursuant to the Warrant Indenture, as the context may require; "Warrant Indenture" means the warrant indenture to be dated as of the Closing Date between the Company , the Selling Shareholders and CIBC Mellon Trust Company, as warrant agent, providing for the creation and issuance of the Warrants and in a form to be agreed upon by the Company , the Selling Shareholders and the Underwriter, each acting reasonably; and "Warrant Shares" means the Common Shares issuable on exercise of the Warrants including, for greater certainty, the Warrants comprising both the Units and the Optioned Units. TERMS AND CONDITIONS 1. (a) Sale on Exempt Basis. The Company and the Selling Shareholders understand that although the offer to act as underwriter with respect to the Offering is presented on behalf of the Underwriter as purchaser, the Underwriter will endeavour to arrange for Purchasers for the Special Warrants in the Qualifying Provinces and in such other jurisdictions outside of Canada on a private placement basis in compliance with all applicable Canadian Securities Laws and all applicable securities laws of such other jurisdictions. (b) Filings. The Company and the Selling Shareholders undertake to file or cause to be filed all forms or undertakings required to be filed by the Company and the Selling Shareholders (as the case may be) in connection with the purchase and sale of the Special Warrants so that the distribution of the Special Warrants may lawfully occur without the necessity of filing a 5 prospectus or an offering memorandum in Canada (but on terms that will permit Underlying Securities acquired by the Purchasers in the Qualifying Provinces to be sold by such Purchasers at any time in the Qualifying Provinces subject to applicable Canadian Securities Laws), and the Underwriter undertakes to use its commercially reasonable efforts to cause Purchasers of Special Warrants to complete any forms required by Canadian Securities Laws, the TSE or under other applicable securities laws. All fees payable in connection with such filings shall be at the expense of the Company and the Selling Shareholders on a pro rata basis. (c) No Offering Memorandum. None of the Company, the Selling Shareholders nor the Underwriter shall (i) provide to prospective purchasers any document or other material that would constitute an offering memorandum within the meaning of Canadian Securities Laws or applicable securities laws of the United States or any state or territory thereof; or (ii) cause the sale of the Special Warrants to be advertised in printed media of general and regular paid circulation, radio or television. 2. (a) Preliminary Prospectus. The Company shall, as soon as practicable following the Special Warrant Closing under applicable Canadian Securities Laws of each of the Qualifying Provinces, prepare, file (and use all reasonable best efforts to obtain a receipt for) a preliminary prospectus (the "Preliminary Prospectus") in form and substance satisfactory to the Company and the Underwriter, each acting reasonably, and other related documents relating to the proposed distribution of the Underlying Securities. The Company shall use its reasonable best efforts to (i) cause the Preliminary Prospectus to be filed in each of the Qualifying Provinces forthwith after the Closing Date; and (ii) satisfy as expeditiously as practicable any comments made by the Securities Commissions in respect of the Preliminary Prospectus. (b) Final Prospectus. The Company shall, as soon as practicable after all comments of the Securities Commissions have been satisfied with respect to the Preliminary Prospectus, prepare and file (and use all commercially reasonable efforts to obtain a receipt for) under applicable Canadian Securities Laws, a (final) prospectus in form and substance satisfactory to the Company, the Selling Shareholders and the Underwriter (the "Final Prospectus"), each acting reasonably, and fulfil and comply with, to the satisfaction of the Underwriter's counsel, acting reasonably, all applicable Canadian Securities Laws to be fulfilled or complied with by the Company to enable the Underlying Securities to be lawfully distributed to the public in the Qualifying Provinces in connection with the exercise of the Special Warrants through the Underwriter or any other investment dealer or broker registered as such in the Qualifying Provinces in compliance with Canadian Securities Laws. The Company shall use all commercially reasonable efforts to ensure that such requirements (including the issuance of a receipt by the Securities Commissions) shall be fulfilled as soon as possible after all regulatory comments and deficiencies have been resolved in connection with the Preliminary Prospectus and, in any event, no later than the Qualification Deadline. 3. Proceeds to be Escrowed and Retraction Right. (a) On the Closing Date, 100% of the gross proceeds derived from the sale of the Special Warrants less an amount equal to 75% of the Commission and the costs and expenses of the Underwriter in connection with the Offering as of the Closing Date (the "Escrowed 6 Proceeds") shall be deposited in escrow with counsel to the Underwriter, Wildeboer Rand Thomson Apps & Dellelce (the "Escrow Agent"), to be held and invested in accordance with the Escrow Agreement. 25% of the Escrowed Proceeds (less a holdback of $200,000 to be applied against any potential payment of the Cash Penalty Price), shall be released to the Company and the Selling Shareholders on a pro rata basis upon the signing of a binding agreement announced in the public domain of a private placement (the "Private Placement") on or before August 15, 1998 pursuant to which a strategic investor purchases not less than 1,500,000 Common Shares of the Company at a price of not less than $1.20 per share. (b) In the event that the Company is unable to obtain the written consent to the Offering by holders of not less than 50% of the Common Shares on or prior to the date that is ten (10) Business Days following the Closing Date, the Company shall convene a special meeting (the "Meeting") of the shareholders of the Company (the "Shareholders") as soon as possible following the Closing Date and in any event within 75 days of the Closing Date in accordance with the by- laws of the Company and applicable corporate and securities laws in order to seek approval of the Offering by the Shareholders (the "Shareholder Approval"). In the event a Meeting must be convened but is not convened within 75 days of the Closing Date, Purchasers shall be entitled to receive from the Escrowed Proceeds an amount (the "Cash Penalty Price") equal to 7% of the Offering Price per Special Warrant for each Primary Special Warrant purchased. Provided that the Shareholder Approval has been obtained, the Private Placement has closed and a receipt has been issued by each of the Securities Commissions, the Escrow Agent shall release the balance of the Escrowed Proceeds less, for greater certainty, the aggregate Automatic Retraction Price and Discretionary Retraction Price, if any, and the remaining 25% of the Commission (together with all interest accrued thereon) and the balance of the estimated costs and expenses of the Underwriter incurred in connection with the Offering to the Company and the Selling Shareholders on a pro rata basis. (c) In the event that the Shareholder Approval is not obtained within 90 days of the Closing Date, the Company shall retract and cancel forthwith following the Meeting, on a pro rata basis, that number of Primary Special Warrants sold pursuant to the Offering less the number of Primary Special Warrants that may be issued and sold by the Company without Shareholder Approval (being a minimum of 1.9 million Special Warrants), at a retraction price per Special Warrant (the "Automatic Retraction Price") equal to the sum of (i) the Purchase Price per Special Warrant (together with all interest accrued thereon); and (ii) 7% of the aggregate Purchase Price of the Primary Special Warrants divided by the number of Primary Special Warrants to be retracted. (d) In the event that the Private Placement has not occurred on or before August 15, 1998 or the Prospectus Default has occurred, the Purchaser shall be entitled, at its option, to require the Company to retract and cancel, on a pro rata basis, up to such number of Special Warrants as may be retracted from the Escrowed Proceeds at a retraction price per Special Warrant (the "Discretionary Retraction Price") equal to the Purchase Price per Special Warrant (together with all interest accrued thereon). For greater certainty, any amounts paid to the Underwriter out of the gross proceeds of the Offering in respect of the Commission or the costs and expenses of the Underwriter shall be paid by the Company to the Escrow Agent prior to the payment of the Discretionary Retraction Price. 7 (e) The Company recognizes that it is fundamental to Purchasers of the Special Warrants that the Private Placement occurs and that the distribution of the Underlying Securities be qualified under a prospectus in the Qualifying Provinces so that the Underlying Securities will be freely tradeable in such Qualifying Provinces without the necessity of the holder thereof filing a prospectus or effecting the trade in a manner which falls within one of the various prospectus exemptions under applicable Canadian Securities Laws. The Company acknowledges that it is for this reason that the Company has agreed that the Preliminary Prospectus and the Final Prospectus are to be filed with the Securities Commissions in the Qualifying Provinces and receipts are to be obtained therefor within the time periods contemplated by this Agreement. Accordingly, it shall be a term of the Special Warrant Indenture pursuant to which the Special Warrants are to be issued that in the event that the Private Placement has not closed on or before August 15, 1998 or in the event that the Final Prospectus has not been filed and receipts issued therefor by each of the Securities Commissions on or prior to the date (the "Qualification Deadline") that is: (i) 90 days after the Closing Date, in the case where the Meeting is not required to be convened; and (ii) 105 days following the Closing Date, in the case where the Meeting is required to be convened, each Special Warrant exercised or deemed to be exercised thereafter shall entitle the holder to receive 1.07 Units (in lieu of one Unit) at no additional cost. In the event that the Final Prospectus has not been filed and a receipt issued therefor, by each of the Securities Regulators on or before the Qualification Deadline (a "Prospectus Default"), the Company will nevertheless continue to be obligated to use commercially reasonable efforts to file and clear the Final Prospectus until the Time of Expiry. For greater certainty, in the event that the Escrowed Proceeds are not sufficient to satisfy the aggregate Automatic Retraction Price or the Cash Penalty Price, the Company shall pay to the Escrow Agent, prior to the return of the Escrowed Proceeds to the Purchasers, an amount equal to the shortfall. 4. (a) Deliveries at Time of Filing. The Company and, in the case of subparagraph (ii) below, the Selling Shareholders shall deliver to the Underwriter contemporaneously with or prior to the filing of the Preliminary Prospectus or the Final Prospectus, as the case may be, with the Ontario Securities Commission: (i) an executed copy of the Preliminary Prospectus or the Final Prospectus, as the case may be, in the English language, and if the Province of Quebec is one of the Qualifying Provinces, in the French language; (ii) executed copies of any other document required to be filed by the Company at such time under the laws of each of the Qualifying Provinces in compliance with Canadian Securities Laws applicable therein; 8 (iii) in the case of the Final Prospectus, a letter of the Company's Auditors dated the date of the Final Prospectus addressed to the Underwriter and the board of directors of the Company, in form and substance satisfactory to the Underwriter, with respect to certain financial and accounting information relating to the Company in the Final Prospectus and which shall be based on a review by the Company's Auditors to a date not more than two Business Days prior to the date of the Final Prospectus and which letter shall be in addition to the Company's Auditors' report contained in the Final Prospectus; and (iv) if the Province of Quebec is one of the Qualifying Provinces, an opinion of Quebec counsel to the Company that the French language version of the Preliminary Prospectus or the Final Prospectus, as the case may be, is an accurate and complete translation of the English language version of the Preliminary Prospectus or the Final Prospectus, as the case may be. (b) Supplementary Material. The Company shall also prepare and deliver promptly to the Underwriter duly signed copies of all amended or supplementary prospectuses or supplemental statements and related documents required to be filed by the Company under the laws of any Qualifying Province or by Canadian Securities Laws and of any amendment to the Preliminary Prospectus or the Final Prospectus or other document required to be filed under paragraph 7 of this Agreement (collectively, the "Supplementary Material"). The Prospectus and the Supplementary Material shall be in form and substance satisfactory to the Underwriter, acting reasonably. (c) Copies. The Company shall cause copies of the Preliminary Prospectus and the Final Prospectus in the English language, and if the Province of Quebec is one of the Qualifying Provinces, in the French language, to be delivered to the Underwriter without charge, in such numbers and in such cities in the Qualifying Provinces as the Underwriter may reasonably request. Such delivery shall be effected as soon as practicable and, in any event, on or before a date two Business Days after the filing thereof with the Ontario Securities Commission. The Company shall similarly cause to be delivered copies of any Supplementary Material. The Underwriter shall cause to be delivered to holders of Special Warrants copies of the Final Prospectus and any required Supplementary Materials. 5. Representation as to Prospectus and Supplementary Material. Delivery of the Prospectus and any Supplementary Material shall constitute a representation and warranty by the Company and the Selling Shareholders (as between the Selling Shareholders, such representations shall be several, but not joint) to the Underwriter, the Purchasers and their permitted assigns that all information and statements (except information and statements relating solely to or provided solely by the Underwriter) contained in the Prospectus and Supplementary Material are true and correct in all material respects at the time of delivery thereof and contain no misrepresentations and constitute full, true and plain disclosure of all material facts relating to the Company and the Underlying Securities and that no material fact or information has been omitted therefrom (except facts or information relating solely to the Underwriter) which is required to be stated therein or is necessary to make the statements or information contained 9 therein not misleading in light of the circumstances under which they were made. Such delivery shall also constitute the Company's and the Selling Shareholders' consent to the Underwriter's use of the Prospectus, any Supplementary Material and any other public documents supplied to the Underwriter by the Company for the distribution of the Underlying Securities in the Qualifying Provinces in compliance with the provisions of this Agreement and Canadian Securities Laws. 6. Covenants. (a) Covenants. The Company and, in the case of subparagraphs (ii), (iii), (iv), (vii), (ix) and (xiv) below, the Selling Shareholders hereby covenant to the Underwriter and to the Purchasers and their permitted assigns and acknowledge that each of them is relying on such covenants in purchasing Special Warrants, that the Company and, in the case of subparagraphs (ii), (iii), (iv), (vii), (ix) and (xiv) below, the Selling Shareholders shall: (i) at all times, remain a reporting issuer under Canadian Securities Laws not in default of any requirement of such Canadian Securities Laws; (ii) allow the Underwriter and their representatives to conduct all due diligence which the Underwriter may reasonably require to be conducted prior to the date of the Final Prospectus in order to fulfil their obligations as Underwriter under Canadian Securities Laws and in order to enable the Underwriter responsibly to execute any certificate required to be executed by the Underwriter in connection with a Prospectus, and it shall be a condition precedent to the Underwriter's execution of any certificate in any Prospectus that they be satisfied, acting reasonably, as to the form and content of such Prospectus; (iii) duly execute and deliver the Escrow Agreement, Special Warrant Indenture, the Subscription Agreements, the Warrant Indenture, the Special Warrants and the Brokers' Warrants (as the case may be) at the Closing Time, and comply with and satisfy all terms, conditions and covenants therein contained to be complied with or satisfied by the Company; (iv) use its best efforts to fulfil or cause to be fulfilled, at or prior to the Closing Date, each of the conditions set out in paragraph 10; (v) ensure that the Special Warrants shall be duly and validly created, authorized and issued on payment of the purchase price therefor, and shall have attributes corresponding in all material respects to the description thereof set forth in this Agreement and the Subscription Agreements; (vi) ensure that the Underlying Securities shall, upon issuance, be duly issued as fully paid and non-assessable securities in the capital of the Company, and shall have attributes corresponding in all material respects to the description thereof set forth in this Agreement and the Subscription Agreements; 10 (vii) ensure that at all times prior to the expiry thereof, sufficient Common Shares are allotted and reserved or deposited for issuance upon the due exercise of the Special Warrants, the Warrants and the Compensation Options; (viii) ensure that as soon as possible following the Closing Date, the Common Shares issuable on exercise of the Special Warrants and the Compensation Options and the Warrant Shares issuable on exercise of the Warrants are listed and posted for trading on TSE upon their respective dates of issuance; (ix) maintain the Warrant Agent or a substituted licensed trust company as the transfer agent and registrar in respect of the Common Shares, as special warrant agent in respect of the Special Warrants, as warrant agent in respect of the Warrants (as the case may be); (x) ensure that the net proceeds from the issue and sale of the Primary Special Warrants are used for advertising and marketing, business- to-business development, research and development and working capital; (xi) not issue or announce the issuance of any Common Shares or any securities convertible into or exchangeable for or exercisable to acquire Common Shares without the prior consent of Yorkton, which consent shall not be unreasonably withheld, other than pursuant to: (A) presently outstanding rights or agreements, including options, warrants and other convertible securities (including the Special Warrants, the Warrants, the Brokers' Warrants and the Compensation Options); (B) presently outstanding options granted to officers, directors, employees or consultants of the Company or any subsidiary pursuant to existing stock option plans as detailed in the Company's management information circular dated as of May 15, 1998; or (C) the issuance of 440,000 Common Shares in full satisfaction of amounts owing to a bona fide trade creditor at a deemed issue price of not less than the price paid pursuant to the Private Placement; (xii) on or prior to August 18, 1998, the Company shall use its reasonable best efforts to obtain the written consent to the offering of holders of not less than 50% of the Common Shares, failing which the Company covenants and agrees to convene the Meeting as soon as possible and in any event prior to 75 days in accordance with the by-laws of the Company and applicable corporate and securities laws in order to obtain the Shareholder Approval; (xiii) the Company shall deliver or cause to be delivered to the Underwriter, on or prior to the Closing Date, irrevocable undertakings of the principal shareholders of the Company to vote all of their Common Shares in favour of the Offering if the Meeting is required; and (xiv) in the event that a Prospectus Default occurs, to apply to such Securities Commissions as the Underwriter may reasonably require for a discretionary ruling to ensure that the Common Shares and Warrants exercisable on exercise of the 11 Secondary Special Warrants are not subject to the prospectus and registration requirements of applicable Canadian Securities laws. (b) Underwriter's Obligation. The obligation of the Underwriter to execute any certificate or deliver any documents pertaining to either the Preliminary Prospectus or the Final Prospectus shall be conditional upon compliance by the Company to the date of such execution and delivery with those of its covenants contained in this Agreement to be complied with prior to the filing of either the Preliminary Prospectus or the Final Prospectus, as the case may be. 7. (a) Material Changes During Distribution. During the period from the date hereof to the completion of distribution of the Underlying Securities, the Company and, if known to the Selling Shareholders, the Selling Shareholders shall promptly notify the Underwriter (and, if requested by the Underwriter, confirm such notification in writing) of: (i) any material change (actual, anticipated, contemplated or threatened, financial or otherwise) in the business, affairs, operations, assets, liabilities (contingent or otherwise) or capital of the Company and its subsidiaries; (ii) any material fact which has arisen and would have been required to have been stated in the Final Prospectus had the fact arisen on, or prior to, the date of the Final Prospectus; and (iii) any change in any material fact contained in the Final Prospectus or the Supplementary Material or any amendments or supplements thereto which change is, or may be, of such a nature as to render any material statement in the Final Prospectus or any Supplementary Material misleading or untrue or which would result in a misrepresentation in the Final Prospectus or Supplementary Material or which would result in the Final Prospectus or Supplementary Material not complying (to the extent that such compliance is required) with the Canadian Securities Laws or which would reasonably be expected to have a significant effect on the market price or value of the Underlying Securities. During the period from the date hereof to the completion of distribution of the Underlying Securities, the Company and, if known to the Selling Shareholders, the Selling Shareholders shall promptly, and in any event, within any applicable time limitation, comply with all applicable filing and other requirements under Canadian Securities Laws as a result of such change; provided that the Company and, if applicable, the Selling Shareholders shall not file any Supplementary Material or other document without first obtaining approval of the Underwriter, after consultation with the Underwriter with respect to the form and content thereof, which approval shall not be unreasonably withheld. The Company shall in good faith discuss with the Underwriter any fact or change in circumstances (actual, anticipated, contemplated or threatened, and financial or otherwise) which is of such a nature that there is reasonable doubt as to whether notice in writing need be given to the Underwriter pursuant to this paragraph 7. (b) Change in Canadian Securities Laws. If during the period of distribution to the public of the Underlying Securities, there shall be any change in Canadian Securities Laws which in the 12 opinion of counsel to the Company or counsel to the Underwriter requires the filing of Supplementary Material, the Company shall, to the satisfaction of its counsel and the Underwriter's counsel, promptly prepare and file such Supplementary Material with the appropriate securities regulatory authority in each of the Qualifying Provinces where such filing is required. 8. (a) Representations and Warranties of the Company. The Company represents and warrants to the Underwriter, the Purchasers and their permitted assigns, and acknowledges that each of them is relying upon such representations and warranties in purchasing Special Warrants, that: (i) the Company has been duly amalgamated and is validly existing under the laws of Ontario, has all requisite power and authority and is duly qualified to carry on its business as now conducted and to own its properties and assets and the Company has all requisite power and authority to carry out its obligations under this Agreement, the Special Warrant Indenture, the Warrant Indenture and the Brokers' Warrants; (ii) the only material subsidiary of the Company is Internet Liquidators USA Inc. (the "Subsidiary") which has been duly incorporated and is validly existing under the laws of the State of Florida, has all requisite power and authority and is duly qualified to carry on its business as now conducted and to own its properties and assets; (iii) all consents, approvals, permits, authorizations or filings as may be required under Canadian Securities Laws and the rules and regulations of the TSE necessary for the execution and delivery of and the performance by the Company of its obligations under this Agreement, the Special Warrants, the Special Warrant Indenture, the Warrant Indenture, the Brokers' Warrants and the Compensation Options have been made or obtained, as applicable; (iv) each of the execution and delivery of this Agreement, the Subscription Agreement, the Special Warrant Indenture, the Warrant Indenture, the Brokers' Warrants and the Compensation Options, the performance by the Company of its obligations hereunder or thereunder, the sale of the Special Warrants hereunder and the consummation of the transactions contemplated in this Agreement, including the issuance and delivery of the Underlying Securities and the Optioned Securities, do not and will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, (whether after notice or lapse of time or both), (A) any statute, rule or regulation applicable to the Company including, without limitation, Canadian Securities Laws; (B) the constating documents, by-laws or resolutions of the Company which are in effect at the date hereof; (C) any mortgage, note, indenture, contract, agreement, instrument, lease or other document to which the Company or any of its subsidiaries is a party or by which it is bound; or (D) any judgment, decree or 13 order binding the Company or any of its subsidiaries or the property or assets of the Company or any of its subsidiaries; (v) the Company is in compliance with its timely disclosure obligations under Canadian Securities Laws and the rules and regulations of the TSE and, without limiting the generality of the foregoing, there has not occurred any material adverse change, financial or otherwise, in the assets, liabilities (contingent or otherwise), business, financial condition, capital or prospects of the Company since December 31, 1997, which has not been publicly disclosed; (vi) none of the Disclosure Documents contains a misrepresentation at the date of filing thereof which has not been corrected and, without limiting the generality of the foregoing, the Disclosure Documents disclose all material facts relating to the Company and its subsidiaries, assets, undertaking, ownership and securities; (vii) the audited financial statements of the Company as at and for the period ended December 31, 1997, and the unaudited interim financial statements as at and for the six month period ended June 30, 1998 have been prepared in accordance with generally accepted accounting principles and present fully, fairly and correctly the financial position of the Company as at the dates thereof and the results of its operations and the changes in its financial position for the periods then ended; (viii) as at the Closing Date, except as contemplated by this Agreement, and other than stock options to acquire Common Shares pursuant to the Company's stock option plan as detailed in the Company's management information circular dated as of May 15, 1998, no holder of outstanding shares in the capital of the Company will be entitled to any pre-emptive or any similar rights to subscribe for any of the Common Shares or other securities of the Company and no rights, warrants or options to acquire, or instruments convertible into or exchangeable for, any shares in the capital of the Company are outstanding; (ix) no legal or governmental proceedings are pending to which the Company or any subsidiary is a party or to which the property of any of them is subject that would result individually or in the aggregate in any material adverse change in their operation, business or condition of the Company and, to the knowledge of the Company and its subsidiaries, no such proceedings have been threatened against or are contemplated with respect to the Company or any subsidiary or with respect to any of their respective properties; (x) the Company and each of its subsidiaries have conducted and are conducting their business in material compliance with all applicable laws and regulations of each jurisdiction in which they carry on business (including, without limitation, all applicable Canadian and United States federal, provincial, state, municipal and local environmental anti-pollution and licensing laws, regulations and other lawful requirements of any governmental or regulatory body) and have not received a notice of non-compliance, or knows of, or has reasonable grounds to 14 know of, any facts that could give rise to a notice of non- compliance with any such laws or regulations which would have a material adverse effect on the Company on a consolidated basis; (xi) the Company and each of its subsidiaries have all licenses, leases, permits, authorizations and other approvals (collectively, "Licenses") and the proprietary rights provided in law and at equity to all patents, trademarks, copyrights, industrial designs, software, firmware, trade secrets, know-how, show-how, concepts, information and other intellectual and industrial property (collectively, "Intellectual Property") necessary to permit them to conduct their business as currently conducted, except where the failure to do so would not have a material adverse effect on the Company on a consolidated basis; (xii) the Company is the holder of and in good standing under all of its Licenses and is the exclusive owner of Intellectual Property free and clear of any encumbrances which would have a material adverse effect on the Company, and has no knowledge of any claim of adverse ownership in respect thereof; (xiii) this Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting the rights of creditors generally and except as limited by the application of equitable principles when equitable remedies are sought, and by the fact that rights to indemnity, contribution and waiver, and the ability to sever unenforceable terms, may be limited by applicable law; (xiv) at the Closing Time, each of this Agreement, the Subscription Agreements, the Special Warrant Indenture, the Warrant Indenture, the Escrow Agreement, the Brokers' Warrants, the Compensation Options and the Special Warrants shall have been duly authorized and, other than the Compensation Options, executed and delivered by the Company and upon such execution and delivery each shall constitute a valid and binding obligation of the Company and each shall be enforceable against the Company in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting the rights of creditors generally and except as limited by the application of equitable principles when equitable remedies are sought, and by the fact that rights to indemnity, contribution and waiver, and the ability to sever unenforceable terms, may be limited by applicable law; (xv) at the Closing Time, all necessary corporate action will have been taken by the Company to allot and authorize the issuance of the Underlying Securities and the Optioned Securities, and upon due exercise of the Special Warrants, the Warrants, the Brokers' Warrants and the Compensation Options in accordance with the provisions thereof, such Underlying Securities and Optioned Securities (as the 15 case may be) will be validly issued as fully paid and non- assessable securities in the capital of the Company; (xvi) the authorized capital of the Company consists of an unlimited number of Common Shares and an unlimited number of Preference Shares, issuable in series, of which 21,963,912 Common Shares are issued and outstanding as fully paid and non-assessable; (xvii) the Company is the registered and beneficial owner of all the issued and outstanding shares in the capital of each of its subsidiaries, free and clear of any claim, lien, security interest or other encumbrance which would have a material adverse effect on the Company, and no person has any right, warrant or option to acquire, or other instrument convertible into or exchangeable for, any shares in the capital of its subsidiaries; (xviii) the Company is a reporting issuer not in default of its obligations under applicable securities laws in the Province of Ontario; (xix) the Company and each of its subsidiaries have timely filed all necessary federal, provincial, state, local and foreign tax returns and notices and has paid or made provision for all applicable taxes of whatever nature for all tax years to the date hereof to the extent such taxes have become due or have been alleged to be due and the Company is not aware of any material tax deficiencies or material interest or penalties accrued or accruing, or alleged to be accrued or accruing thereon which have not otherwise been provided for by the Company; (xx) the Company has no material investment or other interest in, and has not made any loans to or guaranteed the obligations of, any person other than its subsidiaries; (xxi) the Warrant Agent, at its principal office in the City of Toronto, has been duly appointed as registrar and transfer agent in respect of the Common Shares, as special warrant agent in respect of the Special Warrants, as warrant agent in respect of the Warrants; (xxii) other than the Underwriter there is no person acting or purporting to act at the request or on behalf of the Company, that is entitled to any brokerage or finder's fee in connection with the transactions contemplated by this Agreement; (xxiii) no order ceasing or suspending trading in the securities of the Company has been issued and no proceedings for this purpose have been instituted or, to the best of its knowledge and belief, are pending, contemplated or threatened; (xxiv) the Common Shares are listed and posted for trading on the TSE and all necessary notices and filings have been made with and all necessary consents, approvals and authorizations obtained from the TSE to ensure that the Common Shares issuable 16 on exercise of the Special Warrants and the Compensation Options, and the Warrant Shares issuable on the exercise of the Warrants will be listed and posted for trading on the TSE upon their issuance; and (xxv) the business conducted by the Subsidiary is limited to credit card processing and inventory procurement. (b) Representations and Warranties of the Selling Shareholders. Each of the Selling Shareholders, Paul Godin and Jeffrey Lymburner individually represents and warrants to the Underwriter, the Purchasers and their permitted assigns, and acknowledges that each of them is relying upon such representations and warranties in purchasing Special Warrants, that: (i) the Selling Shareholder is or at the Closing Time will be the direct registered and beneficial owner of and has or will have at the Closing Time valid and marketable title to sufficient Underlying Securities free and clear of any lien, claim, security interest or other encumbrance, including, without limitation, any restrictions on transfer, to satisfy its obligation upon exercise of the Secondary Special Warrants and the Warrant Shares issuable upon exercise of the Warrants comprising the Secondary Special Warrants; (ii) the Selling Shareholder is not in possession of any material information concerning the business or affairs of the Company which has not been disclosed to the Underwriter; (iii) the Selling Shareholder has or will have at the Closing Time full legal right, power and authorization, and any approval required by law, to sell, assign, transfer and deliver such Selling Shareholder's Secondary Special Warrants in the manner provided in this Agreement and upon delivery of and payment for such Selling Shareholder's Secondary Special Warrants hereunder the Purchasers thereof will acquire valid and marketable title to such Selling Shareholder's Secondary Special Warrants free and clear of any lien, claim, security interest, or other encumbrance; (iv) each of this Agreement, the Special Warrant Indenture, the Escrow Agreement, the Warrant Indenture and the Subscription Agreements has duly authorized and duly executed and delivered by the Selling Shareholder and constitutes a valid and binding obligation of the Selling Shareholder enforceable against such Selling Shareholder in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting the rights of creditors generally and except as limited by the application of equitable principles when equitable remedies are sought, and by the fact that rights to indemnity, contribution and waiver, and the ability to sever unenforceable terms, may be limited by applicable law; (v) the execution and delivery of this Agreement, the Special Warrant Indenture, the Warrant Indenture, the Escrow Agreement and the Subscription Agreements by 17 the Selling Shareholder, the sale of such Selling Shareholder's Secondary Special Warrants pursuant to this Agreement and the consummation of the transactions contemplated in this Agreement, including the delivery of Underlying Securities upon the exercise of the Selling Shareholder's Secondary Special Warrants, do not and will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under (whether after notice or lapse of time or both) any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Selling Shareholder is a party or by which the Selling Shareholder is or may be bound or to which any of the Selling Shareholder's property or assets are subject, nor does or will such action conflict with or violate any statute, law, rule, regulation, ruling, judgment, injunction, order or decree applicable to the Selling Shareholder or to any property or assets of the Selling Shareholder; (vi) other than as may be required under Canadian Securities Laws, no consent, approval, authorization, order, registration or qualification of or with any court or governmental agency or body is required for the sale of the Selling Shareholder's Secondary Special Warrants to be sold by the Selling Shareholder as contemplated by this Agreement or the consummation of the transactions contemplated in this Agreement, including the transfer and delivery of Underlying Securities upon the exercise of such Secondary Special Warrants; (vii) the Selling Shareholder will pay all taxes, if any, on the transfer by the Selling Shareholder of such Selling Shareholder's Secondary Special Warrants to Purchasers or in respect of the transfer and delivery by such Selling Shareholders of Underlying Securities pursuant to the exercise of such Secondary Special Warrants; and (viii) the Selling Shareholder will do or perform all things (A) required to be done or performed by the Selling Shareholder prior to the Special Warrant Closing Date to satisfy all conditions precedent to the delivery of the Selling Shareholder's Secondary Special Warrants pursuant to this Agreement; and (B) that are within its power and are necessary or desirable to give effect to all transactions contemplated by this Agreement and the Final Prospectus, including the transfer and delivery of Underlying Securities upon the exercise of such Secondary Special Warrants. (c) Representations, Warranties and Covenants of the Underwriter. The Underwriter hereby represents, warrants and covenants to the Company and the Selling Shareholders, and acknowledges that the Company and the Selling Shareholders are relying upon such representations and warranties, that: (i) in respect of the offer and sale of the Special Warrants, the Underwriter will comply with all Canadian Securities Laws and all applicable laws of the jurisdictions outside Canada in which they offer Special Warrants; 18 (ii) the Underwriter and its representatives have not engaged in or authorized, and will not engage in or authorize, any form of general solicitation or general advertising in connection with or in respect of the Special Warrants or the Underlying Securities in any newspaper, magazine, printed media of general and regular paid circulation or any similar medium, or broadcast over radio or television or in any seminar or meeting whose attendees have been invited by any general solicitation or general advertising or otherwise; (iii) the Underwriter will not solicit offers to purchase or sell the Special Warrants so as to require the filing of a prospectus with respect thereto or the provision of a contractual right of action (as defined in section 32(1) of the Regulation made under the Securities Act (Ontario)) under the laws of any jurisdiction, including without limitation, the United States of America or any state thereof; (iv) the Underwriter will, subject to compliance by the Company and the Selling Shareholders with their obligations hereunder and provided that it shall otherwise be responsible for the Underwriter to do so, execute and deliver to the Company and the Selling Shareholders any certificate required to be executed by it under Canadian Securities Laws in connection with the Preliminary Prospectus, Final Prospectus and any Supplementary Material; (v) the Underwriter shall obtain the prior written approval of the Company to any allocation of more than 20% of the Special Warrants to any one Purchaser; and (vi) the Underwriter shall provide such ongoing research coverage of the Company as the Underwriter may from time to time deem to be appropriate. It is understood and agreed that the Company and, for purposes of the opinions to be delivered pursuant to Section 10, counsel to the Company and the Selling Shareholders, will rely on the accuracy and truth of the representations and warranties set forth in this subsection 8(c). 9. Special Warrant Closing Deliveries. The purchase and sale of the Special Warrants shall be completed at the Closing Time at the offices of Gowling, Strathy & Henderson, Toronto, or at such other place as the Underwriter, the Selling Shareholders and the Company may agree upon. At or prior to the Closing Time, the Company and the Selling Shareholders shall duly and validly deliver to the Underwriter certificates in definitive form representing Special Warrants registered in the names of such Purchasers or as indicated on their respective Subscription Agreements, against payment at the direction of the Company and the Selling Shareholders of the subscription price therefor, in lawful money of Canada by certified cheque or banker's draft payable at par in the City of Toronto. 10. Special Warrant Closing Conditions. Each Purchaser's obligation to purchase the Special Warrants at the Closing Time shall be conditional upon the fulfilment at or before the Closing Time of the following conditions: 19 (a) the Underwriter shall have received a certificate, dated as of the Closing Date, signed by the Chief Executive Officer and the Chief Financial Officer of the Company, or such other officers of the Company as the Underwriter may agree, certifying for and on behalf of the Company, to the best of the knowledge, information and belief of the persons so signing, that: (i) since December 31, 1997 (A) there has been no material change (actual, anticipated, contemplated or threatened, whether financial or otherwise) in the business, affairs, operations, assets, liabilities (contingent or otherwise) or capital of the Company and its subsidiaries, except as has been publicly disclosed on a non- confidential basis; and (B) no transaction has been entered into by the Company or any of its subsidiaries which is or would be material to the Company and its subsidiaries on a consolidated basis except as has been publicly disclosed on a non-confidential basis; (ii) no order, ruling or determination having the effect of suspending the sale or ceasing the trading in any securities of the Company (including the Special Warrants, the Underlying Securities and the Optioned Securities) has been issued by any regulatory authority and is continuing in effect and no proceedings for that purpose have been instituted or are pending or, to the knowledge of such officers, contemplated or threatened by any regulatory authority; (iii) the Company has duly complied with all the terms, covenants and conditions of this Agreement on its part to be complied with up to the Closing Time; (iv) the representations and warranties of the Company contained in this Agreement are true and correct as of the Closing Time with the same force and effect as if made at and as of the Closing Time after giving effect to the transactions contemplated by this Agreement; and (v) such other matters as the Underwriter may reasonably request; (b) the Underwriter shall have received at the Closing Time certificates dated the Closing Date, signed by appropriate officers of the Company addressed to the Underwriter and its counsel, with respect to the articles and by- laws of the Company, all resolutions of the Company's board of directors relating to this Agreement, the Special Warrant Indenture, the Warrant Indenture, the Escrow Agreement, the Brokers' Warrants, the Compensation Options and the transactions contemplated hereby and thereby, the incumbency and specimen signatures of signing officers, the constating documents of the Company and such other matters as the Underwriter may reasonably request; (c) the Special Warrant Indenture, the Subscription Agreements, the Warrant Indenture, the Escrow Agreement, the Brokers' Warrants and the certificates representing the Special Warrants shall have been executed and delivered by the parties thereto in form and substance satisfactory to the Underwriter and its counsel, acting reasonably; 20 (d) the Underwriter shall have received favourable legal opinions addressed to the Underwriter and counsel to the Underwriter, in form and substance satisfactory to the Underwriter's counsel, dated the Closing Date, from Messrs. Gowling, Strathy & Henderson, counsel for the Company, as to the laws of Canada and the Qualifying Provinces, which counsel in turn may rely upon the opinions of local counsel where they deem such reliance proper as to the laws other than those of Canada and the Province of Ontario and, as to matters of fact, on certificates of auditors, public officials and officers of the Company, with respect to the following matters: (i) as to the incorporation and subsistence of the Company and the Subsidiary under the laws of their jurisdiction of incorporation and as to the corporate power of the Company to carry out its obligations under this Agreement, the Subscription Agreements, the Special Warrant Indenture, the Warrant Indenture, the Brokers' Warrants and the Compensation Options and to issue the Special Warrants, the Underlying Securities and the Optioned Securities; (ii) as to the authorized capital of the Company and the Subsidiary; (iii) the Company and the Subsidiary has all requisite corporate power and authority under the laws of its jurisdiction of incorporation to carry on its business as presently carried on and to own its properties and the Company has all requisite corporate power and authority to carry out the transactions contemplated by this Agreement, the Subscription Agreements, the Special Warrant Indenture, the Warrant Indenture, the Escrow Agreement, the Brokers' Warrants and the Compensation Options; (iv) none of the execution and delivery of this Agreement, the Subscription Agreements, the Special Warrant Indenture, the Warrant Indenture, the Escrow Agreement, the Brokers' Warrants and the Compensation Options, the performance by the Company of its obligations hereunder and thereunder, or the sale or issuance of the Primary Special Warrants, the Underlying Securities and the Optioned Securities will conflict with or result in any breach of the constating documents or by-laws of the Company; (v) each of this Agreement, the Subscription Agreements, the Special Warrant Indenture, the Warrant Indenture, the Escrow Agreement, the Brokers' Warrants and the Compensation Options has been duly authorized and, other than the Compensation Options, executed and delivered by the Company, and constitute or, in the case of the Compensation Options, upon execution and delivery shall constitute, a valid and legally binding agreement of the Company enforceable against it in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, liquidation, reorganization, moratorium or similar laws affecting the rights of creditors generally and except as limited by the application of equitable principles when equitable remedies are sought, and the qualification that the enforceability of rights of indemnity and contribution may be limited by applicable law; 21 (vi) the Underlying Securities and the Optioned Securities have been authorized and allotted for issuance to the holders of the Special Warrants and the Underwriter (as the case may be) and, upon the due exercise of the Special Warrants, the Warrants, the Brokers' Warrants and the Compensation Options in accordance with the provisions thereof, such Underlying Securities and Optioned Securities (as the case may be) will be validly issued as fully paid and non-assessable securities in the capital of the Company; (vii) the Primary Special Warrants (A) have been validly created and issued by the Company; (B) have been duly executed and delivered by the Company; and (C) are valid, legal and binding obligations of the Company enforceable in accordance with their terms subject to qualifications as in subclause (v) above; (viii) the issuance and sale by the Company of the Primary Special Warrants to the Purchasers and the Brokers' Warrants to the Underwriter are exempt from the prospectus and registration requirements of applicable Canadian Securities Laws and no documents are required to be filed (other than specified forms accompanied by requisite filing fees), proceedings taken or approvals, permits, consents or authorizations obtained under the applicable Canadian Securities Laws to permit such issuance and sale; and the issuance of the Underlying Securities and Optioned Securities upon the exercise of the Primary Special Warrants, the Warrants, the Brokers' Warrants and the Compensation Options (as the case may be) is exempt from the prospectus and registration requirements of applicable Canadian Securities Laws subject to certain provisos and specified resale restrictions; (ix) upon the filing of the Final Prospectus and the issuance of receipts therefor under applicable Canadian Securities Laws, all legal requirements will have been fulfilled by the Company under the Canadian Securities Laws to qualify, without resort to the prospectus exemption provisions of such applicable laws, the distribution in each of the Qualifying Provinces of the Underlying Securities issuable upon the exercise of Primary Special Warrants in accordance with the Special Warrant Indenture, the Warrant Shares issuable upon the exercise of Warrants in accordance with the Warrant Indenture, the Compensation Options issuable upon the exercise of the Brokers' Warrants, and the Optioned Securities issuable upon the exercise of the Compensation Options and that the issuance of such Underlying Securities and Optioned Securities by the Company upon such exercise will be exempt from the registration requirements of such applicable laws subject to certain provisos and will not be subject to any statutory hold period and no other documents will be required to be filed, proceedings taken, or approvals, permits, consents, or authorizations obtained under the Canadian Securities Laws to permit the trading in the Qualifying Provinces of such Underlying Securities and Optioned Securities, through registrants registered under applicable laws who have complied with such applicable laws or in 22 circumstances in which there is an exemption from the registration requirements of such applicable laws, subject to usual exceptions; (x) the Warrant Agent has been duly appointed by the Company as registrar and transfer agent in respect of the Common Shares, as special warrant agent in respect of the Special Warrants, as warrant agent in respect of the Warrants; (xi) the Company is a reporting issuer not on the list of defaulting reporting issuers maintained pursuant to the applicable securities laws in the Province of Ontario; and (xii) the TSE has conditionally approved the listing of the Common Shares of the Company issuable upon exercise or deemed exercise of the Primary Special Warrants, the Compensation Option and the Warrants comprising the Units issuable on exercise of the Primary Special Warrants, subject to compliance with its conditions on or prior to August 27, 1998. (e) the Underwriter shall have received certificates of status or similar certificates with respect to each jurisdiction in which the Company and the Subsidiary is required to be licensed to carry on a material part of its business; (f) the Underwriter shall have received at the Closing Time a certificate executed by each of the Selling Shareholders, Paul Godin and Jeffrey Lymburner and dated the Closing Date addressed to the Underwriter, the Underwriter's counsel and the Purchasers certifying that: (i) such Selling Shareholder has duly complied with all terms and conditions of this Agreement on the Selling Shareholder's part to be complied with up to the Closing Time; and (ii) the representations and warranties of the Selling Shareholders, Paul Godin and Jeffrey Lymburner contained in this Agreement are true and correct as of the Closing Time with the same force and effect as if made at and as of the Closing Time after giving effect to the transactions contemplated hereby; (g) the Underwriter shall have received at the Closing Time certificates dated the Closing Date, signed by appropriate officers of each Selling Shareholder addressed to the Underwriter and its counsel, with respect to the articles and by-laws of such Selling Shareholder, all resolutions of such Selling Shareholder's board of directors relating to this Agreement, the Special Warrant Indenture, the Warrant Indenture, the Escrow Agreement and the transactions contemplated hereby and thereby, the incumbency and specimen signatures of signing officers, the constating documents of the Selling Shareholder and such other matters as the Underwriter may reasonably request; (h) the Underwriter shall have received a favourable legal opinion dated the Closing Date and addressed to the Underwriter, its counsel and each of the Purchasers, from counsel to 23 the Selling Shareholders being Messrs. Gowling, Strathy & Henderson, with respect to the following matters: (i) as to the incorporation and subsistence of the Selling Shareholders under the laws of their jurisdiction of incorporation and as to the corporate power of the Selling Shareholders to carry out their obligations under this Agreement, the Subscription Agreement, the Escrow Agreement, the Special Warrant Indenture and the Warrant Indenture and to issue the Secondary Special Warrants; (ii) the Selling Shareholders have all requisite corporate power and authority under the laws of their jurisdiction of incorporation to carry on their business as presently carried on and to own their properties and the Selling Shareholders have all requisite corporate power to carry out the transactions contemplated by this Agreement, the Subscription Agreement, the Escrow Agreement, the Special Warrant Indenture and the Warrant Indenture, the Secondary Special Warrants and the Underlying Securities; (iii) none of the execution and delivery of this Agreement, the Subscription Agreement, the Escrow Agreement, the Special Warrant Indenture and the Warrant Indenture, the Secondary Special Warrants and the Underlying Securities, the performance by the Selling Shareholders of their obligations hereunder and thereunder, or the sale, issuance or transfer of the Secondary Special Warrants and the Underlying Securities will conflict with or result in any breach of the constating documents or by-laws of the Selling Shareholders; (iv) each of this Agreement, the Subscription Agreements, the Secondary Special Warrants, the Special Warrant Indenture and the Warrant Indenture has been, duly authorized and duly executed and delivered by each Selling Shareholder, and constitutes a valid and legally binding agreement of such Selling Shareholder enforceable against it in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, liquidation, reorganization, moratorium or similar laws affecting the rights of creditors generally and except as limited by the application of equitable principles when equitable remedies are sought, and the qualification that the enforceability of rights of indemnity and contribution may be limited by applicable law; (v) the Secondary Special Warrants (A) have been validly created and issued by each Selling Shareholder; (B) have been duly executed and delivered by each Selling Shareholder; and (C) are valid, legal and binding obligations of each Selling Shareholder enforceable in accordance with their terms subject to qualifications as in subclause (iv) above; (vi) the issuance and sale of the Secondary Special Warrants by the Selling Shareholders to the Purchasers are exempt from the prospectus and registration requirements of applicable Canadian Securities Laws and no documents are required to be filed (other than specified forms accompanied by requisite filing 24 fees), proceedings taken or approvals, permits, consents or authorizations obtained under applicable Canadian Securities Laws to permit such issuance and sale; (vii) the transfer of the Underlying Securities upon the exercise of the Secondary Special Warrants is exempt from the prospectus and registration requirements of Canadian Securities Laws of any of the Qualifying Provinces, subject to certain provisos and specified resale restrictions; (viii) upon the filing of the Final Prospectus and the issuance of receipts therefor under Canadian Securities Laws, all legal requirements will have been fulfilled by the Selling Shareholders under the Canadian Securities Laws to qualify, without resort to the prospectus exemption provisions of such applicable laws, the transfer of the Underlying Securities in each of the Qualifying Provinces upon the exercise of the Secondary Special Warrants in accordance with the Special Warrant Indenture and the transfer of the Warrant Shares upon the exercise of the Warrants comprising the Secondary Special Warrants in accordance with the Warrant Indenture, and that the transfer of such Underlying Securities and Warrant Shares by the Selling Shareholders upon such exercise will be exempt from the registration requirements of such applicable laws subject to certain provisos, and the transfer of the Underlying Securities by the Selling Shareholders upon such exercise of the Secondary Special Warrants will be exempt from the registration requirements of such applicable laws, subject to certain provisos and the Underlying Securities will not be subject to any statutory hold period and no other documents will be required to be filed, proceedings taken, or approvals, permits, consents, or authorizations obtained under the Canadian Securities Laws to permit the trading of such Underlying Securities in the Qualifying Provinces through registrants registered under applicable laws who have complied with such applicable laws or in circumstances in which there is an exemption from the registration requirements of such applicable laws, subject to usual exceptions; and (ix) the Warrant Agent has been duly appointed by the Selling Shareholders as Warrant Agent in respect of the Warrants and as Special Warrant Agent in respect of the Secondary Special Warrants; which opinion shall be in form and substance satisfactory to the Underwriter and its counsel, acting reasonably; (i) the Underwriter shall have received favourable legal opinions addressed to the Underwriter, counsel to the Underwriter and to each of the Purchasers, in form and substance satisfactory to the Underwriter's counsel, dated the Closing Date, from Baer Marks & Upham LLP, U.S. counsel for the Company, as to the laws of the United States, which counsel in turn may as to matters of fact rely upon public officials and officers of the Company; 25 (j) the Underwriter shall have received a certificate of the registrar and transfer agent of the Company as to the number of issued and outstanding Common Shares; (k) the Underwriter shall have received a certificate issued by the Ontario Securities Commission as to the status of the Company as a reporting issuer under the Securities Act (Ontario); (l) holders of not less than 7,500,000 Common Shares shall have executed and delivered written consents to the Offering as required by the TSE; and (m) each of the Selling Shareholders, America Online, Inc. and Toronto Star Newspapers Limited shall have executed and delivered irrevocable undertakings to vote all of their Common Shares in favour of the Offering if the Meeting is required and not to sell, transfer, assign or otherwise dispose of any securities of the Company for a period ending ten (10) business days after the Qualification Date, without the prior written consent of the Underwriter. 11. Rights of Termination (a) Litigation. If any enquiry, action, suit, investigation or other proceeding whether formal or informal is instituted or threatened or any order is made by any federal, provincial or other governmental authority in relation to the Company or any of the officers or directors of the Company or any of its principal shareholders which, in the reasonable opinion of the Underwriter, operates to prevent or restrict the distribution or trading of the Special Warrants or the Underlying Securities which may reasonably be seen to materially and adversely affect the financial markets or the business, affairs or profitability of the Company or the future market price or the present or future value of the securities of the Company, the Underwriter shall be entitled, at its option and in accordance with subparagraph 11(f) of this Agreement, to terminate its obligations under this Agreement (and the obligations of the Purchasers arranged by them to purchase Special Warrants) by notice to that effect given to the Company any time prior to the Closing Time. (b) Disaster Out Clause. In the event that prior to the Closing Time there should develop, occur or come into effect any occurrence of national or international consequence or any event, action, condition, law, governmental regulation, inquiry or other occurrence of any nature whatsoever which, in the reasonable opinion of the Underwriter, seriously adversely affects or involves, or will seriously adversely affect or involve, the Canadian financial markets or the business, operations or affairs of the Company and its subsidiaries on a consolidated basis, the Underwriter shall be entitled at its option, in accordance with subparagraph 11(f) of this Agreement, to terminate its obligations under this Agreement (and the obligations of the Purchasers arranged by them to purchase Special Warrants) by written notice to that effect given to the Company prior to the Closing Time. (c) Change in Material Fact. In the event that prior to the Closing Time there should occur any material change, there should be discovered any previously undisclosed material fact, or there should occur a change in any material fact such as is contemplated by subparagraph 7(a), 26 which results or, in the reasonable opinion of the Underwriter, could reasonably be expected to result, in the Purchasers of a material number of Special Warrants exercising their contractual right of rescission granted to the Purchasers in respect of the Special Warrants or the rights of rescission or damages under section 130 of the Securities Act (Ontario) or the corresponding provisions of applicable securities legislation in the other Qualifying Provinces or, in the reasonable opinion of the Underwriter, has or could reasonably be expected to have a material adverse effect on the market price or value of the Special Warrants or the Underlying Securities, the Underwriter shall be entitled, at its option, in accordance with subparagraph 11(f), to terminate their obligations under this Agreement (and the obligations of the Purchasers arranged by them to purchase Special Warrants) by written notice to that effect given to the Company prior to the Closing Time. (d) Non-Compliance With Conditions. The Company agrees that all terms and conditions in this Agreement shall be construed as conditions and complied with so far as the same relate to acts to be performed or caused to be performed by the Company that it will use its best efforts (or all commercially reasonable efforts, as applicable) to cause such conditions to be complied with, and any breach or failure by the Company to comply with any of such conditions shall entitle the Underwriter, or any of them, at their option in accordance with subparagraph 11(f), to terminate its obligations under this Agreement (and the obligations of the Purchasers arranged by them to purchase Special Warrants) by notice to that effect given to the Company at or prior to the Closing Time. The Underwriter may waive, in whole or in part, or extend the time for compliance with, any terms and conditions without prejudice to its rights in respect of any other of such terms and conditions or any other or subsequent breach or non- compliance, provided that any such waiver or extension shall be binding upon the Underwriter only if the same is in writing and signed by it. (e) Cease Trade Order. In the event that any order to cease trading in securities of the Company is made or threatened by a securities regulatory authority, the Underwriter shall be entitled, at its option, in accordance with subparagraph 11(f) of this Agreement, to terminate its obligations under this Agreement (and the obligations of the Purchasers arranged by them to purchase Special Warrants) by written notice to that effect given to the Company prior to the Special Warrant Closing Time. (f) Exercise of Termination Rights. The rights of termination contained in subparagraphs 11(a), (b), (c), (d) and (e) may be exercised by the Underwriter and are in addition to any other rights or remedies the Underwriter may have in respect of any default, act or failure to act or non-compliance by the Company in respect of any of the matters contemplated by this Agreement or otherwise. In the event of any such termination, there shall be no further liability on the part of the Underwriter to the Company or on the part of the Company to the Underwriter except in respect of any liability which may have arisen or may arise after such termination in respect of acts or omissions prior to such termination under paragraphs 12, 14 and 15. 12. Expenses. Whether or not the sale of the Special Warrants or the issuance of the Underlying Securities upon exchange of such Special Warrants shall be completed, all expenses of or incidental to the issue and delivery of such Special Warrants and Underlying Securities or incidental to all matters in connection with the transactions herein set out shall be borne by the 27 Company and the Selling Shareholders, on a pro rata basis, including, without limitation, expenses in connection with the issuance and sale of the Special Warrants, all private placement fees required under Canadian Securities Laws, the qualification of the Underlying Securities for distribution to the public, the fees and expenses of counsel to the Company and all local counsel selected by the Company, the reasonable fees and expenses of counsel to the Underwriter to a maximum of $75,000 (exclusive of disbursements and all applicable GST), with the balance, if any, being the obligation of the Underwriter, the fees and expenses of the Warrant Agent and Escrow Agent, all out-of-pocket expenses of the Underwriter, and all costs incurred in connection with the preparation and printing of the Preliminary Prospectus, the Final Prospectus and any Supplementary Material. All fees and expenses incurred by the Underwriter or on their behalf prior to the Closing Time shall be payable by the Company at the Closing Time and any such expenses incurred thereafter shall be payable from the Escrowed Proceeds in accordance with the Escrow Agreement. 13. Survival of Representations and Warranties. All warranties, representations, covenants and agreements herein contained or contained in any documents submitted pursuant to this Agreement and in connection with the transaction herein contemplated shall survive the purchase and sale of the Special Warrants and the exchange of such Special Warrants for the Underlying Securities by the Purchasers and continue in full force and effect for the benefit of the Purchasers for a period of three years from the Closing Date and shall not be limited or prejudiced by any investigation made by or on behalf of the Underwriter in connection with the purchase and sale of the Special Warrants or the preparation of the Preliminary Prospectus, the Final Prospectus or otherwise. 14. (a) Indemnity. The Company and the Selling Shareholders, severally and not jointly, in proportion to the gross subscription proceeds payable to the Company and each Selling Shareholder, shall indemnify and save harmless the Underwriter and its directors, officers, employees and agents from and against all liabilities, claims, actions, suits, proceedings, losses (other than loss of profits), costs, damages and expenses in any way caused by, or arising directly or indirectly from, or in consequence of: (i) any misrepresentation or alleged misrepresentation (as such term is defined in the Securities Act (Ontario)) contained herein or made by the Company or the Selling Shareholders in connection with the sale by the Company and the Selling Shareholders of the Special Warrants or the Underlying Securities, or in any material change report or public document filed or issued by the Company or on its behalf prior to the date of the Final Prospectus; (ii) any information or statement (except any information or statement relating solely to the Underwriter) contained in the Prospectus or any Supplementary Material or in any certificate of the Company delivered under this Agreement or pursuant to this Agreement which at the time and in the light of the circumstances under which it was made contains or is alleged to contain a misrepresentation; (iii) any omission or alleged omission to state in the Prospectus, any Supplementary Material or any certificate of the Company delivered under this Agreement or 28 pursuant to this Agreement any fact (except facts relating solely to the Underwriter), whether material or not, required to be stated in such document or necessary to make any statement in such document not misleading in light of the circumstances under which it was made; (iv) any order made or enquiry, investigation or proceedings commenced or threatened by any securities commission or other competent authority based upon any untrue statement or omission or alleged untrue statement or alleged omission or any misrepresentation or alleged misrepresentation (except a statement or omission or alleged statement or omission relating solely to the Underwriter) in the Prospectus or any Supplementary Material or based upon any failure to comply with Canadian Securities Laws (other than any failure or alleged failure to comply by the Underwriter), preventing or restricting the trading in or the sale or distribution of the Special Warrants or the Underlying Securities in any of the Qualifying Provinces; or (v) the non-compliance or alleged non-compliance by the Company with any of the Canadian Securities Laws, including the Company's non- compliance with any statutory requirement to make any document available for inspection. (b) Notification of Claims. If any matter or thing contemplated by this paragraph (any such matter or thing being referred to as a "Claim") is asserted against any person or company in respect of which indemnification is or might reasonably be considered to be provided, such person or company (the "Indemnified Party") will notify the Company and the Selling Shareholders as soon as possible of the nature of such Claim and the Company and the Selling Shareholders shall be entitled (but not required) to assume the defence of any suit brought to enforce such Claim; provided, however, that the defence shall be conducted through legal counsel acceptable to the Indemnified Party acting reasonably and that no settlement of any such Claim may be made by the Company, the Selling Shareholders or the Indemnified Party without the prior written consent of the other party. (c) Right of Indemnity in Favour of Others. With respect to any Indemnified Party who is not a party to this Agreement, the Underwriter shall obtain and hold the rights and benefits of this paragraph and paragraph 15 in trust for and on behalf of such Indemnified Party. (d) Retaining Counsel. In any such Claim, the Indemnified Party shall have the right to retain other counsel to act on his or its behalf and to participate in the defence thereof, provided that the fees and disbursements of such counsel shall be paid by the Indemnified Party unless: (i) the Company, the Selling Shareholders and the Indemnified Party shall have mutually agreed to the retention of the other counsel; (ii) the Company and the Selling Shareholders fails to assume the defence of such Claim on behalf of the Indemnified Party within ten days of receiving notice of such Claim; or (iii) the named parties to any such Claim (including any added third party) include both the Indemnified Party and the Company and/or the Selling Shareholders and the Indemnified Party shall have been advised by counsel that representation of the Indemnified Party by counsel for the Company is inappropriate as a result of potential or actual differing interests of those represented; in each of which cases the Company shall not have the right to 29 assume the defence of such Claim on behalf of the Indemnified Party but the Company and the Selling Shareholders shall be liable to pay the reasonable fees and disbursements of counsel to the Indemnified Party. 15. (a) Contribution. In order to provide for a just and equitable contribution in circumstances in which the indemnity provided in paragraph 14 would otherwise be available in accordance with its terms but is, for any reason, held to be unavailable to or unenforceable by the Underwriter or enforceable otherwise than in accordance with its terms, the Company, the Selling Shareholders and the Underwriter shall severally contribute to the aggregate of all claims, expenses, costs and liabilities and all losses (other than loss of profits) of a nature contemplated in paragraph 14 in such proportions so that the Underwriter is responsible for the portion represented by the percentage that the aggregate fee payable by the Company and the Selling Shareholders to the Underwriter bears to the aggregate offering price of the Special Warrants and the Company and the Selling Shareholders are responsible for the balance, whether or not it has been sued together or sued separately. The Underwriter shall not in any event be liable to contribute, in the aggregate, any amounts in excess of such aggregate fee or any portion of such fee actually received. However, no party who has engaged in any fraud, fraudulent misrepresentation or gross negligence shall be entitled to claim contribution from any person who has not engaged in such fraud, fraudulent misrepresentation or gross negligence. (b) Right of Contribution in Addition to Other Rights. The rights to contribution provided in this paragraph 15 shall be in addition to and not in derogation of any other right to contribution which the Underwriter may have by statute or otherwise at law. (c) Calculation of Contribution. In the event that the Company and the Selling Shareholders may be held to be entitled to contribution from the Underwriter under the provisions of any statute or at law, the Company or any or all of the Selling Shareholders shall be limited to contribution in an amount not exceeding the lesser of: (i) the portion of the full amount of the loss or liability giving rise to such contribution for which the Underwriter is responsible, as determined in subparagraph 15(a) above; and (ii) the amount of the aggregate fee actually received by the Underwriter from the Company and the Selling Shareholders under this Agreement. (d) Notice. If the Underwriter has reason to believe that a claim for contribution may arise, they shall give the Company and the Selling Shareholders notice of such claim in writing, as soon as reasonably possible, but failure to notify the Company shall not relieve the Company or the Selling Shareholders of any obligation which it may have to the Underwriter under this paragraph. 16. (a) Brokers' Warrants and Compensation Options. In consideration for the Underwriter's services in (i) obtaining Purchasers for the Special Warrants and assisting in the preparation and completion of the offering of Special Warrants contemplated by this Agreement; (ii) assisting in the preparation of the Preliminary Prospectus, Final Prospectus and the 30 Supplementary Material; (iii) forming and managing any banking, selling or other groups established by the Underwriter in its sole discretion in connection with the distribution of the Special Warrants; (iv) distributing the Special Warrants, both directly and through other registered dealers and brokers in the Qualifying Provinces; and (v) all other matters in connection with the issue and sale of the Special Warrants in the Qualifying Provinces, the Company hereby irrevocably and unconditionally agrees to issue to the Underwriter on the Closing Date, irrevocable non-assignable special brokers' warrants (the "Brokers' Warrants") exercisable, without payment of additional consideration, into irrevocable non-assignable options (the "Compensation Options") to purchase up to such number of Units as is equal to 10.0% of the aggregate number of Special Warrants which are sold pursuant to the Offering and not retracted pursuant to paragraph 3 (the "Optioned Units") exercisable in whole or in part during the period commencing as at the Closing Date and expiring on the date that is fifteen (15) months after the Closing Date, at an exercise price of $1.40 per Optioned Unit. (b) Qualification of Compensation Options. Subject to Canadian Securities Laws and as may be permitted by applicable securities regulatory authorities, the Prospectus shall qualify for distribution all of the Compensation Options issuable upon exercise of the Brokers' Warrants. The Compensation Options may be exercised by the Underwriter, at any time in whole or from time to time in part from the time granted until their expiry (initially, up to each Agent's pro rata portion thereof) upon delivering written notice to the Company together with a certified cheque or bank draft representing the subscription price for the applicable number of Optioned Units. In exercising the Compensation Options (whether in whole or in part), the Underwriter may, at its sole discretion, in lieu of satisfying the exercise price in cash, elect to receive that number of Warrants as is equal to one-half of the Compensation Options being exercised and that number of Common Shares of the Corporation equal to the quotient of: x(FMV - $1.40) -------------- FMV where, x = the number of Compensation Options to be exercised; and FMV = the closing price of the Commons Shares on the principal stock exchange or quotation system on which the Common Shares are then listed or quoted for trading on the trading day immediately prior to such election by the Underwriter. (c) Anti-Dilution Provisions. If the Company subdivides, consolidates or otherwise changes, reorganizes or reclassifies its Common Shares in any way, declares any stock dividend, or becomes subject to any amalgamation, arrangement, business combination, reorganization or other similar transaction prior to the expiry of the Compensation Options (each such event being a "capital reorganization event"), the Compensation Options shall be similarly subdivided, consolidated, reorganized, reclassified or changed such that the Underwriter receive, on any exercise of the Compensation Options subsequent to the effective date of such capital reorganization event, the same number and type of securities that they would have otherwise received had they fully exercised such Compensation Options (including the Warrants 31 comprising the Optioned Units) prior to each such capital reorganization event. The exercise price shall be adjusted accordingly and notice shall be given to the Underwriter of such adjustment. If the Underwriter disagrees with such adjustment the matter shall be determined conclusively by the Company's Auditors at the expense of the Company. The Company shall at all times while the Compensation Options are in effect, reserve and keep available out of its authorized but unissued Common Shares, such number of Common Shares as shall from time to time be required to be issued on each exercise of the Compensation Options (including the Warrants comprising the Optioned Units) and such additional Common Shares as may be issuable as a result of each capital reorganization event). If any Common Shares required to be reserved for purposes of issuance upon any exercise of Compensation Options require, in addition to such compliance with the Canadian Securities Laws as is contemplated by this Agreement, any additional registration with or approval of any authority under the Canadian Securities Laws, or listing on any securities exchange on which the Common Shares or other securities as may be issuable as a result of any capital reorganization event may then be listed, before they may be issued, the Company shall cause them to be duly registered, approved and listed forthwith following the exercise of such Compensation Options. 17. Right of First Refusal. The Underwriter shall be granted the right of first refusal (the "Right of First Refusal") to act as lead or co-lead manager of any offering of securities of the Company in Canada and to act as a managing underwriter (with a minimum of 20% participation) in any offering of securities of the Company in the Unites States by the Company for a period of two (2) years from the Closing Date. It is acknowledged and agreed by the parties that the Right of First Refusal is conditional upon the Underwriter's publication, within six (6) months of the Closing Date, of a standalone research report on the Company prepared in accordance with standard investment industry practice, failing which the Underwriter's right of first refusal shall terminate. 18. Advertisements. The Company and the Selling Shareholders acknowledge that the Underwriter shall have the right, subject always to clauses 1(a) and (c) of this Agreement, at its own expense, to place such advertisement or advertisements relating to the sale of the Special Warrants or the Underlying Securities contemplated herein as the Underwriter may consider desirable or appropriate and as may be permitted by applicable law. The Company, the Selling Shareholders and the Underwriter each agree that they will not make or publish any advertisement in any media whatsoever relating to, or otherwise publicise, the transaction provided for herein so as to result in any exemption from the prospectus and registration requirements of applicable securities legislation in any of the provinces of Canada or any other jurisdiction in which the Special Warrants or Underlying Securities shall be offered or sold being unavailable in respect of the sale of the Special Warrants to prospective purchasers. 19. Contractual Right of Action for Rescission. As part of the Subscription Agreements, the Company has delivered, and shall be deemed to have delivered, to the Purchasers (including the Underwriter) contractual rights of action for rescission at the Special Warrant Closing Time or subsequent thereto. 32 20. Notices. Unless otherwise expressly provided in this Agreement, any notice or other communication to be given under this Agreement (a "notice") shall be in writing addressed as follows: (a) If to the Company, to it at: 5915 Airport Road Suite 330 Mississauga, Ontario L4V 1T1 Attention: Paul Godin Telecopier: (905) 672-5705 with a copy to: Gowling, Strathy & Henderson Commerce Court West Suite 4900 Toronto, Ontario M5L 1J3 Attention: Neil Steenberg Telecopier: (416) 862-7661 (b) If to the Selling Shareholders, to them at: c/o Bid.Com International Inc. 5915 Airport Road Suite 330 Mississauga, Ontario L4V 1T1 Telecopier: (905) 672-5705 With a copy to: Gowling, Strathy & Henderson Commerce Court West Suite 4900 Toronto, Ontario M5L 1J3 Attention: Neil Steenberg Telecopier: (416) 862-7661 33 (c) If to the Underwriter, to: Yorkton Securities Inc. 181 Bay Street Suite 3100 Toronto, Ontario M5J 2T3 Attention: Brian Campbell Telecopier: (416) 864-1043 with a copy to: Wildeboer Rand Thomson Apps & Dellelce 1 First Canadian Place Suite 810 Toronto, Ontario M5X 1A9 Attention: Troy Pocaluyko Telecopier: (416) 361-1790 or to such other address as any of the parties may designate by notice given to the others. Each notice shall be personally delivered to the addressee or sent by telex or facsimile transmission to the addressee and (i) a notice which is personally delivered shall, if delivered on a Business Day, be deemed to be given and received on that day and, in any other case, be deemed to be given and received on the first Business Day following the day on which it is delivered; and (ii) a notice which is sent by telex or facsimile transmission shall be deemed to be given and received on the first Business Day following the day on which it is sent. 21. Time of the Essence. Time shall, in all respects, be of the essence hereof. 22. Canadian Dollars. All references herein to dollar amounts are to lawful money of Canada. 23. Headings. The headings contained herein are for convenience only and shall not affect the meaning or interpretation hereof. 24. Singular and Plural, etc. Where the context so requires, words importing the singular number include the plural and vice versa, and words importing gender shall include the masculine, feminine and neuter genders. 25. Entire Agreement. This Agreement constitutes the only agreement between the parties with respect to the subject matter hereof and shall supersede any and all prior negotiations and 34 understandings. This Agreement may be amended or modified in any respect by written instrument only. 26. Severability. The invalidity or unenforceability of any particular provision of this Agreement shall not affect or limit the validity or enforceability of the remaining provisions of this Agreement. 27. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein. 28. Successors and Assigns. The terms and provisions of this Agreement shall be binding upon and enure to the benefit of the Company, the Selling Shareholders, the Underwriter and the Purchasers and their respective executors, heirs, successors and permitted assigns; provided that, except as provided herein or in the Subscription Agreements, this Agreement shall not be assignable by any party without the written consent of the others. 29. Further Assurances. Each of the parties hereto shall do or cause to be done all such acts and things and shall execute or cause to be executed all such documents, agreements and other instruments as may reasonably be necessary or desirable for the purpose of carrying out the provisions and intent of this Agreement. 30. Effective Date. This Agreement is intended to and shall take effect as of the date first set forth above, notwithstanding its actual date of execution or delivery. 31. Language. The parties hereby acknowledge that they have expressly required this Agreement and all notices, statements of account and other documents required or permitted to be given or entered into pursuant hereto to be drawn up in the English language only. Les parties reconnaissent avior expressment demandees que la presente Convention ainsi que tont avis, tout etnt de compte et tout autre document a etre ou pouvant etre donne ou conclu en vertu des dispositions des presentes, soient rediges en langue anglaise seulement. 32. Counterparts. This Agreement may be executed in any number of counterparts, which taken together shall form one and the same agreement. If the Company and the Selling Shareholders are in agreement with the foregoing terms and conditions, please so indicate by executing a copy of this letter where indicated below and delivering the same to the Underwriter. Yours very truly, YORKTON SECURITIES INC. Per: "Brian Campbell" ----------------------------- Authorized Signing Officer 35 The foregoing is hereby accepted on the terms and conditions therein set forth. DATED as of August 4, 1998. BID.COM INTERNATIONAL INC. Per: "Paul Godin" ------------------------------ Authorized Signing Officer 1184041 ONTARIO INC. Per: "Paul Godin" ------------------------------ Authorized Signing Officer SMYTHE GROUP INC. Per: "Jeffrey Lymburner" ------------------------------ Authorized Signing Officer "Paul Godin" "Robert Wortzman" ------------------------------ ------------------------------ Paul Godin Witness "Jeffrey Lymburner" "Robert Wortzman" ------------------------------ ----------------------------- Jeffery Lymburner Witness 36 EX-3.17 9 FORM OF SUBSCRIPTION AGREEMENT DATED NOVEMBER 30, 1998 EXHIBIT 3.17 BID.COM INTERNATIONAL INC. SUBSCRIPTION AND PURCHASE AGREEMENT U.S. PURCHASERS TO: BID.COM INTERNATIONAL INC, AND TO: 1184041 ONTARIO INC. SMYTHE GROUP COMPANY AND TO: YORKTON SECURITIES INC. 1. SUBSCRIPTION ------------ The undersigned (the "Purchaser") hereby irrevocably subscribes for and agrees to purchase, on and subject to the terms and conditions set forth herein and in the Underwriting Agreement and the Special Warrant Indenture (each as defined below), from Bid.Com International Inc. (the "Corporation") such number of special warrants of the Corporation ("Special Warrants") as set forth in section 19 (collectively the "Purchased Warrants") at a price of $1.75 per Special Warrant (the "Subscription Price"). The Purchased Warrants form part of a larger offering (the "Offering") of 5,714,984 Special Warrants (the "Treasury Special Warrants"), to be issued and sold by the Corporation and 400,000 Special Warrants (the "Secondary Special Warrants") to be issued and sold by 1184041 Ontario Inc., a corporation controlled by Paul Godin and Smythe Group Company, a corporation controlled by Jeffrey Lymburner (collectively, the "Selling Securityholders") on a pro rata basis (or such other basis as the Selling Securityholders and the Underwriter (as hereinafter defined) may otherwise agree) pursuant to an underwriting agreement (the "Underwriting Agreement") to be entered into by Yorkton Securities Inc. (the "Underwriter"), the Selling Securityholders and the Corporation on November 30, 1998 or such other date as the Corporation, the Selling Securityholders and the Underwriter may agree (the "Closing Date"). Certain details of the Offering are provided in the term sheet attached hereto as Schedule I. 2. DESCRIPTION OF SPECIAL WARRANTS ------------------------------- The specific attributes of the Special Warrants shall be set forth in the Special Warrant Indenture, which will provide, among other things, that the holders of Special Warrants shall be entitled to receive, upon the exercise thereof and without payment of any consideration, one unit of the Corporation ("Unit"). Each Unit will consist of one common share of the Corporation ("Common Share") and one-quarter of one Common Share purchase warrant ("Warrant"). Each whole Warrant will entitle the holder thereof to acquire one Common Share at a price of $1.75 per Common Share for a period ending on the date which is the earlier of: (i) ten (10) business days following the date on which the Corporation delivers a notice (a "U.S. Offering Notice") to all holders of Warrants confirming that it has filed a preliminary prospectus or registration statement in connection with a U.S. public offering (a "U.S. Offering") of at least $7,000,000; and (ii) December 31, 1999. The Purchaser hereby acknowledges and understands that notwithstanding the delivery of a U.S. Offering Notice, a U.S. Offering may not proceed to completion for a variety of reasons including, without limitation, the state of the financial markets and the demand for the Corporation's securities at the relevant time. ACCORDINGLY, THE DELIVERY OF A U.S. OFFERING NOTICE SHALL NOT CONSTITUTE OR BE DEEMED TO CONSTITUTE A GUARANTEE OR ASSURANCE BY THE CORPORATION OR THE UNDERWRITER THAT A U.S. OFFERING WILL BE COMPLETED AND, IN DETERMINING WHETHER OR NOT TO EXERCISE THEIR WARRANTS, HOLDERS ARE ADVISED TO CAREFULLY CONSIDER THE POSSIBILITY THAT A U.S. OFFERING MAY NEVER BE INITIATED AND, IF INITIATED, ULTIMATELY MAY NOT PROCEED. The Common Shares and the Warrants issuable on exercise of the Special Warrants are collectively referred to herein as the "Subject Securities". Unless previously retracted, the Special Warrants shall be exercisable by the holders thereof at any time and will be automatically exercised at 5:00 p.m. (Toronto time) on the earlier of the following dates (such date being the "Expiry Date"): (i) the fifth business day after a receipt is issued by the last of the relevant securities regulatory authorities (the "Securities Regulators") in each of the provinces in which a Purchaser is resident (the "Qualifying Jurisdictions") for a (final) prospectus (the "Final Prospectus") qualifying the Units issuable on the exercise of the Special Warrants; and (ii) one year after the Closing Date. IN THE EVENT THAT THE CORPORATION IS UNABLE TO OBTAIN A RECEIPT FOR THE FINAL PROSPECTUS IN A QUALIFYING JURISDICTION, THE SPECIAL WARRANTS AND SUBJECT SECURITIES MAY BE SUBJECT TO STATUTORY RESALE RESTRICTIONS UNDER THE APPLICABLE SECURITIES LEGISLATION OF THAT PROVINCE. IN ADDITION, STATUTORY RESTRICTIONS MAY APPLY ON THE RESALE OF THE SUBJECT SECURITIES THAT ARE ACQUIRED PRIOR TO THE ISSUANCE OF RECEIPTS FOR THE PROSPECTUS BY THE SECURITIES REGULATORY AUTHORITIES IN ANY OF THE QUALIFYING JURISDICTIONS. PURCHASERS ARE ADVISED TO CONSULT THEIR OWN LEGAL ADVISORS IN THIS REGARD. At the Closing, 75% of the gross proceeds of the Offering (net of an amount equal to the 75% of Underwriter's commission and estimated costs and its expenses incurred in connection with the Offering) shall be paid to the Corporation and Selling Shareholders on a pro rata basis. The balance of the proceeds (the "Escrowed Proceeds") shall be deposited into escrow with a mutually agreed upon escrow agent (the "Escrow Agent"). If the Final Prospectus is not filed and a receipt issued therefor by the last of the Securities Regulators on or before the date (such date being hereinafter referred to as the "Qualification Deadline") that is 90 days after the Closing Date each Special Warrant exercised or deemed to be exercised thereafter shall entitle the holder to receive 1.05 Units (in lieu of one Unit). In the event that the Final Prospectus has not been filed and receipts issued therefor by the last of the Securities Regulators in each of the Qualifying Jurisdictions or on before the Qualification Deadline, the Purchasers shall be entitled, at their option, at any time until 5:00 p.m. -2- on the fifth business day after the Qualification Deadline (the "Retraction Deadline") to require the Corporation to retract and cancel on a pro rata basis up to such number of Special Warrants as may be retracted from the Escrowed Proceeds at a retraction price per Special Warrant (the "Retraction Price") equal to the Subscription Price per Special Warrant (together with all interest accrued thereon). For greater certainty, any amounts paid to the Underwriter out of the gross proceeds of the Offering in respect of the Underwriter's commission or expenses shall be paid by the Corporation to the Escrow Agent prior to payment of the Retraction Price. In the event that the Escrowed Proceeds are not sufficient to satisfy the Retraction Price, the Corporation shall pay to the Escrow Agent, prior to the return of the Escrowed Proceeds to the Purchasers, an amount equal to the shortfall. In the event that a Final Prospectus is filed before the Qualification Deadline, on the Expiry Date, then the Escrow Agent shall release the Escrowed Proceeds less, the remaining 25% of the commission payable to the Underwriter (together with all interest accrued thereon) and the balance of the estimated costs and expenses of the Underwriter incurred in connection with the offering to the Company and the Selling Shareholder on a pro rata basis. In the event that a Final Prospectus is not filed on or prior to the Qualification Deadline, the Escrow Agent shall release the balance of the Escrowed Proceeds less, for greater certainty the aggregate Retraction Price, if any, and the remaining 25% of the commission payable to the Underwriter (together with all interest accrued thereon) and the balance of the estimated costs and expenses of the Underwriter incurred in connection with the offering to the Company and the Selling Shareholder on a pro rata basis. THE PURCHASER ACKNOWLEDGES AND AGREES THAT THE RIGHTS OF SPECIAL WARRANTHOLDERS MAY BE MODIFIED UNDER THE SPECIAL WARRANT INDENTURE PURSUANT TO AN EXTRAORDINARY RESOLUTION APPROVED EITHER BY SPECIAL WARRANTHOLDERS THAT ATTEND OR ARE REPRESENTED AT A DULY CONVENED MEETING OF SPECIAL WARRANTHOLDERS AND ARE ENTITLED TO ACQUIRE NOT LESS THAN 66 2/3 PERCENT OF THE AGGREGATE NUMBER OF COMMON SHARES IN THE CAPITAL OF THE CORPORATION ("COMMON SHARES") WHICH WOULD BE ISSUED OR TRANSFERRED ON THE EXERCISE OF ALL OF THE THEN OUTSTANDING SPECIAL WARRANTS OR BY WRITTEN CONSENT OF SPECIAL WARRANTHOLDERS ENTITLED TO ACQUIRE NOT LESS THAN 66 2/3 PERCENT OF THE AGGREGATE NUMBER OF COMMON SHARES WHICH WOULD BE ISSUED OR TRANSFERRED ON THE EXERCISE OF ALL OF THE THEN OUTSTANDING SPECIAL WARRANTS. REFERENCE SHOULD BE MADE TO THE SPECIAL WARRANT INDENTURE, FOR A COMPLETE DESCRIPTION OF THE TERMS AND CONDITIONS ON WHICH THE SPECIAL WARRANTS ARE TO BE ISSUED. The foregoing description of the Special Warrants is a summary only and is subject to the detailed provisions of the Special Warrant Indenture under which such securities shall be issued. Unless otherwise indicated, all dollar amounts referred to herein are in Canadian dollars. -3- 3. PAYMENT ------- The aggregate amount payable by the Purchaser in respect of the Purchased Warrants (the "Subscription Price") must accompany this Subscription Agreement and shall be made by certified cheque or bank draft drawn on a Canadian chartered bank, and payable to the Underwriters or payable in such other manner as may be specified by the Underwriters. 4. CONDITIONS OF CLOSING --------------------- The Purchaser must complete, sign and return one executed copy of this Subscription Agreement to Marilia Costa, Yorkton Securities Inc., BCE Place, 181 Bay Street, Suite 3100, P.O. Box 843, Toronto, Ontario, M5J 2T3, as soon as possible, and, in any event, no later than 5:00 p.m. (Toronto time) on November 26, 1998. As a condition of Closing (defined below), the Corporation must obtain any necessary approvals of The Toronto Stock Exchange (the "TSE") in respect of the issue of the Special Warrants (and the Subject Securities into which they are exercisable). The Purchaser agrees to complete and return the form of TSE Private Placement Questionnaire and Undertaking attached as Schedule II with this Subscription Agreement and to promptly execute and deliver all such documents and other instruments as the TSE may require. If the Purchaser is resident in the Province of British Columbia, the Purchaser must complete and return a report in the form attached hereto as Schedule IV with this Subscription Agreement. Closing shall also be subject to conditions of closing in favour of the Underwriter to be provided for in the Underwriting Agreement. 5. FACSIMILED SUBSCRIPTIONS ------------------------ The Corporation and the Underwriter will be entitled to rely on delivery by facsimile of an executed copy of this subscription, and acceptance by the Corporation of such facsimile copy will be legally effective to create a valid and binding agreement between the Purchaser and the Corporation in accordance with the terms hereof. 6. CLOSING ------- Delivery and payment for the Special Warrants will be completed (the "Closing") at the offices of counsel to the Company, Gowling, Strathy & Henderson, Suite 4900, Commerce Court West, Toronto, Ontario, M5L 1J3 at 11:00 a.m. (Toronto time) (the "Closing Time") on November 30, 1998 or such earlier or later dates or times as the Corporation and the Underwriters may agree (the "Closing Date"). This executed Subscription Agreement is open for -4- acceptance in whole or in part by the Corporation and the Selling Securityholders at any time prior to the Closing Time. Confirmation of acceptance or rejection of a subscription will be forwarded to the Purchaser promptly after acceptance or rejection has been made. If this subscription is rejected in whole and if the Purchaser has delivered a certified cheque or bank draft representing the Subscription Price for the Purchased Warrants, then such cheque or bank draft will be promptly returned to the Purchaser without interest. If this subscription is accepted only in part and the Purchaser has delivered a certified cheque or bank draft as aforesaid, a cheque representing the portion of the Subscription Price for that portion of the Purchaser's subscription for Special Warrants which is not accepted will be promptly returned to the Purchaser without interest. Certificates representing the Special Warrants (individually, a "Special Warrant Certificate", and collectively, the "Special Warrant Certificates") will be available for delivery against payment of the Subscription Price in the manner specified above. If the Purchaser does not choose to attend the Closing to receive the Special Warrant Certificate representing the Purchased Warrants, then the Purchaser, on its own behalf or on behalf of others for whom it is contracting hereunder, hereby appoints the Underwriter, with full power of substitution, as its true and lawful attorney and agent with the full power and authority in its place and stead to swear, execute, file and record any document necessary to accept delivery of the Special Warrants on the Closing Date, to terminate this subscription on its behalf in the event that any condition precedent to the offering has not been satisfied, to execute a receipt for the Purchased Warrants and all other documentation, modify or waive any conditions or grant any waivers on its behalf in connection with this transaction, and to deliver Special Warrant Certificates to the undersigned at the address set forth above promptly after Closing. 7. PROSPECTUS EXEMPTIONS --------------------- The Purchaser acknowledges and agrees that the sale and delivery of the Purchased Warrants to the Purchaser (or to others for whom it is contracting hereunder) is conditional upon such sale being exempt from the requirements under applicable securities legislation requiring the filing of a prospectus in connection with the distribution of the Special Warrants or the delivery of an offering memorandum (as defined in the applicable securities legislation), or upon the issuance of such rulings, orders, consents or approvals as may be required to permit such sale without the requirement of filing a prospectus or delivering an offering memorandum. The Purchaser, on its own behalf (or on behalf of others for whom it is contracting hereunder) acknowledges and agrees that: (a) it has received a term sheet in the form attached hereto as Schedule I setting out the principal terms of this Subscription Agreement and the offering of Special Warrants; (b) it (or others for whom it is contracting hereunder) has not received, nor has it requested, nor does it have any need to receive, a prospectus or any offering memorandum, or any other document (other than financial statements, interim financial statements or any other document, the content of which is prescribed by statute or regulation) describing the business and affairs of the Corporation which has been prepared for delivery to, -5- and reviewed by, prospective purchasers in order to assist it in making an investment decision in respect of the Purchased Warrants; (c) its decision to execute this Subscription Agreement and purchase the Purchased Warrants (on its own behalf or on behalf of others for whom it is contracting hereunder) has not been based upon any verbal or written representations as to fact or otherwise made by or on behalf of the Underwriters or the Corporation and that its decision (or the decision of others for whom it is contracting hereunder) is based entirely upon information concerning the Corporation contained in documents the content of which is prescribed by statute or regulation (any such information having been delivered to it without independent investigation or verification by the Underwriters); (d) the sale of the Purchased Warrants was not accompanied by any general solicitation or general advertisement including, but not limited to, any advertisement, article, notice or other communication in any newspaper, magazine, printed media or similar medium of general and regular paid circulation, or broadcast over radio or television or any seminar or meeting where attendees were invited by any general solicitation or advertising; (e) the Underwriters and each of their respective directors, officers, employees, agents and representatives assume no responsibility or liability of any nature whatsoever for the accuracy or adequacy of any such publicly available information or as to whether all information concerning the Corporation required to be disclosed by it has been generally disclosed; (f) it (or others for whom it is contracting hereunder) has been advised to consult its own legal advisors with respect to trading in the Special Warrants, the Subject Securities and securities underlying the Subject Securities and to resale restrictions imposed by applicable securities legislation in the jurisdiction in which it resides, that no representation has been made respecting the applicable hold periods or other resale restrictions applicable to such securities, that the Purchaser (or others for whom it is contracting hereunder) is solely responsible (and neither the Corporation nor the Underwriters is in any way responsible) for compliance with applicable resale restrictions and that it is aware that it may not be able to resell such securities except in accordance with limited exemptions under applicable securities legislation and regulatory policy; and (g) the Special Warrants are otherwise subject to the terms, conditions and provisions of the Special Warrant Indenture and the Underwriting Agreement. The Purchaser agrees that the Corporation, the Selling Securityholders and/or the Underwriter may be required by law or otherwise to disclose to regulatory authorities the identity of the Purchaser and each beneficial purchaser of Special Warrants for whom the Purchaser may be acting. 8. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER ---------------------------------------------------------- The Purchaser hereby represents, warrants and covenants to and with the Underwriter and the Corporation (which representations, warranties and covenants shall survive Closing) that: (A) the Purchaser is purchasing the Special Warrants as principal for its own account and not for the benefit of any other person except as otherwise set forth below under its name in Section 18 - "Subscription Particulars"; -6- (B) the Purchaser will execute and deliver all documentation as may be required by applicable Securities Laws and The Toronto Stock Exchange, including the Private Placement Questionnaire and Undertaking attached as Schedule "II" hereto; (C) the address set forth below is the true and correct address of a place of business of the Purchaser (or, if the Purchaser is acting as agent for any person, of such person) and the Purchaser (or such person) is resident in that jurisdiction; (D) upon acceptance by the Corporation and/or the Selling Shareholders, this subscription will constitute a valid and legally binding contract of the Purchaser enforceable against the Purchaser in accordance with its terms; (E) if an individual, the Purchaser has obtained the age of majority and is legally competent to execute this agreement and to take all actions required pursuant thereto. (F) the Purchaser is an "accredited investor" within the meaning of Regulation D ("Regulation D") of the General Rules and Regulations promulgated under the United States Securities Act of 1933, as amended (the "Securities Act") since the Purchaser meets one of the following standards for determination of "accredited investor" status: (i) Any broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended; (ii) Any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds US$1,000,000; (iii) Any natural person who had an individual income in excess of US$200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year; (iv) Any trust, with total assets in excess of US$5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D; (v) Any organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of US$5,000,000; or -7- (vi) Any entity in which all of the equity owners are "accredited investors". (G) The Purchaser has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Special Warrants, the Subject Securities and the Underlying Securities (as defined in paragraph H)and that he is able to bear the economic risk of such investment for an indefinite period of time. The Purchaser is purchasing the Special Warrants for the Purchaser's own account, for investment purposes only and not with a view to any resale or distribution thereof and the Purchaser does not have any contracts, understandings, agreements or arrangements with any person or entity to sell, transfer or grant a participation with respect to any of the Special Warrants or Subject Securities of the Company. The Purchaser understands that the Special Warrants and the Subject Securities being purchased are characterized as "restricted securities" (as defined in Rule 144 under the Securities Act) and that the Special Warrants and the Subject Securities may not be resold without registration or an exemption from registration under the Securities Act. (H) The Purchaser understands and agrees that the certificates evidencing the Special Warrants and the Subject Securities and the securities underlying the Subject Securities (the "Underlying Securities") will bear an appropriate legend evidencing the restricted nature of the Special Warrants and the Subject Securities and the Underlying Securities indicating that no transfer of any of the Special Warrants or the Subject Securities or the Underlying Securities may be made unless such Special Warrants and the Subject Securities and the Underlying Securities are registered under the Securities Act or an exemption from such registration is available, and that the Company will instruct its transfer agent not to transfer any such Special Warrants or Subject Securities or Underlying Securities unless such transfer shall be made in compliance with such legend. The legend shall be substantially in the form set forth below: "THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR HYPOTHECATION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS DULY REGISTERED UNDER THE ACT OR UNLESS, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, SUCH TRANSACTION IS EXEMPT FROM THE REGISTRATION PROVISIONS OF THE ACT." (I) The Purchaser has had: (i) the opportunity to seek outside advice with respect to the terms and conditions of the offering and his investment in the Special Warrants and the Subject Securities; and (ii) the opportunity to ask questions and -8- receive answers from the Company concerning the terms and conditions of the offering of the Special Warrants and the Subject Securities and the Company and any additional information or documents relating to the Company which he believes necessary to his purchase of the Special Warrants. 9. RELIANCE UPON REPRESENTATIONS, WARRANTIES AND COVENANTS ------------------------------------------------------- The Purchaser acknowledges that the representations and warranties and covenants contained in this Subscription Agreement are made with the intent that they may be relied upon by the Underwriter, the Selling Securityholders and the Corporation and their respective counsel to, among other things, determine its eligibility or (if applicable) the eligibility of others on whose behalf it is contracting hereunder to purchase Purchased Warrants. The Purchaser further agrees that by accepting the Purchased Warrants, the Purchaser shall be representing and warranting that the foregoing representations and warranties are true as at the Closing Time with the same force and effect as if they had been made by the Purchaser at the Closing Time and that they shall survive the purchase by the Purchaser of the Purchased Warrants and shall continue in full force and effect notwithstanding any subsequent disposition by it of the Purchased Warrants or the Subject Securities, as the case may be. 10. COMMISSION TO THE UNDERWRITERS ------------------------------ The Purchaser understands that upon completion of the sale by the Corporation and the Selling Securityholders of the Special Warrants, the Underwriter will receive from the Corporation and the Selling Securityholders, on a pro rata basis, a cash commission equal to 8.0% of the issue price of all Special Warrants to be sold by the Underwriter. It is further understood that, as additional compensation for the services provided, the Corporation will grant to the Underwriter compensation warrants exercisable to acquire, without payment of any consideration, compensation options, which compensation options are exercisable to acquire a number of Units equal to 10% of the total number of Special Warrants sold by the Underwriter and not retracted, at an exercise price equal to $1.75 per Unit for a term of fifteen months from the Closing Date. The compensation warrants will be exercisable on the same basis as the Special Warrants and the compensation options issuable upon exercise of the compensation warrants will be qualified pursuant to the Prospectus (to the extent permitted by applicable securities laws). In exercising the compensation options (whether in whole or in part), the Underwriter may, at its sole discretion, in lieu of satisfying the exercise price in cash, elect to receive a specified number of Common Shares and Warrants. No other fee or commission is payable by the Corporation or the Selling Securityholders in connection with the sale of the Special Warrants. However, the Corporation and the Selling Securityholders will pay those fees and expenses in connection with the offering as are set out in the Underwriting Agreement. -9- The Purchaser understands that the Underwriter and representatives of the Underwriter may have an interest in securities of the Corporation. 11. COSTS ----- The Purchaser acknowledges and agrees that all costs and expenses incurred by the Purchaser (including any fees and disbursements of any special counsel retained by the Purchaser) relating to the sale of the Purchased Warrants to the Purchaser shall be borne by the Purchaser. 12. APPOINTMENT OF UNDERWRITER -------------------------- The Purchaser, on its own behalf and (if applicable) on behalf of others for whom the Purchaser is contracting hereunder, hereby: (a) irrevocably authorizes the Underwriter to negotiate and settle the form of the Special Warrant Indenture, the warrant indenture pursuant to which the Warrants will be created and issued and any other agreement to be entered into in connection with this transaction and to waive on its own behalf and on behalf of the purchasers of Special Warrants in whole or in part, or extend the time for compliance with, any of the closing conditions in such manner and on such terms and conditions as the Underwriter may determine, acting reasonably, without in any way affecting the Purchaser's obligations or the obligations of such others hereunder; and (b) acknowledges and agrees that the Underwriter, the Selling Securityholders and the Corporation may vary, amend, alter or waive, in whole or in part, one or more of the conditions set forth in the Underwriting Agreement in such manner and on such terms and conditions as they may determine, acting reasonably, without affecting in any way the Purchaser or such others' obligations hereunder; provided however, that the Underwriter shall not vary, amend, alter or waive any such condition where to do so would result in a material change to any of the material attributes of the Special Warrants described herein. 13. GOVERNING LAW ------------- This Subscription Agreement is governed by the laws of the Province of Ontario and the federal laws of Canada applicable therein. The Purchaser, in its personal or corporate capacity and, if applicable, on behalf of each beneficial purchaser for whom it is acting, irrevocably attorns to the jurisdiction of the courts of the Province of Ontario. -10- 14. SURVIVAL -------- This Subscription Agreement, including without limitation the representations, warranties and covenants contained herein, shall survive and continue in full force and effect and be binding upon the Purchaser notwithstanding the completion of the purchase of the Purchased Warrants by the Purchaser pursuant hereto, the completion of the offering of Special Warrants of the Corporation and any subsequent disposition by the Purchaser of the Purchased Warrants or the Subject Securities. 15. ASSIGNMENT ---------- This Subscription Agreement is not transferable or assignable by the parties hereto. 16. ENGLISH LANGUAGE ---------------- We, the undersigned, hereby acknowledge that we have consented and requested that all documents evidencing or relating in any way to the sale of the Special Warrants be drawn up in the English language only. Nous, soussignes, reconnaissons par les presentes avoir consenti et demande que tous les documents faisant foi ou se rapportant de quelque maniere a la vente de ces bons de souscription achets soient redigis en anglais seulement. 17. COUNTERPARTS ------------ This Subscription Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which shall constitute one and the same document. -11- 18. SUBSCRIPTION PARTICULARS ------------------------ SUBSCRIPTION. The aggregate number of the Special Warrants being subscribed for is _______________________________. At a price equal to $1.75 per Special Warrant, the aggregate price of the Special Warrants being subscribed for is $__________________________________. REGISTRATION. The Special Warrants and the Subject Securities are to be registered in the name of: _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ DELIVERY. The certificate representing the Special Warrants and the certificates representing the Subject Securities are to be delivered to: _________________________________________________________________ (name) _________________________________________________________________ (address) _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ (contact name and number) AGENT FOR DISCLOSED PRINCIPAL. If the Purchaser is signing as agent for one or more disclosed principals and not as agent for a fully managed account, the name and address of each such principals: _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ (if space is insufficient, attach a list). DATED as of the____day of________________, 1998. __________________________________________________ Name of Purchaser (please type or print) By:_______________________________________________ (Signature of Authorized Representative) _______________________________________________ (Name of Person Signing) _______________________________________________ (Office or Title) ___________________________________ (Address of Purchaser) ___________________________________ ___________________________________ IN ORDER TO FACILITATE SETTLEMENT, THESE INSTRUCTIONS MUST BE RECEIVED BY 5:00 P.M. (TORONTO TIME) ON NOVEMBER 26, 1998. -12- 19. ACCEPTANCE ---------- The Corporation and/or the applicable Selling Securityholder(s) hereby accept the above-mentioned offer to purchase Special Warrants. DATED as of this______day of__________________, 1998. BID.COM INTERNATIONAL INC. By: ______________________________________ Authorized Signing Officer 1184041 ONTARIO INC. __________________________________________ Per: Paul Godin I have authority to bind the Corporation SMYTHE GROUP COMPANY __________________________________________ Per: Jeffrey Lymburner I have authority to bind the Corporation -13- SCHEDULE I TERM SHEET ISSUER: Bid.Com International Inc. (the "Corporation"). SIZE OF OFFERING: $10,701,222 PURCHASED SECURITIES: 5,714,984 special warrants (the "Treasury Special Warrants") to be sold by the Corporation and 400,000 shall be issued and sold by Paul Godin and Jeffrey Lymburner (the "Secondary Special Warrants") on a pro rata basis (or on such other basis as the Underwriter and the Paul Godin and Jeffrey Lymburner may otherwise agree). Subject to adjustment in certain events, each Special Warrant shall be exercisable, for no additional consideration, to acquire one unit ("Unit"), each Unit consisting of one common share ("Common Share") and one-quarter of one Common Share purchase warrant ("Warrant") of the Corporation. WARRANTS: Each whole Warrant shall entitle the holder thereof to acquire one Common Share for a period ending on the date which is the earlier of (i) ten (10) business days following the date on which the Corporation delivers a notice to all holders of Warrants confirming that it has filed a preliminary prospectus or registration statement in connection with a U.S. public offering of at least $7,000,000 and (ii) December 31, 1999 at an exercise price of $1.75 per Common Share. PURCHASE PRICE: $1.75 per Special Warrant. UNDERWRITER: Yorkton Securities Inc. CLOSING DATE: November 30, 1998 or such other date as the Underwriter and the Corporation may agree (the "Closing Date"). EXERCISE AND Unless previously retracted, the Special Warrants shall PROSPECTUS CONDITIONS: be exercisable by the holders thereof at any time and will be automatically exercised at 5:00 p.m. (Toronto time) on the earlier of the following dates (such date being the "Expiry Date"): (i) the fifth business day after a receipt is issued by the last of the relevant securities regulatory authorities in the Qualifying Jurisdictions (the "Securities Regulators") for a (final) prospectus (the "Final Prospectus") qualifying the Units issuable on the exercise of the Special Warrants; and (ii) one year after the Closing Date. -14- ESCROW ARRANGEMENTS: At the Closing, 75% of the gross proceeds of the Offering (net of an amount equal to 75% of the Underwriter's commission and its estimated costs and expenses incurred in connection with the Offering) shall be paid to the Corporation. The balance of the proceeds (the "Escrowed Proceeds") shall be deposited into escrow with a mutually agreed upon escrow agent (the "Escrow Agent"). PENALTY EVENTS: In the event that the Final Prospectus has not been filed and receipts issued therefor by the last of the Securities Regulators on or prior to the date (such date being hereinafter referred to as the "Qualification Deadline") that is 90 days after the Closing Date. each Special Warrant exercised or deemed to be exercised thereafter shall entitle the holder to receive 1.05 Units (in lieu of one Unit). RETRACTION: In the event that the Final Prospectus has not been filed and receipts issued therefor by the last of the Securities Regulators on or before the Qualification Deadline, the Purchasers shall be entitled, at their option, to require the Corporation to retract and cancel on a pro rata basis up to such number of Special Warrants as may be retracted from the Escrowed Proceeds at a retraction price per Special Warrant (the "Retraction Price") equal to the Purchase Price per Special Warrant (together with all interest accrued thereon). For greater certainty, any amounts paid to the Underwriter out of the gross proceeds of the Offering in respect of the Underwriter's commission or expenses shall be paid by the Corporation to the Escrow Agent prior to payment of the Retraction Price. For greater certainty, in the event that the Escrowed Proceeds are not sufficient to satisfy the Retraction Price, the Corporation shall pay to the Escrow Agent, prior to the return of the Escrowed Proceeds to the Purchasers, an amount equal to the shortfall. -15- SCHEDULE II 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: Bid.Com International Inc. (formerly, Internet (b) Number and Description of Securities to be Purchased: ________ Special Warrants (c) Purchase Price: $1.75 per Special Warrant 2. DETAILS OF PURCHASER (a) Name of Purchaser : (b) Address: (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)? Is so, state the capacity in which the Purchaser (or person named in response to 2(c)) qualifies as an insider ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ (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: ___________________________________________________________________________ ___________________________________________________________________________ 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 60 days preceding the date hereof: ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ -16- UNDERTAKING TO: THE TORONTO STOCK EXCHANGE The undersigned has subscribed for and agreed to purchase, as principal, the securities described in Item 1 of this 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 the lesser of: (a) a period of six months from the date of the closing of the transaction herein or for such period as is prescribed by applicable securities legislation, whichever is longer; and (b) a period ending on the date that a receipt for a final prospectus in respect of the said securities or any securities derived therefrom has been issued by the Ontario Securities Commission, without the prior consent of The Toronto Stock Exchange and any other regulatory body having jurisdiction. DATED at __________________ this ________ day of _____________________, 1998. __________________________________________________ (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) -17- EX-3.18 10 UNDERWRITING AGREEMENT DATED NOVEMBER 30, 1998 EXHIBIT 3.18 UNDERWRITING AGREEMENT November 30, 1998 Bid.Com International Inc. (formerly Internet Liquidators International Inc.) 6725 Airport Road Suite 201 Mississauga, Ontario L4V 1V2 - - and - 1184041 Ontario Inc. Smythe Group Company c/o Bid.Com International Inc. 6725 Airport Road Suite 210 Mississauga, Ontario L4V 1V2 Dear Sirs: The undersigned, Yorkton Securities Inc. (the "Underwriter"), understands that Bid.Com International Inc. (the "Company") proposes to create, issue and sell (the "Offering") 5,714,984 special warrants (the "Primary Special Warrants") and that 1184041 Ontario Inc. and Smythe Group Company (collectively, the "Selling Shareholders") severally propose to create, issue and sell an aggregate of 400,000 special warrants (collectively, the "Secondary Special Warrants") subject to the terms and conditions set out below. The Primary Special Warrants and the Secondary Special Warrants are herein collectively referred to as the "Special Warrants". Unless previously retracted, each Special Warrant shall be exercisable for units ("Units"), each consisting of one common share ("Common Share") and one-quarter of one common share purchase warrant ("Warrant") of the Company having the attributes specified herein. Subject to adjustment in certain events, each Special Warrant shall entitle the holder thereof to acquire one Unit upon the exercise of the Special Warrant in accordance with the terms of the Special Warrant Indenture (as hereinafter defined) without payment of any further consideration to the Company. Each whole Warrant shall be exercisable to acquire one Common Share at a price of $1.75 per Common Share for a period ending on the date which is the earlier of (i) ten (10) Business Days (as hereinafter defined) following the date upon which the Company delivers a notice to all holders of Warrants confirming that it has filed a preliminary prospectus or registration statement in connection with a U.S. public offering of at least $7,000,000 and (ii) December 31, 1999. Upon and subject to the terms and conditions set forth herein, the Underwriter hereby agrees to purchase from the Company 5,714,984 Primary Special Warrants and to purchase from the Selling Shareholders 400,000 Secondary Special Warrants at a price of $1.75 per Special Warrant (the "Purchase Price") for an aggregate purchase price of $10,001,222 payable to the Company and $700,000 payable to the Selling Shareholders and agrees to act as underwriter to arrange for substituted purchasers for the Special Warrants resident in the Qualifying Provinces (as hereinafter defined) or in those jurisdictions outside of Canada where the Special Warrants may be lawfully sold pursuant to the terms and conditions hereof. The Company shall prepare and file, in accordance herewith, a preliminary prospectus and a (final) prospectus in order to qualify the Underlying Securities (as hereinafter defined) and, to the extent permitted by applicable securities regulatory authorities, the Compensation Options (as hereinafter defined) for distribution in each of the Qualifying Provinces. In consideration of the services to be rendered by the Underwriter in connection with such purchase, including assisting in the preparation of the Prospectus and all other matters in connection with the issue and sale of the Special Warrants and the issue of the Underlying Securities, the Company and the Selling Shareholders shall pay, on a pro rata basis, to the Underwriter a commission equal to 8.0% of the gross proceeds realized by the Company and the Selling Shareholders in respect of the sale of the Special Warrants (the "Commission"). In addition, the Company shall grant to the Underwriter the Brokers' Warrants (as hereinafter defined) upon and subject to the provisions of Section 16 of this Agreement. The obligation of the Company and the Selling Shareholders to pay the Commission shall arise at the Closing Time (as hereinafter defined) and the Commission shall be fully earned by the Underwriter at that time (notwithstanding the actual date of payment). DEFINITIONS In this Agreement, in addition to the terms defined above, the following terms shall have the following meanings: "AGREEMENT" means the agreement resulting from the acceptance by the Company and the Selling Shareholders of the offer made hereby; "BUSINESS DAY" means a day which is not a Saturday, Sunday or statutory or civic holiday in the City of Toronto, Canada; "BROKERS' WARRANTS" shall have the meaning ascribed thereto in subparagraph 16(a); "CANADIAN SECURITIES LAWS" means all applicable securities laws in each of the Qualifying Provinces and the respective regulations made thereunder, together with applicable published fee schedules, prescribed forms, policy statements, orders, blanket rulings and other regulatory instruments of the securities regulatory authorities in such provinces; "CLAIM" shall have the meaning ascribed thereto in subparagraph 14(b); 2 "CLOSING DATE" means November 30, 1998 or such earlier or later date as the Underwriter and the Company shall in writing agree; "CLOSING TIME" means 11:00 a.m. (Toronto time) on the Closing Date or such other time on the Closing Date as the Company, the Selling Shareholders and the Underwriter may agree; "COMPANY'S AUDITORS" means Deloitte & Touche., Chartered Accountants, or such other firm of chartered accountants as the Company may from time to time appoint as auditors of the Company. "COMPENSATION OPTIONS" shall have the meaning ascribed thereto in subparagraph 16(a); "DISCLOSURE DOCUMENTS" means, at any time, all documents which have been filed as of that time by the Company with any securities regulatory authority or stock exchange having jurisdiction over the securities of the Company; "ESCROW AGENT" shall have the meaning ascribed thereto in subparagraph 3(a); "ESCROW AGREEMENT" means an escrow agreement to be dated as of the Closing Date between the Company, the Selling Shareholders, the Escrow Agent and the Underwriter, providing for the escrow and release of the Escrowed Proceeds and in a form to be agreed upon between the Company, the Selling Shareholders, the Escrow Agent and the Underwriter, each acting reasonably; "ESCROWED PROCEEDS" shall have the meaning ascribed thereto in subparagraph 3(a); "FINAL PROSPECTUS" shall have the meaning ascribed thereto in subparagraph 2(b); "INDEMNIFIED PARTY" shall have the meaning ascribed to it in subparagraph 14(b); "MISREPRESENTATION", "MATERIAL FACT", "MATERIAL CHANGE", "SUBSIDIARY", "AFFILIATE", "ASSOCIATE", and "DISTRIBUTION" have the respective meanings ascribed thereto in the Securities Act (Ontario); "OPTIONED SECURITIES" means, collectively, (i) the Compensation Options issuable upon the exercise of the Brokers' Warrants; (ii) the Common Shares and Warrants comprising the Optioned Units; and (iii) the Warrant Shares issuable upon the exercise of the Warrants comprising the Optioned Units; "OPTIONED UNITS" shall have the meaning ascribed thereto in subparagraph 16(a); "PERSON" means any individual, corporation, partnership, joint venture, association, trust or other legal entity; "PRELIMINARY PROSPECTUS" shall have the meaning ascribed thereto in subparagraph 2(a); 3 "PROSPECTUS" means, collectively, the Preliminary Prospectus and the Final Prospectus; "PROSPECTUS DEFAULT" shall have the meaning ascribed thereto in subparagraph 3(e); "PURCHASERS" means the persons (which may include the Underwriter) who, as purchasers, acquire Special Warrants by duly completing, executing and delivering Subscription Agreements and permitted assignees or transferees of such persons from time to time; "QUALIFICATION DATE" means, with respect to any Qualifying Province, the date upon which a receipt is issued for the Final Prospectus by the Securities Commission of the Qualifying Province; "QUALIFICATION DEADLINE" shall have the meaning ascribed thereto in subparagraph 3(e); "QUALIFYING PROVINCES" means the Province of Ontario and such other Provinces of Canada in which Purchasers who acquire Special Warrants at the Special Warrant Closing are resident; RETRACTION DEADLINE" shall have the meaning ascribed thereto in subparagraph 3(b); "RETRACTION PRICE" shall have the meaning ascribed thereto in subparagraph 3(b); "RIGHT OF FIRST REFUSAL" shall have the meaning ascribed thereto in paragraph 17; "SECURITIES COMMISSIONS" means, collectively, the securities commissions or other securities regulatory authorities in the Qualifying Provinces; "SPECIAL WARRANT CLOSING" means the completion of the issue and sale by the Company and the Selling Shareholders of the Special Warrants offered hereunder and the purchase by the Underwriter and the Purchasers of the Special Warrants pursuant to the Subscription Agreements; "SPECIAL WARRANT INDENTURE" means a special warrant indenture to be dated as of the Closing Date between the Company, the Selling Shareholders and CIBC Mellon Trust Company, as special warrant agent, providing for the issue of the Special Warrants and in a form to be agreed upon between the Company and the Underwriter, each acting reasonably; "SUBSCRIPTION AGREEMENT" means a subscription agreement in the form agreed upon by the Underwriter , the Selling Shareholders and the Company pursuant to which Purchasers agree to subscribe for and purchase the Special Warrants herein contemplated and shall include, for greater certainty, all schedules thereto; "SUBSIDIARY" shall have the meaning ascribed thereto in subparagraph 8(a)(ii); "SUPPLEMENTARY MATERIAL" shall have the meaning ascribed thereto in subparagraph 4(b); 4 "TIME OF EXPIRY" means 5:00 p.m. (Toronto time) on the earlier of (i) five (5) Business Days following the Qualification Date; and (ii) the date that is one year from the Closing Date; "TSE" means The Toronto Stock Exchange; "UNDERLYING SECURITIES" means collectively, the (i) the Common Shares and Warrants comprising the Units; and (ii) the Warrant Shares issuable on exercise of the Warrants comprising the Units; "WARRANT AGENT" means CIBC Mellon Trust Company, in its capacity as special warrant agent pursuant to the Special Warrant Indenture, and as warrant agent pursuant to the Warrant Indenture, as the context may require; "WARRANT INDENTURE" means the warrant indenture to be dated as of the Closing Date between the Company , the Selling Shareholders and CIBC Mellon Trust Company, as warrant agent, providing for the creation and issuance of the Warrants and in a form to be agreed upon by the Company , the Selling Shareholders and the Underwriter, each acting reasonably; and "WARRANT SHARES" means the Common Shares issuable on exercise of the Warrants including, for greater certainty, the Warrants comprising both the Units and the Optioned Units. TERMS AND CONDITIONS 1. (a) SALE ON EXEMPT BASIS. The Company and the Selling Shareholders understand that although the offer to act as underwriter with respect to the Offering is presented on behalf of the Underwriter as purchaser, the Underwriter will endeavour to arrange for Purchasers for the Special Warrants in the Qualifying Provinces and in such other jurisdictions outside of Canada on a private placement basis in compliance with all applicable Canadian Securities Laws and all applicable securities laws of such other jurisdictions. (b) FILINGS. The Company and the Selling Shareholders undertake to file or cause to be filed all forms or undertakings required to be filed by the Company and the Selling Shareholders (as the case may be) in connection with the purchase and sale of the Special Warrants so that the distribution of the Special Warrants may lawfully occur without the necessity of filing a prospectus or an offering memorandum in Canada (but on terms that will permit Underlying Securities acquired by the Purchasers in the Qualifying Provinces to be sold by such Purchasers at any time in the Qualifying Provinces subject to applicable Canadian Securities Laws), and the Underwriter undertakes to use its commercially reasonable efforts to cause Purchasers of Special Warrants to complete any forms required by Canadian Securities Laws, the TSE or under other applicable securities laws. All fees payable in connection with such filings shall be at the expense of the Company and the Selling Shareholders on a pro rata basis. (c) NO OFFERING MEMORANDUM. None of the Company, the Selling Shareholders nor the Underwriter shall (i) provide to prospective purchasers any document or other material that would constitute an offering memorandum within the meaning of Canadian Securities Laws or applicable securities laws of the United States or any state or territory thereof; or (ii) engage in 5 any form of general solicitation or general advertising in connection with the offer and sale of the Underlying Securities , including but not limited to , causing the sale of the Special Warrants to be advertised in any newspaper, magazine, printed media or similar medium of general and regular paid circulation, broadcast over radio or television or conduct any seminar or meeting relating to the offer and sale of the Special Warrants or Underlying Securities whose attendees have been invited by general solicitation or advertising. 2. (a) PRELIMINARY PROSPECTUS. The Company shall, as soon as practicable following the Special Warrant Closing under applicable Canadian Securities Laws of each of the Qualifying Provinces, prepare, file (and use all reasonable best efforts to obtain a receipt for) a preliminary prospectus (the "Preliminary Prospectus") in form and substance satisfactory to the Company and the Underwriter, each acting reasonably, and other related documents relating to the proposed distribution of the Underlying Securities. The Company shall use its reasonable best efforts to (i) cause the Preliminary Prospectus to be filed in each of the Qualifying Provinces forthwith after the Closing Date; and (ii) satisfy as expeditiously as practicable any comments made by the Securities Commissions in respect of the Preliminary Prospectus. (b) FINAL PROSPECTUS. The Company shall, as soon as practicable after all comments of the Securities Commissions have been satisfied with respect to the Preliminary Prospectus, prepare and file (and use all commercially reasonable efforts to obtain a receipt for) under applicable Canadian Securities Laws, a (final) prospectus in form and substance satisfactory to the Company, the Selling Shareholders and the Underwriter (the "Final Prospectus"), each acting reasonably, and fulfil and comply with, to the satisfaction of the Underwriter's counsel, acting reasonably, all applicable Canadian Securities Laws to be fulfilled or complied with by the Company to enable the Underlying Securities to be lawfully distributed to the public in the Qualifying Provinces in connection with the exercise of the Special Warrants through the Underwriter or any other investment dealer or broker registered as such in the Qualifying Provinces in compliance with Canadian Securities Laws. The Company shall use all commercially reasonable efforts to ensure that such requirements (including the issuance of a receipt by the Securities Commissions) shall be fulfilled as soon as possible after all regulatory comments and deficiencies have been resolved in connection with the Preliminary Prospectus and, in any event, no later than the Qualification Deadline. 3. PROCEEDS TO BE ESCROWED AND RETRACTION RIGHT. (a) On the Closing Date, 25% of the gross proceeds derived from the sale of the Special Warrants (the "Escrowed Proceeds") shall be deposited in escrow with counsel to the Underwriter, Wildeboer Rand Thomson Apps & Dellelce (the "Escrow Agent"), to be held and invested in accordance with the Escrow Agreement. (b) In the event that the Final Prospectus has not been filed and receipts issued therefor by the last of the Securities Commissions in each of the Qualifying Provinces on or before the Qualification Deadline, the Purchasers resident in a Qualifying Province in respect of which a receipt has not been issued shall be entitled, at their option, at any time until 5:00 p.m. on the fifth business day after the Qualification Deadline (the "Retraction Deadline") to require the Corporation to retract and cancel on a pro rata basis up to such number of Special Warrants 6 as may be retracted from the Escrowed Proceeds at a retraction price per Special Warrant (the "Retraction Price") equal to the Subscription Price per Special Warrant (together with all interest accrued thereon). For greater certainty, any amounts paid to the Underwriter out of the gross proceeds of the Offering in respect of the Underwriter's commission or expenses shall be paid by the Corporation to the Escrow Agent prior to payment of the Retraction Price. In the event that the Escrowed Proceeds are not sufficient to satisfy the Retraction Price, the Corporation shall pay to the Escrow Agent, prior to the return of the Escrowed Proceeds to the Purchasers, an amount equal to the shortfall. (c) In the event that a Final Prospectus is filed before the Qualification Deadline, on the Expiry Date, the Escrow Agent shall release the Escrowed Proceeds less, the remaining 25% of the Commission (together with all interest accrued thereon) and the balance of the estimated costs and expenses of the Underwriter incurred in connection with the offering to the Company and the Selling Shareholder on a pro rata basis. (d) In the event that a Final Prospectus is not filed on or prior to the Qualification Deadline, the Escrow Agent shall release the balance of the Escrowed Proceeds less, for greater certainty the aggregate Retraction Price, if any, and the remaining 25% of the Commission (together with all interest accrued thereon) and the balance of the estimated costs and expenses of the Underwriter incurred in connection with the offering to the Company and the Selling Shareholder on a pro rata basis. (e) The Company recognizes that it is fundamental to Purchasers of the Special Warrants that the distribution of the Underlying Securities be qualified under a prospectus in the Qualifying Provinces so that the Underlying Securities will be freely tradeable in such Qualifying Provinces without the necessity of the holder thereof filing a prospectus or effecting the trade in a manner which falls within one of the various prospectus exemptions under applicable Canadian Securities Laws. The Company acknowledges that it is for this reason that the Company has agreed that the Preliminary Prospectus and the Final Prospectus are to be filed with the Securities Commissions in the Qualifying Provinces and receipts are to be obtained therefor within the time periods contemplated by this Agreement. Accordingly, it shall be a term of the Special Warrant Indenture pursuant to which the Special Warrants are to be issued that in the event that the Final Prospectus has not been filed and receipts issued therefor by each of the Securities Commissions in each of the Qualifying Provinces on or prior to the date (the "Qualification Deadline") that is90 days after the Closing Date, each Special Warrant exercised or deemed to be exercised thereafter shall entitle the holder who is resident in the Qualifying Province in respect of which a receipt is not issued to receive 1.05 Units (in lieu of one Unit) at no additional cost. In the event that the Final Prospectus has not been filed and a receipt issued therefor, by each of the Securities Regulators on or before the Qualification Deadline (a "Prospectus Default"), the Company will nevertheless continue to be obligated to use commercially reasonable efforts to file and clear the Final Prospectus until the Time of Expiry. For greater certainty, in the event that the Escrowed Proceeds are not sufficient to satisfy the aggregate Retraction Price, the Company shall pay to the Escrow Agent, prior to the return of the Escrowed Proceeds to the Purchasers, an amount equal to the shortfall. 7 4. (a) DELIVERIES AT TIME OF FILING. The Company and, in the case of subparagraph (ii) below, the Selling Shareholders shall deliver to the Underwriter contemporaneously with or prior to the filing of the Preliminary Prospectus or the Final Prospectus, as the case may be, with the Ontario Securities Commission: (i) an executed copy of the Preliminary Prospectus or the Final Prospectus, as the case may be, in the English language, and if the Province of Quebec is one of the Qualifying Provinces, in the French language; (ii) executed copies of any other document required to be filed by the Company at such time under the laws of each of the Qualifying Provinces in compliance with Canadian Securities Laws applicable therein; (iii) in the case of the Final Prospectus, a letter of the Company's Auditors dated the date of the Final Prospectus addressed to the Underwriter and the board of directors of the Company, in form and substance satisfactory to the Underwriter, with respect to certain financial and accounting information relating to the Company in the Final Prospectus and which shall be based on a review by the Company's Auditors to a date not more than two Business Days prior to the date of the Final Prospectus and which letter shall be in addition to the Company's Auditors' report contained in the Final Prospectus; and (iv) if the Province of Quebec is one of the Qualifying Provinces, an opinion of Quebec counsel to the Company that the French language version of the Preliminary Prospectus or the Final Prospectus, as the case may be, is an accurate and complete translation of the English language version of the Preliminary Prospectus or the Final Prospectus, as the case may be. (b) SUPPLEMENTARY MATERIAL. The Company shall also prepare and deliver promptly to the Underwriter duly signed copies of all amended or supplementary prospectuses or supplemental statements and related documents required to be filed by the Company under the laws of any Qualifying Province or by Canadian Securities Laws and of any amendment to the Preliminary Prospectus or the Final Prospectus or other document required to be filed under paragraph 7 of this Agreement (collectively, the "Supplementary Material"). The Prospectus and the Supplementary Material shall be in form and substance satisfactory to the Underwriter, acting reasonably. (c) COPIES. The Company shall cause copies of the Preliminary Prospectus and the Final Prospectus in the English language, and if the Province of Quebec is one of the Qualifying Provinces, in the French language, to be delivered to the Underwriter without charge, in such numbers and in such cities in the Qualifying Provinces as the Underwriter may reasonably request. Such delivery shall be effected as soon as practicable and, in any event, on or before a date two Business Days after the filing thereof with the Ontario Securities Commission. The Company shall similarly cause to be delivered copies of any Supplementary Material. The Underwriter shall cause to be delivered to holders of Special Warrants copies of the Final Prospectus and any required Supplementary Materials. 8 5. REPRESENTATION AS TO PROSPECTUS AND SUPPLEMENTARY MATERIAL. Delivery of the Prospectus and any Supplementary Material shall constitute a representation and warranty by the Company and the Selling Shareholders (as between the Selling Shareholders, such representations shall be several, but not joint) to the Underwriter, the Purchasers and their permitted assigns that all information and statements (except information and statements relating solely to or provided solely by the Underwriter) contained in the Prospectus and Supplementary Material are true and correct in all material respects at the time of delivery thereof and contain no misrepresentations and constitute full, true and plain disclosure of all material facts relating to the Company and the Underlying Securities and that no material fact or information has been omitted therefrom (except facts or information relating solely to the Underwriter) which is required to be stated therein or is necessary to make the statements or information contained therein not misleading in light of the circumstances under which they were made. Such delivery shall also constitute the Company's and the Selling Shareholders' consent to the Underwriter's use of the Prospectus, any Supplementary Material and any other public documents supplied to the Underwriter by the Company for the distribution of the Underlying Securities in the Qualifying Provinces in compliance with the provisions of this Agreement and Canadian Securities Laws. 6. COVENANTS. (a) COVENANTS. The Company and, in the case of subparagraphs (ii), (iii), (iv), (vii), (ix) and (xiv) below, the Selling Shareholders hereby covenant to the Underwriter and to the Purchasers and their permitted assigns and acknowledge that each of them is relying on such covenants in purchasing Special Warrants, that the Company and, in the case of subparagraphs (ii), (iii), (iv), (vii), (ix) and (xiv) below, the Selling Shareholders shall: (i) at all times, remain a reporting issuer under Canadian Securities Laws not in default of any requirement of such Canadian Securities Laws; (ii) allow the Underwriter and their representatives to conduct all due diligence which the Underwriter may reasonably require to be conducted prior to the date of the Final Prospectus in order to fulfil their obligations as Underwriter under Canadian Securities Laws and in order to enable the Underwriter responsibly to execute any certificate required to be executed by the Underwriter in connection with a Prospectus, and it shall be a condition precedent to the Underwriter's execution of any certificate in any Prospectus that they be satisfied, acting reasonably, as to the form and content of such Prospectus; (iii) duly execute and deliver the Escrow Agreement, Special Warrant Indenture, the Subscription Agreements, the Warrant Indenture, the Special Warrants and the Brokers' Warrants (as the case may be) at the Closing Time, and comply with and satisfy all terms, conditions and covenants therein contained to be complied with or satisfied by the Company; 9 (iv) use its best efforts to fulfil or cause to be fulfilled, at or prior to the Closing Date, each of the conditions set out in paragraph 10; (v) ensure that the Special Warrants shall be duly and validly created, authorized and issued on payment of the purchase price therefor, and shall have attributes corresponding in all material respects to the description thereof set forth in this Agreement and the Subscription Agreements; (vi) ensure that the Underlying Securities shall, upon issuance, be duly issued as fully paid and non-assessable securities in the capital of the Company, and shall have attributes corresponding in all material respects to the description thereof set forth in this Agreement and the Subscription Agreements; (vii) ensure that at all times prior to the expiry thereof, sufficient Common Shares are allotted and reserved or deposited for issuance upon the due exercise of the Special Warrants, the Warrants and the Compensation Options; (viii) ensure that as soon as possible following the Closing Date, the Common Shares issuable on exercise of the Special Warrants and the Compensation Options and the Warrant Shares issuable on exercise of the Warrants are listed and posted for trading on TSE upon their respective dates of issuance; (ix) maintain the Warrant Agent or a substituted licensed trust company as the transfer agent and registrar in respect of the Common Shares, as special warrant agent in respect of the Special Warrants and as warrant agent in respect of the Warrants (as the case may be); (x) ensure that the net proceeds from the issue and sale of the Primary Special Warrants are used for advertising and marketing, business-to- business development, research and development and working capital; (xi) not issue or announce the issuance of any Common Shares or any securities convertible into or exchangeable for or exercisable to acquire Common Shares without the prior consent of Yorkton, which consent shall not be unreasonably withheld, other than pursuant to: (A) presently outstanding rights or agreements, including options, warrants and other convertible securities (including the Special Warrants, the Warrants, the Brokers' Warrants and the Compensation Options); or (B) presently outstanding options granted to officers, directors, employees or consultants of the Company or any subsidiary pursuant to existing stock option plans as detailed in the Company's management information circular dated as of May 15, 1998; and (xii) in the event that a Prospectus Default occurs, to apply to such Securities Commissions as the Underwriter may reasonably require for a discretionary ruling to ensure that the Common Shares and Warrants exercisable on exercise of the 10 Secondary Special Warrants are not subject to the prospectus and registration requirements of applicable Canadian Securities laws. (b) UNDERWRITER'S OBLIGATION. The obligation of the Underwriter to execute any certificate or deliver any documents pertaining to either the Preliminary Prospectus or the Final Prospectus shall be conditional upon compliance by the Company to the date of such execution and delivery with those of its covenants contained in this Agreement to be complied with prior to the filing of either the Preliminary Prospectus or the Final Prospectus, as the case may be. 7. (a) MATERIAL CHANGES DURING DISTRIBUTION. During the period from the date hereof to the completion of distribution of the Underlying Securities, the Company and, if known to the Selling Shareholders, the Selling Shareholders shall promptly notify the Underwriter (and, if requested by the Underwriter, confirm such notification in writing) of: (i) any material change (actual, anticipated, contemplated or threatened, financial or otherwise) in the business, affairs, operations, assets, liabilities (contingent or otherwise) or capital of the Company and its subsidiaries; (ii) any material fact which has arisen and would have been required to have been stated in the Final Prospectus had the fact arisen on, or prior to, the date of the Final Prospectus; and (iii) any change in any material fact contained in the Final Prospectus or the Supplementary Material or any amendments or supplements thereto which change is, or may be, of such a nature as to render any material statement in the Final Prospectus or any Supplementary Material misleading or untrue or which would result in a misrepresentation in the Final Prospectus or Supplementary Material or which would result in the Final Prospectus or Supplementary Material not complying (to the extent that such compliance is required) with the Canadian Securities Laws or which would reasonably be expected to have a significant effect on the market price or value of the Underlying Securities. During the period from the date hereof to the completion of distribution of the Underlying Securities, the Company and, if known to the Selling Shareholders, the Selling Shareholders shall promptly, and in any event, within any applicable time limitation, comply with all applicable filing and other requirements under Canadian Securities Laws as a result of such change; provided that the Company and, if applicable, the Selling Shareholders shall not file any Supplementary Material or other document without first obtaining approval of the Underwriter, after consultation with the Underwriter with respect to the form and content thereof, which approval shall not be unreasonably withheld. The Company shall in good faith discuss with the Underwriter any fact or change in circumstances (actual, anticipated, contemplated or threatened, and financial or otherwise) which is of such a nature that there is reasonable doubt as to whether notice in writing need be given to the Underwriter pursuant to this paragraph 7. (b) CHANGE IN CANADIAN SECURITIES LAWS. If during the period of distribution to the public of the Underlying Securities, there shall be any change in Canadian Securities Laws which in the 11 opinion of counsel to the Company or counsel to the Underwriter requires the filing of Supplementary Material, the Company shall, to the satisfaction of its counsel and the Underwriter's counsel, promptly prepare and file such Supplementary Material with the appropriate securities regulatory authority in each of the Qualifying Provinces where such filing is required. 8. (a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Underwriter, the Purchasers and their permitted assigns, and acknowledges that each of them is relying upon such representations and warranties in purchasing Special Warrants, that: (i) the Company has been duly amalgamated and is validly existing under the laws of Ontario, has all requisite power and authority and is duly qualified to carry on its business as now conducted and to own its properties and assets and the Company has all requisite power and authority to carry out its obligations under this Agreement, the Special Warrant Indenture, the Warrant Indenture and the Brokers' Warrants and the Compensation Options; (ii) the only material subsidiary of the Company is Internet Liquidators USA Inc. (the "Subsidiary") which has been duly incorporated and is validly existing under the laws of the State of Florida, has all requisite power and authority and is duly qualified to carry on its business as now conducted and to own its properties and assets; (iii) all consents, approvals, permits, authorizations or filings as may be required under Canadian Securities Laws and the rules and regulations of the TSE necessary for the execution and delivery of and the performance by the Company of its obligations under this Agreement, the Special Warrants, the Special Warrant Indenture, the Warrant Indenture, the Brokers' Warrants and the Compensation Options have been made or obtained, as applicable; (iv) each of the execution and delivery of this Agreement, the Subscription Agreement, the Special Warrant Indenture, the Warrant Indenture, the Brokers' Warrants and the Compensation Options, the performance by the Company of its obligations hereunder or thereunder, the sale of the Special Warrants hereunder and the consummation of the transactions contemplated in this Agreement, including the issuance and delivery of the Underlying Securities and the Optioned Securities, do not and will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, (whether after notice or lapse of time or both), (A) any statute, rule or regulation applicable to the Company including, without limitation, Canadian Securities Laws; (B) the constating documents, by-laws or resolutions of the Company which are in effect at the date hereof; (C) any mortgage, note, indenture, contract, agreement, instrument, lease or other document to which the Company or any of its subsidiaries is a party or by which it is bound; or (D) any judgment, decree or 12 order binding the Company or any of its subsidiaries or the property or assets of the Company or any of its subsidiaries; (v) the Company is in compliance with its timely disclosure obligations under Canadian Securities Laws and the rules and regulations of the TSE and, without limiting the generality of the foregoing, there has not occurred any material adverse change, financial or otherwise, in the assets, liabilities (contingent or otherwise), business, financial condition, capital or prospects of the Company since December 31, 1997, which has not been publicly disclosed; (vi) none of the Disclosure Documents contains a misrepresentation at the date of filing thereof which has not been corrected and, without limiting the generality of the foregoing, the Disclosure Documents disclose all material facts relating to the Company and its subsidiaries, assets, undertaking, ownership and securities; (vii) the audited financial statements of the Company as at and for the period ended December 31, 1997, and the unaudited interim financial statements as at and for the nine month period ended September 30, 1998 have been prepared in accordance with generally accepted accounting principles and present fully, fairly and correctly the financial position of the Company as at the dates thereof and the results of its operations and the changes in its financial position for the periods then ended; (viii) as at the Closing Date, except as contemplated by this Agreement, and other than stock options to acquire Common Shares pursuant to the Company's stock option plan as detailed in the Company's management information circular dated as of May 15, 1998, no holder of outstanding shares in the capital of the Company will be entitled to any pre-emptive or any similar rights to subscribe for any of the Common Shares or other securities of the Company and no rights, warrants or options to acquire, or instruments convertible into or exchangeable for, any shares in the capital of the Company are outstanding other than 4,050,000warrants to purchase common shares issued in connection with a financing of the Company completed August 4, 1998; (ix) no legal or governmental proceedings are pending to which the Company or any subsidiary is a party or to which the property of any of them is subject that would result individually or in the aggregate in any material adverse change in their operation, business or condition of the Company and, to the knowledge of the Company and its subsidiaries, no such proceedings have been threatened against or are contemplated with respect to the Company or any subsidiary or with respect to any of their respective properties; (x) the Company and each of its subsidiaries have conducted and are conducting their business in material compliance with all applicable laws and regulations of each jurisdiction in which they carry on business (including, without limitation, all applicable Canadian and United States federal, provincial, state, municipal and 13 local environmental anti-pollution and licensing laws, regulations and other lawful requirements of any governmental or regulatory body) and have not received a notice of non-compliance, or knows of, or has reasonable grounds to know of, any facts that could give rise to a notice of non-compliance with any such laws or regulations which would have a material adverse effect on the Company on a consolidated basis; (xi) the Company and each of its subsidiaries have all licenses, leases, permits, authorizations and other approvals (collectively, "Licenses") and the proprietary rights provided in law and at equity to all patents, trademarks, copyrights, industrial designs, software, firmware, trade secrets, know-how, show-how, concepts, information and other intellectual and industrial property (collectively, "Intellectual Property") necessary to permit them to conduct their business as currently conducted, except where the failure to do so would not have a material adverse effect on the Company on a consolidated basis; (xii) the Company is the holder of and in good standing under all of its Licenses and is the exclusive owner of Intellectual Property free and clear of any encumbrances which would have a material adverse effect on the Company, and has no knowledge of any claim of adverse ownership in respect thereof; (xiii) this Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting the rights of creditors generally and except as limited by the application of equitable principles when equitable remedies are sought, and by the fact that rights to indemnity, contribution and waiver, and the ability to sever unenforceable terms, may be limited by applicable law; (xiv) at the Closing Time, each of this Agreement, the Subscription Agreements, the Special Warrant Indenture, the Warrant Indenture, the Escrow Agreement, the Brokers' Warrants, the Compensation Options and the Special Warrants shall have been duly authorized and, other than the Compensation Options, executed and delivered by the Company and upon such execution and delivery each shall constitute a valid and binding obligation of the Company and each shall be enforceable against the Company in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting the rights of creditors generally and except as limited by the application of equitable principles when equitable remedies are sought, and by the fact that rights to indemnity, contribution and waiver, and the ability to sever unenforceable terms, may be limited by applicable law; (xv) at the Closing Time, all necessary corporate action will have been taken by the Company to allot and authorize the issuance of the Underlying Securities and the 14 Optioned Securities, and upon due exercise of the Special Warrants, the Warrants, the Brokers' Warrants and the Compensation Options in accordance with the provisions thereof, such Underlying Securities and Optioned Securities (as the case may be) will be validly issued as fully paid and non-assessable securities in the capital of the Company; (xvi) the authorized capital of the Company consists of an unlimited number of Common Shares and an unlimited number of Preference Shares, issuable in series, of which 31,400,950 Common Shares are issued and outstanding as fully paid and non-assessable; (xvii) the Company is the registered and beneficial owner of all the issued and outstanding shares in the capital of each of its subsidiaries, free and clear of any claim, lien, security interest or other encumbrance which would have a material adverse effect on the Company, and no person has any right, warrant or option to acquire, or other instrument convertible into or exchangeable for, any shares in the capital of its subsidiaries; (xviii) the Company is a reporting issuer not in default of its obligations under applicable securities laws in the Province of Ontario, Alberta and British Columbia; (xix) the Company and each of its subsidiaries have timely filed all necessary federal, provincial, state, local and foreign tax returns and notices and has paid or made provision for all applicable taxes of whatever nature for all tax years to the date hereof to the extent such taxes have become due or have been alleged to be due and the Company is not aware of any material tax deficiencies or material interest or penalties accrued or accruing, or alleged to be accrued or accruing thereon which have not otherwise been provided for by the Company; (xx) the Company has no material investment or other interest in, and has not made any loans to or guaranteed the obligations of, any person other than its subsidiaries; (xxi) the Warrant Agent, at its principal office in the City of Toronto, has been duly appointed as registrar and transfer agent in respect of the Common Shares, as special warrant agent in respect of the Special Warrants and as warrant agent in respect of the Warrants; (xxii) other than the Underwriter there is no person acting or purporting to act at the request or on behalf of the Company, that is entitled to any brokerage or finder's fee in connection with the transactions contemplated by this Agreement; (xxiii) no order ceasing or suspending trading in the securities of the Company has been issued and no proceedings for this purpose have been instituted or, to the best of its knowledge and belief, are pending, contemplated or threatened; 15 (xxiv) the Common Shares are listed and posted for trading on the TSE and all necessary notices and filings have been made with and all necessary consents, approvals and authorizations obtained from the TSE to ensure that the Common Shares issuable on exercise of the Special Warrants and the Compensation Options, and the Warrant Shares issuable on the exercise of the Warrants will be listed and posted for trading on the TSE upon their issuance; and (xxv) the business conducted by the Subsidiary is limited to credit card processing and inventory procurement. (b) REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS. Each of the Selling Shareholders, Paul Godin and Jeffrey Lymburner individually represents and warrants to the Underwriter, the Purchasers and their permitted assigns, and acknowledges that each of them is relying upon such representations and warranties in purchasing Special Warrants, that: (i) the Selling Shareholder is or at the Closing Time will be the direct registered and beneficial owner of and has or will have at the Closing Time valid and marketable title to sufficient Underlying Securities free and clear of any lien, claim, security interest or other encumbrance, including, without limitation, any restrictions on transfer, to satisfy its obligation upon exercise of the Secondary Special Warrants and the Warrant Shares issuable upon exercise of the Warrants comprising the Secondary Special Warrants; (ii) the Selling Shareholder is not in possession of any material information concerning the business or affairs of the Company which has not been disclosed to the Underwriter; (iii) the Selling Shareholder has or will have at the Closing Time full legal right, power and authorization, and any approval required by law, to sell, assign, transfer and deliver such Selling Shareholder's Secondary Special Warrants in the manner provided in this Agreement and upon delivery of and payment for such Selling Shareholder's Secondary Special Warrants hereunder the Purchasers thereof will acquire valid and marketable title to such Selling Shareholder's Secondary Special Warrants free and clear of any lien, claim, security interest, or other encumbrance; (iv) each of this Agreement, the Special Warrant Indenture, the Escrow Agreement, the Warrant Indenture and the Subscription Agreements has been duly authorized and duly executed and delivered by the Selling Shareholder and constitutes a valid and binding obligation of the Selling Shareholder enforceable against such Selling Shareholder in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting the rights of creditors generally and except as limited by the application of equitable principles when equitable remedies are sought, and by the fact that rights to indemnity, contribution and waiver, and the ability to sever unenforceable terms, may be limited by applicable law; 16 (v) the execution and delivery of this Agreement, the Special Warrant Indenture, the Warrant Indenture, the Escrow Agreement and the Subscription Agreements by the Selling Shareholder, the sale of such Selling Shareholder's Secondary Special Warrants pursuant to this Agreement and the consummation of the transactions contemplated in this Agreement, including the delivery of Underlying Securities upon the exercise of the Selling Shareholder's Secondary Special Warrants, do not and will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under (whether after notice or lapse of time or both) any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Selling Shareholder is a party or by which the Selling Shareholder is or may be bound or to which any of the Selling Shareholder's property or assets are subject, nor does or will such action conflict with or violate any statute, law, rule, regulation, ruling, judgment, injunction, order or decree applicable to the Selling Shareholder or to any property or assets of the Selling Shareholder; (vi) other than as may be required under Canadian Securities Laws, no consent, approval, authorization, order, registration or qualification of or with any court or governmental agency or body is required for the sale of the Selling Shareholder's Secondary Special Warrants to be sold by the Selling Shareholder as contemplated by this Agreement or the consummation of the transactions contemplated in this Agreement, including the transfer and delivery of Underlying Securities upon the exercise of such Secondary Special Warrants; (vii) the Selling Shareholder will pay all taxes, if any, on the transfer by the Selling Shareholder of such Selling Shareholder's Secondary Special Warrants to Purchasers or in respect of the transfer and delivery by such Selling Shareholders of Underlying Securities pursuant to the exercise of such Secondary Special Warrants; and (viii) the Selling Shareholder will do or perform all things (A) required to be done or performed by the Selling Shareholder prior to the Special Warrant Closing Date to satisfy all conditions precedent to the delivery of the Selling Shareholder's Secondary Special Warrants pursuant to this Agreement; and (B) that are within its power and are necessary or desirable to give effect to all transactions contemplated by this Agreement and the Final Prospectus, including the transfer and delivery of Underlying Securities upon the exercise of such Secondary Special Warrants. (c) REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE UNDERWRITER. The Underwriter hereby represents, warrants and covenants to the Company and the Selling Shareholders, and acknowledges that the Company and the Selling Shareholders are relying upon such representations and warranties, that: 17 (i) in respect of the offer and sale of the Special Warrants, the Underwriter will comply with all Canadian Securities Laws and all applicable laws of the jurisdictions outside Canada in which they offer Special Warrants; (ii) the Underwriter and its representatives have not engaged in or authorized, and will not engage in or authorize, any form of general solicitation or general advertising in connection with or in respect of the Special Warrants or the Underlying Securities in any newspaper, magazine, printed media of general and regular paid circulation or any similar medium, or broadcast over radio or television or otherwise or conducted any seminar or meeting concerning the offer or sale of the Special Warrants or the Underlying Securities whose attendees have been invited by any general solicitation or general advertising; (iii) the Underwriter will not solicit offers to purchase or sell the Special Warrants so as to require the filing of a prospectus with respect thereto or the provision of a contractual right of action (as defined in section 32(1) of the Regulation made under the Securities Act (Ontario)) under the laws of any jurisdiction, including without limitation, the United States of America or any state thereof; (iv) the Underwriter will, subject to compliance by the Company and the Selling Shareholders with their obligations hereunder and provided that it shall otherwise be responsible for the Underwriter to do so, execute and deliver to the Company and the Selling Shareholders any certificate required to be executed by it under Canadian Securities Laws in connection with the Preliminary Prospectus, Final Prospectus and any Supplementary Material; (v) the Underwriter shall obtain the prior written approval of the Company to any allocation of more than 20% of the Special Warrants to any one Purchaser; and (vi) the Underwriter shall provide such ongoing research coverage of the Company as the Underwriter may from time to time deem to be appropriate. It is understood and agreed that the Company and, for purposes of the opinions to be delivered pursuant to Section 10, counsel to the Company and the Selling Shareholders, will rely on the accuracy and truth of the representations and warranties set forth in this subsection 8(c). 9. SPECIAL WARRANT CLOSING DELIVERIES. The purchase and sale of the Special Warrants shall be completed at the Closing Time at the offices of Gowling, Strathy & Henderson, Toronto, or at such other place as the Underwriter, the Selling Shareholders and the Company may agree upon. At or prior to the Closing Time, the Company and the Selling Shareholders shall duly and validly deliver to the Underwriter certificates in definitive form representing Special Warrants registered in the names of such Purchasers or as indicated on their respective Subscription Agreements, against payment at the direction of the Company and the Selling Shareholders of the subscription price therefor, in lawful money of Canada by certified cheque or banker's draft payable at par in the City of Toronto. 18 10. SPECIAL WARRANT CLOSING CONDITIONS. Each Purchaser's obligation to purchase the Special Warrants at the Closing Time shall be conditional upon the fulfilment at or before the Closing Time of the following conditions: (a) the Underwriter shall have received a certificate, dated as of the Closing Date, signed by the Chief Executive Officer and the Chief Financial Officer of the Company, or such other officers of the Company as the Underwriter may agree, certifying for and on behalf of the Company, to the best of the knowledge, information and belief of the persons so signing, that: (i) since December 31, 1997 (A) there has been no material change (actual, anticipated, contemplated or threatened, whether financial or otherwise) in the business, affairs, operations, assets, liabilities (contingent or otherwise) or capital of the Company and its subsidiaries, except as has been publicly disclosed on a non- confidential basis; and (B) no transaction has been entered into by the Company or any of its subsidiaries which is or would be material to the Company and its subsidiaries on a consolidated basis except as has been publicly disclosed on a non-confidential basis; (ii) no order, ruling or determination having the effect of suspending the sale or ceasing the trading in any securities of the Company (including the Special Warrants, the Underlying Securities and the Optioned Securities) has been issued by any regulatory authority and is continuing in effect and no proceedings for that purpose have been instituted or are pending or, to the knowledge of such officers, contemplated or threatened by any regulatory authority; (iii) the Company has duly complied with all the terms, covenants and conditions of this Agreement on its part to be complied with up to the Closing Time; (iv) the representations and warranties of the Company contained in this Agreement are true and correct as of the Closing Time with the same force and effect as if made at and as of the Closing Time after giving effect to the transactions contemplated by this Agreement; and (v) such other matters as the Underwriter may reasonably request; (b) the Underwriter shall have received at the Closing Time certificates dated the Closing Date, signed by appropriate officers of the Company addressed to the Underwriter and its counsel, with respect to the articles and by- laws of the Company, all resolutions of the Company's board of directors relating to this Agreement, the Special Warrant Indenture, the Warrant Indenture, the Escrow Agreement, the Brokers' Warrants, the Compensation Options and the transactions contemplated hereby and thereby, the incumbency and specimen signatures of signing officers, the constating documents of the Company and such other matters as the Underwriter may reasonably request; 19 (c) the Special Warrant Indenture, the Subscription Agreements, the Warrant Indenture, the Escrow Agreement, the Brokers' Warrants and the certificates representing the Special Warrants shall have been executed and delivered by the parties thereto in form and substance satisfactory to the Underwriter and its counsel, acting reasonably; (d) the Underwriter shall have received favourable legal opinions addressed to the Underwriter and counsel to the Underwriter, in form and substance satisfactory to the Underwriter's counsel, dated the Closing Date, from Messrs. Gowling, Strathy & Henderson, counsel for the Company, as to the laws of Canada and the Qualifying Provinces, which counsel in turn may rely upon the opinions of local counsel where they deem such reliance proper as to the laws other than those of Canada and the Province of Ontario and, as to matters of fact, on certificates of auditors, public officials and officers of the Company, with respect to the following matters: (i) as to the incorporation and subsistence of the Company and the Subsidiary under the laws of their jurisdiction of incorporation and as to the corporate power of the Company to carry out its obligations under this Agreement, the Subscription Agreements, the Special Warrant Indenture, the Warrant Indenture, the Brokers' Warrants and the Compensation Options and to issue the Special Warrants, the Underlying Securities and the Optioned Securities; (ii) as to the authorized capital of the Company and the Subsidiary; (iii) the Company and the Subsidiary has all requisite corporate power and authority under the laws of its jurisdiction of incorporation to carry on its business as presently carried on and to own its properties and the Company has all requisite corporate power and authority to carry out the transactions contemplated by this Agreement, the Subscription Agreements, the Special Warrant Indenture, the Warrant Indenture, the Escrow Agreement, the Brokers' Warrants and the Compensation Options; (iv) none of the execution and delivery of this Agreement, the Subscription Agreements, the Special Warrant Indenture, the Warrant Indenture, the Escrow Agreement, the Brokers' Warrants and the Compensation Options, the performance by the Company of its obligations hereunder and thereunder, or the sale or issuance of the Primary Special Warrants, the Underlying Securities and the Optioned Securities will conflict with or result in any breach of the constating documents or by-laws of the Company; (v) each of this Agreement, the Subscription Agreements, the Special Warrant Indenture, the Warrant Indenture, the Escrow Agreement, the Brokers' Warrants and the Compensation Options has been duly authorized and, other than the Compensation Options, executed and delivered by the Company, and constitute or, in the case of the Compensation Options, upon execution and delivery shall constitute, a valid and legally binding agreement of the Company enforceable against it in accordance with its terms, except as enforcement thereof may be 20 limited by bankruptcy, insolvency, liquidation, reorganization, moratorium or similar laws affecting the rights of creditors generally and except as limited by the application of equitable principles when equitable remedies are sought, and the qualification that the enforceability of rights of indemnity and contribution may be limited by applicable law; (vi) the Underlying Securities and the Optioned Securities have been authorized and allotted for issuance to the holders of the Special Warrants and the Underwriter (as the case may be) and, upon the due exercise of the Special Warrants, the Warrants, the Brokers' Warrants and the Compensation Options in accordance with the provisions thereof, such Underlying Securities and Optioned Securities (as the case may be) will be validly issued as fully paid and non-assessable securities in the capital of the Company; (vii) the Primary Special Warrants (A) have been validly created and issued by the Company; (B) have been duly executed and delivered by the Company; and (C) are valid, legal and binding obligations of the Company enforceable in accordance with their terms subject to qualifications as in subclause (v) above; (viii) the issuance and sale by the Company of the Primary Special Warrants to the Purchasers and the Brokers' Warrants to the Underwriter are exempt from the prospectus and registration requirements of applicable Canadian Securities Laws and no documents are required to be filed (other than specified forms accompanied by requisite filing fees), proceedings taken or approvals, permits, consents or authorizations obtained under the applicable Canadian Securities Laws to permit such issuance and sale; and the issuance of the Underlying Securities and Optioned Securities upon the exercise of the Primary Special Warrants, the Warrants, the Brokers' Warrants and the Compensation Options (as the case may be) is exempt from the prospectus and registration requirements of applicable Canadian Securities Laws subject to certain provisos and specified resale restrictions; (ix) upon the filing of the Final Prospectus and the issuance of receipts therefor under applicable Canadian Securities Laws, all legal requirements will have been fulfilled by the Company under the Canadian Securities Laws to qualify, without resort to the prospectus exemption provisions of such applicable laws, the distribution in each of the Qualifying Provinces of the Underlying Securities issuable upon the exercise of Primary Special Warrants in accordance with the Special Warrant Indenture, the Warrant Shares issuable upon the exercise of Warrants in accordance with the Warrant Indenture, the Compensation Options issuable upon the exercise of the Brokers' Warrants, and the Optioned Securities issuable upon the exercise of the Compensation Options and that the issuance of such Underlying Securities and Optioned Securities by the Company upon such exercise will be exempt from the registration requirements of such applicable laws subject to certain provisos and will not be subject to any statutory hold period and no other documents will be required to be filed, proceedings taken, or 21 approvals, permits, consents, or authorizations obtained under the Canadian Securities Laws to permit the trading in the Qualifying Provinces of such Underlying Securities and Optioned Securities, through registrants registered under applicable laws who have complied with such applicable laws or in circumstances in which there is an exemption from the registration requirements of such applicable laws, subject to usual exceptions; (x) the Warrant Agent has been duly appointed by the Company as registrar and transfer agent in respect of the Common Shares, as special warrant agent in respect of the Special Warrants, as warrant agent in respect of the Warrants; (xi) the Company is a reporting issuer not on the list of defaulting reporting issuers maintained pursuant to the applicable securities laws in the Provinces of Ontario, Alberta and British Columbia; and (xii) the TSE has conditionally approved the listing of the Common Shares of the Company issuable upon exercise or deemed exercise of the Primary Special Warrants, the Compensation Option and the Warrants comprising the Units issuable on exercise of the Primary Special Warrants, subject to compliance with its conditions on or prior to December 31, 1998. (e) the Underwriter shall have received certificates of status or similar certificates with respect to each jurisdiction in which the Company and the Subsidiary is required to be licensed to carry on a material part of its business and certificates of status or similar certificates with respect to the Selling Shareholders; (f) the Underwriter shall have received at the Closing Time a certificate executed by each of the Selling Shareholders, Paul Godin and Jeffrey Lymburner and dated the Closing Date addressed to the Underwriter, the Underwriter's counsel and the Purchasers certifying that: (i) such Selling Shareholder has duly complied with all terms and conditions of this Agreement on the Selling Shareholder's part to be complied with up to the Closing Time; and (ii) the representations and warranties of the Selling Shareholders, Paul Godin and Jeffrey Lymburner contained in this Agreement are true and correct as of the Closing Time with the same force and effect as if made at and as of the Closing Time after giving effect to the transactions contemplated hereby; (g) the Underwriter shall have received at the Closing Time certificates dated the Closing Date, signed by appropriate officers of each Selling Shareholder addressed to the Underwriter and its counsel, with respect to the articles and by-laws of such Selling Shareholder, all resolutions of such Selling Shareholder's board of directors relating to this Agreement, the Special Warrant Indenture, the Warrant Indenture, the Escrow Agreement and the transactions contemplated hereby and thereby, the incumbency and 22 specimen signatures of signing officers, the constating documents of the Selling Shareholder and such other matters as the Underwriter may reasonably request; (h) the Underwriter shall have received a favourable legal opinion dated the Closing Date and addressed to the Underwriter, its counsel and each of the Purchasers, from counsel to the Selling Shareholders being Messrs. Gowling, Strathy & Henderson, with respect to the following matters: (i) as to the incorporation and subsistence of the Selling Shareholders under the laws of their jurisdiction of incorporation and as to the corporate power of the Selling Shareholders to carry out their obligations under this Agreement, the Subscription Agreement, the Escrow Agreement, the Special Warrant Indenture and the Warrant Indenture and to issue the Secondary Special Warrants; (ii) the Selling Shareholders have all requisite corporate power and authority under the laws of their jurisdiction of incorporation to carry on their business as presently carried on and to own their properties and the Selling Shareholders have all requisite corporate power to carry out the transactions contemplated by this Agreement, the Subscription Agreement, the Escrow Agreement, the Special Warrant Indenture and the Warrant Indenture, the Secondary Special Warrants and the Underlying Securities; (iii) none of the execution and delivery of this Agreement, the Subscription Agreement, the Escrow Agreement, the Special Warrant Indenture and the Warrant Indenture, the Secondary Special Warrants and the Underlying Securities, the performance by the Selling Shareholders of their obligations hereunder and thereunder, or the sale, issuance or transfer of the Secondary Special Warrants and the Underlying Securities will conflict with or result in any breach of the constating documents or by-laws of the Selling Shareholders; (iv) each of this Agreement, the Subscription Agreements, the Secondary Special Warrants, the Special Warrant Indenture and the Warrant Indenture has been, duly authorized and duly executed and delivered by each Selling Shareholder, and constitutes a valid and legally binding agreement of such Selling Shareholder enforceable against it in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, liquidation, reorganization, moratorium or similar laws affecting the rights of creditors generally and except as limited by the application of equitable principles when equitable remedies are sought, and the qualification that the enforceability of rights of indemnity and contribution may be limited by applicable law; (v) the Secondary Special Warrants (A) have been validly created and issued by each Selling Shareholder; (B) have been duly executed and delivered by each Selling Shareholder; and (C) are valid, legal and binding obligations of each Selling Shareholder enforceable in accordance with their terms subject to qualifications as in subclause (iv) above; 23 (vi) the issuance and sale of the Secondary Special Warrants by the Selling Shareholders to the Purchasers are exempt from the prospectus and registration requirements of applicable Canadian Securities Laws and no documents are required to be filed (other than specified forms accompanied by requisite filing fees), proceedings taken or approvals, permits, consents or authorizations obtained under applicable Canadian Securities Laws to permit such issuance and sale; (vii) the transfer of the Underlying Securities upon the exercise of the Secondary Special Warrants is exempt from the prospectus and registration requirements of Canadian Securities Laws of any of the Qualifying Provinces, subject to certain provisos and specified resale restrictions; (viii) upon the filing of the Final Prospectus and the issuance of receipts therefor under Canadian Securities Laws, all legal requirements will have been fulfilled by the Selling Shareholders under the Canadian Securities Laws to qualify, without resort to the prospectus exemption provisions of such applicable laws, the transfer of the Underlying Securities in each of the Qualifying Provinces upon the exercise of the Secondary Special Warrants in accordance with the Special Warrant Indenture and the transfer of the Warrant Shares upon the exercise of the Warrants comprising the Secondary Special Warrants in accordance with the Warrant Indenture, and that the transfer of such Underlying Securities and Warrant Shares by the Selling Shareholders upon such exercise will be exempt from the registration requirements of such applicable laws subject to certain provisos, and the transfer of the Underlying Securities by the Selling Shareholders upon such exercise of the Secondary Special Warrants will be exempt from the registration requirements of such applicable laws, subject to certain provisos and the Underlying Securities will not be subject to any statutory hold period and no other documents will be required to be filed, proceedings taken, or approvals, permits, consents, or authorizations obtained under the Canadian Securities Laws to permit the trading of such Underlying Securities in the Qualifying Provinces through registrants registered under applicable laws who have complied with such applicable laws or in circumstances in which there is an exemption from the registration requirements of such applicable laws, subject to usual exceptions; and (ix) the Warrant Agent has been duly appointed by the Selling Shareholders as Warrant Agent in respect of the Warrants and as Special Warrant Agent in respect of the Secondary Special Warrants; which opinion shall be in form and substance satisfactory to the Underwriter and its counsel, acting reasonably; (i) the Underwriter shall have received favourable legal opinions addressed to the Underwriter, counsel to the Underwriter and to each of the Purchasers, in form and substance satisfactory to the Underwriter's counsel, dated the Closing Date, from Baer 24 Marks & Upham LLP, U.S. counsel for the Company, as to the laws of the United States, which counsel in turn may as to matters of fact rely upon public officials and officers of the Company; (j) the Underwriter shall have received a certificate of the registrar and transfer agent of the Company as to the number of issued and outstanding Common Shares; (k) the Underwriter shall have received a certificate issued by the Ontario Securities Commission, the Alberta Securities Commission and the British Columbia Securities Commission as to the status of the Company as a reporting issuer under each of the above mentioned province's Securities Act; and (l) each of the Selling Shareholders shall have executed and delivered irrevocable undertakings and not to sell, transfer, assign or otherwise dispose of any securities of the Company for a period ending ten (10) business days after the Qualification Date, without the prior written consent of the Underwriter. 11. RIGHTS OF TERMINATION (a) LITIGATION. If any enquiry, action, suit, investigation or other proceeding whether formal or informal is instituted or threatened or any order is made by any federal, provincial or other governmental authority in relation to the Company or any of the officers or directors of the Company or any of its principal shareholders which, in the reasonable opinion of the Underwriter, operates to prevent or restrict the distribution or trading of the Special Warrants or the Underlying Securities which may reasonably be seen to materially and adversely affect the financial markets or the business, affairs or profitability of the Company or the future market price or the present or future value of the securities of the Company, the Underwriter shall be entitled, at its option and in accordance with subparagraph 11(f) of this Agreement, to terminate its obligations under this Agreement (and the obligations of the Purchasers arranged by them to purchase Special Warrants) by notice to that effect given to the Company any time prior to the Closing Time. (b) DISASTER OUT CLAUSE. In the event that prior to the Closing Time there should develop, occur or come into effect any occurrence of national or international consequence or any event, action, condition, law, governmental regulation, inquiry or other occurrence of any nature whatsoever which, in the reasonable opinion of the Underwriter, seriously adversely affects or involves, or will seriously adversely affect or involve, the Canadian financial markets or the business, operations or affairs of the Company and its subsidiaries on a consolidated basis, the Underwriter shall be entitled at its option, in accordance with subparagraph 11(f) of this Agreement, to terminate its obligations under this Agreement (and the obligations of the Purchasers arranged by them to purchase Special Warrants) by written notice to that effect given to the Company prior to the Closing Time. (c) CHANGE IN MATERIAL FACT. In the event that prior to the Closing Time there should occur any material change, there should be discovered any previously undisclosed material fact, or there should occur a change in any material fact such as is contemplated by subparagraph 7(a), 25 which results or, in the reasonable opinion of the Underwriter, could reasonably be expected to result, in the Purchasers of a material number of Special Warrants exercising their contractual right of rescission granted to the Purchasers in respect of the Special Warrants or the rights of rescission or damages under section 130 of the Securities Act (Ontario) or the corresponding provisions of applicable securities legislation in the other Qualifying Provinces or, in the reasonable opinion of the Underwriter, has or could reasonably be expected to have a material adverse effect on the market price or value of the Special Warrants or the Underlying Securities, the Underwriter shall be entitled, at its option, in accordance with subparagraph 11(f), to terminate their obligations under this Agreement (and the obligations of the Purchasers arranged by them to purchase Special Warrants) by written notice to that effect given to the Company prior to the Closing Time. (d) NON-COMPLIANCE WITH CONDITIONS. The Company agrees that all terms and conditions in this Agreement shall be construed as conditions and complied with so far as the same relate to acts to be performed or caused to be performed by the Company that it will use its best efforts (or all commercially reasonable efforts, as applicable) to cause such conditions to be complied with, and any breach or failure by the Company to comply with any of such conditions shall entitle the Underwriter, or any of them, at their option in accordance with subparagraph 11(f), to terminate its obligations under this Agreement (and the obligations of the Purchasers arranged by them to purchase Special Warrants) by notice to that effect given to the Company at or prior to the Closing Time. The Underwriter may waive, in whole or in part, or extend the time for compliance with, any terms and conditions without prejudice to its rights in respect of any other of such terms and conditions or any other or subsequent breach or non- compliance, provided that any such waiver or extension shall be binding upon the Underwriter only if the same is in writing and signed by it. (e) CEASE TRADE ORDER. In the event that any order to cease trading in securities of the Company is made or threatened by a securities regulatory authority, the Underwriter shall be entitled, at its option, in accordance with subparagraph 11(f) of this Agreement, to terminate its obligations under this Agreement (and the obligations of the Purchasers arranged by them to purchase Special Warrants) by written notice to that effect given to the Company prior to the Special Warrant Closing Time. (f) EXERCISE OF TERMINATION RIGHTS. The rights of termination contained in subparagraphs 11(a), (b), (c), (d) and (e) may be exercised by the Underwriter and are in addition to any other rights or remedies the Underwriter may have in respect of any default, act or failure to act or non-compliance by the Company in respect of any of the matters contemplated by this Agreement or otherwise. In the event of any such termination, there shall be no further liability on the part of the Underwriter to the Company or on the part of the Company to the Underwriter except in respect of any liability which may have arisen or may arise after such termination in respect of acts or omissions prior to such termination under paragraphs 12, 14 and 15. 12. EXPENSES. Whether or not the sale of the Special Warrants or the issuance of the Underlying Securities upon exchange of such Special Warrants shall be completed, all expenses of or incidental to the issue and delivery of such Special Warrants and Underlying Securities or incidental to all matters in connection with the transactions herein set out shall be borne by the 26 Company and the Selling Shareholders, on a pro rata basis, including, without limitation, expenses in connection with the issuance and sale of the Special Warrants, all private placement fees required under Canadian Securities Laws, the qualification of the Underlying Securities for distribution to the public, the fees and expenses of counsel to the Company and all local counsel selected by the Company, the reasonable fees and expenses of counsel to the Underwriter to a maximum of $50,000 (exclusive of disbursements and all applicable GST), with the balance, if any, being the obligation of the Underwriter, the fees and expenses of the Warrant Agent and Escrow Agent, all out-of-pocket expenses of the Underwriter, and all costs incurred in connection with the preparation and printing of the Preliminary Prospectus, the Final Prospectus and any Supplementary Material. All fees and expenses incurred by the Underwriter or on their behalf prior to the Closing Time shall be payable by the Company at the Closing Time and any such expenses incurred thereafter shall be payable from the Escrowed Proceeds in accordance with the Escrow Agreement. 13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All warranties, representations, covenants and agreements herein contained or contained in any documents submitted pursuant to this Agreement and in connection with the transaction herein contemplated shall survive the purchase and sale of the Special Warrants and the exchange of such Special Warrants for the Underlying Securities by the Purchasers and continue in full force and effect for the benefit of the Purchasers for a period of three years from the Closing Date and shall not be limited or prejudiced by any investigation made by or on behalf of the Underwriter in connection with the purchase and sale of the Special Warrants or the preparation of the Preliminary Prospectus, the Final Prospectus or otherwise. 14. (a) INDEMNITY. The Company and the Selling Shareholders, severally and not jointly, in proportion to the gross subscription proceeds payable to the Company and each Selling Shareholder, shall indemnify and save harmless the Underwriter and its directors, officers, employees and agents from and against all liabilities, claims, actions, suits, proceedings, losses (other than loss of profits), costs, damages and expenses in any way caused by, or arising directly or indirectly from, or in consequence of: (i) any misrepresentation or alleged misrepresentation (as such term is defined in the Securities Act (Ontario)) contained herein or made by the Company or the Selling Shareholders in connection with the sale by the Company and the Selling Shareholders of the Special Warrants or the Underlying Securities, or in any material change report or public document filed or issued by the Company or on its behalf prior to the date of the Final Prospectus; (ii) any information or statement (except any information or statement relating solely to the Underwriter) contained in the Prospectus or any Supplementary Material or in any certificate of the Company or the Selling Shareholders delivered under this Agreement or pursuant to this Agreement which at the time and in the light of the circumstances under which it was made contains or is alleged to contain a misrepresentation; 27 (iii) any omission or alleged omission to state in the Prospectus, any Supplementary Material or any certificate of the Company delivered under this Agreement or pursuant to this Agreement any fact (except facts relating solely to the Underwriter), whether material or not, required to be stated in such document or necessary to make any statement in such document not misleading in light of the circumstances under which it was made; (iv) any order made or enquiry, investigation or proceedings commenced or threatened by any securities commission or other competent authority based upon any untrue statement or omission or alleged untrue statement or alleged omission or any misrepresentation or alleged misrepresentation (except a statement or omission or alleged statement or omission relating solely to the Underwriter) in the Prospectus or any Supplementary Material or based upon any failure to comply with Canadian Securities Laws (other than any failure or alleged failure to comply by the Underwriter), preventing or restricting the trading in or the sale or distribution of the Special Warrants or the Underlying Securities in any of the Qualifying Provinces; or (v) the non-compliance or alleged non-compliance by the Company or the Selling Shareholders with any of the Canadian Securities Laws, including the Company's non-compliance with any statutory requirement to make any document available for inspection. (b) NOTIFICATION OF CLAIMS. If any matter or thing contemplated by this paragraph (any such matter or thing being referred to as a "Claim") is asserted against any person or company in respect of which indemnification is or might reasonably be considered to be provided, such person or company (the "Indemnified Party") will notify the Company and the Selling Shareholders as soon as possible of the nature of such Claim and the Company and the Selling Shareholders shall be entitled (but not required) to assume the defence of any suit brought to enforce such Claim; provided, however, that the defence shall be conducted through legal counsel acceptable to the Indemnified Party acting reasonably and that no settlement of any such Claim may be made by the Company, the Selling Shareholders or the Indemnified Party without the prior written consent of the other party. (c) RIGHT OF INDEMNITY IN FAVOUR OF OTHERS. With respect to any Indemnified Party who is not a party to this Agreement, the Underwriter shall obtain and hold the rights and benefits of this paragraph and paragraph 15 in trust for and on behalf of such Indemnified Party. (d) RETAINING COUNSEL. In any such Claim, the Indemnified Party shall have the right to retain other counsel to act on his or its behalf and to participate in the defence thereof, provided that the fees and disbursements of such counsel shall be paid by the Indemnified Party unless: (i) the Company, the Selling Shareholders and the Indemnified Party shall have mutually agreed to the retention of the other counsel; (ii) the Company and the Selling Shareholders fails to assume the defence of such Claim on behalf of the Indemnified Party within ten days of receiving notice of such Claim; or (iii) the named parties to any such Claim (including any added third party) include both the Indemnified Party and the Company and/or the Selling Shareholders and the 28 Indemnified Party shall have been advised by counsel that representation of the Indemnified Party by counsel for the Company is inappropriate as a result of potential or actual differing interests of those represented; in each of which cases the Company shall not have the right to assume the defence of such Claim on behalf of the Indemnified Party but the Company and the Selling Shareholders shall be liable to pay the reasonable fees and disbursements of counsel to the Indemnified Party. 15. (a) CONTRIBUTION. In order to provide for a just and equitable contribution in circumstances in which the indemnity provided in paragraph 14 would otherwise be available in accordance with its terms but is, for any reason, held to be unavailable to or unenforceable by the Underwriter or enforceable otherwise than in accordance with its terms, the Company, the Selling Shareholders and the Underwriter shall severally contribute to the aggregate of all claims, expenses, costs and liabilities and all losses (other than loss of profits) of a nature contemplated in paragraph 14 in such proportions so that the Underwriter is responsible for the portion represented by the percentage that the aggregate fee payable by the Company and the Selling Shareholders to the Underwriter bears to the aggregate offering price of the Special Warrants and the Company and the Selling Shareholders are responsible for the balance, whether or not it has been sued together or sued separately. The Underwriter shall not in any event be liable to contribute, in the aggregate, any amounts in excess of such aggregate fee or any portion of such fee actually received. However, no party who has engaged in any fraud, fraudulent misrepresentation or gross negligence shall be entitled to claim contribution from any person who has not engaged in such fraud, fraudulent misrepresentation or gross negligence. (b) RIGHT OF CONTRIBUTION IN ADDITION TO OTHER RIGHTS. The rights to contribution provided in this paragraph 15 shall be in addition to and not in derogation of any other right to contribution which the Underwriter may have by statute or otherwise at law. (c) CALCULATION OF CONTRIBUTION. In the event that the Company and the Selling Shareholders may be held to be entitled to contribution from the Underwriter under the provisions of any statute or at law, the Company or any or all of the Selling Shareholders shall be limited to contribution in an amount not exceeding the lesser of: (i) the portion of the full amount of the loss or liability giving rise to such contribution for which the Underwriter is responsible, as determined in subparagraph 15(a) above; and (ii) the amount of the aggregate fee actually received by the Underwriter from the Company and the Selling Shareholders under this Agreement. (d) NOTICE. If the Underwriter has reason to believe that a claim for contribution may arise, they shall give the Company and the Selling Shareholders notice of such claim in writing, as soon as reasonably possible, but failure to notify the Company shall not relieve the Company or the Selling Shareholders of any obligation which it may have to the Underwriter under this paragraph. 29 16. (a) BROKERS' WARRANTS AND COMPENSATION OPTIONS. In consideration for the Underwriter's services in (i) obtaining Purchasers for the Special Warrants and assisting in the preparation and completion of the offering of Special Warrants contemplated by this Agreement; (ii) assisting in the preparation of the Preliminary Prospectus, Final Prospectus and the Supplementary Material; (iii) forming and managing any banking, selling or other groups established by the Underwriter in its sole discretion in connection with the distribution of the Special Warrants; (iv) distributing the Special Warrants, both directly and through other registered dealers and brokers in the Qualifying Provinces; and (v) all other matters in connection with the issue and sale of the Special Warrants in the Qualifying Provinces, the Company hereby irrevocably and unconditionally agrees to issue to the Underwriter on the Closing Date, irrevocable non-assignable special brokers' warrants (the "Brokers' Warrants") exercisable, without payment of additional consideration, into irrevocable non- assignable options (the "Compensation Options") to purchase up to such number of Units as is equal to 10.0% of the aggregate number of Special Warrants which are sold pursuant to the Offering and not retracted pursuant to paragraph 3 (the "Optioned Units") exercisable in whole or in part during the period commencing as at the Closing Date and expiring on December 31, 1999, at an exercise price of $1.75 per Optioned Unit. (b) QUALIFICATION OF COMPENSATION OPTIONS. Subject to Canadian Securities Laws and as may be permitted by applicable securities regulatory authorities, the Prospectus shall qualify for distribution all of the Compensation Options issuable upon exercise of the Brokers' Warrants. The Compensation Options may be exercised by the Underwriter, at any time in whole or from time to time in part from the time granted until their expiry (initially, up to each Agent's pro rata portion thereof) upon delivering written notice to the Company together with a certified cheque or bank draft representing the subscription price for the applicable number of Optioned Units. In exercising the Compensation Options (whether in whole or in part), the Underwriter may, at its sole discretion, in lieu of satisfying the exercise price in cash, elect to receive that number of Warrants as is equal to one-quarter of the Compensation Options being exercised and that number of Common Shares of the Corporation equal to the quotient of: x(FMV - $1.75) -------------- FMV where, x = the number of Compensation Options to be exercised; and FMV = the closing price of the Commons Shares on the principal stock exchange or quotation system on which the Common Shares are then listed or quoted for trading on the trading day immediately prior to such election by the Underwriter. (c) ANTI-DILUTION PROVISIONS. If the Company subdivides, consolidates or otherwise changes, reorganizes or reclassifies its Common Shares in any way, declares any stock dividend, or becomes subject to any amalgamation, arrangement, business combination, reorganization or other similar transaction prior to the expiry of the Compensation Options (each such event being a "capital reorganization event"), the Compensation Options shall be similarly subdivided, 30 consolidated, reorganized, reclassified or changed such that the Underwriter receive, on any exercise of the Compensation Options subsequent to the effective date of such capital reorganization event, the same number and type of securities that they would have otherwise received had they fully exercised such Compensation Options (including the Warrants comprising the Optioned Units) prior to each such capital reorganization event. The exercise price shall be adjusted accordingly and notice shall be given to the Underwriter of such adjustment. If the Underwriter disagrees with such adjustment the matter shall be determined conclusively by the Company's Auditors at the expense of the Company. The Company shall at all times while the Compensation Options are in effect, reserve and keep available out of its authorized but unissued Common Shares, such number of Common Shares as shall from time to time be required to be issued on each exercise of the Compensation Options (including the Warrants comprising the Optioned Units) and such additional Common Shares as may be issuable as a result of each capital reorganization event). If any Common Shares required to be reserved for purposes of issuance upon any exercise of Compensation Options require, in addition to such compliance with the Canadian Securities Laws as is contemplated by this Agreement, any additional registration with or approval of any authority under the Canadian Securities Laws, or listing on any securities exchange on which the Common Shares or other securities as may be issuable as a result of any capital reorganization event may then be listed, before they may be issued, the Company shall cause them to be duly registered, approved and listed forthwith following the exercise of such Compensation Options. 17. RIGHT OF FIRST REFUSAL. The Underwriter shall be granted the right of first refusal (the "Right of First Refusal") to act as lead or co-lead manager of any offering of securities of the Company in Canada and to act as a managing underwriter (with a minimum of 25% participation) in any offering of securities of the Company in the United States by the Company for a period of two (2) years from the Closing Date. 18. ADVERTISEMENTS. The Company and the Selling Shareholders acknowledge that the Underwriter shall have the right, subject always to clauses 1(a) and (c) of this Agreement, at its own expense, to place such advertisement or advertisements relating to the sale of the Special Warrants or the Underlying Securities contemplated herein as the Underwriter may consider desirable or appropriate and as may be permitted by applicable law. The Company, the Selling Shareholders and the Underwriter each agree that they will not make or publish any advertisement in any media whatsoever relating to, or otherwise publicise, the transaction provided for herein so as to result in any exemption from the prospectus and registration requirements of applicable securities legislation in any of the provinces of Canada or any other jurisdiction in which the Special Warrants or Underlying Securities shall be offered or sold being unavailable in respect of the sale of the Special Warrants to prospective purchasers. 19. CONTRACTUAL RIGHT OF ACTION FOR RESCISSION. As part of the Subscription Agreements, the Company has delivered, and shall be deemed to have delivered, to the Purchasers (including the Underwriter) contractual rights of action for rescission at the Special Warrant Closing Time or subsequent thereto. 31 20. NOTICES. Unless otherwise expressly provided in this Agreement, any notice or other communication to be given under this Agreement (a "notice") shall be in writing addressed as follows: (a) If to the Company, to it at: 6725 Airport Road Suite 210 Mississauga, Ontario L4V 1V2 Attention: Paul Godin Telecopier: (905) 672-5705 with a copy to: Gowling, Strathy & Henderson Commerce Court West Suite 4900 Toronto, Ontario M5L 1J3 Attention: Neil Steenberg Telecopier: (416) 862-7661 (b) If to the Selling Shareholders, to them at: c/o Bid.Com International Inc. 5915 Airport Road Suite 330 Mississauga, Ontario L4V 1T1 Telecopier: (905) 672-5705 With a copy to: Gowling, Strathy & Henderson Commerce Court West Suite 4900 Toronto, Ontario M5L 1J3 Attention: Neil Steenberg Telecopier: (416) 862-7661 32 (c) If to the Underwriter, to: Yorkton Securities Inc. 181 Bay Street Suite 3100 Toronto, Ontario M5J 2T3 Attention: Brian Campbell Telecopier: (416) 864-1043 with a copy to: Wildeboer Rand Thomson Apps & Dellelce 1 First Canadian Place Suite 810 Toronto, Ontario M5X 1A9 Attention: Troy Pocaluyko Telecopier: (416) 361-1790 or to such other address as any of the parties may designate by notice given to the others. Each notice shall be personally delivered to the addressee or sent by telex or facsimile transmission to the addressee and (i) a notice which is personally delivered shall, if delivered on a Business Day, be deemed to be given and received on that day and, in any other case, be deemed to be given and received on the first Business Day following the day on which it is delivered; and (ii) a notice which is sent by telex or facsimile transmission shall be deemed to be given and received on the first Business Day following the day on which it is sent. 21. TIME OF THE ESSENCE. Time shall, in all respects, be of the essence hereof. 22. CANADIAN DOLLARS. All references herein to dollar amounts are to lawful money of Canada. 23. HEADINGS. The headings contained herein are for convenience only and shall not affect the meaning or interpretation hereof. 24. SINGULAR AND PLURAL, ETC. Where the context so requires, words importing the singular number include the plural and vice versa, and words importing gender shall include the masculine, feminine and neuter genders. 25. ENTIRE AGREEMENT. This Agreement constitutes the only agreement between the parties with respect to the subject matter hereof and shall supersede any and all prior negotiations and 33 understandings. This Agreement may be amended or modified in any respect by written instrument only. 26. SEVERABILITY. The invalidity or unenforceability of any particular provision of this Agreement shall not affect or limit the validity or enforceability of the remaining provisions of this Agreement. 27. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein. 28. SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement shall be binding upon and enure to the benefit of the Company, the Selling Shareholders, the Underwriter and the Purchasers and their respective executors, heirs, successors and permitted assigns; provided that, except as provided herein or in the Subscription Agreements, this Agreement shall not be assignable by any party without the written consent of the others. 29. FURTHER ASSURANCES. Each of the parties hereto shall do or cause to be done all such acts and things and shall execute or cause to be executed all such documents, agreements and other instruments as may reasonably be necessary or desirable for the purpose of carrying out the provisions and intent of this Agreement. 30. EFFECTIVE DATE. This Agreement is intended to and shall take effect as of the date first set forth above, notwithstanding its actual date of execution or delivery. 31. LANGUAGE. The parties hereby acknowledge that they have expressly required this Agreement and all notices, statements of account and other documents required or permitted to be given or entered into pursuant hereto to be drawn up in the English language only. Les parties reconnaissent avior expressment demandees que la presente Convention ainsi que tont avis, tout etnt de compte et tout autre document a etre ou pouvant etre donne ou conclu en vertu des dispositions des presentes, soient rediges en langue anglaise seulement. 32. COUNTERPARTS. This Agreement may be executed in any number of counterparts, which taken together shall form one and the same agreement. If the Company and the Selling Shareholders are in agreement with the foregoing terms and conditions, please so indicate by executing a copy of this letter where indicated below and delivering the same to the Underwriter. Yours very truly, YORKTON SECURITIES INC. Per: "Brian Campbell" ------------------------------------- Authorized Signing Officer 34 The foregoing is hereby accepted on the terms and conditions therein set forth. DATED as of November 30 , 1998. BID.COM INTERNATIONAL INC. Per: "Paul Godin" ---------------------------------------- Authorized Signing Officer 1184041 ONTARIO INC. Per: "Paul Godin" ---------------------------------------- Authorized Signing Officer SMYTHE GROUP COMPANY Per: "Brent Bowes" ---------------------------------------- Authorized Signing Officer "Paul Godin" "Neil Steenberg" - --------------------------------- ----------------------------------- Paul Godin Witness "Jeffrey Lymburner" "Paul Godin" - --------------------------------- ----------------------------------- Jeffery Lymburner Witness 35 EX-3.19 11 SPECIAL WARRANT INDENTURE DATED NOVEMBER 30, 1998 EXHIBIT 3.19 BID.COM INTERNATIONAL INC. -and- 1184041 ONTARIO INC. -and- SMYTHE GROUP COMPANY -and- CIBC MELLON TRUST COMPANY SPECIAL WARRANT INDENTURE Providing for the Issue of up to 6,114,984 Special Warrants of Bid. Com International Inc. November 30, 1998 TABLE OF CONTENTS Article 1 - Interpretation............................................................. 2. 1.1 Definitions..................................................................... 2. 1.2 Number and Gender............................................................... 6. 1.3 Interpretation Not Affected by Headings, etc.................................... 6. 1.4 Business Day.................................................................... 6. 1.5 Time of the Essence............................................................. 6. 1.6 Applicable Law.................................................................. 6. 1.7 Choice of Language.............................................................. 6. 1.8 Currency........................................................................ 7. Article 2 - Issue of Special Warrants.................................................. 7. 2.1 Issue of Primary Special Warrants and Secondary Special Warrants................ 7. 2.2 Form and Terms of Special Warrants.............................................. 7. 2.3 Signing of Special Warrant Certificates......................................... 8. 2.4 Deposit of Shares Underlying Secondary Special Warrants......................... 8. 2.5 Certification by the Special Warrant Agent...................................... 8. 2.6 Special Warrantholder Not a Shareholder......................................... 9. 2.7 Issue in Substitution for Lost Special Warrant Certificates..................... 9. 2.8 Special Warrants to Rank Pari Passu............................................. 9. 2.9 Registers for Special Warrants.................................................. 10. 2.10 Transferee Entitled to Registration............................................. 10. 2.11 Registers Open for Inspection................................................... 10. 2.12 Exchange of Special Warrants.................................................... 11. 2.13 Ownership and Transfer of Special Warrants...................................... 11. 2.14 Adjustment of Subscription Rights............................................... 11. 2.15 Adjustment Rules................................................................ 12. 2.16 Notice of Adjustment of Subscription Rights..................................... 13. Article 3 - Exercise of Special Warrants............................................... 15. 3.1 Exercise of Special Warrants and Deemed Exercise of Special Warrants............ 15. 3.2 Effect of Exercise of Special Warrants.......................................... 16. 3.3 Postponement of Delivery of Certificates........................................ 16. 3.4 Cancellation of Special Warrant Certificates.................................... 16. Article 4 - Covenants.................................................................. 18. 4.1 General Covenants............................................................... 18. 4.2 Securities Qualification Requirements........................................... 20. 4.3 Special Warrant Agent's Remuneration and Expenses............................... 20. 4.4 Performance of Covenants by Special Warrant Agent............................... 20.
i Article 5 - Enforcement........................................................ 21. 5.1 Suits by Special Warrantholders....................................... 21. 5.2 Immunity of Shareholders, etc......................................... 21. 5.3 Limitation of Liability............................................... 21. Article 6 - Meetings of Special Warrantholders................................. 21. 6.1 Right to Convene Meetings............................................. 21. 6.2 Notice................................................................ 22. 6.3 Chairman.............................................................. 22. 6.4 Quorum................................................................ 22. 6.5 Power to Adjourn...................................................... 23. 6.6 Show of Hands......................................................... 23. 6.7 Poll and Voting....................................................... 23. 6.8 Regulations........................................................... 23. 6.9 Issuers, Special Warrant Agent and Underwriter may be Represented..... 24 6.10 Powers Exercisable by Extraordinary Resolution........................ 24. 6.11 Meaning of Extraordinary Resolution................................... 25. 6.12 Powers Cumulative..................................................... 26. 6.13 Minutes............................................................... 26. 6.14 Instruments in Writing................................................ 26. 6.15 Binding Effect of Resolutions......................................... 26. 6.16 Holdings by the Corporation or Subsidiaries of the Corporation Disregarded.......................................................... 27. Article 7 - Supplemental Indentures............................................ 27. 7.2 Successor Corporations................................................ 28. Article 8 - Concerning the Special Warrant Agent............................... 28. 8.1 Trust Indenture Legislation........................................... 28. 8.2 Rights and Duties of Special Warrant Agent............................ 29. 8.3 Evidence, Experts and Advisers........................................ 30. 8.4 Documents, Monies, etc. Held by Special Warrant Agent................. 31. 8.5 Action by Special Warrant Agent to Protect Interests.................. 31. 8.6 Special Warrant Agent Not Required to Give Security................... 31. 8.7 Protection of Special Warrant Agent................................... 31. 8.8 Replacement of Special Warrant Agent.................................. 32. 8.9 Conflict of Interest.................................................. 33. 8.10 Acceptance of Trusts.................................................. 33. 8.11 Special Warrant Agent Not to be Appointed Receiver.................... 34. 8.12 Authorization to Carry on Business.................................... 34. 8.13 Liability of Special Warrant Agent.................................... 34.
ii Article 9 - Form of Special Warrant.................................. 34. 9.1 Form of Special Warrant Certificate......................... 34. Article 10 - General.................................................. 45. 10.1 Notice to the Issuers and the Special Warrant Agent......... 45. 10.2 Notice to the Special Warrantholders........................ 46. 10.3 Mail Service Interruption................................... 47. 10.4 Counterparts and Formal Date................................ 47. 10.5 Satisfaction and Discharge of Indenture..................... 47. 10.6 Provisions of Indenture and Special Warrants for the Sole Benefit of Parties and Special Warrantholders............... 47. iii THIS SPECIAL WARRANT INDENTURE made as of the 30th day of November, 1998. B E T W E E N: BID.COM INTERNATIONAL INC. (FORMERLY INTERNET LIQUIDATORS INTERNATIONAL INC.), a corporation constituted under the laws of the Province of Ontario, Canada (hereinafter called the "CORPORATION") -- and -- 1184041 ONTARIO INC. (hereinafter called "1184041") -- and -- SMYTHE GROUP COMPANY (hereinafter called "SMYTHE") -- and -- CIBC MELLON TRUST COMPANY, a trust company incorporated under the laws of Canada (hereinafter called the "SPECIAL WARRANT AGENT") WHEREAS: A. The Corporation proposes to issue and sell by means of a private placement 5,714,984 special warrants (the "PRIMARY SPECIAL WARRANTS"), and 1184041 and Smythe propose to issue and sell by means of a private placement up to 400,000 special warrants (the "SECONDARY SPECIAL WARRANTS"). Subject to adjustment in certain events, each Primary and Secondary Special Warrant entitles the holder thereof to receive one (1) unit ("Unit"). Each Unit consists of one common share ("Common Share") and one-quarter (1/4) a Common Share purchase warrant ("Share Purchase Warrant"), in the capital of the Corporation, all upon the terms and conditions herein set forth; B. For such purpose the Corporation, 1184041 and Smythe, deem it necessary to create and issue the Primary and Secondary Special Warrants as provided for in this Indenture; 2. C. The Issuers (as hereinafter defined) are duly authorized to create and issue the Primary and Secondary Special Warrants to be created and issued, as herein provided; D. 1184041 and Smythe (collectively the "Sellers") have deposited with the Special Warrant Agent a sufficient number of common shares of the Corporation together with all necessary transfer documentation to discharge their respective obligations pursuant to the Secondary Special Warrants and this Indenture. E. All things necessary have been done and performed to make the Primary and Secondary Special Warrants, when certified by the Special Warrant Agent and issued as in this Indenture provided, legal, valid and binding upon the Corporation with the benefits of, and subject to the terms of, this Indenture; F. The foregoing recitals are made as representations and statements of fact by the Sellers and not by the Special Warrant Agent. NOW THEREFORE for good and valuable consideration mutually given and received, the receipt and sufficiency of which is hereby acknowledged, it is hereby agreed and declared as follows: ARTICLE 1 - INTERPRETATION 1.1 Definitions In this Indenture, unless there is something in the subject matter or context inconsistent therewith, the following phrases and words have the respective meanings indicated opposite them as follows: (a) "APPLICABLE LEGISLATION" has the meaning ascribed thereto in subsection 8.1(a); (b) "BUSINESS DAY" means a day which is not a Saturday or Sunday or statutory holiday in any of the cities where special warrant certificates may be submitted to the Special Warrant Agent pursuant to subsection 3.1 hereof; (c) "CAPITAL REORGANIZATION" has the meaning ascribed thereto in section 2.14; (d) "COMMON SHARES" means fully paid and non-assessable common shares in the capital of the Corporation as currently constituted; (e) "CORPORATION" means Bid.Com International Inc., a corporation constituted under the laws of the Province of Ontario, Canada; 3. (f) "CORPORATION'S AUDITORS" means Deloitte & Touche or such other chartered accountant or firm of chartered accountants duly appointed as auditor or auditors of the Corporation from time to time and acceptable to the Special Warrant Agent; (g) "COUNSEL" means Corporation's counsel or such other firm of barristers and solicitors retained by the Special Warrant Agent from time to time and acceptable to the Special Warrant Agent; (h) "CORPORATION'S COUNSEL" means Gowling, Strathy & Henderson or such other barrister or solicitor or firm of barristers and solicitors retained by the Corporation from time to time and acceptable to the Special Warrant Agent; (i) "DIRECTOR" means a director of the Corporation for the time being and, unless otherwise specified herein, reference to "ACTION BY THE DIRECTORS" means action by the directors of the Corporation as a board or, whenever duly empowered, action by a committee of such board; (j) "ESCROW AGENT" means Wildeboer Rand Thomson Apps & Dellelce, Barristers and Solicitors, Toronto; (k) "ESCROWED PROCEEDS" means the amount of $2,675,305.50 representing 25% of the gross proceeds of the sale of the Primary and Secondary Special Warrants which shall be deposited into escrow with the Escrow Agent; (l) "EXERCISE DATE" means the day upon which a Special Warrant is exercised pursuant to the provisions of Section 3.1 or deemed to be exercised pursuant to Section 3.1(b); (m) "EXPIRY TIME" means 5:00 p.m. (Toronto time) on the earlier of: (i) the fifth Business Day after the Qualification Date; and (ii) November 30, 1999; (n) "EXTRAORDINARY RESOLUTION" has the meaning ascribed thereto in Section 6.11 and 6.14; (o) "FINAL PROSPECTUS" means the (final) prospectus of the Corporation relating to the distribution of the Subject Securities in the Qualifying Jurisdictions; (p) "ISSUERS" means the Corporation, 1184041 and Smythe; (q) "PERSON" includes an individual, a corporation, a partnership, any unincorporated organization or any other juridical entity and words importing persons have a similar meaning; 4. (r) "PRELIMINARY PROSPECTUS" means the preliminary prospectus of the Corporation relating to the distribution of the Subject Securities in the Qualifying Jurisdictions; (s) "PRIMARY SPECIAL WARRANTS" means the 5,714,984 Special Warrants being created hereunder and issued and sold by the Corporation pursuant to the Underwriting Agreement; (t) "QUALIFICATION DATE" means the date of issuance of a receipt or similar document by the last of the Securities Administrators to issue a receipt or similar document for the Final Prospectus; (u) "QUALIFICATION DEADLINE" means the date which is 90 days after the date of issuance of the Primary and Secondary Special Warrants; (v) "QUALIFICATION DEFAULT" means the failure on the part of the Corporation to obtain a receipt for the Final Prospectus from the Securities Administrators in each of the Qualifying Jurisdictions, on or before 5:00 p.m. (Toronto time) on the Qualification Deadline; (w) "QUALIFYING JURISDICTIONS" means the Province of Ontario and any such additional provinces in which purchasers of the Special Warrants are resident; (x) "SECONDARY SPECIAL WARRANTS" means the 400,000 Special Warrants being created hereunder and sold by the Sellers pursuant to the Underwriting Agreement; (y) "SECURITIES ADMINISTRATORS" means collectively the securities commission or comparable authority in each of the Qualifying Jurisdictions; (z) "SHARE PURCHASE WARRANTS " means the warrants issuable upon the exercise or deemed exercise of the Special Warrants subject to the terms and conditions of the Share Purchase Warrant Indenture which indenture shall govern the entitlement of a holder to acquire one (1) additional Common Share at $1.75 at any time prior to the earlier of (i) ten (10) business days following the date on which the Corporation delivers a notice to all holders of Share Purchase Warrants confirming that it has filed a preliminary prospectus or registration statement in connection with a U.S. public offering of at least $7,000,000 and (ii) 5:00 p.m. (Toronto time) on December 31, 1999; (aa) "SHARE PURCHASE WARRANT INDENTURE " means the indenture dated as of even date herewith among the Corporation, 1184041, Smythe and CIBC Mellon Trust Company as Agent pursuant to which the Share Purchase Warrants will be issued; 5. (bb) "SHAREHOLDER" means a holder of record of one or more Common Shares; (cc) "SPECIAL WARRANT AGENT" means CIBC Mellon Trust Company and its lawful successors for the time being in the trusts hereby created; (dd) "SPECIAL WARRANTHOLDER" OR "HOLDER" means a person whose name is entered for the time being in the register maintained by the Special Warrant Agent pursuant to subsection 2.8(a); (ee) "SPECIAL WARRANTHOLDERS' REQUEST" means an instrument signed in one or more counterparts by Special Warrantholders holding in the aggregate not less than 25% of the then outstanding Special Warrants which requests the Special Warrant Agent to take some action or proceeding specified therein; (ff) "SPECIAL WARRANTS" mean the special warrants of the Corporation created hereby, including the Primary Special Warrants and the Secondary Special Warrants each entitling the registered holder thereof to receive one Unit, consisting of (1) Common Share and one- quarter ( 1/4) of one Share Purchase Warrant for each special warrant on the exercise of such special warrant or such other kind and amount of shares or other securities or property calculated or otherwise determined pursuant to Sections 2.14 and 2.15 or subsection 2.2(c) hereof as the case may be, on the exercise of each such special warrant; and (gg) "SUBJECT SECURITIES" means the Common Shares and Share Purchase Warrants issuable upon the exercise of the Special Warrants, including the Common Shares and Share Purchase Warrants or other securities or property issuable upon the exercise of the Special Warrants as a result of any adjustment of subscription rights pursuant to Sections 2.14 and 2.15 or subsection 2.2(c) hereof; (hh) "SUCCESSOR CORPORATION" has the meaning ascribed thereto in Section 7.2; (ii) "THIS SPECIAL WARRANT INDENTURE", "THIS INDENTURE", HEREIN", "HEREBY" and similar expressions mean and refer to this Indenture and any indenture, deed or instrument supplemental or ancillary hereto; and the expressions "ARTICLE", "SECTION", "SUBSECTION" AND "CLAUSE" followed by a number mean and refer to the specified Article, Section, subsection or clause of this Indenture; (jj) "TRANSFER AGENT" means the transfer agent or agents for the time being of the Common Shares; (kk) "TSE" means the Toronto Stock Exchange; 6. (ll) "UNDERWRITING AGREEMENT" means the underwriting agreement made as of the date hereof between the Underwriters, the Sellers, Paul Godin, Jeffrey Lymburner and the Corporation; (mm) "UNDERWRITERS" means, Yorkton Securities Inc.; and (nn) "WRITTEN ORDER OF THE CORPORATION", "WRITTEN REQUEST OF THE CORPORATION", "WRITTEN CONSENT OF THE CORPORATION", "CERTIFICATE OF THE CORPORATION" and any other document required to be signed by the Corporation, means, respectively, a written order, request, consent, certificate or other document signed in the name of the Corporation by any one of the president, any vice-president, or the secretary of the Corporation, and may consist of one or more instruments so executed. 1.2 NUMBER AND GENDER Unless elsewhere otherwise expressly provided or unless the context otherwise requires, words importing the singular include the plural and vice versa and words importing the masculine gender include the feminine and neuter genders. 1.3 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC. The division of this Indenture into Articles, Sections, subsections and clauses, the provision of a table of contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Indenture. 1.4 BUSINESS DAY In the event that any day on or before which any action is required or permitted to be taken hereunder is not a Business Day, then such action shall be required or permitted to be taken on or before the requisite time on the next succeeding day that is a Business Day. 1.5 TIME OF THE ESSENCE Time shall be of the essence in all respects in this Indenture. 1.6 APPLICABLE LAW This Indenture and the Special Warrants shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal law applicable therein and shall be treated in all respects as Ontario contracts. 7. 1.7 CHOICE OF LANGUAGE The parties hereby acknowledge that they have expressly requested that this Indenture and all notices, statements of account and other documents required or permitted to be given or entered into pursuant hereto be drawn up in the English language only. LES PARTIES RECONNAISSENT AVOIR EXPRESSMENT DEMANDEES QUE LA PRESENTE CONVENTION AINSI QUE TOUT AVIS, TOUT ETAT DE COMPTE ET TOUT AUTRE DOCUMENT A ETRE OU POUVANT ETRE DONNE OU CONCLU EN VERTU DES DISPOSITIONS DES PRESENTES, SOIENT REDIGES EN LANGUE ANGLAISE SEULEMENT. 1.8 CURRENCY Unless otherwise stated, all dollar amounts referred to in this Indenture are in Canadian dollars. ARTICLE 2-ISSUANCE OF SPECIAL WARRANTS 2.1 ISSUANCE OF PRIMARY SPECIAL WARRANTS AND SECONDARY WARRANTS A total of 6,114,984 Special Warrants entitling the registered holders thereof to acquire up to an aggregate of 6,114,984 Common Shares and 1,528,746 Share Purchase Warrants (subject to adjustments as provided in Sections 2.14 and 2.15 or subsection 2.2(c) hereof) are hereby created and authorized to be issued hereunder upon the terms and conditions herein set forth and shall be executed by the Corporation as to 5,714,984 Primary Special Warrants, 1184041 as to 200,000 Secondary Special Warrants and Smythe as to 200,000 Secondary Special Warrants certified by or on behalf of the Special Warrant Agent and delivered by it in accordance with and upon receipt of a written direction signed by the Corporation, 1184041 and Smythe, as the case may be. 2.2 FORM AND TERMS OF SPECIAL WARRANTS (a) The Special Warrant certificates for the 6,114,984 Special Warrants shall be substantially in the form set out in Article 9, shall be dated as of the date of this Indenture (regardless of their actual date of issue), and shall have such distinguishing letters and numbers as the Corporation may, with the approval of the Special Warrant Agent, prescribe. (b) Subject to adjustment as provided in Sections 2.13 and 2.14 or subsection 2.2(c), each Special Warrant authorized to be issued hereunder shall entitle the registered holder thereof to acquire in accordance with Section 3.1, at no extra cost, one (1) Unit, each Unit consisting of Common Share and one-quarter ( 1/4) Share Purchase Warrant, or such other kind and amount of shares or securities or property, calculated pursuant to the provisions of Sections 2.14 and 2.15 or subsection 2.2(c), as the case may be, of this Indenture. (c) Unless previously retracted in accordance with the provisions of Section 3.5, each Special Warrant authorized to be issued hereunder shall in the event of a Qualification Default prior to the exercise or deemed exercise of the Special Warrants pursuant to Section 3.1 hereof, 8. entitle the registered holder hereof to acquire in accordance with said Section 3.1, at no extra cost, 1.05 Units or such other kind and amount of shares or securities or property calculated pursuant to the provisions of Sections 2.14 and 2.15 of this Indenture. (d) Fractional Special Warrants shall not be issued or otherwise provided for. 2.3 SIGNING OF SPECIAL WARRANT CERTIFICATES The Special Warrant certificates shall be signed by any one of the chairman, president, any vice-president, or the secretary of the Sellers, and may, but need not be, under their respective corporate seals or a reproduction thereof. The signature of such officer may be mechanically reproduced in facsimile and Special Warrant certificates bearing such facsimile signatures shall be binding upon the Corporation as if they had been manually signed by such officer. Notwithstanding that the person whose manual or facsimile signature appears on any Special Warrant certificate as such officer may no longer hold office at the date of issue of such Special Warrant certificate or at the date of certification or delivery thereof, any Special Warrant certificate signed as aforesaid shall, subject to Section 2.5, be valid and binding upon the Corporation and the registered holder thereof shall be entitled to the benefits of this Indenture. 2.4 DEPOSIT OF SHARES UNDERLYING SECONDARY SPECIAL WARRANTS The Sellers shall deliver to the Special Warrant Agent contemporaneously with the execution of this Indenture, certificates representing a sufficient number of Common Shares of the corporation (as presently constituted) to satisfy all their respective obligations under the Secondary Special Warrants, namely 262,500 Common Shares in the case of 1184041 and 262,500 Common Shares in the case of Smythe, together with all such transfer instruments, powers of attorney corporate resolutions and other writings as may be necessary or advisable, in the opinion of the Special Warrant Agent to properly transfer such shares into the name of the Special Warrant Agent for the purpose of and subject to the terms and conditions of this Indenture. Any such Common Shares remaining registered in the name of the Special Warrant Agent after the expiry of the Share Purchase Warrants shall be transferred back to the Sellers pro rata. The delivery of such Common Share certificates and other documentation shall constitute the Sellers' irrevocable direction and authority to the Special Warrant Agent to deal with such Common Shares in accordance with this Indenture and to deliver such Common Shares to the holders of the Secondary Special Warrants upon the due exercise thereof. 2.5 CERTIFICATION BY THE SPECIAL WARRANT AGENT 9. (a) No Special Warrant certificate shall be issued or, if issued, shall be valid for any purpose or entitle the registered holder to the benefit hereof or thereof until it has been certified by manual signature by or on behalf of the Special Warrant Agent in the form of the certificate set out in Article 9 and such certification by the Special Warrant Agent upon any Special Warrant certificate shall be conclusive evidence as against the Corporation that the Special Warrant certificate so certified has been duly issued hereunder and the holder is entitled to the benefits hereof. (b) The certification of the Special Warrant Agent on the Special Warrant certificates issued hereunder shall not be construed as a representation or warranty by the Special Warrant Agent as to the validity of this Indenture or the Special Warrants (except the due certification thereof) or as to the performance by any of the Sellers of its obligations under this Indenture and the Special Warrant Agent shall in no respect be liable or answerable for the use made of the Special Warrants or any of them or of the consideration therefor except as otherwise specified herein. 2.6 SPECIAL WARRANTHOLDER NOT A SHAREHOLDER The holding of a Special Warrant shall not be construed as conferring upon a Special Warrantholder any right or interest whatsoever as a Shareholder, nor entitle the Special Warrantholder to any right or interest in respect thereof except as herein and in the Special Warrants expressly provided. 2.7 ISSUE IN SUBSTITUTION FOR LOST SPECIAL WARRANT CERTIFICATES (a) In case any of the Special Warrant certificates shall become mutilated or be lost, destroyed or stolen, the Corporation, subject to applicable law, and subsection (b) of this Section 2.7, shall issue and thereupon the Special Warrant Agent shall certify and deliver a new Special Warrant certificate of like tenor as the one mutilated, lost, destroyed or stolen in exchange for and in place of such mutilated certificate, or in lieu of and in substitution for such lost, destroyed or stolen certificate, and the substituted certificate shall be in a form approved by the Special Warrant Agent and shall entitle its holder to the benefits hereof and shall rank equally in accordance with its terms with all other Special Warrant certificates issued or to be issued hereunder. (b) The applicant for the issue of a new certificate pursuant to this Section 2.7 shall bear the cost of the issue thereof and in case of mutilation, as a condition precedent to the issue thereof, shall deliver to the Special Warrant Agent the mutilated certificate and in the case of loss, destruction or theft shall, as a condition precedent to the issue thereof, furnish to the Corporation and to the Special Warrant Agent such evidence of ownership and of the loss, destruction or theft of the certificate so lost, destroyed or stolen as shall be satisfactory to the Corporation and to the Special Warrant Agent in their sole discretion, acting reasonably, and such applicant may also be required to furnish an indemnity bond or security in amount and 10. form satisfactory to the Corporation and the Special Warrant Agent in their sole discretion, acting reasonably, and shall pay the reasonable charges of the Corporation and the Special Warrant Agent in connection therewith. 2.8 SPECIAL WARRANTS TO RANK PARI PASSU All Special Warrants shall rank pari passu, whatever may be their actual date of issue. 2.9 REGISTERS FOR SPECIAL WARRANTS (a) The Issuers appoint the Special Warrant Agent as the registrar of the Special Warrants. The Issuers may hereafter, with the consent of the Special Warrant Agent, appoint one or more other additional registrars of the Special Warrants. The Issuers shall cause a register to be kept by the Special Warrant Agent, and the Special Warrant Agent agrees to maintain such a register, at its principal transfer office in the city of Toronto, Ontario in which shall be entered the name and addresses of the holders of the Special Warrants and other particulars of the Special Warrants held by them respectively and the number of Special Warrants held by them. The Issuers shall also cause transfer agencies to be maintained by the Special Warrant Agent, and the Special Warrant Agent shall maintain such transfer agencies at its principal transfer office in the city of Toronto, Ontario and in such other place or places and by such other agent or agents as the Issuers with the approval of the Special Warrant Agent may designate. (b) Subject to the terms of this Indenture and to applicable law, Special Warrants may be transferred. No transfer of a Special Warrant shall be valid unless made by the holder or his executors, administrators or other legal representatives, or his or her attorney duly appointed by an instrument in writing in form and manner satisfactory to the Special Warrant Agent, acting reasonably, with signatures guaranteed by a Canadian chartered bank, a Canadian trust company, a member firm of any Canadian stock exchange or such other guarantor as the Special Warrant Agent determines to be acceptable, upon surrender of the Special Warrant to the Special Warrant Agent and upon compliance with such other reasonable requirements as the Special Warrant Agent may prescribe and shall thereafter be recorded on the register of transfers maintained by the Special Warrant Agent pursuant to subsection (a) of this Section 2.9, provided all taxes or governmental or other charges arising by reason of such transfer have first been paid by or on behalf of the Special Warrantholder requesting such a transfer. 2.10 TRANSFEREE ENTITLED TO REGISTRATION 11. The transferee of a Special Warrant shall, after the transfer form attached to the Special Warrant or any other form of transfer acceptable to the Special Warrant Agent is duly executed and completed and together with the Special Warrant is lodged with the Special Warrant Agent, and upon compliance with all other conditions in that regard required by this Indenture or by law, be entitled to have his name entered on the register of holders as the owner of such Special Warrant free from all equities or rights of set-off or counterclaim as set forth in Section 2.11. 2.11 REGISTERS OPEN FOR INSPECTION The registers hereinbefore referred to shall be open at all reasonable times for inspection by the Issuers, the Underwriter, the Special Warrant Agent or any Special Warrantholder. The Special Warrant Agent shall, from time to time when requested to do so in writing by the Corporation or the Underwriter, furnish the Corporation or the Underwriter, as the case may be, with a list of the names and addresses of holders of Special Warrants entered in the register of holders maintained by the Special Warrant Agent and showing the number of Common Shares which may then be acquired upon the exercise of the Special Warrants held by each such holder. 2.12 EXCHANGE OF SPECIAL WARRANTS (a) Special Warrant certificates may, upon compliance with the reasonable requirements of the Special Warrant Agent, be exchanged for Special Warrant certificates in any other authorized denomination representing in the aggregate the same number of Special Warrants. The Corporation shall sign and the Special Warrant Agent shall certify, in accordance with Sections 2.3 and 2.5, all Special Warrant certificates necessary to carry out the exchanges contemplated herein. (b) Special Warrant certificates may be exchanged only at the principal office of the Special Warrant Agent in the City of Toronto, Ontario or at any other place that is designated by the Corporation with the approval of the Special Warrant Agent. Any Special Warrant certificates tendered for exchange shall be surrendered to the Special Warrant Agent and canceled. (c) Except as otherwise herein provided, the Special Warrant Agent may charge Special Warrantholders requesting an exchange a reasonable sum for each Special Warrant certificate issued, and payment of such charges and reimbursement of the Special Warrant Agent or the Issuers for any and all taxes or governmental or other charges required to be paid shall be made by the party requesting such exchange as a condition precedent to such exchange. 2.13 OWNERSHIP AND TRANSFER OF SPECIAL WARRANTS 12. The Issuers and the Special Warrant Agent may deem and treat the registered holder of any Special Warrant certificate as the absolute owner of the Special Warrant evidenced thereby for all purposes, and the Issuers and the Special Warrant Agent shall not be affected by any notice or knowledge to the contrary except where the Issuers or the Special Warrant Agent is required to take notice by statute or by order of a court of competent jurisdiction. A Special Warrantholder shall be entitled to the rights evidenced by such Special Warrant free from all equities or rights of set-off or counterclaim between the Issuers and the original or any intermediate holder thereof and all persons may act accordingly, and the receipt by any such Special Warrantholder of Common Shares pursuant to the exercise thereof shall be a good discharge to the Issuers and the Special Warrant Agent for the same, and neither the Corporation nor the Special Warrant Agent shall be bound to inquire into the title of any such holder, except where the Corporation or the Special Warrant Agent is required to take notice by statute or by order of a court of competent jurisdiction. 2.14 ADJUSTMENT OF SUBSCRIPTION RIGHTS Subject to Sections 2.15 and 2.16, if at any time after the date hereof and prior to the Expiry Time, and provided that any Special Warrants remain unexercised, there shall be: (a) a reclassification of the Common Shares at any time or a change of the Common Shares into other shares or securities or a subdivision or consolidation of the Common Shares into a greater or lesser number of shares or any other capital reorganization; (b) a consolidation, amalgamation or merger of the Corporation with or into any other corporation (other than a consolidation, amalgamation or merger which does not result in any reclassification of the outstanding Common Shares or a change of the Common Shares into other Common Shares or securities); (c) a transfer of the undertaking or assets of the Corporation as an entirety or substantially as an entirety to another corporation or other entity; or (d) an issue or distribution to the holders of all or substantially all of the Corporation's outstanding Common Shares or securities of the Corporation including rights, options or warrants to acquire Common Shares or securities convertible into or exchangeable for Common Shares or any property or assets including any evidences of indebtedness, other than cash dividends paid in the ordinary course of the Corporation or securities issued pursuant to the Corporation's stock option plans, (any of such events being called a "Capital Reorganization"), the holder of any Special Warrants that may thereafter be exercised to acquire Common Shares shall be entitled to receive, and shall accept for no extra cost, in lieu of the number of Common Shares to which he was theretofore entitled upon such exercise, the kind and amount of shares or other securities or property which such holder would have been entitled to receive as a result of such Capital Reorganization if, on the effective date thereof or the record date, as the case may be, he had been the registered holder of the number of Common Shares which he was theretofore entitled to acquire upon such exercise. Any such 13. adjustments shall be made by and set forth in an indenture supplemental hereto approved by the directors and shall for all purposes be prima facie deemed to be an appropriate adjustment absent manifest error. 2.15 ADJUSTMENT RULES (1) The adjustments provided for in Section 2.14 are cumulative and shall apply (without duplication) to successive Capital Reorganizations or other events resulting in any adjustment under the provisions of Section 2.14; provided that, notwithstanding any other provision of this Article 2, no adjustment shall be made in the number of Common Shares which may be acquired on the exercise of a Special Warrant unless it would result in a change of at least one one-hundredth of a Share (provided, however, that any adjustments which by reason of this subsection 2.15(1) are not required to be made shall be carried forward and taken into account in any subsequent adjustment). (2) The Corporation shall not issue fractional Common Shares in satisfaction of its obligations hereunder. If any fractional interests in a Common Share would, except for the provisions of this subsection 2.15(2), be deliverable upon the exercise of the Special Warrant, the Corporation shall make a cash payment equal to the fair value of the fraction of a Share not so issued as determined by the Corporation's auditors in their sole discretion. No cheque shall be issued or cash payment made to any Special Warrantholder for an amount less than $5.00. (3) If any question arises with respect to the adjustments provided in this Article 2 such question shall, absent manifest error, be conclusively determined by the Corporation's auditors or such other firm of chartered accountants appointed by the Corporation and acceptable to the Special Warrant Agent (who may be the Corporation's auditors). Such chartered accountants shall have access to all necessary records of the Corporation and such determination shall be binding upon the Corporation, the Special Warrant Agent and the Special Warrantholders absent manifest error. (4) No adjustment in the number of Common Shares which may be acquired upon exercise of a Special Warrant shall be made in respect of any event described in Section 2.15 if Special Warrantholders are entitled to participate in such event on the same terms mutatis mutandis as if Special Warrantholders had exercised their Special Warrants prior to or on the effective date or record date of such event. (5) If, after the date of this Indenture, the Corporation shall take any action affecting the Common Shares other than the actions described in this Article 2 which in the opinion of the directors of the Corporation would materially affect the rights of Special Warrantholders, the number of Common Shares which may be acquired upon the exercise of a Special Warrant shall be adjusted in such manner and at such time, by action by the directors, in their sole discretion, acting reasonably, as they may determine to be equitable in the circumstances; provided that no such adjustment will be made unless prior approval of any stock exchange on which the Common Shares are listed for trading, if required, has been obtained. Failure of the directors to make such an adjustment shall be conclusive evidence that the directors have determined that it is equitable to make no adjustment in the circumstances. In the event that any such adjustment is made, the 14. Corporation shall deliver a certificate of the Corporation to the Special Warrant Agent describing such adjustment. 2.16 NOTICE OF ADJUSTMENT OF SUBSCRIPTION RIGHTS (1) At least 10 days prior to the effective date or record date, as the case may be, of any event which would require an adjustment in any of the subscription rights pursuant to any of the Special Warrants, including the number of Common Shares which may be acquired upon the exercise thereof, the Corporation shall: (a) file with the Special Warrant Agent a certificate of the Corporation specifying the particulars of such event and, if determinable, the required adjustment and the computation of such adjustment; and (b) give notice to the Special Warrantholders of the particulars of such event and, if determinable, the required adjustment, in the manner provided for in Section 10.2. (2) In case of any adjustment for which a notice provided for in subsection 2.16(1) has been given is not then determinable or in case a question arises and a determination has been made in accordance with Section 2.15(3), the Corporation shall promptly after such adjustment is determinable or conclusion reached: (a) file with the Special Warrant Agent a certificate of the Corporation showing how such adjustment was computed; and (b) give notice to the Special Warrantholders of the adjustment in the manner provided for in Section 10.2. (3) Where a notice referred to in subsection 2.16(1) or (2) has been given, the Special Warrant Agent shall be entitled to act and rely absolutely on any adjustment calculation of the Corporation or the Corporation's auditors. 2.17 PROCEEDINGS PRIOR TO ANY ACTION REQUIRING ADJUSTMENT As a condition precedent to the taking of action which would require an adjustment pursuant to Sections 2.14 and 2.15, the Corporation shall take any action which may, in the opinion of the Corporation's counsel, be necessary in order that the Corporation may validly and legally issue as fully paid and non- assessable all the Subject Securities which the holders of the Special Warrants are entitled to receive on the complete exercise thereof in accordance with the provisions hereof. 2.18 PROTECTION OF THE SPECIAL WARRANT AGENT The Special Warrant Agent shall be entitled to act and rely on any adjustment calculation of the Issuers' auditors and the Special Warrant Agent shall not: 15. (a) at any time be under any duty or responsibility to any holder to determine whether facts exist which may require any adjustment contemplated by this article, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed in making same; (b) be accountable with respect to the validity or value (or the kind or amount) of any shares or of any other shares or securities or property which may at any time be issued or delivered upon the exercise or deemed exercise of any Special Warrant; or (c) be responsible for any failure of the Issuers to make any cash payment or to issue, transfer or deliver shares or share certificates upon the surrender of any Special Warrant for the purpose of exercise or deemed exercise, or to comply with any of the covenants contained in this article. ARTICLE 3 - EXERCISE OF SPECIAL WARRANTS 3.1 EXERCISE OF SPECIAL WARRANTS AND DEEMED EXERCISE OF SPECIAL WARRANTS (a) Upon and subject to the provisions of this Article 3, any holder of a Special Warrant which has not previously been retracted pursuant to Section 3.5 may exercise the right thereby conferred on him to acquire the Subject Securities, at no additional cost, by surrendering to the Special Warrant Agent at any time prior to the Expiry Time, in the manner set forth in subsection 3.1(c), the certificate evidencing the Special Warrants, with the Exercise Form attached to the Special Warrant certificate duly completed and executed by the holder or his executors, administrators or other legal representatives or his or their attorney duly appointed by an instrument in writing in form and manner satisfactory to the Special Warrant Agent, acting reasonably. The Exercise Form attached to the Special Warrant certificate shall be signed as set out above and shall specify: (i) the number of Subject Securities which the Special Warrantholder desires to acquire on exercise of the Special Warrants (being not more than those which he is entitled to acquire pursuant to the Special Warrant certificate so surrendered); and (ii) the person or persons in whose names the Subject Securities are to be issued, his or their address or addresses and the number of Subject Securities to be issued to each such person if more than one is so specified. If any of the Subject Securities in respect of which the Special Warrants are exercised are to be issued to a person or persons other than the Special Warrantholder, the Special Warrantholder shall pay to the Special Warrant Agent all requisite stamp or security transfer 16. taxes or other governmental charges exigible in connection with the issue of such Subject Securities to such other person or persons or shall establish to the satisfaction of the Special Warrant Agent that such taxes and charges have been paid. Furthermore, in such event the signature on the Exercise Form must be guaranteed by a Canadian chartered bank, a Canadian trust company, a member firm of any Canadian stock exchange or such other guarantor as the Special Warrant Agent determines to be acceptable. If at the time of the exercise of the Special Warrants, there remain trading restrictions on the Subject Securities acquired, due to applicable securities legislation, the Corporation may, on the advice of counsel, endorse the certificates representing the Subject Securities to such effect, and prior to issuance of any such certificates the Special Warrant Agent shall consult the Corporation to determine whether such endorsement or legending is required. (b) Any Special Warrants not otherwise exercised for the Subject Securities or retracted pursuant to Section 3.5 shall be deemed to have been exercised on the earlier of (i) the fifth Business Day after the Qualification Date, and (ii) immediately prior to the Expiry Time without any further action on the part of the holder thereof. (c) In order to acquire certificates representing the Subject Securities, a holder of one or more Special Warrants must deliver the Special Warrant certificates evidencing such Special Warrants to the Special Warrant Agent at its principal office in the City of Toronto, Ontario (or at such additional place or places as may be determined by the Corporation from time to time with the approval of the Special Warrant Agent) or by first class mail, postage prepaid to CIBC Mellon Trust Company at its principal office in Toronto, Ontario. A Special Warrant certificate shall be deemed to be surrendered only upon personal delivery thereof or if sent by mail, upon actual receipt thereof by the Special Warrant Agent. 3.2 EFFECT OF EXERCISE OF SPECIAL WARRANTS (a) The Subject Securities in respect of which the Special Warrants are exercised shall be deemed to have been issued on the Exercise Date at which time each Special Warrantholder shall be deemed to have become the holder of record of the Subject Securities issued in respect of the Special Warrants held by such Special Warrantholder unless the transfer books of the Corporation shall be closed by law on the said date of such exercise, in which case such Subject Securities shall be deemed to have been issued and such Special Warrantholder shall be deemed to have become the holder of record of such Subject Securities on the date on which such transfer books are next re-opened. (b) Forthwith after the Exercise Date and subject to the delivery by a Special Warrantholder of Special Warrant Certificates and the Exercise Form to the Special Warrant Agent as provided in subsection 3.1(c), and 3.1(a)(i) and (ii) respectively, the Issuers shall, subject to the provisions of Section 3.3, cause to be delivered to each Special Warrantholder or mailed to it at its address specified in the register of holders maintained by the Special Warrant Agent 17. or certificates for the appropriate number of Subject Securities not exceeding those which such Special Warrantholder is entitled to acquire pursuant to the Special Warrants delivered by the Special Warrantholder to the Special Warrant Agent. 3.3 POSTPONEMENT OF DELIVERY OF CERTIFICATES The Issuers shall not be required to deliver certificates for Common Shares during the period when the transfer books of the Corporation are closed by law and, in the event of a surrender of a Special Warrant for the acquisition of Subject Securities during such period, the delivery of certificates may be postponed for a period not exceeding five (5) Business Days after the date of the re-opening of the transfer books. 3.4 CANCELLATION OF SPECIAL WARRANT CERTIFICATES All Special Warrant certificates surrendered to the Special Warrant Agent pursuant to Sections 2.7, 2.10, 2.12, 3.1 or 3.5 shall be cancelled by the Special Warrant Agent. The Special Warrant certificates evidencing all Special Warrants exercised pursuant to Section 3.1 shall be deemed to have been cancelled on the Exercise Date and the Special Warrant Agent shall record the cancellation or deemed cancellation of such Special Warrant certificates on the register of holders maintained by the Special Warrant Agent pursuant to subsection 2.9(a). The Special Warrant Agent shall, if required in writing by the Issuers, furnish the Issuers with a certificate of destruction identifying the Special Warrant certificates so cancelled and deemed to have been cancelled. All Special Warrants evidenced by Special Warrant certificates which have been validly cancelled or which are deemed to have been cancelled pursuant to this Section 3.4 shall be without further force or effect whatsoever. 18. 3.5 SPECIAL WARRANT RETRACTION PRIVILEGE (1) In the event of a Qualification Default not later than the Business Day next following the date of such Qualification Default, the Corporation shall notify or cause the Special Warrant Agent to notify the Escrow Agent and the Special Warrantholders of that fact and of the Retraction Privilege (defined below) by facsimile transmission or, in the event that the Corporation and the Special Warrant Agent do not have a facsimile number for a Warrantholder in the manner provided in Section 10.2, and each holder of the Special Warrants upon receiving said notice, shall have the right to retract (the "Retraction Privilege") up to 75% of the Special Warrants held by such holders at any time prior to 5:00 p.m. (Toronto time) on the fifth Business Day following the date of the Qualification Default (the "Retraction Deadline") and to receive in consideration therefor an amount equal to $1.40 per Special Warrant, together with accrued interest thereon to and including the date of payment less any amount required to be held by applicable law (the "Retraction Amount"). Any failure to exercise the Retraction Privilege shall not affect or otherwise limit a Special Warrantholder's right pursuant to section 2(c) of this Indenture to receive 1.07 Common Shares and 0.535 Share Purchase Warrants upon exercise or deemed exercise of the holder's Special Warrants following a Qualification Default. (2) In order to exercise the Retraction Privilege, a Special Warrantholder must surrender to the Special Warrant Agent, at its principal office in the City of Toronto (or at such additional place or places as may be decided by the Corporation from time to time and approved by the Special Warrant Agent), the Special Warrants held by such holder which such holder is entitled to retract (provided that such Special Warrant shall be deemed to be surrendered only upon personal delivery thereof, or if sent by mail or other means of transmission, upon actual receipt thereof by the Special Warrant Agent) together with a notice (the "Notice of Retraction") in the form attached as Schedule "C" to the Special Warrant certificate, signed by such holder retracting such Special Warrants and the Special Warrant Agent shall as soon as practicable provide a copy of such Notice of Retraction to the Escrow Agent and request a cheque payable to the Special Warrantholder equal to the aggregate Retraction Amount for all such Special Warrants to be retracted. (3) On the date of the receipt by the Special Warrant Agent of a Notice of Retraction and a Warrant Certificate representing the Special Warrants surrendered for retraction, the Retraction Amount payable to such Warrantholder shall become due and, within three Business Days thereafter, the Special Warrant Agent shall send the Warrantholder the Escrow Agent's cheque payable in Canadian funds in the amount of such Retraction Amount; cancel the Warrant Certificate or Certificates so surrendered, and issue a new Special Warrant Certificate to each Special Warrantholder representing any remaining Special Warrants which the holder did not retract. (4) If Special Warrants are surrendered for retraction pursuant hereto and the Retraction Amounts representing such Special Warrants are not paid in full when due, such Special Warrants shall remain outstanding and the Special Warrant Agent shall hold the certificates representing such Special Warrants on behalf of and for the benefit of the relevant Special Warrantholders until such Retraction Amounts are paid in full at which time the retraction shall be completed. 19. ARTICLE 4 - COVENANTS 4.1 GENERAL COVENANTS Each of the Corporation and, in the case of paragraphs 4.1(a), (d), (f), (h), (i), (j) and (k), the Sellers, covenants with the Special Warrant Agent that so long as any Special Warrants remain outstanding: (a) It will maintain its corporate existence and will carry on and conduct its business in accordance with good business practice. (b) It will send to each Special Warrantholder copies of all financial statements and other material furnished to the holders of Common Shares after the date of this Indenture. (c) It will reserve and there will remain unissued out of its authorized capital a sufficient number of Common Shares to satisfy the rights of acquisition on the exercise of the Primary Special Warrants and the Share Purchase Warrants as provided for herein. (d) It will cause the Subject Securities issuable upon the exercise of the Special Warrants in the manner herein provided to be duly issued and delivered in accordance with the Special Warrants and the terms hereof. (e) It will use its reasonable best efforts to maintain the quotation of the Common Shares on the TSE and to become or maintain its status as (as the case may be) a "reporting issuer" not in default of the requirements of the securities legislation and policies of each of the Qualifying Jurisdictions. (f) All of the Subject Securities which are issued on the exercise of the Special Warrants shall be issued as fully-paid and non-assessable and the holders thereof shall not be liable to the Corporation or its creditors in respect of the issue of such Subject Securities. (g) The Corporation covenants and agrees to (i) file a Preliminary Prospectus for the purpose of qualifying the issuance and distribution of the Subject Securities upon the exercise of the Primary and Secondary Special Warrants in each of the Qualifying Jurisdictions as soon as practicable following the date hereof; (ii) resolve all comments received or deficiencies raised by the Securities Administrators; and (iii) file and obtain receipts for the Final Prospectus in each of the Qualifying Jurisdictions qualifying the Subject Securities as soon as possible after such regulatory comments and deficiencies have been resolved and obtain the listing and posting of the Common Shares issuable on exercise of the Special Warrants upon the TSE on or before the Expiry Time. 20. (h) It will not take any other action which might deprive the Special Warrantholders of the opportunity of exercising their rights pursuant to the Special Warrants held by such persons during the period of notice required by subsection 2.16(1). (i) It will perform all its covenants and carry out all of the acts or things to be done by it as provided in this Indenture. (j) It will not amend the attributes of the Subject Securities without the prior written consent, in the form of an Extraordinary Resolution, of the holders of two-thirds of the outstanding Special Warrants. (k) It will send a written notice to the Special Warrant Agent and to each holder of Special Warrants of the issuance of the receipts referred to in subsection 4.1(g), together with a commercial copy of the Final Prospectus qualifying the Subject Securities for distribution, as soon as practicable but, in any event, not later than three Business Days after the Qualification Date and, in the case of the Special Warrant Agent, copies of such receipts and written confirmation of any adjustment to subscription rights. (l) It will send a written notice to the Special Warrant Agent and to each Special Warrantholder of the record date for the determination of holders of Common Shares for the purposes of any dividend or other distribution or rights offering to holders of such securities not later than 10 Business Days prior to such record date. (m) It will send a written notice to the Special Warrant Agent and to Special Warrantholders of the occurrence of a Qualification Default and, as a result therefrom, each Special Warrantholder's increased entitlement as contemplated by section 2.2(c). (n) In the event that it offers any of its securities for sale in the United States or files a registration statement with the United States Securities Exchange Commission in respect of any of its securities, whether in connection with a public offering of such securities, an application for listing or quotation of its securities on any stock market or quotation system in the United States or otherwise, the Corporation shall ensure that the Subject Securities are also registered for resale in the United States or on such stock exchange and take all such other steps and actions as may be necessary to ensure that the Subject Securities are not subject to any statutory hold period. 4.2 SECURITIES QUALIFICATION REQUIREMENTS 21 (a) If, in the opinion of the Corporation's counsel, any instrument (other than the Final Prospectus) is required to be filed with, or any permission, order or ruling is required to be obtained from, any Securities Administrator or any other step is required under any federal or provincial law of Canada before any Subject Securities may be issued or delivered to a Special Warrantholder in any of the Qualifying Jurisdictions upon exercise of its Special Warrants, free of any restrictions or limitations on resale of such Subject Securities, the Corporation covenants that it will file such instrument, obtain such permission, order or ruling or take all such other actions, at its expense, as is required or appropriate in the circumstances. (b) The Corporation will give written notice of the issue of the Subject Securities pursuant to the exercise of Special Warrants in such detail as may be required to the Securities Administrator in each of the Qualifying Jurisdictions in which there is legislation requiring the giving of any such notice. 4.3 Special Warrant Agent's Remuneration and Expenses The Corporation covenants that it will pay to the Special Warrant Agent such fees as the parties agree upon from time to time for its services hereunder and will pay or reimburse the Special Warrant Agent upon its request for all reasonable expenses and disbursements of the Special Warrant Agent in the administration or execution of the trusts hereby created (including, pursuant to subsection 8.3(f), the reasonable compensation and the disbursements of its counsel and all other advisers, experts, accountants and assistants not regularly in its employ) both before any default hereunder and thereafter until all duties of the Special Warrant Agent hereunder shall be finally and fully performed, except any such expense or disbursement in connection with or related to or required to be made as a result of the negligence, wilful misconduct or bad faith of the Special Warrant Agent. 4.4 Performance of Covenants by Special Warrant Agent Subject to subsection 8.2(g), if the Issuers shall fail to perform any of their covenants contained in this Indenture and the Issuers have not rectified such failure within ten Business Days after receiving written notice from the Special Warrant Agent of such failure, the Special Warrant Agent shall notify the Special Warrantholders of such failure on the part of the Issuers unless the Special Warrant Agent shall itself perform any of the said covenants capable of being performed by it, but shall be under no obligation to perform said covenants or to notify the Special Warrantholders. All reasonable sums expended or disbursed by the Special Warrant Agent in so doing shall be repayable as provided in Section 4.3. No such performance, expenditure or disbursement by the Special Warrant Agent shall be deemed to relieve the Issuers of any default herein or of their continuing obligations under the covenants herein contained. 22 Article 5-Enforcement 5.1 Suits by Special Warrantholders All or any of the rights conferred upon a Special Warrantholder by the terms of the Special Warrants held by such Special Warrantholder and/or this Indenture may be enforced by such Special Warrantholder by appropriate legal proceedings, but subject to the rights which are hereby conferred upon the Special Warrant Agent and subject to the provisions of Section 6.10. 5.2 Immunity of Shareholders, etc. Subject to applicable laws, the Special Warrant Agent and, by the acceptance of the Special Warrant certificates and as part of the consideration for the issue of the Special Warrants, the Special Warrantholders hereby waive and release any right, cause of action or remedy now or hereafter existing in any jurisdiction against any person in his capacity as an incorporator or any past, present or future shareholder of the Issuers or other security holder, director, officer, employee or agent of the Issuers for the issue of the Common Shares pursuant to the exercise of any Special Warrant or on any covenant, agreement, representation or warranty by the Corporation herein or in the Special Warrant certificates contained. 5.3 Limitation of Liability The obligations hereunder are not personally binding upon, nor shall resort hereunder be had to, the shareholders or the directors of the Issuers or any of the past, present or future shareholders or directors of the Issuers or any of the past, present or future officers, employees or agents of the Issuers, but only the Issuers and their property shall be bound in respect hereof. Article 6 - Meetings of Special Warrantholders 6.1 Right to Convene Meetings The Special Warrant Agent may at any time and from time to time, and shall on receipt of a written request of the Issuers or of a Special Warrantholders' Request, convene a meeting of the Special Warrantholders provided that the Special Warrant Agent is indemnified and funded to its reasonable satisfaction by the Issuers or by the Special Warrantholders signing such Special Warrantholders' Request against the costs, charges, expenses and liabilities which may be incurred in connection with the calling and holding of such meeting. If within 15 Business Days after the receipt of a written request of the Issuers or a Special Warrantholders' Request and indemnity and funding given as aforesaid the Special Warrant Agent fails to give the requisite notice specified in Section 6.2 to convene a meeting, the Issuers or such Special Warrantholders, as the case may be, may convene such meeting. Every such meeting shall be held in the City of Toronto or at such other place as may be approved or determined by the Special Warrant Agent and the Issuers. 23 6.2 Notice At least 15 days' prior notice of any meeting of Special Warrantholders shall be given to the registered Special Warrantholders, at the expense of the Issuers, in the manner provided for in Section 10.2 and a copy of such notice shall be delivered to the Special Warrant Agent unless the meeting has been called by the Special Warrant Agent, and also to the Issuers, unless the meeting has been called by the Issuers. Such notice shall state the time and place of the meeting and the general nature of the business to be transacted thereat, and shall contain such information as is reasonably necessary to enable the Special Warrantholders to make a reasoned decision on the matters for which such meeting has been called, but it shall not be necessary for any such notice to set out the terms of any resolution to be proposed or any of the provisions of this Article 6. The notice convening any such meeting may be signed by the Special Warrant Agent or of the Issuers or the person designated by such Special Warrantholders, as the case may be. 6.3 Chairman The Special Warrant Agent may nominate in writing an individual to be chairman of the meeting and if no individual is so nominated, or if the individual so nominated is not present within 15 minutes after the time fixed for the holding of the meeting, the Special Warrantholders present in person or by proxy shall appoint an individual present to be chairman of the meeting. The chairman of the meeting need not be a Special Warrantholder. 6.4 Quorum Subject to the provisions of Section 6.11, at any meeting of the Special Warrantholders a quorum shall consist of one or more Special Warrantholders present in person or represented by proxy and holding at least 25% of the then issued and outstanding Special Warrants. If a quorum of the Special Warrantholders shall not be present within one half-hour from the time fixed for holding any meeting, the meeting, if summoned by the Special Warrantholders or on a Special Warrantholder's Request, shall be dissolved; but in any other case the meeting shall be adjourned to the same day in the next week (unless such day is not a Business Day in which case it shall be adjourned to the next following Business Day) at the same time and place to the extent possible and, subject to the provisions of Section 6.1, no notice of the adjournment need be given. Any business may be brought before or dealt with at an adjourned meeting which might have been dealt with at the original meeting in accordance with the notice calling the same. At the adjourned meeting the Special Warrantholders present in person or represented by proxy (regardless of number) shall form a quorum and may transact the business for which the meeting was originally convened, notwithstanding that they may hold less than 25% of the then issued and outstanding Special Warrants. No business shall be transacted at any meeting unless a quorum is present at the commencement of the meeting. 24 6.5 Power to Adjourn The chairman of any meeting at which a quorum of the Special Warrantholders is present may, with the consent of the meeting, adjourn any such meeting, and no notice of such adjournment need be given except such notice, if any, as the meeting may prescribe. 6.6 Show of Hands Every question submitted to a meeting shall be decided in the first place by a majority of the votes given on a show of hands except that votes on an extraordinary resolution shall be given in the manner hereinafter provided. At any such meeting, unless a poll is duly demanded as herein provided, a declaration by the chairman of the meeting that a resolution has been carried or carried unanimously or by a particular majority or lost or not carried by a particular majority shall be conclusive evidence of the fact. 6.7 Poll and Voting On every extraordinary resolution, and when demanded by the chairman of the meeting or by one or more of the Special Warrantholders acting in person or by proxy on any other question submitted to a meeting and after a vote by show of hands, a poll shall be taken in such manner as the chairman of the meeting shall direct. Questions other than those required to be determined by extraordinary resolution shall be decided by a majority of the votes cast on the poll. On a show of hands, every person who is present and entitled to vote, whether as a Special Warrantholder or as a proxy for one or more absent Special Warrantholders, or both, shall have one vote. On a poll, each Special Warrantholder present in person or represented by a proxy duly appointed by instrument in writing shall be entitled to one vote in respect of each Special Warrant which he (or the Special Warrantholder appointing him as proxy) then holds. A proxy need not be a Special Warrantholder. The chairman of any meeting shall be entitled, both on a show of hands and on a poll, to vote in respect of the Special Warrants, if any, held or represented by him. 6.8 Regulations Subject to the provisions of this Indenture, the Special Warrant Agent or the Issuers with the approval of the Special Warrant Agent may from time to time make and from time to time vary such regulations as it shall reasonably consider necessary or appropriate: (a) for the deposit of instruments appointing proxies at such place and time as the Special Warrant Agent, the Issuers or the Special Warrantholders convening the meeting, as the case may be, may in the notice convening the meeting direct, and enabling particulars of such instruments appointing proxies to be mailed or transmitted by facsimile before the meeting to the Issuers or to the Special Warrant Agent and for the voting of proxies so deposited as though the instruments themselves were produced at the meeting; 25 (b) as to the form of the instrument of proxy; and (c) generally for the calling of meetings of Special Warrantholders and the conduct of business thereat, including setting a record date for Special Warrantholders entitled to receive notice of or to vote at such meeting; such regulations to be effectual only once notice thereof has been given to Special Warrantholders in accordance with the provisions of Section 10.2 hereof prior to or concurrently with notice of the first meeting at which such regulations are to apply. Any regulations so made shall be binding and effective and the votes given in accordance therewith shall be valid and shall be counted. Save as such regulations may provide, the only persons who shall be recognized at any meeting as a Special Warrantholder, or be entitled to vote or be present at the meeting in respect thereof (subject to Section 6.9), shall be Special Warrantholders or persons holding proxies of Special Warrantholders. 6.9 Issuers, Special Warrant Agent and Underwriter may be Represented The Issuers, the Underwriter and the Special Warrant Agent, by their respective directors, officers and employees and the counsel for each of the Issuers, the Underwriter, the Special Warrantholders and the Special Warrant Agent may attend any meeting of the Special Warrantholders and speak thereat but shall have no vote as such. 6.10 Powers Exercisable by Extraordinary Resolution In addition to all other powers conferred upon them by any other provisions of this Indenture or by law, the Special Warrantholders at a meeting of Special Warrantholders shall have the power, exercisable from time to time by extraordinary resolution: (a) to agree with the Issuers to any modification, alteration, compromise or arrangement of the rights of Special Warrantholders and/or the Special Warrant Agent in its capacity as special warrant agent hereunder subject to the Special Warrant Agent's prior written consent or on behalf of the Special Warrantholders against the Corporation whether such rights arise under this Indenture or the Special Warrants or otherwise; (b) to amend or repeal any extraordinary resolution previously passed or sanctioned by the Special Warrantholders; (c) to direct or authorize the Special Warrant Agent subject to receipt of funding and indemnity to enforce any of the covenants on the part of the Issuers contained in this Indenture or the Special Warrants or to enforce any of the rights of the Special Warrantholders in any manner specified in such extraordinary resolution or to refrain from enforcing any such covenant or right; 26 (d) to waive and/or direct the Special Warrant Agent to waive any default on the part of the Issuers in complying with any provisions of this Indenture or the Special Warrants either unconditionally or upon any conditions specified in such extraordinary resolution; (e) to restrain any Special Warrantholder from taking or instituting any suit, action or proceeding against the Issuers for the enforcement of any of the covenants on the part of the Issuers contained in this Indenture or the Special Warrants or to enforce any of the rights of the Special Warrantholders; (f) to direct any Special Warrantholder who, as such, has brought any suit, action or proceeding to stay or discontinue or otherwise deal with any such suit, action or proceeding, upon payment of the costs, charges and expenses reasonably and properly incurred by such Special Warrantholder in connection therewith; and (g) to remove the Special Warrant Agent and to appoint a successor special warrant agent. 6.11 Meaning of Extraordinary Resolution (a) The expression "extraordinary resolution" when used in this Indenture means, subject as hereinafter in this Section 6.11 and in Section 6.14 provided, a resolution proposed at a meeting of Special Warrantholders duly convened for that purpose and held in accordance with the provisions of this Article 6 at which there are present in person or represented by proxy Special Warrantholders holding at least 25% of the then issued and outstanding Special Warrants and passed by the affirmative votes of Special Warrantholders holding not less than 66 2/3% of the then issued and outstanding Special Warrants represented at the meeting and voted on the poll upon such resolution. (b) If, at any meeting called for the purpose of passing an extraordinary resolution, Special Warrantholders holding at least 25% of the then issued and outstanding Special Warrants are not present in person or by proxy within one half-hour after the time appointed for the meeting, then the meeting, if convened by Special Warrantholders or on a Special Warrantholders' Request, shall be dissolved; but in any other case it shall stand adjourned to such day, being not less than four or more than ten Business Days later, and to such place and time as may be appointed by the chairman of the meeting. Not less than three Business Days' prior notice shall be given of the time and place of such adjourned meeting in the manner provided in Sections 10.1, 10.2 and 10.3. Such notice shall state that at the adjourned meeting the Special Warrantholders present in person or represented by proxy shall form a quorum but it shall not be necessary to set forth the purposes for which the meeting was originally called or any other particulars. At the adjourned meeting the Special Warrantholders present in person or represented by proxy shall form a quorum and may transact the business for which the meeting was originally convened and a resolution proposed at such adjourned meeting and passed by the requisite vote as provided in subsection (a) of this Section 6.11 shall be an extraordinary resolution within the meaning of this Indenture notwithstanding that Special Warrantholders holding at least 25% of the 27 then issued and outstanding Special Warrants are not present in person or represented by proxy at such adjourned meeting. (c) Votes on an extraordinary resolution shall always be given on a poll and no demand for a poll on an extraordinary resolution shall be necessary. 6.12 Powers Cumulative It is hereby declared and agreed that any one or more of the powers or any combination of the powers in this Indenture stated to be exercisable by the Special Warrantholders by extraordinary resolution or otherwise may be exercised from time to time and the exercise of any one or more of such powers or any combination of powers from time to time shall not be deemed to exhaust the right of the Special Warrantholders to exercise such powers or combination of powers then or thereafter from time to time. 6.13 Minutes Minutes of all resolutions and proceedings at every meeting of Special Warrantholders shall be made and duly entered in books to be from time to time provided for that purpose by the Special Warrant Agent at the reasonable expense of the Issuers, and any such minutes as aforesaid, if signed by the chairman of the meeting at which such resolutions were passed or proceedings held, or by the chairman of the next succeeding meeting of the Special Warrantholders, shall be prima facie evidence of the matters therein stated and, until the contrary is proved, every such meeting in respect of the proceedings of which minutes shall have been made shall be deemed to have been duly convened and held, and all resolutions passed thereat or proceedings taken shall be deemed to have been duly passed and taken. 6.14 Instruments in Writing All actions which may be taken and all powers that may be exercised by the Special Warrantholders at a meeting held as provided in this Article 6 may also be taken and exercised by Special Warrantholders holding at least 66 2/3% of the then issued and outstanding Special Warrants by an instrument in writing signed in one or more counterparts by such Special Warrantholders in person or by attorney duly appointed in writing, and the expression "extraordinary resolution" when used in this Indenture shall include an instrument so signed. 6.15 Binding Effect of Resolutions Every resolution and every extraordinary resolution passed in accordance with the provisions of this Article 6 at a meeting of Special Warrantholders shall be binding upon all the Special Warrantholders, whether present at or absent from such meeting, and every instrument in writing signed by Special Warrantholders in accordance with Section 6.14 shall be binding upon all the Special Warrantholders, whether signatories thereto or not, and each and every Special Warrantholder and the Special Warrant Agent (subject to the provisions for indemnity herein 28 contained) shall be bound to give effect accordingly to every such resolution and instrument in writing. In the case of an instrument in writing, the Special Warrant Agent shall give notice in the manner contemplated in Sections 10.1 and 10.2 of the effect of the instrument in writing to all Special Warrantholders and the Issuers as soon as is reasonably practicable. 6.16 Holdings by the Corporation or Subsidiaries of the Corporation Disregarded In determining whether Special Warrantholders holding the required number of Special Warrants are present at a meeting of Special Warrantholders for the purpose of determining a quorum or have concurred in any consent, waiver, resolution, extraordinary resolution, Special Warrantholders' Request or other action under this Indenture, Special Warrants owned legally or beneficially by the Issuers or any associate or affiliate (as those terms are defined in the Securities Act (Ontario)) of the Issuers shall be disregarded. The Issuers shall provide to the Special Warrant Agent upon request a Certificate of the Issuers stating the exact number and registrations of Special Warrants held by the Corporation or any associate or affiliate. Article 7 - Supplemental Indentures 7.1 Supplemental Indentures From time to time the Issuers and the Special Warrant Agent may, subject to the provisions of this Indenture, and they shall, when so directed by this Indenture, execute and deliver by their proper officers, indentures or instruments supplemental hereto, which thereafter shall form part hereof, for any one or more or all of the following purposes: (a) adding to the provisions hereof such additional covenants and enforcement provisions as in the opinion of counsel are necessary or advisable, provided that the same are not, in the opinion of the Special Warrant Agent, based on the advice of its Counsel, prejudicial to the interests of the Special Warrantholders as a group; (b) giving effect to any extraordinary resolution passed as provided in Article 6; (c) making such provisions not inconsistent with this Indenture as may be necessary or desirable with respect to matters or questions arising hereunder, provided that such provisions are not, in the opinion of the Special Warrant Agent, based on the advice of its counsel, prejudicial to the interests of the Special Warrantholders as a group; (d) adding to or amending the provisions hereof in respect of the transfer of Special Warrants, providing for the exchange of Special Warrants, and making any modification in the form of the certificates for the Special Warrants provided that such additions, amendments or modifications are not, in the opinion of the Special Warrant Agent, based on the advice of its Counsel, prejudicial to the interests of the Special Warrantholders as a group; 29 (e) amending any of the provisions of this Indenture or relieving the Issuers from any of the obligations, conditions or restrictions herein contained, provided that no such amendment or relief shall be or become operative or effective if, in the opinion of the Special Warrant Agent, based on the advice of its Counsel, such amendment or relief impairs any of the rights of the Special Warrantholders as a group or of the Special Warrant Agent, and provided further that the Special Warrant Agent may in its sole discretion decline to enter into any such supplemental indenture which in its opinion, based on the advice of its counsel, may not afford adequate protection to the Special Warrant Agent when the same shall become operative; (f) for any other purpose not inconsistent with the terms of this Indenture, including the correction or rectification of any ambiguities, defective or inconsistent provisions, errors or omission herein, provided that, in the opinion of the Special Warrant Agent, based on the advice of its Counsel, the rights of the Special Warrant Agent and of the Special Warrantholders as a group are not prejudiced thereby; and (g) amending the type or number of Subject Securities or other securities of the Corporation issuable upon exercise of the Special Warrants as contemplated by Sections 2.14 and 2.15 hereof. 7.2 Successor Corporations In the case of the consolidation, amalgamation, arrangement, merger or transfer of the undertaking or assets of the Issuers as an entirety or substantially as an entirety to another corporation (a "successor corporation"), forthwith following the occurrence of such event the successor corporation resulting from such consolidation, amalgamation, arrangement, merger or transfer (if not the Corporation) shall expressly assume, by supplemental indenture satisfactory in form to Counsel to the Special Warrant Agent and executed and delivered to the Special Warrant Agent, the due and punctual performance and observance of each and every covenant and condition of this Indenture to be performed and observed by the Issuers. Article 8 - Concerning the Special Warrant Agent 8.1 Trust Indenture Legislation (a) In this Article, the term "Applicable Legislation" means the provisions of any statute of Canada or a province thereof and of regulations under any such named or other statute relating to trust indentures and/or to the rights, duties and obligations of warrant agents and of corporations under trust indentures, to the extent that such provisions are at the time in force and applicable to this Indenture. (b) If and to the extent that any provision of this Indenture limits, qualifies or conflicts with a mandatory requirement of Applicable Legislation, such mandatory requirement shall prevail. 30 (c) The Issuers and the Special Warrant Agent agree that each will at all times in relation to this Indenture and any action to be taken hereunder observe and comply with and be entitled to the benefit of Applicable Legislation. 8.2 Rights and Duties of Special Warrant Agent (a) In the exercise of the rights and duties prescribed or conferred by the terms of this Indenture, the Special Warrant Agent shall act honestly and in good faith with a view to the best interests of the Special Warrantholders as a group and shall exercise the degree of care, diligence and skill that a reasonably prudent warrant Agent would exercise in comparable circumstances. No provision of this Indenture shall be construed to relieve the Special Warrant Agent from or require any other person to indemnify the Special Warrant Agent against liability for its own negligence, wilful misconduct or bad faith. (b) Subject only to subsection (a) of this Section 8.2, the Special Warrant Agent shall not be bound to do or take any act, action or proceeding for the enforcement of any of the obligations of the Issuers under this Indenture unless and until it shall have received a Special Warrantholders' Request specifying the act, action or proceeding which the Special Warrant Agent is requested to take. The obligation of the Special Warrant Agent to commence or continue any act, action or proceeding for the purpose of enforcing any rights of the Special Warrant Agent or the Special Warrantholders hereunder shall be conditional upon the Special Warrantholders furnishing, when required by notice in writing by the Special Warrant Agent, sufficient funds to commence or continue such act, action or proceeding and an indemnity reasonably satisfactory to the Special Warrant Agent and its officers, directors, employees and agents to protect and hold harmless the Special Warrant Agent and its officers, directors, employees and agents against the costs, charges, expenses and liabilities to be incurred thereby and any loss and damage it may suffer by reason thereof. None of the provisions contained in this Indenture shall require the Special Warrant Agent to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties or in the exercise of any of its rights or powers unless indemnified and funded as aforesaid. (c) The Special Warrant Agent may, before commencing or at any time during the continuance of any such act, action or proceeding, require the Special Warrantholders at whose instance it is acting to deposit with the Special Warrant Agent the Special Warrants held by them, for which Special Warrants the Special Warrant Agent shall issue receipts. (d) Every provision of this Indenture that by its terms relieves the Special Warrant Agent of liability or entitles it to act and rely upon any evidence submitted to it is subject to the provisions of Applicable Legislation, and to the provisions of this Section 8.2 and of Section 8.3. (e) The Special Warrant Agent shall retain the right not to act and shall not be held liable for refusing to act unless it has received clear and reasonable documentation which complies 31 with the terms of this Indenture. Such documentation must not require the exercise of any discretion or independent judgment. In the event that the Special Warrant Agent refuses to act because any documentation received by it is not clear and reasonable, the Special Warrant Agent shall immediately provide notice to the party who provided such documentation advising such party of the Special Warrant Agent's refusal to act together with a brief explanation of the reason for its refusal. (f) In the event of any disagreement arising regarding the terms of this Indenture, the Special Warrant Agent shall be entitled, at its option, to refuse to comply with any or all demands whatsoever until the dispute is settled either by agreement amongst the various parties or by a court of competent jurisdiction. (g) The Special Warrant Agent shall not be bound to give any notice or do or take any act, action or proceeding by virtue of the powers conferred on it hereby unless and until it shall have been required so to do under the terms hereof; nor shall the Special Warrant Agent be required to take notice of any default hereunder, unless and until notified in writing of such default, which notice shall distinctly specify such default and in the absence of any such notice the Special Warrant Agent may for all purposes of this Indenture conclusively assume that no default has been made in the observance or performance of any of the representations, warranties, covenants, agreements or conditions contained herein. Any such notice shall in no way limit any discretion herein given to the Special Warrant Agent to determine whether or not the Special Warrant Agent shall take action with respect to any default. 8.3 Evidence, Experts and Advisers (a) In addition to the reports, certificates, opinions and other evidence required by this Indenture, the Issuers shall furnish to the Special Warrant Agent such additional evidence of compliance with any provision hereof in such form as may be prescribed by Applicable Legislation, or as the Special Warrant Agent may reasonably require by written notice to the Issuers. (b) In the exercise of its rights and duties hereunder, the Special Warrant Agent may, if it is acting in good faith, rely as to the truth of the statements and the accuracy of the opinions expressed therein, upon statutory declarations, opinions, reports, written requests, consents, orders of the Issuers, certificates of the Issuers or other evidence furnished to the Special Warrant Agent, provided that such evidence complies with Applicable Legislation. (c) Whenever Applicable Legislation requires that evidence referred to in subsection (a) of this Section 8.3 be in the form of a statutory declaration, the Special Warrant Agent may accept such statutory declaration in lieu of a certificate of the Corporation required by any provision hereof. Any such statutory declaration may be made by one or more of the chairman, president, vice-president, secretary or treasurer of the Issuers. (d) The Special Warrant Agent may act and rely and shall be protected in acting and relying upon any resolution, certificate, statement, instrument, opinion, report, notice, request, 32 consent, order, letter, telegram, cablegram or other paper or document believed by it to be genuine and to have been signed, sent, or presented by or on behalf of the proper party or parties. (e) Proof of the execution of an instrument in writing, including a Special Warrantholders' Request, by any Special Warrantholder may be made by the certificate of a notary public, or other officer with similar powers, that the person signing such instrument acknowledged to him the execution thereof, or by an affidavit of a witness to such execution or in any other manner which the Special Warrant Agent may consider adequate and in respect of a corporate Special Warrantholder shall include a certificate of incumbency of such Special Warrantholder together with a certified copy of a resolution authorizing the person who signed such instrument to sign such instrument. (f) The Special Warrant Agent may employ or retain such counsel, accountants or other experts or advisers as it may reasonably require for the purpose of discharging its duties hereunder, may act on and rely upon the advice or opinion so obtained and may pay reasonable remuneration for all services so performed by any of them, without taxation of costs of any counsel, and shall not be responsible for any misconduct on the part of any of them. The cost of such services shall be added to and be part of the Special Warrant Agent's fees hereunder. 8.4 Documents, Monies, etc. Held by Special Warrant Agent Any securities, documents of title or other instruments that may at any time be held by the Special Warrant Agent subject to the trusts hereof may be placed in the deposit vaults of the Special Warrant Agent or of any Canadian chartered bank or trust company or deposited for safekeeping with any such bank or trust company. 8.5 Action by Special Warrant Agent to Protect Interests Subject to the provisions of this Indenture and Applicable Legislation, the Special Warrant Agent shall have the power to institute and to maintain such action and proceedings as it may consider necessary or expedient to preserve, protect or enforce its interests and the interests of the Special Warrantholders. 8.6 Special Warrant Agent Not Required to Give Security The Special Warrant Agent shall not be required to give any bond or security in respect of the execution of the trusts and powers of this Indenture or otherwise. 8.7 Protection of Special Warrant Agent 33 By way of supplement to the provisions of any law for the time being relating to warrant agents, it is expressly declared and agreed as follows: (a) The Special Warrant Agent shall not be liable for or by reason of any statements of fact or recitals in this Indenture or in the Special Warrants (except the representation contained in Sections 8.9 and 8.12 or in the certificate of the Special Warrant Agent on the Special Warrants) or be required to verify the same. (b) Nothing herein contained shall impose any obligation on the Special Warrant Agent to see to or to require evidence of the registration or filing (or renewal thereof) of this Indenture or any instrument ancillary or supplemental hereto. (c) The Special Warrant Agent shall not be bound to give notice to any person of the execution hereof. (d) The Special Warrant Agent shall not incur any liability or responsibility whatsoever or be in any way responsible for the consequence of any breach on the part of the Corporation of any of the covenants herein contained or of any acts of any directors, officers, employees, agents or servants of the Corporation. (e) The Issuers hereby jointly and severally indemnify and saves harmless the Special Warrant Agent and its officers, directors, employees and agents from and against any and all liabilities, losses, costs, claims, action or demands whatsoever which may be brought against the Special Warrant Agent or which it may suffer or incur as a result or arising out of the performance of its duties and obligations under this Indenture, save only in the event of negligence or wilful misconduct of the Special Warrant Agent or any of its officers, directors and employees. It is understood and agreed that this indemnification shall survive the termination of this Indenture or the resignation or removal of the Special Warrant Agent. 8.8 Replacement of Special Warrant Agent (a) The Special Warrant Agent may resign its trust and be discharged from all further duties and liabilities hereunder by giving to the Issuers not less than 45 days' prior notice in writing or such shorter prior notice as the Issuers may accept as sufficient. The Special Warrantholders by extraordinary resolution shall have the power at any time to remove the existing Special Warrant Agent and to appoint a new warrant agent. In the event of the Special Warrant Agent resigning or being removed as aforesaid or being dissolved, becoming bankrupt, going into liquidation or otherwise becoming incapable of acting hereunder, the Issuers shall forthwith appoint a new warrant agent unless a new warrant agent has already been appointed by the Special Warrantholders; failing such appointment by the Issuers, the retiring Special Warrant Agent or any Special Warrantholder may apply to a justice of the Ontario Court of Justice (General Division) at the Issuers' expense, on such notice as such justice may direct, for the appointment of a new warrant agent; but any new warrant Agent so appointed by the Issuers or by the Court shall be subject to removal as aforesaid by the Special Warrantholders. Any 34 new warrant agent appointed under any provision of this Section 8.8 shall be a corporation authorized to carry on the business of a trust company in the Province of Ontario and, if required by Applicable Legislation of any other province, in such other province. On any such appointment the new warrant agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as Special Warrant Agent without any further assurance, conveyance, act or deed; but there shall be immediately executed, at the expense of the Issuers, all such conveyances or other instruments as may, in the opinion of counsel, be necessary or advisable for the purpose of assuring the same to the new warrant agent, provided that any resignation or removal of the Special Warrant Agent and appointment of a successor warrant Agent shall not become effective until the successor warrant agent shall have executed an appropriate instrument accepting such appointment and, at the request of the Issuers, the predecessor Special Warrant Agent, upon payment of its outstanding remuneration and expenses, shall execute and deliver to the successor warrant agent an appropriate instrument transferring to such successor warrant agent all rights and powers of the Special Warrant Agent hereunder and all securities, documents of title and other instruments, and all monies and properties, held by the Special Warrant Agent hereunder. (b) Upon the appointment of a successor warrant agent, the Issuers shall promptly notify the Special Warrantholders thereof in the manner provided for in Section 10.2. (c) Any corporation into or with which the Special Warrant Agent may be merged or consolidated or amalgamated, or any corporation succeeding to the trust business of the Special Warrant Agent, shall be the successor to the Special Warrant Agent hereunder without any further act on its part or of any of the parties hereto, provided that such corporation would be eligible for appointment as a new warrant agent under subsection (a) of this Section 8.8. (d) Any Special Warrants certified but not delivered by a predecessor warrant agent may be certified by the successor warrant agent in the name of the predecessor or successor warrant agent. 8.9 Conflict of Interest (a) The Special Warrant Agent represents to the Issuers that at the time of execution and delivery hereof no material conflict of interest exists in the Special Warrant Agent's role as a fiduciary hereunder and agrees that in the event of a material conflict of interest arising hereafter it will, within 90 days after ascertaining that it has such a material conflict of interest, either eliminate the same or resign its trust hereunder to a successor warrant agent approved by the Issuers. If any such material conflict of interest exists or hereafter shall exist, the validity and enforceability of this Indenture and the Special Warrants shall not be affected in any manner whatsoever by reason thereof. 35 (b) Subject to subsection (a) of this Section 8.9, the Special Warrant Agent, in its personal or any other capacity, may buy, lend upon and deal in securities of the Corporation and generally may contract and enter into financial transactions with the Corporation or any subsidiary of the Corporation without being liable to account for any profit made thereby. 8.10 Acceptance of Trusts The Special Warrant Agent hereby accepts the trusts in this Indenture declared and provided for and agrees to perform the same upon the terms and conditions herein set forth. 8.11 Special Warrant Agent Not to be Appointed Receiver The Special Warrant Agent and any person related to the Special Warrant Agent shall not be appointed a receiver or receiver and manager or liquidator of all or any part of the assets or undertaking of the Issuers. 8.12 Authorization to Carry on Business The Special Warrant Agent represents to the Issuers that it is duly authorized and qualified to carry on the business of a trust company in each of the provinces of Canada. 8.13 Liability of Special Warrant Agent The Special Warrant Agent shall not be liable or accountable for any loss or damage whatsoever to any person caused by the performance or failure to perform by it of its responsibilities under this agreement save only to the extent that such loss or damage is attributable to the negligence, fraud or wilful misconduct of the Special Warrant Agent. Article 9 - Form of Special Warrant 9.1 Form of Special Warrant Certificate PSW - 0 or SSW - 0 SPECIAL WARRANT CERTIFICATE BID.COM INTERNATIONAL INC. (the "Corporation") (Constituted pursuant to the laws of the Province of Ontario, Canada) NO. __________________________ __________________ Special Warrants 36 (each entitling the holder to subscribe for one Common Share and one-quarter a Share Purchase Warrant for no additional consideration) THIS IS TO CERTIFY that, for value received, ___________________________ (the "holder") is entitled to acquire, in the manner herein provided, subject to the restrictions contained in the Indenture hereinafter referred to, at any time and from time to time on or prior to 5:00 p.m. Toronto time (the "Expiry Time"), on the date (the "Expiry Date") that is the earlier of: 1. the date which is five (5) Business Days following the date of the issuance of a receipt by the last of the securities regulatory authorities in the Qualifying Jurisdictions for a Prospectus; and 2. November 30, 1999; one unit ("Unit") comprised of one common share of the Corporation ("Common Share") (or, in the circumstances described below, acquire one and one five- hundredth (1.05) Common Shares and one-quarter a warrant ("Share Purchase Warrant") (or in the circumstances described below, acquire 0.2625 Share Purchase Warrants) for each Special Warrant represented by this certificate without payment of any consideration in addition to the subscription price for such Special Warrant. The Special Warrants represented by this certificate are issued under and pursuant to a Special Warrant Indenture (the "Indenture") dated as of November 30, 1998 between the Issuers and CIBC Mellon Trust Company (the "Special Warrant Agent") (which expression shall include any successor warrant agent appointed under the Indenture), to which Indenture (and any amendments thereto and instruments supplemental thereto) reference is hereby made for a full description of the rights of the holders of the Special Warrants and the terms and conditions upon which such Special Warrants are or are to be, issued and held, all to the same effect as if the provisions of the Indenture and all amendments thereto and instruments supplemental thereto were herein set forth and to all of which provisions the holder of these Special Warrants by acceptance hereof assents. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture. In the event of any conflict or inconsistency between the provisions of the Indenture (and any amendments thereto and instruments supplemental thereto) and the provisions of this Special Warrant Certificate, except those that are necessary by context, the provisions of the Indenture (and any amendments thereto and instruments supplemental thereto) shall prevail. The terms and provisions of the Indenture (and any amendments thereto and instruments supplemental thereto) are incorporated herein by reference. Such right to exercise Special Warrants for the Common Shares and Share Purchase Warrants may be effected by the holder hereof by: 37 (a) duly completing in the manner indicated and executing the Exercise Form attached hereto; and (b) surrendering this Special Warrant Certificate to the Special Warrant Agent as hereinafter set forth, provided that any Special Warrant not so exercised on or before the Expiry Time shall be deemed to have been exercised by the holder immediately prior thereto. This Special Warrant Certificate shall be validly surrendered only upon delivery thereof or by mailing the same to the Special Warrant Agent at its principal office in the City of Toronto, Ontario. The Exercise Form attached hereto shall not be deemed to be duly completed if the name and mailing address of the holder do not appear legibly on such Exercise Form or such Exercise Form is not signed by the holder. In the case of a Special Warrant which is exercised by a holder in accordance with the provisions of Subsection 3.1(c) of the Indenture, within five (5) Business Days after the Exercise Date of such Special Warrant, the Special Warrant Agent shall: (a) cause to be mailed to the person in whose name the Common Shares and Share Purchase Warrants issuable upon the exercise of the exercise rights of the Special Warrants are to be issued, as specified in the Special Warrant, at the address specified therein; (b) if so specified therein, cause to be delivered to such person at the office of the Special Warrant Agent where such Special Warrant was surrendered; or (c) if no specification as contemplated by (a) or (b) is provided, cause to be mailed to the person in whose name the Common Shares and Share Purchase Warrants are to be issued at the address of such person last appearing on the register maintained by the Special Warrant Agent pursuant to the Indenture or as such person may otherwise notify the Special Warrant Agent in writing on or prior to the Exercise Date, a certificate or certificates for the Common Shares and Share Purchase Warrants to which the holder is entitled. In the case of a Special Warrant which is deemed exercised in accordance with the provisions of Subsection 3.1(b) of the Indenture, within five (5) Business Days after the Exercise Date of such Special Warrants, the Issuers shall without any further act on the part of the Special Warrantholder, cause to be mailed to the Special Warrantholder at the address of such person last appearing on the register of Special Warrants maintained by the Special Warrant Agent pursuant to the Indenture or as such person may otherwise instruct the Special Warrant Agent in writing on or prior to the mailing a certificate or certificates for the Common Shares and Share Purchase Warrants to which the Special Warrantholder is entitled. 38 Upon due exercise or deemed exercise of the Special Warrants as provided herein, the person or persons in whose name or names the Common Shares and Share Purchase Warrants are issuable, shall be deemed for all purposes (except as provided in the Indenture hereinafter referred to) to be the holder or holders of record of such Common Shares and Share Purchase Warrants and the Issuers covenant that they will (subject to and in accordance with the provisions of the aforesaid Indenture) cause a certificate or certificates representing such Common Shares and Share Purchase Warrants to be delivered or mailed to such person or persons at the address or addresses specified in such Exercise Form or on the register of Special Warrants maintained by the Special Warrant Agent (if deemed to have been exercised). No fractional Common Shares or Share Purchase Warrants will be issued. To the extent that the holder of a Special Warrant is entitled to receive on the exercise or partial exercise thereof a fraction of a Common Share or Share Purchase Warrants, the Issuers shall make a cash payment equal to the fair value of the fraction not so issued as determined by the directors of the Corporation in their sole discretion. No cheque shall be issued or cash payment made to any Special Warrantholder for an amount less than $5.00. The Indenture provides for adjustments to the subscription rights attaching to these Special Warrants in certain events and also provides for the giving of notice by the Issuers prior to taking certain actions specified therein. The holding of the Special Warrants evidenced by this Special Warrant Certificate shall not constitute the holder hereof a shareholder of the Corporation or entitle such holder to any right or interest in respect thereof except as herein and in the Indenture expressly provided. The Special Warrants evidenced by this Special Warrant Certificate are not transferable except as set forth in Subsection 2.9(b) of the Indenture which makes reference to the fact that no transfer of a Special Warrant shall be valid unless made by the holder or his executors, administrators or other legal representatives, or his or her attorney duly appointed by an instrument in writing in form and manner satisfactory to the Agent, acting reasonably, with signatures guaranteed by a Canadian chartered bank, a Canadian trust company, a member of any Canadian stock exchange or such other guarantor as the Special Warrant Agent determines to be acceptable and upon compliance with such other reasonable requirements as the Special Warrant Agent may prescribe. Upon compliance with these transfer requirements, and with applicable securities legislation and requirements of regulatory authorities, the transferee shall become noted upon the register of holders. If any of the Common Shares and Share Purchase Warrants in respect of which the Special Warrants are exercised are to be issued to a person or persons other than the holder (as aforesaid), the holder shall pay to the Special Warrant Agent all requisite stamp transfer taxes or other governmental charges exigible in connection with the issue of such Common Shares and Share Purchase Warrants to such other person or persons or shall establish to the satisfaction of the Special Warrant Agent that such taxes and charges have been paid. 39 This Special Warrant Certificate shall not be valid for any purpose whatever unless and until it has been countersigned by or on behalf of the Special Warrant Agent. Time shall be of the essence hereof. The Special Warrants and the Indenture (and any amendments thereto and instruments supplemental thereto) shall be governed by, performed, construed and enforced in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein and shall be treated in all respects as Ontario contracts. The Corporation has covenanted and agreed to use its reasonable commercial efforts to promptly finalize and obtain a receipt for a preliminary prospectus and a final Prospectus in the Qualifying Jurisdictions qualifying the issuance of the Common Shares and Share Purchase Warrants issuable upon the due exercise or deemed exercise of the Special Warrants. In the event the Corporation fails to obtain a receipt for the Final Prospectus from the Securities Administrators in each of the Qualifying Jurisdictions on or prior to 5:00 p.m. (Toronto time) on February 25, 1999, (a "Qualification Default") then each Special Warrant shall entitle the holder to acquire one and one five-hundredth (1.05) Units (in lieu of one (1) Unit), without payment of further consideration, on exercise or deemed exercise of such Special Warrant. In the event of a Qualification Default, the holder is entitled to retract up to 25% of the Special Warrants represented by this certificate by completing and forwarding a Notice of Retraction in the form attached as Schedule "C" hereto and submitting the same together with this certificate to the Special Warrant Agent at its principal office in Toronto, Ontario as soon as practicable after receipt from the Special Warrant Agent of notification of such Qualification Default but in any event not later than 5:00 p.m. (Toronto time) on the fifth Business Day following the date of the Qualification Default (the "Retraction Deadline"). Upon receipt by the Special Warrant Agent of the Escrow Agent's cheque payable to the holder, the Special Warrant Agent shall remit to the holder within 3 Business Days of receipt of this certificate and the holder's Notice of Retraction, a cheque in the amount of the purchase price of the Special Warrants being retracted plus any accrued interest together with a new certificate representing those of the holder's Special Warrants which have not been retracted. Furthermore, in the event that a receipt for a Final Prospectus relating to the distribution of the Common Shares and Share Purchase Warrants is not obtained from the Securities Administrators in any of the Qualifying Jurisdictions, the Common Shares and Share Purchase Warrants may be subject to statutory hold periods during which time these securities may not be resold in such provinces except pursuant to applicable prospectus and registration exemptions. In addition, any Special Warrants that are exercised or Common Shares and Share Purchase Warrants received on such exercise prior to the issuance of a receipt for the Final Prospectus by the Securities Administrators in the Qualifying Jurisdictions may be subject to statutory restrictions. Holders are advised to consult their legal advisors in this regard. 40 IN WITNESS WHEREOF the Issuers have caused this Special Warrant Certificate to be signed by its duly authorized officer as of November 30, 1998. BID.COM INTERNATIONAL INC. Per:___________________________________c/s Authorized Signing Officer 1184041 ONTARIO INC. Per:___________________________________c/s Authorized Signing Officer SMYTHE GROUP COMPANY Per:___________________________________c/s Authorized Signing Officer Countersigned by: CIBC MELLON TRUST COMPANY Per: ____________________________________ Authorized Signing Officer 41 TRANSFER FORM FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto (Please print or typewrite name and address of assignee) ______________________________ Special Warrant(s) represented by the within certificate, and do(es) hereby irrevocably constitute and appoint ______________________________ the attorney of the undersigned to transfer the said Special Warrant(s) on the register of Special Warrants maintained by the Special Warrant Agent with full power of substitution hereunder. DATED this ________ day of _______________ , 199_________. -------------------------------------------- Signature of Special Warrantholder - -------------------------- -------------------------------------------- Signature Guarantee Name of Special Warrantholder (please print) The signature of the Special Warrantholder to this assignment must correspond exactly with the name of the Special Warrantholder as set forth on the face of this Special Warrant certificate in every particular, without alteration or enlargement or any change whatsoever and the signature must be guaranteed by a Canadian chartered bank or by a trust company or by a member firm of any Canadian stock exchange, any of whose signature must be on file with the Special Warrant Agent. 42 EXERCISE OF EXCHANGE RIGHTS INSTRUCTIONS TO SPECIAL WARRANTHOLDER The registered holder hereof may exercise his right to exercise Special Warrants for Common Shares and Share Purchase Warrants of BID.COM INTERNATIONAL INC. (the "Corporation"), subject to the adjustments described in the Special Warrant Indenture by completing the Exercise Form and surrendering this Special Warrant certificate and the duly completed Exercise Form to CIBC Mellon Trust Company by delivering or mailing it to CIBC Mellon Trust Company at the following office: By courier or by hand: Special projects 199 Bay Street Commerce Court West Securities Level Toronto, Ontario M5L 1B9 Attention: Courier Window By mail: P.O. Box 1036 Adelaide Street Postal Station Toronto, Ontario M5C 2K4 Upon exercise, the Special Warrants will be cancelled and become absolutely void and alternatively, if not exercised on or prior to 5:00 p.m., Toronto time, on the Expiry Date will be deemed to have been exercised in full by such holder immediately prior to that time. For your own protection, it is suggested that all documentation be forwarded to the Special Warrant Agent by registered mail. 43 EXERCISE FORM TO: BID.COM INTERNATIONAL INC. The undersigned hereby exercises the right to exercise _________ Special Warrants for ________ Common Shares and __________ Share Purchase Warrants of BID.COM INTERNATIONAL INC. (or such number of other securities or property to which such Special Warrants entitle the undersigned in lieu thereof or in addition thereto under the provisions of the Indenture mentioned in the within Special Warrant Certificate) according to the terms of the Indenture mentioned in the within Special Warrant Certificate. If any of the Common Shares and Share Purchase Warrants are to be issued to a person or persons other than the holder in those circumstances as set forth in the within Special Warrant Certificate, the holder must pay to CIBC Mellon Trust Company all requisite stamp or security transfer taxes or other governmental charges related thereto. (Print clearly) Name: Address in Full: Number of Special Warrants being Exercised: DATED this day of , 199_______. ---------------------------------------------- Signature of Special Warrantholder ---------------------------------------------- Name of Special Warrantholder (As registered on Special Warrant Certificate) ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- Print Full Address 44 SCHEDULE "B" NOTICE TO SPECIAL WARRANTHOLDERS Reference is made to the Special Warrant Indenture made as of November 30, 1998 (the "Special Warrant Indenture") between the Issuers and CIBC Mellon Trust Company. Unless defined herein, capitalized terms used herein have the respective meanings ascribed to them in the Special Warrant Indenture. We hereby confirm that receipts have been issued by the securities commissions in each of the Qualifying Jurisdictions in respect of the prospectus qualifying the distribution of the Common Shares and Share Purchase Warrants issuable upon exercise of the Special Warrants. The last receipt was issued on __________________________ by the ______________________ Securities Commission. The Expiry Time is therefore 5:00 p.m. (Toronto Time) on ______________. A copy of the prospectus is enclosed herewith. 45 SCHEDULE "C" NOTICE OF RETRACTION OF SPECIAL WARRANTS TO: BID.COM INTERNATIONAL INC. The undersigned hereby exercises the right to retract _________________ Special Warrants (not to exceed 25% of the Special Warrants represented by the within certificate) of BID.COM INTERNATIONAL INC. according to the terms of the Indenture mentioned in the within Special Warrant Certificate. The undersigned hereby requests payment of the sum of $1.75 for each Special Warrant being retracted plus any accrued interest thereon. The undersigned further surrenders herewith the written Special Warrant Certificate and requests the issue and delivery of a new certificate representing those of the holder's Special Warrants which have not been retracted. Number of Special Warrants being retracted: ------------------------------------- DATED this day of 1998. ---------------------------------------------- Signature of Special Warrantholder ---------------------------------------------- Name of Special Warrantholder (As registered on Special Warrant Certificate) ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- Print Full Address ---------------------------------------------- Telephone No. (day time) 46 Article 10 -General 10.1 Notice to the Issuers and the Special Warrant Agent (i) Unless herein otherwise expressly provided, any notice to be given hereunder to the Issuers or the Special Warrant Agent shall be deemed to be validly given if delivered or if sent by registered letter, postage prepaid, or if sent by facsimile transmission, telex or other means of prepaid transmission or recorded communication: (A) if to the Corporation BID.COM INTERNATIONAL INC. 6725 Airport Road Suite 201 Mississauga, Ontario L4V 1V2 Facsimile: (905) 672-5705 Attention: Paul Godin if to the Special Warrant Agent: (B) CIBC MELLON TRUST COMPANY 320 Bay Street, Ground Floor Toronto, Ontario M5H 4A6 Facsimile: 416-643-5570 Attention: Assistant Vice-President, Client Services (C) if to the Sellers: 1184041 ONTARIO INC. c/o 6725 Airport Road Suite 201 Mississauga, Ontario L4V 1V2 Facsimile: (905) 672-5705 Attention: Paul Godin SMYTHE GROUP COMPANY c/o 6725 Airport Road Suite 201 Mississauga, Ontario L4V 1V2 47 Facsimile: (905) 672-5705 Attention: Jeffery Lymburner BID.COM INTERNATIONAL INC. 6725 Airport Road Suite 201 Mississauga, Ontario L4V 1V2 Facsimile: (905) 672-5705 Attention: Paul Godin (D) if to the Escrow Agent: WILDEBOER RAND THOMSON APPS & DELLELCE Barristers and Solicitors Suite 810 P.O. Box 4 First Canadian Place Toronto, Ontario M5X 1A9 Facsimile: 416-361-1790 Attention: Troy Pocaluyko and any such notice if delivered in accordance with the foregoing shall be deemed to have been received on the of delivery if that date is a Business Day or the Business Day following the date of delivery if such date is not a Business Day or, if mailed, on the fifth Business Day following the date of deposit in the mail, or if sent by facsimile transmission, on the date of such facsimile transmission if that date is a Business Day or the Business Day following the date of sending if such date is not a Business Day or if sent after normal business hours. (ii) The Issuers or the Special Warrant Agent, as the case may be, may from time to time notify the other in the manner provided in subsection 10.1(i) of a change of address which, from the effective date of such notice and until changed by like notice, shall be the address of the Issuers or the Special Warrant Agent, as the case may be, for all purposes of this Indenture. A copy of any notice of change of address given pursuant to this subsection 10.1(ii) shall be available for inspection at the Corporation's office by Special Warrantholders during normal business hours. 10.2 Notice to the Special Warrantholders 48 Any notice to the Special Warrantholders under the provisions of this Indenture shall be deemed to be validly given if delivered, or if sent by prepaid first class mail posted from within Canada in envelopes addressed to the Special Warrantholders at their respective addresses appearing in the register of holders maintained by the Special Warrant Agent. Any notice so delivered shall be deemed to have been received on the date of delivery if that date is a Business Day, or the Business Day following the date of delivery if such date is not a Business Day, and if mailed shall be deemed to have been received on the fifth Business Day following the date of deposit in the mail. Accidental error or omission in giving notice or accidental failure to give notice to any Special Warrantholder shall not invalidate any action or proceeding founded thereon. 10.3 Mail Service Interruption If by reason of any interruption of mail service, actual or threatened, any notice to be given to the Special Warrant Agent, the Corporation or the Special Warrantholders would reasonably be unlikely to reach its destination in the ordinary course of mail, such notice shall be valid and effective only if delivered to the party to which it is addressed or, in the case of a notice to either the Corporation or the Special Warrant Agent, if sent to such party, at the appropriate address in accordance with Section 10.1, by facsimile transmission. 10.4 Counterparts and Formal Date This Indenture may be executed in several counterparts, each of which when so executed shall be deemed to be an original and such counterparts together shall constitute one and the same instrument and notwithstanding their date of execution shall be deemed to be dated as of the date appearing at the top of this Indenture. 10.5 Satisfaction and Discharge of Indenture Upon the date upon which all obligations of the Issuers under this Special Warrant Indenture have been performed in full (including the obligation to deliver Common Shares and certificates therefor), this Special Warrant Indenture shall cease to be of further effect in respect of the Issuers. The Special Warrant Agent, on written demand of and at the cost and expense of the Issuers, and upon delivery to the Special Warrant Agent of a certificate of the Corporation stating that all conditions precedent to the satisfaction and discharge of this Special Warrant Indenture have been complied with and upon payment by the Issuers to the Special Warrant Agent of the expenses, fees and other remuneration payable to the Special Warrant Agent, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture; provided that if the Special Warrant Agent has not then performed any of its obligations hereunder any such satisfaction and discharge of the Issuers' obligations hereunder shall not affect or diminish the rights of any Special Warrantholder or the Corporation against the Special Warrant Agent.-- 10.6 Provisions of Indenture and Special Warrants for the Sole Benefit of Parties and Special Warrantholders 49 Except as provided in Sections 5.2 and 5.3, nothing in this Indenture or the Special Warrants, express or implied, shall give or be construed to give to any person other than the parties hereto, the Underwriter (in the case of Sections 2.11 and 6.9) and the holders from time to time of the Special Warrants any legal or equitable right, remedy or claim under this Indenture, or under any covenant or provision herein contained, all such covenants and provisions being for the sole benefit of the parties hereto and the Special Warrantholders. 50 IN WITNESS WHEREOF the parties hereto have executed this Indenture under the hands of their proper officers duly authorized in that behalf. BID.COM INTERNATIONAL INC. By: CIBC MELLON TRUST COMPANY By: By: 1184041 ONTARIO INC. By: SMYTHE GROUP COMPANY By: EX-3.20 12 SHARE PURCHASE WARRANT INDENTURE DATED NOVEMBER 30, 1998 EXHIBIT 3.20 BID.COM INTERNATIONAL INC. - and - 1184041 ONTARIO INC. - and - SMYTHE GROUP COMPANY - and - CIBC MELLON TRUST COMPANY Warrant Indenture Providing for the Issue of Common Share Purchase Warrants dated as of November 30, 1998 - 2 - THIS Warrant Indenture dated as of the 30th day of November, 1998, is made B E T W E E N: BID.COM INTERNATIONAL INC., a company incorporated under the laws of the Province of Ontario (hereinafter called the "Corporation") - and - 1184041 ONTARIO INC. (hereinafter referred to as "1184041") - and - SMYTHE GROUP COMPANY (hereinafter referred to as "Smythe") - and - CIBC MELLON TRUST COMPANY, a trust company incorporated under the laws of Canada (hereinafter called the "Agent") WHEREAS the Sellers propose to create and issue up to 1,653,050 Primary Warrants and 105,000 Secondary Warrants to be constituted, issued and sold in the manner herein set forth; and WHEREAS the Agent has agreed to act as warrant agent on behalf of the Warrantholders on the terms and conditions herein set forth; WHEREAS the foregoing statements of fact and recitals are made by the Sellers and not the Agent. NOW THEREFORE in consideration of the premises and in further consideration of the mutual covenants herein set forth, the parties hereto agree as follows: - 3 - ARTICLE 1 INTERPRETATION -------------- 1.1 Definitions : In this Indenture, unless there is something in the subject ----------- matter or context inconsistent therewith, the following words have the respective meanings indicated below: (a) "Agent" has the meaning specified above and includes a successor agent determined in accordance with Section 9.2; (b) "Business Day" means a day which is not a Saturday, Sunday or civic or statutory holiday in the Province of Ontario; (c) "Closing Date" means November 30, 1998, being the date of the closing of the completion of the issue and sale by the Sellers of the Special Warrants; (d) "Common Shares" means collectively the fully paid and non-assessable common shares in the capital of the Corporation as presently constituted and, except where the context hereof otherwise requires, includes common shares issued or to be issued in accordance with the due exercise of Warrants hereunder; (e) "counsel" means a barrister and solicitor or a firm of barristers and solicitors retained by the Agent or retained by the Corporation and acceptable to the Agent; (f) "director" means a director of the Corporation for the time being and reference without more to action by the directors means action by the directors of the Corporation as a board or, whenever duly empowered, action by a committee of the board; (g) "Dividends paid in the Ordinary Course" means such dividends payable in cash (or in securities, property or assets of equivalent value) declared payable on a Common Share in any fiscal year of the Corporation to the extent that the amount or value of such dividends in the aggregate do not exceed 5% of the Purchase Price and for such purposes the amount of any dividends paid in other than cash or shares shall be the fair market value of such dividends as determined by the directors acting reasonably; (h) "Exercise Date" has the meaning ascribed to it in section 5.2; (i) "Exercise Form" means the exercise form accompanying a Warrant Certificate; (j) "Exercise Number" means the number of Common Shares which may be received from time to time on exercise of a Warrant; (k) "Expiry Date" means the date which is the earlier of (i) ten (10) business days following the date upon which the Corporation delivers a notice to all holders - 4 - confirming that it has filed a preliminary prospectus or registration statement in connection with a public offering in the United States of America of at least $7,000,000 and (ii) December 31, 1999; (l) "Expiry Time" means 5:00 p.m., Toronto time, on the Expiry Date; (m) "Extraordinary Resolution" has the meaning ascribed to it in Section 7.10; (n) "person" means any entity whatsoever including without limitation an individual, a corporation, a partnership, a trustee, a trust, an unincorporated organization or a syndicate and words importing persons have a similar meaning; (o) "Primary Warrants" means Warrants to be created and issued by the Corporation entitling the holders thereof to acquire from the Corporation up to 1,653,050 Common Shares subject to the terms and conditions hereof; (p) "Prospectus" means a "final" prospectus qualifying for distribution the Common Shares and Warrants issuable upon exercise or deemed exercise of the exchange rights of the Special Warrants; (q) "Purchase Price" means $1.75 per Common Share; (r) "Qualifying Provinces" means the Province of Ontario and such other jurisdictions in Canada in which purchasers of Special Warrants are resident; (s) "Secondary Warrants " means Warrants to be created and issued by 1184041 (as to a maximum of 52,500 Warrants) and Smythe (as to a maximum of 52,500 Warrants) entitling the holders to acquire up to 105,000 Common Shares from 1184041 (as to 52,500 shares), and Smythe (as to 52,500 shares) subject to the terms and conditions hereof; (t) "Sellers" means the Corporation and 1184041 and Smythe collectively or severally depending upon the context; (u) "Special Warrants" means collectively the special warrants of the Corporation issued pursuant to a Special Warrant Indenture dated as of November 30, 1998 (the "Special Warrant Indenture") entitling registered holders thereof to receive upon the exercise of the exchange rights thereof, one unit (herein a "Unit") consisting of one Common Share and one-quarter a Warrant or alternatively, if a receipt by the last of the securities regulatory authorities in the Qualifying Provinces for a Prospectus is not obtained on or prior to February 28, 1999, each Unit shall consist of 1.05 Common Shares and 0.2625 Warrants (in lieu of one Common Share and one-quarter a Warrant); - 5 - (v) "subsidiary of the Corporation" means a corporation of which voting securities carrying a majority of the votes attached to all outstanding voting securities are owned, directly or indirectly, by the Corporation or by one or more subsidiaries of the Corporation, or by the Corporation and one or more subsidiaries of the Corporation and, as used in this definition, voting securities means securities, other than debt securities, carrying a voting right to elect directors either under all circumstances or under some circumstances that may have occurred and are continuing; (w) "TSE " means The Toronto Stock Exchange; (x) "Underwriter" means Yorkton Securities Inc.; (y) "Warrant Certificate" means a warrant certificate in the form of warrant certificate attached hereto as Schedule "A"; (z) "Warrantholder" or "holder" means the registered holder of a Warrant hereunder; (aa) "Warrants" means collectively, the Primary and Secondary Warrants of the Corporation entitling registered holders thereof to receive one Common Share (or such kind and amount of shares or other securities or property calculated pursuant to Article 4 hereof, as the case may be) on the exercise of one such warrant at or before the Expiry Time upon payment of the Purchase Price by way of certified cheque or bank draft payable to the Corporation, in the case of Primary Warrants, and the 1184041 or Smythe in the case of the Secondary Warrants; and (bb) "Weighted Average Price" in respect of a Common Share at any date means the weighted average trading price of the Common Shares on The TSE or on any other stock exchange upon which the Common Shares are then listed. The Weighted Average Price will be calculated over the thirty (30) consecutive trading days before the date on which the Weighted Average Price is to be determined. The Weighted Average Price shall be determined by dividing the aggregate of the sale prices of all the Common Shares sold on the said exchange or market, as the case may be, during the said thirty (30) consecutive trading days by the total number of Common Shares so sold. If there is no market for the Common Shares during the period in which the Weighted Average Price thereof would otherwise be determined, the Weighted Average Price shall be determined by the directors of the Corporation acting reasonably and in good faith. (x) "written order of the Corporation", "written request of the Corporation", "written consent of the Corporation", "certificate of the Corporation" and any other document required to be signed by the Corporation, means, respectively, a written order, request, consent, certificate or other document signed in the name of the Corporation - 6 - by any one of the president, any vice-president, or the secretary of the Corporation, and may consist of one or more instruments so executed. 1.2 Entire Indenture: This Indenture constitutes the entire agreement ---------------- between the parties hereto relating to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties and there are no general or specific warranties, representations or other agreements by or among the parties in connection with the entering into of this Indenture or the subject matter hereof except as specifically set forth herein. 1.3 Headings: The division of this Indenture into Articles, Sections, -------- Subsections, paragraphs and other subdivisions, the provision of a Table of Contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Indenture or the Warrants. 1.4 Extending Meanings: In this Indenture, whenever the context permits or ------------------ requires, words importing number shall include the singular and the plural and words importing gender shall include all genders. 1.5 References: References to an Article, Section, Subsection, paragraph or ---------- other subdivision or schedule shall be construed as references to an Article, Section, Subsection, paragraph or other subdivision of or schedule to this Indenture unless the context otherwise requires. 1.6 Business Day: In the event that any day on or before which any action ------------ is required to be taken hereunder is not a Business Day, then such action shall be required to be taken on or before the requisite time on the next succeeding day that is a Business Day. 1.7 Meaning of "Outstanding": Every Warrant represented by a Warrant ------------------------ Certificate countersigned and delivered by the Agent hereunder shall be deemed to be outstanding until it shall be cancelled or delivered to the Agent for cancellation or until the Expiry Time; provided that where a new Warrant Certificate has been issued pursuant to Section 2.6 to replace one which has been mutilated, lost, stolen or destroyed, the Warrants represented by only such new Warrant Certificate shall be counted for the purpose of determining the aggregate number of Warrants outstanding. 1.8 Time: Time shall be of the essence hereof and of the Warrants issued ---- hereunder. 1.9 Choice of Language: The parties hereby acknowledge that they have ------------------ expressly requested that this Indenture and all notices, statements of account and other documents required or permitted to be given or entered into pursuant hereto be drawn up in the English language only. Les parties reconnaissent avoir expressment demandees que la presente Convention ainsi que tout avis, tout etat de compte et tout autre document a etre ou pouvant etre donne ou conclu en vertu des dispositions des presentes, soient rediges en langue anglaise seulement. - 7 - 1.10 Applicable Law: This Indenture and the Warrants shall be governed by -------------- and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein. The parties hereto submit to the exclusive jurisdiction of the courts in the Province of Ontario. The parties agree that any litigation between the parties which arises pursuant to or in connection with this Indenture, or any of its provisions, shall be referred to the courts in the Province of Ontario and shall not be referred to the courts in any other jurisdiction. ARTICLE 2 ISSUE AND PURCHASE OF WARRANTS ------------------------------ 2.1 Form and Terms of Warrants: (1) Subject to the provisions hereof, up -------------------------- to an aggregate of 1,758,058 Warrants are hereby authorized to be created by the Sellers and each whole Warrant, together with payment of the Purchase Price prior to the Expiry Time, shall entitle a holder thereof to acquire one Common Share (or other kind and amount of shares and securities or property calculated pursuant to the provisions of Article 4, as the case may be) at any time after their issue and on or prior to the Expiry Time. (2) The Warrants shall be executed by the Corporation, in the case of the Primary Warrants, or 1184041 or Smythe in the case of the Secondary Warrants, and certified by the Agent and shall be in registered form and the Warrant Certificates shall be substantially in the form set out in Schedule "A" hereto with, subject to the provisions of this Indenture, such additions, variations and/or omissions as may from time to time be agreed upon between the Sellers and the Agent and as otherwise provided by this Indenture, and shall be numbered in such manner as the Sellers, with the approval of the Agent, may prescribe. All Warrants shall, save as to denominations, be of like tenor and effect. The Warrant Certificates may be reproduced or printed in such form (except as to content) as the Corporation may determine. No change in the form of the Warrant Certificates shall be required (except as to content) by reason of any adjustment made pursuant to Article 4. 2.2 Transfer and Ownership of Warrants: (1) The Agent shall maintain a ---------------------------------- register of the holders at its principal office in the City of Toronto which shall be open for inspection by any agent or representative of the Sellers, the Underwriter or a Warrantholder, in which shall be entered the name and addresses of the holders of the Warrants, the number of Warrants held by them and all other information required by law. The Agent shall, from time to time when requested to do so in writing by the Sellers or the Underwriter furnish the Sellers with a list of the names and addresses of holders of Warrants entered in the registers kept by the Agent and showing the number of Common Shares which might then be acquired upon the exercise of the Warrants held by each such holder. (2) Except as otherwise set forth in this Section 2.2, the Warrants are not transferable. (3) A person who furnishes evidence to the reasonable satisfaction of the Agent that he is: - 8 - (a) a Warrantholder; (b) an executor, administrator, heir or legal representative of the heirs of the estate of a deceased Warrantholder; (c) a guardian, committee, trustee, curator or tutor representing a Warrantholder who is an infant, an incompetent person or a missing person; (d) a liquidator of, or a trustee in bankruptcy for, a Warrantholder; or (e) a transferee of a Warrantholder, may as hereinafter stated, by surrendering such evidence together with the Warrant Certificate in question to the Agent (by delivery or mail as set forth in Section 10.3) and subject to such reasonable requirements with respect to the payment by the holder of the costs associated with the transfer as the Agent may prescribe and all applicable securities legislation and requirements of regulatory authorities, become noted upon the register of Warrantholders. After receiving the surrendered Warrant Certificates and upon the person surrendering the same meeting the requirements as hereinbefore set forth, the Agent shall forthwith give written notice thereof together with confirmation as to the identity of the person entitled to become the holder to the Sellers. Forthwith after receiving written notice from the Agent as aforesaid, the Sellers shall, in accordance with the provisions of Section 2.7, cause a new Warrant Certificate to be issued and sent to the new holder and the Agent shall alter its register of holders accordingly. (4) Subject to the provisions of this Indenture and applicable law, the Warrantholder shall be entitled to the rights and privileges attaching to the Warrants free from all equities and rights of set-off or counterclaim between any of the Sellers and such Warrantholder's transferor or previous holder of Warrants and the issue of Common Shares by the Corporation upon the exercise of Warrants by any Warrantholder in accordance with the terms and conditions herein contained shall discharge all responsibilities of any the Sellers and the Agent with respect to such Warrants. 2.3 Warrantholders not Shareholders: A Warrantholder shall not, as such, be ------------------------------- deemed to be or regarded as a shareholder of the Corporation nor shall such Warrantholder be entitled to any right or interest except as is expressly provided in this Indenture and in the Warrant Certificate. 2.4 Signing of Warrants: The Warrant Certificates shall be signed either ------------------- manually or by facsimile signature by any one director or officer of the Corporation in the case of the Primary Warrants or 1184041 or Smythe in the case of the Secondary Warrants and may, but need not be, under their respective corporate seals. A facsimile signature upon any Warrant Certificate shall for all purposes hereof be deemed to be the signature of the person whose signature it purports to be and to have been signed at the time such facsimile signature is reproduced. If a person whose signature, either manually or in facsimile, appears on a Warrant Certificate is not a director or officer of the Corporation or 1184041 or Smythe, as the case may be, at the date of this Indenture or at the date - 9 - of the countersigning and delivery of such Warrant Certificate, such fact shall not affect in any way the validity of the Warrants or the entitlement of the holder thereof to the benefits of this Indenture. 2.5 Countersigning: No Warrant Certificate shall be issued, or if issued, -------------- shall be valid or exercisable or entitle the holder thereof to the benefits of this Indenture until the Warrant Certificate has been manually countersigned by or on behalf of the Agent. The countersignature by or on behalf of the Agent on any Warrant Certificate shall not be construed as a representation or warranty by the Agent as to the validity of this Indenture or of the Warrants or as to the performance by the Corporation of its obligations under this Indenture and the Agent shall in no way be liable or answerable for the use made of the Warrants. The countersignature of the Agent shall, however, be a representation and warranty of the Agent that the Warrant Certificate has been duly countersigned by or on behalf of the Agent pursuant to the provisions of this Indenture and shall be conclusive evidence as against the Sellers that the Warrant Certificate so countersigned has been duly issued hereunder and the holder is entitled to the benefits hereof and thereof. 2.6 Loss, Mutilation, Destruction or Theft of Warrants: (1) In case any of -------------------------------------------------- the Warrant Certificates issued and countersigned hereunder shall become mutilated or be lost, destroyed or stolen, the Sellers shall, upon the holder complying with this Section 2.6, issue and thereupon the Agent shall countersign and deliver a new Warrant Certificate of like date and tenor in exchange for and in place of the one mutilated, lost, destroyed or stolen and upon surrender and cancellation of such mutilated Warrant Certificate or in lieu of and in substitution for such lost, destroyed or stolen Warrant Certificate and the substituted Warrant Certificate shall be in a form approved by the Agent and shall entitle the holder thereof to the benefits hereof and rank equally in accordance with its terms with all other Warrants issued hereunder. (2) The applicant for the issue of a new Warrant Certificate pursuant to this Section 2.6 shall bear the reasonable costs of the issue thereof, which costs will include all applicable taxes, and in case of loss, destruction or theft shall, as a condition precedent to the issue thereof, furnish to the Sellers and to the Agent such evidence of ownership and of the loss, destruction or theft of the Warrant Certificate so lost, destroyed or stolen as shall be satisfactory to the Sellers and to the Agent, in their discretion and such applicant may also be required to furnish an indemnity bond in amount and form satisfactory to the Sellers and the Agent in their discretion, and shall pay the reasonable charges of the Sellers and the Agent in connection therewith. 2.7 Issue of Warrants: Warrant Certificates shall be signed by the Sellers ----------------- as aforesaid and delivered to the Agent from time to time. The Agent shall countersign any Warrant Certificate delivered by the Sellers to the Agent as aforesaid and shall forthwith deliver to the person or persons in whose name or names the Warrant Certificate is to be issued (as specified in any written order from time to time given by the Sellers to the Agent and signed by the President, Secretary or Assistant Secretary of the Sellers) or mail to such person or persons at their respective addresses specified in the written order from the Sellers the Warrant Certificate for the appropriate number of Warrants. - 10 - 2.8 Warrants to Rank Pari Passu: All Warrants shall rank pari passu, --------------------------- whatever may be the actual date of same. 2.9 Exchange of Warrants: -------------------- (a) Warrant Certificates may, upon compliance with the reasonable requirements of the Agent, be exchanged for Warrant Certificates in any other authorized denomination representing in the aggregate the same number of Warrants. The Corporation or 1184041 or Smythe as the case may be shall sign and the Agent shall countersign, in accordance with Sections 2.4 and 2.5, all Warrant Certificates necessary to carry out the exchanges contemplated herein. (b) Warrant Certificates may be exchanged only at the principal office of the Agent in the City of Toronto. Any Warrant Certificates tendered for exchange shall be surrendered to the Agent and cancelled. (c) Except as otherwise herein provided, the Agent may charge registered holders requesting an exchange a reasonable sum for each Warrant Certificate exchanged; and payment of such charges and reimbursement of the Agent or the Sellers for any and all taxes or governmental or other charges required to be paid shall be made by the party requesting such exchange as a condition precedent to such exchange. 2.10 Recognition of Registered Holder: The Sellers and the Agent may deem -------------------------------- and treat the registered holder of any Warrant Certificate as the absolute beneficial owner of the Warrants represented thereby for all purposes under this Indenture and the Sellers and the Agent shall not be affected by any notice or knowledge to the contrary except where the Sellers or the Agent is required to take notice by statute or by order of a court of competent jurisdiction. A Warrantholder shall be entitled to the rights evidenced by the Warrants registered in his name free from all equities or rights of set-off or counterclaim between any of the Sellers and the original or any intermediate holder thereof and all persons may act accordingly and the receipt by any such Warrantholder of Common Shares upon the exercise thereof shall be a good discharge to the Sellers and the Agent for the same and neither the Sellers nor the Agent shall be bound to inquire into the title of any such holder except where the Sellers or the Agent is required to take notice by statute or by order of a court of competent jurisdiction. ARTICLE 3 COVENANTS OF THE SELLERS ------------------------ 3.1 Covenants of the Sellers: The Sellers represent, warrant, covenant and ------------------------ agree with the Agent for the benefit of the Agent and the Warrantholders as follows: (a) To Issue Warrants and Reserve Common Shares: That they are duly ------------------------------------------- authorized to create and issue the Warrants and that the Warrant Certificates, when issued and - 11 - countersigned as herein provided, will be valid and enforceable against the Sellers and that, subject to the provisions of this Indenture, the Sellers will cause the Common Shares from time to time acquired pursuant to the Warrants under this Indenture and the certificates representing such Common Shares to be duly issued and delivered (in the case of the Corporation) and duly transferred and delivered (in the case of 1184041 and Smythe) in accordance with the terms hereof and of the Warrant Certificates. At all times prior to and including the Expiry Time, while any of the Primary Warrants are outstanding, the Corporation shall ensure that its authorized capital shall be sufficient, and shall reserve and allot and conditionally issue out of its authorized capital a number of Common Shares as is sufficient, to enable the Corporation to meet its obligation to issue Common Shares in respect of the exercise of all the Primary Warrants outstanding hereunder from time to time. At all times prior to and including the Expiry Time, while any of the Secondary Warrants are outstanding, 1184041 and Smythe shall ensure that the Agent shall be in possession of certificates representing a sufficient number of Common Shares as presently constituted together with all such additional documentation as provided in paragraph 3.3 as is sufficient to enable 1184041 and Smythe to meet their respective obligations to issue Common Shares in respect of the exercise of all the Secondary Warrants outstanding hereunder from time to time. All Common Shares acquired pursuant to exercise of the Warrants shall be fully paid and non-assessable. (b) To Pay Agent's Remuneration: That they will pay the Agent on a joint ---------------------------- and several basis from time to time reasonable remuneration for its services hereunder and will, upon the Agent's request, pay to or reimburse the Agent for all reasonable expenses, disbursements and advances made or incurred by the Agent in the administration or execution of its obligations hereunder (including the compensation and disbursements of its counsel and other advisors and assistants not regularly in its employ), both before any default hereunder and thereafter until all duties of the Agent hereunder have been finally and fully performed, except any such expense, disbursement or advance that arises out of or results from negligence, willful misconduct or bad faith of the Agent. (c) To Execute Further Assurances: That they will do, execute, ----------------------------- acknowledge and deliver or cause to be done, executed, acknowledged and delivered all other acts, deeds and assurances in law as the Agent may reasonably require for the better accomplishing and effecting the intentions and provisions of this Indenture. (d) Delivery of Financial Statements to Warrantholders: The Corporation -------------------------------------------------- will send to the Warrantholders copies of all financial statements and other material furnished to the holders of its Common Shares during the term of this Indenture. (e) Performance of Covenants by Agent: If the Sellers shall fail to --------------------------------- perform any of their covenants contained in this Indenture, the Agent may notify the Warrantholders of such failure on the part of the Sellers or may itself perform any of the said covenants - 12 - capable of being performed by it, but, subject to Section 9.2, the Agent shall be under no obligation to do so or to notify the Warrantholders. All sums reasonably expended or advanced by the Agent in performance of its rights provided for in this Subsection 3.1(e) shall be repayable as provided in this Section 3.1. No such performance, expenditure or advance by the Agent shall be deemed to relieve the Sellers of any default hereunder or their continuing obligations hereunder. (f) Performance of Indenture: They will well and truly perform and carry ------------------------- out all of the acts or things to be done by them as provided in this Indenture. (g) Corporate Existence: They will maintain their corporate existences -------------------- and will carry on and conduct its business in accordance with good business practice. (h) Listing: The Corporation will use its reasonable best efforts to -------- maintain the listing of the Common Shares on The TSE and to become or maintain its status as (as the case may be) a "reporting issuer" not in default of the requirements of the securities legislation and policies of each of the Qualifying Provinces. (i) Action During Period of Notice: They will not take any other action ------------------------------- which might deprive the Warrantholders of the opportunity of exercising their rights pursuant to the Warrants held by such persons during the period of notice required by section 4.6. 3.2 Securities Qualification Requirements: ------------------------------------- (a) If, in the opinion of counsel, any instrument (not including a prospectus, except as required by Section 3.1) is required to be filed with or any permission, order or ruling is required to be obtained from any securities regulatory authority or any other action is required under any Canadian federal or any provincial laws of the Qualifying Provinces before any securities or property which a Warrantholder is entitled to receive pursuant to the exercise of a Warrant may properly and legally be delivered upon the due exercise of a Warrant, the Corporation covenants that it will use its best efforts to file such instrument, obtain such permission, order or ruling or take all such other actions, at its expense, as is required or appropriate in the circumstances. (b) The Corporation, or if required by the Corporation, the Agent, will give written notice of the issue of Common Shares pursuant to the exercise of Warrants, in such detail as may be required, to the securities regulatory authorities in the Qualifying Provinces if there is therein any legislation, ruling or order requiring the giving of any such notice in order that the subsequent disposition of the Common Shares so issued will not be subject to the prospectus requirements of such legislation, ruling or order (subject to any applicable hold periods). 3.3 Deposit of Common Shares Underlying Secondary Warrants: 1184041 and ------------------------------------------------------ Smythe shall deliver to the Warrant Agent contemporaneously with the execution of this Indenture, certificates - 13 - representing a sufficient number of Common Shares to satisfy their respective obligations under the Secondary Warrants, namely 52,500 Common Shares in the case of 1184041 and 52,500 Common Shares in the case of Smythe, together with all such transfer instruments, powers of attorney, corporate resolutions and other writings as may be necessary or advisable, in the opinion of the Agent to properly transfer such shares into the name of the Agent for the purpose of and subject to the terms and conditions of this Indenture. Any such Common Shares remaining registered in the name of the Agent after the Expiry Date shall be transferred back to the Sellers pro rata. The delivery of such Common Share certificates and other documentation shall constitute the Sellers irrevocable direction and authority to the Special Warrant Agent to deal with such Common Shares in accordance with this Indenture and to deliver such shares to the holders of the Secondary Warrants upon the due exercise thereof. ARTICLE 4 ADJUSTMENT TO SUBSCRIPTION RIGHTS --------------------------------- 4.1 Adjustment to Subscription Rights: The Exercise Number shall be subject --------------------------------- to adjustment from time to time in accordance with the following provisions: (a) Stock Dividends, Subdivisions and Consolidations: If the Corporation ------------------------------------------------- shall: (i) issue Common Shares or securities exchangeable for or convertible into Common Shares without further payment pursuant to a stock dividend to all or substantially all of the holders of the Common Shares (other than as Dividends paid in the Ordinary Course); (ii) make a distribution on its issued and outstanding Common Shares payable in Common Shares or securities exchangeable for or convertible into Common Shares without further payment (other than as Dividends paid in the Ordinary Course); (iii) subdivide its issued and outstanding Common Shares into a greater number of Common Shares; or (iv) consolidate its issued and outstanding Common Shares into a smaller number of Common Shares; (any such event being called a "Share Reorganization"), the Exercise Number then in effect shall be adjusted effective immediately after the record date on which the holders of Common Shares are determined for the purposes of the Share Reorganization to the Exercise Number determined by multiplying the Exercise - 14 - Number then in effect by the fraction, the numerator of which shall be the number of Common Shares issued and outstanding after the completion of such 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 issued and outstanding had such securities been exchanged for or converted into Common Shares on such record date) and the denominator of which shall be the number of Common Shares issued and outstanding on such record date. (b) Rights Offering: If the Corporation shall distribute to all or ---------------- substantially all of its shareholders resident in Canada rights, options or warrants exercisable within a period of forty-five (45) days after the record date for such distribution to subscribe for or purchase Common Shares or securities exchangeable for or convertible into Common Shares at a price per share or at an exchange or conversion value per share in the case of securities exchangeable or convertible into Common Shares equal to or less than ninety-five percent (95%) of the Weighted Average Price for Common Shares determined as of the record date for such distribution, to all or substantially all of the holders of the Common Shares (any such event being called a "Rights Offering"), the Exercise Number shall be adjusted effective immediately after the record date on which holders of Common Shares are determined for the purposes of the Rights Offering to the Exercise number determined by multiplying: (i) the Exercise Number in effect on such record date; by (ii) the fraction (1) the numerator of which shall be the aggregate of (a) the number of Common Shares issued and outstanding on such record date, and (b) the number of Common Shares offered pursuant to the Rights Offering or the maximum number of Common Shares for or into which the securities so offered pursuant to the Rights Offering may be exchanged or converted, as the case may be, and (2) the denominator of which shall be the aggregate of (a) the number of Common Shares issued and outstanding on such record date, and (b) the number determined by dividing either: (1) the product of - 15 - a) the number of Common Shares so offered; and b) the price at which each of such Common Shares is offered, or (2) the product of a) the maximum number of Common Shares for or into which the securities so offered pursuant to the Rights Offering may be exchanged or converted; and b) the exchange or conversion value of each one of such securities so offered, as the case may be, by the Weighted Average Price of Common Shares determined as of such record date. To the extent that such options, rights or warrants are not exercised prior to the expiry date thereof, the Exercise Number shall be readjusted effective immediately after such expiry date to the Exercise Number which would then have been in effect based upon the number of Common Shares or securities exchangeable for or convertible into Common Shares actually delivered on the exercise of such options, rights or warrants. (c) Special Distributions: If the Corporation shall distribute to all or ---------------------- substantially all of the holders of the Common Shares: (i) shares of any class other than Common Shares; (ii) rights, options or warrants, other than rights, options or warrants referred to in Subsection 4.1(b) and other than rights, options or warrants exercisable within a period of forty-five (45) days after the record date for such distribution to subscribe for or purchase Common Shares or securities exchangeable for or convertible into Common Shares at a price per share or at an exchange or conversion value per share greater than ninety-five percent (95%) of the Weighted Average Price of the Common Shares determined as of the record date for such distribution; (iii) evidences of indebtedness; or - 16 - (iv) any other assets, excluding Common Shares issued by way of stock dividends and cash dividends paid out of earnings including the value of any shares or other property distributed in lieu of such cash dividends at the option of shareholders; and such issuance or distribution does not constitute a Dividend paid in the Ordinary Course, a Share Reorganization or a Rights Offering (any such event being called a "Special Distribution"), the Exercise Number then in effect shall be adjusted effective immediately after the record date at which the holders of Common Shares are determined for the purpose of the Special Distribution to the Exercise Number determined by multiplying the Exercise Number in effect on the record date of the Special Distribution by: (v) the fraction (1) the numerator of which shall be the number of Common Shares issued and outstanding on such record date multiplied by the Weighted Average Price of the Common Shares determined as of such record date; and (2) the denominator of which shall be the difference between (a) the product of (1) the number of Common Shares issued and outstanding on such record date, and (2) the Weighted Average Price of the Common Shares determined as of such record date, and (b) the fair value, as reasonably determined by the directors of the Corporation, whose determination shall be conclusive, to the holders of the Common Shares of the shares, rights, options, warrants, evidences of indebtedness or other assets issued or distributed in the Special Distribution. (d) Other Reorganization: If and whenever there is a capital --------------------- reorganization of the Corporation not otherwise provided for in this Section 4.1 or a consolidation, merger or amalgamation of the Corporation with or into another body corporate or a sale of all or substantially all of the assets of the Corporation, (any such event being called a "Capital Reorganization"), any Warrantholder who exercises its right to subscribe for Common Shares pursuant to the exercise of a Warrant after the effective date of such Capital Reorganization shall be entitled to receive and shall accept, upon the - 17 - exercise of such Warrant, in lieu of or in addition to the number of Common Shares to which the Warrantholder was theretofore entitled on conversion, the aggregate number of Common Shares or other securities of the Corporation or of the body corporate resulting from the Capital Reorganization that the Warrantholder would have been entitled to receive as a result of such Capital Reorganization if, on the effective date thereof, the Warrantholder had been the registered holder of the number of Common Shares to which the Warrantholder was theretofore entitled upon exercise of such Warrant subject to adjustment thereafter in accordance with provisions the same, as nearly as may be possible, as those contained in Subsections 4.1(a),(b) and (c), provided that it shall be a condition precedent to such Capital Reorganization that all necessary steps shall have been taken so that the Warrantholder shall thereafter be entitled to receive such number of such Common Shares or other securities of the Corporation or of the body corporate resulting from the Capital Reorganization. (e) Reclassification: If the Corporation shall reclassify the issued and ----------------- outstanding Common Shares (such event being called a "Reclassification"), the Exercise Number shall be adjusted effective immediately after the record date of such Reclassification so that Warrantholders who exercise Warrants shall be entitled to receive the securities that they would have received had such Warrants been exercised immediately prior to such record date, subject to adjustment thereafter in accordance with provisions the same, as nearly as may be possible, as those contained in Subsections 4.1(a),(b) and (c). 4.2 Adjustment of Purchase Price: The Purchase Price in effect at any date ---------------------------- shall be subject to adjustment from time to time as follows: (a) If and whenever at any time during the term hereof, the Corporation shall complete a Share Reorganization, the Purchase Price shall be adjusted effective immediately after the effective date or record date, as the case may be, on which the holders of Common Shares are determined for the purpose of the Share Reorganization by multiplying the Purchase Price in effect immediately prior to such effective date or record date by a fraction, the numerator of which shall be the number of Common Shares outstanding on such effective date or record date before giving effect to such Share Reorganization and the denominator of which shall be the number of Common Shares outstanding immediately after giving effect to such Share Reorganization. (b) If and whenever at any time during the term hereof, the Corporation shall fix a record date for a Rights Offering, the Purchase Price shall be adjusted immediately after such record date so that it shall equal the price determined by multiplying the Purchase Price in effect on such record date by a fraction of which the numerator shall be the total number of Common Shares outstanding on such record date plus a number equal to the number determined by dividing the aggregate price of the total number of additional Common Shares offered for subscription or purchase, or the - 18 - aggregate conversion or exchange price of the convertible securities so offered, by such Weighted Average Price per Common Share, and of which the denominator shall be the total number of Common Shares outstanding on such record date plus the total number of additional Common Shares offered for subscription or purchase (or into which the convertible securities so offered are convertible or exchangeable). If by the terms of the rights, options or warrants referred to in this Section 4.2(b), there is more than one purchase, conversion or exchange price per Common Share, the aggregate price of the total number of additional Common Shares offered for subscription or purchase, or the aggregate conversion or exchange price of the convertible securities so offered, shall be calculated for purposes of the exchange price per Common Share, as the case may be. To the extent that any adjustment in Purchase Price occurs pursuant to this Section 4.2(b) as a result of the fixing by the Corporation of a record date for the distribution of rights, options or warrants referred to in this Section 4.2(b), the Purchase Price shall be readjusted immediately after the expiration of any relevant exchange, conversion or exercise right to the Purchase Price which would then be in effect based upon the number of Common Shares actually issued and remaining issuable after such expiration, and shall be further readjusted in such manner upon expiration of any further such right. (c) If and whenever at any time during the term hereof the Corporation shall fix a record date for the issue or distribution to the holders of all or substantially all the outstanding Common Shares of: (i) securities of the Corporation including rights, options or warrants to acquire shares or securities convertible into or exchangeable for shares or property or assets and including evidences of its indebtedness; or (ii) any property or other assets; and if such issuance or distribution is not by way of a Share Reorganization or an issuance of rights, options or warrants referred to in Section 4.2(b) then, in each such case, the Purchase Price shall be adjusted immediately after such record date so that it shall equal the price determined by multiplying the Purchase Price in effect on such date by a fraction, of which the numerator shall be the product of the number of Common Shares outstanding on such record date and the Weighted Average Price on such record date, less the aggregate fair market value (as determined by the directors which determination shall be conclusive) of such securities, property or other assets so issued or distributed, and of which the denominator shall be the product of the number of Common Shares outstanding on such record date and such Weighted Average Price. 4.3 Adjustment Rules: The following rules and procedures shall be ---------------- applicable to adjustments of the Exercise Number made pursuant to Section 4.1: - 19 - (a) Subject to the following subsections of this Section 4.3, any adjustment pursuant to Section 4.1 or Section 4.2 shall be made successively whenever an event referred to therein shall occur. All adjustments within this Article 4 are cumulative. (b) No adjustment in the Exercise Number shall be required unless such adjustment would result in a change of at least one one-hundredth of a Common Share; provided, however, that any adjustments which, except for the provisions of this Subsection 4.3(b), would otherwise have been required to be made shall be carried forward and taken into account in any subsequent adjustment with respect to the Exercise Number. (c) No adjustment in the Exercise Number shall be made in respect of any event described in Section 4.1 or to the Purchase Price in respect of any event described in Section 4.2 if the Warrantholders are entitled to participate in such event on the same terms mutatis mutandis as if they had exercised their Warrants prior to or on the effective date or record date of such event, subject to the prior written consent of the Canadian Dealing Network, or such stock exchange upon which the Common Shares of the Corporation are then listed. (d) No adjustment in the Exercise Number shall be made pursuant to Section 4.1 or to the Purchase Price in respect of any event described in Section 4.2 in respect of the issue from time to time of Common Shares to holders of Common Shares who exercise an option to receive substantially equivalent dividends in Common Shares or securities exchangeable for and convertible into Common Shares in lieu of receiving cash dividends, and any such issue shall be deemed not to be a Share Reorganization. (e) If a dispute shall at any time arise with respect to adjustments of the Exercise Number, such dispute shall be conclusively determined by the Corporation's auditors or if they are unable or unwilling to act, by such other firm of independent chartered accountants as may be selected by the directors of the Corporation. In the event any such determination is made, the Corporation shall deliver a certificate to the Agent describing such determination. (f) In the absence of a resolution of the directors of the Corporation fixing a record date at which the holders of Common Shares are determined for a Share Reorganization, Rights Offering, Special Distribution or Reclassification requiring such a record date to be so fixed, the directors of the Corporation shall be deemed to have fixed as the record date therefor the date on which such Share Reorganization, Rights Offering, Special Distribution or Reclassification is effected. (g) In the event that the Corporation after the date of this Indenture shall take any action affecting the Common Shares other than action described in this Article 4, the directors of the Corporation may, but shall not be required to, make any other - 20 - adjustments to the number of Common Shares which may be acquired upon exercise of the Warrants, to the extent, if any, such directors deem appropriate, provided that no such adjustment shall be made unless prior approval of any stock exchange or quotation system on which the Common Shares are listed or quoted for trading, or have been listed or quoted for trading within the past six months, for trading, if required, has been obtained. (h) In case the Corporation after the date of this Indenture shall take any action affecting the Common Shares, other than an action described in Section 4.1, which would have an adverse effect upon the rights of the Warrantholders, the Exercise Number, subject to the prior approval of any stock exchange or quotation system on which the Common Shares are listed or quoted for trading shall be adjusted in such manner and at such time as the directors of the Corporation may, acting reasonably, determine to be equitable in the circumstances. (i) Subject to Section 4.3 hereof, no adjustment shall be made in the subscription rights attached to the Warrants if the issue of Common Shares is being made pursuant to any stock option or stock purchase plan in force from time to time for directors, officers or employees of the Corporation or any other currently existing obligation of the Corporation. 4.4 Proceedings Prior to any Action Requiring Adjustment: As a condition ---------------------------------------------------- precedent to the taking of any action which would require an adjustment in any of the subscription rights arising pursuant to the exercise of any of the Warrants, including the number of Common Shares which are to be issued upon the exercise thereof, the Sellers shall take any corporate action which may, in the opinion of counsel, be necessary in order that the Sellers shall have allotted and reserved for issue in the authorized capital of the Corporation and in the reserves of the other Sellers to enable the Sellers to validly and legally issue as fully paid and non-assessable all the Common Shares and may validly and legally deliver all other securities or property which the holders of such Warrants are entitled to receive on the full exercise thereof in accordance with the provisions hereof. 4.5 Certificate of Adjustment: The Corporation shall from time to time ------------------------- immediately after the occurrence of any event which requires an adjustment or readjustment as provided in Section 4.1 hereof, or which may require an adjustment or readjustment as provided in Subsections 4.3(g) and (h), deliver a certificate of the Corporation to the Agent specifying the nature of the event requiring the same and the amount of the adjustment necessitated thereby and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based, which certificate and the amount of the adjustment specified therein shall be verified by the auditors of the Corporation upon whose verification the Agent shall be entitled to act and rely. When so verified, the Corporation shall forthwith give written notice to the Warrantholders specifying the event requiring such adjustment or readjustment and the results thereof; provided that if the Corporation has given prior notice under Section 4.6 hereof covering all the relevant facts in respect of such event and if the Agent consents in writing, no such notice need be given under this Section 4.5. - 21 - 4.6 Notice of Special Matters: The Corporation covenants with the Agent ------------------------- that so long as any Warrant remains outstanding it will give at least 14 days' prior written notice in the manner provided for in Article 10 to the Agent and to each Warrantholder of any event which requires an adjustment to the subscription rights attaching to any of the Warrants pursuant to this Article 4. The Corporation covenants and agrees that such notice shall contain the particulars of such event in reasonable detail and, if determinable, the required adjustment in the manner provided for in this Article 4. The Corporation further covenants and agrees that it shall promptly, as soon as the adjustment calculations are reasonably determinable, file a certificate of the Corporation with the Agent showing how such adjustment shall be computed. 4.7 No Action after Notice: The Corporation covenants with the Agent that ---------------------- it will not close its transfer books or take any other corporate action which might deprive a Warrantholder of the opportunity of exercising his right of subscription pursuant thereto during the period of thirty (30) days after the giving of the notices set forth in Sections 4.5 and 4.6 hereof. 4.8 Protection of Agent: The Agent: ------------------- (a) shall not at any time be under any duty or responsibility to any Warrantholder to determine whether any facts exist which may require any adjustment contemplated by Section 4.1 hereof, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed in making the same; (b) shall not be accountable with respect to the validity or value (or the kind or amount) of any Common Shares or of any shares or other securities or property which may at any time be issued or delivered upon the exercise of the subscription rights attaching to any Warrant; (c) shall not be responsible for any failure of the Sellers to make any cash payment or to issue, transfer or deliver Common Shares or certificates for the same upon the surrender of any Warrants for the purpose of the exercise of such rights or to comply with any of the covenants contained in this Article 4; and (d) shall not incur any liability or responsibility whatever or be in any way responsible for the consequence of any breach on the part of the Sellers of any of the representations, warranties or covenants herein contained or of any acts of the agents or servants of the Sellers. - 22 - ARTICLE 5 EXERCISE AND CANCELLATION OF WARRANTS ------------------------------------- 5.1 Exercise of Warrants: (1) Upon and subject to the provisions of this -------------------- Article 5, any holder of a Warrant may exercise from time to time the right thereby conferred on him to subscribe for Common Shares by surrendering to the Agent after the date upon which the Warrants are issued and until the Expiry Time at its principal office in the City of Toronto, the Warrant Certificate evidencing the Warrants, together with a certified cheque or bank draft in an amount equal to the applicable Purchase Price, multiplied by the number of Common Shares to be received payable to or to the order of the Sellers and the Exercise Form duly completed and executed by the holder or his executors or administrators or other legal representatives or his or their attorney duly appointed by an instrument in writing in form and manner satisfactory to the Agent. (2) The Exercise Form shall be signed as set out above and shall specify: (a) the number of Common Shares which the Warrantholder wishes to subscribe for upon the exercise of the Warrants (being not more than those which he is entitled to subscribe for pursuant to the aggregate number of the Warrants so surrendered); and (b) the person or persons in whose name or names the Common Shares are to be issued, his or their address or addresses and the number of Common Shares to be issued to each such person if more than one is so specified, provided that the Warrantholder shall only be entitled to direct his entitlement to the Common Shares in a manner permitted by applicable securities legislation. (3) Such Warrant Certificate shall be deemed to be so surrendered only upon delivery thereof to the Agent at the Agent's principal office in the City of Toronto (at the address specified in the attachment to the Exercise Form) or by mailing the same to the Agent at the Agent's principal office in the City of Toronto (at the address specified in the attachment to the Exercise Form). Subject as hereinafter in this Section 5.1 provided, but notwithstanding anything else herein contained, the Warrants shall be deemed to be validly exercised only upon actual receipt of the Warrant Certificate(s), together with a certified cheque or bank draft in an amount equal to the applicable Purchase Price, multiplied by the number of Common Shares to be received payable to or to the order of the Corporation and the duly completed Exercise Form attached to said Warrant Certificate(s) by the Agent at the office referred to above (by way of delivery or mail respectively) at or prior to the Expiry Time. (4) The Exercise Form shall not be deemed to be duly completed if the name and mailing address of the holder do not appear legibly on such Exercise Form or such Exercise Form is not signed by the holder, his executors, administrators, other legal representatives or such holder's attorney duly appointed. (5) If any of the Common Shares in respect of which the Warrants are exercised are to be issued to a person or persons other than the Warrantholder in accordance with the provisions of - 23 - Section 2.2, the Warrantholder shall pay to the Agent all requisite stamp or security transfer taxes or other government charges exigible in connection with the issue of such Common Shares to such other person or persons or shall establish to the satisfaction of the Agent that such taxes and charges have been paid. (6) If at the time of the exercise of the Warrants, there remain trading restrictions on the Common Shares acquired, due to applicable securities legislation, the Sellers may, on the advice of counsel, endorse the certificates evidencing such Common Shares accordingly. 5.2 Effect of Exercise of Warrants : (1) Upon valid exercise of the Warrants ------------------------------ as provided in Section 5.1, the Common Shares in respect of which the Warrants are validly exercised shall be deemed to have been issued (in the case of the Primary Warrants) or transferred (in the case of the Secondary Warrants), and such person or persons as are specified pursuant to Section 5.1 shall be deemed to have become the holder or holders of record of such securities on the date of such exercise (herein called the "Exercise Date") and shall be registered as such in the registers maintained for the Common Shares. The Common Shares issued upon the valid exercise of Warrants shall be entitled only to dividends declared in favour of shareholders of record on and after the Exercise Date from which date such shares will for all purposes be and be deemed to be issued and outstanding as fully paid and non-assessable Common Shares. (2) Upon valid exercise of the Warrants as aforesaid, the Agent shall forthwith give written notice thereof to the Sellers. (3) In the case of a Warrant which is exercised by a Warrantholder in accordance with the provisions of Section 5.1, within five (5) Business Days after the Exercise Date of such Warrant, the Corporation shall: (a) cause to be mailed to the person in whose name the Common Shares so subscribed for are to be issued, as specified in the subscription completed on the Warrant, at the address specified in such subscription; (b) if so specified in such subscription, cause to be delivered to such person at the office of the Agent where such Warrant was surrendered; or (c) if no specification as contemplated by paragraphs 5.2(3) (a) or (b) is provided, cause to be mailed to the person in whose name the Common Shares are to be issued at the address of such person last appearing on the register maintained by the Agent pursuant hereto or as such person may otherwise notify the Agent in writing on or prior to the Exercise Date, a certificate or certificates for the Common Shares to which the Warrantholder is entitled. 5.3 Postponement of Delivery of Certificates: The Sellers shall not be ---------------------------------------- required to deliver certificates in respect of Common Shares during the period when the stock transfer books of the - 24 - Corporation are closed by law and in the event of a surrender of a Warrant for the subscription for Common Shares during such period, the delivery of certificates may be postponed for a period not exceeding five (5) Business Days after the date of the re-opening of the stock transfer books. 5.4 Cancellation of Warrants: All Warrant Certificates evidencing Warrants ------------------------ exercised as provided in Section 5.1, shall be cancelled and destroyed by the Agent and, if required by the Sellers in writing, the Agent shall furnish the Sellers with a certificate as to the destruction. 5.5 Warrants Void after Expiry Time: After the Expiry Time no holder of a ------------------------------- Warrant Certificate representing a Warrant which has not been validly exercised as set forth herein has any rights either under this Indenture or the Warrant, and the Warrants are void and of no value or effect. All provisions of this Indenture are subject to this Section 5.5. 5.6 Fractions of Common Shares: (1) To the extent that the holder of a -------------------------- Warrant is entitled to receive on the exercise or partial exercise thereof a fraction of a Common Share, such right may only be exercised in respect of such fraction in combination with another Warrant or other Warrants which in the aggregate entitle the holder to receive a whole number of Common Shares. No fractional Common Shares will be issued. (2) If a holder is not able to, or elects not to, combine Warrants so as to be entitled to acquire a whole number of Common Shares, the Sellers shall make an appropriate cash adjustment. However, in respect of any holder, the Sellers shall only be required to make such a cash adjustment once and for one Warrant and no more. The amount of the cash adjustment with respect to the Common Share shall be equal to the fraction of the Common Share to which the holder would be entitled multiplied by the Weighted Average Price. 5.7 Subscription for Less than Entitlement: A Warrantholder may subscribe -------------------------------------- for a number of Common Shares less than the number which the Warrantholder is entitled to purchase pursuant to the surrendered Warrant, in which event the Warrantholder shall be entitled to receive (except after the Expiry Date) a new Warrant Certificate evidencing the balance of the Common Shares which the Warrantholder was entitled to subscribe for pursuant to the surrendered Warrant and which were not then so subscribed for. ARTICLE 6 NON-REDEMPTION -------------- 6.1 Non-Redemption of Warrants: The Warrants shall not be redeemable by the -------------------------- Sellers. Any Warrants not exercised on or before the Expiry Time shall be void and of no value. - 25 - ARTICLE 7 MEETINGS OF WARRANTHOLDERS -------------------------- 7.1 Convening of Meeting: At any time a meeting of Warrantholders may be -------------------- convened by the Agent or the Corporation or by the holders of Warrants holding not less than twenty-five percent (25%) of the aggregate number of Warrants then outstanding, who shall serve the Agent with a requisition signed by such holders and the Agent shall then be bound to convene a meeting of Warrantholders. In the event that the Agent fails to convene the meeting after being duly required to do so, the holders of the then outstanding Warrants representing no less than twenty-five percent (25%) of the aggregate number of Warrants then outstanding may themselves convene a meeting, the notice of which shall be signed by any person as such Warrantholders may specify, provided that every such meeting shall be held at the City of Toronto or such other place as the Agent may approve and the Agent and the Sellers shall receive notice of such meeting, as provided in Section 7.2. If a meeting is convened by the Warrantholders, the Agent will be funded and indemnified against all costs, charges, expenses and liabilities by the Warrantholders. If a meeting is convened by the Sellers, the Agent will be indemnified against all costs, charges, expenses and liabilities by the Sellers. 7.2 Notice: At least fifteen (15) days' prior notice of a meeting of ------ Warrantholders shall be given to all Warrantholders, the Agent, the Underwriter and the Sellers and the notice shall state the time, place and in general terms the nature of the business to be transacted but it shall not be necessary to specify the text of the resolutions to be considered. It shall not be necessary to specify the nature of business to be transacted at an adjourned meeting. 7.3 Chairman: The chairman of the meeting of Warrantholders may be -------- designated in writing by the Agent and need not be a Warrantholder. If no person is so designated or if the person so designated is not present within thirty (30) minutes after the time fixed for the holding of a meeting, the Warrantholders and proxyholders for Warrantholders present at the meeting shall choose one of their number to be the chairman. 7.4 Quorum: A quorum consists of those Warrantholders, whether present or ------ represented by proxy, holding not less than twenty-five percent (25%) of the aggregate number of Warrants then outstanding. If at a meeting, a quorum is not present or represented by proxy within thirty (30) minutes after the time appointed for the meeting, then the meeting, if called by or upon the requisition of Warrantholders shall be dissolved, but in any other case after the appointment of a chairman, the meeting shall stand adjourned to such day being not less than five (5) Business Days later and to such place and time as may be appointed by the chairman of the meeting. At the adjourned meeting, those persons present in person and owning Warrants or representing by proxy Warrantholders shall, in any event, constitute a quorum for the transaction of business for which the original meeting was convened. - 26 - 7.5 Show of Hands: Subject to Section 7.6, every question submitted to a ------------- meeting, except one requiring an Extraordinary Resolution, shall be decided in the first instance by a majority of hands on a show of hands, the outcome of which will be declared by the chairman. 7.6 Poll: A poll shall be taken when requested by a Warrantholder acting in ---- person or by proxy and, when demanded on the election of a chairman or on the question of adjournment, it shall be taken forthwith. If demanded on any other question or on an Extraordinary Resolution, a poll shall be taken in such manner and either at once or after an adjournment as the chairman may direct. The result of a poll shall be the decision of the meeting at which the poll was demanded. On a poll vote, each Warrantholder acting in person or by proxy shall have one vote for each Warrant which he holds or represents. Votes may be given in person or by proxy and the proxyholder need not be a Warrantholder. The chairman of any meeting shall be entitled to vote in respect of any Warrants and proxies held by him. 7.7 Regulations: (1) The Agent, or the Sellers with the approval of the ----------- Agent, may from time to time make and from time to time vary such regulations not contrary to the provisions of this Indenture as it shall think fit providing for and governing: (a) the setting of the record date for a meeting for the purpose of determining Warrantholders entitled to receive notice of and to vote at a meeting; (b) voting by proxy, the form of instrument appointing proxyholders, the manner in which proxies are to be executed and the production of the authority of any persons signing on behalf of a Warrantholder; (c) the lodging of and means of forwarding the instruments appointing proxyholders and the time before the holding of a meeting or adjourned meeting by which the instruments appointing proxyholders are to be deposited; and (d) any other matter relating to the conduct of meetings of Warrantholders. (2) Any regulations so made shall be binding and effective and votes given in accordance therewith shall be valid. The Agent may require Warrantholders to provide proof of ownership of the Warrants in such manner as the Agent may approve. Save as aforesaid, the only persons who shall be recognized at any meeting as Warrantholders or entitled to vote or, except as provided in Section 7.12, be present at the meeting in respect thereof shall be persons who hold Warrants or are duly appointed proxyholders for registered holders of Warrants. 7.8 Minutes: Minutes of all resolutions passed and proceedings taken at ------- every meeting as aforesaid shall be made and duly entered in books to be from time to time provided for that purpose by the Agent at the expense of the Corporation and any such minutes as aforesaid, if signed by the chairman of the meeting at which such resolutions were passed or proceedings taken, or by the chairman of the next succeeding meeting of Warrantholders, shall be prima facie evidence of the matters therein stated and until the contrary is proved, every such meeting in respect of the - 27 - proceedings of which minutes shall have been made shall be deemed to have been duly held and convened and all resolutions passed thereat or proceedings taken to have been duly passed and taken. 7.9 Powers Exercisable by Extraordinary Resolution: (1) In addition to all ---------------------------------------------- other powers conferred upon the Special Warrantholders by any other provision of this Indenture or by law, the Warrantholders shall have the power, in addition to any other powers exercisable by Extraordinary Resolution that may be enumerated herein, from time to time by Extraordinary Resolution: (a) to agree to or sanction any modification, abrogation, alteration or compromise of the rights of the Warrantholders or the Agent in its capacity as agent (subject to the Agent's prior written approval) hereunder or on behalf of Warrantholders against the Corporation which shall be agreed to by the Sellers whether such rights arise under this Indenture or under the Warrants or otherwise; (b) to assent to any change in or omission from the provisions contained in the Warrants and this Indenture or any ancillary or supplemental instrument which may be agreed to by the Sellers and to authorize the Agent to concur in and execute any ancillary or supplemental agreement embodying the change or omission; (c) with the consent of the Sellers, to remove the Agent or its successor in office and to appoint a new agent or agents to take the place of the Agent so removed; (d) upon the Agent being furnished with funding and an indemnity, as it may in its discretion determine, to require, direct or authorize the Agent to enforce any of the covenants on the part of the Sellers contained in this Indenture or the Warrants or to enforce any of the rights of the Warrantholders in any manner specified in such Extraordinary Resolution or to refrain from enforcing any such covenant or right; (e) to restrain any Warrantholder from instituting or continuing any suit or proceedings against the Sellers for the enforcement of the covenants on the part of the Sellers contained in this Indenture or any of the rights conferred upon the Warrantholders by the Warrants and this Indenture; (f) to direct any Warrantholder who, as such, has brought any suit, action or proceeding to stay or discontinue or otherwise deal with the same upon payment of the costs, charges and expenses reasonably and properly incurred by such Warrantholder in connection therewith; (g) to waive and direct the Agent to waive any default on the part of the Sellers in complying with any of the provisions of this Indenture or the Warrants either unconditionally or upon any conditions specified in such Extraordinary Resolution; - 28 - (h) to assent to any compromise or arrangement with any creditor or creditors or any class or classes of creditors, whether secured or unsecured, and with holders of any shares or other securities of the Sellers; and (i) to amend, alter or repeal any Extraordinary Resolution previously passed or sanctioned by the Warrantholders. (2) An Extraordinary Resolution of the Warrantholders is binding upon all the Warrantholders whether present or not present at the meeting at which the Extraordinary Resolution was passed or whether or not assented to in writing and each Warrantholder, the Agent and the Sellers shall be bound to give effect to the Extraordinary Resolution to the extent that the Extraordinary Resolution applies to such party. 7.10 Meaning of "Extraordinary Resolution": (1) The expression ------------------------------------- "Extraordinary Resolution" when used in this Indenture means a resolution proposed to be passed as an extraordinary resolution at a meeting of Warrantholders duly convened for the purpose and held in accordance with the provisions of this Article 7 and attended by Warrantholders holding not less than twenty-five percent (25%) of the Warrants outstanding and passed by not less than sixty-six and two-thirds percent (66 2/3%) of the votes cast upon such resolution. (2) If, at any meeting called for the purpose of passing an Extraordinary Resolution, Warrantholders holding at least twenty-five percent (25%) of the then outstanding Warrants are not present in person or by proxy within thirty (30) minutes after the time appointed for the meeting, then the meeting if convened by Warrantholders or on a Warrantholder's request, shall be dissolved; but in any other case it shall be adjourned to such day, being not less than fifteen (15) or more than sixty (60) days later, and to such place and time as may be appointed by the chairman. Not less than ten (10) days' prior notice shall be given of the time and place of such adjourned meeting. Such notice shall state that at the adjourned meeting the Warrantholders present in person or by proxy shall form a quorum but it shall not be necessary to set forth the purposes for which the meeting was originally convened or any other particulars. At the adjourned meeting the Warrantholders present in person or by proxy shall form a quorum and may transact the business for which the meeting was originally convened and a resolution proposed at such adjourned meeting and passed by the requisite vote as provided in subsection of this Section 7.10 shall be an Extraordinary Resolution within the meaning of this Indenture notwithstanding that Warrantholders holding at least twenty-five percent (25%) of the Warrants outstanding are not present in person or by proxy at such adjourned meeting. (3) All actions that may be taken and all powers that may be exercised by the Warrantholders at a meeting as hereinbefore in this Article provided may also be taken and exercised by holders of not less than sixty-six and two-thirds percent (66 2/3%) of the aggregate number of Warrants then outstanding by an instrument in writing signed in one or more counterparts by such holders and the expression "Extraordinary Resolution" when used in this Indenture shall include an instrument so signed. - 29 - 7.11 Powers Cumulative: It is hereby declared and agreed that any one or ----------------- more of the powers or any combination of the powers in this Indenture stated to be exercisable by the Warrantholders by Extraordinary Resolution or otherwise may be exercised from time to time and the exercise of any one or more of such powers or any combination of powers from time to time shall not be deemed to exhaust the right of the Warrantholders to exercise the same or any other such power or powers or combination of powers then or thereafter from time to time. 7.12 Sellers, Underwriters, Warrantholders and Agent May be Represented: ------------------------------------------------------------------ The Sellers, the Underwriter and the Agent, by their respective employees, officers and directors, and the legal and financial advisors and auditors of the Corporation and the Agent may attend any meeting of the Warrantholders, but they shall have no vote as such. In addition, any Warrantholder is entitled to have his legal or financial advisers present at any such meeting, but they shall have no vote as such. 7.13 Binding Effect of Resolutions: Every resolution and every ----------------------------- Extraordinary Resolution passed in accordance with the provisions of this Article 7 at a meeting of Warrantholders shall be binding upon all the Warrantholders, whether present at or absent from such meeting, and every Extraordinary Resolution signed by Warrantholders in accordance with Section 7.10(3) shall be binding upon all the Warrantholders, whether signatories thereto or not and each and every Warrantholder and the Agent (subject to the provisions for indemnity herein contained) shall be bound to give effect accordingly to every such resolution and Extraordinary Resolution. In the case of an Extraordinary Resolution in writing, the Agent shall give notice in the manner contemplated in Article 10 of the effect of the Extraordinary Resolution in writing to all Warrantholders and the Sellers as soon as it is reasonably practicable. 7.14 Holdings by the Sellers or Subsidiaries of the Sellers Disregarded: In ------------------------------------------------------------------ determining whether Warrantholders holding a sufficient number of Warrants are present at a meeting of Warrantholders for the purpose of determining a quorum or have concurred in any consent, waiver, resolution, Extraordinary Resolution or other action under this Indenture, Warrants owned legally or beneficially by the Sellers or any subsidiary of the Sellers shall be disregarded. The Sellers shall provide to the Agent upon request a Certificate of the Sellers the exact registrations of any warrants owned legally or beneficially by the Sellers or any subsidiary of the Sellers. ARTICLE 8 SUPPLEMENTAL INDENTURES, MERGER, SUCCESSORS ------------------------------------------- 8.1 Provision for Supplemental Indentures for Certain Purposes: From time ----------------------------------------------------------- to time the Sellers (when authorized) and the Agent may, subject to the provisions of these presents, and they shall, when so required by any provision of this Indenture (other than this Section 8.1), execute and deliver by their proper officers, deeds, agreements or instruments supplemental hereto, which thereafter shall form part hereof, for any one or more of the following purposes: (a) adding to the provisions hereof such additional covenants and enforcement provisions as, in the opinion of counsel, are necessary or advisable in the premises, - 30 - provided that the same are not, in the opinion of the Agent based on the advice of its counsel, prejudicial to the interests of the Warrantholders; (b) giving effect to any Extraordinary Resolution passed as provided in Article 7; (c) making such provisions not inconsistent with this Indenture as may be necessary or desirable with respect to matters or questions arising hereunder or for the purpose of obtaining a listing or quotation of the Warrants or the Common Shares issuable upon the exercise thereof on any stock exchange, provided that such provisions are not, in the opinion of the Agent based on the advice of its counsel, prejudicial to the interests of the Warrantholders; (d) making any modification in the form of the Warrant Certificate which does not affect the substance of the Warrants; (e) evidencing any succession, or successive successions, of other bodies corporate to the Sellers and the assumption by any successor of the covenants of the Sellers herein and in the Warrant Certificates contained as provided hereafter in this Article 8; and (f) for any other purpose not inconsistent with the terms of this Indenture, including the correction or rectification of any ambiguities, defective provisions, errors or omissions herein, provided that, in the opinion of the Agent based on the advice of its counsel, the rights of the Agent and of the Warrantholders are in no way prejudiced thereby. 8.2 Sellers May Consolidate, etc. on Certain Terms: Subject to Subsection ---------------------------------------------- 4.1(d), nothing in this Indenture shall prevent any consolidation, reorganization, arrangement, amalgamation or merger of any of the Sellers with or into any other body corporate, or bodies corporate, or person, or a conveyance or transfer of all or substantially all the properties and assets of any of the Sellers as an entirety to any body corporate or person lawfully entitled to acquire and operate the same, provided, however, that the body corporate or person formed by such consolidation or amalgamation or arrangement or into which such merger shall have been made or the person which acquires by conveyance or transfer all or substantially all the properties and assets of such Seller as an entirety shall execute and deliver to the Agent prior to or contemporaneously with such consolidation, reorganization, amalgamation, arrangement, merger, conveyance or transfer, and as a condition precedent thereto an agreement supplemental hereto wherein the due and punctual performance and observance of all the covenants and conditions of this Indenture to be performed or observed by such Seller shall be assumed by such body corporate or person on terms and conditions not adverse to the Warrantholders. The Agent shall be entitled to receive and shall be fully protected in relying upon opinions of counsel and such other advisors as it deems necessary, that any such consolidation, reorganization, amalgamation, arrangement, merger, conveyance or transfer and any supplemental agreement executed in connection therewith, complies with the provisions of this Section 8.2. - 31 - 8.3 Successor Body Corporate Substituted: In case any of the Sellers, ------------------------------------ pursuant to Section 8.2, shall be consolidated, amalgamated, reorganized, arranged or merged with or into any other body corporate, bodies corporate or person or shall convey or transfer all or substantially all of the properties and any of the assets of the Sellers as an entirety to another body corporate or person, the successor body corporate or person formed by such consolidation, reorganization, arrangement or amalgamation of any of the Sellers or into which the Sellers shall have been merged or which shall have received a conveyance or transfer as aforesaid shall succeed to and be substituted for such Seller hereunder with the same effect as nearly as may be possible as if it had been named herein as the party of the First Part. Such changes may be made in the Warrants as may be appropriate in view of such consolidation, reorganization, amalgamation, merger, conveyance or transfer and as may be necessary to ensure that the Warrantholders are not adversely affected by such consolidation, reorganization, amalgamation, merger, conveyance or transfer. Such changes may be made in the Special Warrants as may be appropriate in view of such consolidation, reorganization, amalgamation, merger, conveyance or transfer and as may be necessary to ensure that the Special Warrantholders are not adversely affected by such consolidation, organization, amalgamation, merger, conveyance or transfer. 8.4 Amendments for Listing: Notwithstanding any of the terms of this ---------------------- Indenture to the contrary, the Agent and the Sellers shall make such amendments to the provisions of this Indenture as in the opinion of counsel would not prejudice the interests of Warrantholders and would be required to comply with any and all requirements of the stock exchanges or quotation system on which the Common Shares may be listed in order for the Common Shares to be listed or quoted for trading on such stock exchange or quoted for trading on such quotation system. The Agent and the Corporation shall execute and deliver by their proper officers all deeds, agreements or instruments supplemental hereto for the foregoing purpose which are required in the opinion of counsel and thereafter shall form part hereof. For greater certainty, no resolution, approval or meeting of Warrantholders will be required for the Agent and the Sellers to amend or supplement this Indenture as provided in this Section 8.4. ARTICLE 9 CONCERNING THE AGENT -------------------- 9.1 Trust Indenture Legislation: --------------------------- (a) In this Article, the term "Applicable Legislation" means the provisions of any statute of Canada or a province thereof and of regulations under any such named or other statute relating to trust indentures and/or to the rights, duties and obligations of warrant agents and of corporations under trust indentures, to the extent that such provisions are at the time in force and applicable to this Indenture. (b) If and to the extent that any provision of this Indenture limits, qualifies or conflicts with a mandatory requirement of Applicable Legislation, such mandatory requirement shall prevail. - 32 - (c) Each of the Sellers and the Agent agree that each will at all times in relation to this Indenture and any action to be taken hereunder observe and comply with and be entitled to the benefit of Applicable Legislation. 9.2 Rights and Duties of Agent: -------------------------- (a) In the exercise of the rights and duties prescribed or conferred by the terms of this Indenture, the Agent shall act honestly and in good faith with a view to the best interests of the Warrantholders as a group and shall exercise the degree of care, diligence and skill that a reasonably prudent warrant Agent would exercise in comparable circumstances. No provision of this Indenture shall be construed to relieve the Agent from or require any other person to indemnify the Agent against liability for its own negligence, wilful misconduct or bad faith. (b) Subject only to subsection (a) of this Section 9.2, the Agent shall not be bound to do or take any act, action or proceeding for the enforcement of any of the obligations of the Sellers under this Indenture unless and until it shall have received a request in writing signed by a Warrantholder (a "Warrantholders' Request") specifying the act, action or proceeding which the Agent is requested to take. The obligation of the Agent to commence or continue any act, action or proceeding for the purpose of enforcing any rights of the Agent or the Warrantholders hereunder shall be conditional upon the Warrantholders furnishing, when required by notice in writing by the Agent, sufficient funds to commence or continue such act, action or proceeding and an indemnity reasonably satisfactory to the Agent and its officers, directors, employees and agents to protect and hold harmless the Agent and its officers, directors, employees and agents against the costs, charges, expenses and liabilities to be incurred thereby and any loss and damage it may suffer by reason thereof. None of the provisions contained in this Indenture shall require the Agent to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties or in the exercise of any of its rights or powers unless indemnified and funded as aforesaid. (c) The Agent may, before commencing or at any time during the continuance of any such act, action or proceeding, require the Warrantholders at whose instance it is acting to deposit with the Agent the Warrants held by them, for which Warrants the Agent shall issue receipts. (d) Every provision of this Indenture that by its terms relieves the Agent of liability or entitles it to rely upon any evidence submitted to it is subject to the provisions of Applicable Legislation, and to the provisions of this Section 9.2 and of Section 9.3. (e) The Agent shall retain the right not to act and shall not be held liable for refusing to act unless it has received clear and reasonable documentation which complies with the terms of this Indenture. Such documentation must not require the exercise of any discretion or independent judgment. In the event that the Agent refuses to act because any documentation received by it is not clear and reasonable, the Agent shall immediately provide notice to the - 33 - party who provided such documentation advising such party of the Agent's refusal to act together with a brief explanation of the reason for its refusal. (f) In the event of any disagreement arising regarding the terms of this Indenture, the Agent shall be entitled, at its option, to refuse to comply with any or all demands whatsoever until the dispute is settled either by agreement amongst the various parties or by a court of competent jurisdiction. (g) The Agent shall not be bound to give any notice or do or take any act, action or proceeding by virtue of the powers conferred on it hereby unless and until it shall have been required so to do under the terms hereof; nor shall the Agent be required to take notice of any default hereunder, unless and until notified in writing of such default, which notice shall distinctly specify such default and in the absence of any such notice the Agent may for all purposes of this Indenture conclusively assume that no default has been made in the observance or performance of any of the representations, warranties, covenants, agreements or conditions contained herein. Any such notice shall in no way limit any discretion herein given to the Agent to determine whether or not the Agent shall take action with respect to any default. - 34 - 9.3 Evidence, Experts and Advisers: ------------------------------ (a) In addition to the reports, certificates, opinions and other evidence required by this Indenture, the Sellers shall furnish to the Agent such additional evidence of compliance with any provision hereof in such form as may be prescribed by Applicable Legislation, or as the Agent may reasonably require by written notice to the Sellers. (b) In the exercise of its rights and duties hereunder, the Agent may, if it is acting in good faith, rely as to the truth of the statements and the accuracy of the opinions expressed therein, upon statutory declarations, opinions, reports, written requests, consents, orders of the Sellers, certificates of the Sellers or other evidence furnished to the Agent, provided that such evidence complies with Applicable Legislation. (c) Whenever Applicable Legislation requires that evidence referred to in subsection (a) of this Section 9.3 be in the form of a statutory declaration, the Agent may accept such statutory declaration in lieu of a certificate of the Sellers required by any provision hereof. Any such statutory declaration may be made by one or more of the chairman, president, vice-president, secretary or treasurer of the Sellers. (d) The Agent may act and rely and shall be protected in acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, letter, telegram, cablegram or other paper or document believed by it to be genuine and to have been signed, sent, or presented by or on behalf of the proper party or parties. (e) Proof of the execution of an instrument in writing, including a Warrantholders' Request, by any Warrantholder may be made by the certificate of a notary public, or other officer with similar powers, that the person signing such instrument acknowledged to him the execution thereof, or by an affidavit of a witness to such execution or in any other manner which the Agent may consider adequate and in respect of a corporate Warrantholder shall include a certificate of incumbency of such Warrantholder together with a certified copy of a resolution authorizing the person who signed such instrument to sign such instrument. (f) The Agent may employ or retain such counsel, accountants or other experts or advisers as it may reasonably require for the purpose of determining and discharging its duties hereunder, may act on and rely upon the advice or opinion so obtained and may pay reasonable remuneration for all services so performed by any of them, without taxation of costs of any counsel, and shall not be responsible for any misconduct on the part of any of them. The cost of such service shall be added to and be part of the Agent=s fees hereunder. - 35 - 9.4 Documents, Monies, etc. Held by Agent: -------------------------------------- Any securities, documents of title or other instruments that may at any time be held by the Agent subject to the trusts hereof may be placed in the deposit vaults of the Agent or of any Canadian chartered bank or trust company or deposited for safekeeping with any such bank or trust company. 9.5 Action by Agent to Protect Interests: ------------------------------------- Subject to the provisions of this Indenture and Applicable Legislation, the Agent shall have the power to institute and to maintain such action and proceedings as it may consider necessary or expedient to preserve, protect or enforce its interests and the interests of the Warrantholders. 9.6 Agent Not Required to Give Security: ----------------------------------- The Agent shall not be required to give any bond or security in respect of the execution of the trusts and powers of this Indenture or otherwise. 9.7 Protection of Agent: -------------------- By way of supplement to the provisions of any law for the time being relating to warrant agents, it is expressly declared and agreed as follows: (a) The Agent shall not be liable for or by reason of any statements of fact or recitals in this Indenture or in the Warrants (except the representation contained in Sections 9.9 and 9.12 or in the certificate of the Agent on the Warrants) or be required to verify the same. (b) Nothing herein contained shall impose any obligation on the Agent to see to or to require evidence of the registration or filing (or renewal thereof) of this Indenture or any instrument ancillary or supplemental hereto. (c) The Agent shall not be bound to give notice to any person of the execution hereof. (d) The Agent shall not incur any liability or responsibility whatsoever or be in any way responsible for the consequence of any breach on the part of the Sellers of any of the covenants herein contained or of any acts of any directors, officers, employees, agents or servants of the Sellers. (e) The Sellers hereby jointly and severally indemnify and save harmless the Agent and its officers, directors, employees and agents from and against any and all liabilities, losses, costs, claims, action or demands whatsoever which may be brought against the Agent or which it may suffer or incur as a result or arising out of the performance of its duties and obligations under this Indenture, save only in the event of negligence or wilful misconduct of the Agent or any of its officers, directors, employees or agents. It is understood and agreed that this indemnification shall survive the termination of this Indenture or the resignation of the Agent. - 36 - 9.8 Replacement of Agent: --------------------- (a) The Agent may resign its trust and be discharged from all further duties and liabilities hereunder by giving to the Sellers not less than 45 days' prior notice in writing or such shorter prior notice as the Sellers may accept as sufficient. The Warrantholders by extraordinary resolution shall have the power at any time to remove the existing Agent and to appoint a new warrant agent. In the event of the Agent resigning or being removed as aforesaid or being dissolved, becoming bankrupt, going into liquidation or otherwise becoming incapable of acting hereunder, the Sellers shall forthwith appoint a new warrant agent unless a new warrant agent has already been appointed by the Warrantholders; failing such appointment by the Sellers, the retiring Agent or any Warrantholder may apply to a justice of the Ontario Court of Justice (General Division) at the Seller's expense, on such notice as such justice may direct, for the appointment of a new warrant agent; but any new warrant Agent so appointed by the Seller or by the Court shall be subject to removal as aforesaid by the Warrantholders. Any new warrant agent appointed under any provision of this Section 9.8 shall be a corporation authorized to carry on the business of a trust company in the Province of Ontario and, if required by Applicable Legislation of any other province, in such other province. On any such appointment the new warrant agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as Agent without any further assurance, conveyance, act or deed; but there shall be immediately executed, at the expense of the Sellers, all such conveyances or other instruments as may, in the opinion of counsel, be necessary or advisable for the purpose of assuring the same to the new warrant agent, provided that any resignation or removal of the Agent and appointment of a successor warrant Agent shall not become effective until the successor warrant agent shall have executed an appropriate instrument accepting such appointment and, at the request of the Sellers, the predecessor Agent, upon payment of its outstanding remuneration and expenses, shall execute and deliver to the successor warrant agent an appropriate instrument transferring to such successor warrant agent all rights and powers of the Agent hereunder and all securities, documents of title and other instruments, and all monies and properties, held by the Agent hereunder. (b) Upon the appointment of a successor warrant agent, the Sellers shall promptly notify the Warrantholders thereof in the manner provided for in Section 10.2. (c) Any corporation into or with which the Agent may be merged or consolidated or amalgamated, or any corporation succeeding to the trust business of the Agent, shall be the successor to the Agent hereunder without any further act on its part or of any of the parties hereto, provided that such corporation would be eligible for appointment as a new warrant agent under subsection (a) of this Section 9.8. (d) Any Warrants certified but not delivered by a predecessor warrant agent may be certified by the successor warrant agent in the name of the predecessor or successor warrant agent. - 37 - 9.9 Conflict of Interest: -------------------- (a) The Agent represents to the Sellers that at the time of execution and delivery hereof no material conflict of interest exists in the Agent's role as a fiduciary hereunder and agrees that in the event of a material conflict of interest arising hereafter it will, within 90 days after ascertaining that it has such a material conflict of interest, either eliminate the same or resign its trust hereunder to a successor warrant agent approved by the Sellers. If any such material conflict of interest exists or hereafter shall exist, the validity and enforceability of this Indenture and the Warrants shall not be affected in any manner whatsoever by reason thereof. (b) Subject to subsection (a) of this Section 9.9, the Agent, in its personal or any other capacity, may buy, lend upon and deal in securities of the Corporation and generally may contract and enter into financial transactions with the Corporation or any subsidiary of the Corporation without being liable to account for any profit made thereby. 9.10 Acceptance of Trusts: -------------------- The Agent hereby accepts the trusts in this Indenture declared and provided for and agrees to perform the same upon the terms and conditions herein set forth. 9.11 Agent Not to be Appointed Receiver: ---------------------------------- The Agent and any person related to the Agent shall not be appointed a receiver or receiver and manager or liquidator of all or any part of the assets or undertaking of the Corporation. 9.12 Authorization to Carry on Business: ---------------------------------- The Agent represents to the Sellers that it is duly authorized and qualified to carry on the business of a trust company in each of the provinces of Canada. 9.13 Liability of Agent: ------------------- The Agent shall not be liable or accountable for any loss or damage whatsoever to any person caused by the performance or failure to perform by it of its responsibilities under this agreement save only to the extent that such loss or damage is attributable to the negligence, fraud or wilful misconduct of the Agent. ARTICLE 10 NOTICES ------- 10.1 Notice to Sellers: Unless and until the Sellers notify the Agent of a ----------------- change of address, any notice or communication required or permitted to be given to the Sellers under the provisions of this Indenture shall be valid and effective if delivered to the Sellers at 6725 Airport Road, Suite 201, Mississauga, Ontario, L4V 1V2, Attention: President, or sent by telecopier to telecopier number (905) 672-5705 (and a copy by regular mail) or other means of prepaid transmitted or recorded - 38 - communication to such address. Any notice to the Sellers as aforesaid shall be deemed to have been effectively given on the earlier of: (a) the date of delivery, if delivered during normal business hours of the Corporation (and, if not, on the next following Business Day); or (b) the Business Day immediately following the day of sending, if sent by telecopier (with receipt confirmed). 10.2 Notice to Warrantholders: Unless and until a Warrantholder notifies the ------------------------ Agent of a change of address, any notice or communication required or permitted to be given to a Warrantholder under the provisions of this Indenture shall be valid and effective if delivered to such holders at their post office addresses appearing on the register to be kept by the Agent or sent by telecopier (and a copy by regular mail) or other means of prepaid transmitted or recorded communication to such address, or subject to the provisions of Section 10.4, if mailed by prepaid first class mail addressed to such holders at their post office addresses appearing on the register to be kept by the Agent. Any notice to a Warrantholder as aforesaid shall be deemed to have been effectively given on the earlier of: (a) the date of delivery, if delivered during normal business hours (and, if not, on the next following Business Day); (b) the Business Day immediately following the day of sending, if sent by telecopier (with receipt confirmed); or (c) on the seventh (7th) Business Day after effectual posting in Canada. 10.3 Notice to Agent: (1) Unless and until the Agent is changed in --------------- accordance with the provisions of this Indenture or the Agent notifies the Sellers of a change of address, any notice or communication required or permitted to be given to the Agent under the provisions of this Indenture, except under Section 2.2, shall be valid and effective if delivered to the Agent at 320 Bay Street, Ground Floor, Toronto, Ontario M5H 4A6, or sent by telecopier to telecopier number (416) 643-5570 (and a copy by regular mail) or other means of prepaid transmitted or recorded communication to such address, or subject to the provisions of Section 10.4, if mailed by prepaid registered mail addressed to the Agent at 320 Bay Street, P.O. Box 1, Toronto, Ontario M5H 1A6. Any notice to the Agent as aforesaid shall be deemed to have been effectively given on the earlier of: (a) the date of delivery, if delivered during normal business hours of the Agent (and, if not, on the next following Business Day); (b) the Business Day immediately following the day of sending, if sent by telecopier (with receipt confirmed); or (c) on the fifth (5th) Business Day after effectual posting in Canada. - 39 - (2) Surrender of a Warrant Certificate and evidence relating thereto pursuant to Section 2.2 shall be valid and effective if delivered by hand or by courier to Special Projects, Securities Level, Commerce Court West, 199 Bay Street, Toronto, Ontario M5L 1G9 or if mailed by prepaid mail to P.O. Box 1036, Adelaide Postal Station, Toronto, Ontario M5C 2K4, and shall be deemed to have been effectively surrendered on the date of delivery, if delivered during normal business hours of the Agent (and, if not, on the next following Business Day) or, if mailed, on the fifth (5th) Business Day after effectual posting in Canada. 10.4 Mail Service Interruption: If by reason of strike, lockout or other ------------------------- work stoppage, actual or threatened, of postal employees, any notice to be given to the Agent or to the Sellers would be unreasonably delayed in reaching its destination, such notice shall be valid and effective only if delivered to an officer of the party to which it is addressed or if sent to such party, at the appropriate address in accordance with Sections 10.1 or 10.3, as the case may be, by cable, telegram, telecopier, telex or other means of prepaid transmitted or recorded communication. ARTICLE 11 POWER OF BOARD OF DIRECTORS --------------------------- 11.1 Board of Directors: In this Indenture, wherever the Sellers are ------------------ required or empowered to exercise any acts, all such acts may be exercised by the directors of the Sellers or by those officers of the Sellers authorized to exercise such acts. ARTICLE 12 FORMAL EXECUTION AND EFFECTIVE DATE ----------------------------------- 12.1 Suits by Warrantholders: (1) No Warrantholder shall have any right to ----------------------- institute any action, suit or proceeding at law or in equity for the purpose of enforcing the execution of any obligations or power hereunder or for the appointment of a liquidator or receiver or for a receiving order under the Bankruptcy and Insolvency Act (Canada) or to have any of the Sellers wound up or to file or prove a claim in any liquidation or bankruptcy proceedings or for any other remedy hereunder unless (i) the Warrantholders by Extraordinary Resolution shall have made a request to the Agent and the Agent shall have been afforded reasonable opportunity to proceed or complete any action or suit for any such purpose whether or not in its own name; (ii) the Warrantholders or any of them shall have furnished to the Agent, when so requested by the Agent, sufficient funds and security and indemnity satisfactory to it against the costs, expenses and liabilities to be incurred therein or thereby; and (iii) the Agent shall have failed to act within a reasonable time or where the Agent shall have failed to have actively pursued any such act or proceeding. (2) Subject to the provisions of this section 12.1 and Section 7.9, all or any of the rights conferred upon a Warrantholder by the terms of a Warrant may be enforced by such Warrantholder by appropriate legal proceedings without prejudice to the right which is hereby conferred upon the - 40 - Agent to proceed in its own name to enforce each and all of the provisions herein contained for the benefit of the Warrantholders from time to time. 12.2 Waiver of Default: (1) Upon the happening of any default hereunder, ----------------- the Agent shall have power to waive any default hereunder upon such terms and conditions as the Agent may deem advisable, if, in the Agent's opinion, the same shall have been cured or adequate provision made therefor. (2) Subject to the provisions of Section 7.9, no consent or waiver, express or implied, by either party to or of any breach or default by the other party in the performance by the other party of its obligations hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance of obligations hereunder by such party hereunder. Failure on the part of either party to complain of any act or failure to act of the other party or to declare the other party in default, irrespective of how long such failure continues, shall not constitute a waiver by such party of its rights hereunder. 12.3 Further Assurances: The parties hereto and each of them do hereby ------------------ covenant and agree to do such things and execute such further documents, agreements and assurances as may be necessary or advisable from time to time in order to carry out the terms and conditions of this Indenture in accordance with their true intent. 12.4 Severability: If any term, covenant or condition of this Indenture or ------------ the application thereof to any party or circumstance shall be invalid or unenforceable to any extent, the remainder of this Indenture or application of such term, covenant or condition to a party or circumstance other than those to which it is held invalid or unenforceable shall not be affected thereby and each remaining term, covenant or condition of this Indenture shall be valid and shall be enforceable to the fullest extent permitted by law. 12.5 Satisfaction and Discharge of Indenture: Upon the later of the date --------------------------------------- when the Common Shares have been delivered to Warrantholders who have exercised Warrants to the full extent of the rights attached to all Warrants theretofore certified hereunder and the Expiry Date, this Indenture shall cease to be of further effect and the Agent, on demand of and at the cost and expense of the Agent and upon delivery to the Agent of a certificate of the Sellers stating that all conditions precedent to the satisfaction and discharge of this Indenture have been complied with and upon payment to the Agent of all outstanding fees, the parties hereto shall execute proper instruments acknowledging satisfaction of and discharging this Indenture. 12.6 Formal Date and Execution Date: For the purpose of convenience this ------------------------------- Indenture may be referred to as bearing the formal date of November 30, 1998 which shall be the date on which this Indenture shall become effective between the parties hereto, irrespective of the actual date of execution hereof. - 41 - 12.7 Counterparts: This Indenture may be executed in one or more ------------ counterparts, each of which so executed shall be deemed to be an original and such counterparts together shall constitute one and the same instrument. 12.8 Enurement: This Indenture shall benefit and bind the parties to it and --------- their respective successors and assigns. IN WITNESS WHEREOF the parties hereto have executed this Indenture as of the 30th day of November, 1998. BID.COM INTERNATIONAL INC. Per: ---------------------------------- 1184041 ONTARIO INC. Per: ---------------------------------- SMYTHE GROUP COMPANY Per: ---------------------------------- CIBC MELLON TRUST COMPANY Per: ---------------------------------- Per: ---------------------------------- CP Doc #: 117738-2 30 November 1998 SCHEDULE "A" WARRANT CERTIFICATE THE WARRANTS REPRESENTED BY THIS CERTIFICATE WILL BE VOID AND OF NO VALUE UNLESS EXERCISED AT OR PRIOR TO 5:00 P.M., (TORONTO TIME) ON THE DATE WHICH IS THE EARLIER (I) TEN (10) BUSINESS DAYS FOLLOWING THE DATE UPON WHICH THE CORPORATION DELIVERS A NOTICE TO ALL HOLDERS CONFIRMING THAT IT HAS FILED A PRELIMINARY PROSPECTUS OR REGISTRATION STATEMENT IN CONNECTION WITH A PUBLIC OFFERING IN THE UNITED STATES OF AMERICA OF AT LEAST $7,000,000 AND (II) ON DECEMBER 31, 1999. BID.COM INTERNATIONAL INC. (the "Corporation") (Constituted pursuant to the laws of the Province of Ontario) WARRANT CERTIFICATE NO. _______ _________ WARRANTS THIS IS TO CERTIFY that____________________________________________(the "holder") is entitled to subscribe for, in the manner herein provided, subject to adjustment in certain events and to the restrictions contained herein, at any time and from time to time on or prior to 5:00 p.m. (Toronto Time) on the date which is the earlier of (i) ten (10) business days following the date upon which the Corporation delivers a notice (the "U.S. Offering Notice") to all holders confirming that it has filed a preliminary prospectus or registration statement in connection with a public offering in the United States of America of at least $7,000,000 (the "U.S. Offering") and (ii) 5:00 p.m. (Toronto time) on December 31, 1999 (the "Expiry Time"), one Common Share in the capital of the Corporation for each whole Warrant represented hereby at a price per share equal to $1.75, subject to adjustment in certain events. Such right to subscribe for Common Shares in the capital of the Corporation may only be exercised by the registered holder hereof within the time hereinbefore set out by: (a) duly completing in the manner indicated and executing the Exercise Form attached hereto; and (b) surrendering to CIBC Mellon Trust Company ("Agent") as hereinafter set forth this Warrant Certificate evidencing a minimum of one Warrant together with payment by certified cheque or bank draft payable to or to the order of the Corporation for each Common Share subscribed for, subject to adjustment in the manner set forth in the Indenture. This Warrant Certificate shall be validly exercised only upon delivery thereof or by mailing the same to the Agent at its Stock and Bond Transfer Department in its principal stock transfer offices in the City of Toronto (at the address hereinafter indicated). The Exercise Form attached hereto shall not be deemed to be duly completed if the name and mailing address of the holder do not appear legibly on such Exercise Form or such Exercise Form is not signed by the holder. The Warrants represented by this certificate are issued under and pursuant to a Warrant Indenture (the "Indenture") made as of November 30, 1998 among the Corporation, 1184041 Ontario Inc. and Smythe Group Company (collectively "the Sellers") and the Agent (which expression shall include any successor agent appointed under the Indenture), to which Indenture (and any amendments thereto and instruments supplemental thereto) reference is hereby made for a full description of the rights of the holders of the Warrants and the terms and conditions upon - 2 - which such Warrants are, or are to be, issued and held, all to the same effect as if the provisions of the Indenture and all amendments thereto and instruments supplemental thereto were herein set forth and to all of which provisions the holder of these Warrants by acceptance hereof assents. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture. Notwithstanding the delivery of a U.S. Offering Notice, the U.S. Offering may not proceed to completion for a variety of reasons, including, without limitation, the state of the financial markets and the demand for the Corporation=s securities at the relevant time. Accordingly the delivery of the U.S. Offering Notice shall not constitute or be deemed to constitute a guarantee or assurance by the Sellers that the U.S. Offering will be completed and, in determining whether or not to exercise their Warrants, holders are advised to carefully consider the possibility that the U.S. Offering ultimately may not proceed. Upon due exercise of the Warrants as provided herein, the person or persons in whose name or names the Common Shares are issuable, shall be deemed for all purposes (except as provided in the Indenture hereinafter referred to) to be the holder or holders of record of such Common Shares and the Sellers covenant that they will (subject to and in accordance with the provisions of the aforesaid Indenture) cause a certificate or certificates representing such Common Shares to be delivered or mailed to such person or persons at the address or addresses specified in such Exercise Form. The holder of this Warrant Certificate may exercise any lesser number of Common Shares than the aggregate number of Warrants evidenced by this Warrant Certificate and, in such event, shall be entitled to receive, without charge, a new Warrant Certificate representing the balance of the Warrants held by such holder not then exercised. No fractional Common Shares will be issued. To the extent that the holder of a Warrant is entitled to receive on the exercise or partial exercise thereof a fraction of a Common Share, such right may only be exercised in respect of such fraction in combination with another Warrant or other Warrants which in the aggregate entitle the holder to receive a whole number of Common Shares. If a holder is not able to, or elects not to, combine Warrants so as to be entitled to acquire a whole number of Common Shares, the Sellers shall make an appropriate cash adjustment. However, in respect of any holder, the Sellers shall only be required to make such a cash adjustment once and for one Warrant and no more. The amount of the cash adjustment with respect to the Common Shares shall be equal to the fraction of the Common Share to which the holder would be entitled multiplied by the Weighted Average Price (as defined in the Warrant Indenture (as hereinafter defined)). In the event of any conflict or inconsistency between the provisions of the Indenture (and any amendments thereto and instruments supplemental thereto) and the provisions of this Warrant Certificate, except those that are necessary by context, the provisions of the Indenture (and any amendments thereto and instruments supplemental thereto) shall prevail. The terms and provisions of the Indenture (and any amendments thereto and instruments supplemental thereto) are incorporated herein by reference. The holding of the Warrants evidenced by this Warrant Certificate shall not constitute the holder hereof a shareholder of the Corporation or entitle such holder to any right or interest in respect thereof except as herein and in the Indenture expressly provided. The Warrants evidenced by this Warrant Certificate are not transferable except as set forth in Section 2.2 of the Indenture which makes reference to the fact that a person who furnishes evidence to the reasonable satisfaction of the Agent that he is: (a) a Warrantholder; - 3 - (b) an executor, administrator, heir or legal representative of the heirs of the estate of a deceased registered holder hereof, (c) a guardian, committee, trustee, curator or tutor representing a registered holder who is an infant, an incompetent person or a missing person, (d) a liquidator of, or a trustee in bankruptcy for, a holder hereof, or (e) a transferee of a Warrantholder, may, as set forth in the Indenture, by surrendering such evidence together with the Warrant Certificate in question to the Agent and subject to such reasonable requirements with respect to the payment by the holder of the costs associated with the transfer as the Agent may prescribe and all applicable securities legislation and requirements of regulatory authorities, become noted upon the register of Warrantholders. If any of the Common Shares in respect of which the Warrants are exercised are to be issued to a person or persons other than the holder (as aforesaid), the holder shall pay to the Agent all requisite stamp transfer taxes or other governmental charges exigible in connection with the issue of such Common Shares to such other person or persons or shall establish to the satisfaction of the Agent that such taxes and charges have been paid or are not exigible. This Warrant Certificate shall not be valid for any purpose whatever unless and until it has been countersigned by or on behalf of the Agent. Time shall be of the essence hereof. The Warrants and the Indenture (and any amendments thereto and instruments supplemental thereto) shall be governed by, performed, construed and enforced in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein and shall be treated in all respects as Ontario contracts. In the event that the Warrants represented by the within certificate are acquired prior to the date on which the Corporation obtains a receipt for a (final) prospectus qualifying the distribution of the Warrants from the securities regulatory authority in the jurisdiction in which the Warrantholder is resident, the Warrants and the Common Shares underlying them may be subject to statutory hold periods during which these securities may not be resold in such provinces except pursuant to an applicable exemption from the prospectus and registration requirements of applicable securities legislation. IN WITNESS WHEREOF the Sellers have caused this Warrant Certificate to be signed by their respective duly authorized officers as of November 30, 1998 BID.COM INTERNATIONAL INC. Per: ---------------------------------- 1184041 ONTARIO INC. Per: ---------------------------------- - 4 - SMYTHE GROUP COMPANY Per: ---------------------------------- Countersigned CIBC MELLON TRUST COMPANY Per: ---------------------------------- - 5 - EXERCISE INSTRUCTIONS TO WARRANTHOLDER The registered holder hereof may exercise his right to subscribe for Common Shares of BID.COM INTERNATIONAL INC. (the "Corporation") by completing the Exercise Form and surrendering this Warrant Certificate (evidencing a minimum of one Warrant) and the appropriate amount per Common Share subscribed for by way of certified cheque or recognized bank draft payable to or to the order of the Corporation and the duly completed Exercise Form to CIBC Mellon Trust Company by delivering or mailing it to CIBC Mellon Trust Company at its principal stock transfer offices in the City of Toronto at its Stock and Bond Transfer Department as follows: In the City of Toronto: P.O. Box 1036 Adelaide Street Postal Station Toronto, Ontario M5C 2K4 If by hand or courier: Special Projects Securities Level Commerce Court West 199 Bay Street Toronto, Ontario M5L 1G9 If not exercised at or prior to the Expiry Time, the Warrants evidenced by this Certificate will be cancelled and become absolutely void. For your own protection, it would be prudent to forward all documentation to the Agent by registered mail. Subject to adjustment in certain events as described in the Indenture, the maximum number of Common Shares which you may acquire is one Common Share for every whole Warrant set out on the face of this Warrant Certificate (provided that the required subscription proceeds are paid for each one Common Share) unless you are otherwise notified by the Corporation. - 6 - EXERCISE FORM TO: BID.COM INTERNATIONAL INC. The undersigned hereby exercises the right to subscribe for _________ Common Shares in the capital of BID.COM INTERNATIONAL INC. (or such number of other securities or property to which such Warrants entitle the undersigned in lieu thereof or in addition thereto under the provisions of the Indenture mentioned in the within Warrant Certificate) at a price per share of $1.75 (subject to adjustment in certain events) according to the terms of the Indenture mentioned in the within Warrant Certificate and encloses the necessary subscription monies per Common Share, by way of certified cheque or bank draft (or the adjusted dollar amount per share at which the undersigned is entitled to purchase such shares or other securities or property under the provisions of the Indenture). If any of the Common Shares are to be issued to a person or persons other than the holder in those circumstances as set forth in the within Warrant Certificate, the holder must pay to CIBC Mellon Trust Company all requisite stamp or security transfer taxes or other governmental charges related thereto. Such Common Shares should be delivered to the following address in the name of the person(s) listed below. (Print clearly) Name: Address in Full: Number of Warrants Exercised: Number of Common Shares Subscribed for (equal to the Number of Warrants Exercised rounded down to the nearest whole number of shares): Total Amount of Subscription Funds Enclosed: DATED this day of , 19 . ------------------- Signature of Warrantholder ------------------- Name of Warrantholder (As registered on Warrant Certificate) ------------------- ------------------- ------------------- Print Full Address - 7 - TRANSFER FORM FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto (Please print or typewrite name and address of assignee) ____________________________ Warrant(s) represented by the within certificate, and do(es) hereby irrevocably constitute and appoint___________________________ ____________________________ the attorney of the undersigned to transfer the said Warrant(s) on the register of Warrants maintained by the Agent with full power of substitution hereunder. DATED this ________ day of _______________ , 199__. ------------------- Signature of Warrantholder - ------------------- ------------------- Signature Guarantee Name of Warrantholder (please print) The signature of the Warrantholder to this assignment must correspond exactly with the name of the Warrantholder as set forth on the face of this Warrant certificate in every particular, without alteration or enlargement or any change whatsoever and the signature must be guaranteed by a Canadian chartered bank or by a trust company or by a member firm of any Canadian stock exchange, any of whose signature must be on file with the Agent. - 1 - ARTICLE 1 INTERPRETATION............................................................. - 2 - 1.1 Definitions........................................................... - 2 - 1.2 Entire Indenture...................................................... - 5 - 1.3 Headings.............................................................. - 5 - 1.4 Extending Meanings.................................................... - 5 - 1.5 References............................................................ - 5 - 1.6 Business Day.......................................................... - 5 - 1.7 Meaning of "Outstanding":............................................. - 5 - 1.8 Time.................................................................. - 5 - 1.9 Choice of Language.................................................... - 6 - 1.10 Applicable Law:....................................................... - 6 - ARTICLE 2 ISSUE AND PURCHASE OF WARRANTS............................................. - 6 - 2.1 Form and Terms of Warrants:........................................... - 6 - 2.2 Transfer and Ownership of Warrants: (1)............................... - 6 - 2.3 Warrantholders not Shareholders:...................................... - 8 - 2.4 Signing of Warrants:.................................................. - 8 - 2.5 Countersigning:....................................................... - 8 - 2.6 Loss, Mutilation, Destruction or Theft of Warrants:................... - 8 - 2.7 Issue of Warrants:.................................................... - 9 - 2.8 Warrants to Rank Pari Passu:.......................................... - 9 - 2.9 Exchange of Warrants:................................................. - 9 - 2.10 Recognition of Registered Holder:..................................... - 9 - ARTICLE 3 COVENANTS OF THE SELLERS.................................................. - 10 - 3.1 Covenants of the Sellers:............................................ - 10 - 3.2 Securities Qualification Requirements:............................... - 11 - 3.3 Deposit of Common Shares Underlying Secondary Warrants:.............. - 12 - ARTICLE 4 ADJUSTMENT TO SUBSCRIPTION RIGHTS......................................... - 13 - 4.1 Adjustment to Subscription Rights:................................... - 13 - 4.2 Adjustment of Purchase Price:........................................ - 17 - 4.3 Adjustment Rules:.................................................... - 18 - 4.4 Proceedings Prior to any Action Requiring Adjustment:................ - 20 - 4.5 Certificate of Adjustment:........................................... - 20 - 4.6 Notice of Special Matters:........................................... - 21 - 4.7 No Action after Notice:.............................................. - 21 - 4.8 Protection of Agent:................................................. - 21 - ARTICLE 5 EXERCISE AND CANCELLATION OF WARRANTS..................................... - 22 - 5.1 Exercise of Warrants:................................................ - 22 - 5.2 Effect of Exercise of Warrants....................................... - 23 - 5.3 Postponement of Delivery of Certificates:............................ - 24 - 5.4 Cancellation of Warrants:............................................ - 24 - 5.5 Warrants Void after Expiry Time:..................................... - 24 - 5.6 Fractions of Common Shares:.......................................... - 24 - 5.7 Subscription for Less than Entitlement:.............................. - 24 - ARTICLE 6 NON-REDEMPTION............................................................ - 25 -
- 2 - 6.1 Non-Redemption of Warrants:.......................................... - 25 - ARTICLE 7 MEETINGS OF WARRANTHOLDERS................................................ - 25 - 7.1 Convening of Meeting:................................................ - 25 - 7.2 Notice:.............................................................. - 25 - 7.3 Chairman:............................................................ - 25 - 7.4 Quorum:.............................................................. - 25 - 7.5 Show of Hands:....................................................... - 26 - 7.6 Poll:................................................................ - 26 - 7.7 Regulations:......................................................... - 26 - 7.8 Minutes:............................................................. - 27 - 7.9 Powers Exercisable by Extraordinary Resolution:...................... - 27 - 7.10 Meaning of "Extraordinary Resolution":............................... - 28 - 7.11 Powers Cumulative:................................................... - 29 - 7.12 Sellers, Underwriters, Warrantholders and Agent May be Represented:.. - 29 - 7.13 Binding Effect of Resolutions:....................................... - 29 - 7.14 Holdings by the Sellers or Subsidiaries of the Sellers Disregarded:.. - 29 - ARTICLE 8 SUPPLEMENTAL INDENTURES, MERGER, SUCCESSORS............................... - 30 - 8.1 Provision for Supplemental Indentures for Certain Purposes:.......... - 30 - 8.2 Sellers May Consolidate, etc. on Certain Terms:...................... - 30 - 8.3 Successor Body Corporate Substituted:................................ - 31 - 8.4 Amendments for Listing:.............................................. - 31 - ARTICLE 9 CONCERNING THE AGENT...................................................... - 32 - 9.1 Trust Indenture Legislation:......................................... - 32 - 9.2 Rights and Duties of Agent:.......................................... - 32 - 9.3 Evidence, Experts and Advisers:...................................... - 34 - 9.4 Documents, Monies, etc. Held by Agent:.............................. - 35 - 9.5 Action by Agent to Protect Interests:............................... - 35 - 9.6 Agent Not Required to Give Security:................................. - 35 - 9.7 Protection of Agent:................................................ - 35 - 9.8 Replacement of Agent:............................................... - 36 - 9.9 Conflict of Interest:................................................ - 37 - 9.10 Acceptance of Trusts:................................................ - 37 - 9.11 Agent Not to be Appointed Receiver:.................................. - 37 - 9.12 Authorization to Carry on Business:.................................. - 37 - 9.13 Liability of Agent:................................................. - 37 - ARTICLE 10 NOTICES................................................................... - 38 - 10.1 Notice to Sellers:................................................... - 38 - 10.2 Notice to Warrantholders:............................................ - 38 - 10.3 Notice to Agent:..................................................... - 38 - 10.4 Mail Service Interruption:........................................... - 39 - ARTICLE 11 POWER OF BOARD OF DIRECTORS............................................... - 39 - 11.1 Board of Directors:.................................................. - 39 -
- 3 - ARTICLE 12 FORMAL EXECUTION AND EFFECTIVE DATE....................................... - 40 - 12.1 Suits by Warrantholders:............................................. - 40 - 12.2 Waiver of Default.................................................... - 40 - 12.3 Further Assurances:.................................................. - 40 - 12.4 Severability:........................................................ - 41 - 12.5 Satisfaction and Discharge of Indenture.............................. - 41 - 12.6 Formal Date and Execution Date:...................................... - 41 - 12.7 Counterparts:........................................................ - 41 - 12.8 Enurement:........................................................... - 41 -
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